1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
By and Among
FUTURELINK CORP.,
FUTURELINK DELAWARE ACQUISITION CORP.,
MICROLAN SYSTEMS, INC.,
MADISON CONSULTING RESOURCES, INC.,
MADISON CONSULTING RESOURCES (NJ) INC.,
IRA SILVERMAN,
RICHARD SILVERMAN,
ADAM SILVERMAN and
ADAM FOX
Dated as of February 1, 2000
2
TABLE OF CONTENTS
Page
----
Article I THE MERGER.............................................................................................2
1.1 The Merger.............................................................................................2
1.2 Closing................................................................................................2
1.3 Effective Time.........................................................................................3
1.4 Effects of the Merger..................................................................................3
1.5 Certificate of Incorporation; Bylaws...................................................................3
1.6 Directors and Officers.................................................................................3
1.7 Tax Consequences.......................................................................................3
Article II MERGER CONSIDERATION; CONVERSION OF STOCK..............................................................3
2.1 Definitions............................................................................................3
2.2 Conversion of Stock....................................................................................6
2.3 Fractional Shares......................................................................................7
2.4 Certain Adjustments to Number of Shares................................................................7
2.5 Deposit................................................................................................7
2.6 Payment of Merger Consideration........................................................................8
2.7 Transfer Restrictions; Legends.........................................................................8
2.8 Surrender of Certificates..............................................................................9
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY SHAREHOLDERS.............................................9
3.1 Power and Authority....................................................................................9
3.2 No Conflicts...........................................................................................9
3.3 Ownership of Company Stock.............................................................................9
3.4 Enforceability........................................................................................10
3.5 No Agreements.........................................................................................10
3.6 Transfer Restrictions.................................................................................10
3.7 Experience; Risk......................................................................................10
3.8 Access to Information.................................................................................10
3.9 Accredited Investor Status............................................................................10
3.10 Hart-Scott Rodino Act.................................................................................10
-i-
3
Page
----
Article IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY SHAREHOLDERS............................11
4.1 Corporate Organization................................................................................11
4.2 Capitalization........................................................................................11
4.3 Authority; No Violation...............................................................................11
4.4 Consents and Approvals................................................................................12
4.5 Financial Statements..................................................................................12
4.6 Absence of Undisclosed Liabilities....................................................................13
4.7 Absence of Certain Changes............................................................................13
4.8 Legal Proceedings.....................................................................................15
4.9 Governmental Authorization; Compliance with Laws......................................................16
4.10 Regulatory Compliance.................................................................................16
4.11 Title and Condition of Personal Property..............................................................16
4.12 Real and Leased Property..............................................................................16
4.13 Intellectual Property.................................................................................17
4.14 Environmental Matters.................................................................................18
4.15 Major Customers.......................................................................................19
4.16 Employment Agreements.................................................................................19
4.17 Employee Benefit Plans................................................................................19
4.18 Labor Matters.........................................................................................19
4.19 Contracts and Commitments.............................................................................20
4.20 Absence of Breaches or Defaults.......................................................................22
4.21 Insurance.............................................................................................22
4.22 Brokers...............................................................................................22
4.23 Minute Books..........................................................................................22
4.24 Representations Complete..............................................................................22
4.25 Potential Conflicts of Interest.......................................................................23
4.26 Condition of Assets...................................................................................23
4.27 Customs...............................................................................................23
4.28 Insolvency............................................................................................23
-ii-
4
Page
----
4.29 Qualification.........................................................................................24
4.30 Investments...........................................................................................24
4.31 Restrictions on Business Activities...................................................................24
Article V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...............................................24
5.1 Corporate Organization................................................................................24
5.2 Authority; No Violation...............................................................................24
5.3 Capitalization of Parent and Merger Sub...............................................................25
5.4 Consents and Approvals................................................................................26
5.5 Financial Statements and SEC Documents................................................................26
5.6 Legal Proceedings.....................................................................................27
5.7 Parent Filings........................................................................................27
5.8 Governmental Authorization; Compliance with Laws......................................................27
5.9 Representations Complete..............................................................................27
5.10 Note and Pledge Agreement.............................................................................27
5.11 Tax Matters...........................................................................................28
Article VI COVENANTS RELATING TO CONDUCT OF BUSINESS.............................................................28
6.1 Covenants of each of the Companies....................................................................28
Article VII ADDITIONAL AGREEMENTS.................................................................................30
7.1 Access to Information.................................................................................30
7.2 Public Disclosure.....................................................................................31
7.3 Compliance with Securities Laws.......................................................................31
7.4 Solicitation..........................................................................................31
7.5 Best Efforts and Further Assurances...................................................................32
7.6 Notification of Certain Matters.......................................................................32
7.7 Noncompetition; Confidential Information..............................................................32
7.8 Parent Release of Company Shareholder Guarantees......................................................34
7.9 Post-Closing Benefits.................................................................................34
7.10 Tax Matters...........................................................................................34
-iii-
5
Page
----
Article VIII CONDITIONS PRECEDENT..................................................................................35
8.1 Conditions to Obligations of Parent and Merger Sub....................................................35
8.2 Conditions to the Obligations of each Company and Company Shareholder.................................37
Article IX TERMINATION AND AMENDMENT.............................................................................38
9.1 Termination...........................................................................................38
9.2 Effect of Termination.................................................................................38
Article X INDEMNIFICATION.......................................................................................39
10.2 Indemnification Procedures............................................................................40
10.3 Tax Indemnification...................................................................................41
10.4 Losses Net of Insurance, etc..........................................................................41
10.5 Exclusive Remedy......................................................................................41
10.6 Limitations and Payment of Claims.....................................................................42
Article XI TAX MATTERS...........................................................................................42
11.1 Representations and Warranties........................................................................42
11.2 Filing of Tax Returns and Payment of the Tax..........................................................44
11.3 Indemnification by the Selling Shareholders...........................................................45
11.4 Tax Adjustments.......................................................................................46
11.5 Access to Information.................................................................................46
11.6 Books and Records.....................................................................................46
11.7 Notice of Audit.......................................................................................46
11.8 Transfer Taxes........................................................................................47
11.9 Apportionment of Taxes................................................................................47
11.10 Refunds and Credits...................................................................................48
11.11 Miscellaneous.........................................................................................48
Article XII GENERAL PROVISIONS....................................................................................48
12.1 Survival of Representations and Warranties............................................................48
12.2 Notices...............................................................................................48
12.3 Schedules.............................................................................................49
12.4 Deemed Waiver.........................................................................................49
12.5 Governing Law.........................................................................................49
-iv-
6
Page
----
12.6 Severability..........................................................................................50
12.7 Assignment; Binding Effect; Benefit...................................................................50
12.8 Expenses..............................................................................................50
12.9 Headings..............................................................................................51
12.10 Entire Agreement......................................................................................51
12.11 Counterparts..........................................................................................51
12.12 Reproduction of Documents.............................................................................51
12.13 Advice from Independent Counsel.......................................................................51
12.14 Amendment.............................................................................................51
7
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"), is
made and entered into as of February 1, 2000, by and among FUTURELINK CORP., a
Delaware corporation ("Parent"), FUTURELINK DELAWARE ACQUISITION CORP., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"),
MicroLan Systems, Inc., a New York corporation ("MicroLan") Madison Consulting
Resources, Inc., a New York corporation ("Madison"), Madison Consulting
Resources (NJ), Inc., a New Jersey corporation ("Madison NJ") (each, a "Company"
and collectively, the "Companies") and IRA SILVERMAN, RICHARD SILVERMAN, ADAM
SILVERMAN and ADAM FOX (each, a "Shareholder," collectively, the "Company
Shareholders").
WHEREAS, the Boards of Directors of Parent, Merger Sub and each of the
Companies have each determined that it is in the best interests of their
respective companies and in the best interest of their respective shareholders
to consummate the business combination transaction provided for herein in which
each of the Companies will, subject to the terms and conditions set forth
herein, merge with and into Merger Sub; and
WHEREAS, IRA SILVERMAN and ADAM SILVERMAN are the sole Shareholders of
MicroLan, RICHARD SILVERMAN is the sole Shareholder of Madison and RICHARD
SILVERMAN and ADAM FOX are the sole Shareholders of Madison NJ; and
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the applicable provisions of the Delaware General Corporation
Law (the "DGCL"), at the Effective Time (as defined in Section 1.3 hereof), each
of the Companies shall merge with and into Merger Sub (the "Merger"). Merger Sub
shall be the surviving company (hereinafter sometimes called the "Surviving
Corporation") in the Merger, and shall continue its corporate existence under
the laws of the State of Delaware. Upon consummation of the Merger, the separate
corporate existence of each of the Companies shall terminate.
1.2 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place as soon as practicable after the satisfaction or
waiver of each of the conditions set forth in Article VIII hereof or at such
other time as the parties hereto agree (the "Closing Date"). The Closing shall
take place at the offices of Paul, Hastings, Janofsky & Walker LLP, 399 Park
Avenue, 31st floor, New York, New York, or at such other location as the parties
hereto agree.
2
8
1.3 Effective Time. The Merger shall become effective upon the filing of a
Certificate of Merger with (i) the Secretary of State of the State of Delaware,
(ii) the State of New York for each of MicroLan and Madison, and (iii) the State
of New Jersey for Madison NJ, in such form as is required by, and executed in
accordance with the relevant provisions of, the DGCL on the Closing Date (the
"Certificate of Merger"). The term "Effective Time" shall be the date and time
of the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware or such later time as is specified in the Certificate of
Merger.
1.4 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in this Agreement, the Certificate of Merger
and the applicable provisions of the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of each of the Companies and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of each of the Companies and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws. At the Effective Time, the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law. At the
Effective Time, the Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable law.
1.6 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
1.7 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE II
MERGER CONSIDERATION; CONVERSION OF STOCK
2.1 Definitions. For purposes of this Agreement the following definitions
shall apply:
(a) "Company Stock" means the common stock of each of the Companies;
(b) "Deposit" shall have the meaning set forth in Section 2.5;
(c) "Environmental and Safety Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and orders that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
3
9
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons, including
the public.
(d) "Employee Plan" means any employee benefit plan (as that term is
defined in section 3(3) of ERISA), as well as any other formal or informal plan,
arrangement or contract involving direct or indirect compensation, in which any
current or former officers, employees or independent contractors of any of the
Companies has an interest, or to which any of the Companies has any Liability or
under which any of the Companies has any present or future obligations or
Liability on behalf of its respective current or former officers, employees or
independent contractors or their dependents or beneficiaries, including, but not
limited to, each retirement, pension, profit-sharing, thrift, savings, target
benefit, employee stock ownership, cash or deferred, multiple employer,
multi-employer or other similar plan or program, each other deferred or
incentive compensation, bonus, stock option, employee stock purchase, "phantom
stock" or stock appreciation right plan, each other program providing payment or
reimbursement for or of medical, dental or visual care, psychiatric counseling,
or vacation, sick, disability or severance pay and each other "fringe benefit"
plan or arrangement.
(e) "Employment Agreement" shall mean the Employment Agreement dated as
of January 1, 1998 between Madison NJ and Adam Fox.
(f) "Escrow Agent" shall mean Fulbright & Jaworski, LLP.
(g) "Knowledge" means, as it relates to each of the Companies, the
actual knowledge of Ira Silverman, Richard Silverman, Adam Silverman and Adam
Fox after due inquiry.
(h) "Lien" or "Encumbrance" (or "Liens or Encumbrances" as the context
may require): Any lien, pledge, mortgage, security interest, claim, lease,
charge, option, right, easement, servitude, transfer limit, restriction or other
encumbrance.
(i) "Material Adverse Effect" means an action, event or occurrence if
it has, or could reasonably be expected to have, a material adverse effect on
the assets, liabilities, business, financial condition or results of operations
of each of the Companies, individually or in the aggregate, or Parent (including
their subsidiaries), as the case may be. Any item susceptible of measurement in
monetary terms which does not exceed the amount of $10,000 shall not be
considered a Material Adverse Effect;
(j) "Parent Stock" means the common stock of Parent;
(k) "Person" means any individual, corporation, partnership, limited
liability company, limited liability partnership, firm, joint venture,
association, joint stock company, trust, unincorporated organization,
Governmental Entity or other entity or organization.
(l) "Shareholders Agreements" shall mean (i) the Shareholders Agreement
dated June 1, 1997 among Adam Silverman, Ira Silverman and MicroLan and (ii) the
Shareholders Agreement dated as of May 8, 1997 between Adam Fox and Madison NJ.
4
10
(m) "Tax" or "Taxes" shall mean all taxes, charges, fees, levies,
penalties or other assessments imposed by any United States federal, state,
local or foreign taxing authority, including, but not limited to income, excise,
property, sales, transfer, franchise, payroll, withholding, social security or
other taxes, including any interest, penalties or additions attributable
thereto.
(n) "Tax Return" shall mean any return, report, information return or
other document (including any related or supporting information) with respect to
Taxes.
(o) The following additional terms are all defined in the following
sections of this Agreement.
SECTION
---------
Agreement.........................................................................................Recitals
Break-up Fee...........................................................................................9.2
Cash Consideration...............................................................................2.2(a)(i)
Certificate of Merger..................................................................................1.3
Certificates...........................................................................................2.8
Closing Date...........................................................................................1.2
Closing................................................................................................1.2
Company Authorizations.................................................................................4.9
Company Shareholder...............................................................................Recitals
Company Stock.......................................................................................2.1(a)
Company...........................................................................................Recitals
Continuing Employee....................................................................................7.9
Deposit................................................................................................2.5
DGCL...................................................................................................1.1
Effective Time.........................................................................................1.3
Employee Plan.......................................................................................2.1(d)
Encumbrance.........................................................................................2.1(h)
Environmental and Safety Laws.......................................................................2.1(c)
Exchange Act...........................................................................................5.5
Facility..............................................................................................4.14
Financial Statements...................................................................................4.5
GAAP...................................................................................................4.5
Goods.................................................................................................4.27
Governmental Entity....................................................................................4.4
Indemnified Party..................................................................................10.2(a)
Indemnifying Party.................................................................................10.2(a)
Intellectual Property.................................................................................4.13
Key Employees.......................................................................................8.1(d)
Leased Property.......................................................................................4.12
Leases................................................................................................4.12
Legal Expenses........................................................................................10.1
Liability..............................................................................................4.6
Lien................................................................................................2.1(h)
5
11
Losses................................................................................................10.1
Madison...........................................................................................Recitals
Madison NJ........................................................................................Recitals
Material Adverse Effect.............................................................................2.1(i)
Material Contracts....................................................................................4.19
Merger Consideration...........................................................................2.2(a)(iii)
Merger Sub Common Stock.............................................................................5.3(b)
Merger Sub........................................................................................Recitals
Merger.................................................................................................1.1
MicroLan..........................................................................................Recitals
Notice of Audit.......................................................................................11.7
Parent Indemnified Person.............................................................................10.1
Parent Stock........................................................................................2.1(j)
Parent............................................................................................Recitals
Person..............................................................................................2.1(k)
Plans.................................................................................................4.17
Property Taxes........................................................................................11.9
Proprietary Information...............................................................................4.13
Restricted Period...................................................................................7.7(a)
SEC Documents..........................................................................................5.5
Securities Act.........................................................................................2.8
Shareholder Indemnified Person.....................................................................10.1(b)
Shareholder.......................................................................................Recitals
Stock Consideration.............................................................................2.2(a)(ii)
Straddle Period....................................................................................11.3(b)
Surviving Corporation..................................................................................1.1
Tax.................................................................................................2.1(m)
Tax Return..........................................................................................2.1(n)
Third Party Action.................................................................................10.2(a)
2.2 Conversion of Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Merger Sub, any of the Companies
or any holder of Company Stock:
(a) each share of Company Stock outstanding immediately prior to the
Effective Time, shall automatically be converted into and become a right to
receive the portion set forth in the Company Disclosure Letter of even date
herewith of:
(i) cash in the amount of $6,500,000 including the Deposit, as
hereinafter defined ("Cash Consideration");
(ii) the Parent's promissory notes in the aggregate principal
amount of $7,250,000, substantially in the form attached hereto as Exhibit A
(the "Note"), the payment of which shall be secured in accordance with the
Parent's Pledge Agreement substantially in the form attached hereto as Exhibit B
(the "Pledge Agreement"); and
6
12
(iii) 1,975,170 shares of Parent Stock ("Stock Consideration");
(the Cash Consideration, Stock Consideration, the Note and the Pledge
Agreement are collectively referred to as the "Merger Consideration");
The Companies shall retain the right to reallocate the Merger
Consideration among the Companies in their sole discretion until the Closing
Date;
(b) all shares of Company Stock held at the Effective Time as treasury
shares or by a subsidiary of the Company shall be canceled and no payment shall
be made with respect thereto; and
(c) each share of capital stock of Merger Sub issued and outstanding
as of the Effective Time shall be unaffected by the Merger and shall represent
one share of common stock of the Surviving Corporation after the Merger.
(d) all recipients of Parent Stock shall enter into a lock-up
agreement agreeing (i) not to sell, assign or transfer any shares of Parent
Stock prior to the first anniversary of the Closing Date, (ii) not to sell,
assign or transfer more than fifty percent (50%) of the shares of Parent Stock
received by such recipient on the Closing Date prior to the second anniversary
thereof, (iii) not to sell, assign or transfer more than an additional twenty-
five percent (25%) of the Parent Stock prior to the third anniversary of the
Closing Date and (iv) to be bound by the same lock-up agreement as substantially
all executive officers and directors of Parent are bound in connection with any
financings for Parent; provided, that no recipient shall be required to be so
bound with respect to any financing unless at the time thereof, such recipient
either is or then identified by Parent in its reports or proxy statements filed
pursuant to the Securities Exchange Act of 1934 or a registration statement
filed under the Securities Act of 1933 as (i) an executive officer in accordance
with Item 401 of Regulation S-K or (ii) a five percent (5%) "beneficial owner"
(as defined in Rule 13d-3 under the Securities Act of 1934) of the Parent Stock.
2.3 Fractional Shares. Notwithstanding anything herein contained to the
contrary, with respect to each holder of Company Stock, if the aggregate number
of shares of Parent Stock collectively issuable to such a holder for conversion
of all of such holder's Company Stock pursuant to this Article II includes a
fractional share, such fractional share shall be rounded to the nearest whole
number.
2.4 Certain Adjustments to Number of Shares. The number of shares of Parent
Stock issuable hereunder shall be adjusted to reflect any stock split, reverse
split, stock dividend (including any dividend or distribution to all holders of
Parent Stock of securities convertible into Parent Stock), reorganization,
recapitalization or other like change with respect to Parent Stock, occurring
after the date hereof but prior to the Effective Time. Notwithstanding the
foregoing, any change in price of Parent Stock occurring after the date hereof
to the Closing Date shall not result in an adjustment in the number of shares
payable as Stock Consideration.
2.5 Deposit. The Company Shareholders acknowledge receipt, as of the date
hereof, of the amount of $1,375,000 which shall be held by the Escrow Agent, in
an interest bearing account pending the Closing or termination of the
transaction contemplated hereby by any party pursuant to Article IX hereof. The
amount of $1,375,000 paid by Parent pursuant to
7
13
this Section 2.5 and any interest earned thereon are referred to herein as the
"Deposit". The Deposit shall be included in and paid as part of the Cash
Consideration as set out in Section 2.2 upon Closing. Upon termination of this
Agreement pursuant to Section 9.1, or notice from any of the Companies or the
Company Shareholders to the Escrow Agent that the Closing will not occur as a
result of the failure by any of the Companies or Company Shareholders to satisfy
any condition, the Deposit, subject to the last sentence of Section 9.2,
promptly shall be returned to Parent without deduction.
2.6 Payment of Merger Consideration. The Merger Consideration shall be
payable as follows:
(a) the Cash Consideration shall be paid at the Closing by wire
transfer to the account(s) specified in writing by or on behalf of the Company
Shareholders not later than two business days prior to the Closing Date;
(b) Parent shall deliver to the Company Shareholders at the Closing
stock certificates representing the Stock Consideration, subject to compliance
with Section 2.6 in accordance with instructions delivered in writing to Parent
by or on behalf of the Company Stockholders not later than two business days
prior to the Closing Date; and
(c) Parent shall deliver to the Company Shareholders at the Closing the
Note and the Pledge Agreement.
2.7 Transfer Restrictions; Legends. The shares of Parent Stock issued in
the Merger shall not be transferable in the absence of an effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
or an exemption therefrom. In the absence of an effective registration statement
under the Securities Act, neither such shares of Parent Stock nor any interest
therein shall be sold, transferred, assigned or otherwise disposed of, unless
Parent shall have previously received an opinion of counsel knowledgeable in
Federal securities law, in form and substance reasonably satisfactory to Parent,
to the effect that registration under the Securities Act is not required in
connection with such disposition.
The certificate or certificates representing the shares of Parent Stock
issued in the Merger shall bear the following legend restricting the transfer
thereof, in addition to any other legend required by applicable law:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
8
14
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT.
SALE, TRANSFER, ASSIGNMENT AND/OR OTHER HYPOTHECATION OF THE SECURITIES IS
FURTHER RESTRICTED PURSUANT TO A LOCK-UP AGREEMENT EXECUTED BY THE SECURITY
HOLDER AND AVAILABLE AT THE COMPANY FOR INSPECTION.
2.8 Surrender of Certificates. At the Closing, the Company Shareholders
shall deliver the certificate(s) representing all issued and outstanding shares
of Company Stock ("Certificates") for cancellation and conversion in accordance
with the terms of this Agreement. Upon surrender of the Certificates for
cancellation to Parent, at the Effective Time, Parent shall instruct its
transfer agent to issue the shares of Parent Stock as provided in this Article
II and the Certificates so surrendered shall be canceled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY SHAREHOLDERS
The Company Shareholders hereby severally make the following
representations and warranties:
3.1 Power and Authority. Each Company Shareholder has full legal capacity,
power and authority to execute, deliver and perform this Agreement and each
other agreement, document or instrument to which each is or shall be a party and
to consummate the transactions contemplated hereby;
3.2 No Conflicts. Neither the execution and delivery by each Company
Shareholder of this Agreement and each other agreement document or instrument to
which each Company Shareholder is or shall be a party nor the consummation by
each Company Shareholder of the transactions contemplated hereby:
(a) violates or conflicts with, or constitutes a default under, or
results in a breach of, or gives rise to any right of termination, cancellation
or acceleration under (including any circumstance that would result in any of
the foregoing with notice or lapse of time or both), or requires any consent,
authorization or approval under, any term or provision of any material Lien,
lease, license, loan agreement, promissory note, indenture or other material
contact to which any Company Shareholder is a party or by which any Company
Shareholder or any Company Shareholder's assets or properties are bound; or
(b) (i) except as set forth in Schedule 3.2(b), legally requires any
Company Shareholder to obtain any consent, authorization or approval of, or make
any filing with, any Governmental Authority or other Person or (ii) violates any
provision of (x) any Applicable Law or (y) any Judgment to which any Company
Shareholder is a party or to which any Company Shareholder or any Company
Shareholder's assets or properties is subject.
9
15
3.3 Ownership of Company Stock. Each Company Shareholder is the record and
sole beneficial owner of the shares of Company Stock (set forth on Schedule 4.2
annexed hereto), and such shares are owned by the Company Shareholders free and
clear of all Liens, Encumbrance, preemptive right or right of first of any kind
or character or claims thereto. No Person has any right of any nature with the
respect to the Company Stock (including any right to vote, direct the vote,
dispose of or direct the disposition of such shares).
3.4 Enforceability. This Agreement is, and when executed and delivered,
shall be, a valid and binding agreement of each Company Shareholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other laws affecting the enforcement of creditors rights
generally, and the application of equitable principles (whether considered in a
proceeding at law or in equity).
3.5 No Agreements. Except as set forth in Schedule 3.5, there are no
agreements, understandings or other commitments between any Company Shareholder
and any other Company Shareholder or any other Person regarding the ownership,
management or business of any of the Companies or otherwise affecting or
relating thereto.
3.6 Transfer Restrictions. The Company Shareholders are acquiring Parent
Stock for their own account and not with a view to the distribution or resale
thereof in any transaction not exempt from the registration requirements of the
Securities Act and applicable state securities laws. The Company Shareholders
acknowledge that Parent Stock is subject to transfer restrictions imposed by the
Securities Act and state securities law. The Company Shareholders recognize that
they will not be able to transfer Parent Stock unless any such security is
registered under the Securities Act or resold pursuant to an exemption under
applicable securities laws.
3.7 Experience; Risk. Each Company Shareholder has such knowledge and
experience in financial and business matters that each is capable of evaluating
the merits and risks of the purchase of the Parent Stock pursuant to this
Agreement and of protecting his interests in connection herewith. Each is able
to fend for himself in the transactions contemplated by this Agreement and has
the ability to bear the economic risk of the investment in the Parent Stock,
including complete loss of the investment.
3.8 Access to Information. The Company Shareholder has carefully reviewed
the Agreement. The Company Shareholder has had an opportunity to discuss the
business, management, plans and financial affairs of Parent with Parent's
management, and to ask and receive responses to questions.
3.9 Accredited Investor Status. The Company Shareholder does and will as of
the Closing Date qualify as an "accredited investor" within the meaning of
Regulation D (17 C.F.R. 230.501) of the rules and regulations promulgated under
the Securities Act.
3.10 Hart-Scott Rodino Act. Richard Silverman is the "ultimate parent
entity" of Madison NJ and Madison for purposes of the Hart-Scott Rodino
Antitrust Improvements of 1976, as amended (the "HSR Act"). Ira Silverman is the
"ultimate parent entity" of MicroLan
10
16
for purposes of the HSR Act. None of the Company Shareholders has total assets
or net worth of $10,000,000 or more for purposes of the HSR Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
COMPANY SHAREHOLDERS
The Companies and the Company Shareholders hereby jointly and severally
make the following representations and warranties to Parent and Merger Sub.
4.1 Corporate Organization. MicroLan is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
Madison is a corporation duly organized, validly existing and in good standing
under the Laws of the State of New York. Madison NJ is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
New Jersey. Each of the Companies has the corporate power and authority to own
or lease its respective properties and assets and to carry on its respective
businesses as they are now being conducted, and is qualified to do business in
each jurisdiction listed on Schedule 4.1 hereto, which jurisdictions are the
only jurisdictions in which the nature of the businesses conducted by them or
the character or location of the properties and assets owned or leased by each
of them makes such qualification necessary, except where the failure to be so
qualified would not individually or in the aggregate have a Material Adverse
Effect.
4.2 Capitalization.
(a) The Company Stock listed on the Schedule 4.2 constitutes all of the
authorized, issued and outstanding capital stock of each of the Companies. All
of the shares of Madison have been duly authorized and validly issued, are fully
paid and non-assessable, and are owned beneficially and of record by the
shareholders identified on Schedule 4.2 free and clear of any Lien, Encumbrance,
preemptive right or right of first of any kind or character or claims thereto.
All of the shares of MicroLan have been duly authorized and validly issued, are
fully paid and non-assessable, and are owned beneficially and of record by the
shareholders identified on Schedule 4.2 free and clear of any Lien, Encumbrance,
preemptive right or right of first of any kind or character or claims thereto.
All of the shares of Madison NJ have been duly authorized and validly issued,
are fully paid and non-assessable, and are owned beneficially and of record by
the shareholders identified on Schedule 4.2 free and clear of any Lien,
Encumbrance, preemptive right or right of first of any kind or character or
claims thereto. None of the outstanding shares of Company Stock were issued in
violation of any applicable federal or state securities laws. No subscriptions,
options or other rights to purchase or otherwise receive any shares of Company
Stock or other equity security are outstanding.
(b) None of the Companies presently owns or controls, directly or
indirectly, nor has stock or other interest as owner or principal in, any other
Person.
4.3 Authority; No Violation.
(a) Each of the Companies has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate
11
17
the transactions contemplated hereby. Each of the Board of Directors of each of
the Companies has unanimously approved this Agreement and the Merger and all
transactions contemplated thereby. This Agreement, the Merger and the
transactions contemplated hereby and thereby have been approved by the
shareholders of each of the Companies. No other corporate proceedings on the
part of any of the Companies are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement and all other
agreements and documents to be entered into in connection herewith have been
duly and validly executed and delivered by each of the Companies and (assuming
due authorization, execution and delivery by Parent and Merger Sub) constitute
valid and binding obligations of each of the Companies, enforceable against each
of them, 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.
This Agreement and all other agreements and documents to be entered into in
connection herewith have been duly and validly executed and delivered by each of
the Company Shareholders and (assuming due authorization, execution and delivery
by Parent and Merger Sub) constitutes valid and binding obligations of each
Company Shareholder, enforceable against each Company Shareholder, 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.
(b) The execution and delivery of this Agreement by each of the
Companies and each of the Company Shareholders, the consummation of the
transactions contemplated hereby, and compliance with the terms and provisions
hereof, will not, assuming the consents and approvals referred to in Section 4.4
are obtained, (i) violate any provision of the Certificate of Incorporation or
Bylaws of any of the Companies, (ii) violate any statute, code, ordinance, rule
or regulation applicable to any of the Companies or the Company Shareholders or
any of their respective properties or assets, (iii) violate any judgment, order,
writ, decree or injunction binding or applicable to any of the Companies or any
of the Company Shareholders or any of their respective properties or assets or
(iv) violate, conflict with, result in a breach of any provision of or the loss
of any benefit under, constitute a default (or an event which, 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, or result in the creation of any Lien or Encumbrance
upon any of the respective properties or assets of any of the Companies or any
of the Company Shareholders 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 any of the Companies or any of the
Company Shareholders is a party, or by which any of the Companies or any of the
Company Shareholders or any of their respective properties or assets may be
bound or affected.
4.4 Consents and Approvals. Except for the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and except as set
forth on Schedule 4.4, New York and New Jersey, no consents, approvals, orders
or authorizations of or filings or registrations with any court, administrative
agency or commission or other governmental authority or instrumentality (each a
"Governmental Entity") or with any third party are necessary with respect to any
of the Companies or any of the Company Shareholders in connection with (i) the
execution and delivery of this Agreement and (ii) the consummation of the Merger
and the other transactions contemplated hereby.
12
18
4.5 Financial Statements. Attached hereto as Schedule 4.5 for each of the
Companies are true and complete copies of (i) the Companies' audited balance
sheets as of December 31, 1997 and 1998 and the related audited statements of
income, cash flows and retained earnings as of and for the 12-month periods
ended December 31, 1997 and 1998 and (ii) unaudited balance sheet and related
statements of income, cash flow and retained earnings as of and for the 9-month
period ended September 30, 1999 (collectively, the "Financial Statements"). Such
Financial Statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and with each other (except that the unaudited financial
statements do not contain all footnotes required by GAAP and are subject to
routine year-end adjustments). The Financial Statements fairly present the
financial condition and operating results of each of the Companies as of the
dates, and for the periods indicated therein, subject to normal year-end audit
adjustments. Except as disclosed in the Financial Statements, none of the
Companies is a guarantor or indemnitor of any indebtedness of any other person,
firm or corporation.
4.6 Absence of Undisclosed Liabilities. Except as set forth in Schedule
4.6, none of the Companies has or is subject to any direct, indirect or
contingent debt, obligation, loss, damages, deficiency, claims, fines, penalties
or other liabilities of any nature, whether absolute, accrued, contingent or
otherwise ("Liability"), other than Liabilities that are (i) disclosed or
reserved against in the Financial Statements (ii) disclosed in the Schedules
hereto (or excluded from a particular Schedule by reason of the requirements for
inclusion), (iii) incurred in the ordinary course of business consistent with
past practice and not required to be set forth in the Financial Statements under
GAAP, or (iv) incurred in the ordinary course of business consistent with past
practice since September 30, 1999 and would not have a Material Adverse Effect
(other than a material contract entered into in the ordinary course of business
as set forth on Schedule 4.19).
4.7 Absence of Certain Changes. Except as set forth in Schedule 4.7 (a)
through (x), since December 31, 1998, each of the Companies has conducted its
business in the ordinary course consistent with past practice, has used its best
efforts to ensure that the Companies, as a whole, continue to achieve a run rate
of revenues consistent with the immediately preceding six (6) months of
operation, and except for transactions contemplated or authorized hereby, there
has not occurred:
(a) any purchase or other acquisition of, sale, lease, disposition, or
other transfer of, or Lien or Encumbrance on, any material asset, tangible or
intangible, of any of the Companies, other than in the ordinary course of
business;
(b) except for Subchapter S and tax distributions, any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the Company Stock, or any split-up or other recapitalization in respect of
Company Stock, or any direct or indirect redemption, retirement, purchase or
other acquisition by any of the Companies of any shares of Company Stock or
other equity interest or any bonds, debentures, notes, debt instruments,
evidences of indebtedness or other securities of any kind of any of the
Companies;
13
19
(c) any material contract entered into by any of the Companies, other
than in the ordinary course of business and as provided to Parent, or any
termination of, or default under, any material contract to which any of the
Companies is a party or by which it is bound;
(d) any amendment to the Certificate of Incorporation, Bylaws or other
organizational documents of any of the Companies, any change in the nature of
any of the Companies' businesses, or merged with or into or consolidated with
any other Person, subdivision or any reclassification of any capital stock or
change or agreement to change in any manner the rights of the capital stock or
the character of the business of any of the Companies;
(e) any change in any business policies or management practices
relating to any of the Companies, including, without limitation, (x) commission
or fee structures; (y) billing or investment policies and practices, or (z) in
any other activity which has had the effect of (i) accelerating the recording
and billing of fees or accounts receivable or delaying the payment of expenses
or the establishment of reserves in connection with the business or any accounts
of any of the Companies or (ii) of altering, modifying or changing in any manner
the historical financial or accounting practices or policies of any of the
Companies, including accruals of and reserves for tax liabilities;
(f) any change or modification of the compensation or benefits payable
or to become payable by any of the Companies to any of their respective
directors or employees, except ordinary increases or bonuses payable in the
ordinary course consistent with past practices;
(g) any issuance, transfer, or sale or pledge by any of the Companies
of (i) any shares of Company Stock or other securities or (ii) any commitment,
option, right or privilege under which any of the Companies is or may become
obligated to issue any shares of Company Stock or other securities;
(h) any indebtedness for borrowed money incurred by any of the
Companies, except such as may have been incurred or entered into in the ordinary
course of business not exceeding, in the aggregate, $25,000 for each Company;
(i) any loan made or agreed to be made by any of the Companies, nor has
any of the Companies become liable or agreed to become liable as a guarantor
with respect to any loan;
(j) any loans to employees, shareholders, directors or officers,
(k) any waiver or compromise by any of the Companies of any right or
rights or any payment, direct or indirect, of any material debt, liability or
other obligation, other than in the ordinary course of business;
(l) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(m) any actual or threatened, in writing, termination or loss of (i)
any contract, lease, license or other agreement to which any of the Companies
was or is a party, (ii)
14
20
any certificate, license or other authorization required for the continued
operation by any of the Companies of any portion of any of their businesses, or
(iii) any customer or other revenue source, which termination or loss could
reasonably be expected to result in loss of revenues to any of the Companies in
excess of $25,000 per year;
(n) any resignation of employment of any key officer or employee of any
of the Companies;
(o) acceleration of the collection, or sale to any other Person, of any
of the receivables, or delay in the payment of any of payables of any of the
Companies, other than accelerations or delays in the ordinary course of business
consistent with past practice involving amounts below $25,000 for each Company;
(p) any revaluation of any assets or properties, or write-down or
write-off of the value of any assets or properties (including, without
limitation, any receivables), in an amount in excess of $25,000 for each
Company;
(q) any loan or advance to any Person which has not been fully
reflected in the Financial Statements;
(r) any acquisition of all or any part of the assets, properties,
securities or business of any other Person;
(s) except in the ordinary course of business consistent with past
practice, hiring of any new employees, consultants, agents or other
representatives or entering into any employment or consulting agreements (other
than those terminable without severance, without penalty and without cause on
not more than thirty (30) days notice), or termination, or making any change in
the employment terms or conditions of, any officers, directors, employees,
consultants, agents or other representatives of any of the Companies;
(t) entering into any collective bargaining agreement or any other
contract with any labor union or association representing any employee, or been
subjected to any strike, picket, work stoppage, work slowdown (pending or
threatened), labor dispute or other labor trouble;
(u) adopting a plan of complete or partial liquidation, dissolution,
rehabilitation, restructuring, recapitalization, redomestication or other
reorganization;
(v) any material alteration to the level of working capital in the
business of each Company as compared to that stated in the management accounts
of each Company for the period ending September 30, 1999 except for those
adjustments referred to in Section 6.1(a) and payment of expenses permitted by
Section 12.8 of this Agreement;
(w) any negotiation or agreement by any of the Companies to do any of
the things described in the preceding clauses (a) through (v) (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement); or
15
21
(x) any other event or circumstance that will have or could reasonably
be expected to have a Material Adverse Effect on any of the Companies.
4.8 Legal Proceedings. Except as set forth in Schedule 4.8, there are no
legal actions, suits, arbitrations or other legal, administrative or
governmental proceedings or investigations pending or threatened against any of
the Companies or their respective properties, assets or business, and none of
the Companies nor any of the Company Shareholders is aware of any facts which
might result in or form the basis for any such action, suit or other proceeding
or which would challenge the validity or propriety of the transactions
contemplated by this Agreement. None of the Companies is in default with respect
to any judgment, order or decree of any court or any governmental agency or
instrumentality.
4.9 Governmental Authorization; Compliance with Laws. Each of Companies has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity that is
required for the operation of each such Company's business (the "Company
Authorizations"), except where the failure to so obtain would not cause a
Material Adverse Effect and all of such Company Authorizations are in full force
and effect. Each Company is in compliance with (i) the terms of its Certificate
of Incorporation and Bylaws or other organizational documents, (ii) all laws,
statutes, ordinances, rules, regulations or other legal requirements, whether
federal, state, local or foreign and (iii) all orders, writs, judgments,
injunctions, awards and decrees of any court, other Governmental Entity or
arbitrator. None of the Company Shareholders nor any of the Companies has
received notice of any violation by any of the Companies of, or default by any
of the Companies under, the Certificate of Incorporation, Bylaws or other
organizational documents of any of the Companies, any law, statute, ordinance,
rule, regulation or other legal requirement, any order, writ, injunction, award
or decree of any court, other Governmental Entity or arbitrator.
4.10 Regulatory Compliance. Each of the Companies has filed all reports,
statements, registrations, applications, filings or other documents and
submissions required to be filed with, or provided to, any Governmental Entity
except where the failure to so obtain would not cause a Material Adverse Effect.
All such reports, statements, registrations, applications, filings, documents
and submissions were in compliance with all applicable laws, statutes,
ordinances, rules or regulations and were complete and correct in all respects
when filed, and no deficiencies have been asserted by any Governmental Entity
with respect thereto. There is no action, proceeding, dispute, controversy,
inquiry or investigation pending or, to the Company's and the Company
Shareholders' Knowledge threatened by any such Governmental Entity relating to
any of the Companies.
4.11 Title and Condition of Personal Property. Each of the Companies has
marketable title to all of its personal property owned by it, free and clear of
all Liens or Encumbrances of any kind or character or claims thereto. The
property and equipment of each Company that are used in the operations of the
business of each Company are in all material respects in good operating
condition and repair.
4.12 Real and Leased Property. Schedule 4.12 hereto contains a true and
complete list of all real property leased or subleased by the Company (the
"Leased Property"). None of the Companies owns any real property. Each Company
has previously delivered to
16
22
Parent a true and complete copy of all of the lease and sublease agreements, as
amended to date (the "Leases") relating to the Leased Property. The Leases are
valid, binding and in full force and effect, all rent and other sums and charges
payable thereunder are current, no notice of default or termination under any of
the Leases is outstanding, no termination event or condition or uncured default
on the part of any of the Companies exists under the Leases, and no event has
occurred and no condition exists which, with the giving of notice or the lapse
of time or both, would constitute such a default or termination event or
condition.
4.13 Intellectual Property.
(a) Each of the Companies owns or licenses from another person all
inventions, patents, patent rights, computer software, trademarks, trademark
rights, service marks, service mark rights, trade names, trade name rights and
copyrights necessary for its business as presently conducted (collectively, the
"Intellectual Property") without any conflict with or infringement of the valid
rights of others and none of the Companies has received any notice of
infringement upon or conflict with the asserted rights of others. Schedule
4.13(a) hereto contains a true and complete list of all such patents, patent
rights, registered trademarks, registered service marks, registered copyrights,
all agreements related to the foregoing, and all agreements pursuant to which
each Company licenses Intellectual Property from or to a third party (excluding
"shrink wrap" license agreements relating solely to off the shelf software which
is not material to any of the Companies' businesses). All Intellectual Property
owned by each Company is owned free and clear of all liens, adverse claims,
encumbrances, or restrictions. All Intellectual Property licensed by each
Company is the subject of a license agreement which is legal, valid, binding and
enforceable and in full force and effect. The consummation of the transactions
contemplated hereby will not result in the termination or impairment of any of
the Companies' ownership of, or right to use, any Intellectual Property. Each
Company has trade secrets, including know-how, concepts, business plans, and
other technical data (the "Proprietary Information") relating to its business.
Each Company has the right to use the Proprietary Information free and clear of
any rights, liens, encumbrances or claims of others. None of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of any of the Companies or that would
conflict with any of the Companies' businesses.
(b) Schedule 4.13(b) lists all licenses, sublicenses and other
agreements as to which each Company is a party and pursuant to which each
Company or any other person owns or is licensed or otherwise authorized or
obligated with respect to any Intellectual Property and includes the identity of
all parties thereto. None of the Companies has and is , nor as a result of the
execution and delivery of this Agreement or the performance of each Company's
obligations hereunder will be, in violation of any license, sublicense or other
agreement applicable to it.
(c) Except as contemplated hereby, none of the Companies (i) has
disclosed any of its Proprietary Information which any of the Companies use or
propose to use to make or sell its products, other than to employees,
consultants or distributors of each Company who have entered written agreements
not to disclose such rights of each Company and (ii) is contractually obligated
to pay any compensation to any third party with respect to any
17
23
Intellectual Property, whether for the use, license, conveyance thereof, for
any service which resulted in the creation thereof, or otherwise.
(d) Except as set forth in Schedule 4.13(d), no claims with respect to
the Intellectual Property have been asserted against any of the Companies or,
are or have been threatened, in writing, by any person, nor does any of the
Companies or any Company Shareholder know of any grounds for any claims now or
in the future (i) to the effect that any product or service of any of the
Companies or any business of the Companies as previously or currently conducted
infringes on or misappropriates any intellectual property rights in which a
third party has any rights, or (ii) challenging the ownership, validity or
effectiveness of any of the Intellectual Property. No Intellectual Property
owned or licensed by any of the Companies is subject to any Lien or Encumbrance.
All Intellectual Property is valid and subsisting and there is no material
unauthorized use, infringement or misappropriation of any of the Intellectual
Property by any third party, including any employee. No Intellectual Property
owned or licensed by any of the Companies is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting in any manner the
licensing or exploitation thereof by any of the Companies.
(e) Except as set forth in Schedule 4.13(e), none of the Companies has
entered into any agreement to indemnify any other person against any charge of
infringement relating to any Intellectual Property. No employee of any of the
Companies is in violation of any term of any employment contract (whether
written or verbal), nondisclosure agreement or any other contract or agreement
relating to the relationship of any such employee with any of the Companies or
any other party (including prior employers) because of the nature of the
business conducted by any of the Companies.
(f) All of the Intellectual Property owned by each Company immediately
prior to the Closing will be owned by the Surviving Corporation immediately
subsequent to the Closing hereunder, and all of the Intellectual Property used
by each Company immediately prior to the Closing hereunder will be available for
use by the Surviving Corporation on identical terms and conditions immediately
subsequent to the Closing hereunder.
(g) The Intellectual Property including, without limitations, the
systems, software and hardware owned, used or interfaced by or with each Company
are "Year 2000 complaint." All Intellectual Property has been tested or verified
by each Company that it will accurately process, calculate, compare, sequence,
transmit and receive date/time data from, into, and between the 20th and 21st
centuries and the years 1999 and 2000 and leap year calculations and will not
create any logical or mathematical inconsistency or malfunction or cease to
function when processing date/time data.
4.14 Environmental Matters.
(a) There has not been any release, spill, emission, leaking, deposit,
disposal, discharge, dispersal or leaching into the environment of any hazardous
material at, in, on, under or from any real property leased, used or managed by
any of the Companies (a "Facility") or in connection with any of the businesses,
that could, individually or in the aggregate, have a material adverse effect on
the business of any of the Companies. No
18
24
hazardous materials are being stored or otherwise are present at, in, on or
under any real property leased, used or managed by any of the Companies or in
connection with any of the businesses where such activity is not in compliance
with any environmental law. Each Company is in compliance, in all respects, with
all environmental laws applicable to it.
(b) None of the Companies has (i) received a notice (oral or written) of
any noncompliance of a Facility or its past or present operations with
Environmental and Safety Laws, (ii) received notices, administrative actions or
suits are pending or threatened relating to a violation of any Environmental and
Safety Laws or (iii) been notified that any of the Companies is a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act, or state analog statute, arising out of events
occurring prior to the Closing Date. Each of the Companies' uses of and
activities within the Facilities have at all times complied in all material
respects with all Environmental and Safety Laws. Each Company has all the
permits and licenses required by Environmental and Safety Laws to be issued and
are in full compliance with the terms and conditions of those permits.
4.15 Major Customers. Schedule 4.15 hereto sets forth a list of the top
twenty (20) customers of each Company by revenue generated in the fiscal year
ended December 31, 1999. Except as set forth in Schedule 4.15, there has been no
termination, cancellation or material diminution in the dollar amount of orders
received, from any relationship between any of the Companies and any of such
customers.
4.16 Employment Agreements. Schedule 4.16 hereto contains the names, job
descriptions and annual salary rates and other compensation of all officers,
directors, employees and consultants of each Company whose annual compensation
by each Company exceeds $50,000. A list of all employee policies, employee
manuals or other written statements of rules or policies as to working
conditions, vacation and sick leave of each Company, and a complete copy of each
has been made available to Parent. There are no employment, consulting,
severance or indemnification arrangements, agreements or understandings between
any of the Companies and any officer, director, consultant or employee
including, without limitation, any contracts to employ executive officers, any
severance, change in control or similar arrangements with any officers,
employees or agents of any of the Companies that will result in any obligation
(absolute or contingent) of any of the Companies to make any payment to any
officer, employee or agent of any of the Companies following either the
consummation of the transactions contemplated hereby, termination of employment,
or both.
4.17 Employee Benefit Plans. Schedule 4.17 sets forth a complete list of
each "employee benefit plan", as such term is defined in Section 3(3) of ERISA
(hereinafter, the "Plans"), that is maintained or contributed to (or was
maintained or contributed to during the five calendar years preceding the
Closing Date or for so long as such Plan has been in existence) by each Company
or any trade or business that, together with each Company, would be deemed a
"single employer" within the meaning of Section 4001 of ERISA. Each of the Plans
has been operated in compliance with ERISA and the Code, and each of the Plans
that is intended to be qualified under Section 401(a) of the Code is so
qualified. None of the Plans is subject to Title IV or Section 302 of ERISA or
Section 412 of the Code nor is any Plan a "multi-employer plan" as such term is
defined in Section 3(37) of ERISA. There are no pending or, to the Knowledge
19
25
of the Companies, threatened claims (other than routine claims for benefits) by,
on behalf of, or against any of the Plans or any trusts related thereto.
4.18 Labor Matters.
(a) None of the Companies is a party to or otherwise bound by any
collective bargaining agreement or other labor union contract and currently
there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect any of the Companies;
(b) There are no controversies, strikes, slowdowns, work stoppages or labor
disturbances pending or, to the Company's and the Company Shareholders'
Knowledge, threatened between any of the Companies and any of its employees;
(c) There are no unfair labor practice complaints pending against the
Company before the National Labor Relations Board or any other Governmental
Entity or any current union representation questions involving employees of any
of the Companies;
(d) Each Company is currently in compliance with all applicable laws
relating to the employment of labor, except where the failure to be in
compliance would not have a Material Adverse Effect;
(e) There is no charge or proceeding with respect to a violation of any
occupational safety or health standards that has been asserted or is now pending
or, to the Company's and the Company Shareholders' Knowledge, threatened with
respect to any of the Companies; and
(f) There is no charge of discrimination in employment or employment
practices, for any reason, including, without limitation, age, gender, race,
religion or other legally protected category, which has been asserted or is now
pending or, to the Company's and the Company Shareholders' Knowledge, threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Entity in any jurisdiction in which any of the Companies has
employed or currently employs any person.
4.19 Contracts and Commitments. Schedule 4.19 hereto contains a complete
and accurate list of all contracts and agreements (including, without
limitation, oral arrangements) of the following categories to which any of the
Companies is a party or by which any of them is bound as of the date of this
Agreement (collectively the "Material Contracts"):
(a) manufacturing, distribution, franchise, license, sales, agency or
advertising contracts in excess of $25,000;
(b) contracts involving payments to or by any of the Companies in excess of
$25,000 per year for each Company which are not cancelable (without material
penalty, cost or other liability) within ninety (90) days, other than purchase
orders made in the ordinary course of business consistent with past practice;
20
26
(c) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments proving for the lending of money, whether as
borrower, lender or guarantor;
(d) contracts (other than Leases) containing covenants limiting the
freedom of any of the Companies or any Company Shareholder to engage in any line
of business or compete with any person or operate at any location;
(e) joint venture or partnership agreements or joint development or
similar agreements;
(f) agreements, contracts or other arrangements with any current or
former officer, director or employee of any of the Companies or any affiliate of
any of the Companies;
(g) leases or similar agreements with any person under which (i) any
of the Companies is lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible personal property owned by any person or (ii) any of
the Companies is a lessor or sublessor of, or makes available for use by any
person, any tangible personal property owned or leased by any of the Companies,
in any such case which has an aggregate future liability or receivable, as the
case may be, in excess of $25,000 for each Company and is not terminable by any
of the Companies by notice of not more than sixty (60) days for a cost of less
than $25,000 for each Company;
(h) license, option or other agreements relating in whole or in part
to the Intellectual Property other than as set forth in Schedule 4.13(b) hereto;
(i) contracts or other instruments under which (i) any person has
directly or indirectly guaranteed indebtedness, liabilities or obligations of
any of the Companies or (ii) any of the Companies has directly or indirectly
guaranteed indebtedness, liabilities or obligations of any person (in each case
other than endorsements for the purpose of collection in the ordinary course of
business);
(j) contracts or other instruments under which any of the Companies
has, directly or indirectly, made any advance, loan, extension of credit or
capital contribution to, or other investment in, any person;
(k) mortgages, pledges, security agreements, deeds of trust or other
instruments granting a Lien or Encumbrance upon any property of any of the
Companies;
(l) agreements or instruments providing for indemnification of any
person with respect to liabilities relating to any current or former business of
any of the Companies, or any predecessor entity;
(m) contracts for the acquisition, sale or lease of any assets or
capital stock or other ownership interests outside the ordinary course of
business or to effect any merger of any of the Companies; and
21
27
(n) any exclusive retainer agreement or arrangement with attorneys,
accountants, actuaries, appraisers, investment bankers or other professional
advisors.
Each Company has provided Parent with complete copies of all written Material
Contracts and details of all oral Material Contracts.
4.20 Absence of Breaches or Defaults. None of the Companies is and, to the
Company's and the Company Shareholders' Knowledge, no other party is, in default
under, or in breach or violation of, any Material Contract and, to the Company's
and the Company Shareholders' Knowledge, no event has occurred which, with the
giving of notice or passage of time or both would constitute a default under any
Material Contact. To the Company's and the Company Shareholder's knowledge, each
Material Contract is valid, binding and enforceable (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law))
and is in full force and effect, and assuming all consents required by the terms
thereof or applicable law have been obtained, such Material Contracts will
continue to be valid, binding and enforceable and in full force and effect
immediately following the consummation of the transactions contemplated hereby,
in each case. No event has occurred which either entitles, or would, on notice
or lapse of time or both, entitle the holder of any indebtedness for borrowed
money affecting any of the Companies (except for the execution or consummation
of this Agreement) to accelerate, or which does accelerate, the maturity of any
indebtedness affecting any of the Companies.
4.21 Insurance. Schedule 4.21 hereto sets forth a true and complete list of
all insurance policies providing insurance coverage of any nature to each
Company. Such policies are sufficient for compliance by each Company with all
requirements of law and all material agreements to which each Company is a party
or by which any of their respective assets are bound. All of such policies are
in full force and effect and are valid and enforceable in accordance with their
terms, and each Company has complied with all material terms and conditions of
such policies, including premium payments. None of the insurance carriers has
indicated to any of the Companies an intention to cancel any such policy. None
of the Companies has any claim pending against any of the insurance carriers
under any of such policies.
4.22 Brokers. Except for CIBC World Markets Corp., no broker, finder or
investment banker has been retained or engaged on behalf of the Company
Shareholders or the Company, or is entitled to any brokerage, finder's or other
fee, compensation or commission from any such Person in connection with the
transactions contemplated by this Agreement.
4.23 Minute Books. The minute books of each Company made available to
Parent contain a complete and accurate summary of all meetings of Board of
Directors, all committees of the Board of Directors and shareholders or actions
by written consent since the time of incorporation of each Company through the
date of this Agreement, and reflect all transactions referred to in such minutes
accurately. All actions taken by each Company have been duly authorized, and no
such actions have been taken in breach or violation of the Certificate of
Incorporation, the By-laws or other organizational documents of each Company.
22
28
4.24 Representations Complete. All documents and papers delivered by or on
behalf of the Company Shareholders or any of the Companies in connection with
this Agreement and the transactions contemplated hereby were prepared and
delivered in good faith by such Person and are complete and authentic in all
respects. Each Company Shareholder and each of the Companies have complied in
good faith with all requests of Parent and its representatives for documents,
papers and information relating to the Companies in connection with the
transactions contemplated hereby, and have not knowingly withheld any document,
paper or other information requested by the Parent or any of its representatives
in connection herewith. None of the representations or warranties by any Company
Shareholder or any of the Companies contained in this Agreement (including the
exhibits and schedules hereto), when all documents are read together in their
entirety, contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which it was made, not
misleading.
4.25 Potential Conflicts of Interest. No officer, director or shareholder
of any of the Companies, and no person directly or indirectly controlling or
controlled by, or under the direct or indirect control of, any of the foregoing
persons:
(a) owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of, any person which is a competitor, lessor,
lessee, customer or supplier of any of the Companies except for holdings of 1%
or less of the capital stock of a public company;
(b) holds a beneficial interest in any contract or other agreement to
which any of the Companies is a party or by which it is obligated or bound or to
which any of the assets may be subject;
(c) owns, directly or indirectly, in whole or in part, any tangible or
intangible property (including, without limitation, any Intellectual Property)
which any of the Companies is using or the use of which is necessary for the
business of the Company; or
(d) has any cause of action or other claim whatsoever against any of
the Companies.
All purchases and sales or other transactions, if any, between any of the
Companies and any of the Companies and any such persons have been made on the
basis of prevailing market rates and all such transactions have been made on
terms no less favorable to any of the Companies than those which would have been
available from unrelated third parties.
4.26 Condition of Assets. Each of the Companies' assets is in good
operating condition and repair, reasonable wear and tear excepted.
4.27 Customs. Each Company has acted with reasonable care to properly value
and classify, in accordance with applicable tariff laws, rules and regulations,
all goods that each Company imports into the United States or exports out of the
United States into any other country (the "Goods"). There are currently no
material claims pending against any of the Companies by the U.S. Customs Service
(or other foreign customs authorities) relating to the valuation, classification
or marketing of the Goods.
23
29
4.28 Insolvency. None of the Companies nor any of the Company Shareholders
are insolvent, have committed an act of bankruptcy, proposed a compromise or
arrangement of their creditors generally, had any petition or receiving order in
bankruptcy filed against them, taken any proceedings with respect to a
compromise or arrangement or to have a receiver appointed over any part of their
respective assets, had an encumbrancer take possession of any property, nor had
an execution or distress become enforceable or levied upon any of their
respective property.
4.29 Qualification. No officer or director of any of the Companies is
subject to any of the disqualification provisions of Rule 505(b)(iii) of the
rules and regulations of the Securities and Exchange Commission under the
Securities Act.
4.30 Investments. Schedule 4.30 hereto contains a true and complete list of
all securities and other investments (including, without limitation, short-term
investments) owned by each Company as of the end of the most recent calendar
month, including the date of purchase, book value, market value and carrying
value thereof on the books and records of account of each Company as of such
date. None of the securities and other investments owned by any of the Companies
is in default in the payment of principal or interest or dividends.
4.31 Restrictions on Business Activities. Except as set forth in this
Agreement, including the Schedules hereto, there is no agreement (noncompete or
otherwise), commitment, judgment, injunction, order or decree to which any of
the Companies, or any Company Shareholder is a party or otherwise binding upon
any of the Companies, or any Company Shareholder which has or reasonably could
be expected to have the effect of prohibiting or impairing any business practice
of any of the Companies, the Surviving Corporation, or Parent, any acquisition
of property (tangible or intangible) by any of the Companies, the Surviving
Corporation, or Parent or the conduct of business by any of the Companies, the
Surviving Corporation, or Parent.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally make the following
representations and warranties to each Company and the Company Shareholders.
5.1 Corporate Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws the State of Delaware and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. Parent and Merger Sub have the corporate
power and authority to own or lease their respective properties and assets and
to carry on their respective businesses as they are now being conducted, and are
duly qualified to do business in each jurisdiction in which the nature of the
business conducted by them or the character or location of the properties and
assets owned or leased by them makes such qualification necessary, except where
the failure to be so qualified would not individually or in the aggregate have a
Material Adverse Effect.
5.2 Authority; No Violation.
24
30
(a) Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Board of
Directors of Parent has (i) approved this Agreement and the Merger and all
transactions contemplated hereby and (ii) determined that the Merger is in the
best interests of the shareholders of Parent and is on terms that are fair to
such shareholders. No approval of the shareholders of Parent is required for the
consummation of the transaction contemplated herein. The Board of Directors and
the shareholder of Merger Sub have approved this Agreement and the Merger and
all transactions contemplated hereby. No other corporate proceedings on the part
of Parent or Merger Sub is necessary to approve this Agreement and to consummate
the transactions contemplated hereby. This Agreement and all other agreements
and documents to be entered into in connection herewith have been duly and
validly executed and delivered by Parent and Merger Sub and (assuming due
authorization, execution and delivery by each of the Companies and the Company
Shareholders) constitute valid and binding obligations of Parent and Merger Sub,
enforceable against each of them, 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.
(b) Neither the execution and delivery of this Agreement by Parent and
Merger Sub, nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby, nor compliance by Parent and Merger Sub with any of the
terms or provisions hereof, will (i) violate any provision of the Certificate of
Incorporation or Bylaws of Parent or Merger Sub, (ii) violate any material
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Parent or Merger Sub or any of their respective
properties or assets, (iii) violate any judgment, order, writ, decree or
injunction binding or applicable to Parent or Merger Sub or any of their
respective properties or assets, or (iv) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, 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, or
result in any Lien or Encumbrance upon any of the properties or assets of Parent
or Merger Sub under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Parent or Merger Sub is a party, or by
which either of them or any of their respective properties or assets may be
bound or affected.
5.3 Capitalization of Parent and Merger Sub.
(a) As of December 31, 1999, the authorized capital stock of Parent
consists solely of (i) 300,000,000 shares of Parent Stock, of which (A)
51,023,647 shares are issued and outstanding, (B) no shares are issued and held
in treasury (which does not include the shares reserved for issuance set forth
in Schedule 5.3) and (ii) 20,000,000 shares of preferred stock, no par value per
share, none of which are issued and outstanding. All convertible debt shares,
warrants, options and convertible equity shares are set out in Schedule 5.3.
Certain shares of Parent Stock have been issued but not paid for, underlying
certain convertible debt financing, which Parent does not consider to be fully
paid and non-assessable until conversion or exercise of the outstanding
security. Each outstanding share of Parent Stock is, and all shares of Parent
Stock to be issued in connection with the Merger will be, duly authorized and
validly
25
31
issued, fully paid and nonassessable, and each outstanding share of Parent
Stock has not been, and all shares of Parent Stock to be issued in connection
with the Merger will not be, issued in violation of any preemptive or similar
rights or any applicable securities laws. Each share of Parent Stock to be
issued in connection with the Merger will be duly authorized for quotation on
the Nasdaq National Market, subject to official notice of issuance.
(b) Merger Sub's authorized capital stock consists solely of 1,500 shares
of common stock, par value $.01 per share ("Merger Sub Common Stock"), of
which, as of the date hereof, 100 shares are issued and outstanding and none are
reserved for issuance. As of the date hereof, all of the outstanding shares of
Merger Sub Common Stock are owned free and clear of any Claims, Liens, or
Encumbrances by Parent.
(c) Parent is the sole record and beneficial owner of all the outstanding
securities of each of its subsidiaries. There are no outstanding subscriptions,
options, warrants, calls, commitments, agreements, or obligations of any
character calling for the purchase, redemption or issuance of any equity
securities of any subsidiary, nor are there outstanding any securities which are
convertible into or exchangeable for any equity securities of any subsidiary,
and neither Parent nor any subsidiary has any obligation of any kind to issue
any additional securities or to pay for or repurchase any securities of any
subsidiaries or their predecessors.
5.4 Consents and Approvals. Neither the execution and delivery of this
Agreement by Parent or Merger Sub nor the consummation of the transactions
contemplated hereby will require any action or consent or approval of, or review
by, or registration or filing by Parent or any of its affiliates with, any third
party or any Governmental Entity, other than (i) filing of the Certificates of
Merger with the Secretary of State for the States of Delaware, New York and New
Jersey and (ii) those which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent and its
subsidiaries taken as a whole or a Material Adverse Effect on the ability of the
parties to consummate the transactions contemplated hereby.
5.5 Financial Statements and SEC Documents. Since January 1, 1999, Parent
has filed all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein, with
amendments read together with underlying documents, together with any other
document filed by Parent with the SEC pursuant to the Exchange Act or the
Securities Act on or prior to the Effective Time, are referred to herein as the
"SEC Documents"). As of their respective dates, the SEC Documents complied or
will comply in all material respects with the requirements of the Exchange Act
and the rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they were filed or
are filed with the SEC, contained or will contain any untrue statement of a
material fact or omitted or will omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of Parent included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared or
26
32
will be prepared in accordance with GAAP (except that unaudited financials do
not contain all footnotes required by GAAP), consistently applied, during the
periods involved and fairly and accurately present in all material respects the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as disclosed in such financial
statements, Parent is not a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.
5.6 Legal Proceedings. Except as set forth in Schedule 5.6, there are no
legal actions, suits, arbitrations or other legal, administrative or
governmental proceedings or investigations pending or, to the knowledge of
Parent, threatened against Parent or any subsidiary or their properties, assets
or business in which an unfavorable outcome, ruling or finding would have a
Material Adverse Effect, and Parent is not aware of any facts which might result
in or form the basis for any such action, suit or other proceeding or which
would challenge the validity or propriety of the transactions contemplated by
this Agreement. Neither Parent nor any subsidiary is in default with respect to
any judgment, order or decree of any court or any governmental agency or
instrumentality which would have a Material Adverse Effect.
5.7 Parent Filings. Except as disclosed to the Company and the Company
Shareholders in writing, in materials filed by Parent pursuant to the Securities
Act or the Exchange Act, or set forth in press releases that have been made
public by Parent (including but not limited to those from time to time posted at
or available through Nasdaq's website at http://www.nasdaq.com), there has been
no material adverse change in the financial condition of Parent since September
30, 1999.
5.8 Governmental Authorization; Compliance with Laws. Each of Parent and
Merger Sub has obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity that is required for the operation of each of its business
(the "Authorizations"), except where the failure to so obtain would not cause a
Material Adverse Effect and all of these Authorizations are in full force and
effect. Each of Parent and Merger Sub is in compliance with (i) the terms of its
Certificate of Incorporation and Bylaws or other organizational documents, (ii)
all laws, statutes, ordinances, rules, regulations or other legal requirements,
whether federal, state, local or foreign and (iii) all orders, writs, judgments,
injunctions, awards and decrees of any court, other Governmental Entity or
arbitrator. Neither Parent nor Merger Sub has received notice of any violation
by either Parent or Merger Sub of, or default by either of them under, the
Certificate of Incorporation, Bylaws or other organizational documents of either
of them, any law, statute, ordinance, rule, regulation or other legal
requirement, any order, writ, injunction, award or decree of any court, other
Governmental Entity or arbitrator.
5.9 Representations Complete. None of the representations or warranties
made by Parent or Merger Sub herein or in any Schedule hereto, or certificate
furnished by the Parent pursuant to this Agreement, when all such documents are
read together in their entirety, contains or will contain at the Effective Time
any untrue statement of a material fact, or omits or will omit at the Effective
Time to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
27
33
5.10 Note and Pledge Agreement.
(a) The execution, delivery and performance by the Parent of the Note
and the Pledge Agreement will not (i) conflict with or result in a breach or
violation of any of the terms or provisions of, constitute a default or result
in the acceleration of any obligation under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the property or assets
of the Parent or its subsidiaries pursuant to the terms of any indenture,
mortgage, loan agreement, note or other evidence of indebtedness or any other
contract, agreement or instrument to which the Parent is a party or by which the
Parent or any of its properties or assets are bound or affected, or (ii) violate
any applicable statute, law, rule, code, administrative regulation, ordinance,
judgment, order or decree of any government, governmental instrumentality,
court, arbitration panel or other body having jurisdiction over the Parent or
its subsidiairies or any of their respective properties or obligations which, in
any such case, would have a Material Adverse Effect on the Parent or its
financial position.
(b) No consent, approval, authorization, license or order of or from,
or registration, qualification, declaration or filing with, any federal, state,
local, foreign or other governmental authority, court administrative agency,
tribunal or other body is required from or on behalf of the Parent for the
consummation of the transactions contemplated by the Note or the Pledge
Agreement.
(c) The Note and the Pledge Agreement have been duly and validly
authorized, executed and delivered by the Parent and constitute valid and
binding obligations of the Parent duly enforceable against the Parent in
accordance with their respective terms, except insofar as the enforcement
thereof may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally.
5.11 Tax Matters. The representations and warranties contained in the
Parent's certificate attached hereto as Schedule 5.11 are true and correct.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1 Covenants of each of the Companies. During the period from the date of
this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the written consent of
Parent, each of the Companies shall carry on its respective business in the
ordinary course consistent with past practice. Without limiting the generality
of the foregoing, and except as previously disclosed by each Company to Parent
in writing or as otherwise contemplated by this Agreement or consented to in
writing by Parent, none of the Companies shall, nor the Company Shareholders
shall permit any of the Companies to:
(a) declare or pay any dividends on, or make other distributions in
respect of, any shares of Company Stock (other than subchapter S and tax
distributions set forth in Schedule 4.7(b);
(b) (i) repurchase, redeem or otherwise acquire any shares of Company
Stock, or any securities convertible into or exercisable for any shares of
Company Stock, (ii)
28
34
split, combine or reclassify any shares of Company 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 Company Stock, or (iii) issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of capital
stock of any of the Companies or any securities convertible into or exercisable
for, or any rights, warrants or options to acquire, any such shares;
(c) amend the Certificate of Incorporation or Bylaws of any of the
Companies;
(d) make any capital expenditures in excess of $25,000 for each Company
other than those which are made in the ordinary course of business or are
necessary to maintain existing assets in good repair;
(e) except as set forth in Schedule 6.1(e), enter into any new line of
business;
(f) acquire or agree to acquire, by merging or consolidating with, 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 any assets, which would be material, individually or in the aggregate,
to any of the Companies;
(g) adopt a plan of complete or partial liquidation, dissolution,
rehabilitation, restructuring, recapitalization, redomestication or other
reorganization, sell, transfer, lease, assign or otherwise dispose of any asset
or properties of any of the Companies, except in the ordinary course of
business;
(h) make any tax election or settle or compromise any federal, state, local
or foreign income Tax Liability either not in accordance with past practice, or
which could have a material adverse effect on the business, operations,
condition (financial or otherwise), prospects, assets or properties of any of
the Companies;
(i) purchase or sell securities or other investments, or invest or reinvest
income and proceeds in respect thereof, other than in the ordinary course of
business consistent with past practice;
(j) take any action that is intended or may reasonably be expected to
result in any of the representations and warranties set forth in this Agreement
being or becoming untrue, or in any of the conditions to the Merger not being
satisfied;
(k) make a material change in the methods of accounting in effect at
December 31,1998, except as required by GAAP or as concurred with by any of the
Companies' independent auditors;
(l) (i) except as required by applicable law or as required to maintain
qualification pursuant to the Code, adopt, amend, or terminate any Plan or any
agreement, arrangement, plan or policy between any of the Companies and one or
more of the current or former directors, officers or employees of any of the
Companies, or (ii) except for normal
29
35
increases in the ordinary course of business consistent with past practice or
except as required by applicable law, increase in any manner the compensation or
fringe benefits of any director, officer or employee;
(m) other than activities in the ordinary course of business consistent
with past practice, sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity;
(o) other than agreements in the ordinary course of business that do not
require payments by any of the Companies in excess of $50,000 per year per
individual agreement or an aggregate of $150,000 per year for all such
agreements for such Company, create, renew, amend or terminate or give notice of
a proposed renewal, amendment or termination of, any material contract,
agreement or lease for goods, services or office space to which any of the
Companies is a party or by which any of the Companies or their respective
properties are bound; or
(p) agree to do any of the foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information.
(a) Each Company shall provide Parent and its officers, employees,
accountants, counsel and other representatives, access, during normal business
hours during the period prior to the Effective Time, to all its properties,
books, contracts, commitments, records, customers, suppliers, officers,
employees, accountants, counsel and other representatives.
(b) Each party hereto agrees to, and shall cause its employees, agents,
directors, advisors and representatives to, (i) treat and hold as confidential
and not disclose to any Person for any purpose or reason whatsoever information
relating to trade secrets, processes, know-how, patent or trademark
applications, product development, price, customer and supplier lists, pricing
and marketing plans, policies and strategies, operations, methods, business
development techniques, business acquisition plans, new personnel acquisition
plans and other confidential information with respect to the businesses of each
Company on the one hand, and Parent on the other hand, using the same degree of
care, but no less than a reasonable degree of care, to prevent the unauthorized
use, dissemination or publication of the confidential information that each
party uses to protect its own confidential information, (ii) limit access to the
confidential information to such of its personnel or its representation as may
be directly involved in the Merger, (iii) in the event that any party or any of
such party's employees, agents, advisors, directors or representatives becomes
legally compelled to disclose any such information, provide the other parties
with prompt written notice of such requirement so that
30
36
such parties may seek a protective order or other remedy or waive compliance
with this Section 7.1(b), and (iv) in the event that such protective order or
other remedy is not obtained, or the party in question waives compliance with
this Section 7.1(b), furnish only that portion of such confidential information
which is legally required to be provided and exercise its best efforts to obtain
assurances that confidential treatment will be accorded such information;
provided, however, that this Section 7.1 shall not apply to any information
that, at the time of disclosure, is available publicly and was not disclosed in
breach of this Agreement. The parties agree and acknowledge that remedies at law
for any breach of their obligations under this Section 7.1 would be inadequate
and that in addition thereto the non-breaching parties shall be entitled to seek
equitable relief, including injunction and specific performance, in the event of
any such breach, without the necessity of demonstrating the inadequacy of money
damages.
(c) In the event of a termination pursuant to Section 9.1, Parent agrees
(i) that, for a period of two years following the date of this Agreement,
neither Parent nor any of its subsidiaries shall, directly or indirectly (A)
solicit or encourage any employee of the Companies to terminate his or her
employment with any of the Companies, (B) offer to employ, or contract with, any
employee of any of the Companies; and (ii) for a period of one year following
the date of this Agreement, neither Parent nor its subsidiaries shall employ any
individual that is the subject of specific information (for example, without
limitation, a resume or disclosure of qualifications) provided to Parent by any
of the Companies; provided that nothing herein contained shall preclude Parent
or any of its subsidiaries from employing or contracting to employ any of the
Companies' employees who responds to general advertisements for employment by
the Parent (or is terminated by the Companies after the effective date of such
termination).
7.2 Public Disclosure. Unless otherwise permitted by this Agreement, Parent
and each of the Companies shall consult with one another before issuing any
press release or otherwise making any public statement or making any other
non-confidential disclosure (whether or not in response to an inquiry) regarding
the existence or terms of this Agreement or the transactions contemplated
hereby, and none of the parties shall issue any such press release or make any
such statement or disclosure without the prior approval of the other (which
approval shall not be unreasonably withheld), except as may be required by law.
In addition, without the written approval of each of the Companies and the
Parent, no Company Shareholder shall issue any public statement or make any
other non-confidential disclosure regarding the existence or terms of this
Agreement or transactions contemplated hereby.
7.3 Compliance with Securities Laws. Parent shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of Parent Stock in connection with the
Merger. For the two years following the Effective Time, Parent shall make all
filings required under the Exchange Act to keep Rule 144 available to its
shareholders. Parent shall keep all of its shares listed on the Nasdaq National
Market.
7.4 Solicitation. Until the earlier of February 29, 2000 or the termination
of this Agreement, none of the Companies nor each Company Shareholder shall,
directly or indirectly, in any way solicit, initiate contact with, or enter into
or conduct any discussions or negotiations, or enter into any agreements,
whether written or oral, with any other Person, with
31
37
respect to the sale of the stock or assets or the merger or other business
combination of any of the Companies with any other Person. Each of the Companies
and each Company Shareholder shall, if it is the recipient of such an offer,
immediately notify Parent of such event and the details of such offer.
7.5 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby. The
parties hereto agree that, subsequent to the Effective Time, they will at the
request of the other party, execute and deliver such additional conveyances,
transfers and other assurances as, in the opinion of such party's counsel, are
reasonably required to carry out the intent of this Agreement. Each Company
Shareholder agrees to take all steps reasonably required by Parent to assist
Parent in retaining the goodwill of each of the Companies and in particular to
retain the employees of each Company with Parent.
7.6 Notification of Certain Matters. Each Company Shareholder and Parent
shall give prompt notice to the other of (a) the occurrence or nonoccurrence of
any event which would be reasonably likely to cause any representation or
warranty of any Company Shareholder or any Company, on the one hand, or Parent
or Merger Sub, on the other hand, contained in this Agreement to be untrue or
inaccurate in any material respect (or, in the case of any representation or
warranty which is qualified as to materiality, untrue or inaccurate in any
respect) at or prior to the Effective Time or (b) any material failure of any
Company Shareholder or any Company on the one hand, or Parent or Merger Sub, on
the other hand, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder. Any notice given pursuant to
this Section 7.6 shall be written notice with sufficient specificity to allow
for identification of the issue on the part of the Company Shareholders or the
Parent, as applicable, and shall be sent by facsimile or by overnight delivery.
Without limiting the generality of the foregoing, from the date hereof through
the Closing Date, each Company Shareholder and Parent shall promptly notify the
other parties of any action, suit, claim, arbitration, or other legal,
administrative or governmental proceeding or investigation that is commenced or,
to his or its or their knowledge, threatened, and of any request for additional
information or documentary materials by any Governmental Entity in connection
with the transactions contemplated hereby.
7.7 Noncompetition; Confidential Information.
(a) To protect the trade secrets, confidential information and good
will of each Company, and as a specific material inducement to Parent to enter
into this Agreement and purchase the Company Stock contemplated hereby (which
the Company Shareholders acknowledge is conditioned on the noncompete contained
herein), at all times during the period from the date hereof until one (1) year
after the termination or expiration of the employment agreement between Company
Shareholder and the Parent (the "Restricted Period") and within each county in
the State of New York and each other state in which any of the Companies is
doing business on the date hereof and on the date such Company Shareholder's
employment with
32
38
MicroLan, Madison or Madison NJ, as applicable, terminates, such Company
Shareholder shall not:
(i) directly or indirectly, in any capacity, solicit for employment,
identify to third parties, or negotiate for the services of, any persons
receiving wage compensation of any type (whether as an employee, consultant, or
independent contractor), whether currently or at any time within the past
eighteen months from the date of the relevant action, from any of the Companies
or Parent;
(ii) directly or indirectly, in any capacity accept for employment or
contract for the services of, any persons receiving compensation of any type,
whether currently or at any time within the past eighteen months from the date
of the relevant action, from the Company or Parent;
(iii) directly or indirectly, in any capacity assist, whether for pay
or otherwise, any Person to do that which such Person could not do directly
under subparagraphs (i) and/or (ii) above;
(iv) directly or indirectly, in any capacity engage, whether for pay or
otherwise, in the same business, or any business similar to, or competitive
with, the business conducted or intended to be conducted by any of the Companies
or Parent; and
(v) directly or indirectly, in any capacity assist, whether for pay or
otherwise, other than the Parent, or any of their affiliates, any Person to
engage in the same business, or any business similar to or competitive with, the
business conducted or intended to be conducted by any of the Companies or
Parent.
(vi) directly, or indirectly, call upon, solicit or attempt to solicit,
or be interested in or connected, either directly or indirectly, with any
business operation that calls upon, solicits or attempts to solicit any existing
customer of the Parent, or any of their affiliates, or any customer with whom
Parent or any of its affiliates has engaged in business within the six months
immediately preceding such Company Shareholder's termination of employment,
anywhere in New York or anywhere within a fifty (50) mile radius of any city or
municipality in any other state where the Parent actively provides work or
services for customers at the time that the Company Shareholder's employment
terminates; and
(vii) directly or indirectly, contact any of the Parent's existing
clients or suppliers (other than suppliers pre-approved in writing by Parent,
which approval shall not be unreasonably withheld) or any client or supplier
with whom Parent or any of its affiliates has engaged in business within the
past six (6) months, immediately preceding such Company Shareholder's
termination of employment anywhere in New York and anywhere within a fifty (50)
mile radius of any city or municipality in another state where the Parent
actively provides work or services for customers at the time of the said
termination of the Company Shareholder's employment which Company Shareholder
contacted, served or developed on behalf of any of the Companies or Parent or
their affiliated companies during the Company Shareholder's employment with the
purpose or intent of competing with the Parent or its affiliates.
33
39
(b) At all times during the Restricted Period, none of the Company
Shareholders shall disclose or reveal to any Person (other than directors,
officers and authorized employees and representatives of Parent and its
subsidiaries) or use for any purpose not contemplated by this Agreement any
Intellectual Property, including without limitation, computer software,
technology, data, customer lists, know-how, documents, processes, pricing and
marketing plans, policies and strategies, operations, methods, business
development techniques, business and personnel acquisition plans or other
confidential or trade secret information relating to the business, operations or
activities of Parent, including any of the Companies (except and only to the
extent that such information is readily ascertainable from public or published
information or trade sources, or upon advice of counsel, is required to be
disclosed in order to comply with applicable law or regulatory authority, or an
order of a court of competent jurisdiction, and such employee notifies Parent
prior to making such disclosure).
7.8 Parent Release of Company Shareholder Guarantees. Parent shall use its
commercially reasonable efforts to release each Company Shareholder from any
guarantee of indebtedness of any of the Companies or if Parent cannot obtain the
release of any of the Company Shareholders, indemnify the Company Shareholders
not so released against any liability incurred by any of them pursuant to such
guarantees.
7.9 Post-Closing Benefits. Each individual employed by the Companies
immediately prior to the Closing Date (each, a "Continuing Employee") will be
credited for his or her years of service with the Companies for purposes of
determining eligibility to participate in and vesting under employee benefit
plans of the Parent and for determining the period of employment under a
vacation, sick pay or other paid time off plan of the Parent and for determining
other entitlements and terms of employment affected by seniority under the
Parent's employment practices and for purposes of this Section 7.9, references
to the Parent shall be deemed to include its subsidiaries and affiliates.
7.10 Tax Matters. Each of the parties, on behalf of itself and its
Subsidiaries, undertakes and agrees (i) to use its reasonable best efforts to
cause the Merger to qualify for treatment as a "reorganization" within the
meaning of Section 368(a) of the Code for federal income tax purposes and (ii)
not to take any action which they know is likely to cause the Merger to fail to
qualify for such tax treatment. Notwithstanding the foregoing, neither Parent
nor Merger Sub shall in any event discontinue the historic business of any of
the Companies, liquidate or merge Merger Sub, sell or dispose of the stock of
Merger Sub, or sell or otherwise dispose of the assets of the Companies (other
than dispositions of assets in the ordinary course of business or as permitted
under Section 368(a)(2)(C) of the Code or Treasury Regulation Section
1.368-1(d)), unless Parent has received an opinion from Paul, Hastings, Janofsky
& Walker LLP or other recognized national tax counsel to the effect that the
proposed actions will not cause the Mergers to fail to qualify as
reorganizations within the meaning of Section 368(a) of the Code.
34
40
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of the Company Shareholders and each of the Companies to
consummate the Merger are subject to the satisfaction or waiver by Parent of the
following conditions at or prior to Closing.
8.1 Conditions to Obligations of Parent and Merger Sub. The obligation of
Parent and Merger Sub to effect the Merger is subject to the satisfaction or
waiver by Parent and Merger Sub at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties
of each of the Companies and the Company Shareholders set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and on the Closing Date as though made on and as of the Closing
Date. Parent shall have received a certificate from each Company to that effect
signed by each Company by its Chief Executive Officer and Chief Financial
Officer and by each of the Company Shareholders.
(b) Performance of Obligations of the Company. Each Company and the
Company Shareholders shall have performed, in all material respects, all
obligations required to be performed by them under this Agreement at or prior to
the Closing Date, and Parent shall have received a certificate from each Company
signed on behalf of each Company by its Chief Executive Officer and Chief
Financial Officer to that effect and from each of the Company Shareholders.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger.
(d) Employment Agreements and Retention. Ira Silverman, Richard
Silverman, Adam Silverman and such other key employees as designated by Parent
in Schedule 8.1(d) ("Key Employees") shall have entered into employment
agreements with the Surviving Corporation in form and substance mutually
satisfactory to the Company Shareholders and the Surviving Corporation. Eighty
percent (80%) of the employees of each Company and regularly retained
consultants shall have entered into employment agreements with the Surviving
Corporation.
All employees will receive compensation packages based on their level of
experience, seniority and other criteria generally considered for employees in
the industry and substantially equivalent to the employment agreements of the
employees of the Parent; provided that such employees are offered compensation
and benefits at least as favorable as each has received at the Company at which
each was employed; provided, further that it shall be a condition to any such
continued employment with the Surviving Corporation that all employees shall
have entered into non-competition and non-solicitation agreements. All employees
shall be eligible to participate in the Parent's Employee Stock Option Plan and
Share Purchase Scheme.
35
41
(e) Lock-Up Agreements. Each of the Company Shareholders shall have entered
into a lock-up agreement containing the terms set forth in Section 2.2(d).
(f) Legal Opinion. Each Company shall have caused a legal opinion from
counsel to each of the Companies and the Company Shareholders, in a form
satisfactory to Parent, in its sole discretion, to be delivered to Parent.
(g) Loan Payable. The outstanding loan made by the Company Shareholders
to the Companies, the current outstanding principal balance of which is $587,400
and on which there is unpaid interest accrued from January 1, 1998 at interest
rates ranging from 9% per annum to 9.5% per annum, and all other outstanding
loans, if any, from the Company Shareholders to the Companies, shall have been
fully repaid in accordance with their terms (other than with respect to the date
of maturity).
(h) Auto Leases. The auto leases for vehicles used by the Company
Shareholders and marked by an asterisk as set forth on Schedule 4.19(g) shall
have been terminated and the Company Shareholders shall have delivered to Parent
evidence in a form satisfactory to Parent of such termination.
(i) Shareholders' Agreements. The Shareholders' Agreements shall have
been terminated and the Company Shareholders shall have delivered to Parent
evidence in a form satisfactory to Parent of such termination.
(j) Employment Agreement. The Employment Agreement shall have been
terminated and the Company Shareholders shall have delivered to Parent evidence
in a form satisfactory to Parent of such termination.
(k) Certificates. The Company Shareholders and each Company shall have
executed and delivered to the Parent (or shall have caused to be executed and
delivered to the Parent by the appropriate persons) the following:
(i) A certified copy of the resolutions adopted by the Board of
Directors of each Company and shareholders authorizing and approving this
Agreement and each of the transactions contemplated hereby;
(ii) A copy of each Company's current corporate charter certified
as of a recent date by the appropriate Secretary of State;
(iii) A copy of the current Bylaws of each Company certified, by
the secretary of such Company;
(iv) A certificate issued as of a recent date by the Secretary of
State of the State of each state in which each Company is incorporated
certifying that each Company is in good standing;
(l) Closing Deliveries. In addition to any other instruments and
documents required to be delivered by each of the Companies and the Company
Shareholders pursuant to this Agreement, each Company and the Company
Shareholders shall have delivered
36
42
to Parent on or before the Closing Date such certificates, instruments and
documentation as are reasonably required in the opinion of Parent's counsel to
complete the transactions contemplated herein.
(m) Financial Statements. Company and Company Shareholders shall have
caused the delivery to Parent of the audited balance sheets as of December 31,
1999 and related statements of income, cash flows and retained earnings as of
and for the 12-month periods ended December 31, 1999 for each of the Companies,
audited by Joel E. Sammet & Co., the results of which shall be satisfactory to
the Parent in its reasonable discretion.
(n) Due Diligence. Parent shall have been satisfied in its reasonable
discretion with its review of due diligence materials supplied to Parent or its
counsel by each of the Companies and the Company Shareholders after January 24,
2000 with respect to the due diligence requests by Parent's legal counsel.
Parent shall have fifteen (15) business days after the execution of this
Agreement to be satisfied with its review of the business due diligence
materials supplied to Parent by each of the Companies and the Company
Shareholders.
(o) Governmental Approval. All approvals, waivers and consents from
each Governmental Entity necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby shall have been
obtained.
8.2 Conditions to the Obligations of each Company and Company Shareholder.
The obligation of each Company to consummate the Merger is also subject to the
satisfaction or waiver by any of the Companies at or prior to the Closing Date
of the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth in this Agreement 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. Each Company shall have
received a certificate signed (i) on behalf of Parent by its Chief Executive
Officer and Chief Financial Officer and (ii) on behalf of Merger Sub by its
President , in each case to the foregoing effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
Merger Sub shall have performed, in all material respects, all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and each Company shall have received a certificate signed (i) on behalf of
Parent by its Chief Executive Officer and Chief Financial Officer and (ii) on
behalf of Merger Sub by its President, in each case to such effect.
(c) Governmental Approval. All approvals, waivers and consents from
each Governmental Entity necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby shall have been
obtained.
(d) Opinion. The Company Shareholders shall have received an opinion of
Fulbright & Jaworski L.L.P., special counsel to the Companies, dated as of the
Closing Date, in the form and substance reasonably satisfactory to the Company
Shareholders, substantially to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion,
37
43
the Merger constitutes a tax-free reorganization within the meaning of Section
368(a) of the Code. In rendering such opinion, Fulbright & Jaworski L.L.P. may
require and rely upon representations and covenants including those of Parent,
Merger Sub and the Companies.
(e) Closing Deliveries. In addition to any other instruments and
documents required to be delivered by the Parent and the Merger Sub pursuant to
this Agreement, the Parent and the Merger Sub shall have delivered to each
Company and the Company Shareholders on or before the Closing Date such
certificates, instruments and documentation as are reasonably required in the
opinion of the Companies' counsel to complete the transactions contemplated
herein.
(f) Continued Listing on Nasdaq National Market. The Parent Stock
shall continue to be listed on the Nasdaq National Market on the Closing Date.
At any time on or prior to the Closing Date, Parent has not received notice, or
threatened notice, of a delisting of the Parent Stock from the Nasdaq National
Market.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the shareholders of each of
the Companies of the matters presented in connection with the Merger:
(a) by mutual consent of each of the Companies, Parent and Merger Sub
in a written instrument, if the Board of Directors of each so determines by a
vote of a majority of the members of its entire Board;
(b) by either Parent on the one hand or any of the Companies and the
Company Shareholders, as a whole, on the other hand if there shall have been a
material breach of any of the representations, warranties or covenants set forth
in this Agreement on the part of the other party, which breach is not cured
within thirty (30) days following written notice to the party committing such
breach, or which breach, by its nature, cannot be cured prior to the Closing; or
(c) by either Parent on the one hand or any of the Companies or the
Company Shareholders, as a whole, on the other if the Effective Time has not
occurred by February 29, 2000, provided that the party then in material breach
of its representations, warranties, covenants in this Agreement may not
terminate this Agreement pursuant to this Section 9.1(c).
9.2 Effect of Termination. In the event of termination of this Agreement by
either Parent on the one hand or any of the Companies and the Company
Shareholders, as a whole, on the other hand as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect except that Sections
7.1(b), 7.1(c) and 7.2 shall survive any termination of this Agreement and
notwithstanding anything to the contrary contained in this Agreement, no party
shall be relieved or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement. Except as provided in the
last sentence of this Section 9.2, the Company Shareholders shall promptly cause
the Escrow Agent to return the Deposit to Parent.
38
44
Each of the parties acknowledge that the other parties to this Agreement will be
expending resources and time and as a result will be foregoing other potential
transactions during the period from the date hereof until the Closing Date. The
parties hereto have therefore agreed that a fee (the "Break-up Fee") will be
payable:
(a) jointly and severally by the Companies and the Company
Shareholders to the Parent within 48 hours of (i) the termination of this
Agreement pursuant to Section 9.1(b) as a result of a breach of any of the
representations, warranties or covenants by any of the Companies or the Company
Shareholders; or (ii) a final determination is made by any of the Companies or
the Company Shareholders not to proceed with the transaction other than as
permitted in this Agreement in which case the Companies or the Company
Shareholders shall reimburse Parent for reasonable out of pocket expenses of up
to $500,000; or
(b) jointly and severally by Merger Sub and Parent to the Companies
within 48 hours of (i) the termination of this Agreement pursuant to Section
9.1(b) as a result of a breach of any of the representations, warranties or
covenants by Merger Sub or Parent or (ii) a final determination is made by
Parent or Merger Sub not to proceed with this transaction other than as
permitted in this Agreement, in which case Parent shall reimburse the Companies
and the Company Shareholders in the aggregate for reasonable out of pocket
expenses of up to $500,000, plus an additional $200,000, which shall be deducted
from the Deposit.
In the event the Break-up Fee is payable to the Companies, the parties
shall direct the Escrow Agent to pay the Break-up Fee to the Companies from the
Deposit and release the remainder of the Deposit to Parent pursuant to Section
2.5.
ARTICLE X
INDEMNIFICATION
10.1 Indemnity. (a) The Company Shareholders and, until such time as the
Parent owns all of the capital stock of each of the Companies, each of the
Companies, shall unconditionally and jointly and severally indemnify, defend and
hold harmless the Parent and the Merger Sub (and the directors, officers,
employees, representatives, agents, affiliates, successors and assigns of each)
(the "Parent Indemnified Person") from and against any Liabilities, interest,
costs of investigation, assessments, judgments, actions, proceedings and suits
of whatever kind and nature and all costs and expenses relating thereto
(including, without limitation, reasonable attorneys' fees and expenses of
investigation ("Legal Expenses") and accountants' fees and expenses) incurred in
connection with the investigation or defense thereof or in asserting rights
hereunder (collectively, "Losses"), based upon, arising out of or otherwise
resulting from (i) any inaccuracy or breach of any representation or warranty of
any Company Shareholder or any of the Companies (without regard to any
limitation or qualification as to knowledge or materiality set forth in such
representation, warranty or certificate on the scope, accuracy or completeness
thereof) contained in this Agreement, or in any Exhibit, Schedule or certificate
delivered pursuant hereto or thereto, (ii) the breach of any covenant, agreement
or other obligation of the Company Shareholders or any of the Companies
contained in this Agreement which breach remains uncured for thirty (30) days
after the date of written notice of the breach or nonfulfillment, (iii) and the
conduct of business on or prior to the Closing.
39
45
(b) Parent shall indemnify, defend and hold harmless the Company
Shareholders and its trustees, agents, successors and assigns (the "Shareholder
Indemnified Person") from and against all Losses (including specifically, but
without limitation, Legal Expenses) based upon, resulting from or arising out of
(a) any inaccuracy or breach of any representation or warranty of Parent
contained in this Agreement, or (b) the breach of any covenant, agreement or
other obligation of Parent contained in this Agreement which breach remains
uncured for 30 days after the date of written notice of the breach.
10.2 Indemnification Procedures.
(a) Promptly after receipt by any person entitled to indemnification
under Section 10.1 (an "Indemnified Party") of notice of any claim or of
commencement of any action, suit or proceeding by a person not a party to this
Agreement in respect of which the indemnified party will seek indemnification
hereunder (any such claim, suit or proceeding, "Third Party Action"), the
indemnified party shall notify the person that is obligated to provide such
indemnification (the "Indemnifying Party") thereof in writing, but any failure
to so notify the indemnifying party shall not relieve it from any liability that
it may have to the indemnified party under Section 10.1, except to the extent
that the indemnifying party is prejudiced by the failure to give such notice.
The indemnifying party shall be entitled to participate in the defense of such
Third Party Action and to assume control of such defense (including settlement
of such Third Party Action) with counsel reasonably satisfactory to such
indemnified party; provided, however, that:
(i) the indemnified party shall be entitled to participate in the
defense of such Third Party Action and to employ counsel at its own expense
(which shall not constitute Legal Expenses for purposes of this Agreement) to
assist in the handling of such Third Party Action;
(ii) the indemnifying party shall obtain the prior written
approval of the indemnified party before entering into any settlement of such
Third Party Action or ceasing to defend against such Third Party Action, if
pursuant to or as a result of such settlement or cessation, injunctive or other
equitable relief would be imposed against the indemnified party or the
indemnified party would be adversely affected by such settlement or cessation;
(iii) no indemnifying party shall consent to the entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to each indemnified party
of a release from all liability in respect of such Third Party Action; and
(iv) the indemnifying party shall not be entitled to control the
defense of any Third Party Action unless the indemnifying party confirms in
writing its assumption of such defense and continues to pursue the defense
reasonably and in good faith. After written notice by the indemnifying party to
the indemnified party of its election to assume control of the defense of any
such Third Party Action in accordance with the foregoing, (i) the indemnifying
party shall not be liable to such indemnified party hereunder for any Legal
Expenses subsequently incurred by such indemnified party attributable to
defending against such Third Party Action, and (ii) as long as the indemnifying
party is reasonably contesting such Third
40
46
Party Action in good faith, the indemnified party shall not admit any liability
with respect to, or settle, compromise or discharge the claim underlying, such
Third Party Action without the indemnifying party's prior written consent. If
the indemnifying party does not assume control of the defense of such Third
Party Action in accordance with this Section 10.2, the indemnified party shall
have the right to defend and/or settle such Third Party Action in such manner as
it may deem appropriate at the cost and expense of the indemnifying party, and
the indemnifying party will promptly reimburse the indemnified party therefor in
accordance with this Section 10.2. The reimbursement of fees, costs and expenses
required by this Section 10.2 shall be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
(b) If an indemnified party has actual knowledge of any facts or
circumstances other than the commencement of a Third Party Action which cause in
good faith it to believe that it is entitled to indemnification under this
Article X then such indemnified party shall promptly give the indemnifying party
notice thereof in writing, but any failure to so notify the indemnifying party
shall not relieve it from any liability that it may have to the indemnified
party under Section 10.1, as the case may be, except to the extent that the
indemnifying party is prejudiced by the failure to give such notice.
10.3 Tax Indemnification. Notwithstanding anything in this Article X to the
contrary, the rights and obligations of the parties with respect to the breach
of representations, warranties, covenants, and agreements and the
indemnification for Taxes set forth in Article XI shall be governed by the
provisions of Article XI and not by this Article X unless otherwise stated in a
specific section of this Agreement.
10.4 Losses Net of Insurance, etc. The amount of any loss, liability,
claim, damage or expense for which indemnification is provided under this
Article X shall be net of any amounts recovered or recoverable by the
indemnified party under insurance policies with respect to such loss, liability,
claim, damage or expense and (unless such indemnity payment is treated as an
adjustment to the Purchase Price for tax purposes) shall be (i) increased to
take account of any Tax cost incurred (grossed up for such increase) by the
indemnified party arising from the receipt f indemnity payments hereunder and
(ii) reduced to take account of any Tax benefit realized by the indemnified
party arising from the incurrence or payment of any such loss, liability, claim,
damage or expense. In computing the amount of any such Tax cost or Tax benefit,
the indemnified party shall be deemed to use all other items of income, gain,
loss, deduction or credit before using any item arising from the incurrence or
payment of any indemnified loss, liability, claim, damage or expense or of any
indemnity payment pursuant to this Article X. Any indemnity payment made
pursuant to this Section will be treated as an adjustment to the Purchase Price
for Tax purposes, unless a determination (as defined in Section 1313 of the
Code) with respect to the indemnified party causes any such payment to not
constitute an adjustment to the Merger Consideration for United States Federal
income tax purposes.
10.5 Exclusive Remedy. The indemnification provisions of this Article X
shall constitute the exclusive remedy of each party hereto with respect to the
breach or falsity of any representation or warranty, or the failure to perform
or comply with any covenant or agreement, made by any other party hereto in this
Agreement or in any certificate delivered pursuant to this agreement.
41
47
10.6 Limitations and Payment of Claims.
(a) The right of indemnification or other claim against Parent or the
Company Shareholders with respect to each representation, warranty, covenant and
agreement contained in this Agreement shall, except with respect to
representations, warranties, covenants and agreements set forth in Sections 4.2,
and 4.14 which shall survive forever, terminate on the date occurring (i) on the
thirtieth (30) day after the expiration of the applicable statute of limitations
(or extensions or waivers thereof) relating to the representations, warranties,
covenants and agreements set forth in Sections 4.8, 5.11, 7.10 and Article XI,
and (ii) eighteen (18) months after the Closing Date with respect to all other
representations, warranties, covenants and agreements contained in this
Agreement, except in so far as a claim has been asserted by either party and not
been resolved prior to expiration of the applicable periods set forth in item
(i) or (ii) above.
(b) No parties shall be liable to another party for any claim under
this Agreement until the aggregate of Losses suffered exceeds $250,000 in the
aggregate and then only to the extent of such excess.
(c) All amounts owed by the Company Shareholders to a Parent
Indemnified Person under this Article X may be paid, at the election of the
Company Shareholders, either in cash or shares of Parent Stock. All amounts owed
by Parent to a Shareholder Indemnified Person under this Article X shall be
paid, at the election of Parent, either in cash or shares of Parent Stock. Any
shares of Parent Stock issued, surrendered or transferred as payment of amounts
owed pursuant to this Article X shall be valued at the average of the closing
sale prices (or last bid price for any day that a closing sale price is not
reported) of Parent Stock as reported on the Nasdaq National Market (or on such
other exchange or quotation system as the Parent Stock may be traded at such
time) for the ten (10) trading days immediately preceding the date such payment
is required to be made.
(d) In no event shall any Company Shareholder's liability exceed the
amount of consideration such Company Shareholder individually received in the
Merger. In no event shall the Company and the Company Shareholders in the
aggregate be liable hereunder for any amount exceeding $15.0 million.
(e) Notwithstanding any contrary provisiozn of this Agreement, in no
event shall Adam Fox be liable for any Losses other than a Loss relating to (i)
a breach by him of his representations and warranties in Article III or (ii) a
breach of any representation, warranty or covenant contained in this Agreement
with respect to Madison NJ only.
ARTICLE XI
TAX MATTERS
11.1 Representations and Warranties. Each Company and each of the Company
Shareholders hereby, severally, represent and warrant to Parent on the date of
this Agreement and on the Closing Date as follows:
(a) All Tax Returns in respect of Taxes required to be filed by each
Company before the Closing Date have been or will be timely filed with the
appropriate
42
48
governmental taxing authority. All such Tax Returns are or will be true,
correct and complete in all material respects. None of the Companies has
requested any extension of time within which to file Tax Returns in respect of
any Taxes, which Tax Returns have not been filed.
(b) All Taxes of each Company due and payable prior to the Closing
Date have been paid or will be paid prior to the Closing Date or an adequate
reserve has been (or, with respect to periods for which financial reports have
not yet been prepared, will be) established therefor in accordance with GAAP for
all periods through the day prior to the Closing Date. Each of the Companies has
established (and until closing will maintain) on its books and records reserves
adequate to pay all Taxes not yet due and payable. None of the Companies has any
material liability for Taxes in excess of such amounts so paid or reserves so
established.
(c) Each Company has complied (and until the day prior to Closing will
comply) in all material respects with all applicable laws, rules and regulations
relating to the payment and withholding of taxes, and has withheld and paid over
to the appropriate taxing authority or will withhold and pay over to the
appropriate taxing authority, within the time and manner prescribed by law, from
its employees, independent contractors, customers, and other payees all amounts
of Tax required to be withheld through the day prior to the Closing Date.
(d) The statute of limitations for the assessment of all Taxes has
expired for all applicable Tax Returns of each of the Companies or those returns
have been examined by the appropriate taxing authority for all periods through
[December 31, 1995] and no material deficiencies for Taxes have been claimed,
proposed or assessed by any governmental taxing authorities against any of the
Companies for any taxable year. There are no pending or threatened audits,
investigations or claims for or relating to any Taxes or Tax Return of any of
the Companies, and there are no matters under discussion with any governmental
taxing authority with respect to Taxes that is likely to result in an additional
material liability for Taxes for any of the Companies. No waivers or extensions
of a statute of limitations relating to Taxes are in effect with respect to the
Company.
(e) There are no outstanding requests by any of the Companies or the
Company Shareholders to a taxing authority for a ruling, determination, consent,
material permission, or similar item in respect of any of the Companies. No
closing agreement (as defined in Section 7121 of the Code) or any similar
provision of any state, local, or foreign law has been entered into by or with
respect to any of the Companies.
(f) There are no Liens or Encumbrances for or arising from any Tax
upon the Company Stock or upon any asset of the Company (except for statutory
Liens for Taxes not yet due and payable).
(g) No power of attorney that is currently in force has been granted
to any Person with respect to any matter relating to Taxes.
(h) The Company Shareholders are not foreign persons within the
meaning of Section 1.1445-2(b) of the Treasury Regulations, and no amount of Tax
is otherwise required to be withheld by Parent or Merger Sub pursuant to any
provision of law as a result of any of the transactions contemplated by this
Agreement.
43
49
(i) None of the Companies has any material item of income, gain, loss,
or deduction reportable in a taxable period ending on or after the Closing Date
but attributable to a transaction (e.g., an installment sale, a deferred
intercompany transaction, or an adjustment pursuant to Section 481 of the Code
that occurred in a taxable period or portion thereof ending on or before the
Closing Date.
(j) None of the Companies has, with regard to any property held by it,
filed (or will file prior to Closing) a consent pursuant to Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a "subsection (f) asset" (as such term is defined in Section
341(f)(4) of the Code) owned by any of the Companies.
(k) No property of any of the Companies is "tax-exempt use property"
within the meaning of Section 168(h) of the Code; nor is any of the Companies a
party to any lease made pursuant to Section 168(f) of the Code.
(l) None of the Companies is a party to any Tax allocation or sharing
agreement.
(m) None of the Companies (i) has been a member of an affiliated group
filing a consolidated federal income Tax Return nor (ii) has any liability for
the Taxes of any Person (other than any of the Companies) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(n) None of the Companies is a party to any agreement, contract or
arrangement, nor maintains or sponsors any Employee Plans, that will result,
separately or in the aggregate, in the payment of any "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code, determined without regard
to Section 280G(b)(4) of the Code, and no Employee Plan provides for the
reimbursement of excise taxes under Section 4999 of the Code or any income taxes
under the Code.
(o) No election under Section 338 of the Code (or any predecessor
provisions) has been made by or with respect to the Company or any of its
assets. No indebtedness of the Company is "corporate acquisition indebtedness"
within the meaning of Section 279(b) of the Code.
11.2 Filing of Tax Returns and Payment of the Tax.
(a) The Company Shareholders shall cause each Company to timely file
or cause to be timely filed all Tax Returns that are required to be filed (with
extensions) on or before the Closing Date. All such Tax Returns shall be
prepared in a manner consistent with past practice, except as required by
applicable law. Each Company shall timely pay or cause to be timely paid all
Taxes that are due and payable by the Companies on or prior to the Closing Date.
The Company Shareholders shall have the right to prepare and file, at their sole
cost and expense, the Tax Returns of the Companies for the "S short year" and
for all periods ending prior to the Closing Date but due after the Closing Date
(within the meaning of Section 1362(e)(1)(A) of the Code), which returns shall
be timely prepared in a manner consistent with prior practice unless otherwise
required by applicable laws and shall be approved by the Parent, which
44
50
approval shall not be unreasonably withheld. Unless otherwise required by law,
neither Parent or any of its Affiliates may amend any Tax Return of any of the
Companies for any taxable period (including a portion thereof) ending on or
prior to the Closing Date without the prior written consent of the Company
Shareholders
(b) Except as set forth in Section 11.2(a), Parent shall prepare or cause
to be prepared and file or cause to be filed all Tax Returns for each Company in
a manner consistent with past practices, except as required by applicable law,
for the Straddle Period and all periods ending on or prior to the Closing Date
which are filed after the Closing Date. At least 15 days prior to the filing of
any Tax Return, which includes Taxes that the Company Shareholders are liable
for, Parent shall provide the Company Shareholders with a copy of the return
along with a statement setting forth the Parent's calculation of the Company
Shareholders' Tax liability relating to such return as determined pursuant to
Section 11.3 related thereto. Within 15 days of receipt of these items, each
Company Shareholder shall pay to the Parent the amount of that Company
Shareholder's Tax liability.
(c) The Company Shareholders, Parent and Merger Sub shall reasonably
cooperate, and shall cause their respective affiliates, officers, employees,
agents, auditors and representatives reasonably to cooperate, in connection with
the preparation and filing of Tax Returns that they are required to file and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such tax return,
audit, litigation or other proceeding.
11.3 Indemnification by the Selling Shareholders. Each of the Company
Shareholders hereby, severally, agrees to indemnify, defend, and hold Parent and
each of the Companies (and their respective officers, directors, employees,
affiliates, successors and assigns) harmless from and against:
(a) any and all Taxes incurred by Parent or any of the Companies in
connection with or arising from any inaccuracy, breach, or nonfulfillment of any
representation, warranty, covenant, or agreement of the Company Shareholder or
any of the Companies pursuant to this Agreement;
(b) any and all Taxes imposed on any of the Companies or Parent, directly
or indirectly, (i) for any taxable period ending prior to or on the Closing
Date, (ii) for any taxable period beginning before and ending after the Closing
Date (the "Straddle Period") to the extent such Taxes are apportioned to the
portion of the taxable period prior to the Closing Date pursuant to Section
11.9, (iii) for the Closing Date, any Taxes incurred as a result of the
transactions contemplated by this Agreement and any Taxes resulting from
activities outside the ordinary course of business, but excluding Taxes incurred
solely from actions taken by the Parent, or (iv) for any taxable period, if such
Taxes were incurred as a result of actions or omissions by any of the Companies
or the Company Shareholders other than actions or omissions in the ordinary
course of business, provided, that this provision shall expire on the 30th day
after the expiration of the applicable statute of limitations, except with
respect to either clause (i),(ii), (iii) or (iv) to the extent that such Taxes
are set forth in the tax reserve on the Financial Statements;
45
51
(c) any and all unpaid federal, state, local, or foreign Taxes imposed on
any of the Companies, directly or indirectly pursuant to any guaranty,
indemnification, Tax sharing or similar arrangement made on or before the
Closing Date relating to the sharing of Liability for, or payment of, Taxes;
(d) any and all Taxes imposed pursuant to Section 1441 of the Code
(concerning withholding of Tax on nonresident aliens) or Subchapter A, Chapter
24, of the Code (concerning withholding from wages) with respect to any payment
made by the Parent or any of the Companies to such Company Shareholders pursuant
to this Agreement; and
(e) any cost or expense (including, without limitation, reasonable
attorneys' and accountants' fees) incurred by the Parent, any of the Companies,
or any of their successors or assigns in connection with any Tax described in
this Section 11.3.
11.4 Tax Adjustments. The amount of any Tax or other amount for which
indemnification is provided under Sections 10.1 or 11.3 hereof shall be (i)
increased to take account of any Tax incurred by the indemnified party arising
from the receipt or right to receive the indemnity payments hereunder (increased
by any Tax incurred with respect to such increased amount) and (ii) reduced to
take into account (A) any reduction of Tax realized by the indemnified party
arising from the incurrence or payment of the amount for which indemnification
is provided and (B) insurance proceeds received, if any, by the indemnified
party in connection with such Tax.
11.5 Access to Information. From the date hereof, the Company Shareholders
shall, and shall cause each Company to, make available to Parent and Parent's
representatives, and Parent shall cause to be made available to each Company and
its representatives: (a) all Tax Returns and all documents and records in
connection with the preparation thereof for any taxable period or portion
thereof ending on or before the Closing Date and any examination reports and
statements of deficiencies assessed against, proposed to be assessed against, or
agreed to by any of the Companies for such taxable periods; and (b) any Tax
sharing or allocation agreement or arrangement involving any of the Companies at
any time during the ten-year period ending on the Closing Date and a true and
complete description of any such unwritten or informal agreement or arrangement.
11.6 Books and Records. Parent shall retain or cause Merger Sub and each
Company to retain all books and records pertinent to each Company for each
taxable period or portion thereof ending on or prior to the Closing Date until
the expiration of the applicable statute of limitations (giving effect to any
and all extensions and waivers) and to abide by or cause compliance with all
record retention agreements entered into by or on behalf of any of the Companies
with any taxing authority. Parent agrees, and agrees to cause the Merger Sub and
each of the Companies to allow the Company Shareholders, at times and dates
mutually acceptable to the parties, to inspect, review and make copies of such
records from time to time, such activities to be conducted during normal
business hours and at the Company's Shareholders' expense.
11.7 Notice of Audit. If any party to this Agreement receives any written
notice from any taxing authority proposing an adjustment to any Tax for which
any other party
46
52
hereto may be obligated to indemnify under this Agreement, such party shall give
prompt written notice thereof to the other that describes such proposed
adjustment in reasonable detail ("Notice of Audit"), and shall indicate the
amount (estimated, if necessary) of the Tax and other items that may be suffered
by Parent, each Company, or the Company Shareholders, as the case may be. The
failure to give a Notice of Audit pursuant to this Section 11.7, however, shall
not reduce the obligations of a party hereunder unless, and to the extent that,
such failure prejudices the rights of the other party to contest such tax. The
Company Shareholders may, at their sole expense, control the conduct of any
audit or proceeding that relates to any taxable period ending prior to or on the
day before the Closing Date; provided, however, that the Company Shareholders
shall in no event take any position in such settlement or defense that subjects
Parent or any of its Affiliates to any civil fraud or any civil or criminal
penalty without the prior written consent of Parent. Notwithstanding the
foregoing, the Company Shareholders shall act in good faith and not cause a
material adverse effect in the settlement of any tax claim involving a change in
the treatment of any item which would materially affect the Tax liability of
Parent or any of its Affiliates for a period subsequent to the Closing Date,
unless the Tax claim relates to a past practice that has been finally determined
to be incorrect by the applicable taxing authority and the treatment under the
proposed settlement is expressly required by applicable Tax laws (or judicial or
administrative interpretations thereof). Parent and its affiliates shall have
the sole right to represent the Companies' interests in any Tax proceeding
relating to the Straddle Period and for the period beginning after the "S short
year"; provided, however, that the Parent and its affiliates shall act in good
faith and not cause a material adverse effect in the settlement of any Tax claim
involving indemnification required under Section 11.3 or a change in the
treatment of any item which would materially affect the Tax liability of the
Companies or the Company Shareholders for a period prior to the Closing Date
unless the Tax claim relates to a past practice that has been finally determined
to be incorrect by the applicable taxing authority and the treatment under the
proposed settlement is expressly required by applicable Tax laws (or judicial or
administrative interpretations thereof).
11.8 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid by the
Company Shareholders when due, and the party required by applicable law will
file all documentary, sales, use, stamp, registration and other Taxes and fees,
and if required by applicable law, the other parties will, and will cause their
affiliates to, join in the execution of any such Tax Returns or other
documentation. The Company Shareholders, at their own expense, will pay for all
such filings.
11.9 Apportionment of Taxes. The portion of such taxes attributable to the
portion of the Straddle Period prior to the Closing Date shall equal:
(1) in the case of real, personal and intangible property Taxes
("Property Taxes") of the Companies, the amount of such Taxes for the Straddle
Period multiplied by a fraction the numerator of which is the number of days in
the Straddle Period on or prior to, but not including, the Closing Date and the
denominator of which is the number of days in the entire Straddle Period; and
47
53
(2) in the case of Taxes of the Company and its Subsidiaries other than
Property Taxes, the amount which would be payable if the relevant Tax period
ended on the day prior to the Closing Date.
11.10 Refunds and Credits. Any refunds or credits of Taxes of the Companies
for any Tax period ending on or before the Closing Date shall be for the account
of the Company Shareholders. Any refunds or credits of Taxes of the Companies
for any Tax period beginning after the Closing Date shall be for the account of
Parent. Any refunds or credits of taxes of the Companies for any Straddle Period
shall be equitably apportioned between the Company Shareholders, on the one
hand, and Parent, on the other. Parent shall, if the Company Shareholders so
request, and at the Company Shareholders' expense, cause the Companies or Merger
Sub to file for and obtain any refunds or credits to which the Company
Shareholders are entitled under this Section 11.10. Each party shall forward,
and shall cause its affiliates to forward, to the party entitled pursuant to
this Section 11.10 to receive the amount or economic benefit of a refund or
credit of Taxes the amount of such refund or credit of Taxes within 10 days
after such refund is received or after such credit is allowed or applied against
other Tax liability, as the case may be; provided, however, that any such
amounts payable pursuant to this Section 11.10 shall be net of any tax cost or
benefit to the party making such payment and its affiliates attributable to the
receipt of such refund or credits and/or the payment of such amounts. Parent and
the Company Shareholders shall treat any amounts payable pursuant to this
Section 11.10 as an adjustment to purchase price for Tax purposes, unless a
final determination (which shall include the execution of Form 870-AD or
successor form) causes any such payment not to be treated as an adjustment to
purchase price for Tax purposes.
11.11 Miscellaneous. All representations and warranties contained in this
Article XI with respect to any tax shall survive until the thirty-first day
after the expiration of the applicable statute of limitations.
ARTICLE XII
GENERAL PROVISIONS
12.1 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made in this Agreement shall
survive the Closing and shall terminate on the dates that the right to
indemnification under such representations, warranties, covenants or agreements
terminates as provided in Section 10.6, and they shall not be affected in any
respect by any examination or investigation conducted by or on behalf of the
parties hereto and any information which any party may receive pursuant to the
schedules hereto or otherwise.
12.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, 24 hours after sent
by facsimile (with confirmation), 3 days after mailed by registered or certified
mail (return receipt requested) or 1 day after sent by a nationally recognized
overnight courier (next day delivery) (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to any of the Companies, to:
48
54
MADISON TECHNOLOGY GROUP
331 Madison Avenue
New York, New York 10017
Fax: (212) 655-7216
Attention: IRA SILVERMAN
with a copy to:
Fulbright & Jaworski LLP
666 Fifth Avenue New York, New York 10103
Fax: (212) 752-5958
Attention: Neil Gold, Esq.
(b) if to Parent, to:
Futurelink Corp.
6 Morgan, Suite 100
Irvine, CA 92618
Fax: (949) 837-4433
Attention: James A. Bailey
with copies to:
Paul, Hastings, Janofsky & Walker, LLP
345 California Street, 29th Floor
San Francisco, California 94104
Fax: (415) 217-5333
Attention: Thomas R. Pollock, Esq.
(c) if to the Company Shareholders, to:
IRA SILVERMAN
331 Madison Avenue
New York, NY 10017
Fax: (212) 655-7216
RICHARD SILVERMAN
331 Madison Avenue
New York, NY 10017
Fax: (212) 655-7216
12.3 Schedules. Any disclosure made on any Schedule hereto shall be treated
as made on all relevant Schedules hereto and need not be repeated in each such
Schedule, but only if it is apparent on the face of the disclosure that it
relates to each such other relevant Schedule.
12.4 Deemed Waiver. If, not withstanding any disclosure in writing in
accordance with the notice provisions hereof to Parent subsequent to the date of
this Agreement of any incomplete or incorrect disclosure in this Agreement or
any Schedule hereto, including without limitation, any notice provided pursuant
to Section 7.7 hereof, Parent shall consummate
49
55
the transactions contemplated hereby, Parent shall be deemed have waived any
right it might otherwise have as a result of any such incompleteness or
incorrectness.
12.5 Governing Law. This Agreement has been executed and delivered at and
shall be deemed to have been made in New York. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York
without giving effect to the conflict of laws rules therein. The parties hereto
hereby consent and agree that the New York State Court or, at any party's
option, the United States District Court for the Southern District of New York,
shall have exclusive jurisdiction to hear and determine any claims or disputes
among the parties hereto pertaining to this Agreement or to any matter arising
out of or related to this Agreement. The parties hereto expressly submit and
consent in advance to such jurisdiction in any action or suit commenced in any
such court, and hereby waive any objection which it may have based upon lack of
personal jurisdiction, improper venue or forum non conveniens and hereby consent
to the granting for such legal or equitable relief as is deemed appropriate by
such court. Nothing in this Agreement shall be deemed or operate to affect the
right of any party to serve legal process in any other manner permitted by law,
or to preclude the enforcement by any party of any judgment or order obtained in
such forum or the taking of any action under this Agreement to enforce same in
any other appropriate forum or jurisdiction.
12.6 Severability. Any part, provision, representation or warranty of this
Agreement that is prohibited or that is held to be void or unenforceable shall
be ineffective solely to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof. Any part, provision,
representation or warranty of this Agreement that is prohibited or unenforceable
or is held to be void or unenforceable in any jurisdiction shall be ineffective,
as to such jurisdiction, to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law that prohibits
or renders void or unenforceable any provision hereof. If the invalidity of any
part, provision, representation or warranty of this Agreement shall deprive any
Person of the economic benefit intended to be conferred by this Agreement, the
parties shall negotiate, in good-faith, to develop a structure, the economic
effect of which is as close as possible to the economic effect of this
Agreement, without regard to such invalidity.
12.7 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties hereto (except that Parent may assign its
rights, but not its obligations to another wholly-owned subsidiary). Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement.
12.8 Expenses. All costs and expenses incurred by Parent in connection with
this Agreement and the transactions contemplated hereby shall be paid by Parent,
except that the
50
56
Company Shareholders shall pay for any significant extra costs of Parent with
respect to reviewing and implementing any of the Company's and each Company
Shareholders' tax planning. All costs and expenses incurred by each Company or
the Company Shareholders in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Company, including accounting and
investment banking fees (except for legal fees which shall be paid by the
Company Shareholders).
12.9 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.10 Entire Agreement. This Agreement (including the Exhibits and
Schedules) constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
12.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
12.12 Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, (i) consents, waivers and modifications
which may hereafter be executed, (ii) documents received by any party at the
Closing, and (iii) financial statements, certificates and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process. The parties agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding,
whether or not the original is in existence and whether or not such reproduction
was made by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
12.13 Advice from Independent Counsel. The parties hereto understand that
this Agreement is a legally binding agreement that affects such party's rights.
Each party represents to the other parties that it has received legal advice
from counsel of its choice regarding the meaning and legal significance of this
Agreement and that it is satisfied with its legal counsel and the advice
received from it.
12.14 Amendment. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
51
57
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization and Merger as of the date first written above.
PARENT
FUTURELINK CORP.
By: /s/ Philip R. Ladouceur
---------------------------
Name: Philip R. Ladouceur
Title: Chairman/CEO
By: /s/ R. Kilambi
---------------------------
Name: R. Kilambi
Title: CFO
MERGER SUB
FUTURELINK DELAWARE ACQUISITION CORP.
By: /s/ Kyle B.A. Scott
---------------------------
Name: Kyle B.A. Scott
Title: Secretary
By: /s/ R. Kilambi
---------------------------
Name: R. Kilambi
Title: CFO
COMPANY
MICROLAN SYSTEMS, INC.
By: /s/ Ira Silverman
---------------------------
Name: Ira Silverman
Title: President
MADISON CONSULTING RESOURCES, INC.
By: /s/ Richard Silverman
---------------------------
Name: Richard Silverman
Title: President
58
MADISON CONSULTING RESOURCES (NJ), INC.
By: /s/ Richard Silverman
---------------------------
Name: Richard Silverman
Title: President
COMPANY SHAREHOLDERS
/s/ Nancy Silverman /s/ Ira Silverman
- ---------------------------- ---------------------------------
WITNESS IRA SILVERMAN
/s/ Nancy Silverman /s/ Richard Silverman
- ---------------------------- ---------------------------------
WITNESS RICHARD SILVERMAN
/s/ Nancy Silverman /s/ Adam Silverman
- ---------------------------- ---------------------------------
WITNESS ADAM SILVERMAN
/s/ Nancy Silverman /s/ Adam Fox
- ---------------------------- ---------------------------------
WITNESS ADAM FOX
59
EXHIBITS AND SCHEDULES
Exhibit A Promissory Note
Exhibit B Pledge Agreement
Schedule 2.2 Allocation of Merger Consideration
Schedule 4.1 Jurisdictions
Schedule 4.2 Company Stock
Schedule 4.4 Consents
Schedule 4.5 Financial Statements
Schedule 4.6 Absence of Undisclosed Liabilities
Schedule 4.7 Absence of Certain Changes
Schedule 4.8 Litigation
Schedule 4.12 Leased Real Property
Schedule 4.13(a) Intellectual Property
Schedule 4.13(b) Material Intellectual Property Agreements
Schedule 4.13(d) Intellectual Property Claims
Schedule 4.13(e) Intellectual Property Indemnities
Schedule 4.15 Top 20 Customers
Schedule 4.16 Compensation
Schedule 4.17 Employee Benefits
Schedule 4.19 Material Contracts
Schedule 4.21 Insurance
Schedule 4.30 Investments
Schedule 5.3 Parent Stock
Schedule 5.6 Litigation
Schedule 5.11 Tax Certificate
Schedule 8.1(d) Key Employees