EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
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THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
October __, 1999, among Breakthrough Electronics, Inc., a Nevada corporation
(the "Parent"), DDJ Merger Sub, a Nevada corporation and a wholly owned
subsidiary of the Parent (the "Merger Sub") and Digital DJ, Inc., a California
corporation (the "Company"), with reference to the following.
RECITALS
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A. The Parent is an inactive corporation whose shares are quoted on the
Nasdaq Electronic Bulletin Board under the symbol "BRELE."
B. The Company is a privately held corporation in the business of
providing electronically formatted entertainment.
C. The Merger Sub is a wholly owned subsidiary of the Parent, formed for
the purpose of merging with the Company.
D. The Board of Directors of the Parent and the Company each have
determined that a business combination between the Parent and the Company is
fair to and in the best interest of their respective companies and stockholders
and, accordingly, have agreed to effect the merger upon the terms and subject to
the conditions set forth in this Agreement.
E. In connection with the merger provided for herein, shares of the
Parent's common stock will be issued in exchange for all of the issued and
outstanding shares of the Company's Stock.
F. This merger is intended for tax purposes to qualify as a non-taxable
reorganization under Section 368(a)(2)(E) of the Internal Revenue Code of 1986,
as amended (the "Code").
G. The parties desire that the Merger Sub, upon the terms and subject to
the conditions of this Agreement and in accordance with the California General
Corporation Law and the Nevada Corporation Act (the "Corporate Law"), merge with
and into the Company (the "Merger"), and pursuant thereto the Company's Stock
shall be converted into the right to receive shares of the Parent, as set forth
herein.
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AGREEMENT
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NOW, THEREFORE, in consideration of the foregoing premises and of the
provisions, representations, warranties, covenants and agreements contained
herein and other good and valuable consideration, the parties agree as follows.
ARTICLE I
THE MERGER
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1.1 The Merger. Subject to the provisions of this Agreement, in accordance
with the Corporate Law, at the Effective Time (as defined in Section 1.3 below),
the Merger Sub shall be merged with and into the Company in a transaction
intended to qualify as a tax-free reorganization under Section 368(a) of the
Code. Immediately following the Merger, the separate corporate existence of the
Merger Sub shall cease and the Company, under the name "Digital DJ, Inc.," as
the surviving corporation (the "Surviving Corporation"), shall continue to exist
under and be governed by the Corporate Law as a direct, wholly-owned subsidiary
of the Parent.
1.2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at 355 Bryant Street,
Suite 111, San Francisco, Califonria 94107, at 2:00 p.m., on (i) the second
business day following the satisfaction of the conditions set forth in Article X
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or, where permitted, waiver of those
conditions) or (ii) or at such other time, date, or place as the Parent and the
Company may agree. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
1.3 Effective Time. As soon as practicable after the satisfaction or waiver
of all of the conditions to the Merger, the parties shall cause the Merger to be
consummated by causing an Agreement of Merger (the "Filed Agreement")
substantially in the form of Exhibit 1.3 attached hereto, together with
officers' certificates in the forms included with such Exhibit, to be executed
and filed in accordance with the relevant provisions of the Corporate Law. The
Merger shall become effective at the time of the filing with the California
Secretary of State of the Filed Agreement relating thereto or at such later time
as is specified in the Filed Agreement (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effect set forth in
Section 1107 of the Corporate Law. Without limiting the generality of the
foregoing, at the Effective Time, all the properties, 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 in
the same manner as if the Surviving Corporation had itself incurred them. All
rights of creditors and all liens upon the property of the Company and Merger
Sub shall thereafter be preserved unimpaired.
1.5 Articles of Incorporation and Bylaws of the Surviving Corporation. The
Articles of Incorporation and Bylaws of the Company, respectively, as in effect
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immediately prior to the Effective Time, shall be the Articles of Incorporation
and Bylaws of the Surviving Corporation, until thereafter amended in accordance
with the provisions thereof and applicable law.
1.6 Merger Proxy. The Parent shall as soon as reasonably practicable
prepare and file where appropriate or required, a proxy for approval for
distribution to the Parent's shareholders to approve the Merger, the amendment
of the Parent's certificate of incorporation to increase the authorized number
of shares and the terms of this Agreement. The Company shall assist the Parent
in the preparation of the proxy materials and have the right to review and
reasonably approve the proxy prior to its distribution to the Parent's
shareholders. ..................................................................
ARTICLE II
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
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2.1 Directors. The Surviving Corporation and the Parent shall take such
action as is necessary to elect as directors of both the Surviving Corporation
and the Parent immediately following the Effective Time: the individuals
identified in Schedule 2.1 (the "Directors"). The Directors shall serve, until
their successors are duly appointed or elected in accordance with applicable
law. The Parent shall take all actions necessary to nominate the Directors for
election.
2.2 Parent Officers. The Surviving Corporation and the Parent shall take
such actions as are necessary to elect as the officers of the Parent effective
immediately following the Effective Time:
Name..........................................................
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Office
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Tsutomu "Tom" Takahisa................................................
President, Secretary and Chief Financial Officer
2.3 Termination of Existing Agreements.
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(a) Repudiation. Prior to the Closing, Lawrence W. Sapperstein, and
each other executive officer and director of the Parent shall repudiate his
existing employment agreement with the Parent or the Subsidiary and all rights
thereunder and cancel the existing agreements and release the Parent from all
obligations thereunder. Each of the officers and directors of the Parent shall
have resigned as of the Closing Date. Each officer, director and employee
identified in Schedule 2.5(a) shall execute as of the Closing Date, a release in
the form attached hereto as Exhibit "2.5" (the "Release").
ARTICLE III
EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND THE
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COMPANY
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3.1 Merger Sub Stock. At the Effective Time, each share of common stock of
the Merger Sub outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the Parent or the
Company, be converted into and exchanged for one validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
3.2 The Company Securities.
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(a) At the Effective Time, the shares of each class of the preferred
stock (as converted to common) and the common stock of the Company (the "Company
Stock") issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into the right to receive the number of shares of the Parent's
Common Stock (the "Share Exchange Ratio") calculated such that (i) all
outstanding shares of Company Stock on a Fully Diluted Basis (as defined below)
immediately prior to Effective Time. For purposes hereof, "Fully Diluted Basis"
shall mean all outstanding shares and all shares issuable pursuant to
Convertible Securities (as defined below) to the extent in the money as of the
Closing Date. For purposes hereof, "Convertible Securities" means options,
warrants, convertible securities or other rights to acquire common stock. The
Share Exchange Ratio shall be calculated by the Parent and the Company prior to
the Effective Time and such calculation shall be attached hereto as Schedule
3.2(a).
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all shares of the Company Stock shall
cease to be outstanding and shall be canceled and retired, and each holder of
shares of the Company Stock shall thereafter cease to have any rights with
respect to such shares of the Company Stock, except the right to receive,
without interest, the Parent Stock.
(c) All options to purchase Company Stock outstanding at the Effective
Time under any Company stock option plan or agreement or any other type of
option, warrant or right to purchase shares of the Company (the "Company Stock
Options") shall, at the Effective Time, automatically and without further action
on the part of any holder thereof, be converted into options or similar right to
purchase Parent Stock (individually, a "Parent Stock Option" and collectively,
the "Parent Stock Options"). Each option granted by the Parent hereunder shall
be exercisable upon the same terms and conditions as under the applicable
Company Stock Option in compliance with the requirements of Section 424(a) of
the Code and the applicable agreement issued thereunder, except that (i) each
such Company Stock Option shall be exercisable for that whole number of shares
of Parent Stock (to the nearest whole share) determined by multiplying the
number of shares of the Company Stock subject to such Company Stock Option by
the Share Exchange Ratio immediately prior to the Effective Time times as set
forth on Schedule 3.2(c) (the "Option Exchange Ratio"), (ii) the total option
price of the shares of Parent Stock issuable upon exercise of a Parent Stock
Option shall be an amount equal to the total option price of the shares of
Company Stock subject to such Company Stock Option in effect immediately prior
to the Effective Time, (iii) the exercise price per share shall be calculated by
dividing the aggregate option value of the shares of Company Stock subject to
such Company Stock Options in effect immediately prior to the Effective Time by
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the number of shares of Parent Stock underlying such Parent Stock Options, (iv)
all Parent Stock Options shall be exercisable otherwise in accordance with their
terms. No payment shall be made for fractional interests.
(d) As soon as practicable after the Effective Time, the Parent shall
deliver to the holders of all Company Stock Options, a notice stating that the
agreements evidencing the grants of such Company Stock Options shall continue in
effect as Parent Stock Options on the same terms and conditions (subject to the
terms of the relevant Company Stock Option plan and the adjustments to
outstanding Shares and exercise price).
(e) The Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Stock for delivery upon
exercise of Parent Stock Options.
3.3 Exchange of Certificates Representing the Company Stock. Within 5 days
of the Effective Time, the Parent will deliver to the Company the certificates
representing shares of the Parent Stock (together with any unpaid dividends or
distributions with respect thereto relating to record dates for such dividends
or distributions after the Effective Time) to be issued and paid in exchange for
outstanding shares of Company Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to the Parent as of the date of this
Agreement as follows:
4.1 Existence; Good Standing; Corporate Authority; Compliance with Law.
(a) Each of the Company and its subsidiary is a corporation duly
incorporated, validly existing, and in good standing (including tax good
standing) under the laws of the State of California and are not qualified to do
business in any other jurisdiction.
(b) Each of the Company and its subsidiary has all requisite corporate
power and authority to own, operate, and lease its properties and carry on its
business as presently conducted and as proposed to be conducted.
(c) Each of the Company and its subsidiary is not in violation of any
law, ordinance, governmental rule or regulation to which it or any of its
properties or assets is subject, except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, nor
is the Company or its subsidiary in violation of any order, judgment, or decree
of any court, governmental authority, or arbitration board or tribunal. A
"Company Material Adverse Effect" means a material adverse change in the
business, properties, financial condition, results of operations, or prospects
of the Company, taken as a whole.
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(d) The copies of the Articles of Incorporation of the Company and its
subsidiary and Bylaws of each entity, which have been delivered to the Parent,
include any and all amendments made thereto at any time prior to the date of
this Agreement and are true, correct, and complete.
(e) The Company's and its subsidiary's corporate minute books are
accurate as to their content and include therein the Articles of Incorporation
and Bylaws with any amendments thereto. The meetings of the directors or
stockholders referred to in the corporate minute books were duly called and
held. The signatures appearing on all documents contained in the corporate
minute books are the true signatures of the persons purporting to have executed
the same and no minutes of meetings or written consents of the directors or
stockholders of the Company or the subsidiaries are omitted from such minute
books that would contain any resolutions or other actions that would be
inconsistent with any of the representations and warranties contained in Article
IV hereof or prevent or limit any of the transactions contemplated by this
Agreement. Schedule 4.1 sets forth a true and complete list of the names of all
directors of the Company and the names and offices held of all officers of the
Company and each subsidiary as the date hereof.
4.2 Authorization, Validity and Effect of Agreements. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. The consummation
by the Company of the transactions contemplated hereby has been duly authorized
by all requisite corporate action of the Company. This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by the Parent and the Merger Sub, constitutes, and all
agreements and documents contemplated hereby (when executed and delivered
pursuant hereto for value received) will constitute valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except to the extent that enforceability may be limited
by applicable bankruptcy, insolvency, moratorium, or other similar laws relating
to creditors' rights and general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law),
including, without limitation, possible unavailability of specific performance,
other injunctive relief or other equitable remedies and an implied covenant of
good faith and fair dealing.
4.3 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Common Stock, of which
_________ shares are issued and outstanding. The Company has authorized
6,000,000 shares of Preferred S Class Stock, no par value, of which ________
shares are issued and outstanding. Schedule 4.3 sets forth the number of shares
of Company Stock issuable upon exercise of outstanding Company Stock Options.
All of the outstanding shares of capital stock of the Company's subsidiary have
been validly issued and are fully paid and nonassessable and, are owned by the
Company free and clear of all liens, charges, claims or encumbrances. Schedule
4.3 sets forth the name of each record holder of shares of Company Stock, the
number of shares of Company Stock so held, and the number of whole shares of
Parent Stock to be issued in exchange for such shares of Company Stock in
connection with the Merger. Except as set forth in Schedule 4.3, the Company has
no outstanding bonds, debentures, notes, or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
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securities having the right to vote) with the stockholders of the Company on any
matter. All issued and outstanding shares of Company Stock are duly authorized,
validly issued, fully paid, nonassessable, free of preemptive or rescission
rights, and were issued in compliance with all applicable federal and state
securities laws. Schedule 4.3 sets forth the name of each person who holds or
has rights to receive Company Stock Options, the number of shares of Company
Stock issuable in respect of such Company Stock Options, the exercise prices and
terms of such Company Stock Options. As used in this Agreement, the "knowledge"
of a person shall mean the actual knowledge of an officer or senior manager of
such person after reasonable investigation.
4.4 No Violation. Neither the execution or delivery by the Company of
this Agreement and all agreements or documents contemplated therein nor the
consummation by the Company of the transactions contemplated therein, will: (i)
conflict with or result in a breach of any provisions of the Articles of
Incorporation or Bylaws of the Company; (ii) except as set forth in Schedule
4.4, violate, conflict with, result in a breach of any provision of, constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination or in a right of
termination or cancellation of, accelerate the performance required by, result
in the triggering of any payment or other obligations pursuant to, result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties of the Company under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, loan agreement, deed of trust, or any
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Company is a party, or by which the
Company or any of its properties is bound or affected; (iii) violate any law,
statute, rule, regulation, judgment, or decree applicable to the Company; or
(iv) other than the filings provided for in Article I, filings required under
the Act, or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), require any consent,
approval, or authorization of, or declaration, filing, or registration with, any
governmental or regulatory authority.
4.5 Financial Statements. The unaudited balance sheet and statement of
operations as of and for the year ended June 30, 1998, attached to Schedule 4.5,
are prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied throughout the periods involved except as
otherwise set forth therein and present fairly the financial condition of the
Company as of such date and the results of operations of the Company for the
year then ended. The unaudited balance sheet of the Company as of September 30,
1999 and the related statement of operations for the three months ended on such
date, which are attached to Schedule 4.5, were prepared in accordance with GAAP
consistently applied except as otherwise set forth therein and of such date and
the results of operations of the Company for the three months then ended, except
that such interim financial statements are subject to normal year-end
adjustments that are not and are not expected to be, individually or in the
aggregate, material in amount and do not include certain notes which may be
required by GAAP. The balance sheet of the Company as of June 30, 1998, is
referred to in this Agreement as the "Company Balance Sheet."
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4.6 Litigation. To the knowledge of the Company, there are no claims,
actions, suits, investigations, or proceedings (public or private) pending
against or affecting the Company or any of its properties or assets, at law or
in equity, before or by any federal, state, municipal, or other governmental or
non-governmental department, commission, board, bureau, agency, court, or other
instrumentality, or arbitrator or by any private person or entity. To the
knowledge of the Company, there are no claims, actions, suits, investigations,
or proceedings (public or private) threatened against or affecting the Company
or any of its properties or assets, at law or in equity, before or by any
federal, state, municipal, or other governmental or non-governmental department,
commission, board, bureau, agency, court, or other instrumentality, or
arbitrator or by any private person or entity, except for any of the foregoing
which would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
4.7 Subsidiary. FM Intelligent Transportation System Inc., a Delaware
corporation, is a wholly owned subsidiary of the Company and is the Company's
only subsidiary. The Company owns all right, title and interest in and to each
issued and outstanding shares of FM Intelligent Transportation System Inc.
4.8 Authorization. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company the transactions
contemplated hereby require no consents of any party and no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than (a) the filing of the Certificate of Merger in accordance with the
Corporate Law, (b) compliance with any applicable requirements of the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or Blue Sky
laws, and (c) any other filings, approvals or authorizations, which, if not
obtained, would not, individually or in the aggregate, have a material adverse
effect on the Company or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
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The Parent and the Merger Sub represent and warrant to the Company and its
shareholders as of the date of this Agreement as follows.
5.1 Existence; Good Standing; Corporate Authority;Compliance with Law.
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(a) Each of the Parent and the Merger Sub is a corporation duly
incorporated, validly existing, and in good standing (including tax good
standing) under the laws of its jurisdiction of incorporation. Each of the
Parent and the Merger Sub is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of the jurisdictions
listed in Schedule 5.1, which list contains all jurisdictions in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, in each case except as would
not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect (as defined below in Section 5.9).
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(b) Each of the Parent and the Merger Sub has all requisite corporate
power and authority to own, operate, and lease its properties and carry on its
business as presently conducted and as proposed to be conducted.
(c) Each of the Parent and the Merger Sub is not in violation of any
law, ordinance, governmental rule or regulation to which it or any of its
properties or assets is subject, except as would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect, nor
is the Parent in violation of any order, judgment, or decree of any court,
governmental authority, or arbitration board or tribunal.
(d) The copies of the Parent's Articles of Incorporation and the
Certificate of Incorporation of the Merger Sub and the Subsidiary and Bylaws of
each entity, which have been delivered to the Company and the Principal
Shareholders, include any and all amendments made thereto at any time prior to
the date of this Agreement and are true, correct, and complete.
(e) The Parent's and the Subsidiaries' corporate minute books are
accurate as to their content and include therein the Articles of Incorporation
and Bylaws with any amendments thereto. The meetings of the directors or
stockholders referred to in the corporate minute books were duly called and
held. The signatures appearing on all documents contained in the corporate
minute books are the true signatures of the persons purporting to have executed
the same and no minutes of meetings or written consents of the directors or
stockholders of the Parent or the Merger Sub are omitted from such minute books
that would contain any resolutions or other actions that would be inconsistent
with any of the representations and warranties contained in Article V hereof or
prevent or limit any of the transactions contemplated by this Agreement.
Schedule 5.1 sets forth a true and complete list of the names of all directors
of the Parent and the names and offices held of all officers of the Parent and
each subsidiary as the date hereof.
5.2 Authorization, Validity and Effect of Agreements.
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(a) Each of the Parent and Merger Sub has the requisite corporate power
and authority to execute and deliver this Agreement and all agreements and
documents contemplated hereby and thereby. Subject only to the approval of this
Agreement and the transactions contemplated hereby by the stockholders of the
Parent, the consummation by the Parent and the Merger Sub of the transactions
contemplated hereby has been duly authorized by all requisite corporate action
of the Parent and the Merger Sub. This Agreement has been duly executed and
delivered by the Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company and all agreements and documents
contemplated hereby (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of the
Parent and the Merger Sub enforceable in accordance with their respective terms.
(b) The affirmative vote of the holders of a majority of the shares of
the Parent Stock present in person or by proxy at a duly convened and held
meeting of the stockholders of the Parent is necessary to approve the issuance
by the Parent of the shares of the Parent Stock pursuant to the terms hereof.
Such vote is the only vote required to approve the Merger.
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5.3 Capitalization. The authorized capital stock of the Parent consists of
50,000,000 shares of Common Stock, $.001 par value, and no shares of preferred
stock, $.001 par value. Schedule 5.3 sets forth the number of shares of the
Parent Stock issued and outstanding, and the number of shares of the Parent
Stock issuable upon exercise of outstanding Parent Stock Options, each as of the
Closing Date. There are no shares of preferred stock issued or outstanding and
no commitment exists to issue any preferred stock. Schedule 5.3 correctly sets
forth the name of each person who holds of record shares of the Parent Stock and
the number of shares of Company Stock so held, as of the date of this Agreement.
No additional shares of capital stock of the Parent will be issued, except
pursuant to the exercise of options outstanding under and vested or vesting in
accordance with the terms of the Parent Stock Option plans or warrants set forth
on Schedule 5.3 hereof. The Parent has no outstanding bonds, debentures, notes,
or other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Parent on any matter. All issued and outstanding shares
of the Parent Stock are duly authorized, validly issued, fully paid,
nonassessable, free of preemptive or rescission rights, and were issued in
compliance with all applicable federal and state securities laws. Schedule 5.3
correctly sets forth the name of each person who holds or has rights to receive
Parent Stock Options, the number of shares of Parent Stock issuable in respect
of such Parent Stock Options, the exercise prices and terms of such Parent Stock
Options, and whether or not such Parent Stock Options are intended to qualify as
incentive stock options or non-statutory stock options. Except for the Parent
Stock Options listed on Schedule 5.3, there are not, at the date of this
Agreement, any authorized, issued, or outstanding options, warrants, calls,
subscriptions, convertible securities, conversion privileges, preemptive rights,
or other rights, agreements, or commitments (whether or not presently
exercisable) that obligate the Parent to issue, transfer, or sell any shares of
capital stock or other securities convertible into or evidencing the right to
purchase or otherwise acquire any capital stock of the Parent. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar plans, contracts, or rights with respect to the Parent
that are effective as of the date hereof or that have been executed or agreed to
as of the date hereof with an effective date after the date hereof. There are no
stockholders' agreements, voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Parent to
which the Parent is a party that are presently effective or have been executed
or agreed to as of the date hereof or, to the best knowledge of the Parent, to
which any officer or director of the Parent or any stockholder owned or
controlled by such officer or director is or will be a party, except in
accordance with the terms hereof. There are no restrictions upon the sale,
voting, or transfer of any shares of Parent Stock pursuant to the Parent's
Articles of Incorporation, Bylaws, or other governing instruments (other than
restrictions typically applicable to unregistered stock under the Securities
Act). After the Effective Time, the Surviving Corporation will have no
obligation to issue, transfer, or sell any shares of capital stock of the Parent
or the Surviving Corporation pursuant to any stock or incentive plan. As used in
this Agreement, the "knowledge" of a person shall mean the actual knowledge of
an officer or senior manager of such person after reasonable investigation.
5.4 Other Interests. Except as set forth in Schedule 5.4, neither the
Parent nor the Merger Sub own, directly or indirectly, any interest or
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investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust, or entity other than investments in short term
investment securities.
5.5 No Violation. Neither the execution and delivery by the Parent and the
Merger Sub of this Agreement and all agreements and documents contemplated
hereby, nor the consummation by the Parent and the Merger Sub of the
transactions contemplated hereby or thereby in accordance with the terms hereof,
will: (i) conflict with or result in a breach of any provisions of the Articles
of Incorporation, as amended, or Bylaws of the Parent or the Articles of
Incorporation or Bylaws of the Merger Sub; (ii) violate any law, statute, rule,
regulation, judgment, or decree applicable to the Parent or the Merger Sub;
(iii) except as set forth in Schedule 5.5 violate, conflict with, result in a
breach of any provision of, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, result in the
termination or in a right of termination or cancellation of, accelerate the
performance required by, result in the triggering of any payment or other
obligations pursuant to, result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties of the Parent or the Merger Sub
under, or result in being declared void, voidable, or without further binding
effect, any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, loan agreement, deed of trust, or any license, franchise, permit,
lease, contract, agreement or other instrument, commitment, or obligation to
which the Parent or the Merger Sub is a party, or by which the Parent or the
Merger Sub or any of its properties is bound or affected; (iv) violate any law,
statute, rule, regulation, judgment, or decree applicable to the Parent or the
Merger Sub; or (v) other than the Regulatory Filings, require any consent,
approval, or authorization of, or declaration, filing, or registration with, any
governmental or regulatory authority.
5.6 SEC Documents. Since ____________, 199_, the Parent has filed all
forms, reports, and other documents (including all exhibits, schedules and
annexes thereto) required to be filed by the Parent with the SEC and Nasdaq
("Parent Report"). Except to the extent that information contained in any Parent
Report has been revised or superseded by a later Parent Report filed and
publicly available prior to the date of this Agreement, as of their respective
dates, the Parent Reports (a) were (and any Parent Report filed after the date
hereof will be) in all material respects in accordance with the requirements of
the Act or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and (b) as of their respective filing dates did not (and
any Parent Report filed after the date hereof will not) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. The financial
statements of the Parent included in such reports (or incorporated therein by
reference) were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto and
subject to normal year-end adjustments) and fairly present in all material
respects the financial position of the Parent and its consolidated subsidiaries
as of the dates thereof and the periods then ended.
5.7 Financial Statements. The audited consolidated balance sheet and
consolidated statement of operations as of and for the twelve months ended
December 31, 1998, accompanied by the audit report of
____________________________, independent certified public accountants, which
are
11
attached hereto as Exhibit "5.7", were prepared in accordance with GAAP,
consistently applied throughout the periods involved except as otherwise set
forth therein and present fairly the financial condition of the Parent as of
such date and the results of operations of the Parent for the year then ended.
The unaudited consolidated balance sheet of the Parent as of September 30, 1999,
and the related consolidated statement of operations for the nine months ended
on such date, which are attached hereto as Exhibit "5.7", were prepared in
accordance with GAAP consistently applied except as otherwise set forth therein
and of such date and the results of operations of the Parent for the nine months
then ended, except that such interim financial statements are subject to normal
year-end adjustments that are not and are not expected to be, individually or in
the aggregate, material in amount and do not include certain notes which may be
required by GAAP. The balance sheet of the Parent as of September 30, 1999, is
referred to in this Agreement as the "Parent Balance Sheet."
5.8 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Parent Balance Sheet or set forth in
Schedule 5.8 at the date of the Parent Balance Sheet, the Parent did not have
any obligation or liability of any kind whatsoever (whether accrued, absolute,
contingent, unliquidated, civil, criminal, or otherwise and whether due or to
become due), whether or not any such liability or obligation would have been
required to be disclosed on a balance sheet prepared in accordance with GAAP,
that, individually or in the aggregate, could have a Parent Material Adverse
Effect. The Parent Balance Sheet has accurate accruals of all employee benefit
costs, including, but not limited to, payroll, commissions, bonuses, retirement
benefits and vacation accruals.
5.9 Absence of Certain Changes or Events.
------------------------------------
(a) Since September 30, 1999, no event or events have occurred, which
individually or in the aggregate have had a Parent Material Adverse Effect, as
hereafter defined, and there exists no condition or contingency that could
reasonably be expected to result in a Parent Material Adverse Effect. A "Parent
Material Adverse Effect" means a material adverse change in the business,
properties, financial condition, results of operations, or prospects of the
Parent, taken as a whole.
(b) Since the date of the Parent Balance Sheet and except as set forth
in Schedule 5.9(b), the Parent has not:
(i)
................................................................................
declared, set aside, paid, or made any dividend or other distribution on or in
respect of any shares of its capital stock or directly or indirectly redeemed,
retired, purchased, or otherwise acquired any such shares or any option,
warrant, conversion privilege, preemptive right, or other right or agreement to
acquire the same or any other securities convertible into or evidencing the
right to purchase or otherwise acquire the same;
(ii) .........................................................
any amendments to its Articles of Incorporation or Bylaws:
12
(iii).....................................................made
any change in the number of shares of its capital stock authorized, issued, or
outstanding or authorized, issued, granted, or made any option, warrant,
conversion privilege, preemptive right, or other right or agreement to acquire
the same or any other securities convertible into or evidencing the right to
acquire the same;
(iv) .........................................................
incurred any indebtedness or borrowed money other than as set forth in Schedule
5.9(b)(iv); which borrowings shall not exceed $5,000 in the aggregate;
(v) .........................................................
incurred any obligation or liability (contingent or otherwise);
(vi) .........................................................
discharged or satisfied any lien or encumbrance or paid any obligations or
liability (fixed or contingent) other than current liabilities paid to unrelated
parties, wages paid to officers and employees and director's fees paid to
directors, each in the ordinary course of business;
(vii).........................................................
mortgaged, pledged, or subjected to any lien, charge, or other encumbrance any
of its respective properties or assets (tangible or intangible) except liens for
current property taxes not yet due and payable;
(viii) .......................................................
assigned, leased, transferred or otherwise disposed of, or agreed to sell,
assign, lease, transfer or otherwise dispose of, any of its tangible assets
other than sales of inventory in the ordinary course of business;
(ix) .........................................................
entered into any transaction, contract, or commitment;
(x) ......................................................made
any capital expenditures or any commitment therefor in excess of $1,000 in the
aggregate except as consented to by the Company;
(xi) .........................................................
adopted or made any change in any executive compensation plan, bonus plan,
incentive compensation plan, deferred compensation agreement, or other employee
benefit plan or arrangement;
(xii) ........................................................
entered into any employment or consulting agreement or arrangement, or granted
or paid any bonus, or made or granted any general wage or salary increase or any
specific increase in the wages or salary of any employee;
13
(xiii)........................................................
suffered any casualty loss or damage, whether or not such loss or damage shall
have been covered by insurance;
(xiv) ........................................................
canceled or compromised any debt or claim except for adjustments made in the
ordinary course of business that, in the aggregate, are not material, or waived
or released any rights that are material;
(xv) .........................................................
terminated, amended, or modified any agreement or instrument described in
Schedule 5.10;
(xvi).........................................................
entered into any transaction with any stockholder, officer, director, or key
employee of the Parent or any affiliate of any such person other than the
payment of wages and salaries and other benefits under employee benefit plans in
existence prior to December 31, 1998;
(xvii) ...................................................made
any loans or advances to, guaranties for the benefit of, or investments in, any
person;
(xviii) ..................................................made
cash charitable contributions;
(xix) ........................................................
merged or consolidated with, or acquired all or substantially all of the assets,
capital stock, or business of any other person;
(xx) .........................................................
introduced any material change with respect to its method of accounting or
accounting practice by Parent; or
(xxi) ........................................................
agreed or committed to do any of the things described in this Section 5.10.
5.10 No Contracts, Etc. The Parent is not a party to or liable
under any of the following:
(a) any lease of real property;
(b) any lease of personal property;
(c) any contract for any intellectual property rights, if any;
(d) any employment and consulting agreements covering any employee
of, or consultant to, the Parent or the Merger Sub;
14
(e) any deferred compensation agreements, employee stock option plans,
group life, hospitalization or disability insurance, severance policies and
other plans and arrangements providing benefits for employees of the Parent or
the Merger Sub;
(f) any bank accounts and safe deposit boxes of the Parent or the
Merger Sub;
(g) any loan agreements, credit agreements, indentures, and other
documents or instruments relating to the borrowing of money by the Parent or the
Merger Sub and all promissory notes and other evidences of indebtedness of the
Parent or the Merger Sub, including without limitation, all such documents and
instruments relating to or evidencing any stockholder loans to the Parent or the
Merger Sub; and
(h) any guaranties of obligations of the Parent or Merger Sub under all
loan agreements, leases, and other documents and instruments to which the Parent
or the Merger Sub is a party or by which it is bound, by any officer or director
of the Parent or the Merger Sub or any affiliate of any of the foregoing.
5.11 Authorization. The execution, delivery and performance by Parent of
this Agreement and the consummation by Parent and Merger Sub of the transactions
contemplated hereby require no consents of any party and no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than (a) the filing of the Certificate of Merger in accordance with the
Corporate Law, (b) compliance with any applicable requirements of the Act, the
Exchange Act, or Blue Sky laws, and (c) any other filings, approvals or
authorizations, which, if not obtained, would not, individually or in the
aggregate, have a material adverse effect on Parent or materially impair the
ability of the Parent or Merger Sub to consummate the transactions contemplated
by this Agreement.
5.12 Litigation. There are no claims, actions, suits, investigations, or
proceedings (public or private) pending against or affecting the Parent, or the
Merger Sub or any of their properties or assets, at law or in equity, before or
by any federal, state, municipal, or other governmental or non-governmental
department, commission, board, bureau, agency, court, or other instrumentality,
or arbitrator or by any private person or entity. To the knowledge of the
Parent, there are no claims, actions, suits, investigations, or proceedings
(public or private) threatened against or affecting the Parent, or the Merger
Sub or any of their properties or assets, at law or in equity, before or by any
federal, state, municipal, or other governmental or non-governmental department,
commission, board, bureau, agency, court, or other instrumentality, or
arbitrator or by any private person or entity. There are no existing orders,
judgments, settlements, injunctions, or decrees of any court or governmental
agency that apply to the Parent or the Merger Sub or any of their assets,
properties, business, or operations. No product liability, warranty, or similar
claims have been made against the Parent or the Merger Sub. Neither the Parent
nor the Merger Sub have entered into any settlement agreements relating to the
compromise or dismissal of any litigation involving the Parent or the Merger Sub
or any of their properties or assets.
15
5.13 Taxes. All Taxes (as hereinafter defined) required to be filed by the
Parent and the Merger Sub have been timely filed and are true, correct, and
complete in all material respects, and all Taxes payable pursuant thereto have
been timely paid or appropriate extensions have been filed for such periods. No
deficiency or adjustment in respect of any Taxes that was assessed against the
Parent or the Merger Sub remains unpaid and no such claim or assessment is
pending or, to the knowledge of the Parent, threatened. The Parent and the
Merger Sub have made all withholding of Taxes required to be made under all
applicable federal, state, and local tax regulations and such withholdings have
either been paid on a timely basis to the respective governmental agencies or
set side in accounts for such purpose or accrued, reserved against and entered
upon the books of the Parent or the Merger Sub. There are no outstanding
agreements or waivers extending the statutory period of limitations applicable
to any tax return or tax liability of the Parent or the Merger Sub, and there is
no proposed liability for any Taxes for which there is not an adequate reserve
reflected on the Parent Balance Sheet. The Parent has not filed any consent with
the Internal Revenue Service described in Section 341(f) of the Code.
5.14 Proprietary Rights.
------------------
(a) Except as set forth on Schedule 5.14(a):
(i)
..............................................................................To
the Parent's knowledge, neither the Parent nor the Merger Sub has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Proprietary Rights of third parties, (ii) neither the Parent nor the Merger Sub
(and its employees with responsibility for Proprietary Rights matters) has
received any written charge, complaint, claims, demand, or notice alleging any
such interference, infringement, misappropriation, or violation (including any
claim that the Parent or the Merger Sub must license or refrain from using any
Proprietary Rights of any third party), (iii) to the Parent's knowledge, there
is no basis for any as-yet unasserted charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Parent must license or refrain from
using any Proprietary Rights of any third party), or (iv) to the Parent's
knowledge, no third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Proprietary Rights of the Parent or the
Merger Sub.
5.15 ERISA. Neither the Parent nor the Merger Sub nor any ERISA Affiliate
of the Parent or the Subsidiaries maintains or contributes to or is obligated to
contribute to, and has ever maintained or contributed to or been obligated to
contribute to, (i) any Multiemployer Plan, (ii) any a Multiple Employer Plan or
(iii) any other incentive or retirement plan, including but not limited to a
pension plan.
5.16 Fees. Except as set forth in Schedule 5.16, there are no claims for
legal, accounting, financial advisory, or investment bankers' fees, brokerage
commissions, finders' fees, or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Parent or the Merger Sub.
16
5.17 Books and Records. Except as set forth in Schedule 5.17, the financial
books, records, and work papers of the Parent and the Merger Sub are complete
and correct in all material respects, have been maintained in accordance with
good business practice and accurately reflect the bases for the consolidated
financial condition and results of operations of the Parent or the Merger Sub
set forth in the financial statements referred to in Section 5.7 hereof.
5.18 Disclosure. To the Parent's knowledge, no representation or warranty
by the Parent in this Agreement and no statement contained in any document,
certificate, or other writing prepared by the Parent or its representatives and
furnished by the Parent to the Company pursuant to the provisions hereof,
affirmatively misstates a material fact or omits a material fact necessary for
such document, certificate, or writing to be, in good faith, accurately and
completely responsive in all material respects to the purpose identified by the
Parent to the Company for which such information was furnished by the Parent to
the Company.
5.19 Purchase Accounting Treatment. The Parent intends that the
Merger be accounted for under the "purchase" method of accounting.
ARTICLE VI
INTERIM OPERATING COVENANTS OF THE PARENT AND SUBSIDIARIES
----------------------------------------------------------
6.1 Operations. Between the date of this Agreement and the
Effective Time, each of the Parent and the Merger Sub will:
(a) file on a timely basis all notices, reports or other filings
required to be filed with or reported to any federal, state, municipal or other
governmental department, commission, board, bureau, agency or any
instrumentality of any of the foregoing wherever located with respect to the
continuing operations of the Parent and the Merger Sub, including, without
limitation, the SEC and Nasdaq Bulletin Board;
(b) maintain material compliance with all Governmental Permits and all
laws, rules, regulations and consent orders;
(c) file on a timely basis all complete and correct applications or
other documents necessary to maintain, renew or extend any site assessment,
permit, license, variance or any other approval required by any governmental
authority necessary and/or required for the continuing operation of the Parent's
and the Merger Sub's business operations, whether or not such approval would
expire before or after the Effective Time; and
(d) advise the Company promptly in writing of any material change in
any document or Schedule, including without limitation any Schedule, Exhibit or
other information delivered pursuant to this Agreement.
17
6.2 Meeting of Stockholders. The Parent will take all action necessary
in accordance with applicable law and their respective charter documents to
convene a meeting of their stockholders before the Effective Date, to consider
and vote upon the approval of this Agreement and the transactions contemplated
hereby.
6.3 No Change. Between the date of this Agreement and the Effective
Time, the Parent, the Merger Sub will not, without the prior written consent of
the Company or except as described in this Agreement:
(a) make any change in their Articles of Incorporation or Bylaws;
(b) authorize, issue, transfer, distribute, or register any of their
securities;
(c) declare or pay any dividend or make any distribution in respect of
their capital stock whether now or hereafter outstanding, or purchase, redeem or
otherwise acquire or retire for value any shares of its capital stock;
(d) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures;
(e) change or promise to change the compensation payable or to become
payable to any director, officer, employee or agent, or make or promise to make
any bonus payment to any such person;
(f) create, assume or otherwise permit the imposition of any mortgage,
pledge or other lien (except for current property taxes) or encumbrance upon or
grant any option or right of first refusal with respect to any assets or
properties whether now owned or hereafter acquired;
(g) sell, assign, lease or otherwise transfer or dispose of any
property or equipment other than in the ordinary course of business;
(h) merge or consolidate or agree to merge or consolidate with or into
any firm, corporation or other entity;
(i) waive any material rights or claims;
(j) amend or terminate any material agreement or any site assessment,
permit, license or other right;
(k) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder; or
(l) take any action or suffer or permit any event to occur that would
cause any representation or warranty in this Agreement to become untrue as of
the Effective Time.
18
6.4 Access; Confidential Information. Between the date of this
Agreement and the Effective Time, the Parent and the Merger Sub will afford to
the officers and authorized representatives of the Company, including, without
limitation, its counsel, independent auditors and investment bankers, access to
the facilities, plants, corporate properties and other properties, books and
records of the Parent and the Merger Sub and will furnish the Company with such
additional financial and operating data and other information as to the business
and properties of the Parent and the Merger Sub as the Company may from time to
time reasonably request. The Parent and the Merger Sub will cooperate with the
Company, its representatives and counsel in the preparation of any documents or
other material which may be required by any governmental agency. Except as
necessary to comply with the terms of this Agreement, the rules and regulations
of the Nasdaq Electronic Bulletin Board and the SEC, the Company will cause all
information obtained from the Parent and the Merger Sub in connection with the
negotiation and performance of this Agreement to be treated as confidential
(except such information which is in the public domain or which the Company may
be required to disclose to any governmental agency, or pursuant to any court or
regulatory agency order) and will not use, and will not knowingly permit others
to use, any such confidential information in a manner detrimental to the Parent
or the Merger Sub. The Parent and the Merger Sub covenant and agree not to
disclose to any third persons other than their accountants, brokers, bankers,
investment advisers or legal counsel any of the specific terms or provisions of
this Agreement (including financial terms) prior to or after the date hereof
without the prior written consent of the Company.
6.5 Obtain Consents. Promptly after the execution of this Agreement,
the Parent and the Merger Sub shall make all filings and take all steps
reasonably necessary to obtain all approvals and consents required to be
obtained by the Parent and the Merger Sub to consummate the transactions
contemplated by this Agreement.
6.6 Exclusivity. The Parent and the Merger Sub agree that they will
not (and will use their best efforts to cause the Parent's and the Merger Sub's
directors, officers, agents, representatives, and affiliates, and any other
person acting on their behalf not to) enter into any contract or agreement that
has as a purpose a business combination or merger, an issuance or sale of debt
or equity of the Parent or the Merger Sub (including the capital stock), a sale
of a substantial portion of the assets of the Parent or the Merger Sub, or a
transaction comparable to or similar to the Merger (any of the foregoing, a
"Competing Transaction"). The Parent and the Merger Sub will promptly notify the
Company if they receive any offer, inquiry or proposal with respect to a
Competing Transaction and the details thereof, and keep the Company informed
with respect to each such offer, inquiry or proposal. The Parent and the Merger
Sub will provide the Company with copies of all such offers, inquiries or
proposals which are in writing.
ARTICLE VII
ADDITIONAL COVENANTS OF THE PARTIES
-----------------------------------
7.1 Filings; Other Action. Subject to the terms and conditions herein
provided, the ompany, its subsidiary, the Parent and the Merger Sub shall cause
19
any appropriate other party to: (a) use all reasonable efforts to cooperate with
one another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits, or
authorizations are required to be obtained prior to the Effective Time from
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making all such filings and timely seeking all such consents, approvals,
permits, or authorizations; and (b) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper, or appropriate to consummate and make effective the
transactions contemplated by this Agreement.
7.2 Further Action. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the conditions set forth
herein or the waiver thereof, directly or by or through its officers or
directors, perform such further acts and execute such documents whether before
or after the Effective Time as may be reasonably required to effect the Merger.
In addition, subject to the limitations set forth in this Agreement, and unless
specifically prohibited by applicable law, each party will use its best efforts
to cause all of the conditions to Closing set forth in this Agreement that are
within its control to be satisfied prior to the Closing Date and will not take
any action inconsistent with its obligations under this Agreement or which could
hinder or delay the consummation of the transactions contemplated by this
Agreement or that would cause any representation, warranty, or covenant made by
it in this Agreement or in any certificate, list, exhibit, or other instrument
furnished or to be furnished pursuant hereto, or in connection with the
transaction contemplated hereby, to be untrue in any material respect as of the
Effective Time.
7.3 Expenses. If the Merger is not consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
7.4 Tax Matters. The Parent, the Merger Sub and the Company will treat
and cause the Surviving Corporation to treat the Merger as a reorganization
qualifying under Section 368(a)(2)(E) of the Code and will file and cause the
Surviving Corporation to file all returns and reports (including without
limitation those required under Treasury Regulation Section 1.368-3) as required
and in a manner consistent with such treatment; (ii) no shareholder is required
to recognize income gain or loss with respect the Merger; and (iii) they will
take no action that will prevent or be inconsistent with treating the Merger as
a reorganization qualifying under Section 368(a)(2)(E) of the Code.
7.5 Brokers and Finders Fees. Each party shall pay and be responsible
for any broker's, finder's or financial advisory fee incurred by such party in
connection with the transactions contemplated by this Agreement.
7.6 Notices of Certain Events.....................................Each
party shall promptly notify the other party hereto of:
20
(a) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or involving or
otherwise affecting such party that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to this Agreement.
7.7 Completion of Due Diligence. Each party acknowledges that this
Agreement is being executed prior to the completion of necessary due diligence
and prior to the preparation and review of the appropriate Schedules and
Exhibits. Each party shall grant the other and each of their officers,
attorneys, accountants and advisors, complete and unfiltered access to all
information, documentation and personnel of the other. Each party shall conduct
such diligence within 30 days of the date of this Agreement unless such party
notifies the other parties in to the Agreement that they require further time
and information to complete their investigations to their satisfaction,
including information contained or in Schedules or Exhibits to this Agreement.
7.8 Preparation of Schedules and Exhibits. Each party to this
Agreement shall prepare and attach all necessary Schedules and Exhibits after
the execution of this Agreement, but no later than the Closing Date, which
information shall be true and correct as of the Closing Date, unless otherwise
specified therein.
ARTICLE VIII
CONDITIONS TO CLOSING
---------------------
8.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved in the manner required by applicable law by the holders of the
issued and outstanding shares of capital stock of the Company and of the Parent.
(b) No party to this Agreement shall be subject to any order or
injunction of a court of competent jurisdiction that prohibits the consummation
of the transactions contemplated by this Agreement. In the event any such order
or injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted or order reversed.
21
(c) No action, suit, proceeding, or investigation to suspend the
offering of the Parent Stock in connection with the Merger shall have been
initiated and be continuing, and all necessary approvals under state securities
laws relating to the issuance or trading of the Parent Stock to be issued in
connection with the Merger shall have been received.
(d) All consents, authorizations, orders, and approvals of (or filings
or registrations with) any governmental commission, board, or other regulatory
body required in connection with the execution, delivery, and performance of
this Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed after
the Effective Time.
(e) No action, suit, or proceeding shall be pending or threatened by or
before any court or governmental body in which an unfavorable judgment, order,
or decree would prevent any of the transactions contemplated hereby or cause any
such transaction to be declared unlawful or rescinded or that could reasonably
be expected to cause a Company Material Adverse Effect or a Parent Material
Adverse Effect.
(f) All documents and instruments to be delivered by the parties in
connection with the transactions contemplated hereby shall be in form and
substance reasonably satisfactory to the parties and their respective counsel,
and the parties shall have received such other documents and instruments as they
may reasonably request in connection therewith.
(g) Each party to this Agreement shall have completed to its
satisfaction, due diligence investigation on the other, its shareholders, its
business and operations, financial condition, outstanding liabilities, business
prospects and other material information.
(h) Each party to this Agreement shall have provided the information
necessary to complete the Schedules and Exhibits to this Agreement and the
Schedules and Exhibits must be completed and the information contained therein
must be satisfactory to each party to this Agreement, in each such party's sole
discretion.
(i) This Agreement shall be modified and amended to reflect changes,
provisions, terms and conditions agreed upon by the parties hereto prior to the
Closing.
(j) None of these transactions contemplated hereby shall have been
enjoined by the court or by any federal or state governmental branch, agency,
commission or regulatory authority and not suit or other proceeding challenging
the transactions contemplated hereby shall have been threatened or instituted
and no investigative or other demand shall have been made by any federal or
state governmental branch, agency, commission or regulatory authority.
(k) The Parent shall continue to be listed and shall not have received
any notice of impending delisting or suspension from the Nasdaq Electronic
Bulletin Board.
(l) The Merger Sub shall have been formed in accordance with this
Agreement.
22
8.2 Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The Parent and the Merger Sub shall have performed or be in
compliance in all respects with agreements contained in this Agreement required
to be performed on or prior to the Closing Date. The representations and
warranties of the Parent and the Merger Sub contained in this Agreement and in
any document delivered in connection herewith shall be true and correct as of
the Closing Date, and the Company shall have received a certificate of the
President of the Parent, dated the Closing Date, certifying to such effect.
(b) There shall have been delivered to the Company certificates, dated
within five days of the Closing Date, of the Secretary of State of the State of
Nevada and the State of California, with respect to the incorporation,
subsistence, and good legal standing of the Parent and the Merger Sub,
respectively.
(c) All consents and approvals of any third parties required in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been obtained
and delivered to the Company including a Release from each executive officer.
(d) There shall have been delivered to the Company certificates, dated
as of the Closing Date, of the President and Secretary, respectively, of the
Parent and the Merger Sub as set forth as Exhibit 9.2(d), (i) to the effect that
the Articles of Incorporation of the Parent and Articles of Incorporation of
Merger Sub have not been amended since the date of this Agreement, (ii)
attaching a true and complete copy of the Bylaws of the Parent and the Merger
Sub as in effect on the Closing Date, (iii) attaching a true and complete copy
of the resolutions of the Board of Directors of the Parent and the Merger Sub
approving the execution and delivery of this Agreement and authorizing the
consummation of the transactions contemplated hereby; and (iv) to the effect
that each of the provisions of Section 9.2(a) are true and correct as of the
Closing Date.
(e) There shall have been delivered to the Company certificates, dated
as of the Closing Date, with respect to the incumbency and signatures of all
officers of the Parent and the Merger Sub signing this Agreement and any other
certificate, agreement, or instrument delivered on behalf of the Parent and the
Merger Sub in connection with this Agreement.
(f) The Parent shall have delivered to the Company an opinion of its
counsel in the form attached hereto as Exhibit "9.2".
(g) Since the Closing Date, there shall not have been any material
adverse change in the condition (financial or otherwise), business, properties
or assets of the Parent or the Subsidiaries.
23
ARTICLE IX
TERMINATION
-----------
9.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, by the
mutual consent of the Parent and the Company.
9.2 Termination by Either Party. This Agreement may be terminated by
either party under any of the following conditions:
(a) the Closing has not occurred by December 1, 1999; provided that the
right to terminate this Agreement pursuant to this clause shall not be available
to any party whose breach of any provision of this Agreement results in the
failure of the Merger to be consummated by such time;
(b) there shall be any law or regulation that makes consummation of the
Merger illegal or otherwise prohibited or if any judgment, injunction, order or
decree enjoining any party from consummating the Merger is entered and such
judgment, injunction, order or decree shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause shall have used its best efforts to remove such
injunction, order or decree.
9.3 Effect of Termination and Abandonment. In the event of termination
of this Agreement and the abandonment of the Merger pursuant to this Article IX,
all obligations of the parties hereto shall terminate, except the obligations of
the parties pursuant to this Section 9.2 and Section 6.12 and except for the
provisions of Sections 10.2, 10.3, 10.5, 10.6, 10.7, 10.11, 10.12, and 10.13 and
pursuant to any confidentiality agreement signed by the parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, or (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
GENERAL PROVISIONS
------------------
10.1 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by same day or
overnight courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
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If to the Parent or the Merger Sub:.............................................
Breakthrough Electronics, Inc.
..............................................................
600 Crandall Building
..............................................................
10 West 100 South
..............................................................
Salt Lake City, UT 84101
..............................................................
Attn:
..............................................................
Facsimile: ...........................................................
..............................................................
Telephone:.............................................................
With a copy to :................................................................
James C. Lewis, Esq.
..............................................................
Lewis Law Offices
..............................................................
600 Crandall Building
..............................................................
10 West 100 South
..............................................................
Salt Lake City, UT 84101
..............................................................
Telephone:........................................................(801)
530-0447
..............................................................
Facsimile:........................................................(801)
364-8279
If to the Company:..............................................................
Digital DJ, Inc.
..............................................................
1658 East Capitol Expwy.
..............................................................
San Jose, CA 95121
..............................................................
Attn: Tom Takahisa, President
..............................................................
Facsimile:........................................................(408)
246-9855
25
Telephone:........................................................(408)
246-5264
With copies to:.................................................................
Boyd & Chang, LLP
..............................................................
19900 MacArthur Boulevard
..............................................................
Suite 660
..............................................................
Irvine, California 92612
..............................................................
Attn: Patrick R. Boyd
..............................................................
Facsimile: .......................................................(949)
851-0159
Telephone: .......................................................(949)
851-9800
or such other address or fax number as any party may specify by written notice
so given, and such notice shall be deemed to have been delivered as of the date
so telecommunicated, personally delivered, or delivered by courier or 5 days
after mailing thereof if received prior to 5:00 p.m. in the place of receipt and
such day is a business day in the place of receipt. Otherwise, any such notice,
request or communication shall be deemed not to have been received until the
next succeeding business day in the place of receipt.
10.2 Assignment, Binding Effect. Neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or certain stockholders of the Company and other named beneficiaries of
covenants or agreements in the Agreement, or their respective heirs, successors,
executors, administrators, and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
10.3 Entire Agreement. This Agreement, the Exhibits, the Parent Disclosure
Schedule, the confidentiality agreements between the parties hereto and any
schedules or agreements delivered in connection with this Agreement constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No information previously provided, addition to or modification
of any provision of this Agreement shall be binding upon any party hereto unless
made in writing and signed by all parties hereto.
26
10.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of the Company, the Parent and Merger Sub, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
10.5 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or confirm of record or otherwise in the
Surviving Corporation's right, title or interest, in, to or under any of the
rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger, or otherwise to carry out the
intent of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either of the constituent corporations of the Merger, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties, privileges,
franchises or assets in the Surviving Corporation or otherwise carry out the
intent of this Agreement.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to its rules
of conflict of laws.
10.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
Executed counterparts transmitted by fax shall be effective as originals.
10.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
27
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceeding is instituted to remedy, prevent or obtain relief from a breach
of this Agreement, in relation to a breach of this Agreement or pertaining to a
declaration of rights under this Agreement, the prevailing party will recover
all such party's attorneys' fees incurred in each and every such action, suit or
other proceeding, including any and all appeals or petitions therefrom. As used
in this Agreement, attorneys' fees will be deemed to be the full and actual cost
of any legal services actually performed in connection with the matters
involved, including those related to any appeal or the enforcement of any
judgment, calculated on the basis of the usual fee charged by attorneys
performing such services, and will not be limited to "reasonable attorneys'
fees" as defined in any statute or rule of court.
10.12 Survival. All representations and warranties of any party contained
in this Agreement shall survive the execution and delivery of this Agreement and
the Closing until 18 months after the Closing.
10.13 Incorporation of Exhibits. The Schedules and all Exhibits and
schedules attached hereto and referred to herein are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
10.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction unless the same is
material to the terms of this Agreement, in the judgment of either party to this
Agreement, in which case the parties shall negotiate in good faith to revise the
same so as to be valid or enforceable. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
10.15 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
28
10.16 Consent. Whenever the consent or approval of a party is required by
the terms of this Agreement, unless otherwise provided, the same shall not be
unreasonably withheld or delayed.
"PARENT"
BREAKTHROUGH ELECTRONICS, INC.
A Nevada corporation
By:/s/Lawrence W. Sapperstein
--------------------------
Lawrence W. Sapperstein, President
By:
--------------------------
Its:
--------------------------
"MERGER SUB"
DDJ MERGER SUB, a Nevada corporation
By:
--------------------------
Its:
--------------------------
By:
--------------------------
Its:
--------------------------
"THE COMPANY"
DIGITAL DJ, INC.,
a California corporation
By:/s/Tom Takahisa
---------------
Tom Takahisa, President and Secretary
29