AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER is made and entered into as of January
21, 2002, by and among CLEARONE COMMUNICATIONS, INC. (formerly, Gentner
Communications Corporation), a Utah corporation ("Parent"), TUNDRA ACQUISITION
CORPORATION, a Delaware corporation and a wholly-owned subsidiary of Parent
("Merger Sub"), and E.MERGENT, INC., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of the Company, Parent and Merger Sub have
each (i) determined that the Merger (as defined in Section 1.1) is advisable and
fair to and in the best interests of their respective stockholders, (ii)
approved the Merger upon the terms and subject to the conditions set forth in
this Agreement, and (iii) determined, subject to the terms of this Agreement, to
recommend that the stockholders of the Company adopt and approve this Agreement
and the Merger;
B. In furtherance thereof, it is proposed that Company merge with and
into the Merger Sub (the "Merger") and the stock of the Company will thereupon
be converted into the right to receive both cash and a fraction of a share of
the common stock, par value $0.001, of the Parent (the "Parent Common Stock") in
the amounts set forth in Section 1.7(a) hereof;
C. Concurrently with the execution of this Agreement, as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
executive officers and directors of Company, in their capacity as stockholders,
are entering into a Voting Agreement in substantially the form attached hereto
as Exhibit A (the "Voting Agreement");
D. As a condition and inducement to Parent's willingness to enter into
this Agreement, certain affiliates of the Company are entering into Company
Affiliate Agreements in substantially the form attached hereto as Exhibit B (the
"Company Affiliate Agreements"), at or prior to the consummation of the Merger;
and
E. The parties hereto intend, by executing this Agreement, to adopt a
plan of "reorganization" within the meaning of section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Merger Sub hereby
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject to
and upon the terms and conditions of this Agreement and the applicable
provisions of Delaware Law, the Company shall be merged with and into the Merger
Sub, the separate corporate existence of Company shall cease and Merger Sub
shall continue as the surviving corporation. Merger Sub as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "Merger
Certificate") (the time of such filing, or such later time as may be agreed in
writing by Company and Parent and specified in the Merger Certificate, being the
"Effective Time") as soon as practicable on or after the Closing Date (as herein
defined). Unless the context otherwise requires, the term "Agreement" as used
herein refers collectively to this Agreement and Plan of Merger and the Merger
Certificate. The closing of the Merger (the "Closing") shall take place at the
offices of Jones, Waldo, Holbrook & McDonough, 170 South Main Street, Salt Lake
City, UT 84101, or at such other location as the parties may agree, and at a
time and date to be specified by the parties, which shall be no later than the
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second business day after the satisfaction or waiver of the conditions set forth
in Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date").
1.3 Registration Statement. As soon as practicable after the date of this
Agreement, Parent shall prepare and file with the SEC a registration statement
on Form S-4 to register the offer and sale of Parent Common Stock pursuant to
the Merger (the "Registration Statement"). The Company agrees that the
information provided by the Company in writing specifically for inclusion or
incorporation by reference in the Registration Statement shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
Parent, Merger Sub and the Company agrees promptly to correct any information
provided by it for use in the Registration Statement if and to the extent that
such information shall have become false or misleading in any material respect.
The Company and its counsel shall be given reasonable opportunity to review and
comment on the Registration Statement prior to the filing thereof with the SEC.
Parent agrees to provide in writing to the Company and its counsel any comments
Parent or its counsel may receive from the SEC or its staff with respect to the
Registration Statement promptly after receipt of such comments and shall provide
Company and its counsel with a reasonable opportunity to participate in the
response of Parent to such comments.
1.4 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub shall be the Certificate of Incorporation of the Surviving
Corporation except that it shall be amended to provide that the name of
the Surviving Corporation shall be the Company name, or such other name
as may be determined by Parent and/or Merger Sub, until thereafter
amended in accordance with Delaware Law and such Certificate of
Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the
Surviving Corporation until thereafter amended.
1.6 Directors and Officers. The initial director of the Surviving Corporation
shall be the director of Merger Sub immediately prior to the Effective Time, to
hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation until his successors are duly elected or appointed and
qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until their respective successors are duly appointed.
1.7 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Company, or the holders of any of the following
securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock,
$0.01 par value per share, of Company (the "Company Common Stock")
issued and outstanding immediately prior to the Effective Time will be
canceled and extinguished and automatically converted into the right to
receive (x) a cash payment per Share, without any interest thereon (the
"Cash Portion"), and (y) a fraction of a share of Parent Common Stock
(the "Stock Portion") (the Cash Portion and the Stock Portion, and cash
in lieu of fractional shares as specified below, are collectively
referred to as the "Merger Consideration") upon surrender of the
certificate representing such share of Company Common Stock (each a
"Share Certificate"), in the manner provided in Section 1.10 (or in the
case of a lost, stolen or destroyed upon delivery of an affidavit (and
bond, if required) in the manner provided in Section 1.9). The parties
agree that the aggregate Cash Portion shall be $7,300,000 and the
aggregate Stock Portion shall be 873,000 shares of Parent Common Stock
less the aggregate number of shares of Parent Common Stock allocated to
the Company Stock Options (defined below) as provided in Sections 1.7(c)
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and 5.8 (the "Parent Option Shares"). Accordingly, the Cash Portion
shall be the quotient obtained by dividing (A) $7,300,000 by (B) the
total number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time. The Stock Portion shall be a
quotient obtained by dividing (X) the sum of (a) 873,000 minus (b) the
Parent Option Shares divided by (Y) the total number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time.
(b) Cancellation of Company-Owned Stock. Each share of Company Common
Stock held by Company immediately prior to the Effective Time shall be
cancelled and extinguished without any conversion thereof, other than
fifty thousand three hundred seventeen (50,317) shares currently held in
treasury which will be distributed to Company employees effective
immediately prior to the Closing and treated pursuant to Section 1.7(a).
(c) Stock Options. At the Effective Time all options to purchase Company
Common Stock ("Company Stock Options") then outstanding under the
E.mergent Employee Stock Option Plan (the "Company Option Plans") shall
be treated in accordance with Section 5.8 hereof.
(d) Employee Stock Purchase Plan. All shares outstanding under Company's
Employee Stock Purchase Plan (the "ESPP") will be converted as of the
Effective Time pursuant to Section 1.7(a), above. Any outstanding
employee deposits not applied to the purchase of shares of Company
Common Stock will be refunded to the depositing employee.
(e) Adjustments to the Stock Portion and the Cash Portion. The Stock
Portion and the Cash Portion shall be adjusted appropriately to reflect
the effect of any permitted stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities
convertible into Company Common Stock or Parent Common Stock),
extraordinary cash dividends, reorganization, recapitalization,
reclassification, combination, exchange of shares or other like change
with respect to the Company Common Stock or the Parent Common Stock
occurring on or after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued in connection with the payment of the Stock Portion of
the Merger Consideration, but in lieu thereof each holder of a Share
Certificate who would otherwise be entitled to receive a fraction of a
share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be received by such holder) in
the Merger shall receive from Parent an amount of cash (rounded to the
nearest whole cent), without interest, equal to the product obtained by
multiplying such fraction by the Average Price.
1.8 Exchange of Certificates.
(a) Exchange Agent. Parent shall select an entity reasonably acceptable
to Company to act as the exchange agent (the "Exchange Agent") in the
Merger.
(b) Parent to Provide Cash and Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent, for payment in
accordance with this Article I, (i) an amount in cash equal to the
product of the Cash Portion and the number of shares that are issued and
outstanding at the Effective Time and (ii) a number of shares of Parent
Common Stock representing the number of shares of Parent Common Stock
equal to the product of the Stock Portion and the number of shares
issued and outstanding at the Effective Time, and (iii) the cash amount
payable in lieu of fractional shares in accordance with Section 1.7(f).
Any portion of such cash and stock which remains undistributed to the
holders of the Share Certificates for six (6) months after the Effective
Time shall be delivered to Parent, upon demand, and any holders of
shares of Company Common Stock prior to the Merger who have not
theretofore complied with this Article I shall thereafter look for
payment, as general creditors thereof, only to Parent for their claim
for the Merger Consideration to which such holders may be entitled.
(c) Payment Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a Share Certificate, which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock
(i) a letter of transmittal in customary form (which shall specify that
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delivery shall be effected, and risk of loss and title to the Share
Certificates shall pass, only upon delivery of the Share Certificates to
the Exchange Agent, and (ii) instructions for use in effecting the
surrender of the Share Certificates in exchange for the Merger
Consideration. Upon surrender of Share Certificates for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed
by Parent, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such
other documents as may be required pursuant to such instructions, the
holder of such Share Certificate shall be entitled to receive in payment
therefor an amount equal to the product of the Merger Consideration and
the number of shares represented by such Share Certificate, and the
Share Certificate so surrendered shall be forthwith cancelled. In the
event of a transfer of ownership of shares that is not registered in the
stock transfer books of Company, the proper amount of cash and Parent
Common Stock may be paid in exchange therefor to a person other than the
person in whose name the Share Certificate so surrendered is registered
if such Share Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall
pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of such Share Certificate the
Merger Consideration or establish to the satisfaction of Parent that
such tax has been paid or is not applicable. The Exchange Agent shall
accept such Share Certificates upon compliance with such reasonable
terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices.
No interest shall be paid or accrued for the benefit of holders of the
Share Certificates on the cash payable upon the surrender of the Share
Certificates. Until so surrendered, outstanding Share Certificates will
be deemed from and after the Effective Time, to evidence only the right
to receive the Merger Consideration.
(d) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this
Agreement to any holder or former holder of Company Common Stock such
amounts as may be required to be deducted or withheld therefrom under
U.S. federal or state, local or foreign law. To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all
purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.
(e) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, neither the Exchange Agent, Parent, the Surviving
Corporation nor any party hereto shall be liable to a holder of shares
of Parent Common Stock or Company Common Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property,
escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. From and after the
Effective Time, all shares of Company Common Stock shall no longer be
outstanding and shall automatically be cancelled, retired and cease to exist and
each holder of a Share Certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon the surrender thereof in accordance with Section 1.8
hereof. The Merger Consideration issued in accordance with the terms hereof
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock. There shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Share Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article I.
1.10 Lost, Stolen or Destroyed Share Certificates. In the event that any Share
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Share Certificates, upon
the making of an affidavit of that fact by the holder thereof, the Merger
Consideration pursuant to Section 1.7; provided, however, that Parent may, in
its discretion and as a condition precedent to the issuance of such Merger
Consideration and other distributions, require the owner of such lost, stolen or
destroyed Share 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 Share
Certificates alleged to have been lost, stolen or destroyed.
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1.11 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
shares that are outstanding immediately prior to the Effective Time and
that are held by stockholders who shall have neither voted in favor of
the Merger nor consented thereto in writing and who shall have demanded
properly in writing appraisal for such shares in accordance with Section
262 of Delaware Law (collectively, the "Dissenting Shares") shall not be
converted into, or represent the right to receive, the Merger
Consideration. Such stockholders shall be entitled to receive payment of
the appraised value of such shares held by them in accordance with the
provisions of such Section 262, except that all Dissenting Shares held
by stockholders who shall have failed to perfect or who effectively
shall have withdrawn or lost their rights to appraisal of such shares
under such Section 262 shall thereupon be deemed to have been converted
into, and to have become exchangeable for, as of the Effective Time, the
right to receive the Merger Consideration, without any interest thereon,
upon surrender, in the manner provided in Section 1.7, of the
certificate or certificates that formerly evidenced such shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to Delaware Law and received by the
Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under Delaware Law.
The Company shall not, except with the prior written consent of Parent,
make any payment with respect to any demands for appraisal or offer to
settle or settle any such demands.
1.12 Tax and Accounting Consequences.
(a) Tax. It is intended by the parties hereto that the Merger will
constitute a reorganization within the meaning of Section 368 of the
Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a)
of the United States Income Tax Regulations.
(b) Accounting. It is intended by the parties hereto that the Merger
shall qualify as a purchase for accounting purposes.
1.13 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 Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent and Merger Sub, subject to such
exceptions as are disclosed in writing in the disclosure letter supplied by
Company to Parent dated as of the date hereof (the "Company Schedule"), which
disclosure shall provide an exception to or otherwise qualify the
representations and warranties of Company contained in the section of this
Agreement corresponding by number to such disclosure, as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of Company and its subsidiaries is a corporation duly
organized, 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 assets and properties and to
carry on its business as it is now being conducted, except where the
failure to do so would not, individually, or in the aggregate, have a
Material Adverse Effect (as defined in Section 8.3 below) on Company.
Each of Company and its subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease
and operate the properties it purports to own, operate or lease and to
carry on its business as it is now being conducted, except where the
failure to have such Approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Company. Company and its
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subsidiaries are and have been in compliance with the terms of the
Approvals, except where the failure to be or have been in such
compliance would not, individually or in the aggregate, result in a
Material Adverse Effect on Company.
(b) Section 2.1 (b) of the Company Schedule lists each of Company's
subsidiaries, the jurisdiction of incorporation of each such subsidiary,
and Company's equity interest therein. Neither Company nor any of its
subsidiaries has agreed nor is obligated to make nor is bound by any
written or oral agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order,
license, sublicense, insurance policy, benefit plan, commitment or
undertaking of any nature, as of the date hereof or as may hereafter be
in effect (a "Contract") under which it may become obligated to make,
any future investment in or capital contribution to any other entity.
Other than Company's interests in its subsidiaries or except as set
forth in Section 2.1(b) of the Company Schedule, neither Company nor any
of its subsidiaries directly or indirectly owns any equity or similar
interest in or any interest convertible, exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership,
joint venture or other business, association or entity.
(c) Company and each of its subsidiaries is qualified to do business as
a foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of their business requires such
qualification, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Material
Adverse Effect on Company.
2.2 Certificate of Incorporation and Bylaws. Company has previously furnished to
Parent a complete and correct copy of its Certificate of Incorporation and
Bylaws as amended to date (together, the "Company Charter Documents"). Such
Company Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect, Company is not in violation of any of
the provisions of the Company Charter Documents, and no subsidiary of Company is
in violation of its equivalent organizational documents except where the failure
to be in full force or effect or the violation of any such equivalent
organizational documents of a subsidiary of Company would not, individually or
in the aggregate, have a Material Adverse Effect on Company.
2.3 Capitalization.
(a) The authorized capital stock of Company consists of 20,000,000
shares of Company Common Stock, $0.01 par value per share and 5,000,000
shares of Preferred Stock, $0.01 par value per share. As of the close of
business on January 17, 2002: (i) 5,929,280 shares of Company Common
Stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable, which number includes 50,317 shares of
Company Common Stock held in the Company's treasury; (ii) no shares of
Company Common Stock were held by subsidiaries of the Company; (iii)
vested Company Stock Options for 588,000 shares of Company Common Stock
were outstanding, with at least an equivalent number of shares of
Company Common Stock reserved for issuance upon the exercise of such
options under the Company Option Plans; and (iv) unvested Company Stock
Options for 20,000 shares of Company Common Stock are outstanding with
at least an equivalent number of shares of Company Common Stock reserved
for issuance upon the exercise of such options under the Company Option
Plans. Section 2.3(a) of the Company Schedule sets forth the following
information with respect to each Company Stock Option (as defined in
Section 5.8) outstanding as of the date of this Agreement: (i) the name
and address of the optionee; (ii) the number of shares of Company Common
Stock subject to such Company Stock Option; (iii) the exercise price of
such Company Stock Option; (iv) the date on which such Company Stock
Option was granted and (v) the date on which such Company Stock Option
expires. Company has made available to Parent accurate and complete
copies of all stock option plans pursuant to which Company has granted
such Company Stock Options that are currently outstanding and the form
of all stock option agreements evidencing such Company Stock Options.
All shares of Company Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instrument
pursuant to which they are issuable, would be duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Section
2.3(a) of the Company Schedule, there are no commitments or agreements
of any character to which Company is bound obligating Company to
accelerate the vesting of any Company Stock Option as a result of the
Merger. All outstanding shares of Company Common Stock, all outstanding
Company Stock Options, and all outstanding shares of capital stock of
each subsidiary of Company have been issued and granted in compliance
with (i) all applicable securities laws and other applicable Legal
Requirements (as defined below) and (ii) all requirements set forth in
applicable Contracts in all material respects. For the purposes of this
Agreement, "Legal Requirements" means any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of
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common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issues, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of
any Governmental Entity (as defined below).
(b) Except for securities set forth in Schedule 2.3(b) of the Company
Schedule, Company owns free and clear of all liens, pledges,
hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements, interferences, options, right of first refusals,
preemptive rights, community property interests or restrictions of any
nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any
restriction on the possession, exercise or transfer of any other
attribute of ownership of any asset but other than restrictions imposed
by federal or state securities laws) directly or indirectly through one
or more subsidiaries, and there are no equity securities, partnership
interests or similar ownership interests of any class of equity security
of any subsidiary of Company, or any security exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance
or outstanding. Except as set forth in Section 2.3(b) of Company
Schedule or as set forth in Section 2.3(a) hereof, there are no
subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which
Company or any of its subsidiaries is a party or by which it is bound
obligating Company or any of its subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or
otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar
ownership interests of Company or any of its subsidiaries or obligating
Company or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. There are no
registration rights and there is, except for the Voting Agreement, no
voting trust, proxy, rights plan, antitakeover plan or other agreement
or understanding to which Company or any of its subsidiaries is a party
or by which they are bound with respect to any equity security of any
class of Company or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its
subsidiaries.
2.4 Authority Relative to this Agreement. Company has all necessary corporate
power and authority to execute and deliver this Agreement, and to perform its
obligations hereunder and thereunder and, subject to obtaining the approval of
the stockholders of Company of this Agreement and the Merger, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation by Company of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of Company and no other corporate proceedings on
the part of Company are necessary to authorize this Agreement, or to consummate
the transactions contemplated hereby (other than the approval and adoption of
this Agreement and the Merger by holders of a majority of the outstanding shares
of Company Common Stock in accordance with Delaware Law and the Company Charter
Documents, if required). This Agreement has been duly and validly executed and
delivered by Company and, assuming the due authorization, execution and delivery
by Parent and/or Merger Sub, constitute legal and binding obligations of
Company, enforceable against Company in accordance with their respective terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditor rights and for general equitable principles.
2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Company does not,
and the performance of this Agreement by Company shall not, (i) violate
the Company Charter Documents or the equivalent organizational documents
of any of Company's subsidiaries, (ii) subject to obtaining the approval
of Company's stockholders of this Agreement and the Merger (if required)
and the consents, approvals, authorizations and permits, and making the
filings and notifications, set forth in Section 2.5(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree
applicable to Company or any of its subsidiaries or by which its or any
of their respective properties is bound or affected, or (iii) result in
any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or materially
impair Company's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or assets
of Company or any of its subsidiaries pursuant to, any material note,
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bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of
its subsidiaries is a party or by which Company or any of its
subsidiaries or its or any of their respective properties are bound or
affected, and including, without limitation, any contract, agreement or
license described in Section 2.17, below.
(b) The execution, delivery and performance of this Agreement, together
with the documents contemplated hereby, shall not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any court, administrative agency, commission, governmental or regulatory
authority, domestic or foreign (a "Governmental Entity"), except (i) for
applicable requirements, if any, of the Securities Act of 1933, as
amended (the "Securities Act"), the Exchange Act of 1934, as amended
(the "Exchange Act"), state securities laws ("Blue Sky Laws"), the rules
and regulations of the NASDAQ, and the filing and recordation of the
Agreement of Merger as required by Delaware Law and (ii) where the
failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications (A) would not prevent
consummation of the Merger or otherwise prevent the parties hereto from
performing their respective obligations under this Agreement, or (B)
would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Company.
2.6 Compliance; Permits
(a) Definitions.
(i) "Hazardous Material" is any material or substance that is
prohibited or regulated by any Environmental Law or that has
been designated by any governmental authority to be radioactive,
toxic, hazardous or otherwise a danger to health, reproduction
or the environment.
(ii) "Environmental Laws" are all applicable laws, rules,
regulations, orders, treaties, statutes, and codes promulgated
by any governmental authority which prohibit, regulate or
control any Hazardous Material or any Hazardous Material
activity, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
the Resource Recovery and Conservation Act of 1976, the Federal
Water Pollution Control Act, the Clean Air Act, the Hazardous
Materials Transportation Act, the Clean Water Act, comparable
laws, rules, regulations, ordinances, orders, treaties,
statutes, and codes of other governmental authorities, the
regulations promulgated pursuant to any of the foregoing, and
all amendments and modifications of any of the foregoing, all as
amended to date.
(b) Neither Company nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule (including Environmental
Laws), regulation, order, judgment or decree applicable to Company or
any of its subsidiaries or by which its or any of their respective
properties is bound, or (ii) any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries
or its or any of their respective properties is bound, except for any
conflicts, defaults or violations that (individually or in the
aggregate) would not reasonably be expected to have a Material Adverse
Effect on the Company. No investigation or review by any governmental or
regulatory body or authority is, to the knowledge of Company, pending or
threatened against Company or its subsidiaries, nor has any governmental
or regulatory body or authority indicated to Company or any of its
subsidiaries an intention to conduct the same, other than, in each such
case, those the outcome of which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
the Company.
(c) Neither Company nor any of its subsidiaries has (and no Hazardous
Materials generated, stored or used by Company or any of its
subsidiaries have been) disposed of, released, discharged or emitted any
Hazardous Materials into the soil or groundwater at any properties owned
or leased at any time by Company or any of its subsidiaries, or at any
other property, or exposed any employee or other individual to any
Hazardous Materials or any workplace or environmental condition in such
a manner as would result in any liability or clean-up obligation of any
kind or nature to Company or any of its subsidiaries. To the knowledge
of Company, no Hazardous Materials are present in, on, or under any
properties owned, leased or used at any time by Company or any of its
subsidiaries, and no reasonable likelihood exists that any Hazardous
Materials will come to be present in, on, or under any properties owned,
8
leased or used at any time by Company or any of its subsidiaries, so as
to give rise to any liability or clean-up obligation under any
Environmental Laws.
(d) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders, approvals and other authorizations from governmental
authorities which are material to the operation of the business of
Company and its subsidiaries taken as a whole (collectively, the
"Company Permits"). Company and its subsidiaries have been and are in
compliance in all material respects with the terms of the Company
Permits and any conditions placed thereon.
2.7 SEC Filings; Financial Statements.
(a) Company has delivered or made available to Parent a correct and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Company with the Securities and
Exchange Commission ("SEC") since December 31, 1998 (the "Company SEC
Reports"), which are all the forms, reports and documents required to be
filed by Company with the SEC since such time. The Company SEC Reports
(i) were prepared in accordance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder, and (ii) did not at the
time they were filed (or, if such Company SEC Report was amended or
superseded by another filing, then on the date of filing of such
amendment or superceding filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. None of
Company's subsidiaries is required to file any reports or other
documents with the SEC.
(b) As of their respective dates, each set of consolidated financial
statements (including, in each case, any related notes thereto)
contained in the Company SEC Reports, (i) complied as to form in all
material respects with the published rules and regulations of the SEC
with respect thereto, (ii) was prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, do not contain
footnotes as permitted by Form 10-Q of the Exchange Act) and each fairly
presents the consolidated financial position of Company and its
subsidiaries at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are
subject to the absence of footnotes and normal adjustments which (in
addition to those noted therein) were not or are not expected to be
material in amount.
(c) Company has previously furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed
as of the date hereof with the SEC but which are required to be filed,
to agreements, documents or other instruments which previously had been
filed by Company with the SEC pursuant to the Securities Act or the
Exchange Act or any material agreements potentially required to be filed
that have not been so filed.
2.8 No Undisclosed Liabilities. Neither Company nor any of its subsidiaries has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations, assets or financial condition of Company and its subsidiaries taken
as a whole, except (i) liabilities provided for in Company's balance sheet as of
September 30, 2001 set forth in the Company SEC Reports (ii) liabilities
incurred since September 30, 2001 in the ordinary course of business, none of
which is material to the business, results of operations or financial condition
of Company and its subsidiaries, taken as a whole, or (iii) except as disclosed
in Schedule 2.8.
2.9 Absence of Certain Changes or Events. Except as set forth in this Agreement,
since September 30, 2001, there has not been: (i) any event or circumstance that
results in a Material Adverse Effect on Company, (ii) any declaration, setting
aside or payment of any dividend on, or other distribution (whether in cash,
stock or property) in respect of, any of Company's or any of its subsidiaries'
capital stock, or any purchase, redemption or other acquisition by Company of
any of Company's capital stock or any other securities of Company or its
9
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any split, combination or reclassification of any of Company's
or any of its subsidiaries' capital stock, (iv) any granting by Company or any
of its subsidiaries of any increase in compensation or fringe benefits, except
for normal increases of cash or non-cash benefits compensation in the ordinary
course of business consistent with past practice, or any payment by Company or
any of its subsidiaries of any bonus, except for bonuses made in the ordinary
course of business consistent with past practice, or any granting by Company or
any of its subsidiaries of any increase in severance or termination pay or any
entry by Company or any of its subsidiaries into any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving Company of the nature
contemplated hereby, (v) entry by Company or any of its subsidiaries into any
material licensing or other agreement with regard to the acquisition or
disposition of any Intellectual Property (as defined in Section 2.16) other than
licenses in the ordinary course of business consistent with past practice or any
amendment or consent with respect to any licensing agreement filed or required
to be filed by Company with the SEC, (vi) any material change by Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any material revaluation by Company of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable or any sale of assets of
Company other than in the ordinary course of business consistent with past
practice.
2.10 Absence of Litigation. Except as specifically disclosed on Section 2.10 of
the Company Schedule, or in the Company SEC Reports as of the date hereof, there
are no material claims, actions, suits or proceedings pending or, to the
knowledge of Company, threatened (or, to the knowledge of Company, any
governmental or regulatory investigation pending or threatened) against Company
or any of its subsidiaries or any properties or rights of Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign.
2.11 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 3.11(a)(i) below (which definition shall apply only to
this Section 2.11), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
common control with Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations issued
thereunder;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iii) "Code" shall mean the Internal Revenue Code of 1986, as
amended;
(iv) "Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, deferred
compensation, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits or remuneration of
any kind, whether written or unwritten or otherwise, funded or
unfunded, including without limitation, each "employee benefit
plan," within the meaning of Section 3(3) of ERISA which is or
has been maintained, contributed to, or required to be
contributed to, by Company or any Affiliate for the benefit of
any Employee, or with respect to which Company or any Affiliate
has or may have any liability or obligation;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former or retired
employee, consultant or director of Company or any Affiliate;
10
(vii) "Employment Agreement" shall mean each employment,
severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement or contract relating to
provisions of services between the Company or any Affiliate and
any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; (ix) "FMLA" shall mean the
Family Medical Leave Act of 1993, as amended;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan," as defined in
Section 3(37) of ERISA; and
(xii) "Pension Plan" shall mean each Company Employee Plan which
is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(b) Schedule. Section 2.11(b) of the Company Schedule contains an
accurate and complete list in all material respects of each Company
Employee Plan, and each Employment Agreement. Company does not have any
plan or commitment to establish any new Company Employee Plan or
Employment Agreement, to modify any Company Employee Plan or Employment
Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employment Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to adopt or enter into
any Company Employee Plan, or Employment Agreement. Section 2.11(b) of
the Company Schedule contains a representation of the percentage of the
Company's employee base which falls within each of the following
categories: non-exempt employees, exempt employees and key employees;
average employee salary in each such category; and average tenure in
each such category. The Company represents and warrants that the
foregoing information, as more fully reflected in Section 2.11(b) of the
Company Schedule, is accurate and complete.
(c) Documents. Company has provided to Parent correct and complete
copies of: (i) all documents embodying each Company Employee Plan and
each Employment Agreement including (without limitation) all amendments
thereto and all related trust documents, administrative service
agreements, group annuity contracts, group insurance contracts, and
policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Plan; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the
three (3) most recent annual reports (Form Series 5500 and all schedules
and financial statements attached thereto), if any, required under ERISA
or the Code in connection with each Company Employee Plan; (iv) if
Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary
plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each
Company Employee Plan; (vi) the most recent IRS determination letter,
and all applications and correspondence to or from the IRS or the DOL
with respect to any such application or letter; (vii) all written
communications material to any Employee or Employees relating to any
Company Employee Plan and any proposed Company Employee Plans, in each
case, relating to any amendments, terminations, establishments,
increases or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material liability
to Company; (viii) all material correspondence to or from any
governmental agency relating to any Company Employee Plan; (ix) all
current model COBRA forms and related notices (or such forms and notices
as required under comparable law); (x) the three (3) most recent plan
years discrimination tests for each Company Employee Plan; and (xi) all
registration statements, annual reports (Form 11-K and all attachments
thereto) and prospectuses prepared in connection with each Company
Employee Plan.
(d) Employee Plan Compliance. (i) Company has performed in all material
respects all obligations required to be performed by it under, is not in
material default or violation of, and has no knowledge of any material
default or violation by any other party to each Company Employee Plan,
and each Company Employee Plan has been established and maintained in
all material respects in accordance with its terms and in compliance
with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company
Employee Plan intended to qualify under Section 401(a) of the Code and
11
each related trust intended to qualify under Section 501(a) of the Code
has either received a favorable determination, opinion, notification or
advisory letter from the IRS with respect to each such Company Employee
Plan as to its qualified status under the Code, including all amendments
to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter
and make any amendments necessary to obtain a favorable determination as
to the qualified status of each such Company Employee Plan; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code
or Sections 406 and 407 of ERISA, and not otherwise exempt under Section
4975 of the Code or Section 408 of ERISA (or any administrative class
exemption issued thereunder), has occurred with respect to any Company
Employee Plan; (iv) there are no actions, suits or, to the knowledge of
the Company, claims pending or threatened (other than routine claims for
benefits) against any Company Employee Plan or against the assets of any
Company Employee Plan; (v) each Company Employee Plan (other than any
stock option plan) can be amended, terminated or otherwise discontinued
after the Effective Time, without material liability to Parent, Company
or any of its Affiliates (other than benefits accrued to date and
ordinary administration expenses); (vi) there are no audits, inquiries
or proceedings pending or, to the knowledge of Company, threatened by
the IRS or DOL with respect to any Company Employee Plan; and (vii)
neither Company nor any Affiliate is subject to any penalty or tax with
respect to any Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) Pension Plan. Neither Company nor any Affiliate has ever maintained,
established, sponsored, participated in, or contributed to, any Pension
Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Collectively Bargained, Multiemployer and Multiple Employer Plans.
At no time within the six (6) year period ending on the date hereof, has
the Company or any Affiliate contributed to or been obligated to
contribute to any Multiemployer Plan or ever maintained, established,
sponsored, participated in, or contributed to any multiple employer
plan, or to any plan described in Section 413 of the Code.
(g) No Post-Employment Obligations. Except as set forth in Section
2.11(g) of the Company Schedule, no Company Employee Plan provides, or
reflects or represents any liability to provide retiree health insurance
coverage to any person for any reason, except as may be required by
COBRA or other applicable statute.
(h) Health Care Compliance. Neither Company nor any Affiliate has, prior
to the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of
FMLA, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and
Cancer Rights Act of 1998, the requirements of the Newborns' and
Mothers' Health Protection Act of 1996, or any amendment to each such
act, or any similar provisions of state law applicable to its Employees.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.11(i), the execution of
this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an
event under any Company Employee Plan, Employment Agreement,
trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by Company
or its Affiliates with respect to any Employee will be
characterized as a "parachute payment," within the meaning of
Section 280G(b)(2) of the Code.
(j) Employment Matters. To the best of its knowledge and belief,
Company: (i) is in material compliance in all respects with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees;
(ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries
and other payments to Employees; (iii) is not liable for any arrears of
12
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other
fund governed by or maintained by or on behalf of any governmental
authority, 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). To the Company's knowledge, there are no
pending, threatened or reasonably anticipated claims or actions against
Company under any worker's compensation policy or long-term disability
policy (other than routine claims for benefits).
(k) Labor. No work stoppage or labor strike against Company is pending
or, to the knowledge of Company, threatened. Company does not know of
any activities or proceedings of any labor union to organize any
Employees. There are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of Company, threatened or
reasonably anticipated relating to any labor, safety or discrimination
matters involving any Employee, including, without limitation, charges
of unfair labor practices or discrimination complaints, which, if
adversely determined, would, individually or in the aggregate, result in
any material liability to Company. Neither Company nor any of its
subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act. Except as set forth in
Section 2.11(k) of the Company Schedule, Company is not presently, nor
has it been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
collective bargaining agreement is being negotiated by Company.
2.12 Restrictions on Business Activities. There is no agreement, commitment,
judgment, injunction, order or decree binding upon Company or its subsidiaries
or to which Company or any of its subsidiaries is a party which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any material business practice of Company or any of its subsidiaries, any
material acquisition of property by Company or any of its subsidiaries or the
conduct of business by Company or any of its subsidiaries as currently
conducted.
2.13 Title to Property.
(a) Neither Company nor any of its subsidiaries owns any material real
property. Company and each of its subsidiaries have good and marketable
title to all of their material owned properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not
yet due and payable and such liens or other imperfections of title, if
any, as do not materially interfere with the present use of the property
affected thereby.
(b) All leases (the "Leases") pursuant to which Company or any of its
subsidiaries lease from others material real or personal property are
valid and effective in accordance with their respective terms, and there
is not, under any of such leases, any existing material default or event
of default of Company or any of its subsidiaries or, to Company's
knowledge, any other party (or any event which with notice or lapse of
time, or both, would constitute a material default and in respect of
which Company or subsidiary has not taken adequate steps to prevent such
default from occurring).
(c) Section 2.13 of the Company Schedule sets forth a list of all real
property currently leased by Company, the landlord contact, the
expiration date of the Lease and each amendment thereto, and, with
respect to each Lease, the square footage of the premises leased
thereunder and the aggregate monthly rental payable thereunder. Company
has provided Parent with true, complete and correct copies of each
Lease; no term or condition of any such Lease has been modified, amended
or waived except as shown in such copies; each such Lease constitutes
the entire agreement of the landlord and the tenant thereunder; and
there are no other agreements or arrangements whatsoever relating to
Company's use or occupancy of any of the premises described in such
Leases. Company has not transferred or assigned any interest in any
Lease, nor has Company subleased or otherwise granted rights of use or
occupancy of any of the premises described therein to any other person
or entity.
(d) As of the date of this Agreement, to the knowledge of Company, the
landlord under each Lease has complied with all of the requirements,
conditions, representations, warranties and covenants of the landlord
thereunder, including, without limitation, the timely completion of
construction of the leased premises in a good and workmanlike manner and
otherwise in accordance with the Leases.
13
(e) Company has not received any notice from any insurance company of
any defects or inadequacies in any leased property or any part thereof
which could materially and adversely affect the insurability of such
leased property or the premiums for the insurance thereof. No notice has
been given by any insurance company which has issued a policy with
respect to any portion of any leased property or by any board of fire
underwriters (or other body exercising similar functions) requesting the
performance of any repairs, alterations or other work with which
compliance has not been made. To Company's knowledge, there exist no
structural, soil or other conditions with respect to any leased property
that could increase the probability of material damage to any leased
property as a result of earthquake or other seismic activity.
(f) To the Company's knowledge, no law, ordinance, regulation or
restriction is, or as of the Closing Date will be, violated by the
continued occupancy, maintenance, operation or use of the leased
properties in their present manner. To Company's knowledge, there are no
Legal Requirements now in existence or under active consideration by any
Governmental Entity which could require the tenant of any leased
property to make any expenditure in excess of $25,000 to modify or
improve such leased property to bring it into compliance therewith.
(g) There is no pending or, to Company's knowledge, threatened
condemnation or similar proceeding affecting any leased property or any
portion thereof, and Company has no knowledge that any such action is
currently contemplated. There are no material legal actions, suits or
other legal or administrative proceedings pending or threatened against
Company, or, to Company's knowledge, against third parties affecting any
leased property, and Company is not aware of any facts which might
result in any such action, suit or proceeding. All material plants,
structures and equipment of Company and its subsidiaries are in good
operating condition and repair in all material respects.
For purposes of this Section 2.13, the Company's knowledge shall be deemed to
include the knowledge of the Company's management personnel responsible for the
Company's facilities and property.
2.14 Taxes.
(a) Definition of Taxes. For purposes of this Agreement, (i) "Tax" or,
collectively, "Taxes", means (i) any and all federal, state, local and
foreign taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise
and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts; (ii) any liability for the payment
of any amounts of the type described in clause (i) as a result of being
or ceasing to be a member of an affiliated, consolidated, combined or
unitary group for any period (including, without limitation, any
liability under Treas. Reg. Section 1.1502-6 or any comparable provision
of foreign, state or local law); and (iii) any liability for the payment
of any amounts of the type described in clause (i) or (ii) as a result
of any express or implied obligation to indemnify any other Person or as
a result of any obligations under any agreements or arrangements with
any other Person with respect to such amounts and including any
liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) The Company and each of its subsidiaries have timely filed
all federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to Taxes
required to be filed by the Company and each of its subsidiaries
with any Tax authority, except such Returns which are not
material to the Company. All such Returns were correct and
complete in all material respects. The Company and each of its
subsidiaries have paid or reserved for payment all Taxes shown
to be due on such Returns.
(ii) The Company and each of its subsidiaries has withheld with
respect to its employees, independent contractors, creditors,
stockholders, and all other third parties all federal and state
income taxes, Taxes pursuant to the Federal Insurance
Contribution Act, Taxes pursuant to the Federal Unemployment Tax
Act and other Taxes required to be withheld and have timely paid
14
over to the proper governmental authorities all amounts required
to be withheld and paid over under all applicable laws.
(iii) Neither the Company nor any of its subsidiaries has
executed any unexpired waiver of any statute of limitations on
or extending the period for the assessment or collection of any
Tax.
(iv) To the knowledge of the Company, no audit or other
examination of any Return of the Company or any of its
subsidiaries by any Tax authority is presently in progress, nor
has the Company or any of its subsidiaries been notified in
writing of any request for such an audit or other examination.
(v) No material adjustment relating to any Returns filed by the
Company or any of its subsidiaries (and no claim by a Tax
authority in a jurisdiction in which the Company or any of its
subsidiaries does not file Returns that the Company or any of
its subsidiaries may be subject to taxation by such
jurisdiction) has been proposed in writing formally or
informally by any Tax authority to the Company or any of its
subsidiaries.
(vi) Neither the Company nor any of its subsidiaries has any
liability for any unpaid Taxes which has not been accrued for or
reserved on the Company Balance Sheet in accordance with GAAP,
whether asserted or unasserted, contingent or otherwise, other
than any liability for unpaid Taxes that may have accrued since
September 30, 2001 in connection with the operation of the
business of the Company and its subsidiaries in the ordinary
course.
(vii) There is no contract, agreement, plan or arrangement to
which the Company or any of its subsidiaries is a party as of
the date of this Agreement covering any employee or former
employee of the Company or any of its subsidiaries that,
individually or collectively, would reasonably be expected to
give rise to the payment of any amount that would not be
deductible pursuant to Sections 404 or 162(m) of the Code. There
is no contract, agreement, plan or arrangement to which the
Company is a party or by which it is bound to compensate any
individual for excise taxes paid pursuant to Section 4999 of the
Code.
(viii) Neither the Company nor any of its subsidiaries has filed
any consent agreement under Section 341(f) of the Code or agreed
to have Section 341(f)(2) of the Code apply to any disposition
of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company or any of its subsidiaries.
(ix) Neither the Company nor any of its subsidiaries (i) has
ever been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a consolidated group the
common parent of which is the Company), (ii) is a party to any
Tax sharing or Tax allocation agreement, arrangement or
understanding, (iii) is liable for the Taxes of any other person
(other than any of the Company and its subsidiaries) under
Treasury Regulation Section 1.1502-6 (or any similar provision
of state, local or foreign law), as a transferee or successor,
by contract or otherwise, or (iv) is a party to any joint
venture, partnership or, to the knowledge of the Company, any
other arrangement that could be treated as a partnership for
income Tax purposes.
(x) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled
corporation" in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (i) in the two years
prior to the date of this Agreement or (ii) in a distribution
which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of
the Code) in conjunction with the Merger.
2.15 Brokers. Except for fees payable to Goldsmith, Agio, Helms, Securities,
Inc. ("GAHS") Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders fees or agent's commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.16 Intellectual Property. For the purposes of this Agreement, the following
terms have the following definitions:
15
"Intellectual Property" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or
associated therewith: (i) U.S. and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof
("Patents"); (ii) inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (iii) copyrights,
copyrights registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) domain names, uniform
resource locators ("URLs"), other names and locators associated with the
Internet, and applications or registrations therefor ("Domain Names");
(v) industrial designs and any registrations and applications therefor;
(vi) trade names, logos, common law trademarks and service marks,
trademark and service mark registrations, related goodwill and
applications therefor throughout the world; (vii) all databases and data
collections and all rights therein; (viii) all moral and economic rights
of authors and inventors, however denominated, (ix) any works of
authorship, including, without limitation, computer programs, source
code, executable code, whether embodied in software, firmware or
otherwise, documentation, designs, files, records, data and mask works;
and (x) any similar or equivalent rights to any of the foregoing (as
applicable).
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company and it
subsidiaries.
"Registered Intellectual Property" means all Intellectual Property that
is the subject of an application, certificate, filing, registration or
other document issued, filed with, or recorded by any private, state,
government or other legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company or any
of its subsidiaries.
(a) Section 2.16(a) of the Company Schedule is a complete and accurate
list of all Company Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Company
Registered Intellectual Property has been issued or registered, the
filing date, and the current status of each such item of Company
Registered Intellectual Property.
(b) No Company Intellectual Property or product or service offering of
Company or any of its subsidiaries (a "Company Product") is subject to
any proceeding or outstanding decree, order, judgment, or stipulation
restricting in any manner, or any contract, license, or agreement,
restricting in any material manner the use, transfer, or licensing
thereof by Company or any of its subsidiaries, or which may affect the
validity, use or enforceability of such Company Intellectual Property or
Company Product, except as identified in the Company Schedule.
(c) Each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark
or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Company Registered
Intellectual Property, except where such Company Registered Intellectual
Property has been intentionally abandoned by the Company, as reflected
in section 2.16(a) of the Company Schedule.
(d) Company owns and has good and exclusive title to, each item of
Company Intellectual Property owned by it free and clear of any lien or
encumbrance (excluding non-exclusive licenses and related restrictions
granted in the ordinary course). Without limiting the foregoing: (i)
Company is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of Company and
its subsidiaries, including the sale, distribution or provision of any
Company Products by Company or its subsidiaries; (ii) Company owns
exclusively, and has good title to, all copyrighted works that are
Company Products or services or which Company or any of its subsidiaries
otherwise purports to own; and (iii) to the extent that any Patents
16
would be infringed by any Company Products, Company is the exclusive
owner of such Patents, or has secured appropriate rights through license
or other agreement.
(e) Any agreements between Company and third parties for the development
or manufacture of a Company product shall permit Company to continue the
development or manufacture of any such product notwithstanding any
termination or expiration of such agreement(s), without the payment of
any additional royalty, fee or other payment to any such third party.
(f) Company knows of no information, materials, facts, or circumstances,
including any information or fact that would constitute prior art, that
would render any of the Company Registered Intellectual Property invalid
or unenforceable, or would adversely affect any pending application for
any Company Registered Intellectual Property and the Company has not
misrepresented, or knowingly failed to disclose, any facts or
circumstances in any application for any Company Registered Intellectual
Property that would constitute fraud or a misrepresentation with respect
to such application or that would otherwise affect the validity or
enforceability of any Company Registered Intellectual Property.
(g) To the extent that any technology, software or Intellectual Property
has been developed or created independently or jointly by a third party
or employee for Company or any of its subsidiaries or is incorporated
into any of the Company Products, Company has a written agreement with
such third party or employee with respect thereto and Company thereby
either (i) has obtained ownership of, and is the exclusive owner of, or
(ii) has obtained a perpetual, non-terminable license (sufficient for
the conduct of its business as currently conducted and as proposed to be
conducted) to all such third party's Intellectual Property in such work,
material or invention by operation of law or by valid assignment.
(h) Neither Company nor any of its subsidiaries has transferred
ownership of any Intellectual Property that is Company Intellectual
Property, to any third party or subsidiary (other than a wholly-owned
subsidiary), or knowingly permitted Company's rights in such Company
Intellectual Property to lapse or enter the public domain, except as
noted in the Company Schedule.
(i) Section 2.16(i) of the Company Schedule lists all material
contracts, licenses and agreements to which Company or any of its
subsidiaries is a party: (i) with respect to Company Intellectual
Property licensed or transferred to any third party (other than end-user
licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to
Company.
(j) All material contracts, licenses and agreements relating to either
(i) Company Intellectual Property or (ii) Intellectual Property of a
third party licensed to Company or any of its subsidiaries, including,
without limitation, third party licenses to Company relating to or in
any way permitting Company Products, services or Company Intellectual
Property to interoperate with other products, systems or standards, are
in full force and effect. The consummation of the transactions
contemplated by this Agreement will neither violate nor result in the
breach, modification, cancellation, termination or suspension of such
contracts, licenses and agreements. Each of Company and its subsidiaries
is in material compliance with, and has not materially breached any term
of any such contracts, licenses and agreements and, to the knowledge of
Company, all other parties to such contracts, licenses and agreements
are in compliance with, and have not materially breached any term of,
such contracts, licenses and agreements. Following the Closing Date, the
Surviving Corporation will be permitted to exercise all of Company's
rights under such contracts, licenses and agreements to the same extent
Company and its subsidiaries would have been able to had the
transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing
fees, royalties or payments which Company would otherwise be required to
pay. Neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent or Merger Sub by operation
of law or otherwise of any contracts or agreements to which Company is a
party, will result in (i) either Parent's or the Merger Sub's granting
to any third party any right to or with respect to any material
Intellectual Property right owned by, or licensed to, either of them,
(ii) either Parent's or the Merger Sub's being bound by, or subject to,
any non-compete or other material restriction on the operation or scope
of their respective businesses, or (iii) either Parent's or the Merger
Sub's being obligated to pay any royalties or other material amounts to
any third party in excess of those payable by Parent or Merger Sub,
respectively prior to the Closing.
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(k) The operation of the business of Company and its subsidiaries as
such business currently is conducted or is currently contemplated to be
conducted, including (i) Company's and its subsidiaries' design,
development, manufacture, distribution, import, reproduction, marketing
or sale of the products or services of Company and its subsidiaries
(including Company Products and products, technology or service
offerings under development) and (ii) Company's use of any product,
device or process, has not, does not and, to its knowledge, will not
infringe or misappropriate the Intellectual Property of any third party
or constitute unfair competition or trade practices under the laws of
any jurisdiction.
(l) Neither Company nor any of its subsidiaries has received written
notice from any third party alleging that the operation of the business
of Company or any of its subsidiaries or any act, product or service
(including Products, technology or service offerings currently under
development) of Company or any of its subsidiaries, infringes or
misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction, except as otherwise noted herein and resolved through
appropriate license or other agreement.
(m) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(n) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade
secrets or confidential information of third parties provided to Company
or any of its subsidiaries, and, without limiting the foregoing, each of
Company and its subsidiaries has required each employee and contractor
to execute a proprietary information/confidentiality agreement and all
current and former employees and contractors of Company and any of its
subsidiaries have executed such an agreement, except where the failure
to do so is not reasonably expected to be material to Company.
(o) To the knowledge of Company and each of its subsidiaries, no (i)
product, technology, service or publication of the Company, (ii)
material or collateral published or distributed by the Company, or (iii)
conduct or statement of the Company constitutes obscene material, a
defamatory statement or material, disparagement of any third party, or
false advertising.
(p) None of the Company Intellectual Property was developed by or on
behalf of, or using grants or any other subsidies of, any governmental
entity or any university.
(q) Schedule 2.16(q) contains a list of all materials actions that are
required to be taken by the Company within ninety (90) days of the date
hereof with respect to any of the foregoing Company Registered
Intellectual Property.
2.17 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 2.17(a), neither Company nor any of
its subsidiaries is a party to or is bound by:
(i) any written employment or consulting agreement, contract or
commitment with any officer, director, Company employee or
member of the Company's Board of Directors (sometimes, the
"Company Board"), or any service, operating or management
agreement or arrangement with respect to any of its properties
(whether leased or owned), other than those that are terminable
by Company or any of its subsidiaries on no more than thirty
(30) days' notice without liability or financial obligation to
Company;
(ii) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation right plan or stock
purchase plan, any of the benefits of which will be increased,
or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
18
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement;
(iii) any agreement of indemnification or any guaranty, other
than maintenance agreements and product warranties, or
agreements of indemnification entered into in connection with
the sale of products in the ordinary course of business in
excess of $50,000;
(iv) any material agreement, contract or commitment containing
any covenant limiting in any respect the right of Company or any
of its subsidiaries to engage in any line of business or to
compete with any person or entity or granting any exclusive
distribution rights;
(v) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Company or any of
its subsidiaries after the date of this Agreement of an amount
of assets in excess of $100,000 not in the ordinary course of
business or pursuant to which Company or any of its subsidiaries
has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other
than Company's subsidiaries;
(vi) any dealer, distributor, joint marketing or development
agreement currently in force under which Company or any of its
subsidiaries have continuing material obligations to jointly
market any product, technology or service and which may not be
canceled without penalty upon notice of ninety (90) days or
less, or any material agreement pursuant to which Company or any
of its subsidiaries have continuing material obligations to
jointly develop any intellectual property that will not be
owned, in whole or in part, by Company or any of its
subsidiaries and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(vii) any agreement, contract or commitment currently in force
to license to or from any third party to manufacture or
reproduce any Company product, service or technology or any
agreement, contract or commitment currently in force to sell or
distribute any Company products, service or technology except
agreements with distributors or sales representative in the
normal course of business cancelable without penalty upon notice
of ninety (90) days or less and substantially in the form
previously provided to Parent;
(viii) any agreement, contract or commitment currently in force
to provide source code to any third party for any product or
technology that is material to Company and its subsidiaries
taken as a whole;
(ix) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or
instruments relating to the borrowing of money or extension of
credit;
(x) any material settlement agreement under which Company has
ongoing obligations; or
(xi) any agreement with a customer of the Company involving in
excess of $100,000 in any 12 month period.
(b) Neither Company nor any of its subsidiaries, nor to Company's
knowledge any other party to a Company Contract (as defined below), is
in breach, violation or default under, and neither Company nor any of
its subsidiaries has received written notice that it has breached,
violated or defaulted under, any of the material terms or conditions of
any of the agreements, contracts or commitments to which Company or any
of its subsidiaries is a party or by which it is bound that are required
to be disclosed in the Company Schedule (any such agreement, contract or
commitment, a "Company Contract") in such a manner as would permit any
other party to cancel or terminate any such Company Contract, or would
permit any other party to seek material damages or other remedies (for
any or all of such breaches, violations or defaults, in the aggregate).
Company has made available to Parent true and correct copies of any
contracts Company may have with its top ten customers.
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2.18 Opinion of Financial Advisor. The Board of Directors of the Company has
been advised by its financial advisor, GAHS, that in its opinion, as of the date
of this Agreement, the Merger Consideration is fair to the holders of shares of
Company Common Stock from a financial point of view, and Company will provide a
copy of the written confirmation of such opinion to Parent for informational
purposes as soon as reasonably practicable.
2.19 Insurance. Company maintains insurance policies or fidelity bonds covering
the assets, business, equipment, properties, operations, employees, officers and
directors of Company and its subsidiaries (collectively, the "Insurance
Policies") which the Company believes are of the type and in amounts customarily
carried by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.20 Vote Required. The affirmative vote of a majority of the votes that holders
of the outstanding shares of Company Common Stock are entitled to vote with
respect to the Merger is the only vote of the holders of any class or series of
the Company's capital stock necessary to approve this Agreement and the
transactions contemplated thereby.
2.21 Board Approval. The Company Board, at a meeting duly called and held on
January 18, 2002 with the unanimous approval of all non-interested directors,
has (i) determined that this Agreement and the transactions contemplated hereby,
including the Merger, taken together, are at a price and on terms that are
advisable and fair to and in the best interests of the Company and its
stockholders; (ii) approved this Agreement and the transactions contemplated
hereby, including the Merger, in all respects; and (iii) as of the date hereof,
resolved to recommend that the stockholders of the Company approve and adopt
this Agreement and the Merger.
2.22 Registration Statement; Proxy Statement. None of the information supplied
or to be supplied by the Company for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the proxy
statement/prospectus to be filed with the SEC by the Company pursuant to Section
5.1 hereof (the "Proxy Statement/Prospectus") will, at the dates mailed to the
stockholders of the Company, at the times of the stockholders meeting of the
Company (the "Company Stockholders' Meeting") in connection with the
transactions contemplated hereby and as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated by the
SEC thereunder. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to Company,
subject to such exceptions as are disclosed in writing in the disclosure letter
supplied by Parent to Company dated as of the date hereof (the "Parent
Schedule"), which disclosure shall provide an exception to or otherwise qualify
the representations and warranties of Parent and Merger Sub contained in the
section of this Agreement corresponding by number to such disclosure, as
follows:
3.1 Organization and Qualification; Subsidiaries. Each of Parent and its
subsidiaries is a corporation duly organized, 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 assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
20
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation 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 activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.
3.2 Certificate of Incorporation and Bylaws. Parent has previously furnished to
Company complete and correct copies of its Certificate of Incorporation and
Bylaws as amended to date (together, the "Parent Charter Documents"). Such
Parent Charter Documents and equivalent organizational documents of each of its
subsidiaries are in full force and effect, Parent is not in violation of any of
the provisions of the Parent Charter Documents, and no subsidiary of Company is
in violation of any of its equivalent organizational documents except where the
failure to be in full force or effect or the violation of any such equivalent
organizational documents of a subsidiary of Company would not, individually or
in the aggregate, have a Material Adverse Effect on Parent.
3.3 Capitalization. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, $0.001 par value. As of the close of
business on January 16, 2001, (i) 9,447,704 shares of Parent Common Stock were
issued and outstanding on a fully diluted basis, using the treasury stock method
(ii) Parent had reserved an aggregate of 2,500,000 shares of Parent Common Stock
for issuance pursuant to Parent's stock option plans, and (iii) parent had
warrants outstanding for 150,000 shares of Parent Common Stock. Except as set
forth in the immediately preceding sentence, no shares of capital stock or other
equity securities of Parent are issued, reserved for issuance or outstanding
except as set forth in the Parent SEC Reports. The shares of Parent Common Stock
to be issued pursuant to the Merger will be, duly authorized, validly issued,
fully paid and nonassessable. All of the outstanding shares of capital stock of
each of Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Parent or another subsidiary free
and clear of all security interests, liens, claims, pledges, agreements,
limitations in Parent's voting rights, charges or other encumbrances of any
nature whatsoever.
3.4 Authority Relative to this Agreement. Each of Parent and/or Merger Sub has
all necessary corporate power and authority to execute and deliver this
Agreement, and 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 consummation by Parent and/or Merger Sub of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and/or Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
executed and delivered by Parent and/or Merger Sub and, assuming the due
authorization, execution and delivery by Company, constitute legal and binding
obligations of Parent and/or Merger Sub, enforceable against Parent and/or
Merger Sub in accordance with their respective terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditor rights and for general
equitable principles.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement, by Parent and Merger
Sub, and the performance of this Agreement, by Parent and Merger Sub,
and the Voting Agreement by Parent shall not, (i) conflict with or
violate the Parent Charter Documents or equivalent organizational
documents or any of Parent's subsidiaries, (ii) subject to obtaining the
consents, approvals, authorization and permits, and making the filings
and notifications, set forth in Section 3.5(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable
to Parent or any of its subsidiaries or by which it or their respective
properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or impair Parent's or any such
subsidiary's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Parent or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
21
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of
their respective properties are bound or affected, except to the extent
such conflict, violation, breach, default, impairment or other effect
could not in the case of clauses (ii) or (iii), individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.
(b) The execution and delivery of this Agreement by Parent and Merger
Sub do not, and the performance of this Agreement, by Parent and Merger
Sub shall not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity except
(i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, Blue Sky Laws, the rules and regulations of the NASDAQ,
and the filing and recordation of the Merger Certificate as required by
Delaware Law and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, (A) would not prevent consummation of the Merger or
otherwise prevent Parent or Merger Sub from performing their respective
obligations under this Agreement or (B) could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect
on Parent.
3.6 SEC Filings; Financial Statements.
(a) Parent has made available to Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy
statement filed by Parent with the SEC on or after June 30, 1999 and
prior to the date of this Agreement (the "Parent SEC Reports"), which
are all the forms, reports and documents required to be filed by Parent
with the SEC since such date. The Parent SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were
filed (and if any Parent SEC Report filed prior to the date of this
Agreement was amended or superseded by a filing prior to the date of
this Agreement, then on the date of such amendment or superceded filing)
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. None of Parent's subsidiaries is
required to file any reports or other documents with the SEC.
(b) At their respective dates, each set of consolidated financial
statements (including, in each case, any related notes thereto)
contained in the Parent SEC Reports, as amended, was prepared in
accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in
the case of unaudited statements, as permitted by Form 10-Q of the
Exchange Act) and each fairly presents the consolidated financial
position of Parent and its subsidiaries at the respective dates thereof
and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial
statements were or are subject to the absence of footnotes and normal
adjustments which (in addition to those noted therein) were not or are
not expected to be material in amount.
3.7 No Material Adverse Effect. Since Parent's September 30, 2001 balance sheet,
and until the date hereof, there has not occurred any Material Adverse Effect on
Parent.
3.8 Absence of Litigation. There are no material claims, actions, suits or
proceedings that have a reasonable likelihood of success on the merits pending
or, to the knowledge of Parent, threatened (or to the knowledge of Parent, any
governmental or regulatory investigation pending or threatened) against Parent
or any property or rights of Parent or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, except for those claims, actions, suits or
proceedings which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Parent.
3.9 Merger Sub. Merger Sub was formed solely for the purpose of engaging in the
Merger and has not engaged in any business activities or conducted any
operations other than in connection with the transactions contemplated by this
Agreement, including the Merger. As of the Effective Time, all of the
outstanding capital stock of Merger Sub will be owned by Parent.
3.10 Registration Statement; Proxy Statement. None of the information supplied
or to be supplied by the Parent for inclusion or incorporation by reference in
(i) the Registration Statement will, at the time the Registration Statement
22
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the Proxy
Statement/Prospectus will, at the dates mailed to the stockholders of the
Company, at the times of the Company Stockholders' Meeting and as of the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Parent makes no representation or warranty with respect to any information
supplied by Company which is contained in any of the foregoing documents.
3.11 No Undisclosed Liabilities. Neither Parent nor any of its subsidiaries has
any liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations, assets or financial condition of Company and its subsidiaries taken
as a whole, except (i) liabilities provided for in Parent's balance sheet as of
September 30, 2001 set forth in the Parent SEC Reports, (ii) liabilities
incurred since September 30, 2001 in the ordinary course of business, none of
which is material to the business, results of operations or financial condition
of Parent and its subsidiaries, taken as a whole, or (iii) except as disclosed
in Schedule 3.11.
ARTICLE IV
INTERIM CONDUCT
4.1 Conduct of Business by Company.
(a) Except as contemplated by this Agreement, disclosed in Section 4.1
of the Company Schedule, or consented to by Parent in writing, during
the period from the date of this Agreement until the Closing Date,
Company and each of its subsidiaries shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and in material compliance with all applicable laws
and regulations, pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, pay or perform other material
obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its
present officers and employees and (iii) preserve its relationships with
customers, suppliers, distributors, licensors, licensees and others with
which it has significant business dealings.
(b) In addition, except as permitted by the terms of this Agreement and
except as provided in Section 4.1 of the Company Schedule, without the
prior written consent of Parent (which consent, or refusal thereof,
shall not be unreasonably delayed, and shall be deemed given if not
refused within five (5) business days of the date Parent receives
written notice of such request); provided that Parent shall not refuse
to consent if such failure would result in a violation of the antitrust
laws), during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement pursuant to its
terms or the Effective Time, the Company shall not do any of the
following and shall not permit its subsidiaries to do any of the
following:
(i) Accelerate, amend or change the period of exercisability of
options or restricted stock (except as required by the terms of
the Company Option Plans as in effect on the date hereof) or
reprice options granted under any employee, consultant, director
or other stock plans or authorize cash payments in exchange for
any options granted under any of such plans;
(ii) Grant any severance or termination pay or benefits, or
payments or benefits triggered by a change of control or merger
(including the Merger), to any officer or employee except to
persons who are officers or employees of the Company as of the
date hereof pursuant to written agreements outstanding, or
written policies existing, on the date hereof and as previously
disclosed in writing or made available to Parent (provided,
however, that the Company shall not grant, or offer to grant,
any such severance or termination payments or benefits, or
payments or benefits triggered upon a change of control or
23
merger (including the Merger), to any person who is hired or
offered employment with the Company on or after the date hereof,
and the Company shall revise all employee handbooks and similar
materials provided to each such person after the date hereof to
reflect the foregoing), or adopt any new severance plan, or
amend or modify or alter in any manner any severance plan,
agreement or arrangement existing on the date hereof, or take
any other action that would trigger the payment of any severance
payments or other benefits other than four (4) preexisting
employment agreements between the Company and certain officers
thereof;
(iii) Transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Company Intellectual
Property, or enter into grants to transfer or license to any
person future patent rights, other than non-exclusive licenses
granted to resellers and end-users in the ordinary course of
business consistent with past practices;
(iv) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock, equity securities
or property) in respect of any capital stock or split, combine
or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(v) Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Company or its
subsidiaries;
(vi) Issue, deliver, sell, authorize, pledge or otherwise
encumber or propose any of the foregoing with respect to any
shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than (x)
the issuance delivery and/or sale of (i) shares of Company
Common Stock pursuant to the exercise of stock options,
outstanding as of the date of this Agreement, and (ii) shares of
Company Common Stock issuable to participants in the ESPP
consistent with the terms thereof .
(vii) Cause, permit or propose any amendments to the Company's
Certificate of Incorporation or Bylaws (or similar governing
instruments of any of its subsidiaries);
(viii) Acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a material
portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree
to enter into any joint ventures, strategic partnerships or
alliances;
(ix) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary
course of business consistent with past practice, and except for
the sale, lease or disposition (other than through licensing
permitted by clause (c)) of property or assets which are not
material, individually or in the aggregate, to the business of
Company and its subsidiaries, taken as a whole;
(x) Modify, amend or terminate any existing lease, license or
contract affecting the use, possession or operation of any such
material properties or assets; grant or otherwise create or
consent to the creation of any easement, covenant, restriction,
assessment or charge affecting any material owned property or
leased property or any part thereof; convey, assign, sublease,
license or otherwise transfer all or any portion of any material
real property or any interest or rights therein; commit any
waste or nuisance on any such property; or make any material
changes in the construction or condition of any such property;
(xi) Incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt
securities or options, warrants, calls or other rights to
acquire any debt securities of Company, enter into any "keep
24
well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic
effect of any of the foregoing other than in connection with the
financing of working capital consistent with past practice;
(xii) Adopt or amend any employee benefit plan, policy or
arrangement; any employee stock purchase or employee stock
option plan; or enter into any employment contract or collective
bargaining agreement; pay any special bonus or special
remuneration to any director or employee, other than as
disclosed in Section 4.1(b) of the Company Schedule; or increase
the salaries or wage rates or fringe benefits (including rights
to severance or indemnification) of its directors, officers,
employees or consultants except, in each case, as may be
required by law;
(xiii) (i) pay, discharge, settle or satisfy any material
litigation (whether or not commenced prior to the date of this
Agreement) or any material claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, or liabilities
recognized or disclosed in the most recent consolidated
financial statements (or the notes thereto) of Company included
in the Company SEC Reports or incurred since the date of such
financial statements, or (ii) waive the benefits of, agree to
modify in any manner, terminate, release any person from or
knowingly fail to enforce any confidentiality or similar
agreement to which Company or any of its subsidiaries is a party
or of which Company or any of its subsidiaries is a beneficiary;
(xiv) Except in the ordinary course of business consistent with
past practice, modify, amend or terminate any material contract
or agreement to which Company or any subsidiary thereof is a
party or waive, delay the exercise of, release or assign any
material rights or claims thereunder;
(xv) Revalue any of its assets or make any change in accounting
methods, principles or practices;
(xvi) Incur or enter into any agreement, contract or commitment
outside of the ordinary course of business and requiring Company
or any of its subsidiaries to pay in excess of $350,000;
(xvii) Make any Tax election or accounting method change
inconsistent with past practice that, individually or in the
aggregate, would be reasonably likely to adversely affect in any
material respect the Tax liability or Tax attributes of Company
or any of its subsidiaries, taken as a whole, settle or
compromise any Tax liability, or consent to any extension or
waiver of any limitation period with respect to Taxes; or
(xviii) Agree in writing or otherwise to take any of the actions
described in this Section 4.1(b).
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms of
this Agreement, without the prior written consent of Company, Parent shall not
declare, set aside or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
capital stock or split, combine or reclassify any capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock, unless the Merger Consideration shall be
appropriately adjusted. In addition, parent shall cause Merger Sub to take all
such steps as are necessary to give effect to Parent's obligations under this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Stockholder Approval; Preparation of Registration Statement and Proxy
Statement/prospectus. As soon as practicable following the execution of this
Agreement, and as described in Section 1.3, above, Parent and Company shall
prepare the Proxy Statement/Prospectus, and Parent shall prepare and file with
the SEC the Registration Statement in which the Proxy Statement/Prospectus will
be included as a prospectus. Each of Parent and the Company shall provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Proxy
25
Statement/Prospectus and the Registration Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Proxy
Statement/Prospectus and the Registration Statement. Each of the Company and
Parent shall respond to any comments of the SEC, and shall use its respective
commercially reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing,
and the Company shall cause the Proxy Statement/Prospectus to be mailed to its
stockholders at the earliest practicable time after the Registration Statement
is declared effective by the SEC. As promptly as practicable after the date of
this Agreement, each of the Company and Parent shall prepare and file any other
filings required to be filed by it under the Exchange Act, the Securities Act or
any other Federal, foreign or Blue Sky or related laws relating to the Merger
and the transactions contemplated by this Agreement (the "Other Filings"). Each
of the Company and Parent shall notify the other promptly upon the receipt of
any comments from the SEC or its staff or any other government officials and of
any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy
Statement/Prospectus or any Other Filing or for additional information and shall
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement/Prospectus, the Merger or any Other Filing. No
filing of, or amendment or supplement to, or correspondence to the SEC or its
staff with respect to, the Registration Statement will be made by Parent, or
with respect to the Proxy Statement/Prospectus will be made by Company, without
providing the other party a reasonable opportunity to review and comment
thereon. Each of the Company and Parent shall cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 5.1 to comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. If at any time
prior to the Effective Time any information relating to Company or Parent, or
any of their respective affiliates, officers or directors, should be discovered
by Company or Parent which should be set forth in an amendment or supplement to
either of the Registration Statement, the Proxy Statement or Other Filings, so
that any of such documents would not include any misstatement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, the party
which discovers such information shall promptly notify the other parties hereto
and an appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of Company.
5.2 Stockholder Meeting.
(a) Promptly after the date hereof, the Company shall take all action
necessary in accordance with Delaware Law and the Company Charter
Documents to convene a meeting of the Company's stockholders (the
"Company Stockholders' Meeting") to be held as promptly as practicable,
for the purpose of voting upon this Agreement and the Merger. Subject to
the terms of Section 5.2(c) hereof, the Company shall use its
commercially reasonable efforts to solicit from its stockholders proxies
in favor of the adoption and approval of this Agreement and the approval
of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of its stockholders required by the rules of
NASDAQ or Delaware Law to obtain such approvals. Notwithstanding
anything to the contrary contained in this Agreement, the Company may
adjourn or postpone the Company Stockholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the
Prospectus/Proxy Statement is provided to the Company's stockholders in
advance of a vote on the Merger and this Agreement or, if as of the time
for which the Company Stockholders' Meeting is originally scheduled (as
set forth in the Prospectus/Proxy Statement) there are insufficient
shares of Company Common Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the
Company Stockholders' Meeting. The Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and conducted,
and that all proxies solicited by the Company in connection with the
Company Stockholders' Meeting are solicited, in compliance with Delaware
Law, the Company Charter Documents, the rules of NASDAQ and all other
applicable legal requirements. The Company's obligation to call, give
notice of, convene and hold the Company Stockholders' Meeting in
accordance with this Section 5.2(a) shall not be limited to or otherwise
affected by the commencement, disclosure, announcement or submission to
the Company of any Acquisition Proposal (as defined in section 5.4(c),
below.)
26
(b) Subject to the terms of Section 5.2(c) hereof: (i) the Board of
Directors of the Company shall, by unanimous recommendation of the
non-interested directors of the Company Board, recommend that the
Company's stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the Company Stockholders' Meeting; (ii) the
Prospectus/Proxy Statement shall include a statement to the effect that
the Board of Directors of the Company has, by a unanimous vote of the
non-interested directors, recommended that the Company's stockholders
vote in favor of and adopt and approve this Agreement and the Merger at
the Company Stockholders' Meeting; and (iii) neither the Board of
Directors of the Company nor any committee thereof shall withdraw, amend
or modify, or propose or resolve to withdraw, amend or modify in a
manner adverse to Parent, the unanimous recommendation of the
non-interested members of the Board of Directors of the Company that the
Company's stockholders vote in favor of and adopt and approve this
Agreement and the Merger. For purposes of this Agreement, said
recommendation of the Board of Directors shall be deemed to have been
modified in a manner adverse to Parent if said recommendation shall no
longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of
the Company from withholding, withdrawing, amending or modifying the
unanimous recommendation of the non-interested directors in favor of the
Merger if (i) a Superior Offer (as defined in Section 5.4 hereof) is
made to the Company and is not withdrawn, (ii) neither the Company nor
any of its representatives shall have violated any of the restrictions
set forth in Section 5.4 hereof, and (iii) the Board of Directors of the
Company concludes in good faith, after consultation with its outside
counsel, that, in light of such Superior Offer, the withholding,
withdrawal, amendment or modification of such recommendation is required
in order for the Board of Directors of the Company to comply with its
fiduciary duties to the Company's stockholders under applicable law;
provided, however, that prior to any commencement thereof the Company
shall have given Parent at least seventy two (72) hours notice thereof
and the opportunity to meet with the Company and its counsel. Nothing
contained in this Section 5.2 shall limit the Company's obligation to
hold and convene the Company Stockholders' Meeting (regardless of
whether the unanimous recommendation of the non-interested members of
the Board of Directors of the Company shall have been withdrawn, amended
or modified).
5.3 Confidentiality; Access to Information. The parties acknowledge that Company
and Parent have previously executed a Confidentiality Agreement, dated as of
October 10, 2001, (the "Confidentiality Agreement"), which Confidentiality
Agreement will continue in full force and effect in accordance with its terms.
Company will afford Parent and its accountants, counsel and other
representatives reasonable access during normal business hours, upon reasonable
notice, to the properties, books, records and personnel of Company during the
period prior to the Effective Time to obtain all information concerning the
business, including the status of product development efforts, properties,
results of operations and personnel of Company, as Parent may reasonably
request. No information or knowledge obtained by Parent in any investigation
pursuant to this Section 5.3 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 No Solicitation.
(a) The Company and its subsidiaries shall immediately cease any and all
existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal (as
defined in Section 5.4(c) hereof). From and after the date of this
Agreement until the Effective Time or termination of this Agreement
pursuant to Article VII hereof, the Company and its subsidiaries shall
not, nor will they authorize or permit any of their respective officers,
directors, affiliates or employees or any investment banker, attorney or
other advisor or representative retained by any of them to, directly or
indirectly (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Acquisition Proposal, (ii) participate
in any discussions or negotiations regarding, or furnish to any person
any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes
or may reasonably be expected to lead to, any Acquisition Proposal,
(iii) engage in discussions with any person with respect to any
Acquisition Proposal, (iv) subject to the terms of Section 5.4(c)
hereof, approve, endorse or recommend any Acquisition Proposal or (v)
enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction; provided, however, that the terms of this
Section 5.4 shall not prohibit the Company from furnishing nonpublic
information regarding the Company and its subsidiaries to, entering into
a confidentiality agreement with or entering into discussions with, any
27
person or group in response to a Superior Offer submitted by such person
or group (and not withdrawn) if (1) neither the Company nor any
representative of the Company and its subsidiaries shall have violated
any of the restrictions set forth in this Section 5.4, (2) the Board of
Directors of the Company concludes in good faith, after consultation
with its outside legal counsel, that such action is required in order
for the Board of Directors of the Company to comply with its fiduciary
duties to the Company's stockholders under applicable law, (3)(x) at
least three (3) business days prior to furnishing any such nonpublic
information to, or entering into discussions or negotiations with, such
person or group, the Company gives Parent written notice of the identity
of such person or group and of the Company's intention to furnish
nonpublic information to, or enter into discussions or negotiations
with, such person or group and (y) the Company receives from such person
or group an executed confidentiality agreement containing customary
limitations on the use and disclosure of all nonpublic written and oral
information furnished to such person or group by or on behalf of the
Company, and (4) contemporaneously with furnishing any such nonpublic
information to such person or group, the Company furnishes such
nonpublic information to Parent (to the extent such nonpublic
information has not been previously furnished by the Company to Parent);
and provided further, however, that the terms of this Section 5.4 shall
not prohibit the Company from taking any action necessary in order to
comply with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act.
Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in the preceding two sentences by any officer
or director of the Company or any of its subsidiaries or any investment
banker, attorney or other advisor or representative of the Company or
any of its subsidiaries shall be deemed to be a breach of this Section
5.4 by the Company. In addition to the foregoing, the Company shall (i)
provide Parent with at least forty-eight (48) hours prior notice (or
such lesser prior notice as provided to the members of the Company's
Board of Directors but in no event less than eight hours) of any meeting
of the Company's Board of Directors at which the Company's Board of
Directors is reasonably expected to consider a Superior Offer, and (ii)
provide Parent with at least three (3) business days prior written
notice of a meeting of the Company's Board of Directors at which the
Company's Board of Directors is reasonably expected to recommend a
Superior Offer to its stockholders and together with such notice a copy
of all documentation relating to such Superior Offer, including proposed
written agreements, arrangements, or understandings and all applicable
financial statements and evidence of any planned financing with respect
to such Superior Proposal (and a description of all material oral
agreements with respect thereto.
(b) In addition to the obligations of the Company set forth in Section
5.4(a) hereof, the Company as promptly as practicable shall advise
Parent orally and in writing of any request received by the Company for
non-public information which the Company reasonably believes would lead
to an Acquisition Proposal or of any Acquisition Proposal, or any
inquiry received by the Company with respect to or which the Company
reasonably should believe would lead to any Acquisition Proposal, the
material terms and conditions of such request, Acquisition Proposal or
inquiry, and the identity of the person or group making any such
request, Acquisition Proposal or inquiry. The Company shall use
reasonable efforts to keep Parent informed in all material respects of
the status and details (including material amendments or proposed
amendments) of any such request, Acquisition Proposal or inquiry.
(c) For purposes of this Agreement, (i) "Acquisition Proposal" shall
mean any offer or proposal (other than an offer or proposal by Parent)
relating to any Acquisition Transaction; (ii) "Acquisition Transaction"
shall mean any transaction or series of related transactions other than
the transactions contemplated by this Agreement involving: (A) any
acquisition or purchase from the Company by any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifteen percent (15%) interest in
the total outstanding voting securities of the Company or any of its
subsidiaries or any tender offer or exchange offer that if consummated
would result in any person or "group" (as defined under Section 13(d) of
the Exchange Act and the rules and regulations thereunder) beneficially
owning fifteen percent (15%) or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the
Company pursuant to which the stockholders of the Company immediately
preceding such transaction hold less than eighty-five percent (85%) of
the equity interests in the surviving or resulting entity of such
transaction; (B) any sale, lease, exchange, transfer, license,
acquisition or disposition of more than fifteen percent (15%) of the
assets of the Company; or (C) any liquidation or dissolution of the
Company; and (iii) "Superior Offer" shall mean an unsolicited, bona fide
written offer made by a third party to consummate any of the following
transactions: (A) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction
28
involving the Company pursuant to which the stockholders of the Company
immediately preceding such transaction hold less than a majority of the
equity interests in the surviving or resulting entity of such
transaction; (B) the acquisition by any person or group (including by
way of a tender or exchange offer or issuance by the Company), directly
or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing a majority of the voting power of the
outstanding shares of the Company's capital stock; or (C) a sale or
other disposition by the Company of substantially all of its assets, in
the case of each of clauses (A), (B) and (C) on terms that the Board of
Directors of the Company determines, in its reasonable judgment (based
on advice of a financial advisor of nationally recognized reputation) to
be more favorable to the Company stockholders from a financial point of
view than the terms of the Merger.
5.5 Public Disclosure. Parent and Company will consult with each other, and
agree, before issuing any press release, and will consult with each other and to
the extent practicable, agree, before otherwise making any public statement with
respect to this Agreement, the other party, or an Acquisition Proposal, and will
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange, in which case reasonable efforts to consult with
the other party will be made prior to any such release or public statement.
5.6 Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable
efforts to take, or cause to be taken, all reasonable actions, and to
do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things reasonably necessary, proper or advisable
to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement, including
to accomplish the following: (i) causing of the conditions precedent set
forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if
any) and the taking of all commercially reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding
by any Governmental Entity, (iii) the defending of any suits, claims,
actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental
Entity vacated or reversed and (iv) the execution or delivery of any
additional instruments reasonably necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of,
this Agreement. In connection with and without limiting the foregoing,
Company and the Company Board shall, if any state takeover statute or
similar statute or regulation is or becomes applicable to this Agreement
or any of the transactions contemplated by this Agreement, use its best
efforts to take, or cause to be taken, all reasonable actions to ensure
that the transactions contemplated by this Agreement may be consummated
as promptly as practicable on the terms contemplated by this Agreement
and otherwise to minimize the effect of such statute or regulation on
this Agreement and the transactions contemplated hereby.
(b) Company shall give prompt notice to Parent upon becoming aware that
any representation or warranty made by it contained in this Agreement
has become materially untrue or inaccurate, or of any failure of Company
to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or
the conditions to the obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company upon becoming aware that
any representation or warranty made by it or Merger Sub contained in
this Agreement has become materially untrue or inaccurate, or of any
failure of Parent or Merger Sub to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied
with or satisfied by it under this Agreement; provided, however, that no
such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
29
5.7 Third Party Consents. As soon as practicable following the date hereof,
Parent and Company will each use commercially reasonable efforts to obtain all
consents, waivers and approvals set forth in Section 5.7 of the Company
Schedule.
5.8 Stock Options; ESPP.
(a) Stock Options. Immediately prior to the Effective Time of the
Merger, and except as provided below, each outstanding Company Stock
Option, and the Company Option Plans shall terminate. In the case of any
holder of a Company Stock Option, the parties shall take reasonable
steps (i) to enable the holder thereof to exercise any portion of the
option that is either exercisable or that first becomes exercisable in
connection with the Merger, or (ii) convert such option to an option in
the Parent's 1998 Stock Option Plan as more fully described below.
(i) Following the date of execution of this Agreement, and
unless the Merger does not close as contemplated by this
Agreement, the Company shall make no additional grants of
Company Stock Options;
(ii) At the Effective Time of the Merger, Parent shall assume
the Company Stock Options, and such assumed Company Stock
Options will continue to have, and be subject to, the terms and
conditions of such options immediately prior to the Effective
Time except that (a) each Company Grant will be solely
exercisable (or will become exercisable in accordance with its
terms) for that number of whole shares of Parent Common Stock
equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Company Stock
Options immediately prior to the Effective Time multiplied by
the Option Exchange Ratio, rounded down to the nearest whole
number of shares of Parent Common Stock and (b) the per share
exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Stock Options will be
equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such Company Stock
Option was exercisable immediately prior to the Effective Time
by the Option Exchange Ratio, rounded up to the nearest whole
cent. Parent shall comply with the terms of all such grants of
Company Stock Options. Parent shall take all corporate actions
necessary to reserve for issuance a sufficient number of shares
of Parent Common Stock for delivery pursuant to the terms set
forth in this Section 5.8(a). The "Option Exchange Ratio" shall
be determined as follows:
Option Exchange Ratio = (TV/ TS) / AP
Where
TV = The sum of $7,300,000 plus the product of (i) the
Average Price (defined below) times (ii) 873,000
("Transaction Value")
TS = The aggregate the number of shares of Company Common
Stock and Company Stock Options outstanding immediately
prior to the Effective Time
AP = The weighted average closing price of the Parent Common
Stock for the ten (10) trading days ending one trading day
prior to the Closing Date, as quoted on the NASDAQ
National Market (the "Average Price"))
The parties acknowledge that the formula for the Option Exchange
Ratio is intended to exchange a fraction of a share of Parent
Common Stock for each for each share of Company Common Stock
subject to a Company Stock Option, with the value of such
fraction of a share of Parent Common Stock to be approximately
equivalent to the aggregate value of the Cash Portion and Stock
Portion exchanged for each outstanding share of Company Common
Stock, as such value is determined by the Average Price.
(b) ESPP. Company shall take all steps necessary to terminate Company's
ESPP as soon as practicable following the Closing Date. Any shares of
Company Common Stock in the ESPP shall by virtue of the Merger, and
without any action on the part of the holder thereof, be converted into
30
the right to receive the Merger Consideration described in Section
1.7(a), above, without issuance of certificates representing issued and
outstanding shares of Company Common Stock to participants under the
ESPP. Company shall, prior to the Effective Time, provide Parent with
evidence of the termination of the ESPP.
5.9 Employee Benefits.
(a) Company shall terminate, effective as of the day immediately
preceding the date the Company becomes a member of the same Controlled
Group of Corporations (as defined in Section 414(b) of the Code) as the
Parent (the "401(k) Termination Date"), any and all 401(k) plans unless
Parent provides notice to Company that such 401(k) plan(s) shall not be
terminated. Parent shall receive from Company evidence that Company's
plan(s) and/or program(s) have been terminated pursuant to resolutions
of each such entity's Board of Directors (the form and substance of such
resolutions shall be subject to review and approval of Parent),
effective as of the 401(k) Termination Date. To the extent permitted by
Parent's applicable plan and otherwise practicable, Parent shall take
appropriate steps to enable continuing employees to roll over
distributions from the terminated plans to a tax-qualified defined
contribution plan or plans maintained by Parent or an affiliate.
(b) Parent will cause the Surviving Corporation to provide the benefits
(including health benefits, severance policies, 401(k) plans and general
employment policies and procedures, subject to the terms and conditions
of such plans) which are substantially comparable in the aggregate to
benefits that are available to similarly situated employees of Parent
and its subsidiaries as of the date hereof, provided, however, that such
insurance carriers, outside providers or the like are able to provide
such benefits on terms reasonably acceptable to Parent, and provided,
further, that nothing in this Section 5.8 shall prevent the Surviving
Corporation or any of its subsidiaries from making any change required
by applicable law, and provided, further, that it shall not result in
any duplication of benefits.
5.10 Inspection of Real Property. From and after the date of this Agreement,
Parent and its agents, contractors and representatives shall have the right and
privilege of entering upon all properties owned or leased by Company and of
reviewing Company's books and records regarding such properties from time to
time as needed to make any inspections, evaluations, surveys or tests which
Parent may reasonably deem necessary or appropriate. Without limiting the
generality of the foregoing, Parent and its agents, contractors and
representatives shall have the right and privilege of conducting such
engineering studies, seismic tests, environmental studies (including, without
limitation, surface and subsurface tests, borings and samplings) and surveys of
such properties and such feasibility studies as Parent deems necessary or
appropriate and to investigate all matters relating to zoning, use and
compliance with other applicable laws regarding the use and occupancy of such
properties and any proposed impositions, assessments and governmental
regulations affecting such properties. Company shall cooperate reasonably with
Parent in completing such inspections and evaluations. Parent's exercise of its
right to inspect such properties, or Parent's election not to inspect any
property, shall in no way be interpreted as a waiver of any of Parent's rights
or remedies contained in this Agreement, including, without limitation, Parent's
right to rely on Company's representations and warranties made herein.
5.11 Company Affiliate Agreements. Set forth in Section 5.11 of the Company
Schedule is a complete and accurate list of those persons who may be deemed to
be, in Company's reasonable judgment, affiliates of Company within the meaning
of Rule 145 promulgated under the Securities Act (each, a "Company Affiliate").
Company will provide Parent with such information and documents as Parent
reasonably requests for purposes of reviewing such list. Company has delivered
herewith written Company Affiliate Agreements substantially in the form attached
hereto as Exhibit B executed by all Company Affiliates as of the date hereof.
Company will use its commercially reasonable efforts to deliver or cause to be
delivered to Parent, on or as promptly as practicable following the date hereof,
from each Company Affiliate that has not delivered a Company Affiliate Agreement
on or prior to the date hereof, an executed Company Affiliate Agreement. Each
Company Affiliate Agreement will be in full force and effect as of the Effective
Time. Parent will be entitled to place appropriate legends on the certificates
evidencing any Parent Common Stock to be received by a Company Affiliate
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Common Stock, consistent with
the terms of the Company Affiliate Agreement.
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5.12 NASDAQ Listing. Parent agrees to make such filings with NASDAQ as are
necessary to ensure that the shares of Parent Common Stock issuable in
connection with the Merger are eligible for quotation thereon.
5.13 Form S-8. Parent agrees to file, within fifteen (15) business days of the
Effective Time, a registration statement on Form S-8 for the shares of Parent
Common Stock issuable with respect to assumed Company Stock Options
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions. The respective obligations of each party to consummate the
Merger shall be subject to the satisfaction or waiver, where permissible, prior
to the Effective Time, of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
duly approved and adopted by the holders of a majority of the
outstanding shares of each class of the Company entitled to vote on this
Agreement and the Merger, in accordance with applicable law and the
Certificate of Incorporation and Bylaws of the Company;
(b) Litigation. No court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in
effect and prohibits consummation of the Merger (collectively, an
"Order").
(c) Registration Statement. The Registration Statement shall have been
declared effective and no stop order suspending effectiveness shall be
in effect and no proceedings for such purpose shall be pending before or
threatened by the SEC.
(d) Listing. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing on the NASDAQ as may be
required in accordance with the rules thereof, subject to official
notice of issuance, or shall be exempt from such requirement under then
applicable laws, regulations and rules of NASDAQ.
6.2 Additional Conditions to Obligations of Company. The obligation of the
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation and warranty of Parent
and Merger Sub contained in this Agreement (i) shall have been true and correct
as of the date of this Agreement and (ii) shall be true and correct on and as of
the Closing Date with the same force and effect as if made on the Closing Date
except (A) in each case, or in the aggregate, as does not constitute a Material
Adverse Effect on Parent and Merger Sub, (B) for changes contemplated by this
Agreement and (C) for those representations and warranties which address matters
only as of a particular date (which representations shall have been true and
correct (subject to the qualifications as set forth in the preceding clause (A)
as of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on the
word "material" or similar phrases contained in such representations and
warranties shall be disregarded and (ii) any update of or modification to the
Parent Schedule made or purported to have been made after the date of this
Agreement shall be disregarded). The Company shall have received a certificate
with respect to the foregoing signed on behalf of Parent by an authorized
officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed on behalf of Parent to the best knowledge of an authorized officer of
Parent.
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6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty of
the Company contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and
correct on and as of the Closing Date with the same force and effect as
if made on and as of the Closing Date except (A) in each case, or in the
aggregate, as does not constitute a Material Adverse Effect on the
Company; provided, however, that such Material Adverse Effect qualifier
shall be inapplicable with respect to representations and warranties set
forth in Section 2.3 hereof, (B) for changes contemplated by this
Agreement and (C) for those representations and warranties which address
matters only as of a particular date (which representations shall have
been true and correct (subject to the qualifications as set forth in the
preceding clause (A) as of such particular date). For purposes of
determining the accuracy of such representations and warranties
hereunder, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained
in such representations and warranties shall be disregarded and (ii) any
update of or modification to the Company Schedule made or purported to
have been made after the date of this Agreement shall be disregarded.
Parent shall have received a certificate with respect to the foregoing
signed on behalf of the Company by an authorized officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Closing Date, and Parent shall have received a certificate
to such effect signed on behalf of the Company to the best knowledge of
the Chief Executive Officer and the Chief Financial Officer of the
Company.
(c) Affiliate Agreements. Each of the Company Affiliates set forth in
Section 5.11 of the Company Schedule shall have entered into the
Affiliate Agreement and each of such agreements will be in full force
and effect as of the Effective Time.
(d) Consents. The Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the
transactions contemplated hereby in connection with the agreements,
contracts, licenses or leases set forth in Section 6.3(d) of the Parent
Schedule.
(e) Audited Financial Statements. The audited financial statements of
the Company for the year ended December 31, 2001, shall provide (i)
balance sheet net equity of not less than $7,267,500, (ii) year end
revenues of not less than $21,280,000 and (iii) net income of not less
than $498,750 (excluding (y) transaction related expenses estimated to
be $85,000, and (z) any excess tax liability over forty percent (40%)
that has been applied to the calculation of net income by the Company
for the year ending December 31, 2001).
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by the stockholders of Company):
(a) by mutual written agreement of Company and Parent; or
(b) by either the Company or Parent if the Merger shall not have been
consummated by April 8, 2002 (the "Termination Date") for any reason;
provided; however, that (i) if the Registration Statement is reviewed by
the SEC, then the Termination Date will be May 7, 2002; and (ii) the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a
breach of this Agreement; or
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(c) by either the Company or Parent if the required approval of the
stockholders of the Company contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required vote
at a meeting of the Company stockholders duly convened therefor or at
any adjournment thereof; provided, however, that the right to terminate
this Agreement under this Section 7.1(c) shall not be available to the
Company where the failure to obtain the Company stockholder approval
shall have been caused by the action or failure to act of the Company
and such action or failure to act constitutes a breach by the Company of
this Agreement; or
(d) by either Company or Parent, if there shall be any applicable law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or any judgment, injunction, order or decree of any court or
governmental body having competent jurisdiction enjoining Company or
Parent from consummating the Merger is entered and such judgment,
injunction, judgment or order shall have become final and nonappealable;
or
(e) by Company, upon a material breach of any covenant or agreement on
the part of Parent set forth in this Agreement, or if any representation
or warranty of Parent shall have been untrue or inaccurate when made or
shall have become untrue or inaccurate such that, in the aggregate, in
the case of such representations and warranties, such untruths or
inaccuracies would reasonably be expected to have a Material Adverse
Effect on Company; provided, that if such untruth or inaccuracy in
Parent's representations and warranties or breach by Parent is curable
by Parent through exercise of its commercially reasonable efforts, then
Company may not terminate this Agreement pursuant to this Section 7.1(e)
until the earlier of (i) the expiration of a thirty (30) day period
after delivery of written notice from Company to Parent of such untruth
or inaccuracy or breach, or (ii) Parent ceasing to exercise commercially
reasonable efforts to cure such untruth or inaccuracy or breach,
provided, that Parent continues to exercise commercially reasonable
efforts to cure such untruth or inaccuracy or breach (it being
understood that Company may not terminate this Agreement pursuant to
this Section 7.1(e) if such untruth or inaccuracy or breach by Parent is
cured during such thirty-day period); or
(f) by Parent, upon a material breach of any covenant or agreement on
the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have been untrue or
inaccurate when made or shall have become untrue or inaccurate such
that, in the aggregate, in the case of such representations and
warranties, such untruths or inaccuracies would reasonably be expected
to have a Material Adverse Effect on Parent Merger Sub ; provided, that
if such untruth or inaccuracy in Company's representations and
warranties or breach by Company is curable by Company through exercise
of its commercially reasonable efforts, then Parent may not terminate
this Agreement pursuant to this Section 7.1(f) until the earlier of (i)
the expiration of a thirty (30) day period after delivery of written
notice from Parent to Company of such untruth or inaccuracy or breach,
or (ii) Company ceasing to exercise commercially reasonable efforts to
cure such untruth or inaccuracy or breach, provided, that Company
continues to exercise commercially reasonable efforts to cure such
untruth or inaccuracy or breach (it being understood that Parent may not
terminate this Agreement pursuant to this Section 7.1(f) if such untruth
or inaccuracy or breach by Company is cured during such thirty-day
period); or
(g) by Parent, if an event has occurred or a circumstance has arisen
that would reasonably be expected to have a Material Adverse Effect on
the Company that is not curable by the Company through the exercise of
its commercially reasonable efforts within sixty (60) days of the date
of such occurrence or circumstance; or
(h) by Company, if an event has occurred or a circumstance has arisen
that would reasonably be expected to have a Material Adverse Effect on
Parent that is not curable by Parent through the exercise of its
commercially reasonable efforts within sixty (60) days of the date of
such occurrence; or
(i) by Company, if it intends to enter into a definitive agreement with
respect to an Acquisition Proposal, provided that, (i) Company is not in
breach of its obligations under this Section 7.1(i) and under Section
5.4 hereof and continues to comply with all such obligations in all
respects, (ii) the Company Board has authorized, subject to complying
with the terms of this Agreement, Company to enter into a definitive
written agreement for a transaction that constitutes a Superior
Proposal, (iii) Company notifies Parent in writing that Company has
received a Superior Proposal and intends to enter into a definitive
agreement with respect to such Superior Proposal, attaching the most
current version of such agreement to such notice, (iv) Parent does not
make, within three (3) business days after receipt of Company's written
34
notice of its intention to enter into a definitive agreement for a
Superior Proposal, an offer that the Company Board in good faith
reasonably determines, after consultation with a financial advisor of
nationally recognized standing and its outside legal counsel, is at
least as favorable to Company's stockholders as such Superior Proposal,
(v) during such period Company has informed Parent of the terms and
conditions of such Superior Proposal, and the identity of the person
making such Superior Proposal, with the intent of enabling both parties
to agree to a modification of the terms and conditions of this Agreement
so that the transactions contemplated hereby may be effected, and (vi)
prior to Company's termination pursuant to this Section 7.1(i), Company
pays to Parent the Termination Fee required by Section 7.3(b); or
(j) by Parent if any one of the following Triggering Events shall have
occurred: (i) the Board of Directors of the Company or any committee
thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its recommendation made with the
unanimous approval of all non-interested directors in favor of the
adoption and approval of the Agreement or the approval of the Merger;
(ii) the Company shall have failed to include in the Proxy
Statement/Prospectus the recommendation made with the unanimous approval
of all non-interested directors of the Company in favor of the adoption
and approval of the Agreement and the approval of the Merger; (iii) the
Board of Directors of the Company or any committee thereof shall have
approved or recommended any Acquisition Proposal; (iv) the Company shall
have entered into any letter of intent or similar document or any
agreement, contract or commitment accepting any Acquisition Proposal; or
(v) a tender or exchange offer relating to securities of the Company
shall have been commenced by a person unaffiliated with Parent and the
Company shall not have sent to its security holders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten (10) business
days after such tender or exchange offer is first published sent or
given, a statement disclosing that the Company recommends rejection of
such tender or exchange offer; or
(k) by Parent, in the event that holders of Company Common Stock holding
fifteen percent (15%) or more of the issued and outstanding shares of
Company Common Stock elect to pursue dissenters rights, as described in
Section 1.11, whether such holders have perfected such rights or not; or
(l) By Parent or Company in the event that the weighted average closing
price of Parent Common Stock as quoted on the NASDAQ National Market for
the fifteen (15) trading days ending one day prior to the scheduled
Closing Date is greater than $23 or less than $14.
7.2 Notice of Termination; Effect of Termination. Any proper termination of this
Agreement under Section 7.1 above will be effective immediately (or if the
termination is pursuant to Section 7.1(e) or (f) above and the proviso is
applicable, thirty (30) days after) upon the delivery of written notice of the
terminating party to the other parties hereto. In the event of the termination
of this Agreement under Section 7.1, this Agreement shall be of no further force
or effect without liability of any party (or any stockholder, director, officer,
employee, agent, consultant or representative of such party) to the other
parties hereto, except (i) as set forth in this Section 7.2, Section 7.3 and
Article VIII, each of which shall survive the termination of this Agreement, and
(ii) that nothing herein shall relieve any party from liability for any
intentional or willful breach of or fraud in connection with this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all attorneys',
accountants' and consultants' fees and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such fees and expenses whether or not the
Merger is consummated.
(b) Termination Payments.
(i) If this Agreement is terminated prior to the Effective Time
pursuant to Sections 7.1(i) or (j) Company shall promptly, but
in any event no later than one day after the date of such
termination, pay Parent a fee equal to $1,000,000 together with
35
up to $500,000 of Parent's actual legal and accounting fees in
connection with the Merger, in immediately available funds (the
"Termination Fee").
(ii) If this Agreement is terminated by Parent pursuant to
Section 7.1(f) then the Company shall pay to Parent up to
$500,000 of the actual legal, advisory, and accounting fees
incurred by parent in connection with the Merger.
(iii) If this Agreement is terminated by Company pursuant to
Section 7.1(e), then Parent shall pay up to $500,000 of the
actual legal, advisory, and accounting fees incurred by Company
in connection with the Merger.
(iv) Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these
agreements, Parent would not enter into this Agreement.
Accordingly, if Company fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(b), and, in order to
obtain such payment, Parent makes a claim that results in a
judgment against Company, Company shall pay to Parent its
reasonable costs and expenses (including reasonable attorneys'
fees and expenses) in connection with such suit, together with
interest on the amounts set forth in this Section 7.3(b) at the
prime rate BankOne, N.A. in effect on the date such payment was
required to be made. Payment of the fees described in this
Section 7.3(b) shall not be in lieu of damages incurred in the
event of breach of this Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by the
parties hereto at any time by execution of an instrument in writing signed on
behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time any party hereto
may, to the extent legally allowed and except as otherwise set forth herein, (i)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. Delay in
exercising any right under this Agreement shall not constitute a waiver of such
right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations,
warranties and covenants of Company, Parent and Merger Sub contained in this
Agreement shall terminate at the Effective Time, and only the covenants that by
their terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial delivery
service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
ClearOne Communications, Inc.
1825 Research Way
Salt Lake City, UT 84119
Attention: Frances Flood and Randall J. Wichinski
Telecopy No.: (801) 974-3742
36
with a copy to:
Jones Waldo Holbrook & McDonough
170 South Main Street
Suite 1500
Salt Lake City, UT 84101
Attention: James A. Valeo, Esq.
Telecopy No.: (801) 328-0537
(b) if to Company, to:
E.mergent, Inc.
5960 Golden Hills Drive
Golden Valley, MN 55416
(763) 542-0069
Attention: James Hansen
with a copy to:
Fredrickson & Bryon, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Telecopy No: (612) 347-7077
Attention: Robert Ribeiro, Esq.
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement. Unless otherwise
indicated the words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be
deemed to include the business of all direct and indirect subsidiaries
of such entity. Reference to the subsidiaries of an entity shall be
deemed to include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with
respect to a party hereto, with respect to any matter in question,
knowledge of the executive officers or directors of such party if: (a)
such individual is actually aware of such fact or matter; or (b) a
prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a
reasonable investigation concerning the existence of such fact or
matter.
(c) The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding.
(d) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company
or joint stock company), firm or other enterprise, association,
organization, entity or Governmental Entity.
(e) When used in connection with Parent or Company, as the case may be,
the term "Material Adverse Effect" means any change or effect in the
business of the Company that, individually or when taken together with
37
all other such changes or effects that have occurred prior to the date
of determination of the occurrence of the Material Adverse Effect, is or
is reasonably likely to be materially adverse to the business, assets
(including intangible assets), financial condition or results of
operations of such entity and its subsidiaries, taken as a whole;
provided, however, that in no event shall any of the following, alone or
in combination, be deemed to constitute, nor shall any of the following
be taken into account in determining whether there has been or will be,
a Material Adverse Effect on any entity: (i) any change or effect that
results or arises from changes affecting any of the industries in which
such entity operates generally or the United States economy generally
(which changes or effects in each case do not materially
disproportionately affect such entity); or (ii) any change or effect
that results or arises from changes affecting general worldwide economic
or capital market conditions (which changes in each case do not
materially disproportionately affect such entity).
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedule and the
Parent Schedule constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any third party any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
8.6 Severability. In the event that any provision of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
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8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have executed this instrument as of the
date first set forth above.
ClearOne Communications, Inc.
By: Frances Flood
--------------------------------
President and Chief Executive Officer
E.mergent, Inc.
By: James Hansen
--------------------------------
President and Chief Executive Officer
Tundra Acquisition Corporation
By: Randall J. Wichinski
--------------------------------
Vice President and Secretary
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