EXHIBIT 2.1
CONFORMED COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE REGISTRY, INC.
AND
ARI ACQUISITION CORP.
AND
APPLICATION RESOURCES, INC.
Dated as of October 30, 1996
================================================================================
TABLE OF CONTENTS
ARTICLE I
THE MERGER............................................................... 1
SECTION 1.1 The Merger............................................. 1
SECTION 1.2 Escrow; Stockholder Representative; Company Closing
Certificate......................................................... 2
SECTION 1.3 Effective Time......................................... 3
SECTION 1.4 Effect of the Merger................................... 3
SECTION 1.5 Articles of Incorporation, By-Laws..................... 3
SECTION 1.6 Directors and Officers................................. 3
SECTION 1.7 Effect on Capital Stock................................ 4
SECTION 1.8 Exchange of Certificates............................... 5
SECTION 1.9 Stock Transfer Books................................... 7
SECTION 1.10 No Further Ownership Rights in Company Common Stock... 7
SECTION 1.11 Lost, Stolen or Destroyed Certificates................ 7
SECTION 1.12 Tax and Accounting Consequences....................... 8
SECTION 1.13 Taking of Necessary Action; Further Action............ 8
SECTION 1.14 Material Adverse Effect............................... 8
SECTION 1.15 Projected Closing Date Balance Sheet; Additional
Consideration, Etc.................................................. 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 11
SECTION 2.1 Organization and Qualification........................ 11
SECTION 2.2 Articles of Incorporation and By-Laws................. 11
SECTION 2.3 Capitalization........................................ 11
SECTION 2.4 Authority Relative to this Agreement.................. 12
SECTION 2.5 No Conflict; Required Filings and Consents............ 13
SECTION 2.6 Compliance, Permits................................... 14
SECTION 2.7 Financial Statements.................................. 14
SECTION 2.8 Absence of Certain Changes or Events.................. 14
SECTION 2.9 No Undisclosed Liabilities............................ 15
SECTION 2.10 Absence of Litigation................................ 15
SECTION 2.11 Employee Benefit Plans, Employment Agreements........ 15
SECTION 2.12 Labor Matters........................................ 16
SECTION 2.13 Restrictions on Business Activities.................. 17
SECTION 2.14 Title to Property.................................... 17
SECTION 2.15 Taxes................................................ 17
SECTION 2.16 Environmental Matters................................ 18
-i-
SECTION 2.17 Intellectual Property................................ 19
SECTION 2.18 Immigration Compliance............................... 19
SECTION 2.19 Insurance............................................ 20
SECTION 2.20 Accounts Receivable.................................. 20
SECTION 2.21 Pooling Matters...................................... 20
SECTION 2.22 Brokers.............................................. 20
SECTION 2.23 Change in Control Payments........................... 20
SECTION 2.24 Expenses............................................. 21
SECTION 2.25 Full Disclosure...................................... 21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................. 21
SECTION 3.1 Organization and Qualification; Subsidiaries.......... 21
SECTION 3.2 Charter and By-Laws................................... 21
SECTION 3.3 Authority Relative to this Agreement.................. 22
SECTION 3.4 No Conflict, Required Filings and Consents............ 22
SECTION 3.5 SEC Filings; Financial Statements..................... 23
SECTION 3.6 Pooling Matters....................................... 23
SECTION 3.7 Ownership of Merger Sub; No Prior Activities.......... 23
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER.................................. 24
SECTION 4.1 Conduct of Business by the Company Pending the Merger. 24
SECTION 4.2 No Solicitation....................................... 26
ARTICLE V
ADDITIONAL AGREEMENTS................................................... 27
SECTION 5.1 Stockholder Meeting................................... 27
SECTION 5.2 Access to Information; Confidentiality................ 27
SECTION 5.3 Consents; Approvals................................... 27
SECTION 5.4 Agreements with Respect to Affiliates................. 27
SECTION 5.5 Stockholder Agreement and Investment Letter........... 28
SECTION 5.6 Notification of Certain Matters....................... 28
SECTION 5.7 Further Action/Tax Treatment.......................... 28
SECTION 5.8 Public Announcements.................................. 28
SECTION 5.9 Conveyance Taxes...................................... 29
SECTION 5.10 Pooling Accounting Treatment......................... 29
SECTION 5.11 Listing of Parent Shares............................. 29
SECTION 5.12 Eligibility for Subchapter S Election................ 29
-ii-
ARTICLE VI
CONDITIONS TO THE MERGER................................................ 29
SECTION 6.1 Conditions to Obligation of Each Party to Effect the
Merger............................................................. 29
SECTION 6.2 Additional Conditions to Obligations of Parent and
Merger Sub......................................................... 30
SECTION 6.3 Additional Conditions to Obligation of the Company.... 32
ARTICLE VII
TERMINATION............................................................. 33
SECTION 7.1 Termination........................................... 33
SECTION 7.2 Effect of Termination................................. 34
SECTION 7.3 Fees and Expenses..................................... 34
ARTICLE VIII
GENERAL PROVISIONS...................................................... 34
SECTION 8.1 Indemnification....................................... 34
SECTION 8.2 Survival, Etc......................................... 37
SECTION 8.3 Notices............................................... 37
SECTION 8.4 Certain Definitions................................... 38
SECTION 8.5 Amendment............................................. 39
SECTION 8.6 Waiver................................................ 39
SECTION 8.7 Headings.............................................. 39
SECTION 8.8 Severability.......................................... 39
SECTION 8.9 Entire Agreement...................................... 40
SECTION 8.10 Assignment; Guarantee of Merger Sub Obligations...... 40
SECTION 8.11 Parties in Interest.................................. 40
SECTION 8.12 Failure or Indulgence Not Waiver; Remedies Cumulative 40
SECTION 8.13 Governing Law........................................ 40
SECTION 8.14 Counterparts......................................... 40
-iii-
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of October 30, 1996 (this
"Agreement"), among The Registry, Inc., a Massachusetts corporation ("Parent"),
ARI Acquisition Corp., a California corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and Application Resources, Inc., a California corporation
(the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent and Merger Sub have each approved the merger of Merger Sub with and into
the Company (the "Merger") in accordance with the applicable provisions of the
California General Corporation Law (the "CGCL") upon the terms and subject to
the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and the regulations promulgated thereunder;
and
WHEREAS, pursuant to the Merger, all of the outstanding shares (the
"Shares") of the Company's common stock, no par value (the "Company Common
Stock"), shall be converted into the right to receive the Merger Consideration
(as defined in Section 1.8(b)), upon the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.3),
and subject to and upon the terms and conditions of this Agreement and the CGCL,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger (the "Closing") will take place as
promptly as practicable (and in any event within two business days) after
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Heller, Ehrman, White & McAuliffe, Palo Alto, California, unless another
date, time or place is agreed to in writing by the parties hereto (the "Closing
Date").
SECTION 1.2 Escrow; Stockholder Representative; Company Closing
Certificate.
(a) Escrow. At the Effective Time, Parent shall deliver to State Street
Bank and Trust Company, or any successor escrow agent appointed pursuant to the
Escrow Agreement (as hereinafter defined) (the "Escrow Agent"), 5% of the Parent
Shares to be issued pursuant to Section 1.7(a) and to be issued upon the
exercise of all Company Stock Options as adjusted pursuant to Section 1.7(d), to
be held and applied in accordance with the Escrow Agreement.
(b) Stockholder Representative. The stockholders, by virtue of their
approval of the Agreement, will be deemed to have irrevocably constituted and
appointed, effective as of the Effective Time, William Campbell (together with
his or its permitted successors, the "Stockholder Representative"), as their
true and lawful agent and attorney-in-fact to enter into any agreement in
connection with the transactions contemplated by this Agreement and any
transactions contemplated by the Escrow Agreement, to exercise all or any of the
powers, authority and discretion conferred on him or it under any such
agreement, to waive any terms and conditions of any such agreement (other than
the Merger Consideration), to give and receive notices on their behalf and to be
their exclusive representative with respect to any matter, suit, claim, action
or proceeding arising with respect to any transaction contemplated by any such
agreement, including, without limitation, the defense, settlement or compromise
of any claim, action or proceeding for which the Parent or the Merger Sub may be
entitled to indemnification and the Stockholder Representative agrees to act as,
and to undertake the duties and responsibilities of, such agent and attorney-in-
fact. This power of attorney is coupled with an interest and is irrevocable. The
Stockholder Representative shall not be liable for any action taken or not taken
by him or it in connection with his or its obligations under this Agreement (i)
with the consent of Stockholders who, as of the date of this Agreement, owned
66 2/3 in number of the outstanding shares of Common Stock (treating the
Preferred Stock on an as-converted basis) or (ii) in the absence of his or its
own gross negligence or wilful misconduct. If William Campbell shall be unable
or unwilling to continue to serve as the Stockholder Representative, then Marc
Steuer shall be the Stockholder Representative. If Marc Steuer shall be unable
or unwilling to serve in such capacity, then his or its successor shall be named
by those persons holding 66 of the shares of Common Stock outstanding (treating
the Preferred Stock on an as-converted basis) at the Effective Time who shall
serve and exercise the powers of Stockholder Representative hereunder.
-2-
(c) Company Closing Certificate. At the Closing, the Company shall
deliver to Parent a certificate, in form and substance satisfactory to Parent
and signed by its Chief Executive Officer and Chief Financial Officer (the
"Company Closing Certificate"), certifying (i) that all outstanding shares of
Preferred Stock have been converted into shares of Company Common Stock and (ii)
the number of outstanding shares of Company Common Stock, as of the Closing
Date.
SECTION 1.3 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a duly executed and
delivered copy of the Merger Agreement in the form attached hereto as Exhibit
1.3 (the "Merger Agreement") as contemplated by the CGCL (the "Certificate of
Merger"), with the Secretary of State of the State of California, in such form
as required by, and executed in accordance with the relevant provisions of, the
CGCL (the time of such filing being the "Effective Time").
SECTION 1.4 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Merger Agreement and the
applicable provisions of the CGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.5 Articles of Incorporation, By-Laws.
(a) Articles of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Articles of Incorporation
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the CGCL and such Articles of Incorporation.
(b) By-Laws. Unless otherwise determined by Parent prior to the Effective
Time, the By-Laws of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the By-Laws of the Surviving Corporation until thereafter amended
in accordance with the CGCL, the Articles of Incorporation of the Surviving
Corporation and such By-Laws.
SECTION 1.6 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
-3-
SECTION 1.7 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) Conversion of Securities. Each share of Company Common Stock shall be
converted into the right to receive that number of shares of Parent's common
stock, no par value (in the aggregate, the "Parent Shares") as is equal to the
quotient of 1,600,527 divided by the total number of shares of Company Common
Stock (on a fully diluted basis) issued and outstanding at the Effective Time
(the "Exchange Ratio"). The Exchange Ratio is subject to adjustment prior to the
Closing in accordance with Section 1.15(b). For the purposes of this Agreement,
the "Average Price" shall mean $39.6625.
(b) Cancellation. Each Share held in the treasury of the Company, by
virtue of the Merger and without any action on the part of the holder thereof,
shall cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Shares of Dissenting Holders. Notwithstanding anything to the
contrary contained in this Agreement, any holder of Company Common Stock with
respect to which dissenters' rights, if any, are granted by reason of the merger
under the CGCL and who does not vote in favor of the Merger and who otherwise
complies with Chapter 13 of the CGCL ("Company Dissenting Shares") shall not be
entitled to receive shares of Parent Common Stock pursuant to Section 1.7(a)
hereof, unless such holder fails to perfect, effectively withdraws or loses his
right to dissent from the Merger under the CGCL. Such holder shall be entitled
to receive only the payment provided for by Chapter 13 of the CGCL. If any such
holder so fails to perfect, effectively withdraws or loses his or her
dissenters' rights under the CGCL, his or her Company Dissenting Shares shall
thereupon be deemed to have been converted, as of the Effective Time, into the
right to receive shares of Parent Common Stock pursuant to Section 1.7(a). Any
payments relating to the Company Dissenting Shares shall be made solely by the
Surviving Corporation and no funds or other property have been or will be
provided by Merger Sub or any of Parent's other direct or indirect subsidiaries
for such payment.
(d) Stock Options.
(i) At the Effective Time, each outstanding option to purchase
Company Common Stock (a "Stock Option"), whether vested or unvested, shall
be deemed assumed by Parent and deemed to constitute an option to acquire,
on the same terms and conditions as were applicable under such Stock Option
prior to the Effective Time, the number (rounded down to the nearest whole
number) of Parent Shares as the holder of such Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (not taking into
account whether or not such option was in fact exercisable), at a price per
share equal to (x) the aggregate exercise price for Company Common Stock
otherwise purchasable pursuant to such Stock Option divided by (y) the
number of Parent Shares deemed purchasable pursuant to such Stock Option.
-4-
(ii) As soon as practicable after the Effective Time, Parent shall
deliver to each holder of an outstanding Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto, and such Stock Option
shall continue in effect on the same terms and conditions.
(iii) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant to the
terms set forth in this Section 1.7(d).
(iv) Subject to any applicable limitations under the Securities Act
of 1933, as amended, and the rules and regulations thereunder (the
"Securities Act"), Parent shall as expeditiously as possible following the
Effective Time file a Registration Statement on Form S-8 (or any successor
form), with respect to the shares of Parent Common Stock issuable upon
exercise of the Stock Options, and the Parent shall use all reasonable
efforts to maintain the effectiveness of such registration statement (and
maintain the current status of the prospectus or prospectuses relating
thereto) for so long as such options shall remain outstanding.
(e) Capital Stock of Merger Sub. Each share of common stock, without par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock, no par value, of the Surviving
Corporation.
(f) Fractional Shares. No certificates or scrip representing less than
one Parent Share shall be issued upon the surrender for exchange of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"). In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
to a fraction of a Parent Share upon surrender of Certificates for exchange
shall be paid upon such surrender cash (without interest) determined by
multiplying (i) the Average Price by (ii) the fractional interest of Parent
Common Stock to which such holder would otherwise be entitled. As soon as
practical after determining the amount of cash, if any, to be paid to former
holders of Company Common Stock with respect to any fractional shares of Parent
Common Stock, the Exchange Agent shall promptly pay such amounts to such holders
in accordance with Article I. Parent will make available to the Exchange Agent
the cash necessary for this purpose.
SECTION 1.8 Exchange of Certificates.
(a) Exchange Agent. Parent shall supply, or shall cause to be supplied, to
or for the account of The First National Bank of Boston, N.A. (the "Exchange
Agent"), in trust for the benefit of the holders of Company Common Stock, for
exchange in accordance with this Section 1.8, through the Exchange Agent,
certificates evidencing the Parent Shares issuable pursuant to Section 1.7 in
exchange for outstanding Shares. All of the Parent Shares issued in
-5-
the Merger shall be issued as of and be deemed to be outstanding as of the
Effective Time. Parent shall cause all such Parent Shares to be issued in
connection with the Merger to be duly authorized, validly issued, fully paid and
nonassessable.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify that are not inconsistent with the terms of this Agreement), and (ii)
instructions to effect the surrender of the Certificates in exchange for the
certificates evidencing Parent Shares. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor (A) certificates evidencing that number of whole Parent
Shares which such holder has the right to receive in accordance with the
provisions of Section 1.7(a) (as adjusted, if applicable, pursuant to Section
1.15(b)) in respect of the Shares formerly evidenced by such Certificate, (B)
any dividends or other distributions to which such holder is entitled pursuant
to Section 1.8(c), and (C) cash in respect of fractional shares as provided in
Section 1.7(f) (the Parent Shares, dividends, distributions and cash being,
collectively, the "Merger Consideration"), and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of Shares
which is not registered in the transfer records of the Company as of the
Effective Time, the Merger Consideration may be issued and paid in accordance
with this Article I to a transferee if the Certificate evidencing such Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer pursuant to this Section 1.8(b) and by
evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented Shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends
and subject to Section 1.7(f), to evidence the ownership of the number of full
Parent Shares into which such shares of Company Common Stock shall have been so
converted.
(c) Distributions With Respect to Unexchanged Parent Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares they
are entitled to receive until the holder of such Certificate shall surrender
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without interest,
at the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole Parent Shares.
-6-
(d) Transfers of Ownership. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance thereof
that the Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for Parent Shares in any
name other than that of the registered holder of the certificate surrendered, or
have established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law following the passage of time specified therein.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares in respect of which such deduction
and withholding was made by Parent or the Exchange Agent.
SECTION 1.9 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
SECTION 1.10 No Further Ownership Rights in Company Common Stock. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.11 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Parent Shares as
may be required pursuant to Section 1.7 as well as the other Merger
Consideration as provided in this Article; provided, however, that Parent may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as
-7-
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
SECTION 1.12 Tax and Accounting Consequences. It is intended by the
parties hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment as
a pooling of interests. The parties hereto hereby 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 Treasury Regulations.
SECTION 1.13 Taking of Necessary Action; Further Action. Subject to and
upon the terms and conditions hereof, each of Parent, Merger Sub and the Company
will take all such reasonable and lawful action as may be necessary or
appropriate in order to effectuate the Merger in accordance with this Agreement
as promptly as possible. If, at any time after the Effective Time, any such
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Company and Merger Sub, the officers and directors of the Company and Merger
Sub immediately prior to the Effective Time are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
reasonable, lawful and necessary action.
SECTION 1.14 Material Adverse Effect. When used in connection with the
Company, or Parent or any of its subsidiaries, as the case may be, the term
"Material Adverse Effect" means any change, effect or circumstance that,
individually or when taken together with all other such changes, effects or
circumstances that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, (a) is or is reasonably likely to be
materially adverse to the business, assets, properties, financial condition or
results of operations of the Company or Parent and its subsidiaries, as the case
may be, in the case of the Parent taken as a whole, or (b) is or is delaying or
preventing or is reasonably likely to delay or prevent, the consummation of the
transactions contemplated hereby.
SECTION 1.15 Projected Closing Date Balance Sheet; Additional
Consideration, Etc.
(a) Projected Closing Date Balance Sheet. Two days prior to the Closing
Date, the Company shall prepare and deliver to the Parent a projected unaudited
balance sheet (the "Projected Closing Date Balance Sheet") for the Company as of
the close of business on the day prior to the Closing Date together with a
certificate of the Chief Financial Officer of the Company as to such officer's
best estimate of the amount of stockholders' equity expected on the Closing
Date. The certificate shall include a calculation of the projected aggregate
increase or decrease in the Company's total stockholders' equity as of the
Closing Date from the Company's June 30, 1996 unaudited balance sheet; provided,
that the projected amount of the increase in the amount of stockholders' equity,
if any, shall not exceed $2,000,000 (plus the proceeds from the sale of any
equity interests of the Company after the date hereof). The Company will prepare
the Projected Closing Date Balance Sheet in accordance with generally accepted
accounting principles on a basis consistent with the Financial Statements (as
-8-
hereinafter defined) modified as set forth in Section 2.8(c)-(e) of the Company
Disclosure Schedule; provided, however, that the Projected Closing Date Balance
-------- -------
Sheet shall also include (i) a liability in the amount of $40,000 in respect of
the matters set forth in Section 2.10 of the Company Disclosure Schedule or, in
the event any or all of such matters are settled prior to the preparation of the
Projected Closing Date Balance Sheet, the liability shall be appropriately
adjusted as agreed to by the parties, (ii) a liability in the amount of $275,000
in respect of management performance bonuses (in the aggregate, "Performance
Bonuses") payable to certain members of the Company's management and (iii) a
liability in the amount of $34,000 in respect of relocation reimbursement
expenses payable to Ron English (whether or not such provisions are in
accordance with generally accepted accounting principles or are otherwise
consistent with the preparation of the Financial Statements).
(b) Adjustment to Exchange Ratio. Immediately prior to the Effective
Time, the Exchange Ratio shall be adjusted in accordance with this Section
1.15(b). If the Company's total stockholders' equity on the Projected Closing
Date Balance Sheet exceeds the amount reflected on the June 30, 1996 balance
sheet, the Exchange Ratio shall be increased by the quotient obtained by
dividing (x) such excess (provided that such excess shall not exceed $2,000,000
(plus the proceeds from the sale of any equity interests of the Company after
the date hereof)) divided by the average of the closing price of Parent Common
Stock for the five trading days ending one day prior to the Closing (the
"Closing Average Price") by (y) the number of shares of Company Common Stock
used in calculating the Exchange Ratio in Section 17(a). If the Company's total
stockholders' equity on the Projected Closing Date Balance Sheet is less than
the amount reflected on the June 30, 1996 balance sheet, the Exchange Ratio
shall be decreased by the quotient obtained by dividing (x) such shortfall
divided by the Closing Average Price by (y) the number of shares of Company
Common Stock used in calculating the Exchange Ratio in Section 17(a).
(c) Final Closing Date Balance Sheet. If the Parent has any objections to
the Projected Closing Date Balance Sheet that would result in an adjustment to
the stockholders' equity indicated thereon by more than $50,000, it will deliver
a detailed statement describing its objections to the Stockholder Representative
within 60 days of the Closing. The Parent and the Stockholder Representative
will use reasonable efforts to resolve any such objections themselves. If the
Parent and the Stockholder Representative do not obtain a final resolution
within 30 days after the Stockholder Representative has received the statement
of objections, however, the Parent and the Stockholder Representative will
select an accounting firm mutually acceptable to them to resolve any remaining
objections. If the Parent and the Seller are unable to agree on the choice of an
accounting firm, they will select a nationally-recognized accounting firm by lot
(after excluding their respective regular outside accounting firms). The
determination of any accounting firm so selected will be set forth in writing
and will be conclusive and binding upon the Parties and such determination shall
be made within six months of the Closing Date. The Projected Closing Date
Balance Sheet as finally agreed to shall be the "Final Closing Date Balance
Sheet".
-9-
(d) Expenses of Accounting Firm. In the event the Parent and the
Stockholder Representative submit any unresolved objections to an accounting
firm for resolution as provided in Section 1.15(c), the Parent and the
Stockholder Representative will share responsibility for the fees and expenses
of the accounting firm as follows:
(i) if the accounting firm resolves all of the remaining objections
in favor of the Parent (the amount so determined is referred to herein as
the "Low Amount"), the Stockholder Representative will be responsible for
----------
all of the fees and expenses of the accounting firm;
(ii) if the accounting firm resolves all of the remaining objections
in favor of the Stockholder Representative (the amount so determined is
referred to herein as the "High Amount"), the Parent will be responsible
-----------
for all of the fees and expenses of the accounting firm; and
(iii) if the accounting firm resolves some of the remaining
objections in favor of the Parent and the rest of the remaining objections
in favor of the Stockholder Representative (the amount so determined is
referred to herein as the "Actual Amount"), the Stockholder Representative
-------------
will be responsible for that fraction of the fees and expenses of the
accounting firm equal to (x) the difference between the High Amount and the
Actual Amount over (y) the difference between the High Amount and the Low
Amount, and the Parent will be responsible for the remainder of the fees
and expenses.
Parent shall pay the entire cost of the fees and expenses of such
accounting firm and shall be entitled to be reimbursed for the portion of such
cost for which the Shareholder Representative is responsible from the Escrow
without regard to the limitations set forth in Section 8.1(e).
(e) Books, Records. The Parent will make the books, records and financial
staff of the Surviving Corporation available to the Stockholder Representative
and his accountants and other representatives, and the Stockholder
Representative will make the work papers and backup materials used in preparing
the Projected Closing Date Balance Sheet available to the Parent and its
accountants and other representatives, in each case at reasonable times and upon
reasonable notice at any time during (A) the review by the Parent of the
Projected Closing Date Balance Sheet and (B) the resolution by the parties of
any objections thereto.
(f) Final Adjustments. In the event the amount of the Company's total
stockholders' equity reflected in the Projected Closing Date Balance Sheet
exceeds the amount of total stockholders' equity in the Final Closing Date
Balance Sheet by more than $50,000, the Parent shall be entitled to make a claim
against the Escrow Account for that number of shares of Parent Common Stock
equal to the quotient of the amount of such excess dividend by the Closing
Average Price. In the event the amount of the Company's total stockholders'
equity reflected in the Projected Closing Date Balance Sheet is less than the
amount of total
-10-
stockholders' equity in the Final Closing Date Balance Sheet by more than
$50,000, the Parent shall issue to the Company's stockholders (on a pro rata
basis) that number of shares of Parent Common Stock equal to the quotient of the
amount of such deficiency divided by the Closing Average Price.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by the Company to Parent that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II (the "Company Disclosure Schedule"):
SECTION 2.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has the requisite corporate power and authority
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. The Company
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary. The Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
SECTION 2.2 Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws as amended to date. Such Articles of Incorporation
and By-Laws are in full force and effect. The Company is not in violation of any
of the provisions of its Articles of Incorporation or By-Laws.
SECTION 2.3 Capitalization. The authorized capital stock of the Company
consists of (i) 10,000,000 shares of Company Common Stock and (ii) 5,000,000
shares of preferred stock, no par value per share ("Preferred Stock") of which
3,000,000 shares have been designated as Series A Preferred Stock (the "Series A
Preferred Stock"). As of September 30, 1996, (a) 2,494,000 shares of Company
Common Stock and 2,448,000 shares of Series A Preferred Stock, respectively,
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (b) 767,000 shares of Company Common Stock were reserved for
future issuance pursuant to outstanding stock options granted under the Company
Stock Option Plan, (c) 27,000 shares of Preferred Stock were reserved for future
issuance pursuant to outstanding stock options granted outside the Company Stock
Option Plan, and (d) 2,475,000 shares of Company Common Stock were reserved for
issuance upon conversion of the Preferred Stock (including 27,000 shares of
Preferred Stock to be issued upon exercise of stock options therefor). Upon the
conversion of the Preferred Stock (including any Series A
-11-
Preferred Stock to be issued upon exercise of any stock option) there will be
outstanding an additional 2,475,000 shares of Company Common Stock. Other than
stock options granted to employees pursuant to the Company Stock Option Plan in
the ordinary course and the exercise of outstanding Stock Options, no material
change in such capitalization has occurred between June 30, 1996 and the date
hereof. Except as set forth in Section 2.3 or Section 2.11 of the Company
Disclosure Schedule, there are no other options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or obligating the Company to issue or
sell any shares of capital stock of, or other equity interests in, the Company.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. Except as disclosed in Section 2.3 of the Company Disclosure
Schedule, there are no obligations, contingent or otherwise, of the Company to
repurchase, redeem or otherwise acquire any shares of Company Common Stock.
SECTION 2.4 Authority Relative to this Agreement. (a) The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
Requisite Approvals as hereinafter defined). The Board of Directors of the
Company has determined that it is advisable and in the best interest of the
Company's stockholders for the Company to enter into a business combination with
Parent upon the terms and subject to the conditions of this Agreement, and has
unanimously recommended that the Company's stockholders approve and adopt this
Agreement, the Merger and the Conversion (as hereinafter defined). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
as applicable, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium or other laws
of general applicability relating to or affecting creditors' rights, and general
principles of equity whether such proceeding is in equity or in law.
(b) The affirmative vote of the holders of 66 2/3 of the outstanding
shares of Company Common Stock and Preferred Stock each voting as a separate
class are the only votes (the "Merger Approval") of any series of the Company's
capital stock necessary to approve this Agreement and the Merger. The
affirmative votes of the holders of 66 2/3% of the outstanding shares of
Preferred Stock are the only votes required to automatically convert (the
"Conversion") all outstanding shares of Preferred Stock into shares of the
Company Common Stock (the "Conversion Approval", and together with the Merger
Approval, the "Requisite Approvals"). The Stockholder Agreements delivered to
Parent as of the date of this Agreement have been signed by the holders of at
least 66 2/3 of the outstanding shares of
-12-
Company Common Stock (assuming the exercise of all outstanding options to
purchase Company Common Stock), and the holders of at least 66 2/3 of the
outstanding Preferred Stock, respectively (assuming the exercise of all
outstanding options to purchase Preferred Stock).
SECTION 2.5 No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list of
(i) all loan agreements, indentures, mortgages, pledges, conditional sale or
title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which the Company is a party or by which it is bound and (ii) all
contracts, agreements, commitments or other understandings or arrangements to
which the Company is a party or by which it or any of its properties or assets
are bound or affected, but excluding contracts, agreements, commitments or other
understandings or arrangements entered into in the ordinary course of business
and involving, in each case, payments or receipts by the Company of less than
$50,000 in any single instance but not more than $150,000 in the aggregate
(together, "Material Contracts").
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (1) the Company has not breached, is not in default under, and has not
received written notice of any breach of or default under, any of the Material
Contracts, (2) to the best knowledge of the Company, no other party to any of
the Material Contracts has breached or is in default of any of its obligations
thereunder, and (3) each of the Material Contracts is in full force and effect,
except in any such case for breaches, defaults or failures to be in full force
and effect that are immaterial in amount and significance.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Articles of Incorporation or By-Laws of the Company, (ii) conflict with or
violate any federal, foreign, state or provincial law, rule, regulation, order,
judgment or decree (collectively, "Laws") applicable to the Company or by which
any of its 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 impair the Company'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 security interest, lien, claim, encumbrance or any other
restriction on any of the properties or assets of the Company pursuant to, any
Material Contract to which the Company is a party or by which the Company or any
of its properties is bound or affected.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, state or provincial governmental or regulatory authority except
for applicable requirements, if any, of the Securities Act of 1933, as amended,
and the rules and regulations thereunder (the "Securities
-13-
Act"), the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act"), state securities laws ("Blue Sky
Laws"), and the filing and recordation of appropriate merger or other documents
as required by the CGCL.
SECTION 2.6 Compliance, Permits.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, to its knowledge, the Company is not in conflict with, or in default
or violation of any Law applicable to the Company or by which any of its
properties is bound or affected.
(b) Except as disclosed in Section 2.6(b) of the Company Disclosure
Schedule, the Company holds all permits, licenses, easements, variances,
exemptions, consents, certificates, orders and approvals from governmental
authorities which are necessary for the operation of the business of the Company
as it is now being conducted (collectively, the "Company Permits"). The Company
is in compliance with the terms of the Company Permits, except where the failure
to so comply could not reasonably be expected to have a Material Adverse Effect.
SECTION 2.7 Financial Statements.
(a) Attached to the Company Disclosure Schedule are (i) the audited
balance sheets of the Company as of December 31, 1995, together with the related
statements of income, cash flows and stockholders' equity for the period then
ended, (the "Audited Financial Statements"), and (ii) the unaudited balance
sheets of the Company as of June 30, 1996 and the related statements of income
and cash flows for the six-month period then ended (the "Unaudited Financial
Statements", and together with the Audited Financial Statements, collectively
the "Financial Statements").
(b) Except as set forth in Section 2.7(b) of the Company Disclosure
Schedule, each of the Financial Statements was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly presents in all material respects the financial
position of the Company as at the respective dates thereof and the results of
its operations, cash flows and stockholder equity for the periods indicated,
except that the Unaudited Financial Statements are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount and do not contain complete footnotes required by generally accepted
accounting principles.
SECTION 2.8 Absence of Certain Changes or Events. Except as set forth in
Section 2.8 of the Company Disclosure Schedule, since June 30, 1996, the Company
has conducted its business in the ordinary course and there has not occurred:
(a) any Material Adverse Effect; (b) any amendments or changes in the Articles
of Incorporation or By-laws of the Company; (c) any damage to, destruction or
loss of any asset of the Company (whether or not covered by insurance) that has
had or could reasonably be expected to have a Material
-14-
Adverse Effect; (d) any material change by the Company in its accounting
methods, principles or practices; (e) any material revaluation by the Company of
any of its assets, including, without limitation, writing off notes or accounts
receivable other than in the ordinary course of business; (f) any other action
or event that would have required the consent of Parent pursuant to Section 4.1
had such action or event occurred after the date of this Agreement; or (g) any
sale of the property or assets of the Company, except in the ordinary course of
business.
SECTION 2.9 No Undisclosed Liabilities. Except as is disclosed in Section
2.9 of the Company Disclosure Schedule, the Company has no liabilities
(absolute, accrued, contingent or otherwise), except liabilities (a) adequately
provided for in the Financial Statements, (b) incurred since July 1, 1996 in the
ordinary course of business consistent with past practice, or (c) incurred in
connection with this Agreement.
SECTION 2.10 Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any properties or rights of the Company before
any federal, state or provincial court, arbitrator or administrative,
governmental or regulatory authority or body.
SECTION 2.11 Employee Benefit Plans, Employment Agreements.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all employee welfare plans (as
defined in Section 3(1) of ERISA), and all other bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment or executive compensation agreement,
written or otherwise, for the benefit of, or relating to, any present or former
employee (including any beneficiary of any such employee) of, the Company, any
trade or business (whether or not incorporated) which is a member of a
controlled group including the Company or which is under common control with the
Company (an "ERISA Affiliate") within the meaning of Section 414 of the Code
(all such plans, practices and programs are referred to as the "Company Employee
Plans"). There have been made available to Parent copies of (i) the most recent
annual report on Form 5500 series, with accompanying schedules and attachments,
filed with respect to each Company Employee Plan required to make such a filing,
and (ii) the most recent Internal Revenue Service determination letter with
respect to each Company Employee Plan intended to be qualified under Section
401(a) of the Code.
(b) (i) Except in each case as set forth in Section 2.11(b) of the Company
Disclosure Schedule, none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, and neither the
Company nor any ERISA Affiliate has ever maintained, contributed to, or been
required to contribute to, any plan that is or was a "multiemployer plan" as
such term is defined in Section 3(37) of ERISA, a pension plan subject to Title
IV of ERISA or a plan subject to Part 3 of Title I of ERISA; (ii) there has been
no "prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975
-15-
of the Code, with respect to any Company Employee Plan, which could result in
any material liability of the Company; (iii) all Company Employee Plans are in
compliance in all material respects with the requirements prescribed by any and
all Laws (including ERISA and the Code), currently in effect with respect
thereto (including all applicable requirements for notification to participants
or the Department of Labor, Internal Revenue Service (the "IRS") or Secretary of
the Treasury), and the Company has performed all material obligations required
to be performed by it under, is not in any material respect in default under or
violation of, and have no knowledge of any default or violation by any other
party to, any of the Company Employee Plans; (iv) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may reasonably
be expected to impair such determination; and (v) there are no lawsuits or other
claims (other than claims for benefits in the ordinary course) pending or, to
the best knowledge of the Company, threatened with respect to any Company
Employee Plan.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company who holds (i) any option to purchase Company Common Stock as of the date
hereof, together with the number of shares of Company Common Stock subject to
such option, the option price of such option (to the extent determined as of the
date hereof), whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), and the
expiration date of such option; (ii) any other right, directly or indirectly, to
acquire Company Common Stock, together with the number of shares of Company
Common Stock subject to such right. Section 2.11(c) of the Company Disclosure
Schedule also sets forth the total number of such ISOs, such nonqualified
options and such other rights.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true
and complete list of: (i) all employment agreements with officers of the Company
or; (ii) all agreements with consultants who are individuals obligating the
Company to make annual cash payments in an amount exceeding $75,000 (iii) all
employees of, or consultants to, the Company who have executed a non-competition
agreement with the Company; (iv) all severance agreements, programs and policies
of the Company with or relating to its employees, in each case with outstanding
commitments exceeding $75,000, excluding programs and policies required to be
maintained by law; and (v) all plans, programs, agreements and other
arrangements of the Company with or relating to its employees which contain
change in control provisions.
SECTION 2.12 Labor Matters. Except as set forth in Section 2.12 of the
Company Disclosure Schedule: (i) there are no controversies pending or, to the
knowledge of the Company, threatened between the Company and any of its
employees; (ii) the Company is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company, nor does the Company know of any activities or proceedings of any labor
union to organize any such employees; and (iii) the Company has no
-16-
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company.
SECTION 2.13 Restrictions on Business Activities. Except for this
Agreement or as set forth in Section 2.13 of the Company Disclosure Schedule, to
the best of the Company's knowledge, there is no agreement, judgement,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company any acquisition of property by the Company as
currently conducted or as proposed to be conducted by the Company.
SECTION 2.14 Title to Property. Except as set forth in Section 2.14 of
the Company Disclosure Schedule, the Company has good and marketable title to
all of its 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 detract from the
value of or interfere with the present use of the property affected thereby or
which could not reasonably be expected to have a Material Adverse Effect; and,
to the knowledge of the Company, all leases pursuant to which the Company leases
from others real or personal property, are in good standing, valid and effective
in accordance with their respective terms, and there is not, to the knowledge of
the Company, under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
material default). The Company does not own any real property.
SECTION 2.15 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including, without limitation, (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports, and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign, state or provincial taxing authority, domestic or foreign,
including, without limitation, consolidated, combined and unitary tax returns.
(b) Other than as disclosed in Section 2.15(b) of the Company Disclosure
Schedule, (1) all Tax Returns of, relating to or which include the Company which
are required to have been filed have been filed on a timely basis with the
appropriate authorities and all such Tax Returns are true, correct and complete
in all respects, (2) all Taxes required to have been paid by the Company have
been paid in full on a timely basis to the appropriate authorities and (3) all
Taxes or other amounts required to have been collected or withheld by the
Company have been timely and properly collected or withheld.
-17-
(c) Other than as disclosed in Section 2.15(c) of the Company Disclosure
Schedule, (1) no Taxing authority has asserted in writing any adjustment,
deficiency, or assessment that could result in additional Tax for which the
Company is or may be liable, (2) there is no pending audit, examination,
investigation, dispute, proceeding or claim for which the Company has received
notice relating to any Tax for which the Company is or may be liable, (3) no
statute of limitations with respect to any Tax for which the Company is or may
be liable has been waived or extended, (4) the due date of any Tax Returns that
the Company is required to file has not been extended, and (5) the Company is
not a party to any Tax sharing or Tax allocation agreement, arrangement or
understanding.
(d) There are no liens on any of the assets of the Company which arose in
connection with any failure or asserted failure to pay any Tax, other than liens
for current Taxes not yet due and payable.
(e) The Company is not a party to any contract, agreement, plan or
arrangement concerning employment or the performance of services that,
individually or collectively, could give rise to any payment that would be non-
deductible by reason of Sections 280G or 404 of the Code, or that would exceed a
reasonable allowance for salaries or other compensation for personal services
actually rendered, as such payments relate to periods ending on or before the
Closing Date.
(f) The Company has not been a member of an affiliated group filing a
consolidated federal income Tax Return, and the Company is not liable for the
Taxes of any person under Treasury Regulation 1.1502-6 (or any similar provision
of state, local, or foreign law) as transferee or successor, by contract or
otherwise.
(g) Copies of (1) any Tax examinations, (2) extensions of statutory
limitations, (3) the federal, state and local income Tax Returns of the Company,
and (4) correspondence between the Company and all Taxing authorities for its
last three (3) taxable years have previously been furnished to the Parent and
such Tax Returns are true, correct and complete.
SECTION 2.16 Environmental Matters. Except as set forth in Section 2.16
of the Company Disclosure Schedule, the Company: (i) has obtained all Approvals
which are required to be obtained under all applicable federal, state or local
laws or any regulation, code, plan, order, decree, judgment, notice or demand
letter issued, entered, promulgated or approved thereunder relating to pollution
or protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials or wastes into ambient air, surface water, ground
water, or land or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials or wastes by the
Company or its respective agents ("Environmental Laws"); (ii) is in compliance
with all terms and conditions of such required Approvals, and also are in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations,
-18-
schedules and timetables contained in applicable Environmental Laws; and (iii)
as of the date hereof, is not aware of nor has received notice of any past or
present violations of Environmental Laws or any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued compliance with or which would give rise to
any common law or statutory liability, or otherwise form the basis of any claim,
action, suit or proceeding, against the Company based on or resulting from the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge or release into the
environment, of any pollutant, contaminant or hazardous or toxic material or
waste.
SECTION 2.17 Intellectual Property. The patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights, trade
secrets or other proprietary rights necessary to the conduct of the business of
the Company are owned by or licensed to the Company and listed in Section 2.17
of the Company Disclosure Schedule. The Company has not licensed from any third
party any proprietary rights or, to the best of its knowledge, infringed,
misappropriated or otherwise conflicted with any proprietary rights of any third
parties. To the Company's knowledge, no activity of any third party infringes
upon the rights of the Company to the items listed in Section 2.17 of the
Company Disclosure Section. The Company has good title to all of the trademarks
and trade names listed in Section 2.17 of the Company Disclosure Section hereto
free and clear of any lien, charge, license or other encumbrance.
SECTION 2.18 Immigration Compliance. Except as set forth in Section 2.18
of Company Disclosure Schedule:
(a) The Company is in compliance with all applicable federal, state and
local laws, rules, directives and regulations relating to the employment
authorization of its employees (including, without limitation, the Immigration
Reform and Control Act of 1986, as amended and supplemented, and Section 212(n)
and 274A of the Immigration and Nationality Act, as amended and supplemented,
and all implementing regulations relating thereto), and the Company has not
employed nor is it currently employing any unauthorized aliens (as such term is
defined under 8 CFR 27a.1(a)).
(b) The Company has not received any notice from the Immigration and
Naturalization Service (the "INS") or the U.S. Department of Labor (the "DOL")
of the disapproval or denial of any visa petition or entry permit pending before
the INS or labor certification pending before the DOL on behalf of any employee
or prospective employee of the Company.
(c) Section 2.18 (c) of the Company Disclosure Schedule contains a true,
complete and accurate list of all non-immigrant or immigrant visa petitions and
entry permits pending before the INS and labor certifications pending before the
DOL on behalf of any of the employees or prospective employees of the Company.
-19-
SECTION 2.19 Insurance. All fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company are as set forth
in Section 2.19 of the Company Disclosure Schedule, and all such policies are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of the Company and its respective
properties and assets.
SECTION 2.20 Accounts Receivable. The accounts receivable of the Company
as reflected in the most recent Financial Statements, to the extent uncollected
on the date hereof and the accounts receivable reflected on the books of the
Company are valid and existing and represent monies due, and the Company has
made reserves reasonably considered adequate for receivables not collectible in
the ordinary course of business, and (subject to the aforesaid reserves) are
subject to no refunds or other adjustments and to no defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions enforceable by third
parties on or affecting any thereof, except for such refunds, adjustments,
defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions as could not reasonably be expected to have a Material Adverse
Effect.
SECTION 2.21 Pooling Matters. The management letter provided by the
Company to Ernst & Young LLP ("E&Y") and Price Waterhouse LLP ("PW") for
purposes of their opinions to be delivered pursuant to Section 6.2(e) is true
and correct and, to the best of the Company's knowledge after consulting with
its independent accountants, there exists no other information not disclosed by
the Company to E&Y and PW that bears on the ability of Parent to account for the
Merger as a pooling of interests. If requested, the President or Chief
Financial Officer of the Company will execute such documentation on behalf of
the Company as is reasonably required by Parent's independent public accountants
as necessary to facilitate the treatment of the Merger as a pooling of
interests. The failure of this representation to be true and correct, shall, if
the Merger is not able to be accounted for as a pooling of interests, constitute
a breach of this Agreement by the Company for the purposes of Section 7.1(f).
SECTION 2.22 Brokers. No broker, finder or investment banker, other than
Canaan Ventures, Inc. ("Canaan Ventures"), the fees and expenses of which will
be paid by the Company, is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or affiliates. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and Canaan Ventures pursuant to which such firm
would be entitled to any payment relating to the transactions contemplated
hereunder.
SECTION 2.23 Change in Control Payments. Except as set forth on Section
2.11(d) or Section 2.23 of the Company Disclosure Schedule, the Company has no
plans, programs or agreements to which they are parties, or to which they are
subject, pursuant to which payments may be required or acceleration of benefits
may be required upon a change of control of the Company.
-20-
SECTION 2.24 Expenses. Section 2.24 of the Company Disclosure Schedule
attached hereto sets forth a description of all of the estimated expenses of the
Company which the Company expects to incur, or has incurred, in connection with
the transactions contemplated by this Agreement, it being understood that these
estimates are made as of the date hereof and that the actual amounts may vary.
SECTION 2.25 Full Disclosure. No representation or warranty made by the
Company contained in this Agreement and no statement contained in any
certificate or schedule furnished or to be furnished by the Company to Parent or
Merger Sub in, or pursuant to the provisions of, this Agreement, including
without limitation the Company Disclosure Schedule, contains or shall contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in the light of the circumstances under which it was
made, in order to make statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by Parent to the Company that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III (the "Parent Disclosure Schedule"):
SECTION 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 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. Each of Parent and each of 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 its 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 could not reasonably be expected
to have a Material Adverse Effect.
SECTION 3.2 Charter and By-Laws. Parent has heretofore furnished to the
Company a complete and correct copy of its Articles of Organization and By-Laws,
as amended to date. Such Articles of Organization and By-Laws are in full force
and effect. Neither Parent nor Merger Sub is in violation of any of the
provisions of its Articles of Organization or By-Laws.
SECTION 3.3 Authority Relative to this Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
-21-
The execution and delivery of this Agreement by Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of Parent and 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 thereby. This Agreement has been duly and validly
executed and delivered by Parent and Merger Sub and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of Parent and Merger Sub enforceable against each of them
in accordance with its terms.
SECTION 3.4 No Conflict, Required Filings and Consents.
(a) Except as set forth in Section 3.4(a) of the Parent Disclosure
Schedule, 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 will not,
(i) conflict with or violate the Articles of Incorporation or By-Laws of Parent
or Merger Sub, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its subsidiaries or by which
its or their respective properties are bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or impair Parent'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 Parent or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, 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 in any such
case for any such conflicts, violations, breaches, defaults or other occurrences
that could not reasonably be expected to have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, the Blue Sky Laws, and the filing and recordation of
appropriate merger or other documents as required by the CGCL, and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the Merger, or otherwise prevent Parent or Merger Sub from performing their
respective obligations under this Agreement, and would not have a Material
Adverse Effect.
SECTION 3.5 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the Securities and Exchange Commission (the "SEC") and has heretofore
delivered to the
-22-
Company, in the form filed with the SEC, (i) its Annual Report on Form 10-K for
the fiscal year ended June 29, 1996, all proxy statements relating to Parent's
meeting of stockholders to be held November 21, 1996, (iv) all other reports or
registration statements filed by Parent with the SEC since April 11, 1996, and
(v) all amendments and supplements to all such reports and registration
statements filed by Parent with the SEC (collectively, the "Parent SEC
Reports"). The Parent SEC Reports (i) were prepared in all material respects 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 (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such 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 the light of the circumstances under which they were
made, not misleading. None of Parent's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports has been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as 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 normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
SECTION 3.6 Pooling Matters. Neither Parent nor any of its affiliates
has, to Parent's knowledge and based upon consultation with its independent
accountants, taken or agreed to take any action that could affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests. If requested, the President or Chief Financial Officer of
Parent will execute such documentation on behalf of the Parent as is reasonably
required by its independent accountants as necessary to facilitate the treatment
of the Merger as a pooling of interest for accounting purposes. The failure of
this representation to be true and correct, shall, if the Merger is not able to
be accounted for as a pooling of interests, constitute a breach of the Agreement
by Parent for the purposes of Section 7.1(f).
SECTION 3.7 Ownership of Merger Sub; No Prior Activities.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for obligations
or liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or
-23-
indirectly, through any subsidiary or affiliate, any obligations or liabilities
or engaged in any business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Parent shall otherwise agree in writing, the
Company shall conduct its business only in, and the Company shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice other than actions taken by the Company in contemplation of
the Merger; and the Company shall use all reasonable commercial efforts to
preserve substantially intact the business organization of the Company, to keep
available the services of the present officers, employees and consultants of the
Company and to preserve the present relationships of the Company with customers,
suppliers and other persons with which the Company has business relations. By
way of amplification and not limitation, except as contemplated by this
Agreement, the Company shall not, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change the Articles of Incorporation or By-Laws of
the Company;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in the
Company (except for the issuance of shares of Company Common Stock issuable
pursuant to Stock Options which were granted under either the Company Stock
Option Plan and are outstanding on the date hereof or in connection with the
Conversion or other conversion of the Preferred Stock into shares of Company
Common Stock);
(c) sell, pledge, dispose of or encumber any assets (tangible or
intangible) of the Company except for (i) dispositions of obsolete or worthless
assets and (ii) sales of immaterial assets not in excess of $25,000 in the
aggregate;
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
-24-
capital stock (except for the issuance of shares of Company Common Stock
issuable pursuant to Stock Options which were granted under either the Company
Stock Option Plan and are outstanding on the date hereof or in connection with
the Conversion or other conversion of the Preferred Stock into shares of Company
Common Stock), or (iii) amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire, any of its securities,
including without limitation, shares of Company Common Stock, Preferred Stock or
any option, warrant or right, directly or indirectly, to acquire shares of
Company Common Stock, or propose to do any of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person or, except in the ordinary
course of business consistent with past practice, make any loans or advances;
(iii) enter into or amend any material contract or agreement; (iv) authorize any
capital expenditures or purchase of fixed assets which are, in the aggregate, in
excess of $50,000 for the Company; or (v) enter into or amend any contract,
agreement, commitment or arrangement to effect any of the matters prohibited by
this Section 4.1(e);
(f) other than as contemplated by Schedule 4.1(f), increase the
compensation payable or to become payable to its officers or employees, or grant
any severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of the Company, or
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, except, in each case, as may
be required by law;
(g) except as set forth in Sections 2.8(c), (d) and (e) of the Company
Disclosure Schedule, take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) except as required by the express terms thereof, pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in the Financial
Statements or incurred in the ordinary course of business and consistent with
past practice; or
-25-
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (i) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
SECTION 4.2 No Solicitation.
(a) Until the earlier of the termination of this Agreement pursuant to
Article VII or November 27, 1996 (or December 31, 1996 if the Company's right to
terminate this Agreement is extended under the circumstances set forth in
Section 7.1(b)), the Company shall not, directly or indirectly, through any
officer, director, employee, representative or agent of the Company, (i)
solicit, initiate or encourage the initiation of any inquiries or proposals
regarding any merger, sale of substantial assets, sale of shares of capital
stock (including without limitation by way of a tender offer) or similar
transactions involving the Company other than the Merger (any of the foregoing
inquiries or proposals being referred to herein as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any nonpublic
information to any person relating to, any Acquisition Proposal or (iii) agree
to, approve or recommend any Acquisition Proposal.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company in
connection with an Acquisition Proposal or for access to the properties, books
or records of the Company by any person or entity that informs the Board of
Directors of the Company that it is considering making, or has made, an
Acquisition Proposal. Such notice to Parent shall be made orally and in
writing.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party.
(d) The Company shall ensure that the officers, directors and employees
of the Company and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this Section
4.2.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Stockholder Meeting. The Company shall seek to obtain by
written consent, or shall call and hold a meeting of the stockholders of the
Company to be held as promptly as practicable and in accordance with applicable
laws for the purpose of obtaining, the approval of the Merger, this Agreement,
the Conversion, and the transactions
-26-
contemplated hereby as soon as practicable after the date of this Agreement.
The Company shall use its best efforts to obtain the approval of (i) all of its
stockholders in respect of the Merger, this Agreement and in respect of the
transactions contemplated hereby; (ii) holders of its Preferred Stock in respect
of the Conversion; and shall take all other action necessary, appropriate or
advisable to secure the vote or consent of all of the Company's stockholders to
obtain such approvals.
SECTION 5.2 Access to Information; Confidentiality. Upon reasonable
notice, the Company and Parent shall each afford to the officers, employees,
accountants, counsel and other representatives of the other, reasonable access,
during the period from the date of this Agreement to the Effective Time, to all
its properties, books, contracts, commitments and records and, during such
period, the Company and Parent each shall furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request.
SECTION 5.3 Consents; Approvals. The Company and Parent shall each use
their best efforts to obtain all consents, waivers, approvals, authorizations or
orders (including, without limitation, all United States governmental and
regulatory rulings and approvals), and the Company and Parent shall make all
filings (including, without limitation, all filings with United States
governmental or regulatory agencies) required in connection with the
authorization, execution and delivery of this Agreement by the Company and
Parent and the consummation by them of the transactions contemplated hereby, in
each case as promptly as practicable. The Company and Parent shall furnish
promptly all information required to be included in any application or other
filing to be made pursuant to the rules and regulations of any United States or
foreign governmental body in connection with the transactions contemplated by
this Agreement.
SECTION 5.4 Agreements with Respect to Affiliates. The Company shall
deliver to Parent a letter (the "Affiliate Letter") identifying all persons who
are, at the time of the Company Stockholders Meeting, "affiliates" of the
Company under the Securities Act. The Company shall use its best efforts to
cause each person who is identified as an "affiliate" in the Affiliate Letter to
deliver to Parent, prior to the Effective Time, a written agreement (an
"Affiliate Agreement") in connection with restrictions on affiliates in respect
of pooling of interests accounting treatment, in substantially the form of
Exhibit 5.4.
SECTION 5.5 Stockholder Agreement and Investment Letter. The Company
shall use its best efforts to cause each stockholder of the Company to execute a
Stockholder Agreement and Investment Letter (each a "Stockholder Agreement") in
the form of Exhibit 5.5 concurrently with the execution of this Agreement or as
promptly as practicable after (a) the date of this Agreement (with respect to
stockholders as of the date of this Agreement) or (b) the date such persons
become stockholders.
-27-
SECTION 5.6 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to become materially untrue or inaccurate, or (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, materially to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided further that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.2(a) or 6.3(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.7 Further Action/Tax Treatment. Upon the terms and subject to
the conditions hereof each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement. Each of Parent, Merger Sub and the Company shall take all
reasonable actions to cause the Merger to qualify, and will not (both before and
after consummation of the Merger) take any actions which to its knowledge could
reasonably be expected to prevent the Merger from qualifying, (i) as a
reorganization under the provisions of Section 368 of the Code and (ii) for
pooling of interests accounting treatment. Further, Parent agrees (i) to use
reasonable efforts to cause the Surviving Corporation to maintain the reporting
position of the Company in respect of taxes payable by the Company upon the
change of the Company's tax status from a personal service corporation to an
accrual method C corporation and (ii) not to take any position, and to cause the
Surviving Corporation not to take any position, inconsistent with the intended
tax free treatment of the Merger as a reorganization under the provisions of
Section 368 of the Code, except to the extent it may be otherwise required
pursuant to a contested nonappealable judgment on the merits rendered by a court
of competent jurisdiction.
SECTION 5.8 Public Announcements. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; provided, however, that Parent may, without the prior
consent of the Company, issue such press release or make such public statement
as may upon the advice of counsel be required by law or the rules and
regulations of the Nasdaq National Market if it has used reasonable efforts to
consult with the Company prior thereto.
SECTION 5.9 Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added,
-28-
stock transfer and stamp taxes, any transfer, recording, registration and other
fees, and any similar taxes which become payable in connection with the
transactions contemplated hereby that are required or permitted to be filed at
or before the Effective Time.
SECTION 5.10 Pooling Accounting Treatment. Each of Parent and the Company
agrees not to take any action that to its knowledge could reasonably be expected
to adversely affect the ability of Parent to treat the Merger as a pooling of
interests, and each of Parent and the Company agrees to take such action as may
be reasonably required to negate the impact of any past actions which to its
knowledge could reasonably be expected to adversely impact the ability of Parent
to treat the Merger as a pooling of interests. The taking by Parent or the
Company of any action prohibited by the previous sentence, or the failure of
Parent or the Company to take any action required by the previous sentence,
shall, if the Merger is not able to be accounted for as a pooling of interests,
constitute a breach of this Agreement by Parent or the Company, as the case may
be, for the purposes of Section 7.1(f).
SECTION 5.11 Listing of Parent Shares. Parent shall use its best efforts
to cause the Parent Shares to be issued in the Merger to be approved for
quotation, upon official notice of issuance, on the Nasdaq National Market.
SECTION 5.12 Eligibility for Subchapter S Election. The Company covenants
and agrees that at least one day prior to and through the Closing it shall be a
"small business corporation" as defined in Section 1361(b) of the Code but
without regard to paragraph (1)(c) thereof.
SECTION 5.13 Payment of Management Performance Bonuses. Parent shall
cause the Surviving Corporation to pay to Ron English and Guy Vaillancourt their
respective Performance Bonuses after December 31, 1996 but on or before January
15, 1997.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Requisite Approvals. This Agreement, the Merger and the Conversion
shall have received the Requisite Approvals;
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any administrative agency or commission or other governmental authority or
instrumentality, seeking any of the foregoing
-29-
be pending; and there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal; and
(c) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental authority
or administrative agency before any governmental authority, administrative
agency or court of competent jurisdiction, nor shall there be in effect any
judgment, decree or order of any governmental authority, administrative agency
or court of competent jurisdiction, in either case, seeking to prohibit or limit
Parent from exercising all material rights and privileges pertaining to its
ownership of the Surviving Corporation or the ownership or operation by Parent
or any of its subsidiaries of all or a material portion of the business or
assets of Parent or any of its subsidiaries, as a result of the Merger or the
transactions contemplated by this Agreement.
(d) Hart-Scott-Rodino Act. The waiting period, if required, under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall have terminated or expired.
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger are also subject
to the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall have been true and correct in
all material respects at and as of the date made, and Parent and Merger Sub
shall have received a certificate to such effect signed by the President and the
Chief Financial 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
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed on behalf of the Company by the President and the Chief
Financial Officer of the Company;
(c) Consents Obtained. The Company shall have obtained all of the
consents, waivers, approvals, authorizations or orders listed on Schedule
6.2(c), and shall have made all the filings listed on Schedule 6.2(c);
(d) Opinion of Counsel to the Company. Parent shall have received an
opinion of Heller, Ehrman, White & McAuliffe, counsel to the Company, in form
and substance reasonably satisfactory to Parent;
-30-
(e) Opinion of Accountants. Parent shall have received an opinion of each
of E&Y and PW, independent certified public accountants, to the effect that the
Merger qualifies for pooling of interests accounting treatment if consummated in
accordance with this Agreement;
(f) Affiliate Agreements. Parent shall have received from each person who
is identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force and
effect;
(g) Escrow Agreement. Each of Escrow Agent, the Company and the
Stockholder Representative shall have executed and delivered to Parent an Escrow
Agreement substantially in the form of Exhibit 6.2(g);
(h) Registration Rights Agreement. The Company's stockholders shall have
entered into a Registration Rights Agreement with the Parent in substantially
the form attached hereto as Exhibit 6.2(h) ;
(i) Fairness Opinion. The Board of Directors shall have received a
"fairness opinion" in respect of the transactions contemplated by this Agreement
from A.G. Edwards & Sons, Inc.;
(j) Stockholder Agreement and Investment Letter. Parent shall have
received executed Stockholder Agreements from the holders of 90% of the
Company's capital stock;
(k) Company Dissenting Shares. The number of Company Dissenting Shares
shall not exceed 10% of the number of outstanding shares of Company Common Stock
at the Effective Time;
(l) Average Closing Price. The average closing price of Parent Common
Stock on the Nasdaq National Market System (as reported in the Eastern Edition
of The Wall Street Journal) during the ten trading day period ending one day
-----------------------
prior to the execution of this Agreement shall be equal to or greater than
$26.00; and
(m) Non-Competition Agreements. William Campbell shall have executed a
non-competition agreement in the form of Exhibit 6.2(m).
(n) Indemnification Waivers. The Parent shall have received copies of
written waivers from those persons serving as directors of Application Group,
Inc. as of September 30, 1994 in respect of the Company's obligation to
indemnity such persons from any tax liabilities arising from the Transactions,
as defined in that certain Exchange Agreement dated as of October 1, 1994 among
the Company and the other parties thereto.
SECTION 6.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
-31-
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and correct
in all material respects on and as of the date made, and the Company shall have
received a certificate to such effect signed by the President and the Chief
Financial 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
Effective Time Adverse Effect, and the Company shall have received a certificate
to such effect signed by the President and the Chief Financial Officer of
Parent;
(c) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by
Parent and Merger Sub for the authorization, execution and delivery of this
Agreement and the consummation by them of the transactions contemplated hereby
shall have been obtained and made by Parent and Merger Sub;
(d) Tax Opinions. The Company shall have received a written opinion of
Heller, Ehrman, White & McAuliffe, in form and substance reasonably satisfactory
to the Company, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code;
(e) Opinion of Counsel to Parent. The Company shall have received an
opinion of Ropes & Gray, counsel to Parent, in form and substance satisfactory
to the Company;
(f) Opinion of Accountants. The Company shall have received a copy of
the opinions referred to in Section 6.2(e) above;
(g) Registration Rights Agreement. The Parent shall have entered into a
Registration Rights Agreement with the Company's stockholders in substantially
the form attached hereto as Exhibit 6.2(h);
(h) Nasdaq Listing. The Parent Shares to be issued pursuant to Section
1.7(a) shall have been approved for quotation on the Nasdaq National Market,
subject to official notice of issuance;
(i) Escrow Agreement. The Company shall have received a copy of the
Escrow Agreement referred to in Section 6.2(g) above; and
(j) Affiliate Agreement. The Company shall have received copies of the
Affiliates Agreements referred to in Section 6.2(f) above.
-32-
(k) Parent Tax Representations. The Company and counsel to the Company
shall have received an officers' certificate signed by the Chief Executive
Officer and Chief Financial Officer to the effect set forth in Exhibit 6.3(k).
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by November 27, 1996 (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date and
provided further that the Parent may extend the date in this Section 7.1(b) to
that date which is three days following the end of the waiting period under the
HSR Act but no later than December 31, 1996 if Parent has received a request to
provide additional information under the HSR Act and Parent has executed and
delivered an agreement in writing, reasonably satisfactory to the Company and
its counsel, to publish financial results covering at least 30 days of combined
operations of Parent and the Company as soon as practicable following January
31, 1997 but in no event later than February 28, 1997);
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party who has not complied with its
obligations under Section 5.8 and such noncompliance materially contributed to
the issuance of any such order, decree or ruling or the taking of such action);
or
(d) by Parent or the Company, if the Requisite Approvals shall not have
been obtained by November 27, 1996; or
(e) by Parent or the Company, (i) if any representation or warranty of
the Company or Parent, respectively, set forth in this Agreement shall be untrue
when made, or (ii) upon a breach of any covenant or agreement on the part of the
Company or Parent, respectively, set forth in this Agreement, such that the
conditions set forth in Section 6.2(a) or 6.2(b), or Section 6.3(a) or 6.3(b),
as the case may be, would not be satisfied (either (i) or (ii) above being a
"Terminating Breach"), provided, that, if such Terminating Breach is curable
prior to
-33-
November 27, 1996 by the Company or Parent, as the case may be, through the
exercise of its reasonable best efforts and for so long as the Company or
Parent, as the case may be, continues to exercise such reasonable best efforts,
neither Parent nor the Company, respectively, may terminate this Agreement under
this Section 7.1(e); or
(f) by Parent, if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 6.2(a) would not
be satisfied, or by the Company, if any representation or warranty of Parent
shall have become untrue such that the condition set forth in Section 6.3(a)
would not be satisfied, in either case other than by reason of a Terminating
Breach.
SECTION 7.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 hereof, and (ii) nothing herein shall relieve any party from
liability for any breach hereof.
SECTION 7.3 Fees and Expenses. Except as set forth in this Section 7.3,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated. Parent shall, following the
Closing Date, cause the Company to pay all fees and expenses which have been
taken into account for the purposes of determining the adjustments to the
Exchange Ratio pursuant to Section 1.15 in a timely manner in and accordance
with the Company's obligations with respect thereto.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Indemnification.
(a) Charters and By-Laws. Parent agrees that all rights to
--------------------
indemnification or exculpation now existing in favor of the employees, agents,
directors or officers of the Company (the "Company Indemnified Parties") as
provided in its charter or By-Laws shall continue in full force and effect for a
period of not less than six years from the Closing Date; provided, however,
-------- -------
that, in the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
shall continue until disposition of any and all such claims. Any determination
required to be made with respect to whether a Company Indemnified Party's
conduct complies with the standards set forth in the charter or By-Laws of the
Company or otherwise shall be made by independent counsel selected by the
Company Indemnified Party reasonably satisfactory to the Surviving Corporation
(whose fees and expenses shall be paid by the Surviving Corporation).
-34-
(b) Survival of Representations and Warranties.
------------------------------------------
(i) The representations and warranties of the Company made in this
Agreement and in the documents and certificates delivered in connection
herewith shall survive the Merger until the earlier of (i) the release of
the independent auditor's report on the Parent's financial statements for
the fiscal year ending on June 28, 1997 or (ii) October 12, 1997 (the
"Indemnity Period") and shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers or
directors, whether prior to or after the execution of this Agreement.
(ii) No claim for indemnification under this Section 8.1 for breach
of a representation or warranty may be commenced after the Indemnity
Period, provided, however, that claims made within the applicable time
-------- -------
period shall survive to the extent of such claim until such claim is
finally determined and, if applicable, paid.
(c) Indemnification of the Parent and Merger Sub. By their approval of
--------------------------------------------
this Agreement and their acceptance of the Merger Consideration, the
Stockholders agree that the Escrow Account established under the Escrow
Agreement shall be available to indemnify, defend, protect, and hold harmless
each of Parent, Merger Sub, the Surviving Corporation and each of their
respective subsidiaries and affiliates (each in its capacity as an indemnified
party, an "Indemnitee") under this Section 8.1 at all times from and after the
date of this Agreement from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses (including
specifically, but without limitation, reasonable attorneys' fees and expenses of
investigation) (collectively "Damages") incurred by such Indemnitee as a result
of or incident to (i) any breach of any representation or warranty of the
Company set forth herein or in any certificate or other document delivered in
connection herewith (as such representation or warranty would read if all
qualifications as to materiality were deleted from it), (ii) any breach or
nonfulfillment by the Company, or any noncompliance by the Company with, any
covenant, agreement, or obligation contained herein or in any certificate or
other document delivered in connection herewith, and (iii) penalties and
interest imposed or otherwise declared due by the Internal Revenue Service in
respect of taxes payable by the Company upon the change of the Company's tax
status from a personal service corporation to an accrual method C corporation,
in each case, with respect to which a claim for indemnification is brought by an
Indemnitee within the Indemnity Period if any described in Section 8.1(b).
(d) Third Person Claims. Promptly after an Indemnitee has received notice
-------------------
of or has knowledge of any claim by a person not a party to this Agreement
("Third Person") or the commencement of any action or proceeding by a Third
Person, the Indemnitee shall, as a condition precedent to a claim with respect
thereto being made against the Escrow Agreement, give the Stockholder
Representative written notice of such claim or the commencement of such action
or proceeding; provided, however, that the failure to give such notice will not
-------- -------
effect the Indemnities' right to indemnification hereunder with respect to such
claim, action or
-35-
proceeding, except to the extent that the Stockholder Representative has, or the
Stockholders have, been actually prejudiced as a result of such failure. If the
Stockholder Representative notifies the Indemnitee within 30 days from the
receipt of the foregoing notice that he wishes to defend against the claim by
the Third Person and if the estimated amount of the claim, together with all
other claims made against the Escrow Funds that have not been settled, is less
than the remaining balance of the Escrow Funds, then the Stockholder
Representative shall have the right to assume and control the defense of the
claim by appropriate proceedings with counsel reasonably acceptable to
Indemnitee, and the Stockholder Representative shall be entitled to
reimbursement out of the Escrow Funds for such defense. The Indemnitee may
participate in the defense, at its sole expense of any such claim for which the
Stockholder Representative shall have assumed the defense pursuant to the
preceding sentence, provided that counsel for the Stockholder Representative
shall act as lead counsel in all matters pertaining to the defense or settlement
of such claims, suit or proceedings; provided, however, that Indemnitee shall
-------- -------
control the defense of any claim or proceeding that in Indemnitee's reasonable
judgment could have a material and adverse effect on Indemnitee's business apart
from the payment of money damages. The Indemnitee shall be entitled to
indemnification for the reasonable fees and expenses of its counsel for any
period during which the Stockholder Representative has not assumed the defense
of any claim. Whether or not the Stockholder Representative shall have assumed
the defense of any claim, neither the Indemnitee nor the Stockholder
Representative shall make any settlement with respect to any such claim, suit or
proceeding without the prior consent of the other, which consent shall not be
unreasonably withheld or delayed. It is understood and agreed that in
situations where failure to settle a claim expeditiously could have an adverse
effect on the party wishing to settle, the failure of a party controlling the
defense to act upon a request for consent to such settlement within five
business days of receipt of notice thereof shall be deemed to constitute consent
to such settlement for purposes of this Section 8.1.
(e) Limitations on Indemnification. No Indemnified Party shall be
------------------------------
entitled to indemnification under this Section 8.1 for Damages relating to
breaches of representations and warranties set forth herein or in any
certificate or document delivered in connection herewith until the aggregate
amount of Damages incurred by such person or persons exceeds $250,000 (the
"Indemnification Basket"), in which event such persons shall be entitled to
indemnification for the entire aggregate cumulative amount of all Damages;
provided, however, that with respect to any claims for Damages in respect of
- -------- -------
clause (iii) of paragraph (c) above, an Indemnified Party shall be entitled to
indemnification under this Section 8.1 for the entirety of such Damages subject
to a maximum amount of $175,000, which amounts, if any, shall not be credited
towards the Indemnification Basket, provided that any Damages in respect of
clause (iii) of paragraph (c) above in excess of $175,000 shall be credited
toward the Indemnification Basket..
(f) Method of Payment. All claims for indemnification shall be paid
-----------------
solely from the Escrow Account and no Stockholder shall have any personal
obligation to indemnify Parent, or Merger Sub or Surviving Corporation under
this Section 8.1. To the extent that Parent, Merger Sub, or the Surviving
Corporation makes a claim against the Escrow Account pursuant
-36-
to the Escrow Agreement, and such claim is paid in shares of Parent Common
Stock, then for purposes of such payment, the shares of Parent Common Stock
shall be valued at the Average Price; provided, that for purposes of claims
--------
against the Escrow Account pursuant to Section 1.15(f) hereof, the shares of
Parent Common Stock shall be valued at the Closing Average Price.
SECTION 8.2 Survival, Etc.
(a) The agreements set forth in Section 8.1 shall survive independently
and Article I and Section 5.7 shall survive the Effective Time indefinitely and
those set forth in Section 7.3 shall survive such termination indefinitely.
(b) Any disclosure made with reference to one or more sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed only with respect to such section or sections.
SECTION 8.3 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
The Registry, Inc.
189 Wells Avenue
Newton, MA 02159
Attention: General Counsel
Telephone No.: (617) 527-6886
Telecopier No.: (617) 527-6999
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: Keith F. Higgins, Esq.
Telephone No.: (617) 951-7000
Telecopier No.: (617) 951-7050
(b) If to the Company:
Application Resources, Inc.
-37-
300 Montgomery Street, Suite 200
San Francisco, CA 94104
Attention: President
Telephone No.: (415) 772-9899
Telecopier No.: (415) 765-5250
With a copy to:
Heller, Ehrman, White & McAuliffe
525 University Avenue, Suite 1100
Palo Alto, CA 94301
Attention: Sarah A. O'Dowd, Esq.
Telephone No.: (415) 324-7000
Telecopier No.: (415) 324-0638
SECTION 8.4 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which the first mentioned person (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an interest
of 5% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
(c) "business day" means any day other than a day on which banks in The
Commonwealth of Massachusetts are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
-38-
(e) "knowledge" means, with respect to the Company or the Parent, the
actual knowledge of the officers of the Company or the Parent, as applicable,
plus all facts and circumstances such persons would have discovered upon a
reasonable investigation of the subject matter; provided, however, that with
respect to Sections 2.21 and 3.6 "knowledge" shall mean actual knowledge of such
officers after consultations with their respective independent auditors but
without any independent investigation of the rules relating to pooling of
interest accounting;
(f) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other person, as
the case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, more than 50% of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
SECTION 8.5 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.6 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 8.7 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in
-39-
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
SECTION 8.9 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
SECTION 8.10 Assignment; Guarantee of Merger Sub Obligations. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Merger Sub may assign all or any of their rights hereunder to any
affiliate thereof provided that no such assignment shall relieve the assigning
party of its obligations hereunder. Parent guarantees the full and punctual
performance by Merger Sub of all the obligations hereunder of Merger Sub or any
such assignees.
SECTION 8.11 Parties in Interest. 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 other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Section 5.6 (which is intended to be for the benefit of the Indemnified
Parties and may be enforced by such Indemnified Parties).
SECTION 8.12 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 8.13 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without giving
effect to the conflict of laws principles thereof.
SECTION 8.14 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
-40-
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
THE REGISTRY INC.
By: /s/ G. DREW CONWAY
-----------------------------
G. Drew Conway
President
ARI ACQUISITION CORP.
By: /s/ G. DREW CONWAY
-----------------------------
G. Drew Conway
President
APPLICATION RESOURCES, INC.
By: /s/ RON ENGLISH
---------------------------------
Ronald E. English
President
-41-