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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
APPLIEDTHEORY CORPORATION,
APPLIEDTHEORY COLORADO ACQUISITION CORPORATION,
XXXXX INTERACTIVE, INC.,
and
THE SHAREHOLDERS OF XXXXX INTERACTIVE, INC.
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NOVEMBER 7, 2000
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TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER........................................................................... 1
1.1. The Merger....................................................................... 1
1.2. Closing; Effective Time.......................................................... 1
1.3. Effect on Capital Stock.......................................................... 2
1.4. Escrow of Parent Common Stock; Adjustment to Merger Consideration................ 4
1.5. Final Determination of Merger Consideration, Exchange Ratio, and Company Value... 5
1.6. Performance Incentive Payment.................................................... 5
1.7. Registration Rights.............................................................. 5
1.8. Shares of Dissenting Stockholders................................................ 5
1.9. Merger Sub Common Stock.......................................................... 6
1.10. Articles of Incorporation and By-Laws............................................ 6
1.11. Directors and Officers........................................................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY STOCKHOLDERS.......................... 6
2.1. Authority; Execution and Delivery................................................ 7
2.2. No Other Agreements to Sell the Company Stock or the Business of the Company..... 7
2.3. Ownership of Company Stock....................................................... 7
2.4. Validity of Contemplated Transactions............................................ 7
2.5. Consents and Approvals........................................................... 7
2.6. Accounts and Notes Receivable, etc............................................... 8
2.7. Related Parties.................................................................. 8
2.8. Litigation....................................................................... 8
2.9. Authority; Execution and Delivery................................................ 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY
STOCKHOLDERS REGARDING THE COMPANY................................................. 10
3.1. Organization..................................................................... 10
3.2. Capitalization; Subsidiaries..................................................... 11
3.3. Authorization; Binding Agreement................................................. 11
3.4. Noncontravention................................................................. 12
3.5. Governmental Approvals........................................................... 12
3.6. Financial Statements............................................................. 13
3.7. No Undisclosed Liabilities....................................................... 13
3.8. Validity of Leases and Contracts................................................. 13
3.9. Absence of Certain Changes or Events............................................. 14
3.10. Litigation, Judgments, No Default, Etc.......................................... 16
3.11. Compliance...................................................................... 16
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3.12. Accounts Receivable; Equipment and Assets....................................... 16
3.13. Tax Matters..................................................................... 17
3.14. Employee Benefit Plans.......................................................... 19
3.15. Finders and Investment Bankers.................................................. 21
3.16. Collective Bargaining Agreements; Employment Matters............................ 21
3.17. Insurance....................................................................... 21
3.18. No Conflict of Interest......................................................... 21
3.19. Intellectual Property........................................................... 22
3.20. Compliance with Laws............................................................ 24
3.21. Licenses and Permits............................................................ 24
3.22. Copies of Documents............................................................. 24
3.23. No Existing Discussions......................................................... 25
3.24. Year 2000....................................................................... 25
3.25. Disclosure...................................................................... 25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............................. 25
4.1. Organization..................................................................... 25
4.2. Capitalization................................................................... 26
4.3. Authorization; Binding Agreement................................................. 26
4.4. Noncontravention................................................................. 27
4.5. SEC Filings; Financial Statements................................................ 27
4.6. Governmental Approvals........................................................... 28
ARTICLE V COVENANTS 28
5.1. Conduct of Business of the Company............................................... 28
5.2. Conduct of Business of Parent and Merger Sub..................................... 30
5.3. Closing Financial Statements..................................................... 31
5.4. Access and Information........................................................... 31
5.5. No Solicitation.................................................................. 32
5.6. Reasonable Efforts............................................................... 32
5.7. Changes in Representation and Warranties; Notification of Certain Matters........ 33
5.8. Takeover Statutes................................................................ 33
5.9. Non-Disclosure; Public Announcements............................................. 33
5.10. Lock-up......................................................................... 34
5.11. Taxes........................................................................... 34
ARTICLE VI CONDITIONS.......................................................................... 35
6.1. Conditions to Each Party's Obligations........................................... 35
6.2. Conditions to Obligation of Parent and Merger Sub................................ 35
6.3. Conditions to Obligation of the Company.......................................... 37
6.4. Frustration of Closing Conditions................................................ 38
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ARTICLE VII NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC......................... 38
7.1. Survival of Representations, Warranties, Etc..................................... 38
7.2. Company Stockholders Agreement to Indemnify...................................... 38
7.3. Procedures Relating to Indemnification........................................... 40
ARTICLE VIII TERMINATION....................................................................... 41
8.1. Termination...................................................................... 41
8.2. Procedure for and Effect of Termination.......................................... 42
ARTICLE IX MISCELLANEOUS....................................................................... 42
9.1. Certain Definitions.............................................................. 42
9.2. Amendment and Modification....................................................... 43
9.3. Waiver of Compliance; Consents................................................... 43
9.4. Restrictive Legend............................................................... 44
9.5. Notices.......................................................................... 44
9.6. Assignment....................................................................... 45
9.7. Expenses......................................................................... 46
9.8. Gender; Plurals, etc............................................................. 46
9.9. Governing Law.................................................................... 46
9.10. Counterparts.................................................................... 46
9.11. Interpretation.................................................................. 46
9.12. Entire Agreement................................................................ 46
9.13. No Third Party Beneficiaries.................................................... 46
9.14. Severability.................................................................... 46
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 7, 2000 (the
"Agreement"), by and among AppliedTheory Corporation, a Delaware corporation
("Parent"), AppliedTheory Colorado Acquisition Corporation, a Colorado
corporation and a wholly-owned subsidiary of Parent ("Merger Sub"), Xxxxx
Interactive, Inc., a Colorado corporation (the "Company") and the Stockholders
of the Company listed in Section 3.2 of the Disclosure Schedule (as defined in
Article II) (the "Company Stockholders").
WHEREAS, the Company Stockholders and the respective boards of
directors of each of Parent, Merger Sub and the Company have determined that the
merger of Merger Sub with and into the Company (the "Merger") on the terms and
conditions contained herein and in accordance with the Colorado Business
Corporations Act (the "Corporation Act") is advisable and have approved the
Merger;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended;
WHEREAS, Merger Sub was created solely for the purpose of effecting the
Merger and will conduct no other activity; and
WHEREAS, the Company Stockholders, Parent, Merger Sub and the Company
desire to make certain representations, warranties, covenants and agreements in
connection with this Agreement and to prescribe certain conditions to the
Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.2) and in accordance
with the Corporation Act, Merger Sub shall be merged with and into the Company
and the separate corporate existence of Merger Sub shall thereupon cease. The
Company shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation") and will be a wholly-owned
subsidiary of Parent. The Merger shall have the effects specified herein and in
the Corporation Act.
1.2. Closing; Effective Time. Subject to the provisions of Article VI,
the closing of the Merger (the "Closing") shall take place in New York City at
the offices of the Company, as soon as practicable but in no event later than
10:00 a.m. New York City time on the second business day after the earliest date
on which each of the conditions set forth in Article VI (other than conditions
that are satisfied by the delivery
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of documents or the payment of money at or prior to the Closing) have been
satisfied or waived by the party or parties entitled to the benefit of such
conditions, or at such other date, time and place as Parent and the Company
shall mutually agree. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date." At the Closing, Merger Sub and
the Company shall cause the articles of merger (a "Articles of Merger") to be
executed and filed with the Secretary of State of the State of Colorado in
accordance with Section 0-000-000 of the Corporation Act. The Merger shall
become effective as of the date and time of such filing or as of such subsequent
date and time as Parent and the Company shall agree to and shall be set forth in
the Articles of Merger (the "Effective Time").
1.3. Effect on Capital Stock.
(a) At the Effective Time, each share of common stock, Class
A, $0.001 par value per share, of the Company and each share of common stock,
Class B, $0.001 par value per share, of the Company (together, the "Company
Stock") issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares [as defined in Section 1.9] and Parent Shares [as defined
in Section 1.3(d)]) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive approximately
0.3479 (the "Exchange Ratio") shares of common stock, par value $.01 per share,
of Parent ("Parent Common Stock") (the aggregate number of shares of Parent
Common Stock into which the outstanding Company Stock is convertible shall be
423,677 shares of Parent Common Stock and shall be referred to as the "Merger
Consideration"); provided, that pursuant to Section 1.3(e), no fractional share
of Parent Common Stock shall be delivered hereunder; further provided that the
aggregate number of shares of Parent Common Stock into which the Company Stock
is convertible shall be reduced by a number of shares (all of which shall be
deducted from the number of shares of Parent Common Stock into which the shares
of Company Stock owned by Xxxxx Xxxxx would otherwise be convertible), equal to
(a) the excess of the amount of loans owed by Xxxxx Xxxxx to the Company over
the amount of loans owed by the Company to him, divided by (b) $8.00.
(b) Subject to Section 1.4 hereof, following the Effective
Time, the Merger Consideration shall be delivered to those parties who are
holders of Company Stock (the "Selling Stockholders") immediately prior to the
Effective Time in exchange for certificates representing all outstanding shares
of Company Stock and any other outstanding ownership interests in the Company
(other than the Company Options [as defined in Section 1.3(c)]). The Company
Stockholders acknowledge and agree that the Parent Common Stock delivered to the
holders of Company Stock hereunder shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and that the sale or other
disposition of such Parent Common Stock shall be subject to the restrictions
arising under Rule 144 of the Securities Act until a registration statement
shall have been filed for the purposes of registering such Parent Common Stock
under the Securities Act. As of the Effective Time, all shares of Company Stock
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist. If, between the date of this Agreement and the
Effective Time, the shares of Parent Common Stock shall be changed into a
different number or class of shares by reason of a stock
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split, stock dividend, reverse stock split, reclassification, recapitalization
or other similar transaction, the Merger Consideration shall be adjusted
accordingly.
(c) Sections 1.3(c) and 3.2 of the Disclosure Schedule (as
defined in Article II) contain a true, accurate and correct list, as of the date
hereof and the Effective Time, setting forth the number of shares of Company
Stock that are subject to all outstanding options to purchase Company Stock (the
"Company Options"), whether or not vested, and identifying the holder of each
Company Option, the number of shares of Company Stock subject to the Company
Options held by such holder, whether or not such option is an incentive stock
option, the date upon which each Company Option was granted, the vesting
schedule and each stock option agreement evidencing the grant of such Company
Options (a "Company Option Agreement"). At the Effective Time, all Company
Options, whether or not exercisable and whether or not vested, shall, by virtue
of the Merger and without any further action on the part of the Company or the
holder thereof, be converted into an option to purchase Parent Common Stock, and
Parent shall assume each such Company Option in accordance with the terms (as in
effect as of the date of this Agreement) of the Company Option Plan (as defined
in Section 3.2(a)) and the terms of the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each Company Option assumed by
Parent may be exercised by the holder thereof solely for Parent Common Stock,
(ii) the number of shares of Parent Common Stock subject to each such Company
Option (the "Option Conversion Ratio") shall be equal to the product of (a) the
number of shares of Company Stock subject to such Company Option immediately
prior to the Effective Time multiplied by (b) the Exchange Ratio, rounding down
to the nearest whole share, (iii) the per share exercise price under each such
Company Option (the "Option Conversion Price") shall be adjusted by dividing (x)
the per share exercise price under such Company Option by (y) the Exchange Ratio
and rounding up to the nearest cent and (iv) except as expressly provided for in
this Agreement and the Company Option Agreement with each particular holder of
the Company Options, any restriction on the exercise or transfer of any such
Company Option shall continue in full force and effect in accordance with its
terms and the term, exercisability, vesting schedule and other provisions of or
relating to such Company Option shall otherwise remain unchanged; provided,
however, that each Company Option assumed by Parent in accordance with this
Section 1.3(c) shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend, reverse
stock split, reclassification, recapitalization or other similar transaction
subsequent to the Effective Time.
Prior to the Effective Time, the Company shall take all action that may
be necessary (including amending the Company Option Plan) to effectuate the
provisions of this Section 1.3(c) and to ensure that, from and after the
Effective Time, holders of Company Options have no rights with respect thereto
other than those specifically provided in this Section 1.3(c).
(d) Each share of Company Stock held in the Company's treasury
immediately prior to the Effective Time, if any, and each share of Company Stock
then owned by Parent, Merger Sub or any other wholly-owned subsidiary of Parent,
other than any such shares held on behalf of third parties, if any
(collectively, the
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"Parent Shares"), shall, by virtue of the Merger, be automatically cancelled and
retired and shall cease to exist and no consideration shall be delivered in
exchange therefor.
(e) No fractional shares of Parent Common Stock shall be
issued pursuant hereto. In lieu of the issuance of any fractional share of
Parent Common Stock, cash adjustments will be paid to holders in respect of any
fractional share of Parent Common Stock that would otherwise be issuable, and
the amount of such cash adjustment shall be equal to the product obtained by
multiplying such stockholder's fractional share of Parent Common Stock that
would otherwise be payable by the per share value of Parent Common Stock
determined as set forth in Section 1.4 herein.
(f) Each of Parent, Merger Sub and the Company shall be
entitled to deduct and withhold from the Merger Consideration (and any dividends
or distributions thereon) otherwise payable hereunder to any person such amounts
as it is required to deduct and withhold with respect to the making of such
payment under any provision of federal, state, local or foreign income tax law.
To the extent that Parent, Merger Sub or the Company so withholds those amounts,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of Company Stock in respect of which such
deduction and withholding was made by Parent, Merger Sub or the Company, as the
case may be.
The parties intend this transaction to constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
1.4. Escrow of Parent Common Stock; Adjustment to Merger Consideration.
The parties hereto agree that, at the Closing, a portion of the Parent Common
Stock delivered to the holders of Company Stock as Merger Consideration
representing 15% of the Merger Consideration (the "Escrow Fund") shall be
deducted from the shares of Parent Common Stock deliverable to the Company
Stockholders and shall be held by Xxxxx Fargo Bank Texas, N.A. ("Escrow Agent"),
subject to an escrow agreement (the "Escrow Agreement") by and among Escrow
Agent and the Company Stockholders prior to Closing. A form of the Escrow
Agreement is attached hereto as Exhibit A. The parties hereto acknowledge and
agree that Escrow Agent shall hold the Escrow Fund pursuant to the Escrow
Agreement. The Company Stockholders further acknowledge and agree that they
shall (in the aggregate, jointly and severally) be responsible for up to one
half of any administration and other fees charged by the Escrow Agent. The
Escrow Fund shall be subject to the Escrow Agreement (with such changes therein
as Parent, Company Stockholders and Escrow Agent shall reasonably approve prior
to the Closing); provided, that as further described in the Escrow Agreement,
during the term of the Escrow Agreement, the Company Stockholders shall be
deemed the owners of and shall have voting power over all Parent Common Stock in
the Escrow Fund; provided, further, that any dividends or other distributions
with respect to Parent Common Stock that are made in the form of cash or any
other form of property, except for ownership rights in Parent or any of its
Subsidiaries (as defined in Section 9.1), shall be distributed to the Company
Stockholders; provided, further, that any dividends or other distributions with
respect to Parent Common Stock that are made in the form of
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capital stock or of any other form of ownership interest in Parent shall remain
in the Escrow Fund until the end of the term of the Escrow Agreement. As further
provided in the Escrow Agreement, if during the term of the Escrow Agreement
Parent shall suffer a Loss (as defined in Section 7.2) hereof, Parent shall be
entitled to receive for its own account payment out of the Escrow Fund of that
number of shares of Parent Common Stock, valued at the lesser of (i) $8.00 per
share or (ii) the average closing price of the Parent Common Stock as quoted on
the Nasdaq National Market System for the 30 trading days ending 5 days prior to
the Closing Date, as is required to reimburse Parent for such Loss and satisfy
Parent's right to indemnification under Section 7.2; provided, however, that any
Losses described in subsection 7.2(a)(v) that are suffered by Parent shall be
paid by the Company Stockholders, jointly and severally, in cash and not in
shares of Parent Common Stock from the Escrow Fund. Any claims for payment in
respect of Losses which are made by Parent under Section 7.2 hereof during the
period between the Closing and the two-year anniversary of the Closing (the
"Escrow Release Date") shall be satisfied out of the Escrow Fund unless and
until the Escrow Fund shall be depleted, in which case Parent shall be entitled
to payment directly from the Company Stockholders in satisfaction of any Losses;
provided, that Parent's right to payment for Losses is in all cases, in addition
to and not in substitution of any other rights or remedies available to Parent
under this Agreement, any other agreement in respect of the transactions
contemplated by this Agreement, or by operation of law or in equity, including
the right to specific performance or injunctive relief. On the Escrow Release
Date, any shares of Parent Common Stock remaining in the Escrow Fund shall be
released to the Company Stockholders, subject to the provisions of the Escrow
Agreement. If there is any inconsistency between the terms of the Escrow
Agreement and this Agreement regarding the Escrow Fund, the terms of the Escrow
Agreement shall control.
1.5. Registration Rights. The Parent Common Stock to be delivered to
the Company Stockholders as Merger Consideration shall have the benefit of a
registration rights agreement between Parent and the Company Stockholders who
execute such agreement with Parent in the form attached hereto as Exhibit B (the
"Registration Rights Agreement").
1.6. Shares of Dissenting Stockholders.
(a) Notwithstanding anything in this Agreement to the
contrary, any shares of Company Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a stockholder who
has properly exercised and perfected his appraisal rights under Article 7-113 of
the Corporation Act ("Dissenting Shares") shall not be converted into or
exchangeable for the right to receive the Merger Consideration but shall entitle
the holder thereof to receive payment therefor as shall be determined pursuant
to Article 7-113 of the Corporation Act.
(b) If such holder shall have failed to perfect or shall have
effectively withdrawn or lost his right to payment of fair value under the
Corporation Act, then as of the Effective Time, each share of Company Stock of
such holder shall thereupon be deemed to have been converted into and to have
become exchangeable for
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the right to receive the shares of Parent Common Stock without any interest
thereon, in accordance with Section 1.3 hereof, and such shares shall no longer
be Dissenting Shares.
(c) The Company shall give the Parent (i) prompt notice of its
receipt of any written demands for dissenters' rights for any shares of Company
Stock, withdrawals of such demands, and any other instruments relating to the
Merger served pursuant to Article 7-113 of the Corporation Act and received by
the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for dissenters' rights under the Corporation
Act. The Company shall not, except with the prior written consent of the Parent
or as may be required under applicable law, voluntarily make any payment with
respect to any demands for dissenters' rights for Company Stock or offer to
settle or settle any such demands.
1.7. Merger Sub Common Stock. Each share of Merger Sub Common Stock (as
defined in Section 4.2(b)) issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of common stock of the
Surviving Corporation.
1.8. Articles of Incorporation and By-Laws. At the Effective Time, (i)
the articles of incorporation of the Surviving Corporation shall be amended and
restated in their entirety to read as the articles of incorporation of Merger
Sub in effect immediately prior to the Effective Time, except that such articles
of incorporation shall provide that the name of the corporation be AppliedTheory
Colorado Corporation, and (ii) the by-laws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the by-laws of the Surviving
Corporation until thereafter amended in accordance with applicable law, except
that such by-laws shall provide that the name of the corporation be
AppliedTheory Colorado Corporation.
1.9. Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
and the officers of the Company and of the Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, each to hold
office in accordance with the articles of incorporation and by-laws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
STOCKHOLDERS
Except as disclosed in writing in the disclosure schedules being
delivered at or prior to the execution of this Agreement (the "Disclosure
Schedule"), which schedules shall identify the specific sections or subsections
in this Agreement to which each such disclosure relates, the Company
Stockholders hereby represent and warrant to Parent and Merger Sub as follows:
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2.1. Authority; Execution and Delivery. The Company Stockholders have
the power, capacity and authority to enter into this Agreement and the other
agreements contemplated hereby and to perform fully their obligations hereunder
and thereunder. This Agreement and the other agreements contemplated hereby have
been duly executed and delivered by the Company Stockholders and constitute the
legal, valid and binding obligations of the Company Stockholders, enforceable
against the Company Stockholders in accordance with their terms, except as the
enforcement hereof (or thereof) may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general or
by general principles of equity.
2.2. No Other Agreements to Sell the Company Stock or the Business of
the Company. Except as provided for in this Agreement, the Company Stockholders
have no obligation, absolute or contingent, to any other person to (i) sell
their Company Stock, (ii) sell any assets of the Company (other than sales of
inventory in the ordinary course of the Company's business), (iii) issue, sell
or otherwise transfer any capital stock or any security convertible into or
exchangeable for capital stock of the Company, (iv) effect any merger,
consolidation or other reorganization of the Company or (v) enter into any
agreement with respect to any of the foregoing.
2.3. Ownership of Company Stock. The Company Stockholders are the
beneficial and record owners of the shares of Company Stock identified in
Section 3.2 of the Disclosure Schedule as being owned by each such Company
Stockholder and all such shares of Company Stock are, free and clear of any
liens of any nature whatsoever.
2.4. Validity of Contemplated Transactions. Subject to Sections 3.4 and
3.5 of this Agreement, the execution, delivery and performance of this Agreement
by each Company Stockholder does not and will not violate, conflict with or
result in the breach of any term, condition or provision of, or require the
consent of any other person under (a) any existing law, ordinance, or
governmental rule or regulation to which the Company Stockholder is subject, (b)
any judgment, order, writ, injunction, decree or award of any Governmental
Entity which is applicable to the Company Stockholder, or (c) any mortgage,
indenture, agreement, contract, commitment, lease, plan or other instrument,
document or understanding, oral or written, to which such Company Stockholder is
a party, by which the Company Stockholder may have rights or by which any of the
properties or assets of the Company Stockholder may be bound or affected, or
give any party with rights thereunder the right to terminate, modify, accelerate
or otherwise change the existing rights or obligations thereunder.
2.5. Consents and Approvals. Except for spousal consents, neither the
execution and delivery by the Company Stockholders of this Agreement or the
other agreements contemplated hereby, nor the performance of the transactions
contemplated hereby and thereby, require the consent or approval of any person
nor constitute (with or without notice or lapse of time or both) a default or
cause any payment obligation to arise under (a) any law or court order to which
the Company Stockholders are subject, (b) any Contract or other document to
which the Company Stockholders are a party or by which the properties or other
assets of the Company Stockholders may be subject.
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2.6. Accounts and Notes Receivable, etc. Except as set forth on Section
2.6 of the Disclosure Schedule, there are no outstanding Company receivables
from or advances to the Company Stockholders. There is no contest, claim,
counterclaim, defense or right of set-off with respect to any amounts owing from
the Company Stockholders to the Company.
2.7. Related Parties. None of the Company Stockholders holds, or has
held, directly or indirectly, any interest that corresponds to, or is
convertible into, 1% or more of the outstanding equity interests of any entity
that conducts or has conducted business, or any entity that is or has been a
party to an agreement, with the Company.
2.8. Litigation. There is no action, claim, suit or proceeding pending
or, to the knowledge of the Company Stockholders, threatened by or against or
affecting the Company Stockholders or their Company Stock and, to the knowledge
of the Company Stockholders, there is no investigation pending or threatened
against or affecting the Company Stockholders or their Company Stock, in each
case before any court or governmental or regulatory authority or body, that
could reasonably be expected to have an adverse effect on the consummation of
the transactions contemplated by this Agreement. There are no writs, decrees,
injunctions or orders of any court or governmental or regulatory agency,
authority or body outstanding against such Stockholder with respect to his
Company Stock.
2.9. Authority; Execution and Delivery. The Company Stockholders have
all requisite power, capacity and authority to enter into this Agreement and to
perform fully their obligations hereunder. This Agreement has been duly executed
and delivered by the Company Stockholders and constitutes the legal, valid and
binding obligation of the Company Stockholders, enforceable against the Company
Stockholders in accordance with its terms, except as the enforcement hereof (or
thereof) may be limited by bankruptcy, insolvency, or other similar laws
affecting the enforcement of creditors' rights in general or by general
principles of equity.
2.10 Investment Representations.
(a) Access to Information. Each Company Stockholder
acknowledges that Parent has made available to such Company Stockholder the
opportunity to examine such additional documents from the Parent and to ask
questions of, and receive full answers from, the Parent concerning, among other
things, the Parent, its financial condition, its management, its prior
activities and any other information which such Company Stockholder considers
relevant or appropriate in connection with entering into this Agreement.
(b) Risks of Investment. Each Company Stockholder acknowledges
that the shares of Parent Common Stock to be issued as Merger Consideration have
not been registered under the Securities Act of 1933, as amended (the "Act").
Such Company Stockholder is familiar with the provisions of Rule 144 and
understands that in the event all of the applicable requirements of Rule 144 are
not
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satisfied, registration under the Act or some other exemption from the
registration requirements of the Act will be required in order to dispose of
such shares of Parent Common Stock, and that such Company Stockholder may be
required to hold such shares of Parent Common Stock, for a significant period of
time prior to reselling them. Such Company Stockholder is capable of assessing
the risks of an investment in such shares of Parent Common Stock and is fully
aware of the economic risks thereof.
(c) Investment Representation. Each Company Stockholder is
acquiring such shares of Parent Common Stock for his, her or its own account and
not with a view to distribution in violation of any securities laws. Such
Company Stockholder has no present intention to sell such shares of Parent
Common Stock in violation of federal or state securities laws and such Investor
has no present arrangement (whether or not legally binding) to sell such shares
of Parent Common Stock to or through any person or entity; provided, however,
that by making the representations herein, such Company Stockholder does not
agree to hold such shares of Parent Common Stock for any minimum or other
specific term and reserves the right to dispose of such shares of Parent Common
Stock at any time in accordance with federal and state securities laws
applicable to such disposition.
(d) Restricted Securities. Each Company Stockholder
acknowledges and understands that the terms of issuance have not been reviewed
by the SEC or by any state securities authorities and that the Securities have
been issued in reliance on the certain exemptions for non-public offerings under
the Act, which exemptions depend upon, among other things, the representations
made and information furnished by such Company Stockholder, including the bona
fide nature of such Company Stockholder's investment intent as expressed above.
(e) Ability to Bear Economic Risk. Such Company Stockholder
(i) is able to bear the economic risk of its investment in the Debentures, (ii)
is able to hold such shares of Parent Common Stock for an indefinite period of
time, (iii) can afford a complete loss of its investment in such shares of
Parent Common Stock and (iv) has adequate means of providing for his, her or its
current needs.
(f) No Public Solicitation. At no time was such Company
Stockholder presented with or solicited by any general mailing, leaflet, public
promotional meeting, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or general solicitation
in connection with the issuance of such shares of Parent Common Stock.
(g) Reliance by the Company. Such Company Stockholder
understands that such shares of Parent Common Stock are being issued in reliance
on a transactional exemptions from the registration requirements of federal and
state securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments and
understandings of such Company Stockholder set forth herein in order to
determine the applicability of such exemptions
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and the suitability of such Company Stockholder to acquire such shares of Parent
Common Stock
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
COMPANY STOCKHOLDERS REGARDING THE COMPANY
Except as disclosed in writing in the Disclosure Schedule, which
Disclosure Schedule shall identify the specific sections or subsections in this
Agreement to which each such disclosure relates, the Company and the Company
Stockholders hereby jointly and severally represent and warrant to Parent as
follows:
3.1. Organization. The Company is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and operate
its properties and to carry on its businesses as now being conducted. The
Company is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that, individually or in the aggregate, would not have a material
adverse effect on the business, financial condition or results of operations of
the Company (a "Company Material Adverse Effect"). Section 3.1 of the Disclosure
Schedule sets forth a list of jurisdictions in which the Company has been
involved in a limited number of transactions, however the Company is not
qualified to do business in any of these jurisdictions as the Company deemed it
would not have a Company Material Adverse Effect. The Company has previously
delivered to Parent true, correct and complete copies of the articles of
incorporation and by-laws (or equivalent governing instruments) and all
amendments thereto, as currently in effect, of the Company.
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3.2. Capitalization.
(a) The authorized capital stock of the Company consists of
5,000,000 shares of Class A Company Stock and 5,000,000 shares of Class B
Company Stock (the "Company Preferred Stock"). As of August 31, 2000, there were
1,010,000 shares of Class A Company Stock and 25,000 shares of Class B Company
Stock issued and outstanding. As of August 31 2000, options to acquire 116,950
shares of Class A Company Stock were outstanding pursuant to the terms of the
Company's 2000 Equity Incentive Stock Option Plan, all of which will be vested
at the Effective Time, and options to acquire 98,500 shares of Class B Company
Stock were outstanding pursuant to the terms of the Company's 1999 Stock Option
Plan, 38,502 of which will be vested at the Effective Time (such plans are
referred to together, the "Company Option Plans"), such options being described
on Section 3.2 of the Disclosure Schedule. Since such date, the Company has not
granted or otherwise promised or undertaken to grant any additional options or
other rights that are convertible into, or exercisable for, Company Stock or
other ownership rights of the Company, nor have the Company or the Company
Stockholders made representations that are convertible into, or exercisable for,
Company Stock or other ownership rights of the Company. All issued and
outstanding shares of Company Stock have been duly authorized and are validly
issued, fully paid, nonassessable and free of preemptive rights. Except as
described on Section 3.2 of the Disclosure Schedule, the Company does not have
outstanding any subscription, option, put, call, warrant or other right or
commitment to issue or any obligation or commitment to redeem or purchase, any
of its authorized capital stock or any securities convertible into or
exchangeable for any of its authorized capital stock. Except as disclosed on
Section 3.2 of the Disclosure Schedule, there are no shareholder agreements,
voting agreements, voting trusts or other similar arrangements to which the
Company is a party which have the effect of restricting or limiting the
transfer, voting or other rights associated with the capital stock of the
Company. Section 3.2 of the Disclosure Schedule contains a true, accurate and
correct shareholders' list, setting forth the number of shares of Company Stock
owned beneficially and of record by each stockholder of the Company as of the
date of this Agreement, and a list setting forth all outstanding options and
other rights convertible into, or exercisable for, Company Stock as well as all
holders thereof.
(b) The Company has no Subsidiaries (as defined in Section
9.1). The Company does not own, directly or indirectly, any equity interest in
any corporation, partnership, joint venture, business, trust or entity.
3.3. Authorization; Binding Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby. The execution and delivery of this
Agreement and all agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby have been unanimously approved by
the board of directors of the Company and duly and validly authorized by all
necessary corporate action on the part of the Company and, where applicable, the
Company Stockholders. This Agreement constitutes, and all agreements and
documents contemplated hereby to which the Company is, or will be, a party
constitute, legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective
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terms, except as such enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
3.4. Noncontravention. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the articles of
incorporation, as amended, or by-laws, as amended, of the Company, (b) except as
set forth on Section 3.4 of the Disclosure Schedule, require any consent,
approval or notice under or conflict with or result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, or
impair invalidate or otherwise affect, any of the terms, conditions or
provisions of any Real Property Lease (as defined in Section 3.8), Contract (as
defined in Section 3.8), Future Contract (as defined in Section 3.8),
Indebtedness (as defined in Section 3.8), any Company Property (as defined in
Section 3.19(b)) or other items or rights identified on Section 3.19(b) of the
Disclosure Schedule, or any other note, bond, mortgage, indenture, license,
agreement or other instrument or obligation (the "Other Agreements") to which
the Company is a party or by which it or any portion of its properties or assets
may be bound or (c) violate any order, judgment, writ, injunction,
determination, award, decree, law, statute, rule or regulation (collectively,
"Legal Requirements") applicable to the Company or any portion of its properties
or assets, except with respect to clauses (b) and (c) such matters that,
individually or in the aggregate, have not had and could not reasonably be
expected to have a Company Material Adverse Effect.
3.5. Governmental Approvals. No consent, approval or authorization of,
or declaration or filing, with any foreign, federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
(each, a "Governmental Entity") on the part of the Company that has not been
obtained or made is required in connection with the execution or delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby, other than (a) the filing of a Articles of Merger with the
Secretary of State of the State of Colorado, and (b) consents, approvals,
authorizations, declarations or filings that, if not obtained or made, would
not, individually or in the aggregate, have a Company Material Adverse Effect or
prevent the Company from consummating the transactions contemplated hereby.
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3.6. Financial Statements. Section 3.6 of the Disclosure Schedule sets
forth true, correct and complete copies of the unaudited balance sheets,
statements of income, statements of stockholders' equity and statements of cash
flows for the fiscal years ended December 31, 1998 and December 31, 1999,
unaudited balance sheets as of June 30, 2000 and August 31, 2000 and unaudited
statements of income, statements of stockholders' equity, and statements of cash
flows for the three-month period ending March 31, 2000, the three-month period
ending June 30, 2000 as well as for the two-month period ending August 31, 2000
(collectively, the "Company Financial Statements"). The Company Financial
Statements, including the related notes, have been prepared from and are in
accordance with the books and records of the Company and are true, complete and
accurate and fairly present in all material respects the financial position,
results of operations and changes in financial position of the Company as of the
dates and for the periods indicated (subject in the case of unaudited
statements, to normal year-end audit adjustments which would not be material in
amount or effect).
3.7. No Undisclosed Liabilities. Except as disclosed in Section 3.7 of
the Disclosure Schedule, the Company has no liabilities or obligations (whether
absolute, accrued, contingent or otherwise) which are not reflected in the
Company Financial Statements except for liabilities and obligations incurred in
the ordinary course of business since April 30, 2000, none of which,
individually or in the aggregate, have had or could reasonably be expected to
have a Company Material Adverse Effect.
3.8. Validity of Leases and Contracts. The Company owns no real
property. Section 3.8 of the Disclosure Schedule sets forth a list of every (a)
lease of real property and all other leased interests in real property that are
used by the Company (a "Real Property Lease"), (b) all material leases,
licenses, contracts, agreements, purchase or sales orders, employee secrecy or
confidentiality agreements, undertakings, indentures and written commitments to
which the Company is a party or by which any of the assets of the Company is
bound, including all ongoing agreements, licenses, written commitments or other
engagements and other instruments of any kind, including all agreements by any
person or entity with the Company with respect to non-competition or
non-disclosure that relate to the Company or any of its assets, but excluding
Company Plans (as defined in Section 3.14(a)) (individually a "Contract" or
collectively, the "Contracts"), (c) any written proposal, quotation or bid made
or received by the Company in connection with its business that, if accepted,
would lead to a contract for the provision of services by the Company
(individually a "Future Contract" or collectively "Future Contracts") and (d)
any note, debenture, bond, equipment trust agreement, letter of credit, loan
agreement or other contract or commitment for the borrowing or lending of money
or agreement or arrangement for a line of credit or guarantee, pledge or
undertaking of the indebtedness of any other person (collectively,
"Indebtedness"). To the Company's knowledge, each Real Property Lease or
Contract pursuant to which the Company leases real or personal property and each
other Contract, Future Contract or Indebtedness, is (or, in the case of Future
Contracts, if accepted will be) valid, legally binding and enforceable in
accordance with its terms and the Company is not in default under any material
provision of any such lease, contract, agreement or instrument. After obtaining
the consents identified on Section 3.4 of the Disclosure Schedule, upon the
completion of the transactions contemplated by this Agreement, each such
agreement will be valid, legally
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binding and enforceable by the Surviving Corporation in accordance with its
terms. Any party from whom the Company leases real property or which is a party
to any Contract or Indebtedness (or, in the case of Future Contracts, will be a
party thereto), is not, and as of the Closing Date will not (with due notice or
lapse of time or both), be in default under any provision of any such Real
Property Lease, Contract, Future Contract or Indebtedness. The Company is not a
party to any oral agreements, undertakings or commitments with respect to any of
the matters listed in this Section 3.8 except for ordinary non-material business
arrangements.
3.9. Absence of Certain Changes or Events. Except as disclosed on
Section 3.9 of the Disclosure Schedule, since August 31, 2000, the Company has
conducted business in the ordinary and usual course and, without limiting the
generality of the foregoing:
(a) There have been no changes, developments, events,
conditions or state of affairs which, individually or in the aggregate, have had
or could reasonably be expected to have a Company Material Adverse Effect;
(b) Except as contemplated by the transactions described in
this Agreement, there has not been any split, combination or reclassification of
Company Stock or any issuance, or authorization of the issuance, of any
securities in respect of, in lieu of, or in substitution for the capital stock
of the Company or any declaration, setting side or payment of any dividend or
other distribution (whether in cash, securities, property or otherwise) in
respect of the capital stock of the Company;
(c) Except as contemplated by the transactions described in
this Agreement, the Company has not purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any of the capital stock of
the Company;
(d) The Company has not sold, assigned, conveyed or otherwise
transferred any Owned Property (as defined in Section 3.19);
(e) The Company has not sold, assigned, conveyed or otherwise
transferred any properties or assets of the Company;
(f) Except as disclosed in Section 3.9(f) of the Disclosure
Schedule, the Company has not mortgaged, pledged or subjected to any lien any
assets of the Company;
(g) The Company has not cancelled, terminated, entered into or
modified any Contract, Future Contract or Real Property Lease;
(h) The Company has not waived any material right of the
Company with respect to the business of the Company, whether or not in the
ordinary course of business;
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(i) The Company has not incurred any liability or loss with
respect to any of the assets or operations of the Company, except for
liabilities incurred in the ordinary course of business, consistent with past
practices, which do not result in a Company Material Adverse Effect;
(j) The Company has not incurred any capital expenditure or
executed any lease or other agreement with respect to any assets of the Company
or any aspect of the business of the Company, or incurred any liability
therefor, requiring any payment or payments in excess of $10,000 individually or
$25,000 in the aggregate;
(k) There have not been any material cancellations or any
threats of material cancellations of any Contract by any supplier, customer or
contractor of the Company with respect to the business of the Company which, if
cancelled could, individually or in the aggregate, have a Company Material
Adverse Effect;
(l) The Company has not effected any amendment or supplement
to, or extension of, any Company Plan;
(m) The Company has not (i) granted to any director or
executive officer of, or consultant to, the Company any increase in
compensation, except for customary increases in cash compensation in the
ordinary course of business consistent with prior practice, except as was
required under any employment agreements or plans in effect as of August 31,
2000, (ii) agreed to any granting by the Company to any such director, executive
officer or consultant of any increase in severance or termination pay, except as
was required under any employment, severance or termination agreements or plans
in effect as of August 31, 2000, (iii) except as permitted by Section 5.1, after
the date of this Agreement, agreed to any entry by the Company into, or any
amendment of, any employment, consulting, deferred compensation,
indemnification, severance or termination agreement with any such director,
executive officer or consultant or (iv) agreed to, or taken any action to,
accelerate the vesting of any Company Option or other equity-based compensation;
(n) The Company has not made any change in accounting methods
or principles used for financial or regulatory reporting purposes materially
affecting the consolidated assets, liabilities or results of operations; and
(o) The Company has not entered into any agreement or
arrangement or otherwise agreed to do any of the foregoing.
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3.10. Litigation, Judgments, No Default, Etc. (a) (a) There is no
action or proceeding pending or threatened against or affecting the Company, the
outcome of which, individually or in the aggregate, could reasonably be expected
to result in a Company Material Adverse Effect, (b) there is no judgment,
decree, injunction, rule or order (collectively, "Orders") of any court,
arbitrator or Governmental Entity outstanding against the Company, and (c) there
are no facts that would result in any such action or proceeding which could
reasonably be expected to have a Company Material Adverse Effect.
3.11. Compliance. The Company is not in default or violation of any
term, condition or provision of (a) its articles of incorporation, as amended,
or by-laws, as amended (or equivalent governing instruments), or (b) any Real
Property Lease, Contract, Indebtedness or Other Agreements to which it is a
party or by which it or any portion of its properties or assets may be bound;
except with respect to the foregoing clause (b) such matters that, individually
or in the aggregate, have not had and could not reasonably be expected to have a
Company Material Adverse Effect.
3.12. Accounts Receivable; Equipment and Assets.
(a) Section 3.12 of the Disclosure Schedule sets forth a
complete list of the accounts receivable of the Company as of August 31, 2000.
The accounts receivable of the Company arose out of the ordinary course of
business of the Company, have been billed or invoiced in the ordinary course of
business in accordance with all applicable laws, regulations and administrative
rulings and procedures, represent bona fide indebtedness of the applicable
debtor of the Company, not subject to defense, set-off or counterclaim and are
collectible in full, net of the reserves set forth in the books of the Company.
(b) Notwithstanding the foregoing paragraph (a) of this
Section 3.12, all accounts receivable of the Company that are set forth on
Section 3.12 of the Disclosure Schedule and arise from the ordinary course of
business of the Company, have been billed or invoiced in the ordinary course of
business in accordance with all applicable laws, regulations and administrative
rulings and procedures, represent bona fide indebtedness of the applicable
debtor of the Company, not subject to defense, set-off or counterclaim and are
collectible in full, net of reserves shown on the most recent Company Financial
Statements.
(c) All assets of the Company consisting of equipment, whether
reflected in the Company Financial Statements or otherwise, are well maintained
and in good operating condition, except for reasonable wear and tear and except
for items which have been written down in the Company Financial Statements to a
realizable market value or for which adequate reserves have been provided in the
Company Financial Statements. The present quantity of all such equipment of the
Company is reasonable and warranted in the present course of the business
conducted by the Company. Except as disclosed in Section 3.12(c) of the
Disclosure Schedule, all of such equipment (except for leased equipment for
which the lessors have valid security interest) is free and clear of any lien or
security interest or other encumbrance.
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3.13. Tax Matters. "Taxes", as used in this Agreement, means any
federal, state, county, local or foreign taxes, charges, fees, levies, or other
assessments, including, without limitation, all net income, gross income, sales,
use, ad valorem, transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom duties,
alternative minimum, severance or withholding taxes or charges imposed by any
Governmental Entity, whether foreign or domestic, and includes any additions to
tax, interest and penalties. "Tax Return", as used in this Agreement, means a
report, return, statement, declaration or other information required to be
supplied with respect to Taxes, including any schedule or attachment thereto,
and including any amendment thereof.
(a) Filing of Timely Tax Returns. Except as disclosed in
Section 3.13(a) of the Disclosure Schedule, and except for Tax Returns that are
currently subject to an extension that has been properly obtained, all Tax
Returns required to be filed by the Company under applicable law have been filed
on a timely basis. All such Tax Returns were and are true, complete and correct.
(b) Payment of Taxes. The Company has, within the time and in
the manner prescribed by law, paid all Taxes that are currently due and payable.
No written claim (and no other claim) has ever been made by an authority in a
jurisdiction where any of the Company does not file Tax Returns that it is or
may be subject to taxation in that jurisdiction.
(c) Tax Reserves. Except as disclosed in Section 3.13(c) of
the Disclosure Schedule, Company has established (and until the Closing Date
will maintain) on its books and records, including the Company Financial
Statements and the Closing Financial Statements (as defined in Section 5.3) (i)
reserves adequate to pay all Taxes and all deficiencies in Taxes asserted,
proposed or threatened against the Company and (ii) reserves for deferred income
taxes.
(d) Tax Liens. There are no Tax liens upon the assets of the
Company except liens for Taxes not yet due.
(e) Withholding Taxes. The Company has complied in all
respects with the provisions of the Code relating to the withholding of Taxes,
including, without limitation, the withholding and reporting requirements under
Sections 1441 through 1464, 3401 through 3406, and 6041 through 6049 of the
Code, as well as any similar provisions under any other laws, and have, within
the time and in the manner prescribed by law, withheld from employee wages and
paid over to the proper governmental authorities all amounts required.
(f) Extensions of Time for filing Tax Returns. The Company has
not executed any outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any taxes or Tax
Returns.
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(g) Waivers of Statute of Limitations. The Company has not
executed any outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns.
(h) Expiration of Statute of Limitations; Deficiencies.
Section 3.13(h) of the Disclosure Schedule contains a list of all Taxes and Tax
Returns relating to taxable periods with respect to which the statute of
limitations has not expired or been closed. No deficiency for any Taxes has been
proposed, asserted, assessed or, to the Company's knowledge, threatened against
the Company that has not be resolved and paid in full or previously disclosed by
the Company to the Parent. Section 3.13(h) of the Disclosure Schedule lists all
open years with respect to Taxes and Tax Returns.
(i) Audit, Administrative and Court Proceedings. No audits or
other administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company. Neither the Company nor any
Company Stockholder has any knowledge of any threatened action, audit or
administrative or court proceeding with respect to any such Taxes or Tax
Returns. Further, to the best of the Company's and the Company Stockholders'
knowledge, no state of facts exists or has existed which would constitute
grounds for the assessment of any liability for Taxes with respect to the
periods which have not been audited by the Internal Revenue Service (the "IRS")
or other taxing authority.
(j) Tax Rulings. The Company has not received a Tax Ruling (as
defined below) or entered into a Closing Agreement (as defined below) with any
taxing authority that could have a Company Material Adverse Effect. "Tax
Ruling", as used in this Agreement, shall mean a written ruling of a taxing
authority relating to Taxes. "Closing Agreement", as used in this Agreement,
shall mean a written and legally binding agreement with a taxing authority
relating to Taxes.
(k) Availability of Tax Returns. To the extent not previously
provided, as soon as practicable after the date hereof, the Company will make
available to the Parent complete and accurate copies of such of the following
materials as the Parent may reasonably request: (i) Tax Returns filed by the
Company since the Company's incorporation, (ii) audit reports received from any
taxing authority relating to any Tax Return filed by the Company and (iii)
Closing Agreements entered into by the Company with any taxing authority.
Additional information disclosed in Section 3.13(k) of the Disclosure Schedule.
(l) Tax Sharing Agreements. The Company has not a party to any
Tax allocation or sharing or similar agreement or arrangement with any person.
(m) Affiliated Groups; Liability for Others. The Company has
never been a member of an affiliated group of corporations filing consolidated,
combined or unitary Tax Returns other than an affiliated group in which the
Company was the common parent. The Company has no liability for Taxes of any
person other than the Company under Treasury Regulations Section 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
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(n) Section 341(f). The Company has not filed a consent
pursuant to Section 341(f) of the Code or has agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as that term is
defined in Section 341(f)(4) of the Code) owned by the Company.
(o) Section 168. No property of the Company is property that
the Company or any party to this transaction is or will be required to treat as
being owned by another person pursuant to the provisions of Section 168(f)(8) of
the Code (as in effect prior to its amendment by the Tax Reform Act of 1986) or
is "tax-exempt use property" within the meaning of Section 168 of the Code.
(p) Section 481 Adjustments. The Company is not required to
include in income any adjustment pursuant to Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by the Company, and
the IRS has not proposed any such adjustment or change in accounting method.
(q) Section 453. The Company has not disposed of any property
in a transaction being accounted for under the installment method pursuant to
Section 453 of the Code.
(r) Section 280G. The Company is not a party to any agreement,
contract, or arrangement that could result, either directly or indirectly, on
account of the transactions contemplated hereunder, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(s) Real Property Holding Corporation. The Company has not
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii).
3.14. Employee Benefit Plans.
(a) Section 3.14(a) of the Disclosure Schedule sets forth a
true and correct list of each deferred compensation plan, stock option plan,
incentive compensation plan, equity compensation plan, "welfare plan" (within
the meaning of Section 3(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")); "pension plan" (within the meaning of Section 3(2)
of ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed to
by the Company or by any trade or business, whether or not incorporated, which
together with the Company would be deemed a "single employer" within the meaning
of Section 4001 of ERISA (an "ERISA Affiliate") for the benefit of any employee
or former employee of the Company. Such plans are referred to collectively
herein as the "Company Plans".
(b) The Company has heretofore made available to Parent with
respect to each of the Company Plans true and correct copies of each of the
following documents, if applicable: (i) the Company Plan document; (ii) the
actuarial report for such Company Plan for each of the last two years, (iii) the
most recent determination
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letter from the IRS for such Company Plan, (iv) the most recent summary plan
description and related summaries of material modifications and (v) the Form
5500 tax forms for each of the last two years.
(c) Each Company Plan is in material compliance with its terms
and the applicable provisions of the Code and ERISA; each Company Plan intended
to be "qualified" within the meaning of Section 401(a) of the Code has received
a determination letter from the IRS that the Company Plan is qualified and the
Company knows of no condition or event that could reasonably be expected to
adversely affect such status; neither the Company nor any ERISA Affiliate has or
at any time in the past has had (i) any liability, contingent or otherwise,
under Title IV of ERISA or Section 412 of the Code, (ii) an obligation to
contribute to any "multiemployer plan" (as defined in Section 3(37) of ERISA);
and there are no pending, or to the knowledge of the Company, threatened or
anticipated disputes, law suits, investigations, audits, complaints or claims
(other than routine claims for benefits) by, on behalf of or against any of the
Company Plans or any trusts related thereto.
(d) Except as disclosed in Section 3.14(d) of the Disclosure
Schedule, the Company has no current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance benefits
for retired, former or current employees of the Company, except as required to
avoid excise tax under Section 4980B of the Code and to comply with Section 601
of ERISA.
(e) Except as disclosed on Section 3.14(e) of the Disclosure
Schedule, the execution of, and performance of the transactions contemplated in
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any Company Plan, trust or loan
that will or may result in any material payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any current
or former employee, executive or director of the Company.
(f) With respect to each Company Plan, there has not occurred,
and no person or entity is contractually bound to enter into, any nonexempt
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA, nor any transaction that would result in a civil penalty
being imposed under Section 409 or 502(i) of ERISA, except for any such
transactions which, individually or in the aggregate, would not be reasonably
likely to have a Company Material Adverse Effect.
(g) Except as disclosed in Section 3.14(g) of the Disclosure
Schedule, the Company has not entered into any agreement, contract, or
arrangement or made or given any undertaking that could result, either directly
or indirectly, in any claim against the Company or, following the Merger, Parent
or the Surviving Corporation to the effect that any holder of a Company Option
is entitled to the acceleration of vesting, elimination of transfer restrictions
or any other change or modification to his or her Company Option.
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(h) The Company is in compliance with all applicable federal,
state and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment, wages, hours and withholding,
except to the extent any such noncompliance would not have a Company Material
Adverse Effect.
3.15. Finders and Investment Bankers. Except as set forth on Section
3.15 of the Disclosure Schedule, neither the Company nor any of its employees,
officers or directors has employed any investment banker, financial advisor,
broker or finder in connection with the transactions contemplated by this
Agreement, or incurred any liability for any investment banking, business
consultancy, financial advisory, brokerage or finders' fees or commissions in
connection with the transactions contemplated hereby.
3.16. Collective Bargaining Agreements; Employment Matters.
(a) The Company is not a party to or subject to any collective
bargaining agreement with any labor union. There are no labor controversies
pending or threatened against the Company.
(b) There are no pending collective bargaining negotiations
relating to the employees of the Company. There are no agreements with, or
pending petitions for recognition of, a labor union or association as the
exclusive bargaining agent for any or all of the employees of the Company, no
such petitions have been pending within the past five years and there has not
been any general solicitation of representation cards by any union seeking to
represent the employees of the Company as their exclusive bargaining agent at
any time within the past five years. There is no unfair labor practice, charge
or complaint or other proceeding pending or, threatened, against the Company
before the National Labor Relations Board or any other Governmental Entity.
There is no labor strike, slowdown or stoppage pending or threatened, against or
affecting the Company, nor has there been any such activity within the past two
years.
(c) Except as disclosed in Section 3.16 of the Disclosure
Schedule, there are no pending claims by any current or former personnel against
the Company, there are no pending claims against the Company arising out of any
statute, ordinance or regulation relating to employment practices or
occupational or safety and health standards.
3.17. Insurance. The Company carries insurance with insurers that are,
to the best of the Company's knowledge, solvent, in amount and types of coverage
which, to the best of the Company's knowledge, are customary in the industry and
against risks and losses which are usually insured against by persons holding or
operating similar properties and similar businesses. No material claims have
been asserted under any of such insurance policies or relating to the
properties, assets or operations of the Company. Section 3.17 of the Disclosure
Schedule sets forth a complete and accurate list of each insurance policy and
the corresponding insurance carrier of the Company.
3.18. No Conflict of Interest. No present or former officer, director,
affiliate or associate of the Company has or claims to have (i) any interest in
the property,
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real or personal, tangible or intangible, including, without limitation,
licenses, inventions, technology, processes, designs, computer programs,
know-how and formulae used in or pertaining to the business of the Company, or
(ii) any contract, commitment, arrangement or understanding, including, without
limitation, loan arrangement, with the Company. Except as set forth in Section
3.18 of the Disclosure Schedule, no present officer or director of the Company,
and no affiliate thereof have any ownership or stock interest in any other
enterprise, firm, corporation, trust or any other entity which is engaged in any
line or lines of business which are the same as, or similar to, or competitive
with, the line or lines of business of the Company. For purposes of this
representation, ownership of not more than one percent of the voting stock of
any publicly held company whose stock is listed on any recognized securities
exchange or traded over the counter shall be disregarded.
3.19. Intellectual Property. (a) (a) For purposes of this Section 3.19,
"Intellectual Property" shall mean, collectively: (x) all U.S. and foreign
registered, unregistered and pending (i) trade names, trade dress, trademarks,
service marks, assumed names, business names and logos, internet domain names
and all registrations and applications therefor, together with all goodwill
symbolized thereby, web sites and web pages and related items (and all
intellectual property and proprietary rights incorporated therein), (ii)
computer software, data files, source and object codes, user interfaces, manuals
and other specifications and documentation and all know-how relating thereto
(collectively, the "Computer Software"), (iii) copyrights (including, without
limitation, those in Computer Software, and all registrations and applications
therefor), (iv) utility and design patents, registered designs and invention
disclosures (including, without limitation, those relating to Computer
Software), and all grants, registrations and applications therefor
(collectively, the "Patents"), (v) trade secrets, inventions, processes,
formulae, know-how, concepts, ideas, research and development, designs, business
plans, strategies, marketing and other information and customer lists
(collectively, the "Trade Secrets"), and (vi) other intellectual property,
including, without limitation, adequate research and development facilities; and
(y) all Contracts relating to any of the items set forth in clause (x) above
(collectively, the "IP Contracts").
(b) Section 3.19(b) of the Disclosure Schedule sets forth a
complete and accurate list of (i) all material Intellectual Property in which
the Company has an ownership interest, indicating the owner thereof, and all
applications, registrations and grants with respect thereto (collectively, the
"Owned Property"), (ii) all material Intellectual Property (other than the Owned
Property) which is used in or relates to the business of the Company, indicating
the owner or licensor thereof, and (iii) all IP Contracts with respect to the
Intellectual Property referred to in clauses (i) and (ii) above. The
Intellectual Property included in clauses (i) and (ii) above is collectively
referred to herein as the "Company Property".
(c) The Company is the sole and exclusive owner of the Owned
Property, and is listed in the records of the appropriate U.S. and/or foreign
governmental agencies as the sole and exclusive owner of record for each
registration, grant and application listed in Section 3.19(b) of the Disclosure
Schedule.
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(d) No act has been done or omitted to be done by the Company,
or any licensee thereof, which has had or could have the effect of impairing or
dedicating to the public, or entitling any U.S. or foreign governmental
authority or any other person to cancel, forfeit, modify or consider abandoned,
any Owned Property, or give any person any rights with respect thereto (other
than pursuant to an IP Contract listed on Section 3.19(b) of the Disclosure
Schedule), and all of the Company's rights in the Company Property are valid,
enforceable and free of defects, except for such defects as are not reasonably
expected to result in a material adverse effect on the Company Property. The
Company has no knowledge of any facts or claims which cause or would cause any
Company Property to be invalid or unenforceable in any material respect, and the
Company has not received any notice that any person may bring such a claim.
(e) Except as disclosed in Section 3.19(e) of the Disclosure
Schedule, the Company owns or otherwise has the valid right to use through an IP
Contract listed on Section 3.19(b) of the Disclosure Schedule any and all
Intellectual Property that is used in or is necessary or advisable for the
conduct of the Company's, business as currently conducted and any business
actively being pursued by the Company, free and clear of any lien, encumbrance,
royalty or other payment obligations (except for royalties payable in respect of
off-the-shelf Computer Software at standard commercial rates) and otherwise on
commercially reasonable terms.
(f) Except for such conflicts, violations, infringements as
would not result in a Company Material Adverse Effect, neither the Company nor
its business as currently conducted or any business actively being pursued by
the Company, is in conflict with or in violation or infringement of, or has
violated or infringed, nor has the Company received any notice of any conflict
with or violation or infringement of, nor are proceedings or claims pending, nor
have any such proceedings or claims been instituted or asserted in writing
against the Company, nor are any proceedings threatened, alleging any violation,
nor, to the best of the Company's knowledge, is there any valid basis for any
such proceeding or claim, of any rights or asserted rights of any other person
with respect to any Intellectual Property of such other person.
(g) No proceedings or claims in which the Company alleges that
any person is infringing upon, or otherwise violating, any Company Property are
pending, and none have been served by, instituted or asserted by the Company,
nor are any proceedings threatened alleging any such violation or infringement,
nor does the Company know of any valid basis for any such proceeding or claim.
(h) To the best of the Company's knowledge, after due inquiry,
the Company has not, prior to the date hereof, divulged, furnished to or made
accessible to any person, any Trade Secrets included in the Company Property
without prior thereto having obtained an enforceable agreement of
confidentiality from such person, and all such confidentiality agreements are
listed on Section 3.19(h) of the Disclosure Schedule. All key personnel employed
by the Company have signed agreements of confidentiality which are, to the best
of the Company's knowledge, enforceable.
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(i) Except as disclosed in Section 3.19(i) of the Disclosure
Schedule, the Company has obtained from all individuals who participated in any
respect in the invention or authorship of any material Owned Property (as
employees of the Company, as consultants, as employees of consultants or
otherwise) effective waivers of any and all ownership rights of such individuals
in such Owned Property, and assignments to the Company of all rights with
respect thereto, other than from such individuals whose copyrightable works the
Company hereby represent to be "works made for hire" within the meaning of
Section 101 of the Copyright Act of 1976. No officer or employee of the Company
is subject to any agreement with any other person or entity which requires such
officer or employee to assign any interest in inventions or other intellectual
property or keep confidential any trade secrets, proprietary data, customer
lists or other business information or which restricts such officer or employee
from engaging in competitive activities or solicitation of customers.
(j) Except as disclosed in Section 3.13(j) of the Disclosure
Schedule, to the best of the Company's knowledge, the Company has taken all
commercially reasonable efforts to safeguard and maintain its proprietary rights
in the Owned Property.
3.20. Compliance with Laws. To the best of the Company's knowledge, the
businesses of the Company has been conducted in all material respects in
accordance with all Legal Requirements applicable to the Company (excluding
ERISA, which is covered by Section 3.14 hereof). The Company has not received
any written notice of alleged material violations of any of the foregoing, and
there are no presently existing circumstances known to the Company which would
result or be likely to result in violations of any of the foregoing, nor are
there any pending or, to the best knowledge of the Company, threatened hearings
or investigations with respect to alleged material violations of any of the
foregoing.
3.21. Licenses and Permits. Except as disclosed in Section 3.21 of the
Disclosure Schedule, to the best of the Company's knowledge, the Company has
obtained, and are in material compliance with, all licenses, permits, consents,
approvals, orders, certificates, authorizations, declarations and filings
required by applicable law for the conduct of the business and operations of the
Company as now conducted or as planned to be conducted (collectively, the
"Required Licenses"), and there are no proceedings pending or, to the best of
the Company's knowledge, threatened which may result in the revocation,
cancellation or suspension, or any materially adverse modification, of any such
Required License.
3.22. Copies of Documents. The Company has previously delivered to
Parent true and complete copies of (or, in the case of any oral agreements or
arrangements, true, correct and complete written summaries thereof) all of the
agreements, arrangements or other documents in respect of items identified on
any schedule to this Agreement which is prepared by or for the Company, as well
as:
(a) all Required Licenses; and
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(b) all written results of any examinations of the Company or
its business by any governmental agency, whether federal, state or local, in the
past five years.
All books of account, financial and accounting records and other data
of the Company relating to the Company or any of its businesses, including the
Company Financial Statements, customers' and suppliers' lists, all payroll,
personnel and other employee records and any minute books, have been maintained
in all material respects in accordance with good business practices and are
true, accurate, and complete.
3.23. No Existing Discussions. As of the date hereof, the Company is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to a Takeover Proposal (as defined in Section 5.5(b)).
3.24. Year 2000. All internal computer systems that are material to the
business, finances or operations of the Company ("Material Systems") are (i)
able to receive, record, store, process, calculate, manipulate and output dates
from and after January 1, 2000, time periods that include January 1, 2000 and
information that is dependent on or relates to such dates or time periods, in
the same manner and with the same accuracy, functionality, data integrity and
performance as when dates or time periods prior to January 1, 2000 are involved
and (ii) able to store and output date information in a manner that is
unambiguous as to century ("Year 2000 Compliant").
3.25. Disclosure. This Agreement and the schedules hereto do not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements herein and therein not misleading
in light of the circumstances in which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Except as disclosed in writing in the Disclosure Schedules being
delivered at or prior to the execution of this Agreement, which Disclosure
Schedules shall identify the specific sections or subsections in this Agreement
to which each such disclosure relates, Parent and Merger Sub hereby represent
and warrant to the Company as follows:
4.1. Organization. Parent and Merger Sub are corporations duly
incorporated, validly existing and in good standing under the laws of their
jurisdiction of incorporation and have all requisite power and authority to own,
lease and operate their properties and to carry on their businesses as now being
conducted. Parent is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state of the
United States in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified or to be in good standing would not
have a material adverse effect on the business, results of operations or
financial condition
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of Parent and its Subsidiaries taken as a whole (a "Parent Material Adverse
Effect"). Parent is not aware of any facts or circumstances with respect to the
existence, good standing, power, authority or qualification of any subsidiary of
Parent that would be reasonably likely to give rise to a Parent Material Adverse
Effect. Merger Sub is a newly-formed, wholly-owned subsidiary of Parent and,
except for activities incident to the acquisition of the Company, Merger Sub has
not engaged in any business activities of any type or kind whatsoever.
4.2. Capitalization.
(a) The authorized capital stock of Parent consists of
90,000,000 shares of Parent Common Stock and 1,000,000 shares of preferred
stock, par value $.01 per share (the "Parent Preferred Stock"). As of November
6, 2000, there were approximately 25,311,027 shares of Parent Common Stock and
no shares of Parent Preferred Stock issued and outstanding. As of November 6,
2000, options to acquire 4,403,761 shares of Parent Common Stock were
outstanding. Except as set forth on Section 4.2(a) of the Disclosure Schedule,
as of the date hereof Parent has no outstanding bonds, debentures, warrants,
stock appreciation rights, notes or other obligations whereby the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of Parent on any
matter. All such issued and outstanding shares of Parent Common Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as contemplated by this Agreement, as of the date hereof, there
are no existing options, warrants, calls subscriptions, convertible securities,
or other rights, agreements or commitments, other than pursuant to the Parent
Option Plans, which obligate Parent or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock of Parent or of any of its
Subsidiaries.
(b) The authorized capital stock of Merger Sub consists of 100
shares of common stock, par value $.01 per share ("Merger Sub Common Stock"),
all of which shares are issued and outstanding and owned by Parent.
Notwithstanding any provisions to the contrary, Parent may, in its sole
discretion, increase or decrease the number of shares of authorized Merger Sub
Common Stock and the number of shares of Merger Sub Common Stock issued and
outstanding owned by Parent. Merger Sub has not engaged in any activities other
than in connection with the transactions contemplated by this Agreement.
4.3. Authorization; Binding Agreement. Each of Parent and Merger Sub
has all requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. The consummation
by Parent and Merger Sub of the transactions contemplated hereby has been
approved by the board of directors of Parent and duly and validly authorized by
all necessary corporate action. This Agreement constitutes, and all agreements
and documents contemplated hereby (when executed and delivered pursuant hereto
for value received) will constitute legal, valid and binding obligations of
Parent and Merger Sub, as the case may be, enforceable against Parent and Merger
Sub in accordance with their respective terms, except as such enforcement may be
limited by general principles of equity whether applied in a court of
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law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
4.4. Noncontravention. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the certificate of
incorporation, articles of incorporation or by-laws or equivalent governing
instruments of Parent or Merger Sub, (b) require any consent, approval or notice
under or conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any Contracts and Other Agreements to which the
Parent is a party or by which any of them or any portion of their properties or
assets may be bound or (c) violate any Legal Requirements applicable to the
Parent or any portion of Parent's properties or assets, except with respect to
clauses (b) and (c) such matters that, individually or in the aggregate, have
not had and could not reasonably be expected to have a Parent Material Adverse
Effect.
4.5. SEC Filings; Financial Statements.
(a) As of their respective dates, each registration statement,
report, proxy statement or information statement (as defined in Regulation 14C
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") of
Parent prepared by it since its initial public offering (including, without
limitation, the Registration Statement on Form S-1 with respect to its initial
offering), in the form (including exhibits and any amendments thereto) filed
with the U.S. Securities and Exchange Commission (the "SEC") (collectively, the
"Parent Reports") (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading, except that information as of a
later date shall be deemed to modify information as of an earlier date. Each of
the consolidated balance sheets included in or incorporated by reference into
the Parent Reports (including the related notes and schedules) fairly presents
the consolidated financial position of Parent as of its date, and each of the
consolidated statements of income, retained earnings and cash flows included in
or incorporated by reference into the Parent Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of Parent for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end audit
adjustments), in each case in accordance with GAAP consistently applied
throughout the periods indicated, except as may be noted therein. Except as
disclosed in writing to the Company or otherwise publicly disclosed by Parent,
since the date of the most recent Parent Report, there has not been a Parent
Material Adverse Effect.
(b) Parent has no liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) except (i) liabilities or
obligations reflected on, or reserved against in, a balance sheet of Parent or
in the notes thereto, prepared in
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accordance with GAAP consistently applied and included in the Parent Reports and
(ii) liabilities or obligations incurred in the ordinary course of business
which are not material in amounts.
4.6. Governmental Approvals. No consent, approval or authorization of,
or declaration or filing with, any Governmental Entity on the part of Parent of
any of its Subsidiaries that has not been obtained or made is required in
connection with the execution or delivery by Parent or Merger Sub of this
Agreement or the consummation by Parent or Merger Sub of the transaction
contemplated hereby, other than (a) the filing of the Certificate of Merger with
the Secretary of State of the State of Colorado, (b) filings and other
applicable requirements under the Exchange Act, (c) such filings and approvals
as are required to be made or obtained under the securities or "blue sky" laws
of various states in connection with the issuance of Parent Common Stock
contemplated under this Agreement, and (d) consents, approvals, authorizations,
declarations or filings that, if not obtained or made, would not, individually
of in the aggregate, results in a Material Adverse Effect on Parent or prevent
Parent or Merger Sub from consummating the transactions contemplated hereby.
ARTICLE V
COVENANTS
5.1. Conduct of Business of the Company. Except as otherwise
contemplated by this Agreement, from the date of this Agreement to the Effective
Time, the Company shall, and the Company Stockholders shall cause the Company
to, conduct its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, and use all commercially
reasonable efforts to preserve intact its business organization, keep available
the services of its current officers and employees and keep its relationships
with customers, suppliers, licensors, licensees and employees and others with
which it has business relationships. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement or as
set forth on Section 5.1 of the Disclosure Schedule, from the date of this
Agreement to the Effective Time, the Company shall not do any of the following
without the prior written consent of the Parent:
(a) (i) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, (ii) 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 (iii) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any other securities thereof or
any rights, warrants or options to acquire any such shares or other securities;
(b) issue, sell, grant, pledge, deliver, otherwise encumber or
subject to any Lien (i) any shares of its capital stock, (ii) any securities
convertible into or exchangeable for, or any options, warrants or rights to
acquire, any such shares, voting securities or convertible or exchangeable
securities, or (iii) any "phantom" stock, "phantom" stock rights, stock
appreciation rights or stock-based performance units, other
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than the issuance of Company Stock upon the exercise of Company Options
outstanding on the date of this Agreement and in accordance with their present
terms;
(c) amend its articles of incorporation or by-laws (or
equivalent governing instruments), except as required by the terms of this
Agreement;
(d) acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing assets of, or by any other manner, any
equity interest in or portion of any business of any corporation, partnership,
company, limited liability company, joint venture, association or other business
organization or division thereof or (ii) any assets that, individually, are in
excess of $10,000 or, in the aggregate, are in excess of $25,000;
(e) enter into any joint venture agreement or strategic
alliance or similar agreement or arrangement with any person or entity;
(f) sell, lease (as lessor), license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any material properties
or material assets;
(g) sell, lease, assign, transfer, convey, deliver or
otherwise dispose of, or divest, or purchase or acquire, or enter into any
material agreement with any person with respect to, any Owned Property, except
in the ordinary course of business consistent with prior practice;
(h) (i) grant to any officer or director of the Company any
increase in compensation, except to the extent required under employment
agreements in effect as of the date hereof and set forth on Section 3.14 of the
Disclosure Schedule, (ii) grant to any employee, officer or director of the
Company or any Company Subsidiary any increase in severance or termination pay,
except to the extent required under any agreement or plan in effect as of the
date hereof and set forth on Section 3.14(a) of the Disclosure Schedule, (iii)
enter into any employment, consulting, deferred compensation, indemnification,
severance or termination agreement with any such employee, officer or director,
(iv) establish, adopt, enter into or amend in any material respect any
collective bargaining agreement or Company Plan, (v) take any action to
accelerate any rights or benefits, or make any material determinations not in
the ordinary course of business consistent with prior practice, under any
Company Plan or (vi) take any action to accelerate, or, where the Company has
reserved the unilateral discretion to prevent such acceleration, fail to take
any action to prevent the acceleration of, the vesting of any Company Options or
other equity-based compensation;
(i) make any change in accounting methods, principles or
practices materially affecting the reported consolidated assets, liabilities or
results of operations of the Company;
(j) (i) incur any indebtedness for borrowed money, increase
any indebtedness for borrowed money, guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of the Company, guarantee any debt securities of another
person, enter into any "keep
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well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, or (ii) make any loans, advances, capital contributions to, or
investments in, any other person, other than to or in the Company;
(k) (i) pay, discharge, settle or satisfy any claims,
liabilities, obligations or litigation (absolute, accrued, asserted or
unasserted, contingent or otherwise) in excess of $10,000 individually or
$25,000 in the aggregate, other than (x) the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with prior practice
or in accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the Company's financial statements (or the notes
thereto) dated as of the last day of the month ending prior to the date hereof,
which have previously been provided to Parent, and (y) with respect to Taxes,
(ii) cancel any indebtedness or waive any claims or rights of substantial value
or (iii) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company is a
party;
(l) engage in any transaction or enter into any agreement or
arrangement with any shareholder or affiliate of the Company;
(m) enter into any other agreements, commitments or contracts
that are material to the Company taken as a whole, other than in the ordinary
course of business consistent with past practice;
(n) except as contemplated by this Agreement, take or cause to
be taken any action described in clauses (b) through (g) of Section 3.9 above;
(o) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article VI not being satisfied;
(p) make or rescind any material election with respect to
Taxes, make a request for a Tax Ruling or enter into a Closing Agreement with
respect to Taxes, settle or compromise any material Tax matter, or, with respect
to any material Tax matter, change any method of accounting or reporting;
(q) establish, adopt, enter into, make any new rights or
awards under, amend or otherwise modify any Company Plan, or increase the
salary, wage, bonus or other compensation of any employee; or
(r) agree, commit or arrange to do any of the foregoing.
5.2. Conduct of Business of Parent and Merger Sub. Except as otherwise
contemplated by this Agreement, from the date of this Agreement to the Effective
Time, Parent shall not, and shall not permit any of its Subsidiaries to:
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(a) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article VI not being satisfied;
(b) take any action or enter into any agreement that could
reasonably be expected to jeopardize or materially delay the receipt of any
Requisite Regulatory Approval (as defined in Section 6.1(b));
(c) solely in the case of Parent, declare or pay any dividends
on or make any other distributions in respect of any of its capital stock;
(d) change its methods of accounting in effect as of March 31,
2000, except in accordance with changes in GAAP or SAP as are concurred to by
Parent's independent auditors; or
(e) agree, commit or arrange to do any of the foregoing.
5.3. Closing Financial Statements. The Company Stockholders and the
Company shall prepare unaudited balance sheets for the Company for the period
ending on the last day of the calendar month prior to Closing and financial
statements for the Company for the period between December 31, 1999 and the last
day of the month preceding the month in which the Closing occurs (such date, the
"Closing Balance Sheet Date" and such financial statements, the "Closing
Financial Statements"), which financial statements shall be set forth on Section
3.6 of the Disclosure Schedule and shall identify the revenue and EBITDA for
such period; provided, that if the Closing occurs on or before the fifteenth day
of a month, the Closing Balance Sheet Date shall be the last day of the month
that is two months prior to the month in which the Closing occurs and the
Closing Financial Statements shall be for the period between December 31, 1999
and the adjusted Closing Balance Sheet Date. The Closing Financial Statements
(i) shall have been prepared in accordance with the books and records of the
Company, and are true, accurate, and complete, (ii) fairly present the financial
condition and results of operations of the Company as of the date thereof and
for the period covered therein and (iii) contain and reflect all necessary
adjustments and accruals for a fair presentation of the financial condition and
the results of operations of the Company as of the date thereof and for the
period covered therein (subject in the case of unaudited statements, to normal
year-end audit adjustments which would not be material in amount or effect.
5.4. Access and Information. The Company shall afford to Parent and its
authorized representatives (including, but not limited to, its accountants,
financial advisors and legal counsel) reasonable access during normal business
hours to all of their properties, personnel, books and records and the Company
shall furnish promptly to the Parent all information within their control or
possession concerning their business, properties and personnel as Parent may
reasonably request. All such information shall be kept confidential in
accordance with the Confidentiality and Non-Disclosure Agreement between the
Company and Parent, dated May 4, 2000, as amended by the First Amendment to
Confidentiality and Non-Disclosure Agreement dated August 21, 2000.
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5.5. No Solicitation.
(a) The Company shall not authorize or permit any Company
Stockholder or any officer, director, employee, representative or agent of the
Company (collectively, "Representatives") to directly or indirectly solicit,
initiate or encourage any inquiries relating to or that may reasonably be
expected to lead to, or make any proposal which constitutes, a Takeover Proposal
(as defined below), or recommend or endorse any Takeover Proposal, or
participate in any discussions or negotiations, or provide third parties with
any nonpublic information, relating to any such inquiry or proposal or otherwise
facilitate any effort or attempt to make or implement a Takeover Proposal. The
Company shall (i) advise Parent orally (within one day) and in writing (as
promptly as practicable) of the receipt of any such inquiry or proposal by it or
by any of the Representatives and (ii) inform Parent orally and in writing, as
promptly as practicable after the receipt thereof, of the material terms and
conditions of any such inquiries or proposals (including the identity of the
party making such inquiry or proposal) and shall keep Parent informed of the
status thereof. The Company will immediately cease and cause to be terminated
any activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Parent with respect to any of the
foregoing and require the return (or if permitted by the terms of the applicable
confidentiality agreement, the certified destruction) of all confidential
information previously provided to such parties.
(b) For purposes of this Agreement, "Takeover Proposal" shall
mean any purchase, tender or exchange offer, proposal for a merger,
consolidation or other business combination involving the Company or any
proposal or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the assets of the Company, other than the transactions
contemplated or permitted by this Agreement.
5.6. Reasonable Efforts.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto shall cooperate and shall use all
reasonable best efforts to take, or cause to be taken, all actions, and to do or
cause to be done, and to assist and cooperate with the other party in doing, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable, including, but not limited to, (i) preparing and filing
all forms, registrations and notices required to be filed to consummate the
transactions contemplated by this Agreement, including filings and submissions
pursuant to the Exchange Act and the Corporation Act, (ii) taking such
commercially reasonable actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any third party or
Governmental Entity, (iii) using all reasonable best efforts to satisfy or cause
the satisfaction of all conditions to Closing and (iv) using all reasonable best
efforts to promptly cause the Company Stockholders to be released from any
personal guaranties that are in effect with respect to obligations of the
Company, such actions to include Parent's agreeing to be substituted as
guarantor of those obligations of the Company that are, prior to the Effective
Time, guaranteed by any of the Company Stockholders. Each party shall promptly
consult with
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the other with respect to, provide any necessary information with respect to and
provide the other (or its counsel) copies of, all filings made by such party
with any Governmental Entity or any other information supplied by such party to
a Governmental Entity in connection with this Agreement and the transactions
contemplated by this Agreement. No party will take any action which would
prevent the satisfaction of any conditions to Closing set forth in Article VI
hereof.
(b) Each party hereto shall promptly inform the other of any
communication from any Governmental Entity regarding any of the transactions
contemplated by this Agreement. If any party or affiliate thereof receives a
request for additional information or documentary material from any such
Governmental Entity with respect to the transactions contemplated by this
Agreement, then such party will endeavor in good faith to make, or cause to be
made, as soon as reasonably practicable and after consultation with the other
party, an appropriate response in compliance with such request.
5.7. Changes in Representation and Warranties; Notification of Certain
Matters. Between the date of this Agreement and the Effective Time, the Company
and the Company Stockholders shall give notice in writing to Parent, and Parent
and Merger Sub shall give notice in writing to the Company, promptly upon
becoming aware of (i) any information known to such party that indicates in the
reasonable judgment of such party that any representation or warranty of such
party contained herein will not be true and correct in a manner that results or
would likely result in a failure of the condition specified in Section 6.2(a),
in the case of a notice from the Company and the Company Stockholders, or
Section 6.3(a), in the case of a notice from Parent and Merger Sub and (b) the
occurrence of any event known to such party which in the reasonable judgment of
such party will result, or has a reasonable prospect of resulting in, the
failure by such party to satisfy a condition specified in Article VI; provided,
however, that the delivery of any notice pursuant to this Section 5.7 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
5.8. Takeover Statutes. If any takeover statute is or may become
applicable to the transactions contemplated hereby, the Board of Directors of
the Company will grant such approvals and take such actions as are necessary so
that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate the
effects of any takeover statute on any of the transactions contemplated hereby.
5.9. Non-Disclosure; Public Announcements.
(a) Neither the Company nor the Company Stockholders will at
any time from and after the date of this Agreement divulge, furnish or make
accessible to anyone any information or documentation regarding the transactions
contemplated by this Agreement, any confidential or secret aspects of the
Company or the Surviving Corporation or any financial or other information about
the Company or the Surviving Corporation except as required by law and except
for the press release contemplated by Section 5.9(b) hereof. Any information
which at or prior to the time of disclosure was
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generally available to the public through no breach of this covenant shall not
be deemed confidential information for purposes hereof, and the undertakings in
this covenant with respect to confidential information shall not apply thereto.
(b) The initial press release or releases with respect to the
transactions contemplated by this Agreement shall be in the form satisfactory to
Parent after consulting with the Company. For as long as this Agreement is in
effect, the Company shall not, and shall cause its Affiliates not to, issue or
cause the publication of any press release or any other announcement with
respect to the Merger, this Agreement or the other transactions contemplated
hereby without the consent of Parent, except where such release or announcement
is required by applicable law, in which case the Company will consult with
Parent and issue a release or announcement reasonably satisfactory in form and
content to Parent.
5.10. Lock-up. Each of the Company Stockholders hereby covenants and
agrees with Parent that during the period between the Closing Date and ending
365 days following the Closing Date, except as provided in, and pursuant to, the
Registration Rights Agreement, they shall not (with the exception of the hedging
transactions described in the last sentence of this Section) sell, transfer,
assign or otherwise dispose of the Parent Common Stock which the Company
Stockholders shall have received as Merger Consideration without the prior
written consent of the Parent, which consent the Parent shall be entitled to
withhold in its full discretion; provided, however, that the Company
Stockholders may sell up to 25% of such Parent Common Stock during the period
commencing 181 days after and ending 270 days after the Closing Date and up to
an aggregate (including shares sold pursuant to the preceding portion of this
proviso) of up to 50% of such Parent Common Stock during the period commencing
271 days after and ending 365 days after the Closing Date. The Company
Stockholders have advised the Parent that they may enter into a "Collar" or
similar hedging or derivative transaction prior to the expiration of such
"lock-up" periods. The Company Stockholders represent and warrant to the Parent,
its affiliates and their respective officers and directors that no such
transaction will not violate the Act or any other applicable federal or state
securities laws, or the requirements of NASDAQ, and will hold them harmless
against any cost, loss, damage or expense which any of them may incur as a
result of, or in connection with, any such transaction.
5.11. Taxes. (a) The Company Stockholders shall be liable for and shall
pay any and all Taxes of the Company attributable to any taxable period ending
on or prior to the Closing Date and the allocable portion of any and all Taxes
of the Company attributable to any partial period (through and including the
Closing Date) of any taxable period beginning before and ending after the
Closing Date to the extent that such Taxes are not reflected in the reserve for
Taxes shown in the Closing Financial Statements. The Taxes attributable to any
partial period shall be computed as if the taxable period ended on the Closing
Date, except that any Taxes imposed on the ownership of real, personal or
intangible property shall be allocated, pro rata on a daily basis, between the
partial period ending on the Closing Date and the balance of the taxable period.
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ARTICLE VI
CONDITIONS
6.1. Conditions to Each Party's Obligations. The respective obligation
of each party to effect the Merger is subject to the satisfaction or waiver at
or prior to the Effective Time of each of the following conditions:
(a) no court or Governmental Entity of competent jurisdiction
shall have enacted, issued, entered, promulgated or enforced any Legal
Requirements prohibiting, restraining, enjoining or otherwise preventing the
consummation of the Merger; and
(b) all consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity (each a "Requisite
Regulatory Approval") required in connection with the execution and delivery of
this Agreement and the performance of its terms shall have been obtained or made
(as the case may be), except for filings in connection with the Merger and any
other documents required to be filed after the Effective Time.
6.2. Conditions to Obligation of Parent and Merger Sub. The obligation
of Parent and Merger Sub to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Time of the following
additional conditions:
(a) the representations and warranties of the Company and the
Company Stockholders contained in this Agreement, regardless of whether such
representations or warranties arise under Articles II or III hereof or pursuant
to another provision of this Agreement, shall be true and correct in all
material respects, except that representations and warranties qualified by
materiality or "Company Material Adverse Effect" shall be true in all respects,
as of the date of this Agreement and as of the Closing Date, as though made on
and as of such time, except to the extent that any such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct in all material
respects, and those not qualified by materiality or Company Material Adverse
Effect shall be true in all respects, on and as of such earlier date);
(b) the Company and the Company Stockholders shall have
performed in all material respects the obligations required to be performed by
them under this Agreement at or prior to the Closing Date;
(c) from the date of this Agreement through the Effective
Time, there shall not have occurred a Company Material Adverse Effect;
(d) Parent shall have received a certificate signed by an
executive officer of the Company to the effect of Sections 6.2(a), (b) and (c)
hereof;
(e) Parent shall have received a certificate executed by each
of the Company Stockholders to the effect of Sections 6.2(a), (b) and (c)
hereof;
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(f) the Company shall have provided Parent with evidence
satisfactory to Parent that the Company has obtained all consents, waivers or
approvals required for the assignment or transfer of all agreements and
instruments identified on Section 3.8 of the Disclosure Schedule hereto;
(g) the Company shall have furnished Parent with an opinion,
dated the Closing Date, of Hall & Xxxxx, L.L.C., counsel to the Company, in the
form attached hereto as Exhibit C in form and substance satisfactory to Parent;
(h) the Company Stockholders and the Company shall have
provided Parent with a certified statement, pursuant to Section 1.1445-2(c)(3)
of the Treasury Regulations, that the Company is not, and has not been within
the last five years, a "United States real property holding corporation";
(i) no claim, action, suit, investigation or other proceeding
shall be pending or threatened by any third party (including any governmental
agency) before any court or administrative agency or otherwise relating to the
transactions provided for herein or which may affect Parent or the Company in a
manner which is materially adverse;
(j) the Company Stockholders shall have executed the Escrow
Agreement;
(k) Xxxxx Xxxxx and Xxxxxx Xxxxxxxx shall each have executed
an Employment Letter with Parent in the form of Exhibit D;
(l) The Company Stockholders and Parent shall have agreed upon
a mutually acceptable Operating Plan;
(m) The Company and the Company Stockholders shall have
furnished Parent with all other documents, certificates and other instruments
reasonably requested by Parent;
(n) Each of the Company Stockholders will have completed,
executed and delivered to Parent an investor questionnaire in the form of
Exhibit E;
(o) The Company Stockholders shall have delivered to the
Parent written instructions with respect to the issuance of certificates
representing shares of Parent Common Stock, if other than pro rata to the number
of shares of Company Common Stock (subject to the decrease of the shares of
Parent Common Stock issuable as Merger Consideration by reason of the
obligations of Xxxxx Xxxxx to the Company, as set forth in Section 1.3(a);
(p) The Company Stockholders shall have delivered to the
Parent an investment letter in the form of Exhibit 6.2(p) and an opinion of
counsel reasonably satisfactory to the Parent with respect to the issuance of
shares of Parent Common Stock to persons other than the Company Stockholders and
written instructions with respect to the issuance of such shares;
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(q) Xxxxx Xxxxx shall have delivered to Parent an agreement
obligating him to pay all lease payments with respect to a Jeep Cherokee (VIN
No. 0X0XX0000XX000000), pursuant to a lease between Chrysler Financial Company,
L.L.C. and the Company, to maintain insurance regarding such vehicle in amounts
reasonably satisfactory to Parent and agreeing to indemnify Parent and the
Surviving Corporation from all costs, loss and expense arising from the
ownership or operation of such vehicle;
(r) Xxxxx Xxxxx shall have delivered to the Company a release
of all of its obligations to him on account of loans made by him to the Company;
and
(s) Each of the Company employees will have executed and
delivered to Parent a non-disclosure agreement in the form of Exhibit F.
6.3. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger shall be subject to the fulfillment or waiver at or
prior to the Effective Time of the following additional conditions:
(a) the representations and warranties of Parent and Merger
Sub contained in this Agreement shall be true and correct in all material
respects as of the Effective Time, except that representations and warranties
qualified by materiality or Parent Material Adverse Effect shall be true in all
respects, as of the date of this Agreement and as of the Closing Date, as though
made on and as of such time and except to the extent that any such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties shall be true and correct in all
material respects, and those not qualified by materiality or Parent Material
Adverse Effect shall be true in all respects, on and as of such earlier date);
(b) Parent and Merger Sub shall have performed in all material
respects their obligations required to be performed by them under this Agreement
at or prior to the Closing Date;
(c) the Company shall have received a certificate signed by an
executive officer of each of Parent and Merger Sub to the effect of Sections
6.3(a) and (b) hereof;
(d) Parent shall have executed the Escrow Agreement and the
Registration Rights Agreement;
(e) Parent and the Company Stockholders shall have agreed upon
a mutually acceptable Operating Plan;
(f) Parent shall have entered into employment arrangements
with Xxxx Xxxxx and Xxx Xxxxxxxx, in the form of Exhibit D;
(g) Parent shall have obtained the release (whether by payment
or otherwise) of the guarantees of the Company Stockholders of those obligations
listed on Section 6.3(g) of the Disclosure Schedule;
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(h) The Company shall have delivered to Xxxxx Xxxxx, with the
consent of the Parent, a release of all obligations of Xxxxx Xxxxx to the
Company on account of loans made to him by the Company; and
(i) None of the Company Stockholders shall have been appointed
or elected to an office of the Surviving Corporation or the Parent that would
subject such person to the obligations set forth in Section 16 of the Securities
Exchange Act of 1934, as amended.
6.4. Frustration of Closing Conditions. Neither the Company nor Parent
may rely on the failure of any condition set forth in Section 6.1, 6.2 or 6.3,
as the case may be, to be satisfied if such failure was caused by such party's
failure to use all reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement.
ARTICLE VII
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC.
All statements contained in any Exhibit or Disclosure Schedule hereto
or in any certificate or instrument of conveyance delivered by or on behalf of
the parties pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed representations and warranties by the
parties hereunder.
7.1. Survival of Representations, Warranties, Etc. Except as otherwise
provided herein, the representations and warranties contained in this Agreement
or in any certificate or other instrument delivered pursuant to this Agreement,
shall survive the Closing for a period of 24 months after the Closing Date;
provided, however, that: (i) the representations and warranties contained in
Section 3.13 hereof shall survive the Closing Date until 30 days after the
expiration of the applicable statutes of limitations for the assessment of
Taxes; (ii) if the giving of any representation or warranty contained in this
Agreement is made with willful or knowing fraud, it shall survive the Closing
Date for an unlimited period of time; (iii) any specific claim or action of
which specific written notice setting forth with particularity the facts
underlying such claim or action is given to the party which made such
representation or warranty prior to the date on which such representation or
warranty otherwise terminates as provided herein, may continue to be asserted
and shall be indemnified against pursuant to this Article VII; and (iv) the
representations and warranties set forth in Section 2.1, 2.2, 2.3 and 3.2 hereof
shall survive the Closing without limitations.
7.2. Company Stockholders Agreement to Indemnify.
(a) Subject to paragraphs (b), (c) and (d) of this Section
7.2, the Company Stockholders shall fully indemnify, defend and hold harmless,
on an after-tax basis, Parent, Merger Sub and the Surviving Corporation and
their officers, directors, employees, agents, representatives, and Affiliates
and their successors and assigns against and in respect of any and all
liabilities, losses, damages, claims, penalties, actions, fines,
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deficiencies, costs, taxes, loss of deductions or expenses (including, without
limitation, the reasonable fees, expenses and disbursements of counsel)
(individually, a "Loss" or collectively, "Losses") regardless of whether an
action has been filed or asserted against Parent, Merger Sub, or the Surviving
Corporation after the Closing Date, arising from, in connection with or
resulting from (i) any misrepresentation, inaccuracy or breach of
representation, warranty, covenant or agreement by the Company or the Company
Stockholders made in this Agreement (including, without limitation, the
Disclosure Schedules and Exhibits hereto and the certificates delivered
hereunder) or as provided herein; (ii) the business, operations or assets of the
Company prior to the Effective Time or the actions or omissions of the Company's
directors, officers, shareholders, employees or agents prior to the Effective
Time, other than Losses arising from matters expressly disclosed in the Company
Financial Statements, this Agreement or the Disclosure Schedules to this
Agreement, or incurred by the Company in the ordinary course of business in
compliance with Section 5.1 hereof from the date of the execution of this
Agreement through the Closing Date, (iii) any claims or litigation involving the
Company which are pending or, to the knowledge of the Company, threatened prior
to the Closing Date; (iv) any claims, costs, damages, expenses or other
obligations (such obligations to include, without limitation, license fees,
infringement damages (whether statutory or otherwise,) penalties and other costs
and expenses (including reasonable attorneys' fees and expenses)) in excess of
$45,587 arising from the use by the Company of any computer software programs
for which it did not have valid, paid licenses, whether or not disclosed in the
Disclosure Schedules; and (v) any costs, expenses or other obligations in excess
of $45,000 resulting from professional services provided to the Company in
connection with this Agreement and the transaction contemplated hereby. The
parties hereto understand and agree that subject to, and as further described
in, Section 7.1 of this Agreement, the indemnification obligations of the
Company Stockholders shall be reduced to the extent that such Loss, when raised
through a notice or claim, relates to a representation, warranty indemnification
obligation or covenant that has expired pursuant to Section 7.1 hereof and all
provisos therein.
(b) No obligation to indemnify, defend and hold harmless
Parent, Merger Sub or the Surviving Corporation under this Section 7.2 shall
arise unless and until the amount of Losses incurred exceeds $25,000 in the
aggregate; provided, that in the case of aggregate Losses in excess of $25,000,
the Company Stockholders shall be liable for the entire amount of such Loss or
Losses, and further provided that such "threshold" shall not apply to any Loss
described in subsection 7.2(a)(iv) or 7.2(a)(v) or any breach of the
representations contained in Section 3.13 (without regard to any disclosure of
any failure or obligation in the Disclosure Schedules with respect to such
matters in the Disclosure Schedules), as to which the Company Stockholders shall
be obligated to indemnify Parent, Merger Sub and the Surviving Corporation from
the first dollar of such Loss.
(c) Notwithstanding the provisions of the foregoing Section
7.2(b), the Company Stockholders shall fully indemnify, defend and hold harmless
on an after-tax basis Parent, the Surviving Corporation, any of their Affiliates
and their successors and assigns against and in respect of any and all Losses
(including any fees, expenses and disbursements of counsel and other agents)
arising from, in connection with
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or resulting from any misrepresentation, inaccuracy or breach with respect to
Sections 3.12(c), 3.13, 5.1(p) and 5.11, and the provisions of Section 7.2(b)
hereof shall not apply to limit the obligations of the Company Stockholders
under this Section 7.2(c).
(d) Except with respect to the limitation set forth in Section
7.1 herein and in addition to the foregoing provisions of Section 7.2, the
Company Stockholders agree that it shall not be necessary or required that
Parent exercise any right, assert any claim or demand or enforce any remedy
whatsoever against the Company before or as a condition to the obligations of
the Company Stockholders hereunder. The indemnification liability of the Company
Stockholders under the foregoing provisions of Section 7.2 shall be absolute and
unconditional as if the Company Stockholders rather than the Company have made
the representations and warranties herein irrespective of any right of set-off
or counterclaim which may at any time be available to or asserted by the Company
Stockholders against Parent or any Affiliates thereof.
(e) In addition, notwithstanding the foregoing provisions of
this Section 7.2, the Company Stockholders will indemnify Parent for the costs
of curing, on an emergency expedited basis, any failure of the equipment,
hardware, software or systems used or intended to be used for or in connection
with the Company's business (the "Equipment") and each component thereof to
handle date information before, during and after January 1, 2000, including
accepting date input, providing date output and performing calculations on dates
or portions of dates, functioning accurately and without interruption before,
during and after January 1, 2000, without any change in operations associated
with the advent of the year 2000 and the new century, responding to two-digit
year input in a way that resolves the ambiguity as to century in a disclosed,
defined and predetermined manner, recognizing the year 2000 as a leap year,
processing two-digit year date information in ways that are similarly
unambiguous as to century, and storing and provide output of date information in
ways that are similarly unambiguous as to century.
(f) For purposes of this Section 7.2, the Company Stockholders
shall be considered to be a single Indemnifying Party (as defined in Section
7.3).
7.3. Procedures Relating to Indemnification. Promptly after the receipt
by any party hereto of notice of any claim, action, suit or proceeding of any
third party for which it intends to seek indemnification hereunder, such party
or parties (the "Indemnified Party") shall give written notice of such claim (a
"Notice of Claim") to the party or parties obligated to provide indemnification
hereunder (collectively, the "Indemnifying Party"), stating the nature and basis
of such claim and the amount thereof, to the extent known. The failure of the
Indemnified Party to so notify the Indemnifying Party shall not impair the
Indemnified Party's ability to seek indemnification from the Indemnifying Party
unless such failure has resulted in the loss of substantive rights with respect
to the Indemnifying Party's ability to defend such claim, and then only to the
extent of such loss. The Indemnifying Party shall be entitled to participate in
the defense or settlement of such matter and the parties agree to cooperate in
any such defense or settlement and to give each other full access to all
information relevant thereto. The
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Indemnifying Party shall not be obligated to indemnify an Indemnified Party
hereunder for any settlement entered into without the Indemnifying Party's prior
written consent, which consent shall not be unreasonably withheld, conditioned
or delayed. If any Notice of Claim relates to a claim by a person or persons
(other than by federal, state or local income tax authorities or by Parent), and
the amount of such claim is acknowledged by the Company Stockholders to be fully
covered by the foregoing indemnity, the Company Stockholders may elect to defend
against such claim at their expense, in lieu of Parent assuming such defense;
provided, that Parent shall be entitled to participate in or monitor such
defense at its expense and the Company Stockholders will fully cooperate with
Parent and its counsel with respect thereto. If the Company Stockholders so
elect to assume such defense, they shall retain counsel reasonably satisfactory
to Parent. No compromise or settlement of such claim may be effected by either
party without the other party's consent (which shall not be unreasonably
withheld) unless (i) there is no finding or admission of any violation of law
and no effect on any other claims that may be made against such other party and
(ii) the sole relief provided is monetary damages that are paid in full by the
party seeking the settlement.
ARTICLE VIII
TERMINATION
8.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time:
(a) By the mutual written consent of Parent, Merger Sub and
the Company;
(b) By Parent and Merger Sub, on the one hand, or the Company,
on the other hand, at any time on or after the later to occur of:
(i) 60 days after the date on which any request or
application for a Requisite Regulatory Approval shall have
been denied or withdrawn at the request or recommendation of
the Governmental Entity which must grant such Requisite
Regulatory Approval, unless within the 60-day period following
such denial or withdrawal a petition for rehearing or an
amended application has been filed with the applicable
Governmental Entity; provided, however, that no party shall
have the right to terminate this Agreement pursuant to this
Section 8.1(b)(i) if such denial or request or recommendation
for withdrawal shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein; and
(ii) 45 days following the date hereof, if the
Effective Time shall not have occurred on or before that date
and if any of the conditions to the obligation of the
terminating party to close the Merger has not, at that time,
been fulfilled; provided, however, that the right to terminate
this Agreement under this Section 8.1(b)(ii) shall not be
available to any party
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whose failure to fulfill materially any covenant or obligation
under this Agreement has been the cause of, or resulted in,
either the failure of the Effective Time to occur on or before
such date or the failure of fulfillment before such date of
any of the conditions to such terminating party's obligation
to close the Merger; or
(iii) at such time as a court of competent
jurisdiction or other Governmental Entity shall have issued an
Order or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such Order
or other action shall have become final and nonappealable;
(c) By and Merger Sub, on the one hand or the Company, on the
other hand, (provided, that the terminating party is not then in material breach
of any representation, warranty, covenant or other agreement contained herein),
if there shall have been a material breach of any of the representations,
warranties or covenants set forth in this Agreement on the part of the other
party, which breach is not cured within 30 days following written notice to the
party committing such breach, or which breach, by its nature, cannot be cured
prior to the Closing; provided, however, that neither party shall have the right
to terminate this Agreement pursuant to this Section 8.1(c) unless the breach of
representation, warranty or covenant would entitle the terminating party not to
consummate the transactions contemplated hereby under Section 6.2(a) (in the
case of a breach of representation or warranty by the Company) or Section 6.3(a)
(in the case of a breach of representation or warranty by Parent and Merger Sub)
or which breach, by its nature, cannot be cured prior to the Closing.
8.2. Procedure for and Effect of Termination. In the event that this
Agreement is terminated and the Merger is abandoned by Parent or Merger Sub, on
the one hand, or by the Company, on the other hand, pursuant to Section 8.1,
written notice of such termination and abandonment shall forthwith be given to
the other parties and this Agreement shall terminate and the Merger shall be
abandoned without any further action. If this Agreement is terminated as
provided herein, no party hereto shall have any liability or further obligation
to any other party under the terms of this Agreement except (i) with respect to
the willful breach by any party hereto, and (ii) that this Section 8.2, the last
sentence of Section 5.4, Section 9.2 and Section 9.3 shall survive the
termination of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1. Certain Definitions. For purposes of this Agreement, the following
terms shall have the meanings ascribed to them in this Section 9.1:
(a) "Affiliate", with respect to any person, shall mean any
person controlling, controlled by or under common control with such person;
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(b) "Business Day" shall mean each day on which banking
institutions in New York, NY are not authorized or required to close;
(c) "including" shall, unless the context clearly requires
otherwise, mean including but not limited to the items or things following such
term;
(d) "knowledge", "to the knowledge of", "best knowledge" and
any similar language shall mean, with respect to the Company or any of its
Subsidiaries, the actual knowledge, after due inquiry, of the Company
Stockholders and of any other person who, on the date hereof, is an officer of
the Company or any such Subsidiary;
(e) "person" shall mean and include an individual, a
partnership, a joint venture, a limited liability company, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof; and
(f) "Subsidiary", with respect to any corporation or other
person, shall mean any corporation 50% or more of the outstanding voting power
of which, or any partnership, joint venture, limited liability company or other
entity 50% or more of the total equity interest of which is directly or
indirectly owned by such person, and any other entity over which such
corporation or other person has control as a result of ownership interests, any
contract or other arrangement, or through any other means. For purposes of this
Agreement, all references to "Subsidiaries" of a person shall be deemed to mean
"Subsidiary" if such person has only one Subsidiary.
9.2. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented, whether before or after the
Stockholder Approvals, only by a written agreement signed by each of the parties
hereto at any time prior to the Effective Time with respect to any of the terms
contained herein; provided, however, that after this Agreement is adopted by the
Company's Stockholders, no such amendment or modification shall (a) alter or
change the amount or kind of the consideration to be delivered to the
stockholders of the Company, (b) alter or change any term of the articles of
incorporation of the Surviving Corporation to be effected by the Merger or (c)
alter or change any of the terms or conditions of this Agreement if such
alteration or change would adversely affect the stockholders of the Company.
9.3. Waiver of Compliance; Consents. Any failure of Parent or Merger
Sub, on the one hand, or the Company, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by Parent,
Merger Sub or the Company, respectively, only by a written instrument signed by
the party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.3.
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9.4. Restrictive Legend. Each certificate representing Parent Common
Stock to be delivered to the holders of Company Stock hereunder shall, except as
otherwise provided in this Section 9.4, be stamped or otherwise imprinted with a
legend substantially in the following form:
"THIS SECURITY IS SUBJECT TO RESTRICTIONS REGARDING THE SALE THEREOF
UNDER AN AGREEMENT AND PLAN OF MERGER DATED NOVEMBER 7, 2000 BETWEEN
THE HOLDER THEREOF AND PARENT CORPORATION, HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES LAWS,
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THAT ACT AND THE APPLICABLE STATE SECURITIES LAWS OR
AN EXEMPTION FROM REGISTRATION IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to Parent the securities being sold thereby may be publicly sold
without registration under the Securities Act or under the applicable state
securities laws.
9.5. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given when delivered in person,
by telecopier (with a confirmed receipt thereof) or registered or certified mail
(postage prepaid, return receipt requested), and on the next business day when
sent by overnight courier service, to the parties at the following addresses (or
at such other address for a party as shall be specified by like notice):
(1) if to Parent or Merger Sub:
AppliedTheory Corporation
0000 Xxxxxxxx, Xxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxxx
Senior Vice President &
Chief Financial Officer
Telecopier: 000-000-0000
with a copy to:
AppliedTheory Corporation
000 Xxxxxxxx Xx., 0xx Xxxxx
Xxxxxxxx, XX 00000
Attention: General Counsel.
Telecopier: 000-000-0000
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(2) if to the Company:
Xxxxx Interactive, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Telecopier: 000-000-0000
with a copy to:
Hall & Xxxxx, LLC
0000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
Telecopier: 000-000-0000
(3) if to the Company Stockholders:
Xxxxx and Xxxxxx Xxxxx
0000 Xxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxx Xxxxxxxx
00000 Xxxxxxx Xxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxxxx Xxxxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
with a copy to:
Hall & Xxxxx, L.L.C.
0000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
Telecopier: 000-000-0000
9.6. Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, administrators, executors, representatives, affiliates,
subsidiaries, successors and permitted assigns, but neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto without the prior written consent of the other parties.
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9.7. Expenses. Whether or not the Merger is consummated, all fees,
charges and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees,
charges or expenses.
9.8. Gender; Plurals, etc. Whenever used herein, the singular number
shall include the plural, the plural the singular and the use of any gender
shall be applicable to all genders.
9.9. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State, without regard to the
choice of law principles thereof.
9.10. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.11. Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
9.12. Entire Agreement. This Agreement (including the schedules,
exhibits, documents or instruments referred to herein) and the Confidentiality
Agreement embody the entire agreement and understanding of the parties hereto in
respect of the subject matter hereof and thereof and supersede all prior
agreements and understandings, both written and oral, among the parties, or
between any of them, with respect to the subject matter hereof and thereof.
9.13. No Third Party Beneficiaries. Except as provided in Section 5.10
and 7.2(a), this Agreement is not intended to, and does not, create any rights
or benefits of any party other than the parties hereto.
9.14. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement and Plan of Merger as of the date first above written.
XXXXX INTERACTIVE, INC.
By:/s/ Xxxxx Xxxxx
------------------------------------
Name: Xxxxx Xxxxx
-----------------------------
Title: President
-----------------------------
THE COMPANY STOCKHOLDERS:
/s/ Xxxxx X. Xxxxx
---------------------------------------
Xxxxx X. Xxxxx
/s/ Xxxxxx Xxxxxxx Xxxxx
---------------------------------------
Xxxxxx Xxxxxxx Xxxxx
/s/ Xxxxxx Xxxxxxxx
---------------------------------------
Xxxxxx Xxxxxxxx
/s/ Xxxxx Xxxxxxxx
---------------------------------------
Xxxxxxx Xxxxxxxx by Xxxxx Xxxxxxxx, POA
APPLIEDTHEORY CORPORATION
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
-----------------------------
Title: CEO
-----------------------------
APPLIEDTHEORY COLORADO
ACQUISITION CORPORATION
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
-----------------------------
Title: CEO
-----------------------------
