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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PLATO LEARNING, INC.,
PLATO, INC.,
NSC ACQUISITION CORPORATION,
NETSCHOOLS CORPORATION
AND
THE NOTEHOLDERS PARTY HERETO
DATED AS OF MAY 9, 2002
TABLE OF CONTENTS
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PAGE
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ARTICLE I CERTAIN DEFINITIONS..........................................................................1
ARTICLE II THE MERGER..................................................................................10
2.1 The Merger..................................................................................10
2.2 Effective Time of the Merger................................................................10
2.3 Effects of the Merger.......................................................................10
2.4 Closing.....................................................................................10
2.5 Certificate of Incorporation................................................................10
2.6 Bylaws......................................................................................10
2.7 Directors and Officers......................................................................10
ARTICLE III CONVERSION OF SECURITIES....................................................................11
3.1 Consideration for the Merger................................................................11
3.2 Additional Consideration for Merger.........................................................11
3.3 Escrow......................................................................................13
3.4 Net Worth Adjustment........................................................................14
3.5 Net Worth Payment...........................................................................14
3.6 Earn-out Adjustment.........................................................................15
3.7 Earn-out Payments...........................................................................15
3.8 Effect on Stock Options.....................................................................16
3.9 Exchange Procedures.........................................................................16
3.10 No Further Rights in Company................................................................17
3.11 No Fractional Shares of Buyer Common Stock or Buyer Warrants................................17
3.12 No Liability................................................................................17
3.13 Lost Certificates of Notes..................................................................17
3.14 Withholding Rights..........................................................................18
3.15 Further Assurances..........................................................................18
3.16 Stock Transfer Books........................................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES..............................................................18
4.1 Representations and Warranties of the Company...............................................18
4.2 Representations and Warranties of Buyer, OpCo, Merger Sub...................................32
4.3 Representations and Warranties of Noteholders...............................................36
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS...................................................38
5.1 Covenants of the Company....................................................................38
5.2 Covenants of Buyer..........................................................................40
5.3 Control of Other Party's Business...........................................................41
5.4 Cooperation.................................................................................41
ARTICLE VI ADDITIONAL AGREEMENTS.......................................................................41
6.1 Further Assurance...........................................................................41
6.2 Confidentiality.............................................................................41
6.3 Agreement to Approve Merger.................................................................42
6.4 Access to Information.......................................................................42
6.5 Reasonable Best Efforts.....................................................................42
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6.6 Acquisition Proposals.......................................................................43
6.7 Fees and Expenses...........................................................................44
6.8 General Restrictions on Transfer............................................................44
6.9 Public Announcements........................................................................45
6.10 Notification of Certain Matters.............................................................45
6.11 Company Options.............................................................................45
6.12 Company Audited 2001 Financial Statements...................................................45
6.13 Non-Solicitation............................................................................45
6.14 Additional Payments.........................................................................46
6.15 Registration Rights.........................................................................46
6.16 Tax Matters and Indemnity...................................................................49
6.17 Surviving Corporation.......................................................................52
6.18 Director and Officer Indemnification........................................................52
ARTICLE VII CONDITIONS PRECEDENT........................................................................52
7.1 Conditions to Each Party's Obligation to Effect the Merger..................................52
7.2 Additional Conditions to Obligations of Buyer...............................................52
7.3 Additional Conditions to Obligations of the Company.........................................54
7.4 Additional Conditions to Obligations of the Noteholders.....................................54
ARTICLE VIII TERMINATION AND AMENDMENT...................................................................55
8.1 Termination.................................................................................55
8.2 Effect of Termination.......................................................................55
8.3 Amendment...................................................................................56
8.4 Extension; Waiver...........................................................................56
ARTICLE IX INDEMNIFICATION.............................................................................56
9.1 Survival of Representations and Warranties..................................................56
9.2 Indemnification by Buyer....................................................................56
9.3 Indemnification by the Noteholders..........................................................57
9.4 Noteholder Representative; Approval of Noteholders..........................................60
ARTICLE X GENERAL PROVISIONS..........................................................................60
10.1 Notices.....................................................................................60
10.2 Interpretation..............................................................................61
10.3 Counterparts................................................................................61
10.4 Entire Agreement; No Third Party Beneficiaries..............................................62
10.5 Governing Law...............................................................................62
10.6 Severability................................................................................62
10.7 Assignment..................................................................................62
10.8 Enforcement.................................................................................62
10.9 Submission to Jurisdiction; Waivers.........................................................62
EXHIBITS
Exhibit A Company Projections
Exhibit B Consenting Shareholders
Exhibit C Escrow Agreement
Exhibit D Form of Buyer Warrants
Exhibit E Earn-out Calculation
COMPANY DISCLOSURE SCHEDULE
The exhibits and disclosure schedule have been ommitted pursuant to Item 601(2)
of S-K.
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AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of May 9,
2002, by and among PLATO LEARNING, INC., a Delaware corporation ("BUYER"),
PLATO, INC., a Delaware corporation and wholly-owned subsidiary of Buyer
("OPCO"), NSC ACQUISITION CORPORATION, a Delaware corporation and a wholly-owned
subsidiary of OpCo ("MERGER Sub"), NETSCHOOLS CORPORATION, a California
corporation (the "COMPANY"), and each person identified on the signature pages
hereto as Noteholders (the "NOTEHOLDERS"). Buyer, OpCo, Merger Sub, the Company
and the Noteholders are referred to collectively herein as the "PARTIES".
RECITALS
WHEREAS, the respective Boards of Directors of Buyer, OpCo, Merger Sub
and the Company have each determined that it is in the best interest of their
respective stockholders to effect a merger of the Company with and into the
Merger Sub with the Merger Sub surviving and continuing as a wholly-owned
subsidiary of OpCo (the "MERGER");
WHEREAS, among other things, all of the issued and outstanding common
stock of the Company, no par value per share ("COMPANY COMMON STOCK"), and all
of the issued and outstanding Company Preferred Stock (as defined herein) of the
Company, shall be converted into the right to receive cash at the Closing Date
and subject to the terms and conditions set forth herein;
WHEREAS, Buyer will exchange all of the outstanding New Demand Note
Debt (as defined herein) for cash subject to the terms and conditions set forth
herein;
WHEREAS, Buyer will exchange all of the outstanding Demand Note Debt
(as defined herein) for cash and shares of common stock, par value $0.01 per
share, of Buyer ("BUYER COMMON STOCK"), subject to the terms and conditions set
forth herein;
WHEREAS, Buyer will exchange all of the outstanding Series 2 Sub Debt
(as defined herein), for shares of Buyer Common Stock, warrants to purchase
Buyer Common Stock ("BUYER WARRANTS"), in the form of Exhibit D attached hereto,
and the right to receive a designated percentage of any Earn-out Amount (as
defined herein) subject to the terms and conditions set forth herein;
WHEREAS, Buyer will exchange all of the outstanding Series 1 Sub Debt
(as defined herein) for the right to receive a designated percentage of any
Earn-out Amount, subject to the terms and conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall not qualify as a reorganization within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended (the "CODE"), and the
regulations promulgated thereunder; and
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, the Parties hereby agree
as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings set forth below:
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section
6.6(a)(i).
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"ADVERSE CONSEQUENCES" means all allegations, charges, complaints,
actions, suits, proceedings, hearings, investigations, claims, demands, orders,
damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities,
Taxes, interest, Liens, losses, expenses and fees, including all accounting,
consultant and reasonable attorneys' fees and court costs, costs of expert
witnesses and other expenses of litigation, in each case (A) after taking into
account the actual net tax effect, if any and (B) net of any insurance proceeds
received.
"AFFILIATE" shall have the meaning ascribed to such term under Rule 144
of the Securities Act.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"BALANCE SHEET DATE" shall mean March 31, 2002.
"BENEFIT PLAN" means, with respect to any entity, any employee benefit
plan, program, policy, practice, agreement, contract or other arrangement
providing benefits to any current or former employee, officer or director of
such entity or any beneficiary or dependent thereof that is sponsored or
maintained by such entity or to which such entity contributes or is obligated to
contribute, whether or not written, including any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, any employee pension benefit plan
within the meaning of Section 3(2) of ERISA (whether or not such plan is subject
to ERISA), any employment or severance agreement and any bonus, incentive,
executive compensation, deferred compensation, vacation, performance pay, loan
or loan guarantee, stock purchase, stock option, performance share, stock
appreciation or other equity compensation, severance, change of control, plant
closing or fringe benefit plan, program or policy.
"BUSINESS DAY" means any day on which banks are not required or
authorized to close in the City of New York, New York.
"BUYER" shall have the meaning set forth in the Preamble.
"BUYER CAPITAL STOCK" shall have the meaning set forth in Section
4.2(b)(i).
"BUYER COMMON STOCK" shall have the meaning set forth in the Recitals.
"BUYER DISCLOSURE SCHEDULE" shall have the meaning set forth in Section
4.2.
"BUYER INDEMNITEES" shall have the meaning set forth in Section 9.3(a).
"BUYER OPTION PLAN" means the PLATO Learning, Inc. 2000 Stock Incentive
Plan.
"BUYER PREFERRED STOCK" shall have the meaning set forth in Section
4.2(b)(i).
"BUYER SEC DOCUMENTS" shall have the meaning set forth in Section
4.2(f).
"BUYER SHARE MARKET VALUE" means the volume-weighted average of the
prices of the Buyer Common Stock on the NASDAQ National Market System on each of
the 15 trading days ending on (and including) the date immediately prior to the
Closing Date. Such volume-weighted average shall equal the quotient (rounded to
the nearest $.01) of (i) the sum of the respective products of each sale price
for the Buyer Common Stock on such trading days, multiplied by the number of
shares of Buyer Common Stock traded at such price on such trading days (as
reported by Nasdaq), divided by (ii) the total number of such shares traded on
such trading days (as so reported).
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"BUYER STOCK OPTIONS" means options to purchase shares of Buyer Common
Stock granted under Buyer Option Plans.
"BUYER WARRANTS" shall have the meaning set forth in the Recitals; a
reference to a number of Buyer Warrants shall be deemed to refer to the number
of shares of Buyer Common Stock issuable upon the exercise of such warrants.
"CCC" means the California Corporation Code.
"CERTIFICATE OF MERGER" shall have the meaning set forth in Section
2.2.
"CLAIM AMOUNT" shall have the meaning set forth in Section 9.2(c).
"CLAIM NOTICE" shall have the meaning set forth in Section 9.2(c).
"CLOSING" shall have the meaning set forth in Section 2.4.
"CLOSING DATE" shall have the meaning set forth in Section 2.4.
"CODE" shall have the meaning set forth in the Recitals.
"COMPANY" shall have the meaning set forth in the Preamble.
"COMPANY BENEFIT PLAN" means a Benefit Plan maintained or contributed
to by the Company or any ERISA Affiliate of the Company, or to which the Company
or any ERISA Affiliate of the Company is required to contribute with respect to
which the Company or any ERISA Affiliate may have any liability.
"COMPANY CAPITAL STOCK" shall have the meaning set forth in Section
4.1(b)(i).
"COMPANY CERTIFICATE" and "COMPANY CERTIFICATES" shall mean,
collectively, the Company Common Certificates and Company Preferred
Certificates.
"COMPANY COMMON STOCK" shall have the meaning set forth in the
Recitals.
"COMPANY COMMON CERTIFICATE" and "COMPANY COMMON CERTIFICATES" shall
have the meanings set forth in Section 3.1(b).
"COMPANY CONTRACT" and "COMPANY CONTRACTS" shall have the meaning set
forth in Section 4.1(j).
"COMPANY DISCLOSURE SCHEDULE" shall have the meaning set forth in
Section 4.1.
"COMPANY INDEMNIFIED PARTY" shall have the meaning set forth in Section
6.18.
"COMPANY INTELLECTUAL PROPERTY RIGHTS" shall have the meaning set forth
in Section 4.1(m)(xii).
"COMPANY NOTE" and "COMPANY NOTES" shall mean, collectively, New Demand
Notes, Demand Notes, Series 1 Sub Debt Notes and Series 2 Sub Debt Notes.
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"COMPANY OPTION PLANS" shall mean the NetSchools Corporation 1996 Stock
Option Plan, as amended.
"COMPANY-OWNED SOFTWARE" shall have the meaning set forth in Section
4.1(m)(xi).
"COMPANY PREFERRED CERTIFICATE" and "COMPANY PREFERRED CERTIFICATES"
shall have the meanings set forth in Section 3.1(c).
"COMPANY PREFERRED STOCK" shall have the meaning set forth in Section
4.1(b)(i).
"COMPANY STOCK OPTION" shall have the meaning set forth in Section 3.8.
"COMPANY STOCKHOLDER APPROVAL" shall have the meaning set forth in
Section 4.1(c)(i).
"COMPANY WARRANT" shall have the meaning set forth in Section 3.1(d).
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
6.2(a).
"CONTROLLED GROUP LIABILITY" means any and all liabilities (a) under
Title IV of ERISA, other than for payment of premiums to the Pension Benefit
Guaranty Corporation, (b) under Section 302 of ERISA, (c) under Sections 412 and
4971 of the Code, (d) for violation of the continuation coverage requirements of
Section 601 et seq. of ERISA and Section 4980B of the Code or the group health
requirements of Sections 701 et seq. of the Code and Sections 9801 et seq. of
ERISA, and (e) under corresponding or similar provisions of foreign laws or
regulations.
"DEEMED ASSET SALE" shall have the meaning set forth in Section 6.16.
"DEMAND NOTE" and "DEMAND NOTES" shall have the meaning set forth in
Section 3.2(b).
"DEMAND NOTE DEBT" shall mean the Company's obligation to pay principal
and accrued interest as of the Closing Date in respect of promissory notes in
the aggregate adjusted principal amount of $10,000,000 issued pursuant to those
certain purchase agreements dated as of March 13, 2002, March 27, 2002 and April
1, 2002, respectively, by and among the Company and the noteholders named
therein.
"DGCL" means the General Corporation Law of the State of Delaware.
"EARN-OUT ADJUSTMENT REPORT" shall have the meaning set forth in
Section 3.6(b).
"EARN-OUT-AMOUNT" shall have the meaning set forth in Section 3.7(a).
"EARN-OUT CALCULATION" shall have the meaning set forth in Section
3.6(a).
"EARN-OUT SETTLEMENT DATE" shall have the meaning set forth in Section
3.6(d).
"EFFECTIVE TIME" shall have the meaning set forth in Section 2.2.
"ENVIRONMENTAL LAW" means applicable statutes, regulations, rules,
ordinances, codes, common law, licenses, permits, orders, approvals and
authorizations of all Governmental Entities and all applicable judicial and
administrative and regulatory decrees, judgments and orders to which, in each
case, the Company is subject and all restrictions running with the land that
relate to: (A) occupational health and safety; (B) the protection of human
health or the environment; (C) the treatment, storage, disposal,
4
handling, release or remediation of Hazardous Materials; or (D) exposure of
persons to Hazardous Materials.
"EOP" shall mean EOP Industrial Portfolio, LLC.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means any entity that, together with the Company, is
treated as a single employer under Sections 414(b), (c), (m) or (o) of the Code.
"ESCROW AGENT" shall have the meaning set forth in Section 3.2(f).
"ESCROW AGREEMENT" shall have the meaning set forth in Section 3.2(f).
"ESCROW FUND" shall have the meaning set forth in Section 9.3(d).
"ESCROW NOTEHOLDERS" shall have the meaning set forth in Section
3.2(f).
"ESCROW SHARES" shall have the meaning set forth in Section 3.2(f).
"EXCESS SHARES" shall have the meaning set forth in Section 3.11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"EXPENSES" means all out-of-pocket expenses (including all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to
a party hereto and its Affiliates) incurred by a party hereto or on its behalf
in connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement and the transactions contemplated
hereby, including the solicitation of stockholder approvals and all other
matters related to the transactions contemplated hereby and thereby.
"FINANCIAL STATEMENTS" means the audited balance sheet and statements
of income, changes in shareholders' equity and cash flows of the Company as of
December 31, 1998, 1999 and 2000, and for each of the years ended on such dates;
similar unaudited financial statements as of and for the year ended December 31,
2001, and the Interim Financial Statements.
"FS PRIVATE" means FS Private Investments III LLC.
"GAAP" means U.S. generally accepted accounting principles.
"GOVERNMENTAL ENTITY" shall have the meaning set forth in Section
4.1(d).
"HAZARDOUS MATERIALS" means any substance: (A) the presence of which
requires reporting, investigation, removal or remediation under any
Environmental Law; (B) that is defined as a "hazardous waste," "hazardous
substance," "pollutant" or "contaminant" under any Environmental Law; and (C)
that contains gasoline, diesel fuel or other petroleum hydrocarbons, PCBs,
asbestos or urea formaldehyde foam insulation.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 6.15.
5
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 6.15.
"INDEPENDENT AUDITORS" shall have the meaning set forth in Section
3.4(c).
"INTERIM FINANCIAL STATEMENTS" means the unaudited balance sheet and
statements of income, changes in shareholders' equity and cash flows of the
Company as of March 31, 2002.
"IRS" shall have the meaning set forth in Section 4.1(p)(v).
"KNOWLEDGE" means, with respect to any entity, the actual knowledge of
such entity's executive officers after reasonable inquiry.
"LIABILITIES" means any obligation or liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated and whether due or to
become due), including any liability for Taxes.
"LIENS" means any liens, pledges, charges, encumbrances and security
interests whatsoever.
"MANAGEMENT CHANGE OF CONTROL INCENTIVE PLAN" means that certain
Management Change of Control Incentive Plan adopted February 12, 2002, as
amended.
"MATERIAL ADVERSE EFFECT" means, with respect to any entity, any
change, effect, event or occurrence that is or would reasonably be expected to
have a material adverse effect on (a) the financial condition, results of
operations, business, properties or operations of such entity and its
Subsidiaries taken as a whole or (b) the ability of such entity to timely
consummate the transactions contemplated by this Agreement; provided that any
change in the price of Buyer Common Stock from the date hereof shall not be
deemed by itself, either alone or in combination with other effects, to
constitute a Material Adverse Effect; provided, further, that none of the
following shall be deemed, singly or in the aggregate, to constitute, or be
considered in determining whether a Material Adverse Effect exists: any change,
effect, event, occurrence or state of facts resulting from (i) any factors
generally affecting the K-12 educational technology industry in the case of the
Company, (ii) any factors generally affecting general economic conditions or the
securities markets, (iii) acts or omissions of Buyer, OpCo or the Merger Sub,
including, without limitation, acts or omissions contemplated by or pursuant to
this Agreement in the case of the Company, (iv) acts or omissions of the Company
contemplated by or pursuant to this Agreement and (v) the continued incurrence
of losses of the Company in the Ordinary Course of Business consistent with
projections prepared by the Company and delivered to the Buyer attached hereto
as Exhibit A.
"MERGER" shall have the meaning set forth in the Recitals.
"MERGER CONSIDERATION" means, as adjusted pursuant to Sections 3.4 and
3.5, the following: (i) $6,000,000 in cash, subject to adjustment pursuant to
Section 3.5(a), (ii) 800,000 shares of Buyer Common Stock, (iii) 200,000 Buyer
Warrants, (iv) the right to receive up to $6,000,000, plus accrued interest
thereon, payable in cash or Buyer Common Stock, pursuant to Section 3.7 and (iv)
any other payments of cash made pursuant to Section 3.11.
"MERGER SUB" shall have the meaning set forth in the Preamble.
"NASDAQ" means The Nasdaq National Market.
"NECESSARY CONSENTS" shall have the meaning set forth in Section
4.1(d).
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"NEW DEMAND NOTE" and "NEW DEMAND NOTES" shall have the meaning set
forth in Section 3.2(a).
"NEW DEMAND NOTE DEBT" shall mean the Company's obligation to pay
principal and accrued interest as of the Closing Date in respect of promissory
notes in the aggregate principal amount of $350,000 issued pursuant to that
certain purchase agreement dated as of April 26, 2002, by and among the Company
and the noteholders named therein.
"NET WORTH ADJUSTMENT REPORT" shall have the meaning set forth in
Section 3.4(b).
"NET WORTH CALCULATION" shall have the meaning set forth in Section
3.4(a).
"NET WORTH SETTLEMENT DATE" shall have the meaning set forth in Section
3.4(d).
"NON-SUBSIDIARY AFFILIATE" shall have the meaning set forth in Section
4.1(b)(iii).
"NOTEHOLDER INDEMNITEES" shall have the meaning set forth in Section
9.2(a).
"NOTEHOLDER REPRESENTATIVE" shall have the meaning set forth in Section
9.4(a).
"NOTEHOLDERS" shall have the meaning set forth in the Preamble.
"OPCO" shall have the meaning set forth in the Preamble.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business of
the Company in accordance with past custom and practice.
"PARTIES" shall have the meaning set forth in the Preamble.
"PERIOD" shall have the meaning set forth in Section 3.6(a).
"PERSON" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
"REGULATORY LAW" means all federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict or
regulate (a) mergers, acquisitions or other business combinations, (b) foreign
investment or (c) actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition.
"REQUIRED APPROVALS" shall have the meaning set forth in Section
6.5(i).
"S-3 REGISTRATION STATEMENT" shall have the meaning set forth in
Section 6.15.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERIES 1 EARN-OUT PERCENTAGE" shall mean the percentage (rounded to
the nearest 4 decimal points) determined by the difference between (A) 100.0000%
and (B) the Series 2 Earn-out Percentage.
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"SERIES 1 PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES 1 SUB DEBT" shall mean the Company's obligation to pay
principal and accrued interest as of the Closing Date in respect of promissory
notes in the aggregate principal amount of $4,695,312 issued pursuant to that
certain purchase agreement dated as of October 26, 2001, as amended, by and
among the Company and the noteholders named therein.
"SERIES 1 SUB DEBT NOTE" and "SERIES 1 SUB DEBT NOTES" shall have the
meaning set forth in Section 3.2(d).
"SERIES 2 EARN-OUT PERCENTAGE" shall mean the percentage (rounded to
the nearest 4 decimal points) determined by dividing (i) the Earn-out Factor by
(ii) $6,000,000. For purposes of this definition, "Earn-out Factor" shall mean
an amount equal to the difference (but in no case equal to or less than zero nor
greater than $6,000,000) between (A) the aggregate Series 2 Sub Debt outstanding
at the Effective Time minus (B) the sum of (i) the sum of (x) the product of (a)
the number of fully paid and nonassessable shares of Buyer Common Stock issued
to Series 2 Sub Debt holders pursuant to Section 3.2(c)(1) and (b) the Buyer
Share Market Value and (y) the cash paid in lieu of fractional amounts pursuant
to Section 3.2(c)(1) and (ii) $1,000,000.
"SERIES 2 PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES 2 SUB DEBT" shall mean the Company's obligation to pay
principal and accrued interest as of the Closing Date in respect of promissory
notes in the aggregate adjusted principal amount of $10,000,000 issued pursuant
to that certain purchase agreement dated as of January 31, 2002, as amended, by
and among the Company and the noteholders named therein.
"SERIES 2 SUB DEBT NOTE" and "SERIES 2 SUB DEBT NOTES" shall have the
meaning set forth in Section 3.2(c).
"SERIES A PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES B PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES C PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES D PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES E PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES E-1 PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SERIES E-2 PREFERRED" shall have the meaning set forth in Section
4.1(b)(i).
"SHAREHOLDER" shall mean any holder of Company Capital Stock.
"SOFTWARE" means all computer software programs and subsequent versions
and releases thereof and updates, upgrades, customizations, bug fixes, and other
modifications thereto, including but not limited to, source code, firmware,
development tools, object code, object portions of object oriented programs,
source code, comments, screens, user interfaces, report formats, templates,
menus, buttons and icons, and all files, recording data, materials manuals,
design notes and other items and documentation related thereto or associated
therewith and all forms of media on which any of the foregoing are recorded.
8
"SUBSIDIARY" shall have the meaning ascribed to such term in Rule 1-02
of Regulation S-X of the SEC.
"SUPERIOR PROPOSAL" shall have the meaning set forth in Section 6.6(b).
"SURVIVING CORPORATION" shall have the meaning set forth in Section
2.1.
"TAX RETURN" means any return, document, report, form or similar
statement (including any attached schedules) required to be filed with respect
to any Tax or Tax election, including any information return, claim for refund,
amended return or declaration of estimated Tax.
"TAXES" means all taxes, charges, fees, duties, imports or other
governmental charges, levies or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, goods and
services, service, service use, ad valorem, transfer, franchise, profits,
license, lease, withholding, social security, payroll, employment, excise,
estimated, severance, alternative, minimum, add-on, environmental, stamp,
recording, occupation, real and personal property, gift, windfall profits or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, whether computed on a separate, consolidated, unitary, combined or
other basis (including contractual indemnity), together with any interest,
fines, penalties, additions to tax or other additional amounts imposed thereon
or with respect thereto imposed by any taxing authority (domestic or foreign),
regardless of whether disputed.
"TESTING BALANCE SHEET" shall have meaning set forth in Section 3.4(a).
"TESTING DATE" shall mean May 8, 2002.
"THINKEQUITY" shall have the meaning set forth in Section 4.1(x).
"TOTAL ADJUSTED LIABILITIES" shall mean total liabilities of the
Company as set forth on the Testing Balance Sheet, less all principal and
accrued interest owing pursuant to the TransAmerica Debt as of the Testing Date
and less all principal and accrued interest owing in respect of the New Demand
Note Debt, Demand Note Debt, Series 2 Sub Debt and Series 1 Sub Debt; provided,
however, Total Adjusted Liabilities shall not include the following payments to
be made by Buyer in accordance with Section 6.14 of this Agreement: (i) payment
of $750,000 to ThinkEquity, (ii) payments of $900,000 in the aggregate to key
employees of the Company pursuant to the Management Change of Control and
Incentive Plan, (iii) severance payment of $225,000 due to Scott Redd pursuant
to his employment agreement with the Company dated as of November 1, 2000, (iv)
payment of $250,000 to Stroock & Stroock & Lavan LLP for costs and expenses
incurred by the Company in connection with the negotiation and documentation of
the Merger and related matters and (v) payment of $750,000 to EOP in respect of
the termination of the Company's lease for the Mountain View, California
premises pursuant to the lease termination agreement between EOP and the
Company.
"TOTAL ASSETS" shall mean the total assets of the Company as set forth
on the Testing Balance Sheet.
"TRANSAMERICA DEBT" shall mean the Company's obligation to pay
principal, accrued interest and any other amounts owing to TransAmerica Business
Credit Corporation as of the Closing Date pursuant to that certain Loan and
Security Agreement dated as of August 10, 1999, as amended, between the Company
and TransAmerica Business Credit Corporation.
"VOTING DEBT" means any bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which holders of capital stock of the
same issuer may vote.
9
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions hereof, in
accordance with the DGCL and the CCC, at the Effective Time, the Company shall
be merged with and into Merger Sub, with Merger Sub as the surviving corporation
in the Merger (the "SURVIVING CORPORATION"), which shall continue its corporate
existence under the laws of the State of Delaware, and the separate existence of
the Company shall thereupon cease. As a result of the Merger, Merger Sub will
continue as a wholly-owned subsidiary of OpCo. The name of the Surviving
Corporation shall be the name of the Company.
2.2 Effective Time of the Merger. Subject to the provisions of this
Agreement, the Parties shall cause the Merger to be consummated on the close of
business on the Closing Date by filing (i) the certificate of merger of Merger
Sub and the Company with the Secretary of State of the State of Delaware (the
"CERTIFICATE OF MERGER") in such form as required by, and executed in accordance
with, the relevant provisions of the DGCL, and (ii) the Certificate of Merger
with the Secretary of State of the State of California, executed in accordance
with the relevant provisions of the CCC, each as soon as practicable on or
before the Closing Date. The Merger shall become effective at the close of
business on the Closing Date or, if later, such time as the Certificate of
Merger is duly filed with the Secretary of State of Delaware and the Secretary
of State of the State of California, as the case may be, or at such subsequent
date or time as the Parties shall agree and specify in the Certificate of Merger
(the date and time the Merger becomes effective being hereinafter referred to as
the "EFFECTIVE TIME").
2.3 Effects of the Merger. The Merger shall have the effects set forth
in the applicable provisions of the DGCL and CCC. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all of
the property, rights, privileges, powers and franchises of Merger Sub and the
Company shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Merger Sub and the Company, respectively, shall become the debts,
liabilities and duties of the Surviving Corporation.
2.4 Closing. Upon the terms and subject to the conditions set forth in
Article VII and the termination rights set forth in Article VIII, the closing
(the "CLOSING") will take place at the offices of Winston & Strawn, 35 West
Wacker Drive, Chicago, Illinois 60601, at 10:00 A.M. on the second Business Day
following the satisfaction or waiver (subject to applicable law) of the
conditions (excluding conditions that, by their nature, cannot be satisfied
until the Closing Date) set forth in Article VII, unless this Agreement has been
theretofore terminated pursuant to its terms or unless another place, time or
date is agreed to by the parties hereto (the date of the Closing, the "CLOSING
DATE").
2.5 Certificate of Incorporation. At the Effective Time, the
certificate of incorporation of the Merger Sub shall be the certificate of
incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and of the DGCL.
2.6 Bylaws. At the Effective Time, the bylaws of the Merger Sub shall
be the bylaws of the Surviving Corporation.
2.7 Directors and Officers. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
and the officers of Merger Sub immediately prior to the Effective Time shall be
the officers of the Surviving Corporation, in each case, until their respective
successors are duly elected and qualified.
10
ARTICLE III
CONVERSION OF SECURITIES
3.1 Consideration for the Merger. At the Effective Time, by virtue of
the Merger and without any action on the part of the Merger Sub, Buyer, OpCo,
Company or any Shareholder:
(a) Treasury Stock. All shares of Company Capital Stock that
are held by the Company as treasury stock or that are owned by the Company,
Buyer or any of the Buyer's wholly-owned Subsidiaries (other than those held in
a fiduciary capacity for the benefit of third parties) immediately prior to the
Effective Time shall cease to be outstanding and shall be cancelled and retired
and shall cease to exist.
(b) Company Common Stock. Each share of Company Common Stock
that is issued and outstanding immediately prior to the Effective Time shall be
converted into, and become a right to receive, at the Effective Time, upon
surrender of the certificate representing such share, $0.0001 cash per share. At
the Effective Time, all such shares of Company Common Stock (a "COMPANY COMMON
CERTIFICATE", and collectively, the "COMPANY COMMON CERTIFICATES") shall cease
to be outstanding and shall be canceled and retired and shall cease to exist,
and each holder of a certificate that immediately prior to the Effective Time
represented any such shares of Company Common Stock shall thereafter cease to
have any rights with respect to such shares of Company Common Stock, except the
right to receive the applicable portion of the Merger Consideration to be issued
in consideration therefor.
(c) Company Preferred Stock. Each share of Company Preferred
Stock that is issued and outstanding immediately prior to the Effective Time
shall be converted into, and become a right to receive, at the Effective Time,
upon surrender of the certificate representing such share, $0.0001 cash per
share. At the Effective Time, all such shares of Company Preferred Stock shall
cease to be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of a certificate that immediately prior to the Effective
Time represented any such shares of Company Preferred Stock (a "COMPANY
PREFERRED CERTIFICATE" and collectively, the "COMPANY PREFERRED CERTIFICATES")
shall thereafter cease to have any rights with respect to such shares of Company
Preferred Stock, except the right to receive the applicable portion of the
Merger Consideration to be issued in consideration therefor.
(d) Outstanding Warrants. Each issued and outstanding warrant
to purchase shares of Company Capital Stock (each, a "COMPANY WARRANT") that
remains outstanding immediately prior to the Effective Time shall cease to
represent a right to acquire such Company Capital Stock and shall be converted
automatically as of the Effective Time into the right to receive upon exercise
of such Company Warrant, during the period specified in such Company Warrant
(taking into account any changes thereto), the applicable portion of the Merger
Consideration that such holder would have been otherwise entitled to receive if
such Company Warrant had been exercised immediately prior to the Effective Time.
3.2 Additional Consideration for Merger. At the Effective Time, without
any further action on the part of the Merger Sub, Buyer, OpCo, Company or any
Noteholder, the applicable portion of the Merger Consideration shall be paid to
the Noteholders on a pro rata basis as set forth below:
(a) New Demand Note Debt. In exchange for the outstanding New
Demand Note Debt, the holders of New Demand Note Debt shall receive in the
aggregate an amount of cash equal to the aggregate New Demand Note Debt
outstanding as of the Effective Time. Each holder of New Demand Note Debt shall
receive its pro rata portion of the consideration set forth in the immediately
preceding sentence. For purposes of this paragraph, "pro rata portion" shall be
a fraction having as its numerator the amount of New Demand Note Debt held by
such holder as of the Effective Time and having as its
11
denominator the aggregate amount of New Demand Note Debt outstanding as of the
Effective Time. All New Demand Note Debt shall cease to be outstanding and shall
be canceled and retired and shall cease to exist, and each holder of instruments
or notes that immediately prior to the Closing Date represented any New Demand
Note Debt (a "NEW DEMAND NOTE" and collectively, the "NEW DEMAND NOTES") shall
thereafter cease to have any rights with respect to such New Demand Note Debt,
except the right to receive the applicable pro rata portion of the Merger
Consideration to be issued in consideration therefor and any other distributions
to which holders of New Demand Note Debt become entitled, all in accordance with
this Article III upon the surrender of such New Demand Notes.
(b) Demand Note Debt. In exchange for the outstanding Demand
Note Debt, the holders of Demand Note Debt shall receive in the aggregate: (1)
cash in an amount equal to the difference between (i) $6,000,000 and (ii) the
sum of (A) the cash payable under Section 3.1 of this Agreement and (B) the cash
payable to the holders of New Demand Note Debt pursuant to Section 3.2(a) of
this Agreement, and (2) a number of fully paid and nonassessable shares of Buyer
Common Stock (and cash in lieu of fractional amounts) equal to the lesser of (i)
800,000 and (ii) the quotient obtained by dividing (A) the difference between
(x) the aggregate Demand Note Debt outstanding at the Effective Time minus (y)
the amount of cash payable to the holders of Demand Note Debt pursuant to
Section 3.2(b)(1) by (B) the Buyer Share Market Value. Each holder of Demand
Note Debt shall receive its pro rata portion of the consideration set forth in
the immediately preceding sentence. For purposes of this paragraph, "pro rata
portion" shall be a fraction having as its numerator the amount of Demand Note
Debt held by such holder as of the Effective Time and having as its denominator
the aggregate amount of Demand Note Debt outstanding at the Effective Time. All
of such shares of Buyer Common Stock shall be duly authorized and validly issued
and free of preemptive rights, with no personal liability attaching to the
ownership thereof subject to the indemnification obligations of the holders of
any such shares as provided herein. All Demand Note Debt shall cease to be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of instruments or notes that immediately prior to the Closing Date
represented any Demand Note Debt (a "DEMAND NOTE" and collectively, the "DEMAND
NOTES") shall thereafter cease to have any rights with respect to such Demand
Note Debt, except the right to receive the applicable pro rata portion of the
Merger Consideration to be issued in consideration therefor (including any cash
paid in lieu of fractional shares) and any other distributions to which holders
of Demand Note Debt become entitled, all in accordance with this Article III
upon the surrender of such Demand Notes.
(c) Series 2 Sub Debt. In exchange for the outstanding Series
2 Sub Debt, the holders of Series 2 Sub Debt shall receive in the aggregate: (1)
a number of fully paid and nonassessable shares of Buyer Common Stock (and cash
in lieu of fractional amounts) equal to the difference between (i) 800,000 and
(ii) the number of shares of Buyer Common Stock issuable to the holders of
Demand Note Debt pursuant to Section 3.2(b)(2), (2) 200,000 Buyer Warrants and
(3) the right to receive the Series 2 Earn-out Percentage of the Earn-out
Amount. Each holder of Series 2 Sub Debt shall receive its pro rata portion of
the consideration set forth in the immediately preceding sentence. For purposes
of this paragraph, "pro rata portion" shall be a fraction having as its
numerator the amount of Series 2 Sub Debt held by such holder at the Effective
Time and having as its denominator the aggregate amount of Series 2 Sub Debt
outstanding at the Effective Time. All of such shares of Buyer Common Stock
shall be duly authorized and validly issued and free of preemptive rights, with
no personal liability attaching to the ownership thereof subject to the
indemnification obligations of the holders of any such shares as provided
herein. All such shares of Buyer Common Stock reserved for issuance pursuant to
such Buyer Warrants shall be duly authorized and reserved. All Series 2 Sub Debt
shall cease to be outstanding and shall be canceled and retired and shall cease
to exist, and each holder of instruments or notes that immediately prior to the
Closing Date represented any Series 2 Sub Debt (a "SERIES 2 SUB DEBT NOTE" and
collectively, the "SERIES 2 SUB DEBT NOTES") shall thereafter cease to have any
rights with respect to such Series 2 Sub Debt, except the right to receive the
applicable pro rata portion of the Merger Consideration
12
to be issued in consideration therefor (including any cash paid in lieu of
fractional shares) and any other distributions to which holders of Series 2 Sub
Debt become entitled, all in accordance with this Article III upon the surrender
of such Series 2 Sub Debt Notes.
(d) Series 1 Sub Debt. In exchange for the outstanding Series
1 Sub Debt, the holders of the Series 1 Sub Debt shall receive in the aggregate
the right to receive the Series 1 Earn-out Percentage of the Earn-out Amount.
Each holder of Series 1 Sub Debt shall receive its pro rata portion of the
consideration set forth in the immediately preceding sentence. For purposes of
this paragraph, "pro rata portion" shall be a fraction having as its numerator
the amount of Series 1 Sub Debt held by such holder at the Effective Time and
having as its denominator the aggregate amount of Series 1 Sub Debt outstanding
at the Effective Time. All such Series 1 Sub Debt shall cease to be outstanding
and shall be canceled and retired and shall cease to exist, and each holder of
instruments or notes that immediately prior to the Closing Date represented any
Series 1 Sub Debt (a "SERIES 1 SUB DEBT NOTE" and collectively, the "SERIES 1
SUB DEBT NOTES") shall thereafter cease to have any rights with respect to such
Series 1 Sub Debt, except the right to receive the applicable pro rata portion
of the Merger Consideration to be issued in consideration therefor (including
any cash paid in lieu of fractional shares) and any other distributions to which
holders of Series 1 Sub Debt become entitled, all in accordance with this
Article III upon the surrender of such Series 1 Sub Debt Notes.
(e) If, between the date of this Agreement and the Closing
Date, there is a reclassification, recapitalization, redemption, cancellation,
repayment, stock split, split-up, stock dividend, combination or exchange of
shares with respect to, or rights issued in respect of, New Demand Note Debt,
Demand Note Debt, Series 2 Sub Debt, Series 1 Sub Debt or Buyer Common Stock,
the consideration payable to the holders of New Demand Note Debt, Demand Note
Debt, Series 2 Sub Debt, Series 1 Sub Debt shall be equitably adjusted
accordingly to provide to such holders as the case may be, the same economic
effect as contemplated by this Agreement prior to such event.
(f) 400,000 shares of the Buyer Common Stock that Noteholders
of Demand Note Debt and Series 2 Sub Debt ("Escrow Noteholders") shall be
entitled to receive as of the Effective Time pursuant to this Section 3.2 (the
"ESCROW SHARES") shall be deposited in escrow pursuant to Section 3.3 and shall
be held and disposed of in accordance with the terms and conditions of the
Escrow Agreement (the "ESCROW AGREEMENT"), to be entered into at the Effective
Time, by and among Buyer, the Noteholder Representative, as defined below in
Article IX on its own behalf and on behalf of the Noteholders of Demand Note
Debt and Series 2 Sub Debt, and The Bank of New York or another institution
designated by Buyer and the Company as the Escrow Agent (the "ESCROW AGENT"), a
form of which is attached hereto as Exhibit C; the Noteholders of Demand Note
Debt and Series 2 Sub Debt shall be entitled to receive immediately as of the
Effective Time the remaining shares of Buyer Common Stock they are entitled to
receive pursuant to this Section 3.2.
3.3 Escrow. At the Effective Time, Buyer shall deliver to the Escrow
Agent a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares for the purpose of securing and satisfying the
indemnification obligations of the Noteholders set forth in this Agreement. The
Escrow Shares shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Escrow Shares shall be held as a trust fund
and shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of this Agreement and
the Escrow Agreement. Execution of this Agreement by the Noteholders shall
constitute approval of the Escrow Agreement and of all of the arrangements
relating thereto, including without limitation the placement of the Escrow
Shares in escrow and the appointment of the Noteholder Representative.
13
3.4 Net Worth Adjustment.
(a) Within forty-five (45) days after the Closing Date, Buyer
will deliver a certificate from its chief financial officer to the Noteholder
Representative setting forth (i) a balance sheet of the Company as of the
Testing Date (the "TESTING BALANCE SHEET"), and (ii) a calculation setting forth
the result of (A) Total Assets minus (B) Total Adjusted Liabilities plus (C)
$3,000,000 (the "NET WORTH CALCULATION"). Such certificate shall be reasonably
detailed and shall be prepared on a basis consistent with the Financial
Statements; provided, however, that the Net Worth Calculation shall be adjusted
to reflect a ratable sharing in equal portions by Buyer and the Escrow
Noteholders (other than the holders of New Demand Note Debt), of the amount of
accrued payroll liability accruing from May 1, 2002, through the date of this
Agreement. Such accrued payroll liability shall be calculated in a manner
consistent with the Financial Statements.
(b) Within thirty (30) days after the certificate is delivered
to the Noteholder Representative pursuant to Section 3.4(a), the Noteholder
Representative shall deliver to Buyer either (i) a written acknowledgment
accepting the Testing Balance Sheet and the Net Worth Calculation or (ii) a
written report setting forth in reasonable detail any proposed adjustments to
the Testing Balance Sheet and the Net Worth Calculation (the "NET WORTH
ADJUSTMENT REPORT"). If the Noteholder Representative fails to respond to Buyer
within such 30-day period, the Noteholders shall be deemed to have accepted and
agreed to the Testing Balance Sheet and the Net Worth Calculation as delivered
pursuant to Section 3.4(a). Buyer shall provide the Noteholder Representative
with reasonable access to the books and records of the Company in order to
verify the accuracy of the Net Worth Calculation.
(c) In the event that the Noteholder Representative and Buyer
fail to agree on any of the Noteholder Representative's proposed adjustments set
forth in the Net Worth Adjustment Report within thirty (30) days after Buyer
receives the Net Worth Adjustment Report, the Noteholders and Buyer agree that a
mutually acceptable independent accounting firm of nationally recognized
standing (the "INDEPENDENT AUDITORS") within the 30-day period immediately
following such 30-day period, shall make the final determination of the Net
Worth Calculation. Buyer and the Noteholder Representative shall each provide
the Independent Auditors with their respective determinations of the Net Worth
Calculation. The decision of the Independent Auditors shall be final and binding
on the Noteholders and Buyer and the fees, costs and expenses of the Independent
Auditors shall be borne by Buyer if the Net Worth Calculation is increased by at
least 10%; otherwise, such fees, costs and expenses shall be borne by the
Noteholders in accordance with Section 9.3.
(d) The term "TESTING BALANCE SHEET" as that term has been
hereinbefore, and will be hereinafter, used shall mean the Testing Balance Sheet
delivered pursuant to Section 3.4(a) as adjusted, if at all, pursuant to
Sections 3.4(b) and (c). The date on which the Testing Balance Sheet and the Net
Worth Calculation are finally determined pursuant to this Section 3.4 shall
hereinafter be referred to as the "NET WORTH SETTLEMENT DATE".
(e) To the extent that items in the Testing Balance Sheet
represent adjustments to items in the Financial Statements and such adjustments
have been satisfied from the Escrow Fund, such adjustments may not also be the
basis of a claim for Adverse Consequences under Article IX.
3.5 Net Worth Payment.
(a) In the event that the final Net Worth Calculation is less
than ($150,000) or greater than $150,000, no later than fifteen (15) days after
the Net Worth Settlement Date, (i) Buyer shall pay to the Noteholder
Representative for the pro rata benefit of the Noteholders (other than the
Noteholders of the New Demand Note Debt) an amount equal to the Net Worth
Calculation, if positive,
14
and (ii) the Noteholder Representative on behalf of the Noteholders shall pay to
Buyer an amount equal to the absolute value of the Net Worth Calculation, if
negative.
(b) Any payment required to be paid by the Buyer pursuant to
Section 3.5(a) shall be made to the Noteholder Representative for the pro rata
benefit of the Noteholders (other than the Noteholders of the New Demand Note
Debt) by certified or cashier's check, or by the transfer of immediately
available federal funds for credit at a bank account designated in writing by
the Noteholder Representative.
(c) Any payment required to be paid by the Noteholders
pursuant to Section 3.5(a) shall be made from the Escrow Fund in accordance with
procedures set forth in Section 9.3 and the Escrow Agreement.
3.6 Earn-out Adjustment. (a) Within forty-five (45) days after the end
of (i) the period commencing on the date immediately following the Closing Date
and ending October 31, 2003, and (ii) the twelve-month period commencing
November 1, 2003 and ending October 31, 2004 (each, a "PERIOD"), Buyer shall
prepare and deliver to the Noteholder Representative an "earn-out" calculation
in accordance with Exhibit E for such prior Period (the "EARN-OUT CALCULATION").
The Earn-out Calculation shall be prepared in accordance with GAAP and pursuant
to the principles and terms described on Exhibit E hereto.
(b) Within thirty (30) days after the Earn-out Calculation is
delivered to the Noteholder Representative pursuant to Section 3.6(a) for each
respective Period, the Noteholder Representative shall deliver to Buyer either
(i) a written acknowledgment accepting the Earn-out Calculation for such Period
or (ii) a written report setting forth in reasonable detail any proposed
adjustments to the Earn-out Calculation for such Period (the "EARN-OUT
ADJUSTMENT REPORT"). If the Noteholder Representative fails to respond to Buyer
within such 30-day period for each respective Period, the Noteholders shall be
deemed to have accepted and agreed to the Earn-out Calculation as delivered
pursuant to Section 3.6(a) for such Period. Buyer shall provide the Noteholder
Representative with reasonable access to the books and records of the Company in
order to verify the accuracy of any Earn-out Calculation.
(c) In the event that the Noteholder Representative and Buyer
fail to agree on any of the Noteholder Representative's proposed adjustments set
forth in the Earn-out Adjustment Report for each respective Period within thirty
(30) days after Buyer receives the Earn-out Adjustment Report, the Noteholders
and Buyer agree that Independent Auditors within the 30-day period immediately
following such 30-day period for such Period, shall make the final determination
of the Earn-out Calculation. Buyer and the Noteholder Representative shall each
provide the Independent Auditors with their respective determinations of the
Earn-out Calculation. The decision of the Independent Auditors shall be final
and binding on the Noteholders and Buyer and the fees, costs and expenses of the
Independent Auditors shall be borne by Buyer if the Earn-out Calculation is
increased by at least 10%; otherwise, such fees, costs and expenses shall be
borne by the Noteholders in accordance with Section 9.3.
(d) The date on which the Earn-out Calculation is finally
determined for each respective Period pursuant to this Section 3.6 shall
hereinafter be referred to as the "EARN-OUT SETTLEMENT DATE" for such Period.
3.7 Earn-out Payments. (a) No later than fifteen (15) days after the
Earn-out Settlement Date for each respective Period, Buyer shall pay to the
holders of the Series 2 Sub Debt and the holders of the Series 1 Sub Debt in
accordance with Section 3.2(c) and (d), respectively, in the aggregate, an
amount (the "EARN-OUT AMOUNT") specified in the Earn-out Calculation, if any,
pursuant to the terms of Section
15
3.6(b), together with interest thereon at the rate of 8% per annum which shall
accrue from the end of such applicable Period until the date paid to the holders
of Series 2 Sub Debt and Series 1 Sub Debt pursuant to the terms hereof;
provided, however, notwithstanding the actual Earn-out Calculation, the
aggregate amounts payable in each such Period shall not in any event exceed
$3,000,000 (exclusive of interest).
(b) The Earn-out Amount for each respective Period shall be
paid by the Buyer to holders of Series 2 Sub Debt and holders of Series 1 Sub
Debt in accordance with Section 3.2(c) and (d), respectively, in cash or in
Buyer Common Stock, in the sole discretion of the Buyer. All shares of Buyer
Common Stock issued pursuant to this Section 3.7(a) shall be registered for
resale under the Securities Act and any applicable state securities laws and
shall be eligible for immediate public sale. Such shares shall not be subject to
Section 6.8 of this Agreement or any other restrictions on transfer. To the
extent that the Buyer pays such amount in Buyer Common Stock, such shares shall
be valued at the volume-weighted average of the prices of the Buyer Common Stock
on the Nasdaq on each of the 15 trading days ending on (and including) the date
immediately prior to the Earn-out Settlement Date.
(c) Each of the Buyer, Merger Sub, and each Noteholder agrees
to treat the Earn-out Payments as debt instruments for income Tax purposes
governed by Treasury Regulation section 1.1275-4(c).
3.8 Effect on Stock Options. At or prior to the Effective Time, each
option or other right to purchase shares of any Company Capital Stock (a
"COMPANY STOCK OPTION") granted under any Company Option Plan which is
outstanding and unexercised immediately prior thereto shall cease to represent a
right to acquire shares of Company Capital Stock and shall be cancelled pursuant
to the terms hereof. Neither the Merger Sub nor the Surviving Corporation shall
assume the Company Option Plans or the Company Stock Options, and no options
shall be substituted therefor.
3.9 Exchange Procedures. (a) After the Effective Time, each holder of a
Company Certificate immediately prior to the Merger may surrender the same for
cancellation to Buyer, and each such holder shall be entitled to receive in
exchange therefor the applicable portion of the Merger Consideration pursuant to
the terms hereof. Until so surrendered, each such Company Certificate shall be
deemed for all purposes to represent only the right to receive the applicable
portion of the Merger Consideration and other rights hereunder.
(b) After the Effective Time, each holder of a Company Note
shall surrender the same for cancellation to Buyer, and shall receive in
exchange therefor the applicable portion of the Merger Consideration pursuant to
the terms hereof. After the Closing, until so surrendered, each such Company
Note shall be deemed for all purposes to represent only the right to receive the
applicable portion of the Merger Consideration and other rights hereunder.
(c) The registered owner on the books and records of Buyer of
any such Company Note exchangeable for the applicable portion of the Merger
Consideration shall, until such Company Note shall have been surrendered
pursuant to this Section 3.9, have and be entitled to exercise any applicable
voting rights with respect to the Buyer Capital Stock represented by such
certificate as provided above, if applicable.
(d) At the Effective Time, the Buyer shall make available for
exchange in accordance with this Section 3.9(d), (i) cash in an amount
sufficient for payments under Sections 3.1, 3.2 and 3.11, which shall total, in
the aggregate, not more than $6,000,000, (ii) certificates representing the
aggregate number of Buyer Warrants issuable pursuant to Section 3.2, and (iii)
certificates representing the aggregate number of shares of Buyer Common Stock
issuable pursuant to Section 3.2. All cash amounts payable by the Buyer pursuant
to this Section 3.9(d) shall be paid, in the Buyer's sole discretion,
16
by certified or cashier's check, or by wire transfer of immediately available
federal funds for credit to a bank account designated in writing at least two
days prior to Closing by each respective Shareholder or Noteholder.
3.10 No Further Rights in Company. All cash paid upon conversion of
shares of Company Capital Stock in accordance with the terms of this Article III
shall be deemed to have been paid in full satisfaction of all obligations
pertaining to the shares of Company Capital Stock. All cash paid to holders of
New Demand Note Debt in accordance with the terms of this Article III shall be
deemed to have been paid in full satisfaction of all obligations of the Company
to such holders of New Demand Note Debt. All shares of Buyer Common Stock and
Buyer Warrants issued and cash paid to the respective Noteholders of Series 1
Sub Debt, Series 2 Sub Debt and Demand Note Debt in accordance with the terms of
this Article III (including any cash paid pursuant to Section 3.11 and any
amounts paid pursuant to Section 3.7) shall be deemed to have been issued or
paid in full satisfaction of all obligations of the Company to such Noteholders
pursuant to the Series 1 Sub Debt, Series 2 Sub Debt and Demand Note Debt.
3.11 No Fractional Shares of Buyer Common Stock or Buyer Warrants. (a)
No certificates or scrip or shares of Buyer Common Stock representing fractional
shares of Buyer Common Stock or book-entry credit of the same shall be issued
upon the surrender for exchange of Company Notes, and such fractional share
interests will not entitle the owner thereof to vote or to have any rights of a
stockholder of Buyer or a holder of shares of Buyer Common Stock. In lieu of any
such fractional share, each holder of Series 1 Sub Debt, Series 2 Sub Debt and
Demand Note Debt that would otherwise have been entitled to a fraction of a
share of Buyer Common Stock upon surrender of Company Notes (determined after
taking into account all Company Notes delivered by such holder) or pursuant to
Section 3.7, shall be paid, upon such surrender, cash (without interest) in an
amount equal to such holder's proportionate interest in the value of the Excess
Shares pursuant to the terms hereof. The Buyer shall determine the excess of (i)
the number of full shares of Buyer Common Stock issuable pursuant to, this
Agreement (otherwise than upon exercise of the Buyer Warrants) over (ii) the
aggregate number of full shares of Buyer Common Stock to be distributed to
holders of Series 1 Sub Debt, Series 2 Sub Debt and Demand Note Debt (such
excess, the "EXCESS SHARES"), and the Buyer shall calculate the value of the
Excess Shares based upon the Buyer Share Market Value. The Company shall pay
such amounts to such former holders of Series 1 Sub Debt, Series 2 Sub Debt and
Demand Note Debt at the Closing.
(b) No Buyer Warrant representing the right to purchase
fractional shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Company Notes. The number of Buyer Warrants to be issued to each
holder of Series 1 Sub Debt shall be rounded to the nearest whole number.
3.12 No Liability. None of Buyer, OpCo, Merger Sub or the Company shall
be liable to any Person in respect of any Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
3.13 Lost Certificates of Notes. If any Company Certificate or Company
Note shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such Company Certificate or Company Note to
be lost, stolen or destroyed and, if required by Buyer, the posting by such
Person of a bond in such reasonable amount as Buyer may direct as indemnity
against any claim that may be made against it with respect to such Company
Certificate or Company Note, the Buyer will deliver in exchange for such lost,
stolen or destroyed Company Certificate or Company Note the Merger Consideration
with respect to the Company Capital Stock, New Demand Note Debt, Series 1 Sub
Debt, Series 2 Sub Debt or Demand Note Debt formerly represented thereby
(including any cash in lieu of fractional shares of Buyer Common Stock to which
the holders thereof are entitled pursuant to Section 3.11).
17
3.14 Withholding Rights. Buyer shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement such amounts
as it is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of U.S. state or local or foreign Tax
law. To the extent that amounts are so withheld or paid over to or deposited
with the relevant Governmental Entity by Buyer, such amounts shall be treated
for all purposes of this Agreement as having been paid to the Person in respect
of which such deduction and withholding was made by Buyer. On or prior to
Closing, each Noteholder shall provide Buyer with IRS Form W-9, Form W-8BEN,
Form W-8ECI, or other applicable form, whichever is applicable for such
Noteholder, establishing exemption from any backup or income Tax withholding on
the Merger Consideration.
3.15 Further Assurances. At and after the Effective Time, the officers
and directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of the Surviving Corporation or Merger Sub,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name and on behalf of the Surviving Corporation or Merger Sub, any other actions
and things necessary to vest, perfect or confirm of record or otherwise in Buyer
or the Surviving Corporation any and all right, title and interest in, to and
under any of the rights, properties or assets acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.
3.16 Stock Transfer Books. The stock transfer books of the Company
shall be closed immediately upon the Effective Time, and there shall be no
further registration of transfers of shares of Company Capital Stock thereafter
on the records of the Company. On or after the Effective Time, any Company
Certificates presented to the Buyer or the Surviving Corporation for any reason
shall be converted into the right to receive Merger Consideration with respect
to the Company Capital Stock formerly represented thereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company. Except as disclosed
in the Company disclosure schedule delivered to Buyer concurrently herewith (the
"COMPANY DISCLOSURE SCHEDULE") (any disclosure set forth on any particular
schedule shall be deemed to qualify the corresponding paragraph and any other
paragraph and sections to which it is applicable if readily apparent from a
reading of such disclosure), the Company hereby represents and warrants to Buyer
as follows; provided, however, that notwithstanding anything in this Agreement
to the contrary, the mere inclusion of an item in the Company Disclosure
Schedule as an exception to a representation or warranty shall not be deemed an
admission by a party that such item represents a material exception or material
fact, event or circumstance or that such item has had or is reasonably likely to
have a Material Adverse Effect with respect to the Company:
(a) Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power and authority to own or lease
all of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not, either individually or in the aggregate, have a Material Adverse
Effect on the Company. True and complete copies of the articles of incorporation
and bylaws of the Company, as in effect as of the date of this Agreement, have
previously been made available by the Company to Buyer. The Company does not
have any Subsidiaries.
18
(b) Capitalization.
(i) The authorized capital stock of the Company
consists of (A) 275,000,000 shares of Company Common Stock, of
which, as of March 31, 2002, 3,007,137 shares were issued and
outstanding and no shares were held in treasury, (B) (1)
2,135,212 shares of Series A preferred stock, no par value per
share, of the Company ("SERIES A PREFERRED"), of which, as of
March 31, 2002, 2,135,212 shares were outstanding, (2)
1,880,630 shares of Series B preferred stock, no par value per
share, of the Company ("SERIES B PREFERRED"), of which, as of
March 31, 2002, 1,801,801 shares were outstanding, (3)
5,500,000 shares of Series 1 preferred stock, no par value per
share, of the Company ("SERIES 1 PREFERRED"), of which, as of
March 31, 2002, 4,695,312 shares were outstanding, (4)
3,000,000 shares of Series 2 preferred stock, no par value per
share, of the Company 1 ("SERIES 2 PREFERRED"), of which as of
March 31, 2002, 2,000,000 shares were outstanding; (5)
3,121,069 shares of Series C preferred stock, no par value per
share, of the Company ("SERIES C PREFERRED"), of which, as of
March 31, 2002, 2,412,605 shares were outstanding, (6)
5,132,654 shares of Series D preferred stock, no par value per
share, of the Company ("SERIES D PREFERRED"), of which, as of
March 31, 2002, 3,858,356 shares were outstanding, (7)
2,600,000 shares of Series E-1 preferred stock, no par value
per share, of the Company ("SERIES E-1 PREFERRED"), of which,
as of March 31, 2002, 425,149 shares were outstanding, and (8)
25,000,000 shares of Series E-2 preferred stock, no par value
per share ("SERIES E-2 PREFERRED", TOGETHER WITH THE SERIES
E-1 PREFERRED, THE "SERIES E PREFERRED"), of which, as of
March 31, 2002, 12,933,575 shares were outstanding (the Series
A Preferred, Series B Preferred, Series 1 Preferred, Series 2
Preferred, Series C Preferred, Series D Preferred, and Series
E Preferred, collectively "COMPANY PREFERRED STOCK," and
together with the Company Common Stock, the "COMPANY CAPITAL
STOCK"). From March 31, 2002 to the date of this Agreement, no
shares of Company Capital Stock have been issued except
pursuant to the exercise of options granted under the Company
Option Plans. All of the issued and outstanding shares of
Company Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the
ownership thereof. As of the date of this Agreement, except
pursuant to the terms of options and stock issued pursuant to
Company Option Plans and except as described in Section
4.1(b)(i) of the Company Disclosure Schedule, the Company does
not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares
of Company Capital Stock or any other equity securities of the
Company or any securities of the Company representing the
right to purchase or otherwise receive any shares of Company
Capital Stock. None of the Company Stock Options are "reload"
options or options of a similar nature that grant to the
holder any right to additional Company Stock Options upon the
exercise thereof. As of March 31, 2002, no shares of Company
Capital Stock were reserved for issuance, except as described
in Section 4.1(b)(i) of the Company Disclosure Schedule. The
Company has no Voting Debt issued or outstanding. As of March
31, 2002, 3,719,430 shares of Company Common Stock are subject
to outstanding Company Stock Options. Since March 31, 2002,
except as permitted by this Agreement, no options, warrants,
securities convertible into, or commitments with respect to
the issuance of, shares of Company Common Stock have been
issued, granted or made.
(ii) Except as set forth in the preceding paragraph
and Section 4.1(b)(ii) of the Company Disclosure Schedule, (A)
there are no Company Capital Stock or other equity securities
of any class of the Company, or any security convertible or
19
exchangeable into or exercisable for such Company Capital
Stock or other equity securities, issued, reserved for
issuance or outstanding and (B) there are no options,
warrants, equity securities, calls, rights, commitments or
agreements of any character to which the Company is a party or
by which it is bound obligating the Company to issue,
exchange, transfer, deliver or sell additional shares of
Company Capital Stock of or other equity interests in the
Company or obligating the Company to grant, extend, accelerate
the vesting of, otherwise modify or amend or enter into any
such option, warrant, equity security, call, right, commitment
or agreement. The Company does not have any outstanding stock
appreciation rights, phantom stock, performance based rights
or similar rights or obligations. Except as set forth in
Section 4.1(b)(ii) of the Company Disclosure Schedule, there
are no voting trusts, proxies or other voting arrangement or
understandings with respect to shares of Company Capital Stock
or other equity interests in the Company.
(iii) Section 4.1(b)(iii) of the Company Disclosure
Schedule sets forth a list of each investment of the Company
in any corporation, joint venture, partnership, limited
liability company or other entity, which would be considered a
Subsidiary if such investment constituted control of such
entity (each a "NON-SUBSIDIARY AFFILIATE").
(c) Authority; No Violation.
(i) The Company has full corporate power and
authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly
approved by the Board of Directors of the Company and declared
advisable. The Board of Directors of the Company has directed
that this Agreement be submitted to the Company stockholders
for the purpose of approving the Merger and adopting this
Agreement, and, except for the approval of the Merger and the
adoption of this Agreement by the written consent of the
holders of a majority of the outstanding shares of (A) Company
Common Stock and (B) Company Preferred Stock, on a class
voting basis (the "COMPANY STOCKHOLDER APPROVAL") in
accordance with the CGCL, the articles of incorporation and
Bylaws, no other corporate proceedings on the part of the
Company are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
the Company and (assuming due authorization, execution and
delivery by Buyer, OpCo and Merger Sub) constitutes a valid
and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement
may be limited by general principles of equity, whether
applied in a court of law or a court of equity and by
bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(ii) Neither the execution and delivery of this
Agreement by the Company, nor the consummation by the Company
of the transactions contemplated hereby, nor compliance by the
Company with any of the terms or provisions hereof, will (A)
violate any provision of the articles of incorporation or
bylaws of the Company, or (B) (I) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company or any of its
Non-Subsidiary Affiliates or any of their respective
properties or assets or (II) result in a breach of any
provision of or the loss of any benefit under, constitute a
default (or an event that, with notice or lapse of time, or
both, would constitute a default) under, result in the
termination of or a right of termination or cancellation
under, accelerate the performance required by, accelerate any
20
right or benefit provided by, or result in the creation of any
Lien upon any of the respective properties or assets of the
Company or any of its Non-Subsidiary Affiliates under, any of
the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which the Company or any
of its Non-Subsidiary Affiliates is a party, or by which they
or any of their respective properties or assets may be bound
or affected; except for such breaches or defaults that either
individually or in the aggregate will not have a Material
Adverse Effect on the Company or the Surviving Corporation.
(d) Consents and Approvals. Except for (i) the approval and
adoption of this Agreement and the Merger by the Company's stockholders in
accordance with the CGCL, the Company's articles of incorporation and bylaws,
(ii) the filing of the Certificates of Merger pursuant to the DGCL and the CGCL
(the consents, approvals, filings and registration required under or in relation
to clauses (i) and (ii) above, "NECESSARY CONSENTS"), and (iii) such other
consents, approvals or filings or registrations as set forth on Section 4.1(d)
of the Company Disclosure Schedule, no consents or approvals of or filings and
registrations with any supranational or national, state, municipal or local
government, foreign or domestic, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority (each, a "GOVERNMENTAL
ENTITY") are necessary in connection with (A) the execution and delivery by the
Company of this Agreement and (B) the consummation by the Company of the
transactions contemplated by this Agreement.
(e) Financial Statements.
(i) A true and complete copy of the Financial
Statements is attached hereto in Section 4.1(e) of the Company
Disclosure Schedule.
(ii) The Financial Statements were prepared from and
based on the books and records of the Company in accordance
with GAAP and present fairly in all material respects the
financial position and results of operations of the Company at
the dates and for the periods indicated therein, except that
the financial statements for the year ended December 31, 2001
and the Interim Financial Statements do not include footnotes,
and the Interim Financial Statements do not include normal
year-end adjustments.
(iii) As of the Closing, the Company shall have not
more than $13,200,000 in indebtedness outstanding (not
including accounts payable or incurred in the Ordinary Course
of Business), including amounts outstanding under notes or
other indebtedness payable by the Company. Such indebtedness
includes the TransAmerica Debt, the New Demand Note Debt, the
Demand Note Debt, the Series 2 Sub Debt, the Series 1 Sub Debt
and other accrued liabilities of the Company. Such
indebtedness does not include deferred revenue of the Company,
as such term would be defined by GAAP.
(f) Undisclosed Liabilities. On the Balance Sheet Date, except
for Liabilities which in any one case or in the aggregate would not have a
Material Adverse Effect on the Company, the Company had no Liabilities of the
type which should be reflected in balance sheets (including the notes thereto)
prepared in accordance with GAAP which was not fully disclosed, reflected or
reserved against in the balance sheet as of the Balance Sheet Date included in
the Financial Statements; and, except for Liabilities which have been incurred
since the Balance Sheet Date in the Ordinary Course of Business, except for
Liabilities which in any one case or in the aggregate would not have a Material
Adverse Effect on the Company, since the Balance Sheet Date, the Company has not
incurred any Liability.
21
(g) Absence of Certain Changes or Events. Except as set forth
in Section 4.1(g) of the Company Disclosure Schedule, since December 31, 2001,
the Company has conducted its business only in the Ordinary Course of Business,
there has not been (i) any event or events that have had or would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect on the Company; (ii) any declaration, setting aside or payment of any
dividend or other distribution with respect to the Company Capital Stock or any
redemption, purchase or other acquisition of any of the Company Capital Stock;
(iii) (A) any granting by the Company to any officer or director of the Company
of any increase in compensation, (B) any granting by the Company to any such
officer or director of any increase in severance or termination pay, (C) any
granting by the Company to any such officer, director or other key employees of
any loans or any increases to outstanding loans, if any, (D) any entry by the
Company into any employment, severance or termination agreement with any
employee or executive officer or director, or (E) any increase in or
establishment of any Benefit Plan (including amendment of existing Benefit
Plans); (iv) any material damage, destruction or loss (whether or not covered by
insurance) with respect to the assets and properties of the Company; (v) any
material payment by the Company to an Affiliate of the Company other than in the
Ordinary Course of Business of the Company; (vi) any revaluation by the Company
of any of their assets; (vii) any mortgage, lien, pledge, encumbrance, charge,
agreement, claim or restriction placed upon any of the material properties or
assets of the Company; (viii) except as required generally by GAAP, any material
change in the accounting methods, principles or practices used by the Company;
or (ix) any other action or event that would have required the consent of Buyer
pursuant to Section 5.1 of this Agreement had such action or event occurred
after the date of this Agreement.
(h) Legal Proceedings. Except as set forth in Section 4.1(h)
of the Company Disclosure Schedule, there are no suits, actions or proceedings
or investigations pending or, to the knowledge of the Company, threatened
against or affecting the Company that could, individually or in the aggregate,
if determined adversely, reasonably be expected to have a Material Adverse
Effect on the Company, nor is there any unsatisfied judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company.
(i) Compliance with Applicable Law. The Company holds all
material licenses, franchises, permits and authorizations necessary for the
lawful conduct of its business and have complied in all material respects with
any applicable law, statute, order, rule or regulation of any Governmental
Entity relating to the Company.
(j) Contracts.
(i) Section 4.1(j)(i) of the Company Disclosure
Schedule sets forth a complete and accurate list of (x) all
contracts and agreements with customers and (y) all other
contracts and agreements that are material to the business,
assets, liabilities, capitalization, condition (financial or
otherwise) or results of operations of the Company (excluding
in the case of (y) contracts entered in the Ordinary Course of
Business that do not require payments by the Company in any 12
month period aggregating more than $10,000 or aggregating more
than $25,000 during the remaining term of the contract)
(collectively, "COMPANY CONTRACTS," and each a "COMPANY
CONTRACT"). The Company has provided Buyer with a complete and
accurate copy of each Company Contract.
(ii) Except as set forth in 4.1(j)(ii) of the Company
Disclosure Schedule, the Company is not a party to and is not
bound by any contract, arrangement, commitment or
understanding (whether written or oral) (A) with respect to
the employment of any directors, officers or employees other
than in the Ordinary Course of Business of the Company; (B)
which, upon the consummation or stockholder approval of the
transactions
22
contemplated by this Agreement, will (either alone or upon the
occurrence of any additional acts or events) result in (1) a
requirement to obtain the consent of the other party to such
contract, arrangement, commitment or understanding or in a
termination of any such contract, (2) any payment (whether of
severance pay or otherwise) becoming due from Buyer, the
Company, the Surviving Corporation or any of the Subsidiaries
of Buyer to any officer or employee thereof; (C) which is a
"material contract" (as such term is defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed,
entirely or in part, after the date of this Agreement, or (D)
which materially restricts the conduct of any line of business
by the Company upon consummation of the Merger or will
materially restrict the ability of Buyer or the Surviving
Corporation or any Subsidiary thereof to engage in any line of
business. Each contract, arrangement, commitment or
understanding of the type described in Schedule 4.1(j)(ii) of
the Company Disclosure Schedule shall be included in the
definition of the term "COMPANY CONTRACT".
(iii) (A) each Company Contract is valid and binding
on the Company and in full force and effect, (B) the Company
has in all material respects performed all obligations
required to be performed by it to date under each Company
Contract, and (C) the Company does not know of, and has not
received notice of, the existence of any event or condition
which constitutes, or, after notice or lapse of time or both,
will constitute, a material default on the part of the Company
or under any such Company Contract.
(iv) Company has not received any notice, whether
written or oral, from any other party to a Company Contract of
the other party's intention to terminate any such Company
Contract whether as a result of the announcement or
consummation of the transactions contemplated hereby or
otherwise.
(k) Environmental Liability. The Company is in compliance with
and has no liability under Environmental Law except for such noncompliance or
liability that could not reasonably be expected to result in a Material Adverse
Effect on the Company. There are no pending or, to the knowledge of the Company,
threatened environmental investigations or remediation activities, legal,
administrative or arbitral proceedings, written claims, actions or causes of
action of any nature arising under any Environmental Law that could reasonably
be expected to result in a Material Adverse Effect on the Company. To the
knowledge of the Company, there is no reasonable basis for any such proceeding,
claim, action or investigation. The Company is not subject to any agreement,
order, judgment or decree by or with any Governmental Entity or third party
imposing any liability with respect to the foregoing that could reasonably be
expected to result in a Material Adverse Effect on the Company.
(l) Employee Benefit Plans; Labor Matters.
(i) There does not now exist any, and to the
knowledge of the Company, there are no existing circumstances
that could reasonably be expected to result in, any Controlled
Group Liability to the Company. No Company Benefit Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3)
of ERISA. Neither the Company nor any ERISA Affiliate has,
within the six year period preceding the date hereof,
participated in, contributed to or had any obligation or
liability with respect to any plan that is subject to Title IV
or ERISA or Section 412 of the Code. No Company Benefit Plan
is funded by a trust intended to be exempt from taxation under
Section 501(c)(9) of the Code, nor does any Company Benefit
Plan provide any post-employment welfare benefits to any
employees or former employees of the Company, except as may
23
otherwise be required to be provided pursuant to Part 6 of
Title I of ERISA or Section 4980B of the Code.
(ii) Each of the Company Benefit Plans has been
operated and administered in all material respects in
accordance with applicable law and administrative rules and
regulations of any Governmental Entity, including, but not
limited to, ERISA and the Code, all benefits due under each
Company Benefit Plan have been timely paid, and there are no
pending or threatened claims (other than claims for benefits
in the ordinary course), lawsuits or arbitrations that have
been asserted or instituted, and, to the knowledge of the
Company, no set of circumstances exists, that may reasonably
give rise to a claim or lawsuit, against the Company Benefit
Plans, any fiduciaries thereof with respect to their duties to
the Company Benefit Plans or the assets of any of the trusts
under any of the Company Benefit Plans that could reasonably
be expected to result in any liability of the Company to the
Pension Benefit Guaranty Corporation, the U.S. Department of
the Treasury, the U.S. Department of Labor, any Company
Benefit Plan, any participant in a Company Benefit Plan, or
any other party. All contributions and payments to or with
respect to each Company Benefit Plan have been timely made and
the Company has made adequate provision for reserves to
satisfy contributions and payments that have not been made
because they are not yet due under the terms of such Company
Benefit Plan or related arrangement, document, or applicable
law. No Company Benefit Plan has any unfunded accrued benefits
that are not fully reflected in the Company's financial
statements.
(iii) Except as set forth in Section 4.1(l)(iii) of
the Company Disclosure Schedule, the Company is not a party to
any collective bargaining or other labor union contract
applicable to individuals employed by the Company and no
collective bargaining agreement or other labor union contract
is being negotiated by the Company. There is no labor dispute,
strike, slowdown or work stoppage against the Company pending
or, to the knowledge of the Company, threatened against the
Company. Except as set forth in Section 4.1(l)(iii) of the
Company Disclosure Schedule, the Company is in material
compliance with the National Labor Relations Act and analogous
state laws and, within the last two (2) years, no labor charge
or complaint has been filed with respect to the Company or is
pending, or to the knowledge of the Company, is threatened.
(iv) Except as set forth in Section 4.1(l)(iv) of the
Company Disclosure Schedule, neither the execution and
delivery of this Agreement nor the consummation of the
transactions contemplated hereby (either alone or in
conjunction with any other event) will (A) result in any
payment (including, without limitation, severance,
unemployment compensation, "excess parachute payment" (within
the meaning of Section 280G of the Code), forgiveness of
indebtedness or otherwise) becoming due to any director or any
employee of the Company under any Company Benefit Plan or
otherwise; (B) increase any benefits otherwise payable under
any Company Benefit Plan; (C) result in any acceleration of
the time of payment or vesting of any such benefits; (D)
require the funding of any trust or other funding vehicle; or
(E) limit or prohibit any existing ability to amend, merge,
terminate or receive a reversion of assets from any Company
Benefit Plan or related trust.
(v) Each Company Benefit Plan that is intended to be
a tax-qualified plan is so qualified, in both form and
operation, has received one or more IRS determination letters
to such effect, and the Company has no knowledge of the
existence of any facts
24
that could cause the qualified status of such Company Benefit
Plan to be adversely affected.
(vi) Except as set forth in Section 4.1(l)(vi) of the
Company Disclosure Schedule, each Company Benefit Plan can be
amended or terminated at any time without approval from any
Person, without advance notice, and without any liability
other than for benefits accrued prior to such amendment or
termination. No agreement, commitment, or obligation exists to
increase any benefits under any Company Benefit Plan or to
adopt any new Company Benefit Plan.
(vii) Section 4.1(l)(vii) of the Company Disclosure
Schedule sets forth a list of each Company Benefit Plan.
(viii) The Company has heretofore made available to
Buyer true and complete copies of (1) each Company Benefit
Plan, including all amendments to such plan, and all summary
plan descriptions and other summaries of such plan, (2) each
trust agreement, annuity or insurance contract, or other
funding instrument pertaining to each Company Benefit Plan,
(3) the most recent determination letter issued by the IRS
with respect to each Company Benefit Plan that is intended to
be tax-qualified and a copy of any pending applications for
such IRS letters, (4) the two most recent actuarial valuation
reports for each Company Benefit Plan for which an actuarial
valuation report has been prepared, (5) the two most recent
annual reports (IRS Form 5500 Series), including all schedules
to such reports, if applicable, filed with respect to each
Company Benefit Plan, (6) the most recent plan audits,
financial statements, and accountant's opinion (with
footnotes) for each Company Benefit Plan, (7) all relevant
schedules and reports, excepting any personally identifiable
information, concerning the administrative costs, benefit
payments, employee and employer contributions, claims
experience, financial information, and insurance premiums for
each Company Benefit Plan that is a self-funded health benefit
plan, and (8) all correspondence with government authorities
concerning any Company Benefit Plan (other than as previously
referenced above).
(m) Company Intangible Property.
(i) Except as set forth in Section 4.1(m)(i) of the
Company Disclosure Schedule, (A) to the knowledge of the
Company, the Company owns, possesses a valid and enforceable
license to, or otherwise possesses legally enforceable rights
to use, all Company Intellectual Property Rights (as hereafter
defined) that are necessary to conduct the business of the
Company as currently conducted or planned to be conducted and
has no restriction on the rights to use the same; and (B) use
of the Company Intellectual Property Rights has not required
and does not require the payment of any royalty or similar
payment to any Person.
(ii) Section 4.1(m)(ii) of the Company Disclosure
Schedule contains a complete and accurate list and description
(showing in each case the registered or other owner,
registration, application, or issue date and number, if any)
of all registered Company Intellectual Property Rights, and
currently pending applications for registration of
Intellectual Property Rights.
(iii) Section 4.1(m)(iii) of the Company Disclosure
Schedule contains a complete and accurate list and description
(showing in each case any licensee) of all Software owned by
or licensed to the Company that is necessary to conduct the
business
25
of the Company as currently conducted or planned to be
conducted excluding Software (A) licensed to the Company
having a fee of less than five hundred dollars ($500), or (B)
that is commercial off-the-shelf software.
(iv) Section 4.1(m)(iv) of the Company Disclosure
Schedule contains a list and description (showing in each case
the parties thereto and the material terms thereof) of all
material agreements, contracts, licenses, sublicenses,
assignments, and indemnities which relate to (A) any
copyright, patent right, service mark, trademark, or domain
name listed in Section 4.1(m)(ii) of the Company Disclosure
Schedule, (B) any trade secrets owned by, licensed to or by or
used by the Company or (C) any Software listed in Section
4.1(m)(iii) of the Company Disclosure Schedule.
(v) The Company is not, nor will be as a result of
the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in breach
in any material respect of any license, sublicense or other
agreement relating to the Company Intellectual Property Rights
or any license, sublicense or other agreement pursuant to
which the Company is authorized to use any third-party
patents, trademarks, or copyrights, including Software, which
are used in relation to any product or service of the Company.
All such agreements of the Company are listed in Section
4.1(m)(v) of the Company Disclosure Schedule. There are no
outstanding disputes under any such agreement.
(vi) (A) To the knowledge of the Company, all
patents, registered trademarks, service marks, and copyrights
held by the Company are valid and enforceable and any and all
applications to register any unregistered copyrights, patent
rights, service marks and trademarks held by the Company are
pending and in good standing; and (B) the Company has the sole
and exclusive right to bring actions for infringement or
unauthorized use of the Company Intellectual Property Rights
owned by the Company, and the Company has no knowledge of any
basis for any such action. The Company has not been sued in
any suit, action or proceeding which involves a claim of
infringement of any patent, trademark, service mark or
copyright or the violation of any trade secret or other
proprietary rights of any third party. The conduct of the
business of the Company does not, to the knowledge of the
Company, violate or infringe any intellectual property rights
owned or controlled by any third party, and there are no
claims, proceedings or actions pending or, to the knowledge of
the Company, threatened against the Company (A) alleging that
the Company's activities infringe upon, violate or otherwise
constitute the unauthorized use of any intellectual property
rights of any third party or (B) challenging the ownership,
use, validity, or enforceability of any Company Intellectual
Property Rights, nor, to the knowledge of the Company, is
there a valid basis for any such claim.
(vii) The Company has taken all reasonable measures
to safeguard and maintain the confidential and proprietary
nature of its rights in all Company Intellectual Property
Rights owned by the Company. To the knowledge of the Company,
there has been no disclosure of any trade secret of the
Company to any third party, other than pursuant to valid,
enforceable, written non-disclosure agreements.
(viii) The completion of the transactions
contemplated by this Agreements will not alter or impair in
any way the right of the Company to use any of the Company
Intellectual Property Rights.
26
(ix) All Company Intellectual Property Rights owned
by the Company that are material to the business of the
Company have been (A) lawfully acquired from a person or
entity having, to the knowledge of the Company, full,
effective and exclusive ownership thereof, or (B) developed or
created by employees, agents, consultants, or contractors of
the Company who have contributed to or participated in the
creation or development thereof on behalf of the Company or
any predecessor in interest of the Company and either: (1)
with respect to any copyrightable materials, is a party to a
"work-for-hire" agreement under which the Company or any
predecessor in interest thereof is deemed to be the original
owner/author of all property rights therein; or (2) with
respect to copyrightable or patentable materials or materials
subject to trade secret protection, has executed an assignment
or an agreement to assign, in favor of the Company or any
predecessor in interest thereof, of all right, title, and
interest in such material.
(x) Correct and complete copies of: (A) registrations
for all registered copyrights, issued patents, and registered
trademarks, and registered domain names identified in Section
4.1(m)(ii); and (B) all pending applications to register
unregistered copyrights, patent rights, or trademarks
identified in Section 4.1(m)(ii) of the Company Disclosure
Schedule as being owned by the Company (together with any
subsequent correspondence or filings relating to the
foregoing) have heretofore been delivered by the Company to
the Buyer. The Company is up-to-date in the payment of any
fees necessary to maintain any of the registrations identified
in Section 4.1(m)(ii) in good standing with the relevant
federal, state, or other governing body.
(xi) Excluding the Software identified in Section
4.1(m)(xi) of the Company Disclosure Schedule and excluding
any commercial off-the-shelf software, (A) the Software owned
or licensed by the Company is not subject by agreement to any
transfer, assignment, site, equipment, or other operational
limitations; (B) the Company has maintained and protected the
Software that it owns (the "COMPANY-OWNED SOFTWARE")
(including, without limitation, all source code and system
specifications) with appropriate proprietary notices
(including, without limitation, the notice of copyright in
accordance with the requirements of 17 U.S.C. Section 401),
confidentiality and non-disclosure agreements and such other
measures as are reasonably necessary to protect the
proprietary, trade secret, or confidential information
contained therein; (C) the Company-Owned Software has been
registered or is eligible for protection and registration
under applicable U.S. copyright law and has not been forfeited
to the public domain; (D) the Company has copies of all
releases or separate versions of the Company Owned Software so
that the same may be subject to registration in the United
States Copyright Office; (E) the Company has complete and
exclusive right, title, and interest in and to the
Company-Owned Software; (F) the Company has developed the
Company-Owned Software through its own efforts and for its own
account; (G) to the knowledge of the Company, the
Company-Owned Software does not infringe any copyright of any
other Person; (H) any Company-Owned Software includes the
source code, system documentation, statements of principles of
operation and schematics, as well as any pertinent commentary,
explanation, program (including compilers), workbenches,
tools, and higher level (or "proprietary") language used for
the development, maintenance, implementation and use thereof,
so that a trained computer programmer could develop, maintain,
support, compile and use all releases or separate versions of
the same that are currently subject to maintenance obligations
by the Company; and (I) there are no agreements or
arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Company-Owned
Software by any other Person.
27
(xii) "COMPANY INTELLECTUAL PROPERTY RIGHTS" means
any or all of the following and all rights of the Company in,
arising out of, or associated therewith, whether registered or
unregistered, as applicable: (A) United States and foreign
patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (B) inventions and discoveries
(whether or not patentable), disclosures, trade secrets,
formulae, methods, proprietary information, know-how technical
data and customer lists, and all documentation relating to any
of the foregoing; (C) copyrights, copyright registrations and
applications therefor and all other corresponding rights
thereto throughout the world; (D) industrial designs and any
registrations and applications therefor throughout the world;
(E) trade names, logos, common law trademarks and service
marks, trademark, and service mark registrations and
applications therefor, and all goodwill associated therewith
throughout the world, (F) data bases and data collections and
all rights therein throughout the world; (G) all Software; (H)
all websites and corresponding URLs and domain names; (I) any
similar corresponding or equivalent rights to any one of the
foregoing; and (J) all documentation directly related to any
of the foregoing, in any form of media.
(n) Properties. The Company has good, valid and marketable
title to, or a valid leasehold interest in, all of its properties and assets
(real, personal and mixed, tangible and intangible), including without
limitation, all the properties and assets reflected in the balance sheet of the
Company as of the Balance Sheet Date (except for properties and assets disposed
of in the Ordinary Course of Business since the Balance Sheet Date). Except as
set forth in Section 4.1(n) of the Company Disclosure Schedule, none of such
properties or assets is subject to any Liens (whether absolute, accrued,
contingent or otherwise), except (i) Liens for current Taxes not yet due, and
Liens for Taxes that are being contested in good faith by appropriate
proceedings and with respect to which proper reserves have been taken by the
Company and have been duly reflected on its books and records; (ii) deposits or
pledges to secure obligations under workmen's compensation, social security or
similar laws, or under unemployment insurance as to which the Company is not in
default; (iii) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the Ordinary
Course of Business of the Company; and (iv) minor imperfections of title and
encumbrances, if any, which do not materially detract from the value of the
property or assets subject thereto.
(o) Insurance. All fire and casualty, general liability,
business interruption, product liability and any other insurance policies
maintained by the Company are with reputable insurance carriers, are in such
amounts and provide coverage against such customary risks incident to the
business of the Company and its properties and assets and are in character and
amount consistent with coverage carried by reasonably prudent Persons of similar
size engaged in similar businesses and subject to the same or similar perils or
hazards. None of the insurance policies will terminate or lapse (or be affected
in any other material manner) by reason of the transactions contemplated by this
Agreement. The Company has not received notice of any cancellation or
termination or disclaimer of liability under any such policy or indicated any
intent to do so or not to renew any such policy. All material claims under the
insurance policies have been filed by the Company and paid in a timely fashion.
(p) Taxes.
(i) Except as set forth in Schedule 4.1(p)(i) of the
Company Disclosure Schedule, the Company has duly and timely
filed all material Tax Returns required to be filed by it, and
all such Tax Returns are, in all material respects, true,
correct and complete and prepared in accordance with
applicable laws, for all years and periods (and portions
thereof) and for all jurisdictions (whether federal, state,
local or foreign) in
28
which any such Tax Returns were due. The Company has paid all
material Taxes as due and payable in respect of such Tax
Returns, and there is no current liability for any material
Taxes due in connection with any Tax Returns. All Taxes, if
any, not yet due and payable have been fully accrued on the
books of the Company and adequate reserves have been
established therefor, as the case may be. There are no unpaid
assessments for additional Taxes for any period All federal,
state and foreign tax returns filed by the Company since
incorporation have been provided to Buyer. There are no Liens
for Taxes upon the assets of the Company, other than Liens for
current Taxes not yet due, and Liens for Taxes that are being
contested in good faith by appropriate proceedings.
(ii) The Company has never been a member of any
consolidated, combined or unitary group for federal, state,
local or foreign Tax purposes and has no liability for Taxes
under Treasury Regulation Section 1.1502-6 or other similar
rule or regulation.
(iii) The Company is not a party to any joint
venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(iv) The Company has (a) withheld all required
amounts of Tax from its employees, agents, contractors and
nonresidents and remitted such amounts to the proper agencies;
(b) paid all required employer contributions and premiums for
social security and unemployment tax purposes; and (c) filed
all required federal, state, local and foreign returns and
reports with respect to employee income Tax withholding,
social security unemployment Taxes and premiums, all in
compliance, in all material respects, with the withholding Tax
provisions of the Code as in effect for the applicable year
and other applicable federal, state, local or foreign laws.
(v) Except as set forth in Section 4.1(p)(v) of the
Company Disclosure Schedule, the federal income Tax returns of
the Company have been examined by the Internal Revenue Service
("IRS"), or have been closed by the applicable statute of
limitations (except to the extent the applicable statute of
limitations relates to the use of net operating losses in
future years), for all periods through the 1997 taxable year;
the state Tax returns of the Company have been examined by the
relevant agencies or such returns have been closed by the
applicable statute of limitations (except to the extent the
applicable statute of limitations relates to the use of net
operating losses in future years) for all periods through the
1996 taxable year; no deficiencies or reassessments for any
Taxes have been proposed, asserted or assessed against the
Company by federal, state, local or foreign taxing authority.
(vi) The Company has not executed or filed with any
taxing authority (whether federal, state, local or foreign)
any agreement or other document extending or having the effect
of extending the period for assessment, reassessment or
collection of any Taxes, and no power of attorney granted by
the Company with respect to any Taxes is currently in force.
(vii) No federal, state, local or foreign Tax audits
or other administrative proceedings, discussions or court
proceedings are presently pending with regard to any Taxes or
Tax returns of the Company and no additional issues are being
asserted against the Company in connection with any existing
audits of the Company.
29
(viii) The Company has not entered into any agreement
with any governmental agency relating to Taxes which affects
in any material respects any taxable year ending after the
Closing Date.
(ix) The Company has not agreed to and it is not
required to make any adjustment by reason of a change in
accounting methods that affects any taxable year ending after
the Closing Date. Neither the IRS nor any other agency has
proposed any such adjustment or change in accounting methods
that affects any taxable year ending after the Closing Date.
The Company has no application pending with any taxing
authority requesting permission for any changes in accounting
methods that relate to its business or operations and that
affects any taxable year ending after the Closing Date.
(x) The Company is not and never has been a party to
any Tax sharing agreement or similar arrangement for the
sharing of Tax liabilities or benefits.
(xi) None of the Noteholders or the holders of any
Company Capital Stock is a foreign person within the meaning
of Code Section 1445.
(xii) There is no contract, agreement, plan or
arrangement covering any employee or former employee of the
Company that, individually or collectively, could give rise to
the payment by the Company of any amount that would not be
deductible by reason of Code Section 280G.
(xiii) No asset of the Company is tax-exempt use
property under Code Section 168(h).
(xiv) No portion of the cost of any asset of the
Company has been financed directly or indirectly from the
proceeds of any tax-exempt sale or local government obligation
described in Code Section 103(a).
(xv) The Company does not have and has not had a
permanent establishment in any foreign country and does not
and has not engaged in a trade or business in any foreign
country.
(xvi) The Company has not consented to the
application of Code Section 341(f).
(xvii) The Company is not and has not been a "United
States real property holding corporation" (as defined in Code
Section 897(c)(2)) during an applicable period specified in
Code Section 897(c)(1)(A)(ii).
(xviii) Except as disclosed on Section 4.1(p)(xviii)
of the Company Disclosure Schedule, in the past five years,
the Company has not been a party to a transaction that is
reported to qualify as a reorganization within the meaning of
Code Section 368 or constituted either a "distributing
corporation" or a "controlled corporation" within the meaning
of Code Section 355 in a distribution of stock intended to
qualify for tax-free treatment under Code Section 355.
(xix) Except as disclosed on Schedule 4.1(p)(xix) of
the Company Disclosure Schedule, the Company has not engaged
in any transaction that (i) is a "listed transaction" within
the meaning of Temporary Treasury Regulation Section
301.6111-
30
2T(b); (ii) must be disclosed pursuant to Temporary Treasury
Regulation Section 1.6011-4T; or (iii) is reasonably expected
to give rise to the assessment of a penalty under the Code or
other applicable law.
(xx) The Company and the Noteholders have not taken,
and will not take, any position, and have not filed, and will
not file, any Tax Return, with any taxing authority that is
inconsistent with the treatment of the Company Notes as equity
of the Company for all income Tax purposes.
(q) Affiliate Transactions. All purchases and sales or other
transactions other than issuances by the Company of debt or equity securities to
its Shareholders during the last nine (9) months, if any, between the Company,
on the one hand, and any officer, director, shareholder or key employee or, any
Affiliate of any thereof, on the other hand (other than in connection with the
employment of any officer or employee or the investment in or financing of the
Company), within the three (3) years immediately preceding the date hereof have
been made on the basis of prevailing market rates and terms such that from the
perspective of the Company, all such transactions have been made on terms no
less favorable than those which would have been available from unrelated third
parties. Neither any officer, director, shareholder or employee of the Company,
nor any spouse, child or other relative of any of such persons, owns, or has any
interest, directly or indirectly, in any of the real or personal property owned
by or leased to the Company.
(r) Ownership of Buyer Stock. As of the date of this
Agreement, the Company does not own any shares of Buyer Common Stock.
(s) State Takeover Laws. The Board of Directors of the Company
has approved this Agreement and the transactions contemplated by this Agreement
as required under any applicable state takeover laws, including 1302 of the CCC,
so that any such state takeover laws will not apply to this Agreement or any of
the transactions contemplated hereby.
(t) Personnel Identification and Compensation. Section 4.1(t)
of the Company Disclosure Schedule contains a true and complete list of the
names, addresses and titles of all current officers, directors and employees, of
the Company. The Company has previously delivered to Buyer a true and complete
(a) schedule stating the rates of compensation payable (or paid, as the case may
be) to each such Person and (b) copy of any agreement with such Person, if any.
(u) Existing Employment Contracts. The Company has no
employment contracts, collective bargaining agreements or similar arrangements
except those described on Section 4.1(u) the Company Disclosure Schedule. All
such contracts and arrangements are in full force and effect.
(v) Title to the Company Securities. Each Shareholder owns the
number of shares of the Company Capital Stock indicated in Section 4.1(v) to the
Company Disclosure Schedule as being owned by such Shareholder, free and clear
of any Liens, and has good and marketable title to such Company Capital Stock.
The Company Capital Stock constitutes as of the date hereof, and will constitute
at Closing, all of the issued and outstanding shares of Company Capital Stock.
(w) Board Approval. The Board of Directors of the Company, at
a meeting duly called and held, has (i) determined that this Agreement and the
transactions contemplated hereby are advisable, fair to and in the best
interests of the stockholders of the Company, (ii) approved and adopted this
Agreement and (iii) determined to recommend that this Agreement and the
transactions contemplated hereby be approved and adopted by the holders of
Company Capital Stock.
31
(x) Brokers' Fees. Neither the Company nor any of its
respective officers or directors has employed any broker or finder or incurred
any liability for any brokers' fees, commissions or finders' fees in connection
with the transactions contemplated by this Agreement, excluding fees to be paid
by the Company to ThinkEquity Partners, LLC ("THINKEQUITY") in accordance with
the Company's written agreement with such firm, a copy of which has been
provided to Buyer, and such fees do not and will not exceed $750,000 in the
aggregate.
4.2 Representations and Warranties of Buyer, OpCo, Merger Sub. Except
as disclosed in the Buyer disclosure schedule delivered to the Company
concurrently herewith (the "BUYER DISCLOSURE SCHEDULE") (any disclosure set
forth on any particular schedule shall be deemed to qualify the corresponding
paragraph and any other paragraph and sections to which it is applicable if
readily apparent from a reading of such disclosure), Buyer, OpCo and Merger Sub
hereby represent and warrant to the Company as follows, provided, however, that
notwithstanding anything in this Agreement to the contrary the mere inclusion of
an item in the Buyer Disclosure Schedule as an exception to a representation or
warranty shall not be deemed an admission by a party that such item represents a
material exception or material fact, event or circumstance or that such item has
had or is reasonably likely to have a Material Adverse Effect with respect to
Buyer, OpCo or Merger Sub:
(a) Corporate Organization.
(i) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. Buyer has the corporate power and authority to own
or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or
location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where
the failure to be so licensed or qualified would not, either
individually or in the aggregate, have a Material Adverse
Effect on Buyer. True and complete copies of the certificate
of incorporation and bylaws of Buyer, as in effect as of the
date of this Agreement, have previously been made available by
Buyer to the Company.
(ii) Each Subsidiary of Buyer (A) is duly organized
and validly existing under the laws of its jurisdiction of
organization, (B) is duly qualified to do business and in good
standing in all jurisdictions (whether U.S. federal, state or
local or foreign) where its ownership or leasing of property
or the conduct of its business requires it to be so qualified
and (C) has all requisite corporate power and authority to own
or lease its properties and assets and to carry on its
business as now conducted, in each case, except as would not
have a Material Adverse Effect on Buyer.
(iii) Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware. Merger Sub was formed by OpCo solely for
the purpose of engaging in the transactions contemplated
hereby and has engaged in no business and has incurred no
liabilities other than in connection with the transactions
contemplated by this Agreement. True and complete copies of
the certificate of incorporation and bylaws of Merger Sub, as
in effect as of the date of this Agreement, have previously
been made available to the Company.
32
(b) Capitalization.
(i) The authorized capital stock of Buyer consists of
(A) 50,000,000 shares of Buyer Common Stock, of which, as of,
April 30, 2002, 16,497,514 shares were issued and outstanding
and 281,538 shares were held in treasury and (B) 5,000,000
shares of preferred stock, par value $0.01 per share, of Buyer
(the "BUYER PREFERRED STOCK," and together with the Buyer
Common Stock, the "BUYER CAPITAL STOCK"), of which no shares
are issued and outstanding. From April 30, 2002 to the date of
this Agreement, no shares of Buyer Capital Stock have been
issued except pursuant to the exercise of options granted
under the Buyer Option Plans. All of the issued and
outstanding shares of Buyer Common Stock have been duly
authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date
of this Agreement, except pursuant to the terms of options and
stock issued pursuant to Buyer Option Plans and warrants to
purchase 413,706 shares of Buyer Common Stock, Buyer does not
have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares
of Buyer Capital Stock or any other equity securities of Buyer
or any securities of Buyer representing the right to purchase
or otherwise receive any shares of Buyer Capital Stock. As of
April 30, 2002, no shares of Buyer Capital Stock were reserved
for issuance, except for 3,683,734 shares of Buyer Common
Stock reserved for issuance upon the exercise of stock options
pursuant to the Buyer Option Plans. Buyer has no Voting Debt
issued or outstanding. As of April 30, 2002, 2,040,407 shares
of Buyer Common Stock are subject to outstanding Buyer Stock
Options. Since April 30, 2002 except as permitted by this
Agreement, (A) no Buyer Common Stock has been issued except in
connection with the exercise of issued and outstanding Buyer
Stock Options and (B) no options, warrants, securities
convertible into, or commitments with respect to the issuance
of, shares of Buyer Common Stock have been issued, granted or
made.
(ii) The authorized capital stock of OpCo consists of
110,000 shares of common stock, par value $0.01 per share, of
which 80,100 are validly issued, fully paid and nonassessable,
and are owned by Buyer free and clear of any Liens.
(iii) The authorized capital stock of Merger Sub
consists of 1,000 shares of common stock, par value $0.01 per
share, of which 100 are validly issued, fully paid and
nonassessable, and are owned by OpCo free and clear of any
Liens.
(c) Buyer owns, directly or indirectly, all of the issued and
outstanding shares of capital stock or other equity ownership interests of each
Subsidiary of Buyer, free and clear of any Liens, and all of such shares or
equity ownership interests are duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. No Subsidiary of Buyer has or is bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary. Section
4.2(b)(iii) of the Buyer Disclosure Schedule sets forth a list of each material
investment of Buyer in any Non-Subsidiary Affiliate.
(d) Authority; No Violation.
(i) Each of Buyer, OpCo and Merger Sub has full
corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
33
consummation of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of each of
Buyer, OpCo and Merger Sub. Buyer, as sole stockholder of
OpCo, and OpCo, as sole stockholder of Merger Sub, has each
approved and adopted this Agreement and the transactions
contemplated hereby. No other corporate proceedings on the
part of Buyer, OpCo or Merger Sub are necessary to approve
this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by each of Buyer, OpCo and Merger Sub and (assuming
due authorization, execution and delivery by the Company and
the Noteholders) constitutes a valid and binding obligation of
Buyer, OpCo and Merger Sub, enforceable against Buyer, OpCo
and Merger Sub in accordance with its terms, except as
enforcement may be limited by general principles of equity,
whether applied in a court of law or a court of equity and by
bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(ii) Neither the execution and delivery of this
Agreement by Buyer, OpCo and Merger Sub, nor the consummation
by Buyer, OpCo and Merger Sub of the transactions contemplated
hereby, nor compliance by Buyer, OpCo and Merger Sub with any
of the terms or provisions hereof, will (A) violate any
provision of the certificate of incorporation or bylaws of
Buyer, the certificate of incorporation or bylaws of OpCo or
the certificate of incorporation or bylaws of Merger Sub or
(B) assuming that the consents and approvals referred to in
Section 4.2(d) are duly obtained, (I) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Buyer, OpCo, Merger Sub,
any of their Subsidiaries or any of their respective
properties or assets or (II) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under,
constitute a default (or an event that, with notice or lapse
of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation
under, accelerate the performance required by, accelerate any
right or benefit provided by, or result in the creation of any
Lien upon any of the respective properties or assets of Buyer,
OpCo, Merger Sub or any of their Subsidiaries under any of the
terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer, OpCo, Merger Sub or
any of their Subsidiaries is a party, or by which they or any
of their respective properties or assets may be bound or
affected, except for such violations, conflicts, breaches or
defaults that, either individually or in the aggregate, will
not have a Material Adverse Effect on Buyer or the Surviving
Corporation.
(e) Consents and Approvals. Except for (i) the filing of the
Certificates of Merger, (ii) any consents, authorizations, approvals, filings or
exemptions in connection with compliance with the rules of the Nasdaq, and (iii)
such other consents, approvals, filings and registrations the failure of which
to obtain or make would not reasonably be expected to have a Material Adverse
Effect on Buyer, no consents or approvals of or filings or registrations with
any Governmental Entity are necessary in connection with (A) the execution and
delivery by each of Buyer, OpCo and Merger Sub of this Agreement and (B) the
consummation by each of Buyer, OpCo and Merger Sub of the transactions
contemplated by this Agreement.
(f) Financial Reports and SEC Documents. Each of Buyer and its
Subsidiaries has filed all reports, prospectuses, forms, schedules, registration
statements, proxy statements or information statements required to be filed by
it since December 31, 1996 under the Securities Act or under Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act filed with the SEC (collectively, the
"BUYER SEC DOCUMENTS"). Each of the Buyer SEC Documents, including the Buyer
2001 10-K (i) complied in all
34
material respects as to form with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (ii) as of its
filing date (except as amended or supplemented prior to the date hereof), and as
of the date hereof as amended or supplemented prior to the date hereof (except
to the extent superseded by information contained in another Buyer SEC
Document), did not or 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 light of the circumstances under which they
were made, not misleading; and each of the balance sheets contained in or
incorporated by reference into any such Buyer SEC Document (including the
related notes and schedules thereto) fairly presents the financial position of
the entity or entities to which it relates as of its date, and each of the
statements of operations and changes in stockholders' equity and cash flows or
equivalent statements in such Buyer SEC Documents (including any related notes
and schedules thereto) fairly presents the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may be, of the
entity or entities to which it relates for the periods to which it relates, in
each case in accordance with GAAP consistently applied during the periods
involved, except, in each case, as may be noted therein, subject to normal
year-end audit adjustments in the case of unaudited statements.
(g) Absence of Certain Changes or Events. Except as disclosed
in the Buyer SEC Documents filed prior to the date hereof, since December 31,
2001, there has not been any event or events that have had or would reasonably
be expected to have, either individually or in the aggregate, a Material Adverse
Effect on Buyer.
(h) Legal Proceedings. There is no suit, action or proceeding
or investigation pending or, to the knowledge of Buyer, threatened, against or
affecting Buyer or any of its Subsidiaries or, to the knowledge of Buyer, any
basis for any such suit, action, proceeding or investigation that could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Buyer, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Buyer or its
Subsidiaries having, or that would reasonably be expected to have, any such
effect.
(i) Taxes. Each of Buyer and its Subsidiaries has duly and
timely filed all material Tax Returns required to be filed by it, and all such
Tax Returns are true, complete and accurate in all material respects. Buyer and
each of its Subsidiaries has paid all material Taxes required to be paid by it,
and has paid all material Taxes that it was required to withhold from amounts
owing to any employee, creditor or third party.
(j) Board Approval. The Board of Directors of Buyer, at a
meeting duly called and held, has, (i) determined that this Agreement and the
transactions contemplated hereby are advisable, fair to and in the best
interests of the stockholders of Buyer, and (ii) approved and adopted this
Agreement.
(k) No Reorganization under the Code. As of the date of this
Agreement, neither Buyer nor any of its subsidiaries has taken any action or
knows any fact that is reasonably likely to permit or cause the Merger to
qualify as a "reorganization" within the meaning of Section 368 of the Code and
neither Buyer nor any of its Subsidiaries has any plan or intention to, and will
not, directly or indirectly merge or liquidate the Surviving Corporation into
Buyer or OpCo or their successor entities, or OpCo into Buyer or its successor.
(l) Ownership of Company Stock. As of the date of this
Agreement, neither Buyer nor any of its Subsidiaries owns any shares of Company
Capital Stock.
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(m) Broker's Fees. None of Buyer, OpCo or Merger Sub or any of
their respective officers or directors has employed any broker or finder or
incurred any liability for any brokers' fees, commissions or finders' fees in
connection with the transactions contemplated by this Agreement.
(n) Software. Prior to Closing, Buyer will not reverse
engineer, decompile, disassemble or otherwise attempt to discover the source
code of Software owned by the Company.
4.3 Representations and Warranties of Noteholders. Each Noteholder
severally represents and warrants to Buyer, with respect to itself only, as
follows.
(a) Ownership. Such Noteholder is the record and beneficial
owner of New Demand Note Debt, Series 1 Sub Debt, Series 2 Sub Debt or Demand
Note Debt to be exchanged by such Noteholder pursuant to this Agreement and
identified in Section 4.3(a) of the Company Disclosure Schedule as being owned
by it and has, and on the Closing Date, will have, good and valid title to such
New Demand Note Debt, Series 1 Sub Debt, Series 2 Sub Debt or Demand Note Debt,
free and clear of all Liens. No other indebtedness is owed to such Noteholder or
any Affiliate thereof by the Company.
(b) Authority. The execution and delivery by each Noteholder
of this Agreement, and the performance by each Noteholder of his/her or its
obligations hereunder, have been duly and validly authorized by such Noteholder,
no other action on the part of such Noteholder being necessary. This Agreement
has been duly and validly executed and delivered by such Noteholder and
constitutes a legal, valid and binding obligation of such Noteholder enforceable
against such Noteholder in accordance with its terms, except as enforcement may
be limited by general principles of equity, whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(c) No Conflicts. Neither the execution and delivery of this
Agreement by each Noteholder, nor the consummation of the transactions
contemplated hereby, nor compliance by such Noteholder with any of the terms or
provisions hereof, will (A) violate any provision of the certificate of
incorporation, bylaws or other organizational documents of such Noteholder, or
(B) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to such Noteholder or any of its
Subsidiaries or Non-Subsidiary Affiliates or any of their respective properties
or assets.
(d) Governmental Approvals and Filings. No consents or
approvals of or filings or registrations with any Governmental Entity are
necessary in connection with (A) the execution and delivery by such Noteholder
of this Agreement and (B) the consummation by such Noteholder of the
transactions contemplated by this Agreement.
(e) [Intentionally Omitted].
(f) Brokers/Alternative Transaction. Neither the Noteholders
nor any of their respective officers or directors have employed any broker or
finder or incurred any liability for any brokers' fees, commissions or finders'
fees in connection with the transactions contemplated by this Agreement,
excluding fees to be paid by the Company to ThinkEquity in accordance with the
Company's written agreement with such firm, a copy of which has been provided to
Buyer, and such fees do not and will not exceed $750,000 in the aggregate.
36
(g) Investor Representations.
(i) Each Noteholder is acquiring the Buyer Common
Stock and Buyer Warrants for its own account and not for the
account or benefit of any other Person;
(ii) Each Noteholder is an "accredited investor" as
defined in Rule 501 of Regulation D under the Securities Act;
(iii) Each Noteholder has knowledge and experience in
financial and business matters such that it is capable of
evaluating the merits and risks of an investment in the Buyer;
(iv) Each Noteholder has been furnished with all such
information as it has deemed necessary to make an informed
investment decision with respect to the Buyer Common Stock and
Buyer Warrants;
(v) Each Noteholder confirms that it had the
opportunity to obtain such independent legal and tax advice
and financial planning services as it has deemed appropriate
prior to making a decision to invest in the Buyer;
(vi) Each Noteholder is aware that an investment in
the Buyer is highly speculative and subject to substantial
risks. Each Noteholder is capable of bearing the economic
risks of an investment in the Buyer, including, but not
limited to, the possibility of a complete loss of its
investment, as well as limitations on the transferability of
the Buyer Common Stock and the shares of Buyer Common Stock
underlying the Buyer Warrants to be received by such
Noteholder which may make the liquidation of an investment in
such securities difficult or impossible for the indefinite
future;
(vii) The Buyer Common Stock and Buyer Warrants are
being acquired solely for investment, and is not being
purchased with a view to a distribution or resale thereof
otherwise than in compliance with the Securities Act;
(viii) Each Noteholder understands that the Buyer
Common Stock and the shares of Buyer Common Stock underlying
the Buyer Warrants have not been registered under the
Securities Act, or any state securities laws, in reliance upon
exemptions from registration for non-public offerings. It
understands that neither such security nor any interest
therein may be, and agree that neither such security nor any
interest therein will be, resold or otherwise disposed of by
it unless such security is subsequently registered under the
Securities Act and under state securities laws to the extent
applicable or unless the Buyer receives an opinion of counsel
reasonably satisfactory to it that an exemption from
registration is applicable;
(ix) Each Noteholder has been informed of and
understands that no federal or state agency has made any
finding or determination as to the merits of an investment in
the Buyer Common Stock or the Buyer Warrants or any
recommendation or endorsement of the Buyer Common Stock or the
Buyer Warrants;
(x) None of the following information has ever been
represented, guaranteed or warranted to it, expressly or by
implication, by Buyer, OpCo, Merger Sub, Company or by any
other Person:
37
(A) the length of time that it will be required to
hold the Buyer Common Stock or the shares of Buyer Common
Stock Underlying the Buyer Warrants; and
(B) the profit or loss that may be realized as a
result of an investment in the Buyer Common Stock or the Buyer
Warrants.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees that
(except as expressly contemplated or permitted by this Agreement or the relevant
subsection in Section 5.1 of the Company Disclosure Schedule):
(a) Ordinary Course.
(i) The Company shall carry on business in the usual,
regular and ordinary course, in substantially the same manner
as heretofore conducted, and shall use their commercially
reasonable efforts to keep available the services of its
present officers and key employees (including, without
limitation, those employees of the Company entering into
employment agreements with the Buyer on or about the date of
this Agreement), preserve intact their present lines of
business, maintain its rights and franchises and preserve its
relationships with customers, suppliers and others having
business dealings with it.
(ii) The Company shall not (A) enter into any new
line of business, (B) incur or commit to any capital
expenditures or any obligations or liabilities in connection
therewith other than capital expenditures which individually
and in the aggregate do not exceed $25,000 or make payments in
connection with any of the foregoing, (C) except in the
ordinary course under the Company's existing line of credit,
incur any additional indebtedness in a single transaction or a
group of related transactions having a value in excess of 2%
of the Company's assets or (D) except as set forth in Section
5.1(a)(ii)(D) of the Company Disclosure Schedule, enter into
any transaction with its Affiliates.
(b) Dividends; Changes in Share Capital. The Company shall not
and shall not propose to, (i) declare or pay any dividends on or make other
distributions 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 capital stock, (iii) except as set forth in Section
5.1(b)(iii) of the Company Disclosure Schedule, repurchase, redeem or otherwise
acquire any shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock except, in the case of clause
(ii) of this paragraph or this clause (iii) in connection with the issuance of
Company Common Stock upon the exercise of options, warrants or other rights to
purchase or otherwise acquire Company Common Stock outstanding and in existence
on the date of this Agreement.
(c) Issuance of Securities. The Company shall not, issue,
deliver, sell, pledge or dispose of, or authorize or propose the issuance,
delivery, sale, pledge or disposition of, any shares of its capital stock of any
class, any Voting Debt or any securities convertible into or exercisable for, or
any rights, warrants, calls or options to acquire, any such shares or Voting
Debt, or enter into any
38
commitment, arrangement, undertaking or agreement with respect to any of the
foregoing, other than as permitted under Section 5.1(b).
(d) Governing Documents. Except to the extent required to
comply with its obligations hereunder or with applicable law, the Company shall
not, amend or propose to amend its certificate of incorporation, bylaws or other
governing documents.
(e) No Acquisitions. The Company shall not acquire or agree to
acquire by merger or consolidation, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets (excluding the acquisition of assets used in the operations of the
business of the Company in the ordinary course, which assets do not constitute a
business unit, division or all or substantially all of the assets of the
transferor). The Company shall not enter into any material joint venture,
partnership or other similar arrangement.
(f) No Dispositions. The Company shall not to, sell, lease or
otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of
its assets other than in the Ordinary Course of Business.
(g) Investments; Indebtedness. The Company shall not (i) make
any loans, advances or capital contributions to, or investments in, any other
Person, other than in the Ordinary Course of Business which are not,
individually or in the aggregate, material to the Company (provided that none of
such transactions presents a material risk of making it more difficult to obtain
any approval or authorization required in connection with the Merger under
Regulatory Law) or (ii) except as set forth in Section 5.1(g)(ii) of the Company
Disclosure Schedule or in the Ordinary Course of Business, incur any
indebtedness for borrowed money or guarantee any indebtedness of another Person,
issue or sell any debt securities (except in connection with the incurrence of
indebtedness permitted under this paragraph) or warrants or other rights to
acquire any debt securities of the Company, enter into any "keep well" or other
agreement to maintain any financial statement condition of another Person or
enter into any arrangement having the economic effect of any of the foregoing
other than the refinancing of debt outstanding on the date hereof on
commercially reasonable terms and provided that the Company shall give the Buyer
prior notice of its intent to refinance any such debt and the proposed terms
thereof.
(h) Compensation. Except as required by law or by the express
terms of any collective bargaining agreement or other agreement currently in
effect and disclosed in writing to Buyer between the Company and any director,
officer, consultant or employee thereof, the Company shall not increase the
amount of compensation of, or pay any severance to (other than pursuant to
currently existing contracts or arrangements previously disclosed to Buyer or
non-material increases in the Ordinary Course of Business), any director,
officer, consultant or key employee of the Company or make any increase in or
commitment to increase or accelerate the payment of any employee benefit, grant
any additional Company Stock Options, adopt or amend or make any commitment to
adopt or amend any Company Benefit Plan or fund or make any contribution to any
Company Benefit Plan or any related trust or other funding vehicle, other than
regularly scheduled contributions to trusts funding qualified plans. The Company
shall not accelerate the vesting of, or the lapsing of restrictions with respect
to, any Company Stock Option or other stock-based award (other than pursuant to
currently existing agreements, contracts or arrangements set forth in Section
5.1(h) of the Company Disclosure Schedule), and any option granted or committed
to be granted after the date of this Agreement shall not accelerate as a result
of the approval or consummation of any transaction contemplated by this
Agreement.
(i) Accounting Methods. Except as required by a Governmental
Entity, the Company shall not change in any material respect its methods of
accounting in effect at December 31,
39
2001, except as required by changes in GAAP as concurred in by the Company's
independent public accountants.
(j) Litigation. The Company shall not settle or compromise any
material suit, action, proceeding or regulatory investigation pending for an
amount in excess of $100,000 or enter into any consent decree, injunction or
similar restraint or form of equitable relief in settlement of any suit, action,
proceeding or regulatory investigation pending.
(k) Intellectual Property. The Company shall not transfer or
license to any Person or otherwise extend, amend or modify any rights to the
Company Intellectual Property Rights, other than in the Ordinary Course of
Business or pursuant to any contracts, agreements, arrangements or
understandings currently in place that have been disclosed in writing to Buyer
prior to the date of this Agreement.
(l) Company Contracts. The Company shall not amend or
otherwise modify, or terminate, any Company Contracts, except in the Ordinary
Course of Business or enter into any material joint venture, lease, service or
other agreement of the Company.
(m) Certain Actions. The Company shall not take any action or
omit to take any action for the purpose of preventing, delaying or impeding the
consummation of the Merger or the other transactions contemplated by this
Agreement.
(n) No Related Actions. The Company shall not agree or commit
to do any of the foregoing.
5.2 Covenants of Buyer. During the period from the date of this
Agreement and continuing until the Effective Time, Buyer agrees as to itself and
its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement or the relevant subsection in Section 5.2 of the Buyer Disclosure
Schedule):
(a) Ordinary Course. Buyer and its Subsidiaries shall carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and shall use their
reasonable best efforts to keep available the services of their respective
present officers and key employees, preserve intact their present lines of
business, maintain their rights and franchises and preserve their relationships
with customers, suppliers and others having business dealings with them.
(b) Governing Documents. Except to the extent required to
comply with their respective obligations hereunder or with applicable law, Buyer
and Merger Sub shall not, and shall not permit their respective Subsidiaries to,
amend or propose to so amend their respective Certificates of Incorporation or
bylaws or other governing documents.
(c) Certain Actions. Buyer and its Subsidiaries shall not take
any action or omit to take any action for the purpose of preventing, delaying or
impeding the consummation of the Merger or the other transactions contemplated
by this Agreement.
(d) Dividends; Changes in Share Capital. Buyer shall not (i)
declare or pay any cash dividends on or make other distributions of property in
respect of any Buyer Capital Stock or (ii) split, combine or reclassify any
Buyer Capital Stock.
40
(e) Accounting Methods. Except as disclosed in Buyer SEC
Documents filed prior to the date of this Agreement, or as required by a
Governmental Entity, Buyer shall not change in any material respect its methods
of accounting in effect at December 31, 2001 except as required by changes in
GAAP as concurred in by Buyer's independent public accountants.
(f) Governmental Filings. The Buyer shall file all reports and
correspondence required to be filed by them with the SEC (and all other
Governmental Entities) between the date of this Agreement and the Effective Time
and shall, if requested by the other party and (to the extent permitted by
applicable law or regulation or any applicable confidentiality agreement)
deliver to the other party copies of all such reports, correspondence,
announcements and publications promptly upon request.
5.3 Control of Other Party's Business. Nothing contained in this
Agreement shall give Buyer, directly or indirectly, the right to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, each of the Company and Buyer shall exercise, consistent with
the terms and conditions of this Agreement, complete control and supervision
over its respective operations.
5.4 Cooperation. The Company and Buyer shall confer on a reasonable
basis with each other regarding operational matters and other matters related to
the Merger (to the extent permitted by applicable law or regulation or any
applicable confidentiality agreement).
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Further Assurance. At any time and from time to time from and after
the Effective Time, Buyer, Company and Noteholders will, at the request and
expense of the other parties hereto, execute, acknowledge and deliver, or cause
to be executed, acknowledged and delivered, such instruments and other documents
and perform or cause to be performed such acts and provide such information, as
may reasonably be required to evidence or effectuate the exchange and delivery
of the Company Notes in accordance with the Agreement or for the performance by
Noteholders, the Company or Buyer of any of their other respective obligations
under this Agreement.
6.2 Confidentiality.
(a) Each of the parties hereto agree with respect to the terms
and conditions of this Agreement, including, without limitation, the Merger
Consideration, and all information that is furnished or disclosed by another
party (collectively, "CONFIDENTIAL INFORMATION"), that (i) such Confidential
Information is confidential and/or proprietary to the furnishing/disclosing
party and is entitled to and shall receive treatment as such by the other
parties hereto; (ii) the other parties hereto will hold in confidence and not
disclose nor use (except in respect of the transactions contemplated by this
Agreement which shall include disclosure for such purposes to the other parties
and to Noteholders' or the Company's employees, agents or representatives who
are required to have the information in order to evaluate or engage in
discussions in connection therewith) any such Confidential Information, treating
such Confidential Information with the same degree of care and confidentiality
as they each accord its own confidential and proprietary information; provided,
however, that the other parties hereto shall not have any restrictive obligation
with respect to any Confidential Information which (A) is contained in a printed
publication available to the general public, (B) is or becomes publicly known
through no wrongful act or omission of such other party, (C) is known by such
other party without any proprietary restrictions by the furnishing/disclosing
party at the time of receipt of such Confidential Information; or (D) is
required by Law to be disclosed; and (iii) all such Confidential Information
furnished to any of the parties hereto by any other party hereto, unless
otherwise specified in writing, shall remain the property of the
41
furnishing/disclosing party, and in the event this Agreement is terminated,
shall be returned to it, together with any and all copies made thereof, upon
request for such return by it (except for documents submitted to an Authority
with the consent of the furnishing/disclosing party or upon subpoena and which
cannot be retrieved with reasonable effort).
(b) Each party hereto acknowledges that the remedy at law for
any breach by it of its obligations under Section 6.2(a) is inadequate and that
the other parties shall be entitled to equitable remedies, including an
injunction, in the event of breach by such party.
6.3 Agreement to Approve Merger.
(a) Each Noteholder hereby agrees to vote all of the shares of
Company Capital Stock held by it and entitled to vote in favor of the Merger and
the consummation of the transactions contemplated hereby at any meeting of the
Shareholders (or adjournment thereof) or otherwise.
(b) Each Noteholder hereby agrees to vote all of the shares of
Company Capital Stock held by it and entitled to vote against the approval of
any Acquisition Proposal or Superior Proposal.
6.4 Access to Information. Upon reasonable notice, the Company shall
afford to the officers, employees, accountants, counsel, financial advisors and
other representatives of Buyer reasonable access during normal business hours,
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments, records, officers and employees and, during such period,
the Company shall furnish promptly to Buyer (a) a copy of each material report,
schedule, registration statement and other document filed, published, announced
or received by it during such period pursuant to the requirements of U.S.
federal or state securities laws (other than documents that such party is not
permitted to disclose under applicable law or confidentiality agreement), and
(b) all other material information concerning it and its business, properties
and personnel as such other party may reasonably request; provided, however,
that the Company may restrict the foregoing access to the extent that (i) any
law, treaty, order, judgment, decree, rule or regulation of any Governmental
Entity applicable to it or any agreement or contract requires it to restrict or
prohibit access to any such properties or information or (ii) the information is
subject to confidentiality obligations to a third party or (iii) the information
is subject to the attorney-client privilege, work product privilege concerning
pending or legal procedures or governmental investigations.
6.5 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each party hereto will use its reasonable best efforts to
promptly take, or cause to be taken, all actions, and to promptly do, or cause
to be done, all things necessary, proper or advisable under this Agreement and
applicable laws and regulations to consummate the Merger and the other
transactions contemplated by this Agreement as soon as practicable after the
date hereof, including (i) preparing and filing as promptly as practicable all
documentation to effect all necessary applications, notices, petitions, filings
and other documents and to obtain as promptly as practicable all Necessary
Consents and all other consents, waivers, licenses, orders, registrations,
approvals, permits, rulings, authorizations and clearances necessary or
advisable to be obtained from any third party and/or any Governmental Entity in
order to consummate the Merger or any of the other transactions contemplated by
this Agreement (collectively, the "REQUIRED APPROVALS") and (ii) taking all
reasonable steps as may be necessary to obtain all such Necessary Consents and
the Required Approvals. In furtherance and not in limitation of the foregoing,
each of Buyer and the Company agrees (i) to make, as promptly as practicable,
all necessary filings with Governmental Entities relating to the Merger, and, to
supply as promptly as practicable any additional information or documentation
that may be requested pursuant to such laws or by such Governmental
42
Entities and to use reasonable best efforts to cause the receipt of Required
Approvals under such other laws or from such Governmental Entities as soon as
practicable. Notwithstanding anything to the contrary in this Agreement, neither
Buyer nor the Company nor any of the Buyer's Subsidiaries shall be required to
hold separate (including by trust or otherwise) or to divest or agree to divest
any of their respective businesses or assets, or to take or agree to take any
action or agree to any limitation that could reasonably be expected to have a
Material Adverse Effect on Buyer (assuming the Merger has been consummated) or
to substantially impair the benefits to Buyer, as of the date hereof, to be
realized from consummation of the Merger, and neither Buyer or the Company shall
be required to agree to or effect any divestiture, hold separate any business or
take any other action that is not conditional on the consummation of the Merger.
6.6 Acquisition Proposals.
(a) The Company agrees that neither it nor any of its officers
and directors shall, and that it shall use its reasonable best efforts to cause
its employees, agents and representatives (including any investment banker,
attorney or accountant retained by it) not to, directly or indirectly, (i)
initiate, solicit, encourage or knowingly facilitate any inquiries or the making
of any proposal or offer with respect to, or a transaction to effect, a merger,
reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving it,
or any purchase or sale of 25% or more of the consolidated assets of it, or any
purchase or sale of, or tender or exchange offer for, its equity securities
that, if consummated, would result in any Person (or the stockholders of such
Person) beneficially owning securities representing 25% or more of its total
voting power (or of the surviving parent entity in such transaction) (any such
proposal, offer or transaction (other than a proposal or offer made by Buyer or
an Affiliate thereof), an "ACQUISITION PROPOSAL"), (ii) have any discussion with
or provide any confidential information or data to any Person relating to an
Acquisition Proposal, or engage in any negotiations concerning an Acquisition
Proposal, or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal, (iii) approve or recommend, or propose publicly to approve
or recommend, any Acquisition Proposal or (iv) approve or recommend, or propose
to approve or recommend, or execute or enter into, any letter of intent,
agreement in principle, merger agreement, acquisition agreement, option
agreement or other similar agreement or propose publicly or agree to do any of
the foregoing related to any Acquisition Proposal.
(b) Notwithstanding the foregoing, nothing contained in this
Agreement shall prevent the Company or its Board of Directors from (i) taking
and disclosing to its stockholders a position contemplated by Rule 14d-9 and
Rule 14e-2(a) promulgated under the Exchange Act, (ii) prior to the Company
Stockholder Approval being obtained, providing access to properties, books and
records and providing information or data in response to a request therefor by a
person who has made an unsolicited bona fide written Acquisition Proposal if the
Board of Directors of the Company receives from the person so requesting such
information an executed confidentiality agreement on terms substantially similar
to those contained in the ThinkEquity Partners LLC Confidentiality Agreement
dated December 14, 2001 (except for such changes specifically necessary in order
for the Company to be able to comply with its obligations under this Agreement
and such Confidentiality Agreement) (provided that all such written information
that has not previously been supplied to Buyer is also provided on a prior or
substantially concurrent basis to Buyer), or (iii) prior to the Company
Stockholders Approval being obtained, engaging in any negotiations or
discussions with any person who has made an unsolicited bona fide written
Acquisition Proposal, if and only to the extent that in connection with the
foregoing clauses (ii) and (iii), (1) the Company's Board of Directors (after
consultation with its independent legal counsel) determines in good faith that
such action is legally required for the Board of Directors to comply with its
fiduciary duties to the Company's stockholders under applicable law, (2) such
Acquisition Proposal is not subject to any financing contingencies or is, in the
good faith judgment of the Company's Board of Directors (after consultation with
its financial advisor), reasonably capable of being financed by such other
person
43
and (3) the Company's Board of Directors determines in good faith after
consultation with its independent legal counsel and financial advisor (taking
into account among other things the legal, financial, regulatory and other
aspects of the proposal, the person making the proposal, the likelihood of
consummation and the time to complete such transaction) that such Acquisition
Proposal is reasonably likely to lead to a transaction that is reasonably
capable of being completed on the terms proposed and that, if consummated, would
reasonably be expected to result in a transaction more favorable to the
Shareholders and Noteholders collectively from a financial point of view than
the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "SUPERIOR
PROPOSAL").
(c) The Company agrees that it will promptly keep Buyer
informed of the status and terms of any inquiries, proposals or offers and the
status and terms of any discussions or negotiations, including the identity of
the party making such inquiry, proposal or offer.
(d) The Company agrees that it will, and will cause its
officers, directors and representatives to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this Agreement with any parties (other than Buyer) conducted heretofore with
respect to any Acquisition Proposal. The Company agrees that it will use
reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 6.6. Nothing in this Section 6.6 shall (x) permit the Company to
terminate this Agreement (except as specifically provided in Article VIII
hereof) or (y) affect or limit any other obligation of the Company under this
Agreement.
6.7 Fees and Expenses. Subject to Section 8.2, whether or not the
transactions contemplated hereby are consummated, all Expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party hereto incurring such Expenses.
6.8 General Restrictions on Transfer. (a) In no event will any
Noteholder sell, transfer, assign, pledge, hypothecate or otherwise dispose of
("TRANSFER") all or any portion of the Buyer Common Stock issued pursuant to
this Agreement prior to the six-month anniversary of the Effective Time. After
the six-month anniversary of the Effective Time, Noteholder shall be permitted
to transfer up to 25% of the total number of shares of Buyer Common Stock and
Buyer Warrants received by any such Noteholder. Thereafter, each Noteholder
shall be permitted to Transfer up to an additional 25% of the total number of
shares of Buyer Common Stock and Buyer Warrants received by such Noteholder
pursuant to this Agreement on or after each successive six-month anniversary of
the Effective Time.
(b) Buyer shall not be required (i) to reflect on its books
any purported Transfer in violation of any of the provisions set forth in this
Section 6.8, (ii) to treat any purported transferee of such Buyer Common Stock
or Buyer Warrant as a record owner of such Buyer Common Stock or Buyer Warrant,
or (iii) to afford such purported transferee any right to vote, or to receive
dividends in respect of, such Buyer Common Stock.
(c) Notwithstanding the foregoing provisions, each Noteholder
may Transfer the Buyer Common Stock in accordance with the Exchange Act and
Securities Act to (i) a spouse, a lineal ancestor or descendant, or adopted
child, of such Noteholder, (ii) a trust for the primary benefit of any of such
Noteholder or the foregoing, (iii) in the case of a Noteholder that is a
partnership, any Person that is a current or former limited or general partner
of such partnership; (iv) in the case of a Noteholder that is a limited
liability company, any Person that is a current or former member of such
Noteholder or (v) to any affiliate of such Noteholder; provided, that the
transferee of such Buyer Common Stock shall agree to be bound by the limitations
set forth in this Section 6.8.
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6.9 Public Announcements. Buyer, OpCo, Merger Sub and the Company shall
consult with each other before issuing any press release or otherwise make any
public statement with respect to the Merger or this Agreement and, except as
required by law shall not issue any such press release or make any such public
statement, without the other party's consent, such consent not to be
unreasonably withheld or delayed.
6.10 Notification of Certain Matters. Buyer and the Company shall
promptly notify each other of (i) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (A) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (B) to cause
any covenant, condition or agreement under this Agreement not to be complied
with or satisfied in any material respect and (ii) any failure of Buyer or the
Company, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
representations or warranties of any party or the conditions to the obligations
of any party hereunder. Each of Buyer and the Company shall give prompt notice
to the other party of any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
6.11 Company Options. The Company shall terminate each Company Option
(whether vested or unvested), if any, that is not exercised on or before the
Effective Time, as of the Effective Time, on terms and conditions satisfactory
to Buyer. Prior to the Effective Time, Company shall deliver to Buyer, in form
reasonably satisfactory to Buyer, evidence that each holder's rights pursuant to
the Company Option Plans and Company Options granted thereunder to acquire
Company Shares or to receive any other compensation shall be terminated or
cancelled and will be of no further force or effect, from and after the
Effective Time.
6.12 Company Audited 2001 Financial Statements. Prior to the Closing
Date, the Company will initiate the preparation of financial statements as at
December 31, 2001 and shall cooperate with and assist the Buyer and the
independent certified public accountants chosen by Buyer, in the audit of such
financial statements in accordance with GAAP.
6.13 Non-Solicitation.
(a) FS Private or any of its Affiliates, for a period of two
(2) years from and after the Closing Date, shall not, directly or indirectly, or
as the agent of another Person or through other Persons as an agent:
(i) solicit any current employee of the Company,
Buyer or any of Buyer's Subsidiaries or any individual who
becomes an employee during such period to leave such
employment, provided, however, that FS Private and any of its
Affiliates may hire such employees after twelve months
following the Closing Date as long as such employees were not
solicited by FS Private or any of its Affiliates; or
(ii) seek to divert or dissuade from continuing to do
business with or entering into business with any of the
Company, Buyer or any of Buyer's Subsidiaries, any supplier,
customer, consultant or other Person that had a business
relationship with or with which any of the Company, Buyer or
any of Buyer's Subsidiaries was actively planning or pursuing
a business relationship during such two-year period.
45
(b) In the event of a breach or threatened breach of this
Section 6.13, Buyer shall be entitled to an injunction restraining such breach.
Nothing herein contained shall be construed as prohibiting any party from
pursuing any other remedy available to it for such breach or threatened breach.
6.14 Additional Payments.
(a) At or promptly after the Effective Time, Buyer shall make
the following payments: (i) $750,000 to ThinkEquity for the performance of
services referred to in Section 4(x) of this Agreement, (ii) an amount equal to
the TransAmerica Debt outstanding and (iii) $250,000 to Stroock & Stroock &
Lavan LLP for costs and expenses incurred by the Company in connection with the
negotiation and documentation of the Merger and related matters.
(b) Buyer shall make the following payments: (i) payments of
$900,000 in the aggregate to key employees of the Company in accordance with the
Management Change of Control Incentive Plan, (ii) severance payment of $225,000
to Scott Redd pursuant to his employment agreement with the Company dated as of
November 1, 2000, in accordance with the terms of such agreement and (iii)
$750,000 to EOP in respect of the termination of the Company's lease for the
Mountain View, California premises, in accordance with the lease termination
agreement between EOP and the Company.
6.15 Registration Rights. Buyer will, within six (6) months after the
Closing Date, prepare and file with the SEC a registration statement on Form
S-3, (the "S-3 REGISTRATION STATEMENT"), in connection with the registration
under the Securities Act of the Buyer Common Stock issued in connection with
this Agreement, and the Buyer Common Stock issuable upon exercise of the Buyer
Warrants or pursuant to Section 3.7, as the case may be, containing a resale
prospectus for such Buyer Common Stock in connection with the registration under
the Securities Act of such Buyer Common Stock. The Buyer will, and will cause
its accountants and lawyers to, use their reasonable best efforts to have or
cause the S-3 Registration Statement declared effective as promptly as
practicable after such filing, including, without limitation, causing its
accountants to deliver necessary or required instruments such as opinions,
consents and certificates, and will take any other action required or necessary
to be taken under federal or state securities laws or otherwise in connection
with the registration process. Buyer shall also take any action required to be
taken under state "blue sky" or other securities laws in connection with the
issuance of shares of Buyer Common Stock pursuant to this Agreement or the Buyer
Warrants and pursuant to the S-3 Registration Statement. The Noteholders
acknowledge that the Escrow Shares shall be subject to the provisions of Article
IX. In connection with the S-3 Registration Statement, Buyer will:
(i) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective until the time that all the
shares of Buyer Common Stock have been sold pursuant thereto
or pursuant to Rule 144 under the Securities Act and to comply
with the provisions of the Securities Act with respect to the
disposition of all Buyer Common Stock covered by such
registration statement during such time in accordance with the
intended methods of disposition by the holders thereof set
forth in such registration statement;
(ii) furnish to each holder of Buyer Common Stock
covered by such registration such reasonable number of copies
of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration
statement (including each preliminary prospectus) and such
other documents as such
46
holder may reasonably request in order to facilitate the
disposition of such Buyer Common Stock;
(iii) notify each holder of Buyer Common Stock
covered by such registration, at any time when a prospectus
relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement
(or any document incorporated therein by reference) contains
an untrue statement of a material fact or omits to state any
fact necessary to make the statements therein not misleading,
and prepare a supplement or amendment to such prospectus (or
any document incorporated therein by reference) immediately
thereafter so that such prospectus (or any document
incorporated therein by reference) will not contain an untrue
statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(iv) cause all such Buyer Common Stock covered by
such registration to be listed on each securities exchange or
automated quotation system on which similar securities issued
by the Buyer are then listed;
(v) make available at the Company's principal place
of business for inspection by any holder of Buyer Common Stock
covered by such registration, and any attorney, accountant or
other agent retained by any such holder, all financial and
other records, pertinent corporate documents and properties of
Buyer and cause Buyer's officers, directors and employees to
supply all information reasonably requested by any such
holder, attorney, accountant or agent in connection with such
registration statement or such other document;
(vi) otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC;
(vii) pay all registration expenses for the S-3
Registration Statement, except for underwriting discounts and
commissions and agency fees and the fees and disbursements of
any counsel or other advisors retained by any holder of Buyer
Common Stock; and
(viii) indemnify each holder of Buyer Common Stock
included in the S-3 Registration Statement, each such holder's
officers, directors and partners, and each person controlling
such holder (within the meaning of the Securities Act and the
rules and regulations thereunder), against all claims, losses,
damages, liabilities (or actions in respect thereof) and
expenses arising out of or based on any untrue or alleged
untrue statement of a material fact contained in the S-3
Registration Statement, prospectus or preliminary prospectus
or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation
by Buyer of the Securities Act or any rule or regulation
thereunder which violation relates to action or inaction
required of Buyer in connection with such registration, and
will reimburse each such holder, such holder's officers,
directors, partners and members, and each person controlling
such holder for any legal and any other expenses incurred in
connection with investigating or defending any such claim,
loss, damage, liability or action, provided that Buyer will
not be liable in any such case to the extent that any such
claim, loss, damage, liability or action arises out of or is
based on any untrue or alleged untrue statement or omission or
alleged omission of
47
material fact based upon written information furnished to
Buyer by such holder and stated to be specifically for use
therein.
Each such holder will, severally and not jointly,
indemnify each of Buyer, each of Buyer's directors and
officers and each person who controls Buyer (within the
meaning of the Securities Act and the rules and regulations
thereunder), each other holder whose Buyer Common Stock is
included in such registration and each of such other holder's
officers, directors and partners and each person controlling
such other holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) and expenses
arising out of or based on any untrue or alleged statement of
a material fact contained in any such registration statement,
prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading, and will reimburse Buyer, its officers and
directors, each person controlling Buyer, each such other
holder, and such other holder's officers, directors, partners
and control persons for any legal and any other expenses
reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action,
in each case to the extent, but only to the extent, that such
untrue or alleged statement or omission or alleged omission is
made in such registration statement, prospectus or preliminary
prospectus in reliance upon and in conformity with written
information furnished to Buyer by such holder and stated to be
specifically for use therein; provided, however, that no such
holder shall be required to undertake liability to any
Indemnified Party under this Section 6.15 for any amounts in
excess of the dollar amount of the proceeds from the sale of
such holder's registrable Buyer Common Stock or Buyer Common
Stock issuable upon exercise of the Buyer Warrants pursuant to
the S-3 Registration Statement. The indemnification
obligations of the holders of Buyer Common Stock included in
the S-3 Registration Statement pursuant to this Section 6.15
shall be in addition to any liabilities such holder may
otherwise have pursuant to this Agreement and the
indemnification obligations hereunder shall not be subject to
any limitations on liabilities set forth elsewhere in this
Agreement.
Each party entitled to indemnification under this
Section 6.15 (an "INDEMNIFIED PARTY") shall give notice to the
party required to provide indemnification (an "INDEMNIFYING
PARTY") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought,
and, unless in such Indemnified Party's reasonable judgment a
conflict of interest may exist between such Indemnified Party
and such Indemnifying Party with respect to such claim, shall
permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom provided that
counsel for the Indemnifying Party, who shall conduct the
defense of such claim or any litigation resulting therefrom,
shall be reasonably satisfactory to the Indemnified Party, and
the Indemnified Party may participate in such defense at such
party's expense, and provided, further, that the failure of
any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under
this Section 6.15, except to the extent that the Indemnifying
Party's ability to conduct such defense shall have been
materially prejudiced by such failure. To the extent that, in
the opinion of counsel to the Indemnified Party, a conflict of
interest exists between an Indemnified Party and the
Indemnifying Party, then such Indemnified Party shall be
entitled to separate counsel at the expense of the
Indemnifying Party. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with the defense of
such claim and any litigation resulting therefrom.
48
Each holder of Buyer Common Stock included in the S-3
Registration Statement shall furnish to Buyer such information
regarding such holder and the distribution proposed by such
holder as the Buyer may reasonably request in writing and as
shall be reasonably required in connection with any
registration, qualification or compliance referred to in this
Section 6.15.
6.16 Tax Matters and Indemnity.
(a) Each of the parties hereto agrees that, for all federal,
state, and local income Tax purposes, (i) the Company Notes shall be treated as
equity in the Company and (ii) the Merger shall be treated as a sale by the
Company of its assets to Merger Sub in consideration for the Merger
Consideration and the assumption of the Company's liabilities by Merger Sub (the
"DEEMED ASSET SALE") followed by the liquidation of the Company. Each of the
parties agrees not to take any position, or make any filing, with a taxing
authority, that is inconsistent with the foregoing sentence.
(b) The parties shall use their best efforts to enter into an
agreement as soon as possible after the Closing Date to allocate the Merger
Consideration and assumed liabilities to the assets of the Company acquired in
the Deemed Asset Sale in accordance with Code section 1060 and the regulations
promulgated thereunder. Buyer shall deliver to the Noteholder Representative a
proposed allocation of the Merger Consideration and assumed liabilities within
60 days after the Closing Date. If the Noteholder Representative does not object
in writing to the proposed allocation within 20 days, such proposed allocation
shall be deemed accepted and used in completing the final income Tax Returns of
the Company. If the Noteholder Representative objects to Buyer's proposed
allocation, the Noteholder Representative shall give Buyer its reasons for the
objection, and Buyer and the Noteholder Representative shall use reasonable
efforts to resolve their differences. If 30 days after the date on which the
Noteholder Representative has given Buyer its notice of objections, the parties
have not adopted an agreed allocation, any dispute related thereto shall be
referred to, and resolved by, the Independent Auditors within 30 days after such
referral. The Independent Auditors' determination shall be conclusive and
binding upon the parties hereto. The costs, expenses, and fees of the
Independent Auditors shall be paid from the Escrow Fund. The Buyer shall use the
agreed allocation pursuant to this Section 6.16(b) to complete IRS Form 8594 for
the Company and for Merger Sub and to complete the final income Tax Returns of
the Company. A copy of the Company's and Merger Sub's IRS Form 8594 shall be
delivered to the Noteholder Representative.
(c) Buyer shall prepare, or cause to be prepared, and timely
file, the 2001 income Tax Returns of the Company and the final income Tax
Returns of the Company for the taxable period that ends on the Closing Date. At
least 30 days prior to the due date of such Tax Returns, Buyer shall submit to
the Noteholder Representative for its review a copy of each such Tax Return. If
Noteholder Representative objects to a Tax Return in writing within 10 days of
its submission, Buyer and Noteholder Representative will negotiate to resolve
their differences before the due date of the Tax Return; provided however, Buyer
shall not be required to accept the Noteholder Representative's comments unless
the Noteholder Representative (i) agrees in writing to separately indemnify
Buyer and its Affiliates with respect to such income Tax Return for as long as
the statute of limitation for such return is open, (ii) posts with Buyer such
securities, cash, or other property to secure such indemnity for such period as
Buyer determines is necessary and (iii) provides Buyer, at Noteholder
Representative's expense, with an opinion of the Independent Auditors or
nationally recognized tax counsel that Noteholder Representative's position will
more likely than not be upheld upon challenge. If no written objection is made
to Buyer within such 10-day period, Noteholder Representative will be deemed to
have accepted such income Tax Returns. Except as otherwise provided in this
section 6.16(c), any Taxes due with respect to such income Tax Returns or
third-party out-of-pocket costs in preparing such Tax Returns shall be paid only
from the Escrow Fund.
49
(d) Within 30 days of the Closing Date, Buyer shall prepare
and file for the Company IRS Form 966 identifying the Merger as a liquidation of
the Company. If required by applicable law, Buyer shall cause the Company to
timely prepare and file with the IRS and each non-exempt recipient of the Merger
Consideration IRS Form 1099-DIV to report liquidation proceeds.
(e) Without the prior written approval of the Buyer, the
Noteholders shall not allow the Company on or before the Effective Time: (i) to
change its fiscal year, (ii) to make any Tax election that, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect on
the Buyer or its Affiliates, (iii) to change any Tax method of accounting, (iv)
to settle any Tax claim or assessment, or (v) to surrender any right to claim a
Tax refund or to any extension or waiver of the limitations period applicable to
any Tax claim or assessment.
(f) The Noteholders shall cause the Company to prepare and
file all Tax Returns of the Company due (taking into account any effective
extensions in the time for filing) on or prior to the Closing Date, which Tax
Returns shall be prepared and filed timely (taking into account any effective
extensions in the time for filing) and on a basis consistent with prior practice
with respect to the treatment of specific items on such Tax Returns; provided,
however, that if the treatment of an item on any such Tax Return has not been
provided by prior practice, the Noteholders shall cause the Company to report
such items in a manner that would result in the least amount of Tax liability to
the Buyer and its Affiliates for periods ending after the Closing Date provided
there is controlling legal support for such position and to do so does not cause
or increase a tax liability of the Company. Buyer shall cause the Surviving
Corporation to prepare and file all Tax Returns of the Company and Merger Sub
due after the Closing Date; which Tax Returns, to the extent they relate to
taxable periods of the Company beginning prior to the Closing Date and ending
after the Closing Date, shall be prepared and filed timely and on a basis
consistent with existing procedures for preparing such Tax Returns and in a
manner consistent with prior practice with respect to the treatment of specific
items on such Tax Returns, unless such treatment does not have sufficient legal
support to avoid the imposition of penalties.
(g) Buyer and the Noteholders shall provide each other with
such assistance as may reasonably be requested by the others in connection with
the preparation of any Tax Return, any audit or other examination by any taxing
authority, or any judicial or administrative proceedings relating to liabilities
for Taxes. Such assistance shall include making employees available on a
mutually convenient basis to provide additional information or explanation of
material provided hereunder and shall include providing copies of relevant Tax
Returns and supporting material. The party requesting assistance hereunder shall
reimburse the assisting party for reasonable out-of-pocket expenses incurred in
providing assistance. Buyer and the Noteholders will retain for the full period
of any statute of limitations and provide the others with any records or
information which may be relevant to such preparation, audit, examination,
proceeding or determination.
(h) During the period in which the Escrow Fund is in place or
a separate indemnity agreement is in place pursuant to Section 6.16(c), if in
connection with any examination, investigation, audit or other proceeding in
respect of any Tax Return covering the operations of the Company on or before
the Closing Date, any governmental body or authority issues to the Company,
Buyer, or Merger Sub a written notice of deficiency, a notice of reassessment, a
proposed adjustment, an assertion of claim or demand concerning the taxable
period covered by such Tax Return, Buyer shall notify Noteholders of its receipt
of such communication from the governmental body or authority within thirty (30)
business days after receiving such communication. No failure or delay of Buyer
in the performance of the foregoing shall reduce or otherwise affect the
obligations or liabilities of Noteholders pursuant to this Section 6.16, except
to the extent that such failure or delay shall have adversely affected the
Noteholders' ability to defend against any liability or claim for Taxes that the
Noteholders are obligated to pay hereunder. Except as provided below, during the
period in which the Escrow Fund is in place or a
50
separate indemnity agreement is in place pursuant to Section 6.16(c) the
Noteholders shall, at their expense, have the right to participate in the
contest of any such assessment, proposal, claim, reassessment, demand or other
proceedings in connection with any Tax Return covering taxable periods of the
Company ending on or before the Closing Date. Buyer will not settle or resolve
any issues related to Taxes for such period unless it obtains the prior written
consent of the Noteholder Representative. If any examination, investigation,
audit or other proceeding relates to a Tax Return for a period that begins after
the Closing Date or begins before and ends after the Closing Date, Buyer and its
Affiliates shall solely participate in, control and resolve such examination,
investigation, audit or other proceeding, provided that, during the period in
which the Escrow Fund is in place or a separate indemnity agreement is in place
pursuant to Section 6.16(c), Buyer shall communicate with the Noteholders
regarding the status of such examination, investigation, audit or proceeding,
and Buyer shall not settle or resolve any examination, investigation, audit or
other proceeding for Taxes for a taxable period (including portions thereof)
ending on or prior to the Closing Date unless it obtains the approval of the
Noteholder Representative or agrees to release the Noteholders from any
indemnification liability with respect to such Tax claim. After the Escrow Fund
and any separate indemnity agreement under Section 6.16(c) hereof have
terminated, the Noteholders shall have no further right to participate in an
examination, investigation, audit or other proceeding for Taxes of the Company
unless the Noteholders separately agree in writing to indemnify Buyer and its
Affiliates with respect to such Taxes and post with Buyer such securities, cash,
or other property to secure such indemnity for such period as Buyer determines
is necessary.
(i) The Noteholders shall indemnify Buyer and its Affiliates
for any losses and expenses (including attorneys' fees and costs) incurred with
respect to (i) Taxes of the Company for taxable periods or portions thereof
ending on or prior to the Closing Date; or (ii) failing to comply with their
obligations under this Section 6.16. With respect to liability for Taxes of the
Company for a taxable period that begins before but does not end on the Closing
Date, the Tax liability shall be deemed allocated to the period prior to the
Closing Date based on the number of days in the period before and including the
Closing Date to the number of days in the whole taxable period. If there is an
adjustment on any Tax Return for the Company which creates a deficiency in Taxes
for which Noteholders are liable under this Section 6.16, Buyer may withdraw the
Taxes from the Escrow Fund only. Except with respect to Taxes on the final
income Tax Returns of the Company described in Section 6.16(c), no indemnity of
Noteholders shall be payable under this Section 6.16 until the occurrence of any
action by any taxing authority that is final or, if not final, is acquiesced in
by Noteholders during the course of any audit or any proceeding relating to
Taxes. The indemnity obligations under this Section 6.16 shall control over any
provisions in Section 9.3 of this Agreement, except that Section 9.3 shall
govern any indemnity with respect to any breach by the Company of its
representations and warranties in Section 4.1(p).
(j) Each Noteholder shall be responsible for, and indemnify
the Buyer with respect to, any recording, transfer, documentation, or similar
Tax imposed or resulting on the exchange of the Buyer Common Stock for the
Company Notes.
(k) Except to the extent the Noteholders elect to enter into a
separate indemnity agreement pursuant to Section 6.16(c), the indemnification
obligations of the Escrow Noteholders under this Section 6.16 constitute and
shall be the sole and exclusive right and remedy of the Buyer against the
Noteholders for any Adverse Consequence arising out of or relating to (i) Taxes
of the Company for taxable periods or portions thereof ending on or prior to the
Closing Date or (ii) the failure of any Noteholder to comply with its
obligations under this Section 6.16. Except to the extent the Noteholders elect
to enter into a separate indemnity agreement pursuant to Section 6.16(c), the
maximum amount of any payments for Adverse Consequences arising under this
Section 6.16, together with any payments for Adverse Consequences arising under
Section 9.3, shall not exceed the value of the Escrow Fund. Except to the extent
the Noteholders elect to enter into a separate indemnity agreement pursuant to
Section
51
6.16(c), after the Closing Date, the sole remedy of the Buyer with
respect to every matter under this Section 6.16 and the sole source of
satisfying such remedy shall be, the Escrow Fund.
6.17 Surviving Corporation. From and after the Effective Time, Buyer
shall use commercially reasonable efforts to develop, market, commercialize and
sell the Surviving Corporation's products and services.
6.18 Director and Officer Indemnification. (a) For four years after the
Effective Time, the Surviving Corporation shall, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date
hereof or who becomes prior to the Effective Time, an officer or director of the
Company (each a "COMPANY INDEMNIFIED PARTY") against all losses, claims,
damages, liabilities, fees and expenses (including reasonable fees and
disbursements of counsel and judgments, fines, losses, claims, liabilities and
amounts paid in settlement (provided that any such settlement is effected with
the prior written consent of Buyer, which will not be unreasonably withheld))
arising in whole or in part out of actions or omissions in their capacity as
such occurring at or prior to the Effective Time to the full extent permitted
under DGCL (or the laws of such other state in which the Surviving Corporation
may subsequently be domesticated if at least as favorable) or the Surviving
Corporation's certificate of incorporation and bylaws, except to the extent such
amounts are paid under directors' and officers' liability insurance; provided,
that any determination required to be made with respect to whether a Company
Indemnified Party's conduct complies with the standards set forth under the DGCL
(or the laws of such other state in which the Surviving Corporation may be
subsequently be domesticated if at least as favorable), the Surviving
Corporation's certificate of incorporation or bylaws, as the case may be, shall
be made by independent counsel mutually acceptable to the Surviving Corporation
and the Company Indemnified Party; and provided, further, that nothing herein
shall impair any rights or obligations of any Company Indemnified Party. In the
event that any claim or claims are brought against any Company Indemnified Party
(whether arising before or after the Effective Time), such Company Indemnified
Party may select counsel for the defense of such claim, which counsel shall be
reasonably acceptable to the Buyer.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of the Company and Buyer to effect the Merger are subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company shall have obtained the
Company Stockholder Approval.
(b) No Injunctions or Restraints; Illegality. No law shall
have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
Governmental Entity of competent jurisdiction shall be in effect, having the
effect of making the Merger illegal or otherwise prohibiting consummation of the
Merger.
7.2 Additional Conditions to Obligations of Buyer. The obligations of
Buyer to effect the Merger are subject to the satisfaction, or waiver by Buyer,
on or prior to the Closing Date, of the following conditions:
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(a) Representations and Warranties.
(i) Each of the representations and warranties of the
Company and Noteholders set forth in this Agreement that is
qualified as to materiality or Material Adverse Effect shall
be true and correct in all respects as of the date of this
Agreement and as of the Closing Date as though made on and as
of the Closing Date (except to the extent such representations
and warranties specifically relate to an earlier date, in
which case such representations and warranties shall be true
and correct as of such earlier date) and each of such
representations and warranties that is not so qualified shall
be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on
and as of the Closing Date (except to the extent that such
representations and warranties specifically relate to an
earlier date in which case such representations and warranties
shall be true and correct in all material respects as of such
earlier date).
(ii) Buyer shall have received a certificate of the
chief executive officer and the chief financial officer of the
Company, and a certificate of the Noteholder Representative,
each dated the Closing Date, to the effect set forth in
subsections (i) above.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing; and Buyer shall
have received a certificate signed on behalf of the Company by the chief
executive officer and chief financial officer of the Company to such effect.
(c) Performance of Obligations of the Noteholders. The
Noteholders shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing; and Buyer and Company shall have received a certificate signed on
behalf of each Noteholder by an authorized representative of such Noteholder to
such effect.
(d) Third Party Consents. The Company shall have obtained all
consents and approvals of third parties referred to in Section 7.2(c) of the
Company Disclosure Schedule.
(e) No Material Adverse Effect. There shall have occurred no
Material Adverse Effect in or with respect to the business of the Company or the
Company since the date hereof.
(f) Opinion of Counsel. Buyer shall have received the opinion
of counsel of Stroock & Stroock & Lavan LLP, as counsel to the Company, dated
the Closing Date, in a form and subject to such expectations as are customary
for transactions similar to those contemplated hereby, which form shall be
reasonably acceptable to Buyer.
(g) Tax Opinion. The Buyer shall have received a copy of the
opinion from PriceWaterhouseCoopers LLP to the Company, at the expense of the
Escrow Noteholders, that concludes, after a reasonable good faith analysis of
the material facts and applicable tax law: (i) the Company will have for federal
income Tax purposes at the Effective Time (A) adjusted basis in its assets of at
least $10 million and (B) net operating losses, net operating loss carryforwards
(after application of Code section 382) and net unrealized built-in gain within
the meaning of Code section 382 of at least $30 million and (ii) for all state
income Tax purposes, the Company will not incur any material income Tax
liability from the transactions contemplated by this Agreement.
(h) Bonus Payments. Buyer shall have received assurance
reasonably satisfactory to it that the costs associated with contractual
payments under the Management Change of Control Incentive Plan following the
consummation of the transactions contemplated hereby shall not be greater than
53
$900,000. Except as set forth in Section 7.2(h) of the Company Disclosure
Schedule, the Buyer shall not be responsible, nor shall the Surviving
Corporation be responsible, for any change in control payments or other bonus
payments to any current or former employees of the Company other than those set
forth in this Section 7.2(h).
(i) Dissenters. Shareholders owning an aggregate percentage
interest of at least the respective percentage interests of the classes and
series of Company Capital Stock described in Exhibit B hereto shall have
consented to the Merger.
7.3 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are subject to the satisfaction,
or waiver by the Company, on or prior to the Closing Date, of the following
additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Buyer and Merger Sub set forth in this
Agreement that is qualified as to materiality or Material Adverse Effect shall
be true and correct in all respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the
extent such representations and warranties specifically relate to an earlier
date, in which case such representations and warranties shall be true and
correct as of such earlier date) and each of such representations and warranties
that is not so qualified shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except to the extent that such representations and
warranties specifically relate to an earlier date in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date). The Company shall have received a certificate
of the chief executive officer and the chief financial officer of Buyer and an
authorized officer of Merger Sub, dated the Closing Date, to such effect.
(b) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing; and the Company shall have
received a certificate signed on behalf of Buyer by the chief executive officer
and chief financial officer of Buyer to such effect.
7.4 Additional Conditions to Obligations of the Noteholders. The
respective obligations under this Agreement of the Noteholders to exchange the
Company Notes pursuant to this Agreement are subject to the satisfaction or
waiver by the Noteholders on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Buyer set forth in this Agreement that is
qualified as to materiality or Material Adverse Effect shall be true and correct
in all respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent such
representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall be true and correct as of such
earlier date) and each of such representations and warranties that is not so
qualified shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent that such representations and warranties
specifically relate to an earlier date in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date). The Noteholders shall have received a certificate of the chief executive
officer and the chief financial officer of Buyer dated the Closing Date, to such
effect.
(b) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing; and
54
the Noteholders shall have received a certificate signed on behalf of Buyer by
the chief executive officer and chief financial officer of Buyer to such effect.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing only as follows:
(a) by mutual written consent of the Company and Buyer;
(b) by the Company if OpCo, Merger Sub or Buyer is in material
breach of any material representation, warranty or covenant under this Agreement
(and Noteholders and Company are not then in material breach of any material
representation, warranty or covenant of this Agreement);
(c) by Buyer if any Noteholder or the Company is in material
breach of any material representation, warranty or covenant under this Agreement
(and OpCo, Merger Sub or Buyer are not then in material breach of any material
representation, warranty or covenant);
(d) by the Company if, at or before the Closing, any condition
set forth herein for the benefit of Noteholders and the Company shall not have
been timely met and cannot be met on or before the Closing Date and has not been
waived;
(e) by the Company, if, prior to the Company Stockholder
Approval having been obtained, the Company receives an unsolicited bona fide
written Acquisition Proposal that the Company's Board of Directors determines in
good faith after consultation with its independent legal counsel and financial
advisor is a Superior Proposal;
(f) by Buyer if, at or before the Closing, any condition set
forth herein for the benefit of Buyer, OpCo or Merger Sub shall not have been
timely met and cannot be timely met on or before the Closing Date and has not
been waived; or
(g) by Buyer or the Company or the Noteholder Representative
if the Closing shall not have occurred on or before May 17, 2002 (and such
terminating party is not then in material breach of any material representation,
warranty or covenant of this Agreement).
8.2 Effect of Termination.
(a) In the event of termination of this Agreement by either
the Company or Buyer as provided in Section 8.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of any
party hereto or their respective officers or directors except with respect to
Section 4.1(x), Section 4.2(m), Section 6.2, Section 6.7, Section 6.9, this
Section 8.2 and Article X, which provisions shall survive such termination;
provided that, notwithstanding anything to the contrary contained in this
Agreement, neither Buyer nor the Company shall be relieved or released from any
liabilities or damages arising out of its willful material breach of this
Agreement.
(b) In the event of termination of this Agreement by either
the Company or Buyer as provided in Section 8.1, all confidential and/or
proprietary information of either party that is in the possession of the other
party at the time of such termination, including, without limitation, all
computer software, technical information, designs, schematics, documents,
reports, manuals, memoranda, business
55
information or customer lists, shall be immediately returned to the property
owner, and the confidentiality of any and all such material shall be maintained.
(c) The parties hereto acknowledge that the agreements
contained in this Section 8.2 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, neither
Buyer nor the Company would enter into this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto, at
any time before or after the Company Stockholder Approval, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval (unless made subject to such
approval). This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by the respective Boards of
Directors of the Buyer and the Company, 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 contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions 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 a written instrument signed on behalf of such party
hereto. The failure of any party hereto to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties. The representations and
warranties set forth in Article IV shall survive for a period of 12 months after
the Effective Time; provided, however, that if a notice is given as provided
herein before expiration of the representation or warranty, then notwithstanding
the expiration thereof any claim based on such representation or warranty shall
survive until the resolution of such claim.
9.2 Indemnification by Buyer. (a) Buyer agrees, subject to the other
terms and conditions of this Agreement, to indemnify the Noteholders (and
Noteholders' directors, officers, employees, controlling persons, affiliates,
successors, assigns, representatives, advisors and legal counsel (collectively,
the "NOTEHOLDER INDEMNITEES")) against, and hold them harmless from, any Adverse
Consequences of the Noteholders related to or arising out of (i) as of the date
hereof or the Closing Date, the breach of the representations and warranties of
Buyer, Merger Sub and OpCo contained in Section 4.2 hereof or (ii) the failure
by the Buyer, Merger Sub or OpCo to perform any of its covenants or obligations
hereunder or contained in this Agreement.
(b) No claim may be made after the Closing Date against Buyer
for indemnification pursuant to Section 9.2(a) unless the aggregate of all
Adverse Consequences of the Noteholders (exclusive of legal fees incurred in
connection with pursuing such claim) with respect to Section 9.2(a) shall in the
aggregate exceed $10,000; provided, however, THAT ANY LIABILITY OF BUYER UNDER
ARTICLE III OR SECTIONS 4.2(j) OR 6.7 OR 6.18 SHALL NOT BE SUBJECT TO SUCH
LIMITATIONS; AND PROVIDED, FURTHER that under no circumstances shall liability
of Buyer under Section 9.2(a) exceed $10,000,000. This Section 9.2 is not
intended to address the liability of Buyer for any breach of any representation,
warranty or covenant if the Merger is not consummated.
56
(c) The Noteholder Indemnitees agree to give Buyer through the
Noteholder Representative prompt written notice of any claim, assertion, event
or proceeding by or in respect of a third party of which they have knowledge
concerning any liability or damage as to which they may request indemnification
hereunder (a "CLAIM NOTICE" which contains (a) a description and the amount (the
"CLAIM AMOUNT") of such indemnification request, and (b) a statement that the
Noteholder Indemnitees are entitled to indemnification hereunder and a
reasonable explanation of the basis therefor (a copy of such Claim Notice shall
also be delivered to the Escrow Agent)); provided, however, that no delay on the
part of the Noteholder Representative in notifying Buyer shall relieve Buyer
from any liability or obligation hereunder unless (and then solely to the extent
that) Buyer can demonstrate that it was damaged by such delay. Buyer will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases the Noteholder Indemnitees from all liability
with respect thereto without the written consent of the Noteholder
Representative which will not be unreasonably withheld. Buyer shall have the
right to direct, at its own expense and through counsel of its own choosing, the
defense or settlement of any such claim or proceeding. The Noteholder
Representative shall provide Buyer with access to all records and personnel of
the Noteholder Indemnitees and the Company relating to any such claim,
assertion, event or proceeding during normal business hours and shall otherwise
cooperate with and assist, at Buyer's request, Buyer in the defense or
settlement thereof, and Buyer shall reimburse the Noteholder Representative for
all reasonable out-of-pocket expenses in connection therewith. If Buyer elects
to direct the defense of any such claim or proceeding, the Noteholder
Representative shall not pay, or permit to be paid, any part of any claim or
demand arising from such asserted liability unless Buyer consents in writing to
such payment or unless Buyer, subject to the last sentence of this Section
9.2(c), withdraws from the defense of such asserted liability or unless a final
judgment from which no appeal may be taken by or on behalf of the Noteholders'
Indemnitees or Buyer is entered against the Noteholder Representative for such
liability. If Buyer shall fail to assume the defense of such claim in the manner
provided above, or if, after commencing or undertaking any such defense, fails
to prosecute diligently or withdraws from such defense, the Noteholder
Representative shall have the right to undertake the defense or settlement
thereof, and the Noteholder Representative may defend against, or enter into any
settlement with respect to, the matter in any manner the Noteholder
Representative reasonably may deem appropriate.
(d) The indemnification obligations of the Buyer under this
Section 9.2 constitute and shall be the sole and exclusive right and remedy of
the Noteholder Indemnitees against the Buyer for any Adverse Consequences
arising out of or relating to this Agreement, including, without limitation,
with respect to any breach by the Buyer of any representation, warranty or
covenant hereunder; provided, however, nothing in this Section 9.2(d) shall
limit any equitable remedy, including injunction, that Noteholder Indemnitees
may have pursuant to this Agreement.
9.3 Indemnification by the Noteholders. (a) The Escrow Noteholders,
jointly and severally, agree, subject to the other terms and conditions of this
Agreement and the Escrow Agreement, to indemnify Buyer (and Buyer's directors,
officers, employees, controlling persons, affiliates, successors, assigns,
representatives, advisors and legal counsel (collectively, the "BUYER
INDEMNITEES")) against, and hold them harmless from, any Adverse Consequences of
the Buyer related to or arising out of (i) as of the date hereof or on the
Closing Date, the breach of any representation or warranty of the Company or the
Noteholders contained in this Agreement or the Company Disclosure Schedule
(without regard to any "materiality", "Company Material Adverse Effect",
"substantial compliance" or similar exception or qualifier solely for the
purpose of determining the amount of any Adverse Consequences) (or in any
certificate delivered by the Company under this Agreement) or the failure by the
Company or any Noteholder (including FS Private pursuant to Section 6.13) to
perform any of its covenants or obligations hereunder or contained in this
Agreement or the Company Disclosure Schedule (or in any certificate or financial
statements delivered by the Company or the Noteholders under this Agreement),
(ii) any
57
Company Contract with a Governmental Entity that may not be terminated by the
Governmental Entity on notice of 90 days or less, due to the consummation of the
transactions contemplated by this Agreement, including, without limitation, the
loss of net profit that the Company would have otherwise recognized but for the
consummation of the transactions contemplated by this Agreement, and (iii) any
brokers' commissions, finders' fees or other like payments incurred or alleged
to have been incurred by the Company or Noteholders in connection with the
Merger or the consummation of the other transactions contemplated by this
Agreement other than the payment of $750,000 to ThinkEquity for the performance
of services referred to in Section 4.1(x) of this Agreement. The Noteholders
agree to establish the Escrow Fund pursuant to Section 9.3(c) for the purpose of
securing the Noteholders' indemnification obligations hereunder.
(b) If any Buyer Indemnitee receives any insurance proceeds
after the Noteholders shall have made any payment to such Buyer Indemnitee with
respect to Adverse Consequences, such Buyer Indemnitee shall promptly remit such
payment to the Noteholder Representative to the extent of such insurance
proceeds received. Buyer agrees to cause the Surviving Corporation to, and the
Surviving Corporation shall, make appropriate claims in good faith under its
insurance policies, if any, covering any liability for which the Noteholders are
providing any indemnity under this Article IX and use commercially reasonable
efforts to collect on such claims.
(c) Except as with respect to a claim for Taxes under Section
6.16 or a breach of a representation or warranty in Section 4.1(f), no claim may
be made after the Closing Date against the Escrow Fund for indemnification
pursuant to Section 9.3(a) unless (i) the aggregate Adverse Consequences of such
claim (or series of related claims) shall in the aggregate exceed $10,000 and
(ii) the aggregate of all Adverse Consequences of the Buyer (exclusive of legal
fees incurred in connection with pursuing such claim) with respect to Section
9.3(a) shall in the aggregate exceed $300,000. The maximum amount of any
payments for Adverse Consequences (including indemnification payments required
to be made to Buyer Indemnitees under this Section 9.3) shall not exceed the
value of the Escrow Fund (as determined below). FOR THE PURPOSE OF DETERMINING
THE NUMBER OF ESCROW SHARES TO BE DELIVERED TO BUYER IN PAYMENT OF ANY
INDEMNIFICATION DUE BUYER HEREUNDER, SUCH SHARES SHALL BE VALUED AT THEIR BUYER
SHARE MARKET VALUE, EXCEPT THAT THE REFERENCE TO THE DATE IN THE DEFINITION OF
SUCH TERM SHALL BE REPLACED BY THE DATE AS OF WHICH THE AMOUNT OF SUCH
INDEMNIFICATION IS FINALLY DETERMINED; PROVIDED THAT, IF AT SUCH TIME THE BUYER
COMMON STOCK IS NO LONGER LISTED ON NASDAQ, THE METHOD OF DETERMINING THE FAIR
MARKET VALUE OF SUCH SHARES SHALL BE A CUSTOMARY METHOD REASONABLY AGREED BY THE
PARTIES IN GOOD FAITH. The Buyer agrees to use reasonable efforts to collect
from the Company's applicable insurance policy that would otherwise provide
protection or reimbursement any claim of Adverse Consequences that would
otherwise be made pursuant to Section 9.3(a) unless any such effort would result
in detriment to the Buyer. The Noteholders shall not have any right of
contribution from the Company with respect to any loss claimed by the Buyer
Indemnitees after the Closing Date; provided, however, that the foregoing shall
not limit or preclude any Noteholders' rights to seek indemnification,
contribution or advancement of expenses against the Surviving Corporation as
contemplated under Section 6.18 hereof. This Section 9.3 is not intended to
address the liability of the Company or the Noteholders for any breach of any
representation, warranty or covenant if the Merger is not consummated.
(d) As security (i) for the indemnity provided for in this
Section 9.3 and (ii) to satisfy the adjustments pursuant to Section 3.5, each of
the Escrow Noteholders receiving Buyer Common Stock in pursuant to this
Agreement will be deemed to have received and deposited with the Escrow Agent
the Escrow Shares (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Buyer after the Closing
Date with respect to the Escrow Shares). The Escrow Shares will be deposited
with and will be held by the Escrow Agent, such deposit to constitute an escrow
fund (the "ESCROW FUND") to be governed by the terms set forth in the Escrow
Agreement. The portion
58
of the Escrow Fund contributed on behalf of each Escrow Noteholder shall be in
proportion to the aggregate Buyer Common Stock which such Escrow Noteholder
would otherwise be entitled under Section 3.2. While so held by the Escrow
Agent, and subject to the sale or cancellation of the Escrow Shares pursuant
hereto, the Escrow Noteholders shall have the right to vote their respective
Escrow Shares and to receive dividends thereon, if any, but shall not have the
right to pledge, hypothecate, grant a security interest in or otherwise transfer
or encumber such Escrow Shares. The Escrow Noteholders shall be responsible for
any Taxes on any earnings or income of the Escrow Fund. Escrow Agent shall
release all Escrow Shares not sold or cancelled in accordance with Article IX or
Section 3.5 on the first anniversary of the Effective Time and deliver such
Escrow Shares to the Escrow Noteholders, pro rata in accordance with their
respective pro rata percentages of the Buyer Common Stock to be issued pursuant
to this Agreement, unless there is then pending an unresolved indemnification
claim in which case Escrow Shares necessary to satisfy such claim shall be
released and delivered only upon satisfaction of such claim.
(e) The Buyer Indemnitees agree to give the Noteholder
Representative, with a copy to the Escrow Agent, prompt Claim Notice which shall
contain information similar to that described in Section 9.2(c); provided,
however, that no delay on the part of any Buyer Indemnitee in notifying the
Noteholder Representative shall relieve the Noteholders from any liability or
obligation hereunder unless (and then solely to the extent that) the Noteholders
can demonstrate that they were damaged by such delay. The Noteholders will not
consent to the entry of any judgment with respect to the matter, or enter into
any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases any Buyer Indemnitee from all liability with
respect thereto, without the written consent of the Buyer Indemnitees which will
not be unreasonably withheld. The Noteholders shall have the right to direct, at
their expense and through counsel of their own choosing, the defense or
settlement of any such claim or proceeding. The Buyer Indemnitees shall provide
the Noteholders or their representatives with reasonable access to all records
and personnel of the Company relating to any such claim, assertion, event or
proceeding during normal business hours. If the Noteholders elect to direct the
defense of any such claim or proceeding, the Buyer Indemnitees shall not pay, or
permit to be paid, any part of any claim or demand arising from such asserted
liability unless the Noteholder Representative consents in writing to such
payment or unless the Noteholders, subject to the last sentence of this Section
9.3(e), withdraw from the defense of such asserted liability or unless a final
judgment from which no appeal may be taken by or on behalf of Noteholders or the
Buyer Indemnitees is entered against the Buyer Indemnitees for such liability.
If the Noteholders shall fail to assume the defense of such claim in the manner
provided above, or if, after commencing or undertaking any such defense, fail to
prosecute diligently or withdraw from such defense, the Buyer Indemnitees shall
have the right to undertake the defense or settlement thereof, and the Buyer
Indemnitees may defend against, or enter into any settlement with respect to,
the matter in any manner the Buyer Indemnitees reasonably may deem appropriate.
(f) Indemnities with respect to Tax matters, other than any
indemnity relating to a breach by the Company of its representations or
warranties in Section 4.1(p), shall be governed and controlled by Section 6.16
of this Agreement and not this Section 9.3.
(g) Except with respect to any indemnification obligations of
the Noteholders pursuant to Sections 6.15 and 6.16, the indemnification
obligations of the Escrow Noteholders under this Section 9.3 constitute and
shall be the sole and exclusive right and remedy of the Buyer Indemnitees
against the Noteholders for any Adverse Consequences arising out of or relating
to this Agreement, including, without limitation, with respect to any breach by
any Noteholder of any representation, warranty or covenant under this Agreement;
provided, however, nothing in this Section 9.3(g) shall limit any equitable
remedy, including injunction, that Buyer Indemnitees may have pursuant to this
Agreement.
59
9.4 Noteholder Representative; Approval of Noteholders.
(a) FS Private shall be constituted and appointed as agent
("NOTEHOLDER REPRESENTATIVE") for and on behalf of the Noteholders to give and
receive notices and communications, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Noteholder
Representative for the accomplishment of the foregoing. Such agency may be
changed by a majority vote or by the written consent of the majority of the
Noteholders from time to time upon not less than ten Business Days' prior
written notice to Buyer. No bond shall be required of the Noteholder
Representative, and the Noteholder Representative shall receive no compensation
for his/her services. Notices or communications to or from the Noteholder
Representative shall constitute notice to or from each of the Noteholders. The
Noteholder Representative shall deliver copies of any and all notices of
communications to or from the Noteholder Representative to each individual
Noteholder at its address as provided in Section 10.1 of this Agreement, as
updated from time to time.
(b) Neither the Noteholder Representative nor any of its
directors, officers, agents or employees shall be liable to any Person for any
error of judgment, or any action taken, suffered or omitted to be taken, under
this Agreement, except in the case of its gross negligence, bad faith or willful
misconduct. The Noteholder Representative may consult with legal counsel,
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts. The
Noteholder Representative shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or conditions of
this Agreement. As to any matters not expressly provided for in this Agreement,
the Noteholder Representative shall not be required to exercise any discretion
or take any action. Buyer shall be entitled to rely on all statements,
representations and decisions of the Noteholder Representative. All Expenses
incurred by the Noteholder Representative in its capacity as such in connection
with this Agreement and the transactions contemplated hereby shall be paid out
of the Escrow Fund.
(c) The approval by the Noteholders of the Merger shall be
deemed to be approval of the terms of the provisions of this Article IX,
including the appointment of the Noteholder Representative.
(d) A decision, act, consent or instruction of the Noteholder
Representative shall constitute a decision of all Noteholders and shall be
final, binding and conclusive upon each such Noteholder, and Buyer may rely upon
any such decision, act, consent or instruction of the Noteholder Representative
as being the decision, act, consent or instruction of each Noteholder. Buyer is
hereby relieved from any liability to any person for any acts done by it in
accordance with such decision, act, consent or instruction of the Noteholder
Representative.
(e) Notwithstanding anything to the contrary herein contained,
after the Closing Date, the sole remedy of the Buyer and the Buyer Indemnitees
with respect to every matter under this Agreement shall be as set forth in this
Article IX and the sole source of satisfying such remedy shall be the Escrow
Fund.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or facsimile, upon
60
verbal confirmation of receipt, (b) on the first Business Day following the date
of dispatch if delivered by a recognized next-day courier service, or (c) on the
fifth Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices hereunder
shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
if to Buyer, OpCo or Merger Sub to:
PLATO Learning, Inc.
10801 Nesbitt Avenue South
Bloomington, Minnesota 55437
Fax: (952) 832-1210
Attn: Chief Financial Officer
with a copy to:
Winston & Strawn
35 W. Wacker Drive
Chicago, Illinois 60601
Fax: (312) 558-5700
Attention: Leland E. Hutchinson
if to the Company to:
NetSchools Corporation
100 Galleria Parkway
Suite 1400
Atlanta, Georgia 30339
Fax: (770) 226-5010
Attention: Chief Financial Officer
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Fax: (212) 806-6006
Attention: Melvin Epstein, Esq.
Any notices hereunder to the Shareholders or Noteholders shall be
delivered to the address set forth next to such Person's name on the books and
records of the Company.
10.2 Interpretation. When a reference is made in this Agreement to
Articles, Sections, Exhibits or Schedules, such reference shall be to an Article
or Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
10.3 Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have
61
been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
10.4 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement and the Exhibits, Schedules and disclosure
schedules and the other agreements and instruments of the parties hereto
delivered in connection herewith constitute the entire agreement and supersede
all prior agreements and understandings, both written and oral, among the
parties hereto with respect to the subject matter hereof.
(b) 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 except
as otherwise explicitly set forth herein.
10.5 Governing Law. This Agreement and all rights, remedies,
liabilities, powers and duties of the parties hereto shall be governed and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state.
10.6 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms 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 materially adverse to any
party hereto. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties hereto as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
10.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
10.8 Enforcement. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties hereto shall be entitled to specific performance of the terms
hereof, this being in addition to any other remedy to which they are entitled at
law or in equity.
10.9 Submission to Jurisdiction; Waivers. Each of the Company, Buyer,
OpCo and the Noteholders irrevocably agrees that any legal action or proceeding
with respect to this Agreement or for recognition and enforcement of any
judgment in respect hereof brought by the other party hereto or its successors
or assigns shall be brought and determined in the Chancery or other Courts of
the State of Delaware, and each of the Company, Buyer, OpCo and Noteholders
hereby irrevocably submits with regard to any such action or proceeding for
itself and in respect to its property, generally and unconditionally, to the
exclusive jurisdiction of the aforesaid courts and to accept service of process
in any manner permitted by such courts. Each of the Company, Buyer, OpCo and
Noteholders hereby irrevocably waives, and agrees not to assert, by way of
motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to
62
the jurisdiction of the above-named courts for any reason other than the failure
to lawfully serve process, (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
(c) to the fullest extent permitted by applicable law, that (i) the suit, action
or proceeding in any such court is brought in an inconvenient forum, (ii) the
venue of such suit, action or proceeding is improper or (iii) this Agreement, or
the subject matter hereof, may not be enforced in or by such courts or (d) any
right to a trial by jury.
[THE REST OF THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK]
63
IN WITNESS WHEREOF, Buyer, OpCo, Merger Sub, the Company and
the Noteholders listed below have caused this Agreement to be signed by their
respective officers thereunto duly authorized, all as of the date first written
above.
PLATO LEARNING, INC.
By: /s/ John Murray
----------------------------------------
Name: John Murray
Title: President & CEO
PLATO, INC.
By: /s/ John Murray
----------------------------------------
Name: John Murray
Title: President & CEO
NSC ACQUISITION CORP.
By: John Murray
----------------------------------------
Name: John Murray
Title: President & CEO
NETSCHOOLS CORPORATION
By: John Scott Redd
----------------------------------------
Name: John Scott Redd
Title: Chairman and Chief Executive Officer
64
ING BARINGS GLOBAL LEVERAGED EQUITY PLAN
LTD.
ING BARINGS U.S. LEVERAGED EQUITY PLAN LLC
ING FURMAN SELZ INVESTORS III L.P.
By: FS Private Investments III LLC, Their
Manager
By: /s/ Brian P. Friedman
----------------------------------------
Name: Brian P. Friedman
Title: Managing Member
GE INVESTMENTS PRIVATE PLACEMENT PARTNERS
II, a Limited Partnership
By: GE Asset Management Incorporated, its
General Partner
By: /s/ Patrick J. McNeela
----------------------------------------
Name: Patrick J. McNeela
Title: Vice President
VULCAN VENTURES, INC.
By: /s/ William D. Savoy
----------------------------------------
Name: William D. Savoy
Title: President
H & Q NETSCHOOLS INVESTORS, L.P.
By: /s/ J. Bruiulitke
----------------------------------------
Name:
Title:
65
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Thomas Szymoniak
----------------------------------------
Name: Thomas Szymoniak
Title: Attorney-in-Fact
/s/ James E. Dezell III
--------------------------------------------
James E. Dezell III
APV TECHNOLOGY PARTNERS U.S., L.P.
By: APV Management Co., LLC,
Managing General Partner
By: /s/ Spencer C. Tall
----------------------------------------
Name: Spencer C. Tall
Title: Managing Member
APV TECHNOLOGY PARTNERS U.S., L.P.
By: APV Management Co., LLC,
Managing General Partner
By: /s/ Spencer C. Tall
----------------------------------------
Name: Spencer C. Tall
Title: Managing Member
DRW VENTURE PARTNERS, L.P.
By: Dain Rauscher Corporation, its General
Partner
By:
----------------------------------------
Name:
Title:
66
--------------------------------------------
Edward S. Croft, III
--------------------------------------------
George Orban
--------------------------------------------
Gerald R. Odening
--------------------------------------------
Richard Milewski
W.H GERALD CALDWELL, JR. AND MARGARET B.
CALDWELL AS TENANTS IN COMMON
By:
----------------------------------------
Name: W.H Gerald Caldwell, Jr. and
Margaret B. Caldwell
67
--------------------------------------------
Wayne G. Willis
--------------------------------------------
Daniel B. Rather
RATHER FAMILY INVESTMENTS, L.L.P.
By:
----------------------------------------
Name:
Title:
RAYMOND G. FOX, TRUSTEE, DATED NOVEMBER 02,
1999
By:
----------------------------------------
Name:
Title:
MIDPOINT CAPITAL INVESTORS
By:
----------------------------------------
Name:
Title:
--------------------------------------------
John H. Pietri
LOYD E. ELLIS AND MARY JANE ELLIS, TRUSTEES
OF THE ELLIS LIVING TRUST U/A DTD 11/6/91.
By:
----------------------------------------
Name:
Title:
PHILIP CHARLES INVESTORS
By:
----------------------------------------
Name:
Title:
--------------------------------------------
B. Michael Marino
--------------------------------------------
Philip C. Marchal
Acknowledged and acceptance
by Noteholder Representative:
FS PRIVATE INVESTMENTS III, LLC
By: /s/ Brian P. Friedman
----------------------------------------
Name: Brian P. Friedman
Title: Managing Member
69