FindLaw | Find a Lawyer. Find Answers.
Are you a legal Professional?
My current location:
Los Angeles, CA
| Change location
| Featured Attorneys | |
Dynamic Advocates providing optimum service in the most cost-effective manner.
|
(818) 243-5200
|
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
JUPITER COMMUNICATIONS, INC.,
IRG ACQUISITION CORP.,
INTERNET RESEARCH GROUP
AND
THE SHAREHOLDERS OF
INTERNET RESEARCH GROUP
LISTED ON SCHEDULE I HERETO
Dated as of February 28, 2000
<PAGE> 2
TABLE OF CONTENTS
<CAPTION>
Page
----
ARTICLE I DEFINITIONS.............................................................................................2
SECTION 1.01 Certain Defined Terms.....................................................................2
ARTICLE II THE MERGER.............................................................................................5
SECTION 2.01 The Merger ...............................................................................5
SECTION 2.02 Closing ..................................................................................5
SECTION 2.03 Effective Time ...........................................................................6
SECTION 2.04 Effect of the Merger......................................................................6
SECTION 2.05 Articles of Incorporation; Bylaws; Directors and Officers of Surviving Corporation........6
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES....................................................7
SECTION 3.01 Conversion of Shares......................................................................7
SECTION 3.02 Exchange of Shares Other than Treasury Shares.............................................7
SECTION 3.03 Stock Transfer Books......................................................................9
SECTION 3.04 No Fractional Share Certificates..........................................................9
SECTION 3.05 Certain Adjustments......................................................................10
SECTION 3.06 Lost, Stolen or Destroyed Certificates...................................................10
SECTION 3.07 Taking of Necessary Action; Further Action...............................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS...................................11
SECTION 4.01 Organization and Qualification; No Subsidiaries..........................................11
SECTION 4.02 Articles of Incorporation and Bylaws.....................................................11
SECTION 4.03 Capitalization ..........................................................................12
SECTION 4.04 Authority Relative to This Agreement.....................................................12
SECTION 4.05 No Conflicts; Required Filings and Consents..............................................12
SECTION 4.06 Permits; Compliance with Laws............................................................13
SECTION 4.07 Financial Statements.....................................................................14
SECTION 4.08 Absence of Certain Changes or Events.....................................................14
SECTION 4.09 Employee Benefit Plans; Labor Matters....................................................15
SECTION 4.10 Certain Tax Matters......................................................................18
SECTION 4.11 Contracts ...............................................................................18
SECTION 4.12 Litigation ..............................................................................19
SECTION 4.13 Environmental Matters....................................................................19
SECTION 4.14 Intellectual Property....................................................................20
SECTION 4.15 Taxes ...................................................................................22
SECTION 4.16 Insurance ...............................................................................23
SECTION 4.17 Properties ..............................................................................23
i.
<PAGE> 3
<CAPTION>
Page
----
SECTION 4.18 Affiliates ..............................................................................24
SECTION 4.19 Brokers .................................................................................24
SECTION 4.20 Certain Business Practices...............................................................25
SECTION 4.21 Business Activity Restriction............................................................25
SECTION 4.22 Accounts Receivable......................................................................25
SECTION 4.23 Customers and Suppliers..................................................................25
SECTION 4.24 Employee Matters.........................................................................25
SECTION 4.25 Financial Projections....................................................................26
SECTION 4.26 Representations Complete.................................................................26
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT...............................................................27
SECTION 5.01 Organization and Qualification; Subsidiaries.............................................27
SECTION 5.02 Capitalization 27
SECTION 5.03 Authority Relative to this Agreement.....................................................27
SECTION 5.04 No Conflict; Required Filings and Consents...............................................28
SECTION 5.05 SEC Filings; Financial Statements........................................................29
SECTION 5.06 Absence of Certain Changes or Events.....................................................29
SECTION 5.07 Certain Tax Matters......................................................................30
SECTION 5.08 Brokers .................................................................................30
SECTION 5.09 Representations Complete.................................................................30
ARTICLE VI COVENANTS.............................................................................................30
SECTION 6.01 Conduct of Business by the Company Pending the Closing...................................30
SECTION 6.02 Notices of Certain Events................................................................32
SECTION 6.03 Access to Information; Confidentiality...................................................33
SECTION 6.04 No Solicitation of Transactions..........................................................33
SECTION 6.05 Tax-Free Transaction.....................................................................34
SECTION 6.06 Further Action; Consents; Filings........................................................34
ARTICLE VII ADDITIONAL AGREEMENTS................................................................................35
SECTION 7.01 Public Announcements.....................................................................35
SECTION 7.02 Employee Benefit Matters.................................................................35
SECTION 7.03 Shareholder Investment Representations...................................................35
SECTION 7.04 Stock Options ...........................................................................36
SECTION 7.05 Lock-up Agreement of Shareholders........................................................36
SECTION 7.06 Legend. .................................................................................36
SECTION 7.07 Registration Rights......................................................................37
ARTICLE VIII CONDITIONS TO THE MERGER............................................................................41
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the Merger.....................41
<PAGE> 4
<CAPTION>
Page
----
SECTION 8.02 Conditions to the Obligations of the Company.............................................41
SECTION 8.03 Conditions to the Obligations of Parent..................................................42
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.....................................................................44
SECTION 9.01 Termination .............................................................................44
SECTION 9.02 Effect of Termination....................................................................45
SECTION 9.03 Amendment ...............................................................................45
SECTION 9.04 Waiver ..................................................................................45
SECTION 9.05 Expenses ................................................................................46
ARTICLE X INDEMNIFICATION AND ESCROW.............................................................................46
SECTION 10.01 Indemnification..........................................................................46
SECTION 10.02 Damage Limitations.......................................................................46
SECTION 10.03 Procedures ..............................................................................47
SECTION 10.04 Escrow Fund; Non-Exclusive Remedy........................................................48
SECTION 10.05 Escrow Period ...........................................................................48
SECTION 10.06 Claims upon Escrow Fund..................................................................48
SECTION 10.07 Objections to Claims.....................................................................48
SECTION 10.08 Resolution of Conflicts; Arbitration.....................................................49
ARTICLE XI GENERAL PROVISIONS....................................................................................50
SECTION 11.01 Duration of Survival of Representations and Warranties...................................50
SECTION 11.02 Notices .................................................................................50
SECTION 11.03 Severability ............................................................................51
SECTION 11.04 Assignment; Binding Effect; Benefit......................................................51
SECTION 11.05 Incorporation of Exhibits................................................................51
SECTION 11.06 Governing Law ...........................................................................51
SECTION 11.07 Waiver of Jury Trial.....................................................................52
SECTION 11.08 Headings; Interpretation.................................................................52
SECTION 11.09 Counterparts ............................................................................52
SECTION 11.10 Entire Agreement.........................................................................52
ANNEXES
<CAPTION>
ANNEX A Agreement of Merger
ANNEX B Form of Escrow Agreement
ANNEX C Form of Opinion of Counsel to Parent
ANNEX D Form of Opinion of Counsel to the Company
ANNEX E Form of Employment Agreement
ANNEX F Form of Confidentiality and Noncompetition Agreement
<PAGE> 5
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of
February 28, 2000 (as amended, supplemented or otherwise modified from time to
time, this "AGREEMENT"), among JUPITER COMMUNICATIONS, INC., a Delaware
corporation ("PARENT"), IRG ACQUISITION CORP., a California corporation and a
direct wholly owned Subsidiary of Parent ("MERGER SUB"), INTERNET RESEARCH
GROUP, a California corporation (the "COMPANY") and each of the persons listed
on Schedule I hereto (each, a "SHAREHOLDER" and collectively, the
"SHAREHOLDERS"):
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent and the Company
have determined that it is advisable and in the best interests of their
respective companies and shareholders to enter into a business combination by
means of the merger of Merger Sub with and into the Company (the "MERGER") and
have approved and adopted this Agreement;
WHEREAS, by virtue of their execution of a shareholder
consent, the Shareholders have unanimously approved the Merger and this Merger
Agreement in accordance with the California Corporations Code (the "CALIFORNIA
CODE");
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the California Code, Parent will acquire all of
the common stock of the Company through the Merger; and
WHEREAS, for United States Federal income tax purposes, it is
intended that the Merger shall qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (together with
the rules and regulations promulgated thereunder, the "CODE"), and that this
Agreement shall be, and hereby is, adopted as a plan of reorganization for
purposes of Section 368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
<PAGE> 6
2
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms
Unless the context otherwise requires, the following terms,
when used in this Agreement, shall have the respective meanings specified below
(such meanings to be equally applicable to the singular and plural forms of the
terms defined):
"AFFILIATE" shall mean, with respect to any person, any other
person that controls, is controlled by or is under common control with the first
person.
"BLUE SKY LAWS" shall mean state securities or "blue sky"
laws.
"BUSINESS DAY" shall mean any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized by law or executive order to close in New York.
"COMPANY DISCLOSURE SCHEDULE" shall mean the disclosure
schedule delivered by the Company to Parent prior to the execution of this
Agreement and forming a part hereof.
"COMPANY INTELLECTUAL PROPERTY" shall mean all patents
(including, without limitation, all U.S. and foreign patents, patent
applications, patent disclosures, and any and all divisions, continuations,
continuations-in-part, reissues, re-examinations and extensions thereof), design
rights, trademarks, trade names and service marks (whether or not registered),
trade dress, Internet domain names, copyrights (whether or not registered) and
any renewal rights therefor, sui generis database rights, statistical models,
technology, inventions, supplier lists, trade secrets, know-how, computer
software programs or applications in both source and object code form,
databases, technical documentation of such software programs ("TECHNICAL
DOCUMENTATION"), registrations and applications for any of the foregoing and all
other tangible or intangible proprietary information or materials that were
material to the Company's business or are currently used in the Company's
business in any product, technology or process (i) currently being or formerly
manufactured, published or marketed by the Company or (ii) previously or
currently under development for possible future manufacturing, publication,
marketing or other use by the Company.
"COMPANY MATERIAL ADVERSE EFFECT" shall mean any change in or
effect on the business of the Company that, individually or in the aggregate
(taking into account all other such changes or effects), is, or is reasonably
likely to be, materially adverse to the business, assets, liabilities, financial
condition, results of operations or prospects of the Company.
"COMPANY STOCK PLAN" shall mean the Company's 1999 Stock
Option Plan.
<PAGE> 7
3
"COMPETING TRANSACTION" shall mean any of the following
involving the Company (other than the Merger):
(i) any merger, consolidation, share exchange,
business combination or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 20% or more of the assets of the
Company and its subsidiaries, taken as a whole, in a single transaction
or series of transactions;
(iii) any tender offer or exchange offer for 20% or
more of the outstanding voting securities of the Company or the filing
of a registration statement under the Securities Act in connection
therewith; or
(iv) any person having acquired beneficial ownership
or the right to acquire beneficial ownership of, or any "group" (as
such term is defined under Section 13(d) of the Exchange Act) having
been formed that beneficially owns or has the right to acquire
beneficial ownership of, 20% or more of the outstanding voting
securities of the Company;
(v) any solicitation in opposition to the approval of
this Agreement by the Shareholders of the Company; or
(vi) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any
of the foregoing.
"CONFIDENTIALITY AGREEMENT" shall mean the confidentiality
agreement dated January 19, 2000 between Parent and the Company.
"$" shall mean United States Dollars.
"ENVIRONMENTAL LAW" shall mean any Law and any enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof.
"ENVIRONMENTAL PERMIT" shall mean any permit, approval,
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder.
<PAGE> 8
4
"EXPENSES" shall mean, with respect to any party hereto, all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its Affiliates) incurred by such party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Merger, the filings of HSR Act notice and all other matters related to
the transactions contemplated hereby and the closing of the Merger.
"GOVERNMENTAL ENTITY" shall mean any United States Federal,
state or local or any foreign governmental, regulatory or administrative
authority, agency or commission or any court, tribunal or arbitral body.
"GOVERNMENTAL ORDER" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Entity.
"HAZARDOUS MATERIAL" shall mean (i) any petroleum, petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical,
material or substance defined or regulated as toxic or hazardous or as a
pollutant or contaminant or waste under any applicable Environmental Law.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, together with the rules and regulations
promulgated thereunder.
"IRS" shall mean the United States Internal Revenue Service.
"LAW" shall mean any Federal, state, foreign or local statute,
law, ordinance, regulation, rule, code, order, judgment, decree, other
requirement or rule of law of the United States or any other jurisdiction, and
any other similar act or law.
"PARENT COMMON STOCK" shall mean the common stock, par value
$.001 per share, of Parent.
"PARENT MATERIAL ADVERSE EFFECT" shall mean any change in or
effect on the business of Parent and the Parent Subsidiaries that, individually
or in the aggregate (taking into account all other such changes or effects), is,
or is reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition, results of operations or prospects of Parent
and the Parent Subsidiaries, taken as a whole.
"PERSON" shall mean an individual, corporation, partnership,
limited partnership, limited liability company, limited liability partnership,
syndicate, person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Exchange Act), trust, association, entity or government
or political subdivision, agency or instrumentality of a government.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder.
<PAGE> 9
5
"SEC" shall mean the Securities and Exchange Commission.
"SUBSIDIARY" shall mean, with respect to any person, any
corporation, partnership, limited partnership, limited liability company,
limited liability partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary of such
person) owns, directly or indirectly, a majority of the stock or other equity
interests.
"TAX" shall mean (i) any and all taxes, fees, levies, duties,
tariffs, imposts and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Entity or taxing authority,
including, without limitation, taxes or other charges on or with respect to
income, franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges; (ii) any liability for the payment of any amounts of the type
described in (i) as a result of being a member of an affiliated, combined,
consolidated or unitary group for any taxable period; and (iii) any liability
for the payment of amounts of the type described in (i) or (ii) as a result of
being a transferee of, or a successor in interest to, any Person or as a result
of an express or implied obligation to indemnify any person.
"TAX RETURN" shall mean any return, statement or form
(including, without limitation, any estimated tax reports or return, withholding
tax reports or return and information report or return) required to be filed
with respect to any Taxes.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the California Code, at the Effective Time (as
defined in Section 2.03), Merger Sub shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation of the Merger
as a wholly owned Subsidiary of Parent (the "SURVIVING CORPORATION").
SECTION 2.02 Closing
Unless this Agreement shall have been terminated and the
Merger herein contemplated shall have been abandoned pursuant to Section 9.01
and subject to the satisfaction or waiver of the conditions set forth in Article
VIII, the consummation of the Merger shall take place as promptly as practicable
(and in any event within three Business days) after satisfaction or waiver of
the conditions set forth in Article VIII, at a closing (the "CLOSING") to be
held at the
<PAGE> 10
6
offices of Brobeck, Phleger & Harrison LLP, 1633 Broadway, New York, New York
10019, unless another date, time or place is agreed to by Parent and the
Company, provided, however, that the parties shall use their reasonable best
efforts to consummate the Merger on or prior to March 22, 2000.
SECTION 2.03 Effective Time
At and after the time of the Closing, the parties shall cause
the Merger to be consummated by filing an agreement of merger and officers'
certificates in the form attached as Annex A hereto (the "AGREEMENT OF MERGER")
with the Secretary of State of the State of California in such form as required
by, and executed in accordance with the relevant provisions of, the California
Code (the date and time of such filing, or such later date and time as may be
set forth therein, being the "EFFECTIVE TIME").
SECTION 2.04 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of the California Code. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time,
except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the Company as
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Company as
the Surviving Corporation.
SECTION 2.05 Articles of Incorporation; Bylaws; Directors and
Officers of Surviving Corporation
Unless otherwise agreed by Parent and the Company before the
Effective Time, at the Effective Time:
(a) the Articles of Incorporation and the Bylaws of Merger Sub
in effect immediately prior to the Effective Time shall be the Articles of
Incorporation and the bylaws of the Surviving Corporation, until thereafter
amended as provided by Law and such Articles of Incorporation or bylaws;
(b) the officers of Merger Sub immediately prior to the
Effective Time shall serve in their respective offices of the Surviving
Corporation from and after the Effective Time, in each case until their
successors are elected or appointed and qualified or until their resignation or
removal; and
(c) the directors of Merger Sub immediately prior to the
Effective Time shall serve as the directors of the Surviving Corporation from
and after the Effective Time, in each case until their successors are elected or
appointed and qualified or until their resignation or removal.
<PAGE> 11
7
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Conversion of Shares
At the Effective Time, by virtue of the Merger, and without
any action on the part of Parent, Merger Sub, the Company or the holders of any
of the following securities:
(a) Each share of Common Stock, no par value per share, of the
Company ("COMPANY COMMON STOCK") issued and outstanding immediately before the
Effective Time (excluding those held in the treasury of the Company and those
owned by any wholly owned Subsidiary of the Company), and all rights in respect
thereof, shall forthwith cease to exist and be converted into and become
exchangeable into .092766387 of a share (the "EXCHANGE RATIO") of Parent Common
Stock (collectively, the "MERGER SHARES"), as set forth in Schedule I hereto,
subject to adjustment as provided in Section 3.06 below (it being understood
that that the Exchange Ratio equals a fraction, (i) the numerator of which
fraction is 642,500, and (ii) the denominator of which is 6,926,000, which
equals the number of issued and outstanding shares of Company Stock, plus all
outstanding options to purchase Company Common Stock (both vested and unvested)
and any other securities of the Company exercisable, exchangeable or convertible
into shares of Company Common Stock (the "FULLY DILUTED SHARE NUMBER")). An
aggregate of 64,250 shares of the Merger Shares shall be subject to escrow
pursuant to Article X hereof.
(b) Each share of Company Common Stock held in the treasury of
the Company or owned by any wholly owned Subsidiary of the Company immediately
prior to the Effective Time shall be canceled and retired and no shares of stock
or other securities of Parent, the Surviving Corporation or any other
corporation shall be issuable, and no payment of other consideration shall be
made, with respect thereto.
(c) each issued and outstanding share of capital stock of
Merger Sub shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation. From and after the Effective
Time, each outstanding certificate theretofore representing shares of Merger Sub
common stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of Surviving Corporation common stock into which
such shares of Merger Sub common stock shall have been converted. Promptly after
the Effective Time, the Surviving Corporation shall issue to Parent a stock
certificate representing 1,000 shares of Surviving Corporation common stock in
exchange for the certificate that formerly represented shares of Merger Sub
common stock, which shall be surrendered by Parent and canceled.
SECTION 3.02 Exchange of Shares Other than Treasury Shares
(a) Exchange Agent. Parent shall act as exchange agent for the
Merger (the "EXCHANGE AGENT").
<PAGE> 12
8
(b) Parent to Provide Common Stock. Promptly after the
Effective Time, Parent shall make available for the benefit of the Shareholders
certificates of Parent Common Stock ("PARENT CERTIFICATES") representing the
number of whole shares of Parent Common Stock issuable pursuant to Section
3.01(a) in exchange for shares of Company Common Stock outstanding immediately
prior to the Effective Time, less the Escrow Fund (as defined in Section 10.04),
to the Shareholders or their nominees in the amounts set forth opposite their
names on Schedule I hereto.
(c) Exchange Procedures. On or prior to the Effective Time,
each holder of record of a certificate or certificates (the "COMPANY
CERTIFICATES") which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock, whose shares were converted into the
right to receive shares of Parent Common Stock pursuant to Section 3.01(a) shall
surrender each such Company Certificate for cancellation to Parent or to such
other agent or agents as may be appointed by Parent. The holder of such Company
Certificate shall be entitled to receive in exchange therefor, and Parent shall
cause to be delivered to such holder, or its nominee, within ten (10) days of
the Effective Time, a certificate representing the number of whole shares of
Parent Common Stock which such holder has the right to receive pursuant to
Section 3.01(a), and the Company Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Company Certificate that, prior
to the Effective Time, represented shares of Company Common Stock will be deemed
from and after the Effective Time, for all corporate purposes other than the
payment of dividends, to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Common Stock shall have
been so converted.
(d) Distribution with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Company Certificate with respect to the shares of Parent Common
Stock represented thereby until the holder of record of such Company Certificate
shall surrender such Company Certificate. Subject to the effect of applicable
escheat or similar laws, following surrender of any such Company Certificate,
there shall be paid to the record holder of the Parent Certificates issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
3.02(d)) with respect to such shares of Parent Common Stock.
(e) Transfer of Ownership. If any Parent Certificate is to be
issued in a name other than that in which the Company Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the Company Certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a Parent Certificate for
shares of Parent Common Stock in any name other than that of the registered
holder of the Company Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
<PAGE> 13
9
(f) No Liability. Notwithstanding anything to the contrary in
this Section 3.02, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person in respect of any shares of Parent
Common Stock delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
SECTION 3.03 Stock Transfer Books
At the Effective Time, the stock transfer book of the Company
shall be closed, and there shall be no further registration of transfers of
shares of the Company Common Stock thereafter on the records of any such stock
transfer books. In the event of a transfer of ownership of shares of Company
Common Stock that is not registered in the stock transfer records of the Company
at the Effective Time, a certificate or certificates representing the number of
full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been converted shall be issued to the transferee together with
a cash payment in lieu of fractional shares, if any, in accordance with Section
3.04 hereof, if the certificate or certificates representing such shares of
Company Common Stock is or are surrendered as provided in Section 3.02(c)
hereof, accompanied by all documents required to evidence and effect such
transfer and by evidence of payment of any applicable stock transfer tax.
SECTION 3.04 No Fractional Share Certificates
No scrip or fractional share Parent Certificate shall be
issued upon the surrender for exchange of Company Certificates, and an
outstanding fractional share interest shall not entitle the owner thereof to
vote, to receive dividends or to any rights of a shareholder of Parent or of
Surviving Corporation with respect to such fractional share interest. As
promptly as practicable following the Effective Time, Parent shall deposit with
the Exchange Agent an amount in cash sufficient for the Exchange Agent to pay
each holder of Company Common Stock an amount in cash, rounded to the nearest
whole cent, equal to the product obtained by multiplying (i) the fractional
share interest to which such holder would otherwise be entitled (after taking
into account all shares of Company Common Stock held at the Effective Time by
such holder) by (ii) the average closing price on the Nasdaq National Market of
a share of Parent Common Stock for the period beginning on January 6, 2000 and
ending on the last trading date immediately preceding the date hereof. As soon
as practicable after the determination of the amount of cash, if any, to be paid
to holders of Company Common Stock with respect to any fractional share
interests, the Exchange Agent shall make available such amounts, net of any
required withholding taxes, to such holders of Company Common Stock, subject to
and in accordance with the terms of Section 3.02(c) hereof.
SECTION 3.05 Options to Purchase Company Common Stock
At the Effective Time, the Company's Stock Plan and each
option granted by Company to purchase shares of the Company Common Stock
pursuant to the Company Stock Plan or otherwise listed in Section 4.03 of the
Company Disclosure Schedule ("COMPANY STOCK OPTIONS"), which is outstanding and
unexercised immediately prior to the Effective Time, shall be assumed by Parent
and converted into an option to purchase shares of Parent Common Stock
<PAGE> 14
10
in such number and at such exercise price as provided below and otherwise having
the same terms and conditions as in effect immediately prior to the Effective
Time (except to the extent that such terms, conditions and restrictions may be
altered in accordance with their terms as a result of the Merger contemplated
hereby and except that all references in each such Company Stock Option to
Company shall be deemed to refer to Parent):
(a) the number of shares of Parent Common Stock to be subject
to the new option shall be equal to the product of (x) the number of shares of
Company Common Stock subject to the original Company Stock Option immediately
prior to the Effective Time and (y) the Exchange Ratio (less any applicable
adjustments for financial advisor fees, as determined by the Company);
(b) the exercise price per share of Parent Common Stock under
the new option shall be equal to (x) the exercise price per share of Company
Common Stock in effect under the original Company Stock Option immediately prior
to the Effective Time divided by (y) the Exchange Ratio (less any applicable
adjustments for financial advisor fees, as determined by the Company); and
(c) in effecting such assumption and conversion, the aggregate
number of shares of Parent Common Stock to be subject to each assumed Company
Stock Option will be rounded down, if necessary, to the next whole share and the
aggregate exercise price shall be rounded up, if necessary, to the next whole
cent.
The adjustments provided herein with respect to any options
that are "incentive stock options" (as defined in Section 422 of the Code) shall
be effected in a manner consistent with the requirements of Section 424(a) of
the Code.
SECTION 3.06 Certain Adjustments
If, between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock or Company Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, or the number of shares of Company Common Stock on a
fully diluted basis is in excess of that specified in Section 4.03 and disclosed
in Section 4.03 of the Company Disclosure Schedule (regardless of whether such
excess is a result of an additional issuance of capital stock or a correction to
such Section), then the number of Merger Shares to be issued pursuant to the
provisions of Section 3.01 shall be adjusted accordingly to provide to Parent
the same economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange, dividend or
increase.
SECTION 3.07 Lost, Stolen or Destroyed Certificates
In the event any Company Certificates shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Company Certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of
<PAGE> 15
11
Parent Common Stock (and cash in lieu of fractional shares) as may be required
pursuant to Section 3.01(a); provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificates to deliver a bond
in such sum as it may reasonably direct as indemnity against any claim that may
be made against Parent, the Surviving Corporation or the Exchange Agent with
respect to the Company Certificates alleged to have been lost, stolen or
destroyed.
SECTION 3.08 Taking of Necessary Action; Further Action
If, at any time after the Effective Time, any further action
is necessary or desirable to carry out the purposes of this Agreement and to
vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Company, the
officers and directors of the Company are fully authorized in the name of their
corporation or otherwise to take, and will use good faith efforts to take, all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders, jointly and severally,
hereby represent and warrant to Parent, subject to the exceptions specifically
disclosed in writing in the Company Disclosure Schedule, all such exceptions to
be referenced to a specific representation set forth in this Article IV, that:
SECTION 4.01 Organization and Qualification; No Subsidiaries
(a) The Company has been duly organized and is validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. The Company is duly qualified or licensed to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
(b) The Company does not own an equity interest in any
corporation, partnership or joint venture arrangement or other business entity.
SECTION 4.02 Articles of Incorporation and Bylaws
True, complete and correct copies of the Company's Articles of
Incorporation and bylaws, each as amended, are included in Section 4.02 of the
Company Disclosure Schedule.
<PAGE> 16
12
Such Articles of Incorporation and bylaws are in full force and effect. The
Company is not in violation of any of the provisions of its Articles of
Incorporation or bylaws.
SECTION 4.03 Capitalization
The authorized capital stock of the Company consists of
10,000,000 shares of Company Common Stock. As of the date hereof, 6,250,000
shares of Company Common Stock are issued and outstanding, all of which are duly
authorized, validly issued, fully paid and nonassessable. Except for the Company
Common Stock, there are no shares of capital stock or other equity securities of
the Company outstanding. Except as set forth in Section 4.03 of the Company
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company is a party or
by which the Company is bound relating to the issued or unissued capital stock
of the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company. There are no outstanding
contractual obligations of the Company to repurchase, redeem or otherwise
acquire any shares of Company Common Stock. There are no material outstanding
contractual obligations of the Company to provide funds to, or make any material
investment (in the form of a loan, capital contribution or otherwise) in, any
other person.
SECTION 4.04 Authority Relative to This Agreement
The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the Escrow Agreement (as defined in
Section 8.01(c), to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Escrow Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or the Escrow Agreement or to consummate the
transactions contemplated hereby or thereby (other than the filing and
recordation of the Agreement of Merger as required by the California Code). This
Agreement has been, and the Escrow Agreement will be, duly and validly executed
and delivered by the Company and the Shareholders. This Agreement constitutes,
and the Escrow Agreement will constitute, assuming the due authorization,
execution and delivery by the other parties hereto, the legal, valid and binding
obligations of the Company and the Shareholders, enforceable against each of
them in accordance with their respective terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
SECTION 4.05 No Conflicts; Required Filings and Consents
(a) The execution and delivery of this Agreement and the
Escrow Agreement by the Company and the Shareholders do not, and the performance
by the Company and the Shareholders of their respective obligations hereunder
and thereunder, and the consummation of the Merger will not, (i) conflict with
or violate any provision of the Articles of Incorporation or
<PAGE> 17
13
bylaws of the Company, (ii) conflict with or violate any Law applicable to the
Company or by which any property or asset of the Company is bound or affected or
(iii) result in any breach of or constitute a default (or an event which with
the giving of notice or lapse of time or both could reasonably be expected to
become a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any material property or asset of the Company or any Shareholder
pursuant to, any material note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation.
(b) No filing or registration with, or notification to, and no
permit, authorization, consent or approval of, any Government Entity is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated by this Agreement
except, (i) the filing of the Agreement of Merger with the Secretary of State of
the State of California, (ii) such filings and consents as may be required under
any Environmental Law pertaining to any notification, disclosure or required
approval triggered by the Merger or the transactions contemplated by this
Agreement, (iii) such filings, registrations, notifications, permits,
authorizations, consents or approvals that result from the specific legal or
regulatory status of Parent or as a result of any other facts that specifically
relate to the business or activities in which Parent is engaged other than the
business of the Company and (iv) such other filings, registrations, notices,
permits, authorizations, consents and approvals that if not obtained, made or
given would not, individually or in the aggregate, have a Company Material
Adverse Effect or impair the Company's ability to consummate the transactions
contemplated hereby.
(c) Except as set forth in Section 4.05(c) of the Company
Disclosure Schedule, no consent of any third party is required by reason of the
transactions contemplated by this Agreement.
SECTION 4.06 Permits; Compliance with Laws
The Company is in possession of all franchises, grants,
authorizations, licenses, establishment registrations, product listings,
permits, easements, variances, exceptions, consents, certificates,
identification and registration numbers, approvals and orders of any
Governmental Entity necessary for the Company to own, lease and operate its
properties or to offer or perform its services or to develop, produce, store,
distribute and market its products or otherwise to carry on its business as it
is now being conducted (collectively, the "COMPANY PERMITS"), and, as of the
date of this Agreement, none of the Company Permits has been suspended or
cancelled nor is any such suspension or cancellation pending or, to the
knowledge of the Company and each of the Shareholders, threatened. All of the
Company Permits are set forth in Section 4.06 of the Company Disclosure
Schedule. The Company is not in conflict with, or in default or violation of,
(i) any Law applicable to the Company or by which any property or asset of the
Company is bound or affected or (ii) any Company Permits. Section 4.06 of the
Company Disclosure Schedule sets forth, as of the date of this Agreement, all
actions, proceedings, investigations or surveys pending or, to the knowledge of
the Company and each of the Shareholders, threatened against the Company that
could reasonably be expected to result in the suspension or
<PAGE> 18
14
cancellation of any other Company Permit. Since January 1, 1998, the Company has
not received from any Governmental Entity any written notification with respect
to possible conflicts, defaults or violations of Laws. The Merger will not
result in the suspension or cancellation of any Company Permit.
SECTION 4.07 Financial Statements
(a) Section 4.07 of the Company Disclosure Schedule includes
copies of the unaudited balance sheets of the Company at December 31, 1999, 1998
and 1997, together with the related statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1999, 1998 and 1997 and
the notes thereto (the "COMPANY FINANCIAL STATEMENTS"). The Company Financial
Statements: (i) were prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby; (ii) present fairly the financial position, results
of operations and cash flows of the Company as of such dates and for the periods
then ended; and (iii) are correct and complete in all material respects, and can
be reconciled with the books of account and records of the Company. The Company
maintains and will continue to maintain an adequate system of internal controls
established and administered in accordance with GAAP.
(b) Except as and to the extent set forth or reserved against
on the balance sheets of the Company as reported in the Company Financial
Statements, the Company does not have any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) that would be
required to be reflected on a balance sheet or in notes thereto prepared in
accordance with GAAP, except for immaterial liabilities or obligations incurred
in the ordinary course of business consistent with past practice since December
31, 1999.
(c) The Working Capital (as hereinafter defined) of the
Company equals, and will equal as of the Effective Time, at least $350,000, as
set forth in an estimated balance sheet of the Company to be delivered to Parent
at the Effective Time. As used herein, the term "WORKING CAPITAL" means the
excess of total current assets over current liabilities of the Company,
determined in accordance with GAAP.
SECTION 4.08 Absence of Certain Changes or Events
Except as set forth in Section 4.08 of the Company Disclosure
Schedule, since December 31, 1999, the Company has conducted its business only
in the ordinary course consistent with past practice and, since such date, there
has not been (i) any Company Material Adverse Effect, (ii) any event that could
reasonably be expected to prevent or materially delay the performance of the
Company's obligations pursuant to this Agreement and the consummation of the
Merger by the Company, (iii) any change by the Company in its accounting
methods, principles or practices, (iv) any declaration, setting aside or payment
of any dividend or distribution in respect of the shares of Company Common Stock
or any redemption, purchase or other acquisition of any of the Company's
securities, (v) any increase in the compensation or benefits or establishment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation, the granting of
stock
<PAGE> 19
15
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any employees, officers,
consultants or directors of the Company, (vi) any issuance or sale of any stock,
notes, bonds or other securities, or entering into any agreement with respect
thereto, (vii) any amendment to the Company's Articles of Incorporation or
bylaws, (viii) other than in the ordinary course of business consistent with
past practice, any (x) purchase, sale, assignment or transfer of any material
assets, (y) mortgage, pledge or existence of any lien, encumbrance or charge on
any material assets or properties, tangible or intangible, except for liens for
Taxes not yet delinquent and such other liens, encumbrances or charges which do
not, individually or in the aggregate, have a Company Material Adverse Effect,
or (z) waiver of any rights of material value or cancellation or any material
debts or claims, (ix) any incurrence of any material liability (absolute or
contingent), except for current liabilities and obligations incurred in the
ordinary course of business consistent with past practice, (x) any incurrence of
any damage, destruction or similar loss, whether or not covered by insurance,
materially affecting the business or properties of the Company, (xi) any
entering into any transaction of a material nature other than in the ordinary
course of business, consistent with past practice, or (xii) any negotiation or
agreement by the Company to do any of the things described in the preceding
clauses (i) through (xi).
SECTION 4.09 Employee Benefit Plans; Labor Matters
(a) Section 4.09 of the Company Disclosure Schedule lists each
employee benefit fund, plan, program, arrangement and contract (including,
without limitation, any "pension" plan, fund or program, as defined in Section
3(2) of ERISA, and any "employee benefit plan", as defined in Section 3(3) of
ERISA and any plan, program, arrangement or contract providing for severance;
medical, dental or vision benefits; life insurance or death benefits; disability
benefits, sick pay or other wage replacement; vacation, holiday or sabbatical;
pension or profit-sharing benefits; stock options or other equity compensation;
bonus or incentive pay or other material fringe benefits), whether written or
not maintained, sponsored or contributed to or required to be contributed to by
the Company (the "COMPANY BENEFIT PLANS"). With respect to each Company Benefit
Plan, the Company has delivered or made available to Parent a true, complete and
correct copy of (i) such Company Benefit Plan (or, if not written, a written
summary of its material terms) and the most recent summary plan description, if
any, related to such Company Benefit Plan, (ii) each trust agreement or other
funding arrangement relating to such Company Benefit Plan, (iii) the most recent
annual report (Form 5500) filed with the IRS with respect to such Company
Benefit Plan (and, if the most recent annual report is a Form 5500R, the most
recent Form 5500C filed with respect to such Company Benefit Plan), (iv) the
most recent actuarial report or financial statement relating to such Company
Benefit Plan and (v) the most recent determination letter, if any, issued by the
IRS with respect to such Company Benefit Plan and any pending request for such a
determination letter. Neither the Company, nor to the knowledge of the Company
and each of the Shareholders, any other person or entity, has any express or
implied commitment, whether legally enforceable or not, to modify, change or
terminate any Company Benefit Plan, other than with respect to a modification,
change or termination required by ERISA or the Code.
<PAGE> 20
16
(b) Each Company Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws,
including ERISA and the Code, and contributions required to be made under the
terms of any of the Company Benefit Plans as of the date of this Agreement have
been timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet prior to the date of this Agreement. With
respect to the Company Benefit Plans, no event has occurred and, to the
knowledge of the Company and each of the Shareholders, there exists no condition
or set of circumstances in connection with which the Company could be subject to
any material liability (other than for routine benefit liabilities) under the
terms of, or with respect to, such Company Benefit Plans, ERISA, the Code or any
other applicable Law.
(c) The Company hereby represents that: (i) each Company
Benefit Plan which is intended to qualify under Section 401(a), Section 401(k),
Section 401(m) or Section 4975(e)(6) of the Code has received a favorable
determination letter from the IRS as to its qualified status, and each trust
established in connection with any Company which is intended to be exempt from
federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that it is so exempt, and to the knowledge of
the Company and each of the Shareholders, no fact or event has occurred that
could adversely affect the qualified status of any such Company Benefit Plan or
the exempt status of any such trust; (ii) to the knowledge of the Company and
each of the Shareholders there has been no prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code and other than a
transaction that is exempt under a statutory or administrative exemption) with
respect to any Company Benefit Plan that could result in liability to the
Company and (iii) each Company Benefit Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its terms,
without liability (other than (A) liability for ordinary administrative expenses
typically incurred in a termination event or (B) if the Company Benefit Plan is
pension benefit plan subject to Part 2 of Title I of ERISA, liability for the
accrued benefits as of the date of such termination (if and to the extent
required by ERISA) to the extent that either there are sufficient assets set
aside in a trust or insurance contract to satisfy such liability or such
liability is reflected on the most recent balance sheet included in the Company
Financial Statements prior to the date of this Agreement). No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of the Company and each of the Shareholders, is threatened,
against or with respect to any such Company Benefit Plan, including any audit or
inquiry by the Internal Revenue Service or United States Department of Labor
(other than routine benefits claims).
(d) No Company Benefit Plan is a multiemployer pension plan
(as defined in Section 3(37) of ERISA) or other pension plan subject to Title IV
of ERISA and the Company has not sponsored or contributed to or been required to
contribute to a multiemployer pension plan or other pension plan subject to
Title IV of ERISA. No material liability under Title IV of ERISA has been
incurred by the Company that has not been satisfied in full, and no condition
exists that presents a material risk to the Company of incurring or being
subject (whether primarily, jointly or secondarily) to a material liability
thereunder. None of the assets of the Company is or may reasonably be expected
to become, the subject of any lien arising under ERISA or Section 412(n) of the
Code.
<PAGE> 21
17
(e) With respect to each Benefit Plan required to be set forth
in the Disclosure Schedule that is subject to Title IV or Part 3 of Title I of
ERISA or Section 412 of the Code, (i) no reportable event (within the meaning of
Section 4043 of ERISA, other than an event that is not required to be reported
before or within 30 days of such event) has occurred or is expected to occur,
(ii) there was not an accumulated funding deficiency (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived, as of
the most recently ended plan year of such Company Benefit Plan; and (iii) there
is no "unfunded benefit liability" (within the meaning of Section 4001(a)(18) of
ERISA).
(f) The Company has delivered to Parent true, complete and
correct copies of (i) all employment agreements with officers and all consulting
agreements of the Company, (ii) all severance plans, agreements, programs and
policies of the Company with or relating to its employees, directors or
consultants, and (iii) all plans, programs, agreements and other arrangements of
the Company with or relating to their respective employees, directors or
consultants which contain "change of control" provisions. No payment or benefit
which may be required to be made by the Company or which otherwise may be
required to be made under the terms of any Company Benefit Plan or other
arrangement will constitute a parachute payment under Section 280(G)(1) of the
Code, and the consummation of the transactions contemplated by this Agreement
will not, alone or in conjunction with any other possible event (including
termination of employment), (i) entitle any current or former employee or other
service provider of the Company to severance benefits or any other payment,
compensation or benefit (including forgiveness of indebtedness), except as
expressly provided by this Agreement, or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation or benefit due any such employee
or service provider.
(g) The Company is not a party to, and does not have any
obligations under or with respect to, any collective bargaining or other labor
union contract applicable to persons employed by the Company and no collective
bargaining agreement is being negotiated by the Company or any person or entity
that may obligate the Company thereunder. As of the date of this Agreement,
there is no labor dispute, strike, union organizing activity or work stoppage
against the Company pending or, to the knowledge of the Company and each of the
Shareholders, threatened which may interfere with the business activities of the
Company. As of the date of this Agreement, to the knowledge of the Company and
each of the Shareholders, none of the Company or any of its representatives or
employees has committed any unfair labor practice in connection with the
operation of the businesses of the Company, and there is no charge or complaint
filed against the Company by or with the National Labor Relations Board or any
comparable Governmental Entity pending or threatened in writing.
(h) Except as required by Law, no Company Benefit Plan
provides any of the following retiree or post-employment benefits to any person:
medical, disability or life insurance benefits. To the knowledge of the Company
and each of the Shareholders, the Company is in compliance with (i) the
requirements of the applicable health care continuation and notice provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA")
and the regulations (including proposed regulations) thereunder and (ii) the
<PAGE> 22
18
applicable requirements of the Health Insurance Portability and Accountability
Act of 1996, as amended, and the regulations (including the proposed
regulations) thereunder.
SECTION 4.10 Certain Tax Matters
Neither the Company nor any of its Affiliates has taken or
agreed to take any action (other than actions contemplated by this Agreement)
that could be expected to prevent the Merger from constituting a
"reorganization" under Section 368(a) of the Code. Neither the Company nor any
of the Shareholders is aware of any agreement or plan to which the Company or
any of its Affiliates is a party or other circumstances relating to the Company
or any of its Affiliates that could reasonably be expected to prevent the Merger
from so qualifying as a reorganization under Section 368(a) of the Code.
SECTION 4.11 Contracts
Except for the contracts and agreements described in Section
4.11 of the Company Disclosure Schedule (collectively, the "MATERIAL
CONTRACTS"), the Company is not a party to or bound by any material contract or
agreement, including without limitation:
(a) any sales, advertising or agency contract in excess of
$10,000 over the life of the contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $10,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option
of any person other than the Company so as to expire more than one year after
the date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $10,000
in the aggregate;
(f) any contract limiting the freedom of the Company to engage
in any line of business or to compete with any other corporation, partnership,
limited liability company, trust, individual or other entity, or any
confidentiality, secrecy or non-disclosure contract;
(g) any contract pursuant to which the Company is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property, pursuant to which payments in excess of $10,000 remain
outstanding;
(h) any contract with an Affiliate;
<PAGE> 23
19
(i) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person;
(j) any distribution contract; or
(k) any employment contract, arrangement or policy (including
without limitation any collective bargaining contract or union agreement) which
may not be immediately terminated without penalty (or any augmentation or
acceleration of benefits).
The Company has performed all of the obligations required to
be performed by it and is entitled to all benefits under, and is not alleged to
be in default in respect of any Material Contract. Each of the Material
Contracts is valid and binding and in full force and effect, and there exists no
default or event of default or event, occurrence, condition or act, with respect
to the Company, or to the knowledge of the Company and each of the Shareholders,
with respect to the other contracting party, which, with the giving of notice,
the lapse of the time or the happening of any other event or conditions, would
become a default or event of default under any Material Contract. True, correct
and complete copies of all Material Contracts have been delivered to Parent.
SECTION 4.12 Litigation
Except as set forth in Section 4.12 of the Company Disclosure
Schedule, there is no private or governmental action, suit, proceeding, claim,
arbitration or investigation pending before any agency, court or tribunal,
foreign or domestic, or, to the knowledge of the Company and each of the
Shareholders, threatened against the Company or any of its properties or any of
its officers or directors (in their capacities as such). Neither the Company nor
any of the Shareholders are aware of any facts or circumstances which could
reasonably be expected to result in the denial of insurance coverage under
policies issued to the Company in respect of such suits, claims, actions,
proceedings and investigations. There is no judgment, decree or order against
the Company or, or, to the knowledge of the Company and each of the
Shareholders, any of its directors or officers (in their capacities as such),
that could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Company Material Adverse Effect. Section 4.12 of the Company Disclosure Schedule
also lists all litigation that the Company has pending against other parties.
SECTION 4.13 Environmental Matters
The Company is in compliance with all applicable Environmental
Laws and all Company Permits required by Environmental Laws. All past
noncompliance, if any, of the Company with Environmental Laws or Environmental
Permits has been resolved without any pending, ongoing or future obligation,
cost or liability. The Company has not released a Hazardous Material at, or
transported a Hazardous Material to or from, any real property currently or
formerly owned, leased or occupied by the Company, in violation of any
Environmental Law.
<PAGE> 24
20
SECTION 4.14 Intellectual Property
(a) Section 4.14(a) of the Company Disclosure Schedule
contains a true and complete list of the Company's patents, patent applications,
registered trademarks, trademark applications, trademarks, trade names,
registered service marks, service mark applications, service marks, Internet
domain names, Internet domain name applications, copyright registrations and
applications and other filings and formal actions made or taken pursuant to
Federal, state, local and foreign laws by the Company to protect its interests
in the Company Intellectual Property, and includes details of all due dates for
further filings, maintenance, payments or other actions falling due in respect
of the Company Intellectual Property within twelve (12) months of the Effective
Time. All of the Company's patents, patent applications, registered trademarks,
trademark applications and registered copyrights remain in good standing with
all fees and filings due as of the date hereof.
(b) The Company Intellectual Property contains only those
items and rights which are: (i) owned by the Company; (ii) in the public domain;
or (iii) rightfully used by the Company pursuant to a valid and enforceable
license or other agreement (the "COMPANY LICENSED INTELLECTUAL PROPERTY"), the
parties, date, term and subject matter of each such license or other agreement
(each, a "LICENSE AGREEMENT") being set forth on Section 4.14(b) of the Company
Disclosure Schedule. The Company has all rights in the Company Intellectual
Property which includes all rights necessary to carry out the Company's current
activities and the Company's future activities to the extent such future
activities are already planned, including without limitation, to the extent
required to carry out such activities, rights to make, use, reproduce, modify,
adopt, create derivative works based on, translate, distribute (directly and
indirectly), transmit, display and perform publicly, license, rent and lease
and, other than with respect to the Company Licensed Intellectual Property,
assign and sell, the Company Intellectual Property.
(c) The reproduction, manufacturing, distribution, licensing,
sublicensing, sale or any other exercise of rights in any Company Intellectual
Property, product, work, technology or process as now used or offered or
proposed for use, licensing or sale by the Company does not infringe on any
proprietary or personal right of any person such as patent, design right,
trademark, trade name, service mark, trade dress, Internet domain name,
copyright, database right, statistical model, technology, invention, supplier
list, trade secret, know-how, computer software program or application of any
person, anywhere in the world. The Company has not received notice of any
pending or threatened claims (including offers to grant licenses) (i)
challenging the validity, effectiveness or, other than with respect to the
Company Licensed Intellectual Property, ownership by the Company of any Company
Intellectual Property, or (ii) to the effect that the use, distribution,
licensing, sublicensing, sale or any other exercise of rights in any product,
work, technology or process as now used or offered or proposed for use,
licensing, sublicensing or sale by the Company or its agents or use by its
customers infringes or will infringe on or misappropriate any intellectual
property or other proprietary or personal right of any person. No such claims
have been threatened by any person, nor are there any valid grounds for any bona
fide claim of any such kind. All of the rights within the Company Intellectual
Property are enforceable and subsisting. To the knowledge of the Company and
each of the
<PAGE> 25
21
Shareholders, there is no unauthorized use, infringement or misappropriation of
any Company Intellectual Property by any third party, employee or former
employee.
(d) All personnel, including employees, agents, consultants
and contractors, who have contributed to or participated in the conception and
development of the Company Intellectual Property on behalf of the Company, have
executed nondisclosure agreements and either (i) have been a party to an
enforceable agreements with the Company in accordance with applicable national
and state law that accords the Company full, effective, exclusive and original
ownership of all tangible and intangible property as "works-for-hire," arising
from the efforts of such personnel, or (ii) have executed appropriate
instruments of assignment in favor of the Company that have conveyed to the
Company full, effective and exclusive ownership of all tangible and intangible
property arising from the efforts of such personnel.
(e) The Company is not, nor as a result of the execution or
delivery of this Agreement, or performance of the Company's obligations
hereunder, will the Company be, in violation of any license, sublicense,
agreement or instrument to which the Company is a party or otherwise bound, nor
will execution or delivery of this Agreement, or performance of the Company's
obligations hereunder, cause the diminution, termination or forfeiture of any
the Company Intellectual Property.
(f) Section 4.14(f) of the Company Disclosure Schedule
contains a true and complete list of all the Company's software programs (the
"COMPANY SOFTWARE PROGRAMS"). The Company owns full and unencumbered right and
good, valid and marketable title to such Company Software Programs that it owns,
free and clear of all mortgages, pledges, liens, security interests, conditional
sales agreements, encumbrances or charges of any kind. The Company has full and
unrestricted rights to use the Company Software Programs that it licenses,
pursuant to license agreements listed in Schedule 4.14(b).
(g) The source code and system documentation relating to the
Company Software Programs have been maintained in strict confidence and (i) have
been disclosed by the Company only to those of its employees who have a "need to
know" the contents thereof in connection with the performance of their duties to
the Company and who have executed nondisclosure agreements with the Company; and
(ii) have been disclosed to only those third parties who have executed
nondisclosure agreements with the Company.
(h) The Company Software Programs (i) have been designed to
ensure year 2000 compatibility, which includes, but is not limited to, date data
century recognition, and calculations that accommodate same century and
multi-century formulas and date values; (ii) operate in accordance with their
specifications prior to, during and after the calendar year 2000 AD; and (iii)
do not end abnormally or provide invalid or incorrect results as a result of
date data, specifically including date data which represents or references
different centuries or more than one century.
<PAGE> 26
22
(i) The Company Intellectual Property is free and clear of any
and all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges of any kind.
(j) Except as set forth in Section 4.14(j) of the Company
Disclosure Schedule, the Company does not owe nor will owe any royalties or
other payments to third parties in respect of the Company Intellectual Property.
All royalties or other payments that have accrued prior to the Effective Time
have been paid.
(k) To the knowledge of the Company and each of the
Shareholders, the Company Software Programs and other Company Intellectual
Property contain no "viruses." For the purposes of this Agreement, "virus" means
any computer code designed to disrupt, disable or harm in any manner the
operation of any software or hardware including, without limitation, worms,
bombs, backdoors, clocks, timers, or other disabling device code, designs or
routines which causes the software to be erased, inoperable, or otherwise
incapable of being used, either automatically or upon command by any party.
SECTION 4.15 Taxes
(a) The Company, and any consolidated, combined, unitary or
aggregate group for Tax purposes of which the Company is or has been a member,
have properly completed and timely filed all Tax Returns required to be filed by
them and have paid all Taxes shown thereon to be due. The Company has provided
adequate accruals in accordance with generally accepted accounting principles in
the Company Financial Statements for any Taxes that have not been paid, whether
or not shown as being due on any Tax Returns. The Company has no material
liability for unpaid Taxes accruing after the date of the Company Financial
Statements.
(b) There is (i) no material claim for Taxes that is a lien
against the property of the Company or is being asserted against the Company
other than liens for Taxes not yet due and payable, (ii) no audit of any Tax
Return of the Company being conducted by a Tax Authority; (iii) no extension of
the statute of limitations on the assessment of any Taxes granted by the Company
and currently in effect, and (iv) no agreement, contract or arrangement to which
the Company is a party that may result in the payment of any amount that would
not be deductible by reason of Section 280G or Section 404 of the Code.
(c) There has been no change in ownership of the Company that
has caused the utilization of any losses of the Company to be limited pursuant
to Section 382 of the Code, and any loss carryovers reflected on the Company
Financial Statements are properly computed and reflected.
(d) The Company has not been and will not be required to
include any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
<PAGE> 27
23
(e) The Company has not filed and will not file any consent to
have the provisions of paragraph 341(f)(2) of the Code (or comparable provisions
of any state Tax laws) apply to the Company.
(f) Except as set forth in Section 4.15 of the Company
Disclosure Schedule, the Company is not a party to any Tax sharing or Tax
allocation agreement nor does the Company have any liability or potential
liability to another party under any such agreement.
(g) The Company has not filed any disclosures under Section
6662 of the Code or comparable provisions of state, local or foreign law to
prevent the imposition of penalties with respect to any Tax reporting position
taken on any Tax Return.
(h) The Company has never been a member of a consolidated,
combined or unitary group of which the Company was not the ultimate parent
corporation.
(i) The Company has in its possession receipts for any Taxes
paid to foreign Tax authorities. The Company has never been a "personal holding
company" within the meaning of Section 542 of the Code or a "United Sates real
property holding corporation" within the meaning of Section 897 of the Code.
(j) The Company has made an effective election pursuant to
Section 1362 of the Code to be an "S corporation" commencing with the Company's
first taxable year, and such election has remained and will remain valid and
effective (without termination) continually through the Effective Time.
SECTION 4.16 Insurance
The Company is presently insured, and since inception has been
insured, against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured. The policies of
fire, theft, liability and other insurance maintained with respect to the assets
or businesses of the Company provide adequate coverage against loss. There is no
material claim pending under any of such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies. The Company
has heretofore furnished to Parent a complete and correct list as of the date
hereof of all insurance policies maintained by the Company, and has made
available to Parent complete and correct copies of all such policies, together
with all riders and amendments thereto. All such policies are in full force and
effect and all premiums due thereon have been paid to the date hereof. The
Company has complied in all material respects with the terms of such policies.
Neither the Company nor the Shareholders has knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
SECTION 4.17 Properties
The Company has good and marketable title, free and clear of
all material mortgages, liens, pledges, charges or other encumbrances to all its
properties and assets, whether tangible or intangible, real, personal or mixed,
reflected in the Company Financial Statements for
<PAGE> 28
24
the fiscal year ended December 31, 1999, as being owned by the Company and as of
the date thereof, other than (i) any properties or assets that have been sold or
otherwise disposed of in the ordinary course of business since the date of such
financial statements, (ii) liens disclosed in the notes to such financial
statements and (iii) liens arising in the ordinary course of business after the
date of such financial statements. All properties used in the Company's
operations are reflected in the balance sheets included in the Company Financial
Statements to the extent GAAP require the same to be reflected. All buildings,
and all fixtures, equipment and other property and assets that are material to
its business on a consolidated basis, held under leases or sub-leases by the
Company are held under valid instruments enforceable in accordance with their
respective terms, subject to applicable laws of bankruptcy, insolvency or
similar laws relating to creditors' rights generally and to general principles
of equity (whether applied in a proceeding in law or equity). Substantially all
of the Company's equipment in regular use has been reasonably maintained and is
in serviceable condition, reasonable wear and tear excepted. The Company owns or
has the valid and subsisting right to use all assets and properties necessary or
advisable to operate the Company's business in the manner presently conducted
and as proposed to be conducted in the projections described in Section 4.25.
SECTION 4.18 Affiliates
Section 4.18 of the Company Disclosure Schedule sets forth the
names and addresses of each person who is, in the Company's reasonable judgment,
an affiliate (as such term is used in Rule 145 under the Securities Act or under
applicable SEC accounting releases with respect to pooling of interests
accounting treatment) of the Company. The Company is not indebted to, nor does
it owe any contractual commitment or arrangement to, with or for the benefit of,
any director, officer, employee, affiliate or agent of the Company (except for
amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses). No current or former director, officer, employee, affiliate or agent
of the Company is presently or at the Effective Time shall be, or, in the last
three years has been, the direct or indirect owner of an interest in any
corporation, firm, association, or business organization which is a present (or
potential) competitor, supplier or customer of the Company. Except for normal
salaries and bonuses and reimbursement of ordinary expenses, since December 31,
1998, the Company has not made any payments, loans or advances of any kind, or
paid any dividends or distributions of any kind, to or for the benefit of the
Shareholders, or any of their respective affiliates, associates or family
members.
SECTION 4.19 Brokers
(a) Other than Houlihan Lokey Howard & Zukin (the "COMPANY
FINANCIAL ADVISOR"), the fees and expenses of which shall be paid by the
Shareholders, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of the Company.
(b) Section 4.19 of the Company Disclosure Schedule sets forth
true, complete and correct copies of all agreements between the Company and the
Company Financial
<PAGE> 29
25
Advisor. Except as set forth in Section 4.19 of the Company Disclosure Schedule,
there are no other agreements between the Company and the Company Financial
Advisor.
SECTION 4.20 Certain Business Practices
Neither the Company nor any directors, officers, agents or
employees of the Company (in their capacities as such) has (i) used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity, (ii) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended, or (iii) made any other unlawful payment.
SECTION 4.21 Business Activity Restriction
There is no non-competition or other similar agreement,
commitment, judgment, injunction, order or decree to which the Company is a
party or subject to that has or could reasonably be expected to have the effect
of prohibiting or impairing the conduct of business by the Company. The Company
has not entered into any agreement under which the Company is restricted from
selling, licensing or otherwise distributing any of its technology or products
to, or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market or line of business.
SECTION 4.22 Accounts Receivable
Subject to any reserves set forth in the Company Financial
Statements, the accounts receivable shown on the Company Financial Statements
represent and will represent bona fide claims against debtors for sales and
other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Company Financial Statements was calculated in
accordance with GAAP and in a manner consistent with prior periods and is
sufficient to provide for any losses which may be sustained on realization of
the receivables.
SECTION 4.23 Customers and Suppliers
No customer which individually accounted for more than 1% of
the Company's gross revenues during the 12-month period preceding the date
hereof has canceled or otherwise terminated, or made any written threat to the
Company to cancel or otherwise terminate or decrease its relationship with the
Company, or has decreased materially its relationship with the Company or its
usage of the services or products of the Company, as the case may be.
SECTION 4.24 Employee Matters
The Company is in compliance in all material respects with all
currently applicable laws and regulations respecting employment, discrimination
in employment, terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged in any unfair
labor practice. The Company has withheld all
<PAGE> 30
26
amounts required by Law or by agreement to be withheld from the wages, salaries,
and other payments to employees; and is not liable for any arrears of wages or
any taxes or any penalty for failure to comply with any of the foregoing. The
Company is not liable for any payment to any trust or other fund or to any
Governmental Entity, with respect to unemployment compensation benefits, social
security or other benefits or obligations for employees (other than routine
payments to be made in the normal course of business and consistent with past
practice). There are no pending claims against the Company under any workers
compensation plan or policy or for long term disability. There are no
controversies pending or, to the knowledge of the Company and each of the
Shareholders, threatened, between the Company and any of its employees, which
controversies have or could reasonably be expected to result in an action, suit,
proceeding, claim, arbitration or investigation before any Governmental Entity.
The Company is not a party to any collective bargaining agreement or other labor
union contract nor does the Company or any Shareholder know of any activities or
proceedings of any labor union to organize any Company employees. To the
knowledge of the Company and each of the Shareholders, no employees of the
Company are in violation of any term of any employment contract, non-disclosure
agreement, noncompetition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed to
be conducted by the Company or to the use of trade secrets or proprietary
information of others. No employees of the Company have given notice to the
Company, nor is the Company or any Shareholder otherwise aware, that any such
employee intends to terminate his or her employment with the Company.
SECTION 4.25 Financial Projections
The financial projections included in Section 4.25 of the
Company Disclosure Schedule were prepared by the Company on a reasonable basis
and in good faith. The assumptions used in the preparation of such projections
(a) are those the Company believes are significant in forecasting the financial
results of the Company and (b) reflect, as of the date made and for the relevant
periods presented, a reasonable estimate of the events, contingencies and
circumstances described therein.
SECTION 4.26 Representations Complete
None of the representations or warranties made by the
Shareholders or the Company herein or in any Company Disclosure Schedule hereto,
or certificate furnished by the Shareholders or the Company pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
<PAGE> 31
27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company and the
Shareholders that:
SECTION 5.01 Organization and Qualification; Subsidiaries
Parent and each directly and indirectly owned Subsidiary of
Parent (the "PARENT SUBSIDIARIES") has been duly organized and is validly
existing and in good standing (to the extent applicable) under the laws of the
jurisdiction of its incorporation or organization, as the case may be, and has
the requisite corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted. Parent, and each Parent Subsidiary is duly
qualified or licensed to do business, and is in good standing (to the extent
applicable), in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
SECTION 5.02 Capitalization
(a) The authorized capital stock of Parent consists of (i)
100,000,000 shares of Parent Common Stock, of which 14,499,575 shares are issued
and outstanding as of December 31, 1999, and (ii) 5,000,000 shares of Preferred
Stock, par value $.001 per share, of which no shares are issued and outstanding.
All of the outstanding shares of Parent Common Stock have been validly issued
and are fully paid and nonassessable and not subject to preemptive rights.
(b) All of the shares of Parent Common Stock to be issued in
connection with the Merger, when issued in accordance with this Agreement, will
be validly issued, fully paid and nonassessable and not subject to preemptive
rights or similar contractual rights granted by Parent.
(c) Except for outstanding options under Parent's stock option
plans and Parent's right to repurchase any unvested shares under its stock
option plans, there are no outstanding rights, subscriptions, warrants, calls,
unsatisfied preemptive rights, options or other agreements or arrangements of
any kind to purchase or otherwise to receive from Parent or any Parent
Subsidiary any shares of capital stock or any other security of Parent or any
Parent Subsidiary, and, except for a convertible promissory note issued by the
Purchaser in the amount of $1,925,000, there are no outstanding securities of
any kind convertible into or exchangeable for such capital stock.
SECTION 5.03 Authority Relative to this Agreement
Each of Parent and Merger Sub has all necessary corporate
power and authority to execute and deliver this Agreement and the Escrow
Agreement, to perform its obligations
<PAGE> 32
28
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Escrow
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby and thereby, and the execution and delivery of this
Agreement by Merger Sub, and the consummation by Merger Sub of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Parent or
Merger Sub are necessary to authorize this Agreement or the Escrow Agreement or
to consummate such transactions (other than the filing and recordation of the
Agreement of Merger as required by the California Code). This Agreement has
been, and the Escrow Agreement will be, duly executed and delivered by Parent.
Assuming the due authorization, execution and delivery by the Company and the
Shareholders, this Agreement constitutes, and the Escrow Agreement will
constitute, legal, valid and binding obligations of Parent, enforceable against
Parent in accordance with their respective terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles. This Agreement has been duly
executed and delivered by Merger Sub and, assuming the due authorization,
execution and delivery by the Company and the Shareholders, constitutes a legal,
valid and binding obligation of Merger Sub, enforceable against Merger Sub in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
SECTION 5.04 No Conflict; Required Filings and Consents
(a) The execution and delivery of this Agreement by Parent and
Merger Sub and the execution and delivery of the Escrow Agreement by Parent, do
not, and the performance by Parent and Merger Sub of their obligations hereunder
and/or thereunder, as the case may be, and the consummation of the Merger will
not, (i) conflict with or violate any provision of the articles of incorporation
or bylaws of Parent or any equivalent organizational documents of any Parent
Subsidiary, (ii) conflict with or violate any Law applicable to Parent or any
other Parent Subsidiary or by which any property or asset of Parent or any
Parent Subsidiary is bound or affected or (iii) result in any breach of or
constitute a default (or an event which with the giving of notice or lapse of
time or both could reasonably be expected to become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any material property
or asset of Parent or any Parent Subsidiary pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation.
(b) Assuming the accuracy of the representations and
warranties of the Company set forth in Article IV, the execution and delivery of
this Agreement by Parent and Merger Sub do not, and the execution of the Escrow
Agreement will not, and the performance by Parent and Merger Sub of their
obligations hereunder and the consummation of the Merger will not, require any
consent, approval, authorization or permit of, or filing by Parent with or
notification by Parent to, any Governmental Entity.
<PAGE> 33
29
SECTION 5.05 SEC Filings; Financial Statements.
(a) Parent has timely filed all forms, reports, statements and
documents required to be filed by it with the SEC and the Nasdaq National Market
since October 31, 1999 (collectively, together with any such forms, reports,
statements and documents Parent may file subsequent to the date hereof until the
Effective Time, the "PARENT REPORTS"). Each Parent Report (i) was prepared in
accordance with the requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") or the Nasdaq National Market, as the case may be, and (ii) did
not at the time it was filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Parent Subsidiary is subject to
the periodic reporting requirements of the Exchange Act or required to file any
form, report or other document with the SEC, the Nasdaq National Market any
other stock exchange or any other comparable governmental entity.
(b) Except as is provided in the Parent Reports, each of the
consolidated financial statements (including, in each case, any notes thereto)
contained in the Parent Reports complied as to form in all material respects
with applicable accounting requirements, was prepared in accordance with GAAP
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of Parent and the consolidated
Parent Subsidiaries as at the respective dates thereof and the consolidated
results of operations and cash flows of Parent and the consolidated Parent
Subsidiaries for the respective periods indicated therein, except as otherwise
noted therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments).
SECTION 5.06 Absence of Certain Changes or Events
Except as disclosed in the Parent Reports filed prior to the date of
this Agreement, since September 30, 1999, (a) there has not been (i) any
condition, event, occurrence or development that has had or would reasonably be
expected to have, individually or in the aggregate, a Parent Material Adverse
Effect or which would reasonably be expected to prevent, hinder or materially
delay the ability of Parent or Merger Sub to consummate the Merger, (ii) any
material change by Parent or any Parent Subsidiary in its accounting methods,
principles or practices, or (iii) any event pursuant to which Parent or any
Parent Subsidiary has incurred any material liabilities (direct, contingent or
otherwise) or engaged in any material transaction or entered into any material
agreement, in each case, outside of the ordinary course of business which,
individually or in the aggregate, would be reasonably expected to have a Parent
Material Adverse Effect, and (b) Parent and the Parent Subsidiaries have
conducted their respective businesses in the ordinary course substantially
consistent with past practice.
<PAGE> 34
30
SECTION 5.07 Certain Tax Matters
Neither Parent nor, to the knowledge of Parent, any of its
Affiliates has taken or agreed to take any action (other than actions
contemplated by this Agreement) that could reasonably be expected to prevent the
Merger from constituting a "reorganization" under Section 368(a) of the Code.
Parent is not aware of any agreement, plan or other circumstance that could
reasonably be expected to prevent the Merger from so qualifying as a
reorganization under Section 368(a) of the Code.
SECTION 5.08 Brokers
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of Parent.
SECTION 5.09 Representations Complete
None of the representations or warranties made by Parent herein or
in any certificate furnished by Parent pursuant to this Agreement, when all such
documents are read together in their entirety, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business by the Company Pending the Closing
The Company and the Shareholders agree that, between the date of
this Agreement and the Effective Time, unless Parent shall otherwise agree in
writing, (x) the businesses of the Company shall be conducted only in, and the
Company shall not take any action except in, the ordinary course of business
consistent with past practice and (y) the Company shall use all reasonable
efforts to keep available the services of such of the current officers,
significant employees and consultants of the Company and to preserve the current
relationships of the Company with such of the corporate partners, customers,
suppliers and other persons with which the Company has significant business
relations in order to preserve substantially intact its business organization.
By way of amplification and not limitation, the Company shall not, between the
date of this Agreement and the Effective Time, directly or indirectly, do, or
agree to do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change its Articles of Incorporation or
bylaws or equivalent organizational documents;
<PAGE> 35
31
(b) issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of (i) any shares of
capital stock of the Company of any class, or securities convertible into or
exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of the Company or (ii) any property or assets of the
Company except sales of inventory in the ordinary course of business consistent
with past practice;
(c) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or person or any division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an accommodation
become responsible for, the obligations of any person for borrowed money or make
any loans or advances material to the business, assets, liabilities, financial
condition or results of operations of the Company; (iii) terminate, cancel or
request any material change in, or agree to any material change in, any Material
Contract or License Agreement; (iv) make or authorize any capital expenditure,
other than capital expenditures in the ordinary course of business consistent
with past practice that have been budgeted for fiscal year 2000 and disclosed in
writing to Parent and that are not, in the aggregate, in excess of $10,000 for
the Company; or (v) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this Section
6.01(c);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(f) amend the terms of, repurchase, redeem or otherwise acquire, any
of its securities or any securities or propose to do any of the foregoing;
(g) increase the compensation payable or to become payable to its
directors, officers, consultants or employees, grant any rights to severance or
termination pay to, or enter into any employment or severance agreement which
provides benefits upon a change in control of the Company that would be
triggered by the Merger with, any director, officer, consultant or other
employee of the Company who is not currently entitled to such benefits from the
Merger, establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer, consultant or employee of the Company, except to the extent
required by applicable Law or the terms of a collective bargaining agreement, or
enter into or amend any contract, agreement, commitment or arrangement between
the Company and any of the Company's directors, officers, consultants or
employees;
<PAGE> 36
32
(h) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against on
the balance sheet of the Company dated as of December 31, 1999 previously
presented to Parent and only to the extent of such reserves;
(i) make any change with respect to the Company's accounting
policies, principles, methods or procedures, including, without limitation,
revenue recognition policies, other than as required by GAAP;
(j) make any material Tax election or settle or compromise any
material Tax liability;
(k) permit any insurance policy naming it as a beneficiary or a loss
payee to be cancelled or terminated, except in the ordinary and usual course of
business;
(l) maintain the books and records of the Company in a manner not
consistent with past business practices;
(m) take any action which would materially adversely affect the
goodwill of its suppliers, customers and others with whom it has business
relations;
(n) fail to pay and perform all of its debts, obligations and
liabilities as and when due and all leases, agreements, contracts and other
commitments to which it is a party in accordance with the terms and provisions
thereof;
(o) fail to comply in all material respects with all Laws that may
be applicable to its business; or
(p) authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing or to take any action
which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or prevent the Company from
performing or cause the Company not to perform its covenants hereunder or result
in any of the conditions to the Merger set forth herein not being satisfied.
SECTION 6.02 Notices of Certain Events
Each of Parent and the Company shall give prompt notice to the other
of (i) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger; (ii)
any notice or other communication from any Governmental Entity in connection
with the Merger; (iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting Parent or the Company, or that relate to the consummation of
the Merger; (iv) the occurrence of a default or event that, with the giving of
notice or lapse of time or both, will become a default under any Material
Contract; and (v) any change that could reasonably be expected to have a Parent
Material Adverse Effect or a Company Material
<PAGE> 37
33
Adverse Effect, or to delay or impede the ability of either Parent or the
Company to perform their respective obligations pursuant to this Agreement and
to effect the consummation of the Merger.
SECTION 6.03 Access to Information; Confidentiality
(a) Except as required pursuant to any confidentiality agreement or
similar agreement or arrangement to which Parent or the Company or any of the
Parent Subsidiaries is a party or pursuant to applicable Law or the regulations
or requirements of any stock exchange or other regulatory organization with
whose rules a party hereto is required to comply, from the date of this
Agreement to the Effective Time, Parent and the Company shall (i) provide to the
other (and its officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives (collectively, "REPRESENTATIVES"))
access at reasonable times upon prior notice to its officers, employees, agents,
properties, offices and other facilities and to the books and records thereof,
and (ii) furnish promptly such information concerning its business, properties,
contracts, assets, liabilities and personnel as the other party or its
Representatives may reasonably request. No investigation conducted pursuant to
this Section 6.03 shall affect or be deemed to modify any representation or
warranty made in this Agreement.
(b) The parties hereto shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the Confidentiality Agreement with respect to the information disclosed
pursuant to this Section 6.03 or pursuant to the Confidentiality Agreement. The
Shareholders hereby agree to be bound by the terms of the Confidentiality
Agreement as if they were parties thereto.
(c) The Shareholders shall provide Parent's independent public
accountants with all financial information, other than information held by the
Company, and data reasonably necessary to enable such accountants to prepare and
review (i) the balance sheet of the Company as of the Effective Time and the
related statements of income, shareholders' equity and cash flows for the period
then ended, and (ii) the balance sheets of the Company as of December 31, 1999,
1998 and 1997 and the related statements of income, shareholders' equity and
cash flows for the years then ended.
(d) The Shareholders agree that, if requested by the Company as
being necessary to prepare the audited financial statements as contemplated by
paragraph (c) above, the Shareholders shall provide to the Company's independent
public accountants a management representation letter in a form reasonably
acceptable to such accountants covering the periods referred to above.
SECTION 6.04 No Solicitation of Transactions
The Company and the Shareholders shall not, directly or indirectly,
and shall cause the Company's Representatives not to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing nonpublic
information), any inquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to its Shareholders) that constitutes,
or may reasonably be expected to lead to, any Competing Transaction, or enter
into
<PAGE> 38
34
or maintain or continue discussions or negotiate with any person in furtherance
of such inquiries or to obtain a Competing Transaction, or agree to or endorse
any Competing Transaction, or authorize or permit any of the Company's
Representatives to take any such action. Any violation of the restrictions set
forth in this Section 6.04 by any Representative of the Company, whether or not
such Person is purporting to act on behalf of the Company or otherwise, shall be
deemed to be a breach of this Section 6.04 by the Company. The Company shall
notify Parent promptly if any proposal or offer, or any inquiry or contact with
any person with respect thereto, regarding a Competing Transaction is made, such
notice to include the identity of the person making such proposal, offer,
inquiry or contact, and the terms of such Competing Transaction, and shall keep
Parent apprised, on a current basis, of the status of such Competing
Transaction. The Company immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to a Competing Transaction. The Company shall not release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which it is a party.
SECTION 6.05 Tax-Free Transaction
From and after the date of this Agreement, each party hereto shall
use all reasonable efforts to cause the Merger to qualify, and shall not
knowingly take any actions or cause any actions to be taken which could
reasonably be expected to prevent the Merger from qualifying as a
"reorganization" under Section 368(a) of the Code.
SECTION 6.06 Further Action; Consents; Filings
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use all reasonable efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the Merger, (ii) obtain from Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent or the Company in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the Merger and (iii) make all necessary filings, and thereafter make any other
required or appropriate submissions, with respect to this Agreement and the
Merger required under any applicable Laws. The parties hereto shall cooperate
and consult with each other in connection with the making of all such filings.
(b) Each of the Company and Parent will give any notices to third
persons, and use rea