AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of November 21,
2001 (this "Agreement"), by and among Chell Group Corporation, a New York
corporation ("Parent"), Chell Group Corporation, in trust for Chell SSI
Acquisition Corp., a corporation to be incorporated under the laws of Delaware
as a wholly-owned subsidiary of Parent ("Merger Sub"), and Stardrive Solutions
Inc., a Washington corporation ("Company"). Capitalized terms used and not
otherwise defined herein have the meanings set forth in Article 1.
WHEREAS, the boards of directors of Company, Merger Sub and Parent have
determined that it is fair, advisable and in the best interests of their
respective corporations and shareholders, to enter into a business combination
by means of the merger of the Company with and into Merger Sub and have
approved, subject to fulfillment of the terms and conditions set out herein, and
adopted the Merger, this Agreement and the transactions contemplated thereby;
WHEREAS, the board of directors of Company has determined that the
consideration to be paid for each Share in the Merger is fair and has resolved
to recommend that the holders of such Shares adopt this Agreement and each of
the Transactions upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the Statutes, Parent will acquire all of the capital
stock of Company through the Merger; and
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger shall qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Code and this Agreement is adopted as a plan of
reorganization within the meaning of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements in this Agreement, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided:
"Affiliate" has the meaning set forth in Rule l2b-2 of the Exchange Act.
"Articles of Merger" means the articles of merger, to be reasonably agreed
upon by Parent, Merger Sub, and Company and filed with the Secretary of State of
the State of Washington, as provided in the Washington Act, pursuant to Section
2.2.
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"Balance Sheet" means the most recent consolidated balance sheet of
Company and its Subsidiaries included in the Financial Statements.
"Balance Sheet Date" means the date of the Balance Sheet.
"Benefit Plan" means any employee benefit fund, plan, program, arrangement
or contract (including any "pension" plan, fund or program, as defined in
Section 3(2) of ERISA, any "employee benefit plan," as defined in Section 3(3)
of ERISA as well as any other formal or informal plan, program, arrangement or
contract involving direct or indirect compensation, in which any current or
former officers, employees or independent contractors of the Company has an
interest, or to which the Company has any Liability or under which the Company
has any present or future obligations or Liability on behalf of its 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, whether written or not.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which commercial banks in the City of New York are authorized or obligated by
law, rule or regulation to be closed.
"Certificate" means a certificate representing, immediately prior to the
Effective Time, one or more shares of Company Common Stock.
"Certificate of Merger" means a certificate of merger, to be reasonably
agreed upon by Parent, Merger Sub, and Company and filed with the Secretary of
State of the State of Delaware as provided in the DGCL, pursuant to Section 2.2.
"Closing" means the closing referred to in Section 2.6.
"Closing Date" means the date and time at which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Company Agreement" means any material note, bond, mortgage, indenture,
lease, deed of trust, license, contract, agreement or other instrument or
obligation to which Company or any Company Subsidiary is a party or by which any
of them or any of their properties or assets may be bound and for greater
certainty shall include all agreements with payment obligations in excess of
$10,000.
"Company Benefit Plan" means any Benefit Plan of the Company or any
Company Subsidiary.
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"Company Class A Common Stock" means the Class A common stock, no par
value, of Company
"Company Common Stock" means the common stock, no par value, of Company.
"Company Disclosure Letter" means the disclosure letter, dated the date of
this Agreement, delivered by Company to Parent and Merger Sub prior to the
execution of this Agreement, and forming a part hereof.
"Company ERISA Affiliate" means Company, any Company Subsidiary and any
other trade or business (whether or not incorporated) that is or was under
"common control" with Company or a Company Subsidiary (within the meaning of
ERISA Section 4001) or with respect to which Company or any Company Subsidiary
could otherwise incur liability under Title IV of ERISA.
"Company Intellectual Property" means all Intellectual Property that (i)
is owned by Company or Company Subsidiary; (b) is licensed to Company or any
Company Subsidiary; (c) was developed or created by or for Company or any
Company Subsidiary; or (d) is currently used, or currently proposed or planned
to be used, in Company's business or the business of any Subsidiary including,
without limiting the foregoing, all Intellectual Property that is necessary for
the Company or any Company Subsidiary in the conduct of their respective
businesses as presently conducted.
"Company Option" means all outstanding equity equivalents (warrants,
options, and convertible instruments) convertible into or exercisable for Shares
or shares of any other class of stock and including, without limiting the
foregoing, all Voting Debt and any class of Company stock other than Company
Common Stock or Company Class A Common Stock which has been granted by Company
or a Company Subsidiary and which is outstanding at the Effective Time.
"Company Preferred Stock" means the preferred stock, no par value, of
Company.
"Company SEC Documents" means each form, report, schedule, statement and
other document required to be filed by Company since February 15, 2000 through
the date of this Agreement under the Exchange Act or the Securities Act or by
the rules and regulations of the NSM, including any amendment to such document,
whether or not such amendment is required to be so filed.
"Company Stock Plan" means any stock incentive plan maintained by the
Company.
"Company Subsidiary" means each Person which is a Subsidiary of Company.
"Company Superior Proposal" means a proposal for (a) a merger,
consolidation or similar business combination, (b) the acquisition of all or
substantially all of the assets of Company or (c) the acquisition of more than
fifty percent of the outstanding shares of Company Common Stock which (x)
Company's board of directors concludes, in good faith, consistent with the
advice of its financial advisor, will deliver superior value to Company
shareholders over the transaction contemplated by this Agreement, (y) Company's
board of directors concludes, in good faith, consistent with the advice of its
financial advisor and counsel, is reasonably likely to be
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consummated in accordance with its terms, and (z) which was not obtained based,
in whole or in part, on a breach of Section 6.4.
"Company's knowledge" or "best knowledge of Company" means the knowledge
that the directors and officers of Company and its Subsidiaries and the
employees of Company and its Subsidiaries having responsibility for the
particular subject matter at issue have or would possess after reasonable
investigation and due inquiry.
"Company Shareholder's Meeting" has the meaning ascribed to it in Section
7.1(b).
"Company Takeover Proposal" means any offer or proposal (other than an
offer or proposal by Parent or an Affiliate of Parent) for (i) a merger or other
business combination involving Company after which the shareholders of Company
immediately prior to such merger or business combination would own less than
eighty percent of the voting securities of the surviving company in such merger
or business combination and would own less than eighty percent of the voting
securities of the parent of the surviving company in such merger or business
combination, or (ii) the acquisition by a person or "group" as defined under
Section 13(d) of the Exchange Act (other than an acquisition by Parent or an
Affiliate of Parent) of twenty percent or more of the outstanding shares of
capital stock of Company or (iii) the acquisition (other than an acquisition by
Parent or an Affiliate of Parent) of all or substantially all of the assets of
Company.
"Confidentiality Agreement" means the confidentiality agreement, dated
October 4, 2001, between Company and Parent.
"DGCL" means the General Corporation Law of the State of Delaware.
"Dissenting Shares" means shares of Company Common Stock if any, held by
Persons who have not voted such shares for approval of the Merger and with
respect to which such Persons shall have perfected appraisal rights in
accordance with the Washington Act.
"Earn-Out Shares" has the meaning ascribed to it in Section 3.1.1.
"Earn-Out Recipients" has the meaning ascribed to it in Section 3.1.1.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization. "Effective Time" means the date and time at which the Certificate
of Merger is duly filed with the Secretary of State of the State of Delaware or
such other date and time as is agreed upon by the parties and specified in the
Certificate of Merger.
"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
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Agent" means the bank or trust company designated by Parent to
act as exchange agent for the holders of the Shares pursuant to Section 3.4(a).
"Exchange Ratio" has the meaning ascribed to it in Section 3.1.
"Financial Statements" means each of (i) the audited consolidated
financial statements and unaudited condensed consolidated interim financial
statements of Company (including any related notes and schedules) included (or
incorporated by reference) in Company SEC Documents and (ii) the audited
financial statements of Company and its Subsidiaries through the fiscal period
ended September 30, 2001.
"GAAP" means generally accepted accounting principles in the United States
as in effect from time to time.
"Governmental Entity" means a court, arbitral tribunal, administrative
agency or commission or other governmental or regulatory authority or agency or
any Person exercising the authority of any of the foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder.
"Indemnified Party" means each present and former officer and director of
Company or any Company Subsidiaries, and each Person who becomes any of the
foregoing prior to the Effective Time.
"Intellectual Property" means all trademarks and trademark rights, trade
names and trade name rights, service marks and service mark rights, service
names and service name rights, patents and patent rights, utility models and
utility model rights, copyrights, mask work rights, brand names, trade dress,
product designs, product packaging, business and product names, logos, slogans,
rights of publicity, trade secrets, inventions (whether patentable or not),
invention disclosures, improvements, processes, formulae, industrial models,
processes, designs, specifications, technology, methodologies, computer software
(including all source code and object code), firmware, development tools, flow
charts, annotations, all Web addresses, sites and domain names, all data bases
and data collections and all rights therein, any other confidential and
proprietary right or information, whether or not subject to statutory
registration, and all related technical information, manufacturing, engineering
and technical drawings, know-how and all pending applications for and
registrations of patents, utility models, trademarks, service marks and
copyrights, and the right to sue for patent infringement, if any, in connection
with any of the foregoing, and all documents, disks, records, files and other
media on which any of the foregoing is stored. "IRS" means the United States
Internal Revenue Service or any successor agency performing similar functions
under the Code.
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"Law" means any law, statute, order, decree, consent decree, judgement,
rule, regulation, ordinance or other pronouncement having the effect of law
whether in the United States, any foreign country, or any domestic or foreign
state, county, city or other political subdivision or of any Governmental
Entity.
"Liability" means any direct or indirect debt, obligation, loss, damages,
deficiency, claims, fines, penalty or other liability of any nature, whether
absolute, accrued, contingent or otherwise.
"Licenses" means all licenses and agreements pursuant to which Company has
acquired rights in or to any Intellectual Property, or licenses and agreements
pursuant to which Company has licensed or transferred the right to use any of
the foregoing (including, without limitation, any covenants not to sue with
respect to any Intellectual Property).
"Lien" means any encumbrance, mortgage, pledge, assessment, security
interest, lease, lien, easement, license, covenant, condition, restriction,
adverse claim, levy, charge, option, equity, adverse claim or restriction or
other encumbrance of any kind, or any conditional sale contract, title retention
contract or other contract to give any of the foregoing, except for any
restrictions on transfer generally arising under any applicable federal or state
securities law.
"Material Adverse Effect" means a material adverse effect on or
development with respect to (i) the business, prospects, condition (financial or
otherwise), assets or results of operations of a Person and its Subsidiaries,
taken as a whole, or (ii) the ability of such Person to timely consummate any of
the Transactions, but shall not include a material adverse effect or development
arising out of, related to or otherwise by virtue of (a) changes in the economy
generally, (b) a decline in the market price of such Person's securities in the
capital markets or (c) changes arising out of the Transactions unless such
changes are as a result of a force majeur including any circumstance beyond the
reasonable control of the parties hereto such as but not limited to: A) acts of
god, lightening strikes, earthquakes, floods, droughts, storms, tempests,
mudslides, wash aways, explosions, fires, power failures and any other natural
disasters; and B) acts of war, acts of public enemies, terrorism, rights, civil
commotion, malicious damages, sabotage, riot and revolution Any item that is
susceptible to measurement in monetary terms that exceeds $50,000 shall be
deemed to be a material adverse effect.
"Merger" means the merger of Merger Sub into Company referred to in
Section 2.1.
"Merger Sub Common Stock" means common stock, par value $0.01 per share,
of Merger Sub.
"New York GBL" means New York General Business Law.
"NSM" means the distinct tier of the Nasdaq Stock Market referred to as
the Nasdaq SmallCap Market.
"Parent Common Stock" means shares of common stock, par value $.0467 per
share, of Parent.
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"Parent Financial Statements" means each of the audited consolidated
financial statements and unaudited condensed consolidated interim financial
statements of Parent (including any related notes and schedules) included (or
incorporated by reference) in Parent SEC Documents.
"Parent Option" means an option or warrant to purchase shares of Parent
Common Stock.
"Parent Preferred Stock" means the preferred stock, par value $.07 per
share, of Parent.
"Parent SEC Documents" means each form, report, schedule, statement and
other document required to be filed by Parent for the five years prior to the
date of this Agreement under the Exchange Act or the Securities Act or by the
rule and regulations of the NSM, including any amendment to such document,
whether or not such amendment is required to be so filed.
"Parent Shareholder Approval" has the meaning ascribed to it in Section
5.6.
"Parent Shareholders' Meeting" has the meaning ascribed to it in Section
7.1(c).
"Person" means a natural person, partnership (general or limited),
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, Governmental Entity or other
entity or organization.
"Product" means any product designed, manufactured, shipped, sold,
marketed, distributed and/or otherwise introduced into the stream of commerce by
or on behalf of Company or any Company Subsidiary, including, without limiting
the foregoing, any product sold in the United States by Company or any Company
Subsidiary as the distributor, agent, or pursuant to any other contractual
relationship with a non-U.S. manufacturer.
"Proxy Statement/Prospectus" means the proxy statement to be filed by
Company and Parent with the SEC pursuant to Section 7.1, together with all
amendments and supplements thereto and including the annexes thereto.
"Qualifying Amendment" means an amendment or supplement to the Proxy
Statement/Prospectus or Registration Statement (including by incorporation by
reference) to the extent it contains (i) a change in the recommendation of the
board of directors of Company as a result of Company's board of directors
concluding that a Superior Proposal has been made, (ii) a statement of the
reasons of the board of directors of Company for making such change in its
recommendation and (iii) additional information reasonably related to the
foregoing.
"Registration Statement" means any registration statement on Form S-4 or
other appropriate registration form to be filed with the SEC by Parent in
connection with the offer and issuance of Parent Common Stock in or as a result
of the Merger.
"Representatives" means officers, directors, employees, Affiliates,
investment bankers, attorneys, accountants or other agents, advisors or
representatives for the purposes of Sections 6.4 and 6.5 only.
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"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
applicable rules and regulations thereunder.
"Share" means a share of Company Common Stock.
"Statutes" means the Washington Act, the New York GBL and the DGCL.
"Subsidiary" means, with respect to the Parent, any corporation of which
(a) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or other
organization is, directly or indirectly, owned or controlled by the Parent or by
any one or more of its Subsidiaries, or (b) the Parent or any other Subsidiary
of the Parent is a general partner (excluding any such partnership where the
Parent or Subsidiary of the Parent does not have a majority of the voting
interest in such partnership) and with respect to the Company means, any
corporation or other organization, whether incorporated or unincorporated, of
which (a) the Company or a Company Subsidiary holds securities or other
interests having by their terms ordinary voting power, or (b) the Company or any
other Subsidiary of the Company is in a partnership.
"Surviving Corporation" has the meaning ascribed to it in Section 2.1.
"Tax" or "Taxes" means (i) any and all taxes, fees, levies, tariffs,
imposts and other charges or assessments of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Entity or taxing authority,
including, without limitation, income, franchise, windfall or other profits,
gross receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation or net worth taxes;
taxes or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value-added or gains taxes; license, registration and documentation
fees; and customs duties, tariffs and similar charges; (ii) any Liability for
the payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, combined, consolidated, unitary or aggregate group for
any taxable period; and (iii) any Liability for the payment of amounts of the
type described in (i) or (ii) as a result of being a transferee of, or a
successor in interest to, any Person or as a result of an express or implied
obligation to indemnify any person.
"Tax Return" means any return, statement, report or form (including,
without limitation, any estimated tax report or return, withholding tax report
or return and information report or return) and any related or supporting
information required to be filed with respect to any Taxes.
"Transactions" means the transactions provided for or contemplated by this
Agreement, including the Merger.
"Voting Debt" means indebtedness having general voting rights and debt
convertible into securities having such rights.
"Washington Act" means the Washington Business Corporation Act.
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Section 1.2 Interpretation.
(a) When a reference is made in this Agreement to a section or article,
such reference shall be to a section or article of this Agreement unless
otherwise clearly indicated to the contrary.
(b) Whenever the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.
(d) The plural of any defined term shall have a meaning correlative to
such defined term, and words denoting any gender shall include all genders and
the neuter. Where a word or phrase is defined herein, each of its other
grammatical forms shall have a corresponding meaning.
(e) A reference to any party to this Agreement or any other agreement or
document shall include such party's successors and permitted assigns.
(f) A reference to any legislation or to any provision of any legislation
shall include any modification, amendment or re-enactment thereof, any
legislative provision substituted therefor and all rules, regulations and
statutory instruments issued under or pursuant to such legislation.
(g) The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
(h) No prior draft of this Agreement nor any course of performance or
course of dealing shall be used in the interpretation or construction of this
Agreement.
ARTICLE 2
THE MERGER
Section 2.1 The Merger. Subject to the terms and the satisfaction or
waiver of all of the conditions set forth in this Agreement, and in accordance
with the Statutes in effect at the Effective Time, the Company shall merge with
and into Merger Sub. Following the Effective Time, the separate corporate
existence of Company shall cease and Merger Sub shall continue as the surviving
corporation (sometimes referred to as the "Surviving Corporation") in the Merger
as a wholly owned subsidiary of Parent.
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Section 2.2 Effective Time. Subject to the provisions of this Agreement,
at the Closing, the parties shall cause the Merger to be consummated by filing
with: (i) the Secretary of State of the State of Delaware the Certificate of
Merger executed in accordance with the relevant provisions of the DGCL and shall
make all other filings or recordings required under the DGCL; and (ii) the
Secretary of State of the State of Washington the Articles of Merger executed in
accordance with the Washington Act. The Merger shall become effective at the
Effective Time.
Section 2.3 Effects of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Articles of Merger, the
Certificate of Merger and the applicable provisions of the Statutes. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein or in the Articles of Merger and the
Certificate of Merger, all the property, rights, privileges, powers and
franchises of Company and Merger Sub shall rest in the Surviving Corporation,
and all debts, liability and duties of Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 2.4 Certificate of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, subject to the requirements of Section 2.1,
the certificate of incorporation of Company shall be amended and restated to
read the same as the certificate of incorporation of Merger Sub immediately
prior to the Effective Time, except that the name of the corporation shall be
Stardrive Solutions Inc., and as so amended shall be the certificate of
incorporation of the Surviving Corporation, until thereafter amended in
accordance with applicable law. At the Effective Time, subject to the
requirements of Section 2.1, 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.
Section 2.5 Directors and Officers of the Surviving Corporation. At the
Effective Time, the individuals identified on Schedule 2.5 shall, from and after
the Effective Time, be the directors and officers, respectively, of the
Surviving Corporation until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the certificate of incorporation and the bylaws of the Surviving
Corporation.
Section 2.6 Closing. The closing of the Merger shall take place at 10:00
a.m. (local time) on a date to be agreed upon by the parties, such date to be no
later than 5 days following the approval of both Parent and Company
shareholders, and if such date is not agreed upon by the parties, the Closing
shall occur on the second Business Day after satisfaction or waiver of all of
the conditions set forth in Article 8, at the offices of Morrison Brown
Sosnovitch LLP, One Toronto Street, Suite 910, Toronto, Ontario.
ARTICLE 3
EFFECTS OF THE MERGER ON COMPANY'S
CAPITAL STOCK; EXCHANGE OF CERTIFICATES
Section 3.1 Effect on Company Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Company Common
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Stock or Company Options all issued and outstanding shares of Company Common
Stock (other than any shares of Company Common Stock to be cancelled pursuant to
Section 3.3 and Dissenting Shares) shall, as of the Effective Time be converted
pro rata into the right to receive a total of 2,500,000 shares of fully paid and
non-assessable Parent Common Stock. In addition, a right to receive a total of
2,500,000 shares of fully paid and non-assessable Parent Common Stock, 250,000
warrants to purchase Parent Common Stock at an exercise price of $3.00 and
250,000 warrants to purchase Parent Common Stock at an exercise price of $10.00
shall be distributed in accordance with Schedule 3.1.1 if, as, and when the
Company achieves the Earn-Out in section 3.1.1. As of the Effective Time, all
such shares of Company Common Stock, Company Preferred Stock, Company Options,
and any other classes of shares and non-voting or voting equity equivalents
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist. Each holder of a Certificate shall cease to have any
rights with respect thereto, except the right to receive, upon the surrender of
any such Certificates, the rights to shares of Parent Common Stock to be issued
or paid in consideration therefor upon surrender of such Certificate in
accordance with Section 3.4 without interest.
Section 3.1.1 Earn-Out. In the event that Company attains or exceeds
EBITDA of $750,000 for the twelve months following Closing, it shall have also
attained the Earn-Out. Company and Earn-Out recipients, by tendering their
shares of Company Common Stock, acknowledge that Parent shall be entitled to
reimbursement of reasonable management fees or expenses of the Parent or its
Subsidiaries expended on or for the benefit of Surviving Corporation, including
any reasonable allocation of expenses of Parent or its Subsidiaries that are for
the benefit of Surviving Corporation and one or more of Parent's Subsidiaries
and that such costs and expenses shall be deducted from Company earnings for the
purpose of the calculation of EBITDA.
Section 3.2 Cancellation of Treasury Stock and Parent-Owned Stock. Each
share of Company Common Stock and Company Preferred Stock owned by Company as
treasury stock, any Company Subsidiary, Parent, Merger Sub or any other
wholly-owned Subsidiary of Parent (other than shares in trust accounts, managed
accounts, custodial accounts and the like that are beneficially owned by third
parties) shall be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
Section 3.3 Exchange of Certificates.
(a) Company shall designate the Exchange Agent to act as agent for the
holders of the Shares in connection with the Merger to receive in trust the
shares of Parent Common Stock, the warrants to purchase shares of Parent Common
Stock and funds to which holders of the Shares shall become entitled pursuant to
this Article 3. At the Effective Time, Parent shall deposit, or cause to be
deposited, with the Exchange Agent for the benefit of holders of Shares the
aggregate consideration to which such holders shall be entitled at the Effective
Time pursuant to Section 3.1.
(b) As soon as reasonably practicable after the Effective Time but in no
event later than two Business Days following the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record of one more
Certificates, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon
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receipt of the Certificates by the Exchange Agent and shall be in such form and
have such other provisions not inconsistent with this Agreement as Parent may
reasonably specify) and (ii) instructions for effecting the surrender of
Certificates in exchange for certificates representing shares of Parent Common
Stock together with any dividends and other distributions with respect thereto,
certificates representing warrants to purchase shares of Parent Common Stock and
any cash in lieu of fractional shares. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may be reasonably required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor the
consideration which the holder is entitled to receive pursuant to this Article
3. If certificates representing shares of Parent Common Stock are to be
registered in the name of a Person or cash in lieu of fractional shares to be
paid to a Person other than the Person in whose name the surrendered Certificate
is registered, it shall be a condition to the issuance of such certificates
representing shares of Parent Common Stock that the Certificate so surrendered
shall be properly endorsed or shall be otherwise in proper form for transfer and
that the Person requesting such payment shall have paid any transfer and other
Taxes required by reason of the issuance of certificates representing shares of
Parent Common Stock to a Person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of Parent
that such Tax either has been paid or is not applicable.
(c) Promptly following the final determination of the amount of any
Earn-Out, the Earn-Out Recipients (as defined in Section 3.1.1) shall be
entitled to receive a certificate representing the number of whole shares of
Parent Common Stock (if any) to which such recipient is entitled to pursuant to
Section 3.1.1, plus the amount of cash in lieu of fractional shares to which
such holder is entitled pursuant to Section 3.4.
(d) At the close of business on the day during which the Effective Time
occurs, the stock transfer books of Company shall be closed, and thereafter
there shall be no further registration of transfers of shares of Company Common
Stock on the records of Company.
(e) No dividends or other distributions with respect to Parent Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 3.5, until the surrender of such
Certificate in accordance with this Article 3. Subject to the effect of
applicable escheat or similar laws, following surrender of any such Certificate,
there shall be paid to the holder thereof, (i) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.4 and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such shares of Parent Common
Stock, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time and a payment
date subsequent to such surrender payable with respect to such shares of Parent
Common Stock.
(f) All shares of Parent Common Stock issued upon the surrender for
exchange of Certificates in accordance with the terms of this Article 3
(including any cash paid pursuant to Section 3.4 or 3.5) shall be deemed to have
been issued and paid in full satisfaction of all rights
12
pertaining to the Shares formerly represented by such Certificates, subject,
however, to the obligation of the Surviving Corporation, as applicable, to pay
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by Company on such shares of
Company Common Stock in accordance with the terms of this Agreement and which
remain unpaid at the Effective Time. If, after the Effective Time, Certificates
are presented to the Surviving Corporation or the Exchange Agent for any reason,
they shall be canceled and exchanged as provided in this Article 3, except as
otherwise provided by law.
Section 3.4 No Fractional Shares.
No certificates representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests shall not entitle the owner thereof to vote or to any
other rights of a shareholder of Parent. Notwithstanding any other provision of
this Agreement, with respect to each holder of Company Common 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 3 includes a fractional share, such fractional share shall be rounded to
the nearest whole number.
Section 3.5 Termination of Exchange Fund. At any time following twelve
months after the Effective Time, Parent shall be entitled to require the
Exchange Agent to deliver to it any funds (including any earnings with respect
thereto) and certificates representing shares of Parent Common Stock which had
been made available to the Exchange Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled to look
only to Parent (subject to abandoned property, escheat or other similar laws)
with respect to the shares of Parent Common Stock or any dividends or
distributions with respect to shares of Parent Common Stock payable upon due
surrender of their Certificates. Notwithstanding the foregoing, neither Parent,
the Surviving Corporation nor the Exchange Agent shall be liable to any holder
of a Certificate for shares of Parent Common Stock or any dividends or
distributions with respect to shares of Parent Common Stock delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. Any such shares, cash, dividends or distributions in respect of
such Certificate shall, to the extent permitted by applicable law, become the
property of Parent, free and clear of all claims or interest of any Person
previously entitled thereto.
Section 3.6 Certain Adjustments. If between the date hereof and the
Effective Time, the outstanding shares of Company Common Stock or Parent Common
Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities shall be declared thereon
with a record date within such period, the Exchange Ratio shall be adjusted
accordingly to provide to the holders of Company Common Stock the same economic
effect as contemplated by this Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend.
Section 3.7 Company Options.
(a) Except as may be otherwise agreed to by Parent and Company, Company
Stock Plan, and any Company Options issued thereunder or otherwise issued by
Company or any of its
13
Subsidiaries shall terminate as of the Effective Time and the provisions in any
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of Company or any Company
Subsidiary shall be deleted, terminated and of no further force or effect as of
the Effective Time.
(b) If and to the extent necessary or required by the terms of the plans
governing Company Options or pursuant to the terms of any Company Option granted
thereunder, each of Parent and Company shall use its reasonable efforts to
obtain the consent of each holder of outstanding Company Options to the
foregoing treatment of such Company Options.
Section 3.8 Appraisal Rights. Any Dissenting Shares shall not be converted
into, or be exchangeable for, the right to receive Parent Common Stock but shall
instead be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to the
Washington Act unless and until under the Washington Act the Dissenting Shares
cease to be Dissenting Shares. Company shall give Parent prompt notice of any
Dissenting Shares (and shall also give Parent prompt notice of any withdrawals
of such demands for appraisal rights) and Parent shall have the right to direct
all negotiations and proceedings with respect to such demands. Neither Company
nor the Surviving Corporation shall, except with the prior written consent of
Parent, voluntarily make any payments with respect to, or settle or offer to
settle, any such demand for appraisal rights. If, after the Effective Time, any
Dissenting Shares shall lose their status as Dissenting Shares, Parent shall
issue and deliver, upon surrender by such shareholder of a Certificate, the
number of shares of Parent Common Stock to which such shareholder would
otherwise be entitled pursuant to this Article 3.
Section 3.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates are lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common Stock
as may be required pursuant to Section 3.1, provided, however, that Parent may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to indemnify Parent
against any claim that may be made against Parent, the Surviving Corporation or
the Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
Section 3.10. Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Company, the officers and directors of Company are
fully authorized in the name of their corporation or otherwise to take, and will
use good faith efforts to take, all such lawful and necessary action, so long as
such action is not inconsistent with this Agreement.
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ARTICLE 4
REPRESENTATIONS AND
WARRANTIES OF COMPANY
The Company represents and warrants to Parent and Merger Sub that all of
the statements contained in this Article 4 are true and correct. Each exception
set forth in the Company Disclosure Letter and each other response to this
Agreement set forth in the Company Disclosure Letter is identified by reference
to, or has been grouped under a heading referring to, a specific individual
section of this Agreement and relates only to such section, except to the extent
that one portion of the Company Disclosure Letter specifically refers to another
portion thereof, identifying such other portion by specific cross reference.
Section 4.1 Organization; Qualification. Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington; (b) has all requisite corporate power and authority to carry on its
business as it is now being conducted and to own, lease and operate its
properties and assets; and (c) is duly qualified or licensed to do business as a
foreign corporation in good standing in every jurisdiction listed in Section
4.1of the Company Disclosure Letter being all jurisdictions in which such
qualification is required, except for such failures to be so qualified or
licensed and in good standing as could not reasonably be expected to have a
Material Adverse Effect. Company will, prior to Closing, present to Parent
copies of its minute books, certificate of incorporation, bylaws or similar
organizational documents, and such copies will be complete and correct copies.
Section 4.2 Subsidiaries and Affiliates. Except as set forth in Section
4.2 of the Company Disclosure Letter, Company does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any business or
other Person. Except as set forth in Section 4.2 of the Company Disclosure
Letter, all the outstanding capital stock of each Company Subsidiary is,
directly or indirectly, owned (of record and beneficially) by Company free and
clear of any liens, options or encumbrances of any kind, restrictions on
transfers (other than restrictions on transfer arising under applicable
securities laws), claims or charges of any kind, and is validly issued, fully
paid and nonassessable, and there are no outstanding options, rights or
agreements of any kind relating to the issuance, sale or transfer of any capital
stock or other equity securities of any such Company Subsidiary to any Person
except Company. Each Company Subsidiary (a) is a corporation, validly existing
and in good standing under the laws of its state of incorporation; (b) has full
corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate its properties and assets; and (c) is
duly qualified or licensed to do business as a foreign corporation in good
standing in every jurisdiction in listed in Section 4.1of the Company Disclosure
Letter being all jurisdictions which such qualification is required, except for
such failures to be so qualified or licensed and in good standing as could not
reasonably be expected to have a Material Adverse Effect. Company will, prior to
Closing, present to Parent copies of its minute books, certificate of
incorporation, the bylaws or similar organizational documents of each Company
Subsidiary, and such copies will be complete and correct copies.
15
Section 4.3 Capitalization
The authorized capital stock of Company consists of 30,000,000
shares of Company Common Stock, 1,125,938 shares of Class A Common Stock, and
10,000,000 shares of Company Preferred Stock and there are no other classes of
Company shares or stock of any kind. As of the date of this Agreement, (i)
6,070,681 shares of Company Common Stock are issued and outstanding and no
shares of Company Common Stock are issued and held in the treasury of Company;
(ii) 733,758 shares of Class A Common Stock are issued and outstanding and no
shares of Class A Common Stock are issued and held in the treasury of Company;
(iii) no shares of Company Preferred Stock are issued and outstanding and no
shares of Company Preferred Stock are issued and held in the treasury of
Company, and (iv) 1,600,000 shares of Company Common Stock are reserved for
issuance upon exercise of Company Options under the Company Stock Plan. Section
4.3(a) of the Company Disclosure Letter lists the holder of each outstanding
Company Option, the number of Shares for which such Company Option is
exercisable, the exercise price of such Company Option, the extent to which such
Company Option will vest upon consummation of any of the Transactions and the
vesting schedule of such Company Option. All the outstanding shares of Company's
capital stock are, and all shares of Company Common Stock which may be issued
pursuant to the exercise of outstanding Company Options will be, when issued in
accordance with the respective terms of such Company Option, duly authorized,
validly issued, fully paid and nonassessable. There is no Voting Debt of Company
or any Company Subsidiary issued and outstanding except as set forth in Section
4.3(a) of the Company Disclosure Letter. Except as set forth above and except
for the Transactions, as of the date hereof, (x) there are no shares of capital
stock of Company authorized, issued or outstanding; (y) there are no existing
options, warrants, calls, pre-emptive rights, subscriptions or other rights,
agreements, arrangements, understandings or commitments of any character,
relating to the issued or unissued capital stock of Company or any Company
Subsidiary, obligating Company or any Company Subsidiary to issue, transfer or
sell or cause to be issued, transferred or sold any shares of capital stock or
Voting Debt of, or other equity interest in, Company or any Company Subsidiary
or securities or debt convertible into or exchangeable for such shares, equity
interests or Voting Debt, or obligating Company or any Company Subsidiary to
grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment; and (z) there are no
outstanding contractual obligations of Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any shares of Company Common Stock, or
the capital stock of Company, or any Company Subsidiary or Affiliate of Company
or to provide funds to make any investment (in the form of a loan, capital
contribution or otherwise) in any Company Subsidiary or any other entity or
Person. Upon delivery of Company Common Stock against payment of the
consideration as herein provided, Parent will acquire good and marketable title
to such shares of the Company Common Stock, free and clear of any Liens other
than (a) those created by Parent and (b) the requirements of federal and state
securities laws respecting restrictions on the subsequent transfer thereof.
Section 4.4 Authorization, Validity of Agreement, Company Action. Company
has full corporate power and authority to execute and deliver this Agreement, to
perform its obligations under this Agreement and to consummate the Transactions.
The execution and
16
delivery of, and the performance by Company of its obligations under, this
Agreement and the consummation by it of the Transactions, have been duly
authorized by Company's board of directors and, except for obtaining the
approval of its shareholders as contemplated by Section 4.6, no other corporate
action on the part of Company or its shareholders is necessary to authorize the
execution and delivery by Company of this Agreement or the consummation by it of
the Transactions. This Agreement and all other agreements to be entered into in
connection herewith have been duly and validly executed and delivered by Company
and, assuming due and valid authorization, execution and delivery thereof by
each of Parent and Merger Sub, this Agreement is a valid and binding obligation
of Company enforceable against Company in accordance with its terms, except to
the extent that enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, or other Laws affecting the enforcement of
creditors' rights generally, (b) general equitable principles and (c) the
discretion of the court considering enforceability. The execution and delivery
of this Agreement by each of the parties hereto, the consummation of the
transactions contemplated hereby, and compliance with the terms and provisions
hereof, will not, assuming the consents and approvals of shareholders referred
to in section 4.6 are obtained, (i) violate any provision of the Articles of
Incorporation or Bylaws of the Company, (ii) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to the Company or any of the Company Shareholders or any of their
properties or assets or (iii) 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
upon any of the properties or assets of the Company 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 the Company or any of the Company Shareholders
is a party, or by which the Company or any of the Company Shareholders or any of
their properties or assets may be bound or affected.
Section 4.5 Board Approvals Regarding Transactions. Company's board of
directors has (a) determined that each of the Agreement and the Merger are fair
to, advisable and in the best interests of Company and the shareholders of
Company, (b) approved the Transactions, and (c) resolved to recommend that the
shareholders of Company adopt this Agreement, and none of the aforesaid actions
by Company's board of directors has been amended, rescinded or modified. The
action taken by Company's board of directors constitutes approval of the Merger
and the other Transactions by Company's board of directors under the provisions
of the Washington Act. To the best of Company's knowledge, no other state
takeover, anti-takeover, moratorium, fair price, interested shareholder,
business combination or similar statute or rule is applicable to the Merger or
the other Transactions.
Section 4.6 Consents and Approvals, No Violations. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, the HSR
Act, state securities or blue sky laws, the NSM and the filing of the Articles
of Merger, none of the execution or delivery by Company of, or performance by
Company of its obligations under, this Agreement, the consummation by Company of
the Transactions or compliance by Company with any of the provisions of this
Agreement will (a) conflict with or result in any breach of any provision of the
certificate of incorporation, the bylaws or similar organizational documents of
Company or any
17
Company Subsidiary, (b) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity, (c) result in a violation or
breach of, or constitute (with or without due notice or the passage of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or loss of any rights) under, result in the
termination of or a right of termination or cancellation under any of the terms,
conditions or provisions of any Company Agreement or (d) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Company, any
Company Subsidiary or any of their properties or assets, excluding from the
foregoing clauses (b), (c) and (d) such filings, permits, authorizations,
consents, approvals, violations, breaches or defaults which could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except as
set forth in Section 4.6 of the Company Disclosure Letter, there are no
third-party non-governmental consents, notices or approvals related to Company,
any Company Subsidiary or any of their respective assets or properties required
to be obtained prior to the consummation of any of the Transactions.
Section 4.7 Reports and Financial Statements
(a) Company has timely filed Company SEC Documents with the SEC or the
NSM, as applicable or to the extent not timely filed already remedied. As of
their respective dates or, if amended, as of the date of the last such amendment
filed prior to the date of this Agreement, Company SEC Documents, including any
financial statements or schedules included therein (i) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading and
(ii) complied in all material respects with the applicable requirements of the
Exchange Act, the Securities Act and the rules and regulations of the NSM, as
the case may be. As of the date hereof, none of the Company Subsidiaries is
required to file any forms, reports or other documents with the SEC, the NSM,
any other stock exchange or any other comparable Governmental Entity.
(b) Each of the Financial Statements have been prepared from, and are in
accordance with, the books and records of Company and Company Subsidiaries. The
Financial Statements complied, as of their respective dates, with applicable
accounting requirements and rules and regulations of the SEC and NSM. The
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated in the notes thereto and subject,
in the case of interim condensed consolidated financial statements, to normal,
recurring and immaterial year-end adjustments and the absence of certain notes)
and fairly present (i) the consolidated financial position of Company and
Company Subsidiaries as of the dates thereof and (ii) the consolidated results
of operations, changes in shareholders' equity and cash flows of Company and
Company Subsidiaries for the periods presented therein. Except as and to the
extent set forth or reserved against on the Balance Sheet, neither Company nor
any of its Subsidiaries has any Liability or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course of
business consistent with past practice since June 30, 2001.
18
Section 4.8 Absence of Certain Changes.
(a) Since the Balance Sheet Date, except as disclosed in Company SEC
Documents filed prior to the date hereof or Section 4.8 of the Company
Disclosure Letter (i) Company and each Company Subsidiary has conducted its
respective business only in the ordinary and usual course consistent with past
practice, (ii) there have not occurred any events or changes in or developments
with respect to the business, prospects, condition (financial or otherwise),
assets or results of operations of Company and its Subsidiaries (including the
incurrence of any liabilities of any nature, whether or not accrued, contingent
or otherwise out of the ordinary and usual course consistent with past practice)
taken as a whole, having or reasonably expected to have a Material Adverse
Effect and (iii) Company has not taken, resolved to take or committed to take
any action which would have been prohibited under Section 6.1 if such section
applied to the period between the Balance Sheet Date and the date of this
Agreement.
(b) Company has not taken or approved any action, including the
acceleration of vesting of any Company Options or other rights to acquire shares
of capital stock of Company or any other action that could jeopardize the status
of the Merger as a tax-free reorganization.
Section 4.9 Litigation. There is no action, suit, inquiry, proceeding or
investigation by or before any Governmental Entity pending or, to the best
knowledge of Company, threatened, against or involving Company or any Company
Subsidiary which questions or challenges the validity of this Agreement or any
action taken or to be taken by Company or any Company Subsidiary pursuant to
this Agreement or in connection with the Transactions. As of the date hereof,
except as set forth in Section 4.9 of the Company Disclosure Letter there is no
action, suit or proceeding of any nature pending or to the knowledge of Company
threatened against Company, or any of Company Subsidiaries, their respective
properties or assets or any of their respective officers or directors, in their
respective capacities as such.
Section 4.10 Employee Benefit Plans.
(a) Section 4.10(a) of the Company Disclosure Letter lists each Company
Benefit Plan.
(b) With respect to each Company Benefit Plan, Company has made available
to Parent a true, complete and correct copy of (i) such Company Benefit Plan
(or, if not written, a written summary of its material terms) and the most
recent summary plan description and all summaries of material modifications
issued since the date of the most recent summary plan description, if any,
related to such Company Benefit Plan, (ii) each trust agreement or other funding
arrangement, (iii) the most recent annual report ((Form 5500) filed with the
IRS) (and, if the most recent annual report is a Form 5500R, the most recent
Form 5500C filed with respect to such Company Benefit Plan), (iv) the most
recent actuarial report or financial statement, (v) the most recent
determination letter, if any, issued by the IRS and any pending request for a
determination letter and (vi) each registration statement, permit application
and prospectus. Neither Company nor any Company ERISA Affiliate nor, to the
knowledge of Company or any Company ERISA Affiliate, any other Person or entity,
has any express or implied commitment, whether legally enforceable or not, to
continue (for any period), modify, change or terminate any Company Benefit Plan,
other than with respect to a modification, change or termination required by
applicable Law.
19
(c) Except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, each Company Benefit Plan has been
administered in accordance with its terms and all applicable laws, including
ERISA and the Code (including the prohibited transaction rules thereunder). All
contributions required to be made under the terms of any of the Company Benefit
Plans have, as of the date of this Agreement, been timely made or, if not yet
due, have been properly reflected in Company's and its Subsidiaries' financial
accounting records prior to the date of this Agreement. No suit, administrative
proceeding, action or other adverse proceeding or claim has been brought or
threatened against or with respect to any such Company Benefit Plan (other than
routine benefits claims or relating to qualified domestic relations orders (as
that term is defined in Section 414(p) of the Code)) and there is no pending
audit or inquiry by the IRS or United States Department of Labor with respect to
any Company Benefit Plan. No event has occurred and, to the knowledge of Company
or any Company ERISA Affiliate, there exists no condition or set of
circumstances that could subject Company or any Company ERISA Affiliate to any
material liability (other than for routine benefit liabilities) relating in any
way to any Company Benefit Plan.
(d) Each Company Benefit Plan can be amended, discontinued or terminated
at any time (including after the Effective Time) in accordance with its terms,
without liability (other than (i) liability for benefits accrued prior to the
Effective Time, (ii) liability for ordinary administrative expenses typically
incurred in a termination event or (iii) liabilities for which sufficient assets
are set aside in a trust or insurance contract to satisfy such liabilities or
which are reflected on Company's most recent Balance Sheet).
(e) Each Company Benefit Plan and its related trust that is intended to
qualify under Section 401(a) and Section 501(a), respectively, of the Code has
received a favorable determination letter from the IRS as to such qualified
status or has been established under a standardized prototype plan for which an
IRS opinion letter has been obtained by the plan sponsor and is valid as to the
adopting employer and, in either case, nothing has occurred that could adversely
affect such qualified status.
(f) No Company Benefit Plan is a multi-employer pension plan (as defined
in Section 3(37) of ERISA) and no Company ERISA Affiliate has sponsored or
contributed to or been required to contribute to any such pension plan.
(g) With respect to each Benefit Plan that is subject to Title IV of ERISA
or the minimum funding rules of ERISA or Section 302 or 412 of the Code, (i) no
reportable event (within the meaning of Section 4043 of ERISA, other than an
event that is not required to be reported before or within thirty days of such
event) has occurred or is expected to occur, (ii) there was not an accumulated
funding deficiency (within the meaning of Section 302 of ERISA or Section 412 of
the Code), whether or not waived, as of the most recently ended plan year of
such Benefit Plan; and (iii) there is no "unfunded benefit liability" (within
the meaning of Section 4001(a)(18) of ERISA). No material liability under Title
IV of ERISA has been incurred by Company or any Company ERISA Affiliate that has
not been satisfied in full, and no condition exists that presents a material
risk to Company or any Company ERISA Affiliate of incurring or being subject
(whether primarily, jointly or secondarily) to a material liability thereunder.
None of the assets of Company or any Company ERISA Affiliate is, or may
20
reasonably be expected to become, the subject of any lien arising under ERISA or
Section 412(n) of the Code.
(h) Except as required by Law, no Company Benefit Plan provides any of the
following retiree or post-employment benefits to any person: medical, disability
or life insurance benefits. To Company's knowledge, Company and each Company
ERISA Affiliate is in compliance with (i) the requirements of the applicable
health care continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, and (ii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996,
as amended.
(i) Company will deliver to Parent true, complete and correct copies of
(i) all employment agreements with officers and all consulting agreements of
Company or any Company Subsidiary, (ii) all severance plans, agreements,
programs and policies of Company or any Company Subsidiary with or relating to
their respective employees, directors or consultants, and (iii) all plans,
programs, agreements and other arrangements of Company or any Company Subsidiary
with or relating to their respective employees, directors or consultants which
contain "change of control" or similar provisions. No payment or benefit which
may be required to be made by Company or any Company Subsidiary or which
otherwise may be required to be made under the terms of any Company Benefit Plan
or other arrangement will constitute a parachute payment under Section 280G of
the Code. The consummation of the Transactions will not, alone or in conjunction
with any other possible event (including termination of employment), (x) entitle
any current or former employee or other service provider of Company or any
Company Subsidiary to severance benefits or any other payment, compensation or
benefit (including forgiveness of indebtedness), except as expressly provided by
this Agreement, or (y) accelerate the time of payment or vesting, or increase
the amount of compensation or benefit due any such employee or service provider,
alone or in conjunction with any other possible event (including termination of
employment).
(j) Company nor any of its Subsidiaries is a party to, and none of them
has any obligations under or with respect to, any collective bargaining or other
labor union contract applicable to persons employed by Company or any of its
Subsidiaries and no collective bargaining agreement is being negotiated by
Company or any of its Subsidiaries or any Person or entity that may obligate
Company or any of its Subsidiaries thereunder. As of the date of this Agreement,
there is no labor dispute, strike, union organizing activity or work stoppage
against Company or any of its Subsidiaries. As of the date of this Agreement, to
the knowledge of Company, except as would not reasonably be expected to have a
Material Adverse Effect, neither Company nor any of its Subsidiaries nor any of
their respective representatives or employees has committed any unfair labor
practice in connection with the operation of the businesses of Company or any of
its Subsidiaries.
Section 4.11 Tax Matters.
(a) Except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, Company and each Company Subsidiary,
and any affiliated, consolidated, combined, unitary or aggregate group for Tax
purposes of which Company or any of its Subsidiaries is or has been a member,
have (i) properly completed and timely filed all Tax Returns that are required
to be filed by them through the date of this Agreement and all such Tax
21
Returns are true, correct and complete in all material respects, (ii) have duly
paid or caused to be duly paid in full all Taxes reflected on such Tax Returns
or subsequently assessed by any Governmental Entity responsible for the
imposition of any Tax with respect to such Tax Returns and (iii) reflected in
the Financial Statements any liability for unpaid Taxes that are or will be
payable for all periods or portions of periods through the Balance Sheet Date.
Since the Balance Sheet Date, Company and Company Subsidiaries have not
incurred, and will not incur as of the Closing Date, any liability for any Taxes
other than in the ordinary course of business. Neither Company nor any Company
Subsidiary has received notice of any claim made by an authority in a
jurisdiction where Company or Company Subsidiary, as the case may be, does not
file Tax Returns, that Company or Company Subsidiary is or may be subject to
taxation by that jurisdiction.
(b) There is (i) no material claim for Taxes that is a lien against the
property or assets of Company or any of its Subsidiaries or that is being
asserted against Company or any of its Subsidiaries other than liens for Taxes
not yet due and payable, (ii) no audit, administrative proceeding or court
proceeding with respect to Taxes or Tax Returns of Company or any of its
Subsidiaries that is being conducted or that is pending and no deficiency or
claim for Taxes that is being asserted by any Governmental Entity responsible
for the imposition of any Tax against Company or any of its Subsidiaries; (iii)
no extension of the statute of limitations on the assessment of any Taxes that
has been granted by Company or any of its Subsidiaries and is currently in
effect, and (iv) no agreement, contract or arrangement to which Company or any
of its Subsidiaries is a party that may result in the payment of any amount that
would not be deductible by reason of Sections 162(m), 280G or 404 of the Code.
(c) There has been no change in ownership of Company or any of its
Subsidiaries that has caused the utilization of any losses of Company or any of
its Subsidiaries to be limited pursuant to Section 382 of the Code, and any loss
carryovers reflected on the Financial Statements are properly computed and
reflected.
(d) Neither Company nor any Company Subsidiary has filed any disclosures
under Section 6662 of the Code or comparable provisions of state, local or
foreign law to prevent the imposition of penalties with respect to any Tax
reporting position taken on any Tax Return.
(e) No federal, state, local or foreign audits, examinations or other
administrative proceedings are pending or, to Company's knowledge, threatened
with regard to any Taxes or Tax Returns of Company or of any Company Subsidiary.
There is no dispute or claim concerning any Tax liability of Company or any
Company Subsidiary either claimed or raised by any taxing authority in writing.
(f) Neither Company nor any Company Subsidiary has filed or will file a
consent pursuant to Section 341(f) of the Code (or any predecessor provision)
concerning collapsible corporations, 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 Company or any Company
Subsidiary.
(g) Neither Company nor any Company Subsidiary has been or will be
required to include any material adjustment in taxable income for any Tax period
(or portion thereof)
22
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior the Effective Time other than any such adjustments
required as a result of the Merger.
(h) Company has at no time been a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code.
(i) Neither Company nor any Company Subsidiary is a party to any tax
sharing, tax indemnity or other agreement or arrangement with any entity not
included in the Financial Statements most recently filed by Company with the SEC
or has any liability or potential liability to another party under any such
agreement, and neither Company nor any Company Subsidiary has any liability or
potential liability for Taxes of any Person under Section 1.1502.6 of the
Treasury Regulations (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract or otherwise.
(j) Company and its Subsidiaries have withheld and paid all Taxes required
to have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, shareholder or other third party.
(k) No power of attorney has been granted by Company or any of its
Subsidiaries with respect to any matters relating to Taxes that is currently in
effect.
(l) Neither Company nor any of its Subsidiaries has settled any claim,
audit or administrative or court proceeding with respect to Taxes.
(m) Company and its Subsidiaries have in their possessions receipts for
any Taxes paid to foreign taxing authorities.
(n) Neither Company nor any Company Subsidiary is or has ever been a
"personal holding company" within the meaning of Section 542 of the Code or a
"United States real property holding corporation" within the meaning of Section
897 of the Code.
(o) Neither Company nor any of its Affiliates has taken or agreed to take
any action (other than actions contemplated by this Agreement) that could
reasonably be expected to prevent the Merger from constituting a
"reorganization" under Section 368 of the Code. Company is not aware of any
agreement or plan to which Company or any of its Affiliates is a party or other
circumstances relating to Company or any of its Affiliates that could reasonably
be expected to prevent the Merger from so qualifying as a reorganization under
Section 368 of the Code.
Section 4.12 Intellectual Property. (a) Section 4.12(a) of the Company
Disclosure Letter contains a true and complete list of all of Company's and
Company Subsidiaries' Intellectual Property and applications and other filings
and formal actions made or taken pursuant to federal, state, local and foreign
laws by Company and/or any Company Subsidiary to protect its interests in
Company Intellectual Property. All Intellectual Property owned by the Company is
owned free and clear of all liens, adverse claims, encumbrances, or
restrictions. All Intellectual Property licensed by the Company is the subject
of a license agreement which is legal, valid, binding and enforceable and in
full force and effect.
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(b) Company Intellectual Property consists solely of items and rights
which are: (i) owned by Company or any Company Subsidiary; (ii) in the public
domain; or (iii) except as set forth in Section 4.12(b) of the Company
Disclosure Letter, rightfully used by Company or any Company Subsidiary and
their successors pursuant to a valid license. Company and Company Subsidiaries
have all rights in Company Intellectual Property necessary to carry out their
current and currently contemplated and reasonably foreseeable activities.
(c) Except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, to Company's knowledge, the
reproduction, manufacturing, distribution, licensing, sublicensing, sale or any
other exercise of rights in any Company Intellectual Property, Product, work,
technology or process as now used or offered or proposed for use, licensing or
sale by Company or any Company Subsidiary does not infringe on any copyright,
trade secret, trademark, service mark, trade name, trade dress, firm name,
Internet domain name, logo, trade dress or mask work of any Person or the patent
of any Person. No claims (i) challenging the validity, effectiveness or
ownership by Company or any Company Subsidiary of any of Company Intellectual
Property, or (ii) to the effect that the use, distribution, licensing,
sublicensing, sale or any other exercise of rights in any Product, work,
technology or process as now used or offered or proposed for use, licensing,
sublicensing or sale by Company or any Company Subsidiary infringes or will
infringe on any intellectual property or other proprietary right of any Person
have been asserted or, to the knowledge of Company or any Company Subsidiary,
are threatened by any Person, nor are there, to Company's or any Company
Subsidiary's knowledge, any valid grounds for any bona fide claim of any such
kind. All registered, granted or issued patents, trademarks, Internet domain
names and copyrights held by Company and any Company Subsidiary are enforceable
and subsisting. To Company's or any Company Subsidiary's knowledge, there is no
unauthorized use, infringement or misappropriation of any of Company
Intellectual Property by any third party, employee or former employee.
(d) Except as set forth in Section 4.12(c) of the Company Disclosure
Letter, there are no royalties, fees, honoraria or other payments payable by
Company or any Company Subsidiary to any Person by reason of the ownership,
development, use, license, sale or disposition of Company Intellectual Property,
other than salaries and sales commissions paid to employees and sales agents in
the ordinary course of business. The Company and Company Subsidiaries have not
disclosed any of its confidential know-how, trade secrets and similar rights
subsisting based on their confidentiality which the Company or Company
Subsidiaries use or propose to use to make or sell its products, other than to
employees, consultants or distributors of the Company who have entered written
agreements not to disclose such rights of the Company.
(e) Neither Company nor any Company Subsidiary is in violation of any
license, sublicense, agreement or instrument to which Company or any Company
Subsidiary is a party or otherwise bound, nor will execution or delivery of this
Agreement, or performance of Company's obligations hereunder, cause the
diminution, termination or forfeiture of any Company Intellectual Property
except as could not, individually or in the aggregate, be reasonably expected to
result in a Material Adverse Effect. Section 4.12(d) of the Company Disclosure
Letter sets forth a list of all Licenses by Company or any of Company
Subsidiaries of Company Intellectual Property.
24
(f) Except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, Company and each of Company
Subsidiaries has observed all provisions of, and performed all of their
obligations under, the license agreements to which it is a party. Neither
Company, nor any Company Subsidiary, have taken any action that could cause, or
failed to take any action, the failure of which could cause, (i) any source
code, trade secret or other Company Intellectual Property to be (A) released
from an escrow or otherwise made available to any person or entity other than
those persons described in Section 4.12(a) of the Company Disclosure Letter or
(B) dedicated to the public or otherwise placed in the public domain or (ii) any
other material adverse affect to the protection of Company Intellectual Property
under trade secret, copyright, patent or other intellectual property laws.
Section 4.13 Compliance with Laws. Except as would not be reasonably
expected to have a Material Adverse Effect, Company and each of Company
Subsidiaries are in compliance with, and have not violated any applicable Law of
any United States federal, state, local, or foreign Governmental Entity which
affects the business, properties or assets of Company and any of Company
Subsidiaries, and no notice, charge, claim, action or assertion has been
received by Company or any Company Subsidiary or has been filed, commenced or,
to the knowledge of Company or any Company Subsidiary, threatened against
Company or any Company Subsidiary alleging any such violation. All licenses,
permits and approvals required under such Laws are in full force and effect.
Section 4.14 Contracts and Commitments
(a) Section 4.14 of the Company Disclosure Letter contains a complete
listing of the Company and Company Subsidiary material contracts. Neither
Company nor any Company Subsidiary has any agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any charitable contribution or which restrict
Company's selling, licensing or otherwise distributing any of its technology or
Products to, or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or in any
segment of the market or line of business.
(b) No purchase contracts or commitments of Company or any Company
Subsidiary continue for a period of more than twelve months or are in excess of
the normal, ordinary and usual requirements of business or at any excessive
price.
(c) There are no outstanding sales contracts, commitments or proposals of
Company or any Company Subsidiary which continue for a period of more than
twelve months or will result in any loss to Company or any Company Subsidiary
upon completion or performance thereof, after allowance for direct distribution
expenses nor are there any outstanding contracts, bids or sales or service
proposals quoting prices which will not result in a normal profit.
(d) Neither Company nor any Company Subsidiary has any outstanding
contracts with officers, employees, agents, consultants, advisors, salesmen,
sales representatives, distributors or dealers that are not cancelable by it on
notice of not longer than thirty days and without liability, penalty or premium
or any agreement or arrangement providing for the payment of any bonus or
commission based on sales or earnings.
25
(e) Neither Company nor any Company Subsidiary has any employment
agreement, or any other agreement that contains any severance or termination pay
liabilities or obligations.
(f) Neither Company nor any Company Subsidiary has any collective
bargaining or union contracts or agreements.
(g) Neither Company nor any Company Subsidiary is in default, nor is there
any known basis for any valid claim of default, under any contract made or
obligation owed by it.
(h) Neither Company nor any Company Subsidiary is under any liability or
obligation with respect to the return of inventory or merchandise in the
possession of wholesalers, distributors, retailers or other customers.
(i) Neither Company nor any Company Subsidiary is in breach of any Company
Agreement.
(j) Neither Company nor any Company Subsidiary has any debt obligation for
borrowed money, including guarantees of or agreements to acquire any such debt
obligation of others.
(k) Neither Company nor any Company Subsidiary has any outstanding loan to
any Person other than to Company or a wholly-owned Subsidiary of Company.
(l) Neither Company nor any Company Subsidiary has any power of attorney
outstanding or any obligations or liabilities (whether absolute, accrued,
contingent or otherwise), as guarantor, surety, co-signer, endorser, co-maker,
indemnitor or otherwise in respect of the obligation of any Person, corporation,
partnership, joint venture, association, organization or other entity.
Section 4.15 Information Supplied. None of the information supplied or to
be supplied by Company specifically for inclusion or incorporation by reference
in (i) the Registration Statement will, at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) the Proxy
Statement/Prospectus will, at the date it is first mailed to Company's
shareholders or at the time of Company Shareholders' Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus and the Registration Statement will comply as to form in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by Company with respect to statements made or
incorporated by reference therein based on information supplied by Parent
specifically for inclusion or incorporation by reference in the Proxy
Statement/Prospectus.
Section 4.16 Insider Interests. Except as set forth in Company SEC
Documents, no officer or director of Company or any Company Subsidiary has any
material interest in any property, real or personal, tangible or intangible,
including inventions, patents, trademarks or trade names, used in or pertaining
to the business of Company or any Company Subsidiary.
26
Section 4.17 Brokers or Finders. Except as set forth in Section 4.17 of
the Company Disclosure Letter, for which Company will obtain a release prior to
Closing, neither Company nor any Company Subsidiaries or their respective
Affiliates has an obligation to pay any agent, broker, investment banker,
financial advisor or other firm or Person any brokers' or finder's fee or any
other commission or similar fee in connection with any of the Transactions.
Section 4.18 Properties. The Company does hold any leases nor own any fee
simple interest in real property, except as listed in Section 4.18 of the
Company Disclosure Letter. Company and Company Subsidiaries have good and valid
title, free and clear of all Liens, to all their material properties and assets,
whether tangible or intangible, real, personal or mixed, reflected in the
Company's Financial Statements for the period ended June 30, 2001 as being owned
by Company and Company Subsidiaries as of the date thereof, other than (i) any
properties or assets that have been sold or otherwise disposed of in the
ordinary course of business since the date of such Financial Statements, (ii)
Liens disclosed in the notes to such Financial Statements, (iii) properties
leased by Company's former U.K. subsidiary and (iv) Liens arising in the
ordinary course of business after the date of such Financial Statements. All
buildings, and all fixtures, equipment and other property and assets that are
material to its business on a consolidated basis, held under leases or
sub-leases by Company or any Company Subsidiary are held under valid instruments
enforceable in accordance with their respective terms, subject to applicable
laws of bankruptcy, insolvency or similar laws relating to creditors' rights
generally and to general principles of equity (whether applied in a proceeding
in law or equity). Substantially all of Company's and Company Subsidiaries'
equipment in regular use has been reasonably maintained and is in serviceable
condition, reasonable wear and tear excepted.
Section 4.19 Affiliates. Section 4.20 of the Company Disclosure Letter
sets forth the names and addresses of each Person who is, in Company's
reasonable judgment, an affiliate (as such term is used in Rule 145 under the
Securities Act) of Company.
Section 4.20 Regulatory Compliance. The Company and Company Subsidiaries
have filed all reports, statements, registrations, applications, filings or
other documents and submissions required to be filed with, or provided to, any
Governmental Entity. 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 knowledge of Company,
threatened by any such Governmental Entity relating to the Company.
Section 4.21 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 the Company or Company Subsidiary (a
"Facility") or in connection with its business, that could, to the knowledge of
Company, individually or in the aggregate, have an adverse effect. No hazardous
materials are being stored or otherwise are present at, in, on or under any real
property leased, used or managed by the Company or in connection with its
business where
27
such activity is not in compliance with any environmental law. The Company and
Company Subsidiaries are in compliance, in all respects, with all environmental
laws applicable to it.
(b) The Company or Company Subsidiaries have not (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 the
Company 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. Company uses of and
activities within the Facilities have at all times complied with all
Environmental and Safety Laws. The 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.
Section 4.22 Major Customers Section 4.22 of the Company Disclosure
Schedule sets forth a list of the customers of the Company by revenue generated
in the fiscal year ended September 30, 2001. There has been no termination or
cancellation of any relationship between the Company and such customers.
Section 4.23 Insurance. Section 4.23 of the Company Disclosure Schedule
sets forth a true and complete list of all insurance policies providing
insurance coverage of any nature to the Company and the Company Subsidiaries.
Such policies are sufficient for compliance by the Company or the Company
Subsidiaries with all requirements of law and all material agreements to which
the Company or the Company Subsidiaries is a party or by which any of their
assets are bound. All of such policies are in full force and effect and are
valid and enforceable in accordance with their terms, and the Company and the
Company Subsidiaries have complied with all material terms and conditions of
such policies, including premium payments. None of the insurance carriers has
indicated to the Company or the Company Subsidiaries an intention to cancel any
such policy. The Company or the Company Subsidiaries do not have any claim
pending against any of the insurance carriers under any of such policies
Section 4.24 Minute Books. The minute books of the Company and Company
Subsidiaries to be 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 the Company or the Company Subsidiaries through the date of
this Agreement, and reflect all transactions referred to in such minutes
accurately. All actions taken by the Company or the Company Subsidiaries, as the
case may be, have been duly authorized, and no such actions have been taken in
breach or violation of the Articles of Incorporation, the by-laws or other
organizational documents of the Company.
Section 4.25 Representations Complete. All documents and papers delivered
by or to be delivered on behalf of the Company 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. The Company
and Company Subsidiary by the Closing Date will have complied in good faith with
all requests of Parent and its representatives for documents, papers and
information relating to the Company or the Company Subsidiaries in connection
with
28
the Transactions contemplated hereby, and will not knowingly have withheld any
document, paper or other information requested by the Parent or any of its
representatives in connection herewith. No representation or warranty by Company
contained in this Agreement (including the exhibits and schedules hereto and
thereto) contains any untrue statement of a fact or omits to state a 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 false or
misleading.
Section 4.26 Potential Conflicts of Interest. No officer or director 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 the Company or the Company Subsidiaries;
(b) holds a beneficial interest in any contract or other agreement to
which the Company or the Company Subsidiaries 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 the Company or the Company Subsidiaries is using or the use of which is
necessary for the business of the Company or the Company Subsidiaries; or
(d) has any cause of action or other claim whatsoever against the Company
or the Company Subsidiaries. All purchases and sales or other transactions, if
any, between Company or the Company Subsidiaries 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 Company or the Company Subsidiaries than
those which would have been available from unrelated third parties.
Section 4.27 Customs. Company and the Company Subsidiaries have acted with
reasonable care to properly value and classify, in accordance with applicable
tariff laws, rules and regulations, all goods that Company imports into the
United States or exports out of the United States into any other country (the
"Goods"). To Company's Knowledge, there are currently no material claims pending
against Company by the U.S. Customs Service (or other foreign customs
authorities) relating to the valuation, classification or marketing of the
Goods.
Section 4.28 No Bankruptcy. Neither the Company nor the Company
Subsidiaries 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 assets, had an encumbrance take possession of any property, nor
had an execution or distress become enforceable or levied upon any of their
property.
Section 4.29 Qualification. No officer or director of Company is subject
to any of the disqualification provisions of Rule 505(b)(iii) under the
Securities Act.
29
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to Company that all of the
statements contained in this Article 5 are true and correct. Each exception set
forth in the Parent Disclosure Letter and each other response to the Agreement
set forth in the Parent Disclosure Letter is identified by reference to, or has
been grouped under a heading referring to, a specific individual section of this
Agreement and relates only to such section, except to the extent that one
portion of the Parent Disclosure Letter specifically refers to another portion
thereof, identifying such other portion by specific cross reference.
Section 5.1 Organization. Each of Parent and Merger Sub, once
incorporated, (a) is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation; (b) has all requisite
corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate its properties and assets; (c) is duly
qualified or licensed to do business as a foreign corporation in good standing
in every jurisdiction in which such qualification is required, except for such
failures to be so qualified or licensed and in good standing as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Parent will make available to Company complete and correct
copies of its certificate of incorporation and bylaws, each as presently in
effect. Merger Sub has conducted no business and has no operations other than in
connection with this Agreement and the Transactions.
Section 5.2 Capitalization.
(a) The authorized capital stock of Parent consists of 50,000,000 shares
of Parent Common Stock, 1,500,000 shares of Parent Preferred Stock, and one
special voting share. As of the date of this Agreement, (i) 9,028,239 shares of
Parent Common Stock are issued and outstanding (ii) no shares of Parent
Preferred Stock are issued and outstanding, and (iii) one special voting share
is issued and outstanding. 1,488,750 Parent Options are outstanding and
1,805,648 shares of Parent Common Stock are reserved for issuance upon exercise
of Parent Options. All the outstanding shares of Parent's capital stock are, and
all shares of Parent Common Stock which may be issued pursuant to the exercise
of outstanding Parent Options will be, when issued in accordance with the
respective terms of such Parent Option, duly authorized, validly issued, fully
paid and nonassessable.
(b) Except as set forth in Section 5.2(b) of the Parent Disclosure Letter,
there are no voting trusts or other agreements or understandings to which Parent
or any of its Subsidiaries is a party with respect to the voting of the capital
stock of Parent or any of its Subsidiaries.
Section 5.3 Authorization, Validity of Agreement, Necessary Action.
Subject to the approval of the shareholders of each of Parent and Merger Sub and
the satisfaction of the board of directors of Parent that all conditions have
been fulfilled, including without limiting the
30
foregoing that the board of directors is satisfied with the due diligence
conducted hereunder, and the incorporation of Merger Sub and the adoption by it
of the obligations entered into hereunder on its behalf by Parent, in trust,each
of Parent and Merger Sub has full corporate power and authority to execute and
deliver this Agreement, to perform its obligations under this Agreement and to
consummate the Transactions. The execution and delivery of, and the performance
by Parent and Merger Sub of their respective obligations under, this Agreement
and the consummation by each of Parent and Merger Sub of the Transactions, have,
subject to the qualifications above, been duly authorized by each of Parent's
and Merger Sub's boards of directors and, except for obtaining the approval of
their respective shareholders as contemplated by Section 5.6 and the
incorporation of Merger Sub and the adoption by it of the obligations entered
into hereunder on its behalf by Parent, in trust, no other corporate action on
the part of Parent or Merger Sub or their respective shareholders is necessary
to authorize the execution and delivery by Parent and Merger Sub of this
Agreement or the consummation by them of the Transactions. This Agreement has
been duly executed and delivered by Parent, and, assuming due and valid
authorization, execution and delivery by Company and adoption of this Agreement
by Merger Sub, this Agreement is a valid and binding obligation of each of
Parent and Merger Sub, enforceable against each of them in accordance with its
terms.
Section 5.4 Consents and Approvals, No Violations. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, the HSR
Act, state securities or blue sky laws, the NSM and the filing of the
Certificate of Merger, none of the execution or delivery by Parent or Merger Sub
of, or performance by Parent or Merger Sub of its obligations under, this
Agreement, the consummation by Parent or Merger Sub of the Transactions or
compliance by Parent or Merger Sub with any of the provisions of this Agreement
will (a) conflict with or result in any breach of any provision of the
respective certificate of incorporation or bylaws of Parent or Merger Sub; (b)
require any filing with, or permit, authorization, consent or approval of, any
Governmental Entity; (c) result in a violation or breach of, or constitute (with
or without due notice or the passage of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or loss of any
rights) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent, or any of its Subsidiaries is a party or by which
any of them or any of their respective properties or assets may be bound; or (d)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent, any of its Subsidiaries or any of their properties or
assets, excluding from the foregoing clauses (b), (c) and (d) such violations,
breaches or defaults which could not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect.
Section 5.5 Share Ownership. Neither Parent nor Merger Sub beneficially
owns any Shares.
Section 5.6 Vote Required. The affirmative vote of the holders of at least
fifty percent of the outstanding shares of Parent Common Stock is the only vote
of the holders of any class or series of Parent's capital stock necessary to
approve the Merger or adopt this Agreement and no other vote of any class or
series of Parent's capital stock is necessary to approve any of the
Transactions.
31
Section 5.7 Parent SEC Documents; Parent Financial Statements. As of the
date hereof, Parent has furnished or made available to Company true and complete
copies of all Parent SEC Documents. As of their respective filing dates, all
such Parent SEC Documents complied in all material respects with the
requirements of the Securities Act, the Exchange Act and the rules and
regulations of the NSM, as the case may be, and none of such Parent SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a document subsequently filed
with the SEC or NSM. Without limiting the foregoing, the SEC has requested that
Parent refile its 10K for the year ending August 31, 2001 in order to account
for a change in the exchange rate of Parent Preferred Stock into Parent Common
Stock which has been subsequently reflected in Parent's 10Q for the quarter
ending May 31, 2001. The Parent Financial Statements comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC and NSM with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly the consolidated financial
position of Parent at the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal audit adjustments). As of the date hereof, there
has been no change in Parent accounting policies except as described in the
notes to Parent Financial Statements.
Section 5.8 No Material Adverse Change. Except as disclosed in Parent SEC
Documents prior to Closing, since the date of the balance sheet included in
Parent Financial Statements and continuing through the date hereof, Parent has
conducted its business in the ordinary course and there has not occurred: (a)
any material adverse change in the financial condition, liabilities, assets
(including intellectual property assets) or business of Parent or any of its
Subsidiaries; (b) any amendment or change in the certificate of incorporation or
bylaws of Parent, or any of its Subsidiaries, or Merger Sub (with respect to
Merger Sub, since the date of its incorporation); or (c) any damage to,
destruction or loss of any assets of Parent or any of its Subsidiaries (whether
or not covered by insurance) that materially and adversely affects the financial
condition or business of Parent or any of its Subsidiaries. Since October 1,
2001 and continuing through the Effective Time, there has not occurred delisting
or suspension of the trading of Parent's Common Stock on the NSM.
Section 5.9 Litigation. Except as disclosed in Parent SEC Documents, as of
the date hereof, there is no material action, suit or proceeding of any nature
pending or to the knowledge of Parent threatened against Parent, Merger Sub, or
any Parent Subsidiary, their respective properties or any of their respective
officers or directors, in their respective capacities as such. Except as
disclosed in Parent SEC Documents, as of the date hereof, there is no material
investigation pending or to the knowledge of Parent threatened against Parent,
Merger Sub, or any Parent Subsidiary, any of their respective properties or any
of their respective officers or directors by or before any Governmental Entity.
To the knowledge of Parent, as of the date hereof no Governmental Entity has at
any time challenged or questioned the legal right of Parent, Merger Sub, or any
Parent Subsidiary to conduct research, development and manufacturing activities
in the present manner or style thereof.
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Section 5.10 Disclosure Documents. None of the information supplied or to
be supplied by Parent for inclusion in (i) the Proxy Statement, and (ii) any
Registration Statement, including the Proxy Statement included therein, will, in
the case of the Proxy Statement, at the time of the mailing of the Proxy
Statement to shareholders of Company, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading or will, in the case of each
Registration Statement, at the time each such becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each Registration Statement will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations thereunder, except that no representation is made by Parent with
respect to information supplied by Company for inclusion therein and no
representation is made by Parent with respect to any forward-looking
information, budgets or projections which may have been supplied by Parent.
Section 5.11 Brokers or Finders. Except as set forth in Section 5.11 of
the Parent Disclosure Letter neither Parent nor any Parent Subsidiary or their
respective Affiliates has an obligation to pay any agent, broker, investment
banker, financial advisor or other firm or Person to any brokers' or finders'
fee any other commission or similar fee in connection with any of the
Transactions.
ARTICLE 6
COVENANTS
Section 6.1 Interim Operations of Company. Company covenants and agrees
that prior to the Effective Time, except (i) as expressly contemplated by this
Agreement, (ii) as set forth in Schedule 6.1 of the Company Disclosure Letter or
(iii) as agreed in writing by Parent (which agreement shall not be unreasonably
withheld), after the date hereof:
(a) the business of Company and each Company Subsidiary shall be conducted
only in the usual, regular and ordinary course and substantially in the same
manner as heretofore conducted, and Company and each Company Subsidiary shall
use its best efforts to preserve its business organization intact, keep
available the services of its current officers and employees and maintain its
existing relations with franchisees, customers, suppliers, creditors, business
partners and others having business dealings with it, to the end that the
goodwill and ongoing business of each of them shall be unimpaired at the
Effective Time;
(b) neither Company nor any Company Subsidiary shall: (i) amend its
certificate of incorporation or bylaws or similar organizational documents, (ii)
issue, sell, transfer, pledge, dispose of or encumber any shares of any class or
series of its capital stock or Voting Debt, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of any class or series of its capital stock or any Voting
Debt, other than shares of Company Common Stock reserved for issuance on the
date of this Agreement pursuant to the exercise of Company Options on the date
of this Agreement, (iii)
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declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to any shares of any class or series of its
capital stock, (iv) split, combine or reclassify any shares of any class or
series of its capital stock or (v) redeem, purchase or otherwise acquire
directly or indirectly any shares of any class or series of its capital stock,
or any instrument or security which consists of or includes a right to acquire
such shares other than share revesting arrangements entitling Company to
purchase shares from employees or consultants at their cost;
(c) neither Company nor any Company Subsidiary shall (i) incur or modify
any indebtedness or other liability, other than in the ordinary course of
business consistent with past practice, (ii) modify, amend or terminate any of
its material contracts or waive, release or assign any material rights or
claims, except in the ordinary course of business consistent with past practice;
(d) neither Company nor any Company Subsidiary shall (i) incur or assume
any long-term debt, or incur or assume any short-term indebtedness in amounts
not consistent with past practice; (ii) modify the terms of any indebtedness or
other liability, other than modifications of short term debt in the ordinary
course of business consistent with past practice; (iii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person, except as
described in Schedule 6.1(d) of the Company Disclosure Letter as being in the
ordinary course of business consistent with past practice; (iv) make any loans,
advances or capital contributions to, or investments in, any other Person (other
than to or in wholly owned Company Subsidiaries); or (v) enter into any material
commitment or transaction (including any capital expenditure or purchase, sale
or lease of assets or real estate);
(e) neither Company nor any Company Subsidiary shall transfer, lease,
license, sell, mortgage, pledge, dispose of, or encumber any assets other than
in the ordinary course of business consistent with past practice; or
(f) except as otherwise specifically provided in this Agreement, neither
Company nor any Company Subsidiary shall make any change in the compensation
payable or to become payable to any of its officers, directors, employees,
agents or consultants or to Persons providing management services, or enter into
or amend any employment, severance, consulting, termination or other agreement
or employee benefit plan or make any loans to any of its officers, directors,
employees, Affiliates, agents or consultants or make any change in its existing
borrowing or lending arrangements for or on behalf of any of such Persons
pursuant to a Company Benefit Plan or otherwise;
(g) except as otherwise specifically contemplated by this Agreement or as
set forth in Schedule 6.1(g) of Company Disclosure Letter, neither Company nor
any Company Subsidiary shall (i) pay or make any accrual or arrangement for
payment of any pension, retirement allowance or other employee benefit pursuant
to any existing plan, agreement or arrangement to any officer, director,
employee or Affiliate, or (ii) adopt or pay, grant, issue, accelerate or accrue
salary or other payments or benefits pursuant to any pension, profit-sharing,
bonus, extra compensation, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or
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arrangement, or any employment or consulting agreement with or for the benefit
of any director, officer, employee, agent or consultant, whether past or
present, or amend in any material respect any such existing plan, agreement or
arrangement in a manner inconsistent with the foregoing;
(h) neither Company nor any Company Subsidiary shall permit any insurance
policy naming it as a beneficiary or a loss payable payee to be cancelled or
terminated without notice to and the prior consent of Parent, except policies
providing coverage for losses not in excess of $50,000;
(i) neither Company nor any Company Subsidiary shall enter into any
contract or transaction relating to the purchase of assets other than in the
ordinary course of business consistent with past practice;
(j) neither Company nor any Company Subsidiary shall pay, purchase,
discharge or satisfy any of its claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business consistent
with past practice, of claims, liabilities or obligations reflected or reserved
against in, or contemplated by, the Financial Statements;
(k) neither Company nor any Company Subsidiary will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of Company or any
Company Subsidiary (other than the Merger);
(l) neither Company nor any Company Subsidiary will (i) change any of the
accounting methods used by it unless required by a change in GAAP occurring
after the date of this Agreement or (ii) make any material election relating to
Taxes, change any material election relating to Taxes already made, adopt any
material accounting method relating to Taxes, change any material accounting
method relating to Taxes unless required by a change in GAAP or change in the
Code or the regulations under the Code occurring after the date of this
Agreement, enter into any closing agreement relating to Taxes, settle any claim
or assessment relating to Taxes or consent to any claim or assessment relating
to Taxes or any waiver of the statute of limitations for any such claim or
assessment;
(m) neither Company nor any Company Subsidiary will take, or agree to
commit to take, any action that could or would be reasonably expected to result
in any of the conditions set forth in Article 8 not being satisfied, or would
make any representation or warranty of Company contained in this Agreement
inaccurate in any respect at, or as of any time prior to, the Effective Time, or
that would materially impair the ability of Company, Parent or the Merger Sub to
consummate the Merger in accordance with the terms thereof or materially delay
such consummation;
(n) neither Company nor any Company Subsidiary shall enter into any
agreement, contract, commitment, understanding or arrangement with any officer
or director of Company or any Company Subsidiary with respect to any property,
real or personal, tangible or intangible, including inventions, patents,
trademarks or trade names, used in or pertaining to the business of Company or
any Company Subsidiary or modify, amend or terminate any such existing
agreement, contract, commitment, understanding or arrangement;
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(o) neither Company nor any Company Subsidiary will enter into any
agreement, contract, commitment, understanding or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to do
any of the foregoing; and
(p) adopt a plan of complete or partial liquidation, dissolution,
arrangement with creditors, rehabilitation, restructuring, recapitalization,
redomestication or other reorganization
Section 6.2 Access; Confidentiality. Company shall (and shall cause each
Company Subsidiary to) afford to the officers, employees, accountants, counsel,
financing sources and other representatives of Parent, access at reasonable
times during the period prior to the Effective Time, to all its properties,
books, contracts, commitments and records and, during such period, Company shall
(and shall cause each Company Subsidiary to) furnish promptly to Parent (a) a
copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of federal
securities laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. Access shall include
the right to conduct such environmental studies as Parent, in its reasonable
discretion, shall deem appropriate. Unless otherwise required by law or in order
to comply with disclosure requirements applicable to the Proxy
Statement/Prospectus, Parent will hold and will ensure that all its
representatives hold any such information which is nonpublic in confidence in
accordance with the provisions of the Confidentiality Agreement.
Section 6.3 Reasonable Efforts.
(a) Prior to the Closing, upon the terms and subject to the conditions of
this Agreement, Parent, Merger Sub and Company agree to use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable (subject to any
applicable laws) to consummate the Merger and make effective the Merger and the
other Transactions as promptly as practicable including, (i) the preparation and
filing of all forms, registrations and notices required to be filed to
consummate the Merger and the other Transactions and the taking of such actions
as are necessary to obtain any requisite approvals, consents, orders, exemptions
or waivers by any third party or Governmental Entity, (ii) the satisfaction of
the other parties' conditions to Closing. In addition, no party hereto shall
take any action after the date of this Agreement to materially delay the
obtaining of, or result in not obtaining, any permission, approval or consent
from any Governmental Entity necessary to be obtained prior to Closing.
Notwithstanding the foregoing, or any other covenant herein contained, in
connection with the receipt of any necessary approvals under the HSR Act,
neither Company nor any Company Subsidiaries shall be entitled to divest or hold
separate or otherwise take or commit to take any action that limits Parent's or
Merger Sub's freedom of action with respect of, or their ability to retain,
Company or any Company Subsidiaries or any material portions thereof or any of
the businesses, product lines, properties or assets of Company or any of its
Subsidiaries, without Parent's prior written consent (which may be withheld in
Parent's sole and absolute discretion).
(b) Prior to the Closing, each party shall promptly consult with the other
parties hereto with respect to, provide any necessary information with respect
to, and provide the other parties (or their respective counsel) with copies of,
all filings made by such party with any Governmental Entity or any other
information supplied by such party to a Governmental Entity
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in connection with this Agreement, the Merger and the other Transactions. Each
party hereto shall promptly inform the other of any communication from any
Governmental Entity regarding any of the Transactions. If any party hereto or
Affiliate thereof receives a request for additional information or documentary
material from any such Governmental Entity with respect to any of the
Transactions, then such party shall endeavor in good faith to make, or cause to
be made, as soon as reasonably practicable and after consultation with the other
parties, an appropriate response in compliance with such request. To the extent
that transfers, amendments or modifications of permits (including environmental
permits) are required as a result of the execution of this Agreement or
consummation of any of the Transactions, Company shall and shall cause Company
Subsidiaries to use best efforts to effect such transfers, amendments or
modifications.
(c) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to require Parent or Merger Sub to commence any litigation against any
entity in order to facilitate the consummation of any of the Transactions or to
defend against any litigation brought by any Governmental Entity seeking to
prevent the consummation of any of the Transactions.
Section 6.4 No Solicitation by Company.
(a) Company will not, and will not authorize, direct or knowingly permit
its Representatives to, directly or indirectly, (i) solicit, initiate, knowingly
encourage or induce the making, submission or announcement of any Company
Takeover Proposal, (ii) participate in any discussions or negotiations with any
person regarding, or furnish to any person any information with respect to, or
take any other action that would reasonably be expected to facilitate any
inquiry or proposal that constitutes or would reasonably be expected to lead to,
any Company Takeover Proposal, (iii) authorize, approve or recommend any Company
Takeover Proposal or (iv) enter into any letter of intent or similar document or
any Contract accepting or providing for any Company Takeover Proposal; provided,
however, that nothing in this Section 6.4 or elsewhere in this Agreement shall
prohibit Company's board of directors from complying with Rule 14e-2 under the
Exchange Act with regard to a tender or exchange offer not arising out of,
related to or otherwise by virtue of a violation of this Section 6.4; and
provided, further, that nothing in this Section 6.4 or elsewhere in this
Agreement shall prohibit Company, before the adoption of this Agreement by the
shareholders of Company, from furnishing information regarding Company to,
entering into negotiations or discussions with, or entering into an agreement
relating to a Company Takeover Proposal with, any person in response to a
Company Takeover Proposal made, submitted or announced by such person (and not
withdrawn) to the extent (1) such Company Takeover Proposal is not attributable
to a material breach of this Section 6.4(a); (2) the board of directors of
Company concludes in good faith, consistent with advice of outside legal
counsel, that failure to take such action would likely constitute a breach of
the fiduciary obligations of the board of directors of Company to Company's
shareholders under applicable Law; (3) the board of directors of Company
concludes, in good faith, consistent with the advice of the Company's financial
advisors that such Company Takeover Proposal is reasonably likely to lead to a
Company Superior Proposal; (4) prior to furnishing any such information to, or
entering into discussions or negotiations with, such person, Company gives
Parent written notice of the identity of such person, the material terms and
conditions of such Company Takeover Proposal and Company's intention to furnish
information to, or enter into discussions or negotiations with, such person; (5)
Company receives from such person an
37
executed confidentiality agreement which shall not in any way restrict Company
from complying with its disclosure obligations under this Agreement and which
shall contain customary limitations on the use and disclosure of all nonpublic
written and oral information furnished to such person by or on behalf of Company
and other terms no less favorable to Company than those set forth in the
Confidentiality Agreement; and (6) contemporaneously with furnishing any such
information to such person, Company furnishes such information to Parent (to the
extent that such information has not been previously furnished by Company to
Parent).
(b) Company and its Representatives shall immediately cease and cause to
be terminated and not resumed any and all existing discussions, negotiations,
exchanges of information and other activities with respect to any Company
Takeover Proposal pending as of the date of this Agreement. Promptly following
the execution and delivery of this Agreement, Company shall (i) inform each of
its directors and officers and financial, legal, accounting and other advisors
retained or involved in the transaction contemplated by this Agreement of the
obligations undertaken in this Section 6.4 and in the Confidentiality Agreement
and (ii) as soon as reasonably practicable, request each person that has
heretofore executed a confidentiality or non-disclosure agreement in connection
with its consideration of acquiring Company or any of its Subsidiaries to return
to Company or otherwise dispose of all confidential information furnished to
such person, by or on behalf of Company or any of its Subsidiaries, during the
one-year period prior to the date of this Agreement in connection with such
person's consideration of acquiring or engaging in a merger or other business
combination transaction with Company or any of its Subsidiaries. Company shall
immediately notify Parent if any proposals or offers constituting a Company
Takeover Proposal are received by, any non-public information in connection with
any Company Takeover Proposal is requested from, or any discussions or
negotiations with respect to a Company Takeover Proposal are sought to be
initiated or continued with, Company's officers or directors or other
individuals involved on behalf of Company in the negotiation of the Transactions
contemplated by this Agreement, or, to the knowledge of the foregoing Persons,
any of Company's other Representatives, indicating, in connection with such
notice, the name of the person making the inquiry, proposal or offer and the
material terms and conditions of any such proposals or offers. Thereafter (i)
Company shall provide Parent with a true and complete copy of such Company
Takeover Proposal or communication (if it is in writing) and (ii) Company shall
otherwise keep Parent informed, on a current basis, with respect to the status
and material terms of any such proposal or offer and the status of any such
negotiations or discussions.
Section 6.5 Parent Recommendation. After satisfaction or waiver of the
conditions set forth in Section 8.2(f), Parent will not, and will not authorize,
direct or knowingly permit its Representatives to, directly or indirectly, make
any recommendation to Parent's shareholders that Parent's shareholders vote
against, or abstain from voting with regard to, approval of this Agreement at
the Parent Shareholders' Meeting.
Section 6.6 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release reasonably acceptable
to each of Parent and Company. Thereafter, until the Effective Time, or the date
this Agreement is terminated pursuant to Article 9 (whichever occurs first),
neither Company, Parent nor any of their respective Affiliates shall issue or
cause the publication of any press release or other announcement with respect to
the Merger, this Agreement or the other Transactions without prior consultation
with the other party,
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except as advised by outside counsel is required by law or by any listing
agreement with a national securities exchange or trading market, in which case,
prior consultation with the other party will be made to the extent reasonably
practicable.
Section 6.7 Notification of Certain Matters. Company shall give prompt
notice to Parent, of (a) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which caused or would reasonably be expected to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (b) any
material failure of Company, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.6 shall not
limit or otherwise affect the remedies of Parent.
Section 6.8 Directors' and Officers' Insurance and Indemnification
(a) For six years after the Effective Time, the Surviving Corporation (or
any successor to the Surviving Corporation) shall indemnify, defend and hold
harmless each Indemnified Party against all losses, claims, damages,
liabilities, costs, fees and expenses, including reasonable fees and
disbursements of counsel and judgments, fines, losses, claims, liabilities and
amounts paid in settlement (provided, that any such settlement is effected with
the written consent of Parent or the Surviving Corporation) arising out of
actions or omissions occurring at or prior to the Effective Time to the full
extent required under applicable Delaware law, the terms of Company's
certificate of incorporation, bylaws or indemnity agreements in the form filed
as exhibits to Company SEC Documents, each as in effect at the date hereof;
provided, that in the event any claim or claims are asserted or made within such
three-year period, all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such claims.
(b) The Parent or the Surviving Corporation shall maintain Company's
existing officers' and directors' liability insurance for a period of not less
than three years after the Effective Date; provided, that Parent may substitute
therefor policies of coverage and amounts containing terms no less favorable to
such former directors or officers as currently in effect for directors and
officers of Parent.
(c) The Surviving Corporation shall pay all expenses, including reasonable
attorney's fees and costs, that may be incurred by any Indemnified Person in
enforcing the indemnity contained in this Section 6.7.
(d) Any decision with respect to whether the applicable standards for
indemnification have been met with respect to any Indemnified Person shall be
made by counsel independent of the Surviving Corporation, its Affiliates and the
Indemnified Party. Such decision of such counsel shall be conclusive and binding
on Surviving Corporation, the board of directors of Company and the Indemnified
Person.
Section 6.9 State Takeover Laws. Notwithstanding any other provision in
this Agreement, in no event shall the approval of the Transactions by the board
of directors of Company be withdrawn, revoked or modified by the board of
directors of Company. If any state
39
takeover statute becomes or is deemed to become applicable to the Agreement, the
acquisition of Shares pursuant to the Merger or the other Transactions, Company
or the applicable Company Subsidiary shall take all action necessary to render
such statute inapplicable to all of the foregoing.
Section 6.10 Past Service Credit. Company employees who are employed by
Parent or the Surviving Corporation upon or immediately following the Closing
shall be given full credit for their service with Company under all Parent
Benefit Plans. Parent agrees that for purposes of accrual of vacation, paid time
off benefits or other such benefits, Parent will use the effective date of
Company's employees' respective employment with Company. Such Company employees
shall, to the extent then otherwise eligible be allowed to participate in
Parent's employee stock purchase plan on the first entry date under such plan
following the Closing.
Section 6.11 Bridge Loan. Following the initial closing of a private
placement with Joseph Gunnar & Co., LLC pursuant to an agency agreement dated
November 14, 2001 in a minimum amount of $3,000,000, Parent shall provide the
Company with a demand bridge loan of up to $250,000, provided that Parent can be
provided with a first secured position on the assets of the Company and that
there are no other prior encumbrances including those arising by law or statute.
Parent shall provide the Company with a second demand bridge loan of up to
$250,000 on the same terms as the first provided that subsequent closings of the
private placement with Joseph Gunnar & Co., LLC has raised an additional
$4,000,000. The terms of the loan shall require that interest of 12% be paid to
Parent. In the event that the Merger, for any reason, is not completed, Parent
will demand repayment in full, and in the event of non-repayment, Company hereby
waives and requirement for notice pursuant to any of Parent's security documents
prior to exercise of such security. Parent shall approve all payments to
creditors being made from the proceeds of the loan and will only advance funds
to Company upon such approval, which will not be unreasonably withheld or
delayed.
ARTICLE 7
ADDITIONAL AGREEMENTS
Section 7.1 Preparation of the Registration Statement and the Proxy
Statement/Prospectus; Shareholders' Meeting.
(a) As soon as practicable following the date of this Agreement, Parent
and Company shall prepare the Proxy Statement/Prospectus and Parent shall
prepare and file with the SEC the Registration Statement, in which the Proxy
Statement/Prospectus will be included as a prospectus. Each of Parent and
Company shall use best efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing.
Company will use best efforts to cause the Proxy Statement/Prospectus to be
mailed to Company's shareholders as promptly as practicable after the
Registration Statement is declared effective under the Securities Act. Parent
shall also take any action required to be taken under any applicable state
securities laws in connection with the issuance of shares of Parent Common Stock
in the Merger and the conversion of Company Options into options to acquire
Parent Common Stock, and Company shall furnish all information concerning
Company and the holders
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of Company Common Stock as may be reasonably requested in connection with any
such action. No filing of, or amendment or supplement to, the Registration
Statement or the Proxy Statement/Prospectus will be made by Parent without
Company's prior consent and without providing Company the opportunity to review
and comment thereon; provided, that with respect to documents filed by a party
which are incorporated by reference in the Registration Statement or Proxy
Statement/Prospectus, this right of approval shall apply only with respect to
information relating to the other party or its business, financial condition or
results of operations; and provided, further that Company, in connection with a
change in the recommendation of its board of directors, may amend or supplement
the Proxy Statement/Prospectus or Registration Statement (including by
incorporation by reference) pursuant to a Qualifying Amendment. Parent will
advise company promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the qualification
of the share of Parent Common Stock issuable in connection with the Merger for
offering or sale in any jurisdiction, or any request by the SEC for amendment of
the Proxy Statement/Prospectus or the Registration Statement or comments thereon
and responses thereto or requests by the SEC for additional information. If at
any time prior to the Effective Time any information relating to Parent or
Company, or any of their respective Affiliates, officers or directors, should be
discovered by Parent or Company which should be set forth in an amendment or
supplement to any of the Registration Statement or the Proxy
Statement/Prospectus, so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the shareholders of Company.
(b) Company shall, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act, duly give notice of,
convene and hold a meeting (the "Company Shareholders' Meeting") of its
shareholders entitled to vote thereat (the "Company Shareholders") in accordance
with the Washington Act for the purpose of obtaining the approval of the
Company's Shareholders and shall through its board of directors, recommend to
its shareholders the adoption of this Agreement.
(c) Parent shall, as promptly as practicable after the Registration
Statement is declared effective under the Securities Act, duly give notice of,
convene and hold a meeting (the "Parent Shareholders' Meeting") of its
shareholders entitled to vote thereof in accordance with the New York GBL for
the purpose of obtaining the approval of the Parent's shareholders and shall,
through its board of directors, recommend to its shareholders the adoption of
this Agreement.
Section 7.2 Tax Treatment.
(a) Each of Parent, Company and their respective Subsidiaries shall use
all reasonable efforts to cause the Merger to qualify as a reorganization within
the meaning of Section 368(a) of the Code. Neither Parent, nor Company, nor
their respective Subsidiaries, shall take any action to cause the Merger to fail
to qualify as a reorganization within the meaning of section 368(a) of the Code.
41
Section 7.3 Conveyance Taxes. Company and Parent shall cooperate in the
preparation, execution and filing of all Tax Returns, questionnaires,
applications or other documents regarding Taxes, transfer, recording,
registration and/or other fees which become payable in connection with the
Transactions contemplated by this Agreement that are required or permitted to be
filed on or before the Effective Time.
Section 7.4 Escrow Provisions.
(a) Establishment of the Escrow Fund. As soon as practicable after the
Effective Time, Five Hundred Thousand (500,000) shares of Parent Common Stock
(the "Escrow Amount"), without any act of any shareholder, will be deposited
with the depositary agent (an independent third party mutually agreed to by the
parties hereto, hereinafter the "Depository Agent") plus a proportionate share
of any additional shares of Parent Common Stock as may be issued upon any stock
splits, stock dividends or recapitalizations effected by Parent following the
Effective Time, such deposit to constitute the "Escrow Fund" to be governed by
the terms set forth herein. The portion of the Escrow Amount contributed on
behalf of each shareholder of the Company shall be in proportion to the
aggregate number of shares of Parent Common Stock which such holder would
otherwise be entitled under Section 3.1.
(b) Recourse to the Escrow Fund. The Escrow Fund shall be available to
compensate Parent and its respective officers, directors, employees, agents,
affiliates and associates (collectively, the "Parent Indemnitees") for any and
all Losses (whether or not involving a third party claim), incurred or sustained
by Parent or any other Parent Indemnitees, directly or indirectly, as a result
of any inaccuracy or breach of any representation, warranty, covenant or
agreement of the Company contained herein or as the result of the exercise by
any of the Company's shareholders of applicable appraisal, dissenters' or
similar rights (in the amount of the excess of the cost of the appraisal over
the value, as of the Closing Date, of the shares of Parent Common Stock
otherwise issuable in respect of such Dissenting Shares); provided, however,
that Parent may not make any claims against the Escrow Fund unless the aggregate
Losses incurred or sustained exceed $100,000.
(c) Escrow Period; Distribution of Escrow Fund upon Termination of Escrow
Period. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., New York time, on the date that is fifteen months following Closing (the
"Expiration Date") (the period of time from the Effective Time through and
including the Expiration Date is referred to herein as the "Escrow Period"); and
all shares of Parent Common Stock remaining in the Escrow Fund shall be
distributed as set forth in this Section 7.4(c); provided, however, that the
Escrow Period shall not terminate with respect to such amount as is necessary to
satisfy any unsatisfied claims under this Section 7.4 concerning facts and
circumstances existing prior to the termination of such Escrow Period which
claims are specified in any Officer's Certificate delivered to the Depositary
Agent prior to termination of such Escrow Period. As soon as all such claims, if
any, have been resolved, the Depositary Agent shall deliver to the shareholders
of the Company the remaining portion of the Escrow Fund not required to satisfy
such claims. Deliveries of shares of Parent Common Stock remaining in the Escrow
Fund to the shareholders of the Company pursuant to this Section 7.4(c) shall be
made ratably in proportion to their respective contributions to the Escrow Fund.
Each shareholder of the Company who would otherwise be entitled to a fraction of
a share of Parent
42
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall be entitled to receive from Parent (that
number of shares of Parent Common Stock rounded to the nearest whole number).
Parent shall use its commercially reasonable efforts to have such shares and
cash delivered within five Business Days after such resolution.
(d) Protection of Escrow Fund. The Depositary Agent shall hold and
safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of Parent and shall hold and dispose of the Escrow Fund only in
accordance with the terms hereof.
(e) Any shares of Parent Common Stock or other securities issued or
distributed by Parent ("New Shares") in respect of Parent Common Stock in the
Escrow Fund which have not been released from the Escrow Fund shall be added to
the Escrow Fund. New Shares issued in respect of shares of Parent Common Stock
which have been released from the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the record holders thereof. Cash dividends on
Parent Common Stock shall not be added to the Escrow Fund but shall be
distributed to the record holders of the Parent Common Stock on the record date
set for any such dividend. Each shareholder shall have voting rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such shareholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Stock).
(f) Claims Upon Escrow Fund. Upon receipt by the Depositary Agent at any
time on or before the last day of the Escrow Period of a certificate signed by
any officer of Parent (an "Officer's Certificate"): (A) stating that Parent or
another Parent Indemnitee has paid or properly accrued or reasonably anticipates
that it will have to pay or accrue Losses, and (B) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the date
each such item was paid or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty,
agreement or covenant to which such item is related, the Depositary Agent shall,
subject to the provisions of Section 7.4(g), deliver to Parent out of the Escrow
Fund, as promptly as practicable, shares of Parent Common Stock held in the
Escrow Fund in an amount equal to such Losses. Where the basis for a claim upon
the Escrow Fund by Parent is that Parent reasonably anticipates that it will pay
or accrue a Loss, no payment will be made from the Escrow Fund for such Loss
unless and until such Loss is actually paid or accrued.
(g) For the purposes of determining the number of shares of Parent Common
Stock to be delivered to Parent out of the Escrow Fund pursuant to Section
7.4(f), the shares of Parent Common Stock shall be valued at seventy-five cents
($0.75) per share.
(h) Whenever a claim is made upon the Escrow Fund, each Shareholder shall
have the right, with respect to the shares of Parent Common Stock contributed to
the Escrow Fund by such shareholder and then subject to such claim, to
substitute therefor an amount in cash equal to the Closing Price multiplied by
the number of shares for which such substitution is sought by giving notice to
and depositing such cash with the Depositary Agent. Within three business days
of receipt of such notice, the Depositary Agent shall release a number of shares
equal to the amount of the cash deposited by such shareholder divided by the
Closing Price.
43
(i) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Depositary Agent, a duplicate copy of such certificate shall
be delivered to the Shareholder Agent and for a period of thirty days after such
delivery, the Depositary Agent shall make no delivery to Parent of any Escrow
Amounts pursuant to Section 7.4(f) unless the Depositary Agent shall have
received written authorization from the Shareholder Agent to make such delivery.
After the expiration of such thirty day period, the Depositary Agent shall make
delivery of shares of Parent Common Stock or cash deposited pursuant to Section
7.4(h) from the Escrow Fund in accordance with Section 7.4(f), provided that no
such payment or delivery may be made if the Shareholder Agent shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Depositary Agent prior to the
expiration of such thirty day period.
(j) Resolution of Conflicts; Arbitration. In case the Shareholder Agent
shall object in writing to any claim or claims made in any Officer's
Certificate, the Shareholder Agent and Parent shall attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholder Agent and Parent should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Depositary Agent. The Depositary Agent shall be
entitled to rely on any such memorandum and distribute shares of Parent Common
Stock or cash deposited pursuant to Section 7.4(h) from the Escrow Fund in
accordance with the terms thereof. The Depositary Agent shall be entitled to
rely on any such instructions and distribute shares of Parent Common Stock or
cash deposited pursuant to Section 7.4(h) from the Escrow Fund in accordance
with the terms thereof.
(k) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholder Agent may demand arbitration of the dispute
unless the amount of the damage or loss is at issue in a pending action or
proceeding involving a third party claim, in which event arbitration shall not
be commenced until such amount is ascertained or both parties agree to
arbitration; and in either event the matter shall be settled by arbitration
conducted by one arbitrator mutually selected by Parent and the Shareholder
Agent. The arbitrator shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery of information relating to
any dispute while allowing the parties an opportunity, adequate as determined in
the sole judgment of the arbitrators, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator shall
rule upon motions to compel, limit or allow discovery as they shall deem
appropriate given the nature and extent of the disputed claim. The arbitrator
shall also have the authority to impose sanctions, including attorneys' fees and
other costs incurred by the parties, to the same extent as a court of law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to by a
party without substantial justification. The decision of the arbitrator as to
the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in Section 7.4(i), the Depositary Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions regarding the dispute
which shall set forth the award, judgment, decree or order awarded by the
arbitrator.
44
(l) Shareholder Agent of the Shareholders; Power of Attorney. Prior to the
Closing, the Company shall appoint an individual as agent and attorney-in-fact
(the "Shareholder Agent") for each shareholder of the Company (except such
shareholder, if any, as shall have perfected their appraisals and dissenters'
rights under Delaware Law or the Washington Act) for and on behalf of the
shareholders of the Company, to give and receive notices and communications, to
authorize delivery to Parent of shares of Parent Common Stock from the Escrow
Fund in satisfaction of claims by Parent, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Shareholder Agent for the accomplishment of the foregoing. Such agency may be
changed by the shareholders of the Company from time to time upon not less than
thirty days prior written notice to Parent; provided, however, that the
Shareholder Agent may not be removed unless holders of a two-thirds interest in
the Escrow Fund agree to such removal and to the identity of the substituted
shareholder agent. Any vacancy in the position of Shareholder Agent may be
filled by approval of the holders of a majority in interest of the Escrow Fund.
No bond shall be required of the Shareholder Agent. Notices or communications to
or from the Shareholder Agent shall constitute notice to or from each of the
shareholders of the Company.
(m) The Shareholder Agent shall not incur any liability with respect to
any action taken or suffered by him or omitted hereunder as Shareholder Agent
while acting in good faith and any act done or suffered or omitted hereunder
pursuant to the advice of counsel shall be conclusive evidence of such good
faith. The Shareholder Agent may, in all questions arising hereunder, rely on
the advice of counsel and for anything done, omitted or suffered in good faith
by the Shareholder Agent based on such advice, the Shareholder Agent shall not
be liable to anyone. The Shareholder Agent undertakes to perform such duties and
only such duties as are specifically set forth in this Agreement and no implied
covenants or obligations shall be read into this Agreement against the
Shareholder Agent
(n) The Shareholder Agent shall have reasonable access to information
about the Company and the reasonable assistance of the Company's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Shareholder Agent shall treat confidentially and
not disclose any nonpublic information from or about the Company to anyone
(except on a need to know basis to individuals who agree in writing to treat
such information confidentially).
(o) Actions of the Shareholder Agent. A decision, act, consent or
instruction of the Shareholder Agent shall constitute a decision of all the
shareholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such shareholders, and the Depositary Agent and Parent may rely upon any
such decision, act, consent or instruction of the Shareholder Agent as being the
decision, act, consent or instruction of every such shareholder of the Company.
The Depositary Agent and Parent are hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Shareholder Agent.
(p) Indemnification for Shareholder Agent. The shareholders of the Company
shall, severally and not jointly, on a pro rata basis based on their
proportionate ownership interest in
45
the Company, indemnify, defend and hold the Shareholder Agent harmless from and
against any loss, damage, tax, liability and expense that may be incurred by the
Shareholder Agent arising out of or in connection with the acceptance or
administration of the Shareholder Agent's duties, except as caused by the
Shareholder Agent's gross negligence or willful misconduct, including the legal
costs and expenses of defending such Shareholder Agent against any claim or
liability in connection with the performance of the Shareholder Agent's duties.
The Shareholder Agent shall be entitled, but not limited to, such
indemnification from the Escrow prior to any distribution thereof to the
shareholders of the Company, but after any distributions therefrom to Parent.
ARTICLE 8
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by Company,
Parent or Merger Sub, as the case may be, to the extent permitted by applicable
law:
(a) Shareholder Approval. This Agreement shall have been adopted by the
requisite vote of the holders of the shares of Company Common Stock and Parent
Common Stock in order to consummate the Merger.
(b) Statutes; Court Orders. No statute, rule or regulation shall have been
enacted or promulgated by any Governmental Entity which prohibits the
consummation of the Merger, and there shall be no order or injunction of a court
of competent jurisdiction in effect precluding consummation of the Merger.
(c) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and no stop order or proceedings seeking a
stop order shall be threatened by the SEC or shall have been initiated by the
SEC.
(d) Nasdaq Listings. The shares of Parent Common Stock issuable to the
shareholders of Company as contemplated by Article 3 shall have been approved
for listing on the NSM, subject to official notice of issuance.
Section 8.2 Conditions to Parent's and Merger Sub's Obligations to Effect
the Merger. The obligations of Parent and Merger Sub to consummate the Merger
shall be subject to the satisfaction on or prior to the Closing Date of each of
the following conditions, any and all of which may be waived in whole or in part
by Parent and Merger Sub, to the extent permitted by applicable law.
(a) Representations and Warranties. The representations and warranties of
Company set forth in Article 4 shall be true and correct as if made on and as of
the Effective Time (other than representations and warranties that speak only as
of a specified date; which shall be true and correct as of such specified date).
46
(b) Covenants. Company shall have complied in all material respects with
its obligations under this Agreement.
(c) Officer's Certificate. Parent shall have received an officer's
certificate duly executed by each of the Chief Executive Officer and Chief
Financial Officer of Company to the effect that the conditions set forth in
Sections 8.2(a) and (b) have been satisfied.
(d) Employment Agreements. Each of the Company employees listed on
Schedule 8.2(e) (to be attached hereto upon completion of due diligence) shall
have entered into and delivered to Company an employment agreement in a form and
at compensation levels acceptable to Parent and in any event not greater than
their current compensation and which will include appropriate non-competition
covenants. .
(e) FIRPTA Certificate. Company shall have provided the certification
prescribed by Section 1445 of the Code and the Treasury Regulations thereunder
to Parent that Company has not been a "United States real property holding
corporation" within the meaning of Section 897(a)(2) during the five-year period
prescribed therein.
(f) Financing. Parent shall have completed a $6.5 million funding for its
common stock prior to the Effective Date pursuant to a private placement through
Parent's agent Joseph Gunnar & Co., LLC.
(g) Due Diligence. Company acknowledges that Parent has conducted minimal
due diligence to the date hereof and as a result Parent shall, in its sole and
absolute discretion and notwithstanding any information that is in public
filings or already in the possession of Parent, be satisfied, with the results
of all investigations conducted upon the Company including without limiting the
foregoing, the potential market for Company products, the abilities of company
management, the prospects for Company to survive in the short term and the long
term without excessive investment of capital by Parent, and the ability of
Parent to realize a reasonable return on its investment. In order to complete
the due diligence, the Company and Company Subsidiary shall have allowed Parent
and its representatives access to all internal documents including (a) financial
statements for the preceding five years, (b) back-up current and historical
financial records (c) material contracts (d) employee agreements (e) customer
lists and any other information requested by Parent or its representatives in
order to assist it in its due diligence.
(h) Shareholder Approval. Parent shall have obtained approval of its
shareholders.
(i) Insolvency. Company or Company Subsidiaries must not be insolvent or
have taken any steps for protection from their respective creditors prior to
Closing.
(j) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any Material Adverse Effect on Company.
(k) Opinion. Company shall have caused a legal opinion from counsel to the
Company in a form satisfactory to Parent, in its sole discretion, to be
delivered to Parent. Such opinion will include an opinion to the effect that
upon consummation of the Merger as contemplated hereby Parent will acquire good
and valid title in and to Company Shares
47
(l) 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 Transactions.
(m) Further Deliveries. In addition to any other instruments and documents
required to be delivered by the Company and the Company Subsidiary pursuant to
this Agreement, the Company and the Company Subsidiary shall have delivered 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.
(n) Financial Statements. Company shall have delivered to Parent audited
financial statements for the fiscal years ending September 30, 2000 and 2001,
the results of which shall be satisfactory to the Parent in sole and absolute
discretion.
(o) Dissenting Shareholders. The Dissenting Shareholders shall not exceed
10% of the holders of Company Common Stock or 10% of any other class entitled to
vote.
(p) Releases. Company shall have obtained and delivered to Parent,
releases of any claims against the Company, it Subsidiaries or any predecessor
companies by holders of Company Options or any parties holding paper, debt,
documents or instruments convertible into shares of the Company or its
Subsidiaries.
(q) Proxy. Company shall deliver to Parent (or to such person or persons
as Parent directs) prior to the shareholders meeting of the Company to approve
the Merger, an irrevocable proxy from David Griffith and Matt Whealen, to vote
in favor of the Merger.
(r) Company shall obtain and deliver to Parent a release from Joseph
Gunnar & Co., LLC of any claims it has against Company, it Subsidiaries or any
predecessor companies.
(s) Litigation. Company shall obtain a release of all litigation in
section 4.9 of the Company Disclosure Letter Schedule and any other litigation
that arises prior to the Effective Date or shall settle such claims on terms
satisfactory to Parent.
(t) Indebtedness. Company shall have reduced its total indebtedness to
$800,000 (less any amount paid pursuant to section 9.4).
Section 8.3 Conditions to Company's Obligations to Effect the Merger. The
obligations of Company to consummate the Merger shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
conditions, any and all of which may be waived in whole or in part by Company,
to the extent permitted by applicable law.
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub set forth in Article 5 shall be true and correct as if
made on and as of the Effective Time (other than representations and warranties
that speak only as of a specified date; which shall be true and correct as of
such specified date).
(b) Covenants. Each of Parent and Merger Sub shall have complied in all
material respects with its obligations under this Agreement.
48
(c) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any Parent Material Adverse Effect.
(d) Officer's Certificate. Company shall have received an officer's
certificate duly executed by the Chief Financial Officer of Parent to the effect
that the conditions set forth in Sections 8.3(a), (b), and (c) have been
satisfied.
ARTICLE 9
TERMINATION
Section 9.1 Termination. This Agreement may be terminated or abandoned at
any time prior to the Effective Time, whether before or after shareholder
approval thereof:
(a) By the mutual written consent of Parent and Company,
(b) By either of Company or Parent,
(i) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other action
the parties hereto shall use their reasonable efforts to lift), which
permanently restrains, enjoins or otherwise prohibits the Merger and such order,
decree, ruling or other action shall have become final and non-appealable; or
(ii) if the Merger shall not have been consummated by March 1, 2002;
provided, however, that the right to terminate this Agreement pursuant to this
Section 9.1(b)(ii) shall not be available to any party whose failure to perform
any of its obligations under this Agreement results in the failure of the Merger
to be consummated by such time,
(c) By Company:
(i) if Parent or Merger Sub shall have breached in any material
respect any of their respective representations, warranties, covenants or other
agreements contained in this Agreement, which breach cannot be or has not been
cured within thirty days after the giving of written notice by Company to Parent
or Merger Sub, as applicable;
(ii) if (A) the board of directors of Company authorizes Company to
enter into a binding written agreement concerning a transaction that constitutes
a Company Superior Proposal and Company notifies Parent in writing that it
intends to enter into such an agreement and (Bi) Parent does not make, within
three Business Days (or, in the case of any update of such version with respect
to a given third party, other than the initial notification, one Business Day)
of receipt of Company's written notification of its intention to enter into a
binding agreement for a Company Superior Proposal, a non-revocable binding offer
that the board of directors of Company determines, in good faith, is more
favorable to the shareholders of Company than the Company Superior Proposal and
(C) Company repays the bridge loan, if any, provided pursuant to Section 6.11
and a break-up fee of $250,000.
49
(iii) if at a Parent Shareholders' Meeting convened and held
pursuant to this Agreement, the approval of Parent's shareholders shall not have
been obtained.
(d) By Parent (on behalf of itself and Merger Sub):
(i) if prior to the Effective Time, Company shall have breached any
representation, warranty, covenant or other agreement contained in this
Agreement which cannot be or has not been cured within thirty days after the
giving of written notice to Company; or
(ii) if at a Company Shareholders' Meeting convened and held
pursuant to this Agreement, the approval of Company Shareholders or directors as
the case may be, shall not have been obtained.
(iii) if at a Parent Shareholders' or Board of Directors Meeting
convened and held pursuant to this Agreement, the requisite approval of Parents
Shareholders or directors, as the case may be, shall not have been obtained.
(iv) if any of the conditions in section 8.1 or 8.2 have not been
fulfilled and, in the sole discretion of Parent, have little or no prospect of
being fulfilled.
Section 9.2 Effect of Termination. In the event of the termination of this
Agreement, there shall be no liability on the part of any party to this
Agreement except (a) for fraud or for willful material breach of this Agreement
prior to such termination or abandonment of the Transactions and (b) for
Sections 6.5, 9.1 and 9.2 and Article 10.
Section 9.3 Method of Termination. This Agreement may be terminated only
upon receipt of notice from the party desiring to terminate this Agreement that
(a) states that it is terminating this Agreement, (b) specifies the portion of
Section 9.1 pursuant to which such termination is being effected and (c) recites
that such termination has been approved by proper action of the board of
directors of such party to this Agreement.
Section 9.4 Expenses. All expenses incurred in connection with this
Agreement and the Merger shall be paid by the party incurring such expenses,
whether or not the Merger is consummated.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the shareholders of Company, by written
agreement of the parties, by action taken by their respective boards of
directors at any time prior to the Closing Date with respect to any of the terms
contained in this Agreement; provided, however, that after the approval of this
Agreement by the shareholders of Company, no such amendment, modification or
supplement shall reduce the amount or change the form of the consideration
payable pursuant to Article 3.
50
Section 10.2 Survival of Representations and Warranties. The
representations and warranties in this Agreement and in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive until three
(3) years after the Effective Time. The preceding sentence shall not limit any
covenant or agreement of the parties which by its terms contemplates performance
three (3) years after the Effective Time.
Section 10.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or sent by an internationally recognized overnight courier
service, such as Federal Express, 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 Parent or Merger Sub, to:
Chell Group Corporation
14 Meteor Drive,
Toronto, Ontario, Canada
M9W 1A4
Attention: Don Pagnutti, Chief Financial Officer
Telecopy No.: 416-675-8838
with a copy (which shall not constitute notice) to:
Morrison Brown Sosnovitch LLP
One Toronto Street
Suite 910, P.O. Box 28
Toronto, Ontario, Canada
M5C 2V6
Attention: Kevin P. Gallagher
Telecopy No. - 416-368-6068
and
if to Company, to:
Stardrive Solutions Inc.
28720 Roadside Drive, Suite 301
Agoura Hills, California 91301
Attention: David Griffith
Telecopy No.: (818) 865-1421
with a copy (which shall not constitute notice) to:
Brobeck, Phleger and Harrison LLP
550 South Hope Street
Los Angeles, California 90071
Attention: Richard S. Chernicoff
Telecopy No.: (213) 745-3345
51
Section 10.4 Counterparts. This Agreement may be executed in one or more
counterparts (whether delivered by facsimile or otherwise), each of which shall
be considered one and the same agreement and shall become effective when two or
more counterparts have been signed by each of the parties and delivered to the
other parties.
Section 10.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein and therein): (a) constitute the entire agreement
and supersede all prior agreements, negotiations, arrangements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof, and (b) except as provided in Section 6.7 are
not intended to confer upon any Person other than the parties hereto and thereto
any rights or remedies hereunder.
Section 10.6 Severability. Any term or provision of this Agreement that is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the invalid, void or unenforceable term or
provision in any other situation or in any other jurisdiction. If the final
judgment of a court of competent jurisdiction or other authority declares that
any term or provision hereof is invalid, void or unenforceable, the parties
agree that the court making such determination shall have the power to and
shall, subject to the discretion of such court, reduce the scope, duration, area
or applicability of the term or provision, to delete specific words or phrases,
or to replace any invalid, void or unenforceable term or provision with a term
or provision that is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or provision.
Section 10.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, including
Section 5-1401 of New York General Obligations Law; provided, however, that the
Merger shall be governed by the Statutes.
Section 10.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States or
New York state court sitting in the Borough of Manhattan, The City of New York,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties (a) consents to submit itself to the
personal jurisdiction of any Federal court or any New York state court sitting
in the Borough of Manhattan, The City of New York in the event any dispute
arises out of this Agreement or any of the Transactions, (b) agrees that it will
not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the Transactions in any court other
than a Federal court sitting in the State of New York or a New York state court
sitting in the Borough of Manhattan, The City of New York. EACH PARTY
UNCONDITIONALLY AND IRREVOCABLY WAIVES AND AGREES NOT TO
52
ASSERT ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN CONNECTION WITH THIS AGREEMENT
OR ANY OF THE TRANSACTIONS.
Section 10.9 Extension, Waiver. At any time prior to the Effective Time,
the parties to this Agreement may (a) extend the time for the performance of any
of the obligations or other acts of the other parties to this Agreement, (b)
waive any inaccuracies in the representations and warranties of the other
parties contained in this Agreement or in any document delivered pursuant to
this Agreement or (c) subject to Section 10.2, waive compliance by the other
parties with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of those rights.
Section 10.10 Assignment. Neither this Agreement not any of the rights,
interests or obligations hereunder shall be assigned by any of the parties to
this Agreement (whether by operation of law or otherwise) without the prior
written content of the other parties to this Agreement. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
53
IN WITNESS WHEREOF, each of Parent, Merger Sub and Company have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first written above.
Chell Group Corporation
By: /s/ Don Pagnutti
----------------
Name: Don Pagnutti
Title: Chief Financial Officer
Chell Group Corporation in trust for
Chell SSI Acquisition Corp. a corporation to be
incorporated
By: /s/ Don Pagnutti
----------------
Name: Don Pagnutti
Title: Chief Financial Officer
Stardrive Solutions Inc.
By: /s/ David Griffith
----------------
Name: David Griffith
Title: Chief Executive Officer
Table of Contents
Page
PARENT DISCLOSURE LETTER SCHEDULE
Section 5.2(b)
Voting Exchange Trust Agreement between Chell Merchant Capital Group Inc. and
Montreal Trust Company of Canada dated August 31, 2000
Section 5.11
Agency Agreement with Joseph Gunnar & Co., LLC dated November 14, 2001
i
SCHEDULE 2.5
Don Pagnutti
Cameron Chell
David Griffith
ii