AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PREDICTIVE SYSTEMS, INC.,
SALMON ACQUISITION CORPORATION,
SYNET SERVICE CORPORATION,
MICHAEL J. WETHINGTON, AS STOCKHOLDERS' AGENT, AND
CERTAIN STOCKHOLDERS OF SYNET SERVICE CORPORATION
September 25, 2000
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER.............................................................................................2
1.1 The Merger..........................................................................................2
1.2 Closing; Effective Time.............................................................................2
1.3 Effect of the Merger................................................................................2
1.4 Certificate of Incorporation; Bylaws................................................................2
1.5 Directors and Officers..............................................................................2
1.6 Effect on Capital Stock.............................................................................3
1.7 Surrender of Certificates...........................................................................6
1.8 No Further Ownership Rights in Target Common Stock..................................................7
1.9 Lost, Stolen or Destroyed Certificates..............................................................7
1.10 Tax Consequences...................................................................................8
1.11 Taking of Necessary Action; Further Action.........................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET AND THE PRINCIPAL STOCKHOLDERS...............................8
2.1 Organization, Standing and Power....................................................................8
2.2 Capital Structure...................................................................................9
2.3 Authority..........................................................................................10
2.4 Financial Statements...............................................................................11
2.5 Absence of Certain Changes.........................................................................11
2.6 Absence of Undisclosed Liabilities.................................................................11
2.7 Accounts Receivable................................................................................11
2.8 Litigation.........................................................................................12
2.9 Restrictions on Business Activities................................................................12
2.10 Governmental Authorization........................................................................12
2.11 Title to Property.................................................................................13
2.12 Intellectual Property.............................................................................13
2.13 Environmental Matters.............................................................................14
2.14 Taxes.............................................................................................14
2.15 Employee Benefit Plans............................................................................16
2.16 Employees and Consultants.........................................................................18
2.17 Related-Party Transactions........................................................................20
2.18 Insurance.........................................................................................20
2.19 Compliance with Laws..............................................................................20
2.20 Brokers' and Finders' Fees........................................................................20
2.21 Intentionally Omitted.............................................................................20
2.22 Vote Required.....................................................................................20
2.23 Intentionally Omitted.............................................................................20
2.24 Intentionally Omitted.............................................................................20
2.25 Customers and Suppliers...........................................................................20
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2.26 Material Contracts................................................................................21
2.27 No Breach of Material Contracts...................................................................22
2.28 Third-Party Consents..............................................................................22
2.29 Intentionally Omitted.............................................................................22
2.30 Minute Books......................................................................................22
2.31 Complete Copies of Materials......................................................................23
2.32 Representations Complete..........................................................................23
ARTICLE II-A REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS.......................................23
2A.1 Authority.........................................................................................23
2A.2 Title to Stock....................................................................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB...........................................24
3.1 Organization, Standing and Power...................................................................24
3.2 Capital Structure..................................................................................25
3.3 Authority..........................................................................................26
3.4 SEC Documents; Financial Statements................................................................26
3.5 Absence of Certain Changes.........................................................................27
3.6 Litigation.........................................................................................27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................................................28
4.1 Conduct of Business of Target and Acquiror.........................................................28
4.2 Conduct of Business of Target......................................................................28
4.3 Notices............................................................................................31
ARTICLE V ADDITIONAL AGREEMENTS.................................................................................31
5.1 No Solicitation....................................................................................31
5.2 Intentionally Omitted..............................................................................31
5.3 Stockholder Meetings or Consent Solicitations......................................................31
5.4 Access to Information..............................................................................32
5.5 Confidentiality....................................................................................32
5.6 Public Disclosure..................................................................................32
5.7 Consents; Cooperation..............................................................................32
5.8 Update Disclosure; Breaches........................................................................33
5.9 Stockholder Agreements.............................................................................34
5.10 Indemnification...................................................................................34
5.11 Voting Agreements.................................................................................34
5.12 Legal Requirements................................................................................34
5.13 Promissory Notes; Deferred Compensation...........................................................35
5.14 Blue Sky Laws.....................................................................................35
5.15 Stock Options.....................................................................................35
5.16 Escrow Agreement..................................................................................36
5.17 Listing of Additional Shares......................................................................36
5.18 Additional Agreements; Reasonable Best Efforts....................................................36
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5.19 Employee Benefits.................................................................................36
5.20 Reincorporation...................................................................................37
5.21 Lock-Up Agreements................................................................................37
5.22 Subsidiary........................................................................................37
ARTICLE VI CONDITIONS TO THE MERGER.............................................................................37
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................................37
6.2 Additional Conditions to Obligations of Target.....................................................38
6.3 Additional Conditions to the Obligations of Acquiror and Merger Sub................................39
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER.........................................................41
7.1 Termination........................................................................................41
7.2 Effect of Termination..............................................................................42
7.3 Expenses and Termination Fees......................................................................42
7.4 Amendment..........................................................................................42
7.5 Extension; Waiver..................................................................................42
ARTICLE VIII ESCROW AND INDEMNIFICATION.........................................................................43
8.1 Survival of Representations, Warranties and Covenants..............................................43
8.2 Indemnity..........................................................................................43
8.3 Escrow Fund........................................................................................44
8.4 Damage Threshold...................................................................................44
8.5 Escrow Period......................................................................................44
8.6 Claims upon Escrow Fund............................................................................44
8.7 Objections to Claims...............................................................................45
8.8 Resolution of Conflicts; Arbitration...............................................................45
8.9 Stockholders' Agent................................................................................46
8.10 Distribution Upon Termination of Escrow Period....................................................47
8.11 Actions of the Stockholders' Agent................................................................47
8.12 Third-Party Claims................................................................................47
ARTICLE IX GENERAL PROVISIONS...................................................................................48
9.1 Notices............................................................................................48
9.2 Interpretation.....................................................................................49
9.3 Counterparts.......................................................................................49
9.4 Entire Agreement; No Third Party Beneficiaries.....................................................49
9.5 Severability.......................................................................................49
9.6 Remedies Cumulative................................................................................50
9.7 Governing Law......................................................................................50
9.8 Assignment.........................................................................................50
9.9 Rules of Construction..............................................................................50
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SCHEDULES
Target Disclosure Letter
Acquiror Disclosure Letter
Option Schedule
EXHIBITS
Exhibit A......... - Certificate of Merger
Exhibit B......... - Voting Agreements
Exhibit C......... - Escrow Agreement
Exhibit D......... - Target Affiliate Agreement
Exhibit E......... - Acquiror's Legal opinion
Exhibit F......... - [Intentionally Omitted]
Exhibit G......... - Target's Legal opinion
Exhibit H......... - Lock-Up Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of September 25, 2000, by and among Predictive Systems, Inc., a
Delaware corporation ("Acquiror"), Salmon Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Merger Sub"), Synet
Service Corporation, a Minnesota corporation that will be reincorporated as a
Delaware corporation as provied herein ("Target"), Michael J. Wethington, as
stockholders' agent for Target's stockholders (the "Stockholders' Agent") and
the stockholders of Target indicated on the signature page hereto (collectively,
the "Principal Stockholders"). Certain other capitalized terms used in this
Agreement are as defined herein.
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub believe
it is in the best interests of their respective companies and the stockholders
of their respective companies that Target and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Target (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, (i) each outstanding
share of class A common stock of Target, $0.01 par value (the "Class A Common
Stock") and each outstanding share of class B common stock of Target, $0.01 par
value (the "Class B Common Stock", and with the Class A Common Stock, "Target
Common Stock"), shall be converted into shares of common stock of Acquiror,
$0.001 par value ("Acquiror Common Stock"), at the rate set forth herein and
(ii) each holder of Target Common Stock shall receive a cash payment as set
forth herein.
C. Target, Acquiror, Merger Sub and the Principal Stockholders desire
to make certain representations and warranties and other agreements in
connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a) of the Code.
E. Concurrent with the execution of this Agreement and as an inducement
to Acquiror and Target to enter into this Agreement, the Principal Stockholders
and the officers and directors of Target are each entering into an agreement to
vote the shares of Target Common Stock respectively owned by such person to
approve the Merger and related transactions and against any competing proposals,
substantially in the form attached hereto as Exhibit B (collectively, the
"Voting Agreements").
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
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ARTICLE I
THE MERGER
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1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as Exhibit A (the "Certificate of Merger") and the
applicable provisions of the Delaware General Corporation Law ("DGCL"), Merger
Sub shall be merged with and into Target, the separate corporate existence of
Merger Sub shall cease and Target shall continue as the surviving corporation.
Target as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the date on which
the Closing shall occur, the "Closing Date"). The Closing shall take place at
the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, 733
Third Avenue, New York, New York, 10017, or at such other location as the
parties hereto agree. On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing the Certificate of Merger with the Secretary
of State of the State of Delaware, in accordance with the relevant provisions of
the DGCL (the time and date of such filing being the "Effective Time" and the
"Effective Date," respectively).
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by the DGCL and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation shall be amended to
read as follows: "The name of the corporation is Synet Service Corporation."
(b) 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.
1.5 Directors and Officers. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, to hold office until such time as such directors resign,
are removed or their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to hold office until such
time as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
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1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Acquiror, Merger Sub, Target or the holders of any of
Target's securities:
(a) Conversion of Target Common Stock.
(i) At the Effective Time, the total amount of
consideration (consisting of Acquiror Common Stock valued as set forth below and
cash) to be paid by Acquiror (including Acquiror Common Stock to be reserved for
issuance upon exercise of unexpired and unexercised options outstanding to
purchase Target Common Stock assumed by Acquiror pursuant to 1.6(c), whether
vested or unvested ("Target Options")) in exchange for all outstanding shares of
Target Common Stock and the assumption of Target Options shall be (A) 2,205,331,
multiplied by the closing market price of the Acquiror Common Stock on the
Effective Date as quoted on the Nasdaq National Market (the "Closing Price"),
plus (B) nine million dollars ($9,000,000) (such sum, the "Total
Consideration"). The maximum consideration to be issued and paid by Acquiror for
the Target Common Stock and the assumption of the Target Options shall be
2,205,331 shares of Acquiror Common Stock and nine million dollars ($9,000,000)
cash.
(ii) The amount of Total Consideration allocable to
the outstanding Class A Common Stock (the "Target Class A Stockholder
Consideration") shall equal the product of the Total Consideration multiplied by
a fraction, the numerator of which is the number of shares of Class A Common
Stock outstanding, and the denominator of which is the number of shares of
Target Common Stock outstanding plus the number of shares of Target Common Stock
issuable upon exercise of outstanding Target Options. The amount of Total
Consideration allocable to the outstanding Class B Common Stock (the "Target
Class B Stockholder Consideration") shall equal the product of the Total
Consideration multiplied by a fraction, the numerator of which is the number of
shares of Class B Common Stock outstanding, and the denominator of which is the
number of shares of Target Common Stock outstanding plus the number of shares of
Target Common Stock issuable upon exercise of outstanding Target Options. The
amount of Total Consideration allocable to the outstanding Target Options (the
"Target Optionholder Consideration") shall equal the product of the Total
Consideration multiplied by a fraction, the numerator of which is the number of
shares of Target Common Stock issuable upon exercise of outstanding Target
Options, and the denominator of which is the number of shares of Target Common
Stock plus the number of shares of Target Common Stock issuable upon exercise of
outstanding Target Options. All calculations under this subparagraph (ii) shall
be made based on the number of Target Options or shares of Target Common Stock
outstanding immediately prior to the Effective Time.
(iii) The Target Class A Stockholder Consideration
shall be comprised of (A) four million dollars ($4,000,000), (B) the Pro Rata A
Portion multiplied by five million dollars ($5,000,000) (the sum of (A) and (B),
the "Class A Cash Consideration"), and (C) a number of shares of Acquiror Common
Stock (the "Class A Stock Consideration") obtained by dividing (x) the amount by
which the Target Class A Stockholder Consideration exceeds the Class A Cash
Consideration by (y) the Closing Price. The "Pro Rata A Portion" shall be the
number of shares of Class A Common Stock outstanding divided by the total number
of shares of Target Common Stock outstanding.
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(iv) The Target Class B Stockholder Consideration
shall be comprised of (A) the Pro Rata B Portion multiplied by five million
dollars ($5,000,000) (the "Class B Cash Consideration"), and (B) a number of
shares of Acquiror Common Stock (the "Class B Stock Consideration") obtained by
dividing (x) the amount by which the Target Class B Stockholder Consideration
exceeds the Class B Cash Consideration by (y) the Closing Price. The "Pro Rata B
Portion" shall be the number of shares of Class B Common Stock outstanding
divided by the total number of shares of Target Common Stock outstanding.
(v) At the Effective Time, each share of Class A
Common Stock issued and outstanding immediately prior to the Effective Time
(other than shares of Class A Common Stock to be cancelled pursuant to Section
1.6(b) and Dissenting Shares, as defined in Section 1.6(h)) will be canceled and
extinguished and be converted automatically into the right to receive (A) a
number of shares of Acquiror Common Stock equal to the Class A Stock
Consideration divided by the number of shares of Class A Common Stock
outstanding (the "Class A Exchange Ratio"), and (B) an amount of cash equal to
the Class A Cash Consideration divided by the number of shares of Class A Common
Stock outstanding. At the Effective Time, each share of Class B Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares of Class B Common Stock to be cancelled pursuant to Section 1.6(b) and
Dissenting Shares, as defined in Section 1.6(h)) will be canceled and
extinguished and be converted automatically into the right to receive (A) a
number of shares of Acquiror Common Stock equal to the Class B Stock
Consideration divided by the number of shares of Class B Common Stock
outstanding (the "Class B Exchange Ratio"), and (B) an amount of cash equal to
the Class B Cash Consideration divided by the number of shares of Class B Common
Stock outstanding.
(vi) No adjustment shall be made in the number of
shares of Acquiror Common Stock issued in the Merger as a result of (A) any
increase or decrease in the market price of Acquiror Common Stock prior to the
Effective Time or (B) any cash proceeds received by Target from the date hereof
to the Closing Date pursuant to the exercise of currently outstanding Target
Options.
(vii) Notwithstanding the foregoing, if the aggregate
fair market value of the Acquiror Common Stock issuable in exchange for Target
Common Stock, based upon the Closing Price, is less than $36 million, then the
Class A Cash Consideration and the Class B Cash Consideration otherwise payable
under this Section 1.6 shall be so reduced, and the number of shares of Acquiror
Common Stock otherwise issuable under this Section 1.6 in exchange for Target
Common Stock shall be increased, by such number of such shares that have a fair
market value, based upon the Closing Price, equal to the aggregate reduction in
Class A Cash Consideration and the Class B Cash Consideration such that the sum
of the Class A Cash Consideration and the Class B Cash Consideration plus any
other cash paid as part of the Merger consideration does not exceed 20% of the
fair market value of the Acquiror Common Stock issuable in exchange for Target
Common Stock.
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(b) Cancellation of Target Capital Stock Owned by Acquiror or
Target. Immediately prior to the Effective Time, all shares of capital stock of
Target ("Target Capital Stock") that are owned by Target as treasury stock, and
each share of Target Capital Stock owned by Acquiror or any direct or indirect
wholly owned subsidiary of Acquiror or of Target immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Target Stock Option Plans. At the Effective Time, the
Target 1996 Stock Option Plan (the "Target Stock Option Plan") and all options
to purchase Target Common Stock then outstanding under the Target Stock Option
Plan shall be assumed by Acquiror in accordance with Section 5.15.
(d) [Reserved.]
(e) Capital Stock of Merger Sub. At the Effective Time, each
share of Common Stock, $0.001 par value, of Merger Sub ("Merger Sub Common
Stock"), issued and outstanding immediately prior to the Effective Time, shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, $0.001 par value, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall thereupon evidence ownership of such shares of capital stock
of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The respective Exchange
Ratios shall be adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Acquiror Common Stock or Target Common Stock), reorganization,
recapitalization or other like change with respect to Acquiror Common Stock
occurring after the date hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of Acquiror
Common Stock will be issued, but in lieu thereof each holder of shares of Target
Common Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the Closing Price.
(h) Dissenters' Rights. Shares of Target Common Stock held by
persons who have not voted such shares for approval of the Merger and with
respect to which such persons shall be entitled to exercise dissenters' rights
in accordance with Section 262 of the DGCL ("Dissenting Shares") shall not be
converted into Acquiror Common Stock and cash 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 DGCL. Target agrees that,
except with the prior written consent of Acquiror, or as required under the
DGCL, it will not voluntarily make any payment with respect to, or settle or
offer to settle, any such purchase demand. Each holder of Dissenting Shares
("Dissenting Stockholder") who, pursuant to the provisions of the DGCL, becomes
entitled to payment of the fair value for shares of Target Common Stock shall
receive payment therefor from the Acquiror (but only after the value therefor
shall have been agreed upon or finally determined pursuant to such provisions).
If, after the Effective Time, any Dissenting Shares shall lose their status as
Dissenting Shares, Acquiror shall issue and deliver, upon surrender by such
stockholder of certificate or certificates representing shares of Target Common
Stock, the cash and the number of shares of Acquiror Common Stock to which such
stockholder would otherwise be entitled under this Section 1.6 and the
Certificate of Merger, less the number of shares allocable to such stockholder
that have been or will be deposited in the Escrow Fund (as defined below) in
respect of such shares of Acquiror Common Stock pursuant to Section 1.7 and
Article VIII hereof.
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1.7 Surrender of Certificates.
(a) Exchange Procedures. At the Effective Time, upon surrender
by a holder of a certificate or certificates representing shares of Target
Common Stock ("Certificate") for cancellation to Acquiror, the holder of such
Certificate shall be entitled to receive in exchange therefor cash and a
certificate representing the number of whole shares of Acquiror Common Stock and
payment in lieu of fractional shares which such holder has the right to receive
pursuant to Section 1.6 (less the number of shares of Acquiror Common Stock to
be deposited in the Escrow Fund on such holder's behalf pursuant to Article VIII
hereof), and the Certificate so surrendered shall forthwith be canceled. Until
so surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Target Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Acquiror Common Stock
into which such shares of Target Common Stock shall have been so converted and
the right to receive an amount in cash in accordance with Section 1.6. As soon
as practicable after the Effective Time, and subject to and in accordance with
the provisions of Section 8.3 hereof, Acquiror shall cause to be delivered to
the Escrow Agent (as defined in Section 8.3 hereof) a certificate or
certificates representing a number of shares of Acquiror Common Stock otherwise
deliverable to the Principal Stockholders pursuant to Section 1.6, which shall
be registered in the name of the Escrow Agent as nominee for such the Principal
Stockholders. The total number of shares (the "Number of Escrow Shares") to be
placed in escrow shall be the quotient of (i) ten percent (10%) multiplied by
(A) the Closing Price, multiplied by 2,205,331, plus (B) nine million dollars
($9,000,000), divided by (ii) the Closing Price. The Number of Escrow Shares
otherwise deliverable to each Principal Stockholder shall be deposited in the
Escrow Fund pro rata based on the number of shares of Target Common Stock held
by each Principal Stockholder prior to the Merger. The shares in the escrow fund
shall be beneficially owned by the Principal Stockholders and shall be available
to compensate Acquiror for certain damages as provided in Article VIII. To the
extent not used for such purposes, such shares shall be released, all as
provided in Article VIII hereof.
(b) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror 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 Acquiror Common Stock
represented thereby until the holder of record of such Certificate surrenders
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
which would have been previously payable (but for the provisions of this Section
1.7(b)) with respect to such shares of Acquiror Common Stock.
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(c) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that such issuance be in accordance with
applicable law and that the Certificate so surrendered is properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Acquiror or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares of
Acquiror Common Stock in any name other than that of the registered holder of
the Certificate surrendered, or established to the satisfaction of Acquiror or
any agent designated by it that such tax has been paid or is not payable.
(d) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Surviving Corporation or any party hereto shall be
liable to any person for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(e) Dissenting Shares. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Acquiror under this Section 1.7 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Acquiror Common
Stock to which such holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Target Common Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Common Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Common Stock, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, Acquiror 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 Acquiror Common
Stock (and cash in lieu of fractional shares) as may be required pursuant to
Section 1.6; provided, however, that Acquiror may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Acquiror or the Surviving Corporation with respect to the Certificates alleged
to have been lost, stolen or destroyed.
7
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. No party shall take any action either before or after the Effective
Date which would, to such party's knowledge, cause the Merger to fail to qualify
as a reorganization within the meaning of Section 368 of the Code.
1.11 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 Target, the officers and directors of Target and Merger Sub
are fully authorized in the name of their respective corporations or otherwise
to take, and shall take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET AND THE PRINCIPAL STOCKHOLDERS
-----------------------------------------------------------------------
Target and the Principal Stockholders, jointly and severally, represent
and warrant to Acquiror and Merger Sub that the statements contained in this
Article II are true and correct, except as set forth in the disclosure letter
delivered by Target to Acquiror prior to the execution and delivery of this
Agreement (the "Target Disclosure Letter"). The Target Disclosure Letter shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article II, provided that items disclosed for any particular
section herein shall be deemed disclosed for all purposes where the context
reasonably relates. Any reference in this Article II to an agreement being
"enforceable" shall be deemed to be qualified to the extent such enforceability
is subject to (i) laws of general application relating to bankruptcy,
insolvency, moratorium and the relief of debtors, and (ii) the availability of
specific performance, injunctive relief and other equitable remedies. In the
remainder of this Article II, "Target" will be deemed to include (and each
representation and warranty will apply separately and collectively to) Target
and each of Target's subsidiaries, unless the context otherwise provides.
Notwithstanding the first sentence of this Article II, any representation and
warranty made herein by a Principal Stockholder relating to the Principal
Stockholder individually shall be made on an individual basis and shall be made
severally but not jointly.
2.1 Organization, Standing and Power. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect (as defined herein) on Target. Target has
delivered to Acquiror a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Target,
each as amended to date. Target is not in violation of any of the provisions of
its Articles of Incorporation or Bylaws or equivalent organizational documents.
Target does not own any subsidiaries and does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
8
2.2 Capital Structure. The authorized capital stock of Target consists
of 10,000,000 shares of Target Common Stock, consisting of 4,000,000 shares of
Class A Common Stock, 1,000,000 shares of Class B Common Stock and 5,000,000
shares of undesignated Common Stock. There were issued and outstanding as of the
date of this Agreement 1,300,000 shares of Class A Common Stock and 389,994
shares of Class B Common Stock. There are no other outstanding shares of capital
stock or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities after the date of this Agreement other than
pursuant to the exercise of options outstanding as of the date of this Agreement
under the Target Stock Option Plan. All outstanding shares of Target Common
Stock are duly authorized, validly issued, fully paid and non-assessable and are
free of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof, and are not subject to preemptive
rights, rights of first refusal, rights of first offer or similar rights created
by statute, the Certificate of Incorporation or Bylaws of Target or any
agreement to which Target is a party or by which it is bound. As of the date of
this Agreement, Target has reserved 1,000,000 shares of Target Common Stock for
issuance to employees, directors and consultants pursuant to the Target Stock
Option Plan, of which 389,994 shares have been issued pursuant to option
exercises or direct stock purchases, and 142,157 shares are subject to
outstanding, unexercised options. Except for (i) the rights created pursuant to
this Agreement, and (ii) rights created pursuant to the Target Stock Option
Plan, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Target is a party or by which it is bound
obligating Target to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Target Capital
Stock or obligating Target to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. The Target Disclosure Letter also sets forth a
true, correct and complete list of all outstanding Target Options (which, for
each outstanding option, sets forth the name of the holder of such option, the
number of shares subject to such options, the amount of such options that are
vested and the vesting schedule for any unvested options, the type of stock
subject to such option, the exercise price of such option, the repricing of any
such option and, if the exercisability of such option will be or is required to
be accelerated in any way by the transactions contemplated by this Agreement or
for any other reason, an indication of the extent of such acceleration and the
reason therefor) (the "Option Schedule"). There are no contracts, commitments or
agreements relating to the voting, purchase or sale of Target Capital Stock (i)
between or among Target and any of its stockholders and (ii) to the best of
Target's knowledge, among any of Target's stockholders or between any of
Target's stockholders and any third party, except for the stockholders
delivering Voting Agreements. The terms of the Target Stock Option Plan permit
the assumption of such Target Stock Option Plan by Acquiror or the substitution
of options to purchase Acquiror Common Stock as provided in this Agreement,
without the consent or approval of the holders of the outstanding options, the
Target stockholders, or otherwise and without any acceleration of the exercise
schedule or vesting provisions in effect for such options. True and complete
copies of all agreements and instruments relating to or issued under the Target
Stock Option Plan have been made available to Acquiror, and such agreements and
instruments have not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or instruments from
the form made available to Acquiror. All outstanding Target Capital Stock,
Target Options, Target Warrants and other Target securities, if any, were issued
in compliance with all applicable federal and state securities laws.
9
2.3 Authority.
(a) Target has all requisite power, corporate or otherwise,
and authority to enter into this Agreement, the Escrow Agreement, in
substantially the form as Exhibit C hereto, to be entered into among Acquiror,
Target, the Principal Stockholders, the Stockholders' Agent and Chase Manhattan
Bank, as Escrow Agent (the "Escrow Agreement", and with this Agreement and the
Voting Agreements, collectively, the "Transaction Documents") and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Target, subject only to the approval
of the Merger by Target's stockholders as contemplated by Section 6.1(a). This
Agreement and other Transaction Documents have been duly executed and delivered
by Target and constitute the valid and binding obligations of Target enforceable
against Target in accordance with their terms.
(b) The execution and delivery of this Agreement and the other
Transaction Documents by Target do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Certificate
of Incorporation or Bylaws of Target, as amended, or (ii) any contract (as
defined in Section 2.26) or any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Target or any of its properties or assets, except in the case of (ii), as
would not have a Material Adverse Effect on Target.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target in connection with the
execution and delivery of this Agreement and the other Transaction Documents or
the consummation of the transactions contemplated hereby or thereby, except for
(i) the filing of the Certificate of Merger, together with the required
officers' certificates, as provided in Section 1.2; (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the securities laws
of any foreign country; (iii) such filings as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"); and
(iv) such other consents, authorizations, filings, approvals and registrations
which have been made or, if not obtained or made, would not have a Material
Adverse Effect on Target and would not prevent, or materially alter or delay any
of the transactions contemplated by this Agreement.
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2.4 Financial Statements. Target has delivered to Acquiror its audited
financial statements (balance sheet, statement of operations, statement of
stockholders' equity and statement of cash flows) for the fiscal year ended
December 31, 1999 and 1998, and its unaudited financial statements (balance
sheet, statement of operations, statement of stockholders' equity and statement
of cash flows) on a consolidated basis as at, and for the six-month period ended
June 30, 2000 (collectively, the "Financial Statements"). The Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except that the unaudited financial statements do not have
notes thereto) applied on a consistent basis throughout the periods indicated
and with each other. The Financial Statements fairly present the financial
condition and operating results of Target as of the dates, and for the periods,
indicated therein, subject; in the case of the unaudited financial statements,
to normal year-end audit adjustments which are not material in the aggregate.
Target maintains a standard system of accounting established and administered in
accordance with GAAP.
2.5 Absence of Certain Changes. Since December 31, 1999, (the "Target
Balance Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect (as defined
in Section 9.2) on Target; (ii) any acquisition, sale or transfer of any
material asset of Target; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Target or any revaluation by Target of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Target, or any direct or indirect redemption, purchase or other
acquisition by Target of any of its shares of capital stock; (v) any Material
Contract entered into by Target, other than as provided to Acquiror, or any
material amendment or termination of, or default under, any Material Contract to
which Target is a party or by which it is bound; (vi) any amendment or change to
the Certificate of Incorporation or Bylaws of Target; (vii) any increase in or
modification of the compensation or benefits payable or to become payable by
Target to any of its directors, employees or consultants other than in the
ordinary course of business consistent with past practices; (viii) capital
expenditures or capital commitments by Target exceeding $50,000 individually or
$300,000 in the aggregate; (ix) destruction of, damage to or loss of any
material assets or business of Target; (x) any transaction or agreement with any
Principal Stockholder; and (xi) any agreement by Target to do any of the things
described in the preceding clauses (i) through (x).
2.6 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended June 30, 2000 (the "Target Balance Sheet"),
(ii) those incurred in the ordinary course of business prior to the Target
Balance Sheet Date and not required to be set forth in the Target Balance Sheet
under GAAP and (iii) those incurred in connection with the execution of this
Agreement.
2.7 Accounts Receivable. The accounts receivable shown on Schedule 2.7
arose in the ordinary course of business and have been collected or, to Target's
knowledge, are collectible in the book amounts thereof, less the allowance for
doubtful accounts and returns provided for in such balance sheet. Allowances for
doubtful accounts and returns are adequate and have been prepared in accordance
with GAAP and the past practices of Target. The accounts receivable of Target
arising after the date indicated on Schedule 2.7 and prior to the date hereof
arose in the ordinary course of business and have been collected or, to Target's
knowledge, are collectible in the book amounts thereof, less allowances for
doubtful accounts and returns determined in accordance with GAAP and the past
practices of Target. To Target's knowledge, none of the accounts receivable are
subject to any material claim of offset or recoupment, or counterclaim and
Target has no knowledge of any specific facts that would be reasonably likely to
give rise to any such claim. To Target's knowledge, no material amount of
accounts receivable are contingent upon the performance by Target of any
obligation. No agreement for deduction or discount has been made with respect to
any accounts receivable.
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2.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target and the
Principal Stockholders, threatened (including allegations that could form the
basis for future action) against Target or the Principal Stockholders, or any of
their respective properties or officers or directors (in their capacities as
such) that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on Target, nor do Target or the Principal
Stockholders have any reasonable expectation that any such activity, threat or
allegation will be forthcoming. There is no judgment, decree or order against
Target or the Principal Stockholders, or, to the knowledge of Target or the
Principal Stockholders, any of their respective directors or officers (in their
capacities as such), that could prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement, or that could reasonably
be expected to have a Material Adverse Effect on Target. All litigation to which
Target is a party (or, to the knowledge of Target or the Principal Stockholders,
threatened to become a party) is disclosed in the Target Disclosure Letter.
Target does not have any plans to initiate any litigation, arbitration or other
proceeding against any third party, other than for the routine collection of
bills. The Principal Stockholders, in their own capacity, do not have any plans
to initiate any litigation, arbitration or other proceeding against any third
party relating to Target.
2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target or any Principal
Stockholder, that has or could reasonably be expected to have the effect of
prohibiting or impairing any current business practice of Target, any
acquisition of property by Target or the conduct of business by Target as
currently conducted.
2.10 Governmental Authorization. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Target
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's business as currently conducted or the
holding of any such interest ((i) and (ii) herein collectively called "Target
Authorizations"), and all of such Target Authorizations are in full force and
effect, except in each case of (i) and (ii), where the failure to obtain or have
any such Target Authorizations could not reasonably be expected to have a
Material Adverse Effect on Target.
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2.11 Title to Property. Target has good and valid title to all of its
properties, interests in properties and assets, real and personal, used for the
conduct of its business as presently conducted or which are reflected in the
Target Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of in
the ordinary course of business since the Target Balance Sheet Date), or with
respect to leased properties and assets, valid leasehold interests therein, in
each case free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt that
are reflected on the Target Balance Sheet. All properties used in the operations
of Target are reflected in the Target Balance Sheet to the extent GAAP require
the same to be reflected. Schedule 2.11 identifies each parcel of real property
owned or leased by Target.
2.12 Intellectual Property.
(a) Target is the sole and exclusive owner of all Target
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature that could reasonably be expected to have a
Material Adverse Effect. To Target's knowledge, the conduct of Target's business
as currently conducted by Target or as currently proposed to be conducted will
not infringe, misappropriate or violate any Intellectual Property (defined
below) of others.
(b) All Target Intellectual Property that is the subject of
any application, registration or issuance with or from any governmental entity
is identified on Schedule 2.12; all such registered or issued Target
Intellectual Property is valid and subsisting and is free from any challenge,
and Target is not aware of any basis for any challenge thereto. All such
applications, registrations and issuances have been properly maintained. Target
has endeavored to adequately protect all other Target Intellectual Property
through the use of confidentiality agreements and otherwise and Target is not
aware of any use, exercise or exploitation of any Target Intellectual Property,
except as authorized by Target.
(c) Each current employee and contractor of Target has
executed and delivered (and to the knowledge of Target and the Principal
Stockholders, is in compliance with) an agreement in substantially the form of
Target's standard Proprietary Information and Inventions Agreement (in the case
of an employee) or Target's standard Consulting Agreement (in the case of a
contractor), which agreement provides written assignments of all title and
rights to any Target Intellectual Property conceived or developed thereunder or
otherwise in connection with his or her consulting or employment, and Target
shall obtain an executed Proprietary Information and Inventions Agreement (in
the case of an employee) and Consulting Agreement (in the case of a contractor)
from each employee and contractor that has not so executed and delivered such
agreements on the date hereof.
(d) "Intellectual Property" means patent rights; trade name,
trademark, service mark and similar rights ("Mark" rights); copyrights; mask
work rights; sui generis database rights; trade secret rights; moral rights; and
all other intellectual and industrial property rights of any sort, and all
applications, registrations, issuances and the like with respect thereto.
"Target Intellectual Property" means all Intellectual Property that is owned by
Target, or used, exercised, or exploited, or otherwise necessary for, Target's
business as currently conducted.
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2.13 Environmental Matters. Target is and has at all times operated its
business in material compliance with all Environmental Laws, and to the best
knowledge of Target and the Principal Stockholders, no material expenditures are
or will be required in order to comply with such Environmental Laws.
"Environmental Laws" means all applicable statutes, rules, regulations,
ordinances, orders, decrees, judgments, permits, licenses, consents, approvals,
authorizations, and governmental requirements or directives or other obligations
lawfully imposed by governmental authority under federal, state or local law
pertaining to the protection of the environment, protection of public health,
protection of worker health and safety, the treatment, emission and/or discharge
of gaseous, particulate and/or effluent pollutants, and/or the handling of
hazardous materials, including without limitation, the Clean Air Act, 42
U.S.C.ss. 7401, et seq., the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), 42 U.S.C.ss. 9601, et seq., the Federal
Water Pollution Control Act, 33 U.S.C.ss. 1321, et seq., the Hazardous Materials
Transportation Act, 49 U.S.C.ss. 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C.ss. 6901, et seq. ("RCRA"), and the Toxic Substances
Control Act, 15 U.S.C.ss. 2601, et seq.
2.14 Taxes.
(a) All Tax returns, statements, reports, declarations and
other forms and documents (including without limitation estimated Tax returns
and reports and material information returns and reports) required to be filed
with any Tax authority with respect to any Taxable period ending on or before
the Closing, by or on behalf of Target (collectively, "Tax Returns" and
individually a "Tax Return"), have been or will be completed and filed when due
(including any extensions of such due date) and all amounts shown due on such
Tax Returns on or before the Effective Time have been or will be paid on or
before such date, except for such amounts contested in good faith as set forth
on Schedule 2.14. The Target Financial Statements (i) fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
Target Balance Sheet Date in accordance with GAAP and Target has not and will
not incur any Tax liability in excess of the amount reflected on the Target
Balance Sheet included in the Target Financial Statements with respect to such
periods, other than Taxes incurred in the ordinary course of its business
following the Target Balance Sheet, and (ii) properly accrue in accordance with
GAAP all material liabilities for Taxes payable after the Target Balance Sheet
Date with respect to all transactions and events occurring on or prior to such
date. No material Tax liability since the Target Balance Sheet has been incurred
by Target other than in the ordinary course of business, and adequate provision
has been made by Target for all Taxes since that date in accordance with GAAP on
at least a quarterly basis.
14
(b) Target has previously provided or made available to
Acquiror copies of all income, franchise, and sales Tax Returns as filed with
the appropriate Tax authority, and, as reasonably requested by Acquiror, prior
to the date hereof, presently existing information statements and reports.
Target has withheld and paid to the applicable financial institution or Tax
authority all amounts required to be withheld. To the best knowledge of Target,
no Tax Returns filed with respect to Taxable years of Target through the Taxable
year ended December 31, 1999 in the case of the United States, have been
examined and closed. Target (or any member of any affiliated or combined group
of which Target has been a member) has not granted any extension or waiver of
the limitation period applicable to any Tax Returns that is still in effect.
There is no material claim, audit, action, suit, proceeding, or (to the
knowledge of Target or the Principal Stockholders) investigation now pending or
(to the knowledge of Target or the Principal Stockholders) threatened against or
with respect to Target in respect of any Tax or assessment. No notice of
deficiency or similar document of any Tax authority has been received by Target,
and there are no liabilities for Taxes with respect to the issues that have been
raised (and are currently pending) by any Tax authority that could, if
determined adversely to Target, materially and adversely affect the liability of
Target for Taxes. There are no liens for Taxes (other than for current Taxes not
yet due and payable) upon the assets of Target. Target has never been a member
of an affiliated group of corporations, within the meaning of Section 1504 of
the Code. Neither Target nor any person on behalf of Target has entered into or
will enter into any agreement or consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income tax law) or agreed to have Section 341(f)(2) of
the Code (or any corresponding provision of state, local or foreign income tax
law) apply to any disposition of any asset owned by Target. None of the assets
of Target is property that Target is required to treat as being owned by any
other person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code. None of the assets of Target directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code. None of the assets of Target is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. Target has not made and will
not make a consent dividend election under Section 565 of the Code. Target has
not participated in (and will not participate in) an international boycott
within the meaning of Section 999 of the Code. No Target stockholder is other
than a United States person within the meaning of the Code. Target does not have
and has not had a permanent establishment in any foreign country, as defined in
any applicable tax treaty or convention between the United States of America and
such foreign country and Target has not engaged in a trade or business within
any foreign country. Target has elected to be treated as an S-corporation under
the Code (the "Subchapter S Election"), and Target and the Principal
Stockholders have reported income and filed tax returns consistently therewith
since the date of such election. Target will continue to qualify as a "small
business corporation" within the meaning of Section 1361(b) of the Code through
the Closing. Target has not had and does not expect to have liability or any
potential or deferred liability for Taxes pursuant to Section 1371(d)(2),
Section 1374 or Section 1375 of the Code, nor has Target been subjected to any
other taxes (other than state income taxes) imposed pursuant to or resulting
from its Subchapter S Election. All material elections with respect to Target's
Taxes made during the fiscal year ending December 31, 1999 are reflected on the
Target Tax Returns for such period, copies of which have been provided or made
available to Acquiror. After the date of this Agreement and prior to the
Effective Time, no material election with respect to Taxes will be made without
the prior written consent of Acquiror, which consent not to be unreasonably
withheld. Target is not party to any joint venture, partnership, or other
arrangement or contract which could be treated as a partnership for federal
income tax purposes. Target is not currently and never has been subject to the
reporting requirements of Section 6038A of the Code. There is no agreement,
contract or arrangement to which Target is a party that could, individually or
collectively, result in the payment of any amount that would not be deductible
by reason of Sections 280G (as determined without regard to Section 280G(b)(4),
162 (other than 162(a)) or 404 of the Code. Target is not a party to or bound by
any Tax indemnity, Tax sharing or Tax allocation agreement (whether written or
unwritten or arising under operation of federal law as a result of being a
member of a group filing consolidated Tax returns, under operation of certain
state laws as a result of being a member of a unitary group, or under comparable
laws of other states or foreign jurisdictions) which includes a party other than
Target nor does Target owe any amount under any such Agreement. Target is not,
and has not been, a United States real property holding corporation (as defined
in Section 897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. Other than by reason of the Merger, Target
has not been and will not be required to include any material adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Merger, or as a result of the Merger, but only if such Section 481 adjustment
results from any required change from the cash method of accounting to the
accrual method of accounting.
15
(c) For purposes of this Agreement, the following terms have
the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means any and all taxes including, without limitation, (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, value added, net worth, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign), (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, consolidated, combined or unitary group for any Taxable
period or as the result of being a transferee or successor thereof and (iii) any
liability for the payment of any amounts of the type described in (i) or (ii) as
a result of any express or implied obligation to indemnify any other person. As
used in this Section 2.14, the term "Target" means Target and any entity
included in, or required under GAAP to be included in, any of the Target
Financial Statements.
2.15 Employee Benefit Plans.
(a) For all purposes under this Section 2.15 "ERISA Affiliate"
shall mean each person (as defined in Section 3(9) of ERISA) that, together with
Target, is treated as a single employer under Section 4001(b) of ERISA or
Section 414 of the Code. Except for the plans and agreements listed in Schedule
2.15 (collectively, the "Plans"), Target and its ERISA Affiliates do not
maintain, are not a party to, do not contribute to and are not obligated to
contribute to, and the employees or former employees of Target and its ERISA
Affiliates and their dependents or survivors do not receive benefits under, any
of the following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA");
(ii) Any bonus, deferred compensation, incentive,
restricted stock, stock purchase, stock option, stock appreciation right,
phantom stock, supplemental pension, executive compensation, cafeteria benefit,
dependent care, director or employee loan, fringe benefit, sabbatical,
severance, termination pay or similar plan, program, policy, agreement or
arrangement; or
16
(iii) Any plan, program, agreement, policy,
commitment or other arrangement relating to the provision of any benefit
described in section 3(1) of ERISA to former employees or directors or to their
survivors, other than procedures intended to comply with the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA").
(b) Neither Target nor any ERISA Affiliate has, since January
1, 1994, terminated, suspended, discontinued contributions to or withdrawn from
any employee pension benefit plan, as defined in section 3(2) of ERISA,
including (without limitation) any multiemployer plan, as defined in section
3(37) of ERISA.
(c) Target has provided to Acquiror complete, accurate and
current copies of each of the following:
(i) The text (including amendments) of each of the
Plans, to the extent reduced to writing;
(ii) A summary of each of the Plans, to the extent
not previously reduced to writing;
(iii) With respect to each Plan that is an employee
benefit plan (as defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan
description, as described in section 102 of ERISA;
(2) Any summary of modifications that has
been distributed to participants but has not been incorporated in an updated
summary plan description furnished under Subparagraph (1) above; and
(3) The annual report, as described in
section 103 of ERISA, and (where applicable) actuarial reports, for the three
most recent plan years for which an annual report or actuarial report has been
prepared; and
(iv) With respect to each Plan that is intended to
qualify under section 401(a) of the Code the most recent determination letter
concerning the plan's qualification under section 401(a) of the Code, as issued
by the Internal Revenue Service, and any subsequent determination letter
application.
17
(d) With respect to each Plan that is an employee benefit plan
(as defined in section 3(3) of ERISA), the requirements of ERISA applicable to
such Plan have been satisfied in all respects.
(e) With respect to each Plan that is subject to COBRA, the
requirements of COBRA applicable to such Plan have been satisfied in all
respects.
(f) With respect to each Plan that is subject to the Family
Medical Leave Act of 1993, as amended, the requirements of such Act applicable
to such Plan have been satisfied in all respects.
(g) Each Plan that is intended to qualify under section 401(a)
of the Code meets the requirements for qualification under section 401(a) of the
Code and the regulations thereunder, except to the extent that such requirements
may be satisfied by adopting retroactive amendments under section 401(b) of the
Code and the regulations thereunder or may be otherwise corrected without
material cost to Target. Each such Plan has been administered in all respects in
accordance with its terms (or, if applicable, such terms as will be adopted
pursuant to a retroactive amendment under section 401(b) of the Code) and the
applicable provisions of ERISA and the Code and the regulations thereunder.
(h) Neither Target nor any ERISA Affiliate has any accumulated
funding deficiency under section 412 of the Code or any termination or
withdrawal liability under Title IV of ERISA.
(i) All contributions, premiums or other payments due from the
Target to (or under) any Plan have been fully paid or adequately provided for on
the books and financial statements of Target. All accruals (including, where
appropriate, proportional accruals for partial periods) have been made in
accordance with prior practices.
2.16 Employees and Consultants.
(a) Schedule 2.16 sets forth a true and complete list of all
individuals employed by Target as of the date hereof and the position and base
compensation payable to each such individual. Other than offer letters, each of
which relate to employments-at-will and a form of which has been provided to
Acquiror, there are no written or oral employment agreements, consulting
agreements or termination or severance agreements to which Target is a party, or
which relate to Target and to which the Principal Stockholders are party.
(b) Target is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement, is not a party to any labor or
employment proceeding and to the knowledge of Target is not involved in any
labor or employment dispute.
(c) The consummation of the transactions contemplated herein
will not result in (i) any amount becoming payable to any employee, director or
independent contractor of Target, (ii) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director or independent
contractor of Target may be entitled, (iii) the forgiveness of any indebtedness
of any employee, director or independent contractor of Target or (iv) any cost
becoming due or accruing to Target or the Acquiror with respect to any employee,
director or independent contractor of Target.
18
(d) Target is not obligated and upon consummation of the
Merger will not be obligated to make any payment or transfer any property that
would be considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Target and the Principal Stockholders,
no employee of Target has been materially injured in the work place or in the
course of his or her employment except for injuries which are covered by
insurance or for which a claim has been made under workers' compensation or
similar laws.
(f) Target has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the best knowledge of Target and the
Principal Stockholders, the information and documents on which Target relied to
comply with IRCA are true and correct; and there have not been any
discrimination complaints filed against Target pursuant to IRCA, and to the
knowledge of Target and the Principal Stockholders, there is no basis for the
filing of such a complaint.
(g) Target has not received or been notified of any complaint
by any employee, applicant, union or other party of any discrimination or other
conduct forbidden by law or contract, nor to the knowledge of Target and the
Principal Stockholders, is there a basis for any complaint.
(h) Target's action in complying with the terms of this
Agreement will not violate any agreements with any of Target's employees.
(i) Target has filed all reports and information required to
be filed under applicable law with respect to its employees that are due prior
to the date hereof and otherwise has complied in all material respects in its
hiring, employment, promotion, termination and other labor practices with all
applicable federal and state law and regulations, including without limitation
those within the jurisdiction of the United States Equal Employment Opportunity
Commission, United States Department of Labor and state and local human rights
or civil rights agencies. Target has filed and shall file any such reports and
information that are required to be filed under applicable law prior to the
Closing Date.
(j) Target is not aware that any of its employees or
contractors is obligated under any agreement, commitments, judgment, decree,
order or otherwise (an "Employee Obligation") that could reasonably be expected
to interfere with the use of his or her best efforts to promote the interests of
Target or that could reasonably be expected to conflict with any of Target's
business as conducted or proposed to be conducted. Neither the execution nor
delivery of this Agreement nor the conduct of Target's business as conducted or
proposed to be conducted, will, to Target's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any Employee Obligation.
19
2.17 Related-Party Transactions. No Target stockholder or employee,
officer or director of Target or member of his or her immediate family is
indebted to Target, nor is Target indebted (or committed to make loans or extend
or guarantee credit) to any of them. To Target's knowledge, no Target
stockholder or employee, officer or director of Target or member of his or her
immediate family has any direct or indirect controlling interest in any firm or
corporation with which Target is affiliated or with which Target has a business
relationship, or any firm or corporation that competes with Target, except to
the extent that such employees, officers or directors or stockholders and
members of their immediate families own stock in publicly traded companies that
may compete with the Company. To Target's knowledge, no member of the immediate
family of any officer or director of Target is directly or indirectly interested
in any material contract with Target.
2.18 Insurance. Target has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of Target. There is no material claim pending under any
of such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and Target is otherwise
in material compliance with the terms of such policies and bonds. Target has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.19 Compliance with Laws. Target has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on Target.
2.20 Brokers' and Finders' Fees. Except as set forth on Schedule 2.20,
Target has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or investment
bankers' fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.21 [Intentionally Omitted]
2.22 Vote Required. The affirmative vote of the holders of a majority
of the Target Common Stock outstanding is the only vote of the holders of any of
Target's Capital Stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.23 [Intentionally Omitted]
2.24 [Intentionally Omitted]
2.25 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 1% of Target's gross revenues during the 12
month period preceding the date hereof, and no supplier of Target, has canceled
or otherwise terminated, or made any written threat to Target to cancel or
otherwise terminate its relationship with Target for any reason including,
without limitation, the consummation of the transactions contemplated hereby, or
has at any time on or after December 31, 1999 decreased materially its services
or supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to the best
knowledge of Target and the Principal Stockholders, no such supplier or customer
intends to cancel or otherwise terminate its relationship with Target or to
decrease materially its services or supplies to Target or its usage of the
services or products of Target, as the case may be. Target has not breached, so
as to provide a benefit to Target that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any
customer or supplier of Target.
20
2.26 Material Contracts. Except for the material contracts described in
Schedule 2.26 (collectively, the "Material Contracts") Target is not a party to
or bound by any material contract, including without limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract involving more than $50,000 over the life
of the contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $50,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option
of any person other than the Target so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of $50,000
in the aggregate;
(f) any contract limiting the freedom of the Target to engage
in any line of business or to compete with any other Person as that term is
defined in the Exchange Act (as defined herein) or any confidentiality, secrecy
or non-disclosure contract;
(g) any contract pursuant to which Target leases any real
property;
(h) any contract pursuant to which the Target is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any affiliate (as defined under the
rules and regulations promulgated under the Securities Act of 1933, as amended);
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person;
21
(k) any license, sublicense or other agreement to which Target
is a party (or by which it or any Target Intellectual Property is bound or
subject) and pursuant to which any person has been or may be assigned,
authorized to use, or given access to any Target Intellectual Property;
(l) any license, sublicense or other agreement pursuant to
which Target has been or may be assigned or authorized to use (A) any third
party Intellectual Property or (B) any Target Intellectual Property (in both
cases, other than off the shelf software products used in its business under
various "shrink wrap" licenses);
(m) any agreement pursuant to which Target has deposited or is
required to deposit with an escrow holder or any other person or entity, all or
part of the source code (or any algorithm or documentation contained in or
relating to any source code) of any Target Intellectual Property ("Source
Materials"); and
(n) any agreement to indemnify, hold harmless or defend any
other person with respect to any assertion of personal injury, damage to
property or Intellectual Property infringement, misappropriation or violation or
warranting the lack thereof, other than indemnification provisions contained in
customary purchase orders/purchase agreements/product licenses arising in the
ordinary course of business.
2.27 No Breach of Material Contracts. The Target has materially
performed all of the obligations required to be performed by it and is entitled
to all benefits under, and is not alleged to be in default in respect of any
Material Contract. Each of the Material Contracts is in full force and effect,
unamended, and there exists no default or event of default or event, occurrence,
condition or act, with respect to Target or to Target's knowledge with respect
to the other contracting party, or otherwise that, with or without the giving of
notice, the lapse of the time or the happening of any other event or conditions,
could reasonably be expected to (A) become a default or event of default under
any Material Contract, which default or event of default could reasonably be
expected to have a Material Adverse Effect on Target or (B) result in the loss
or expiration of any material right or option by Target (or the gain thereof by
any third party) under any Material Contract or (C) result in the release,
disclosure or delivery to any third party of any part of the Source Materials
(as defined in Section 2.26(m)). True, correct and complete copies of all
Material Contracts have been delivered to the Acquiror.
2.28 Third-Party Consents. Schedule 2.28 lists all Material Contracts
that require a novation or consent to assignment, as the case may be, prior to
the Effective Time so that Acquiror shall be made a party in place of Target or
as assignee (the "Contracts Requiring Novation or Consent to Assignment"). Such
list is complete and accurate.
2.29 [Intentionally Omitted]
2.30 Minute Books. The minute books of Target made available to
Acquiror contain a complete and accurate summary of all meetings of directors
and stockholders or actions by written consent since the time of incorporation
of Target through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
22
2.31 Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target.
2.32 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Schedule, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE II-A
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS
In addition to the joint and several representations made in Article II
hereof, the Principal Stockholders, severally but not jointly, hereby represent
and warrant to Acquiror and Merger Sub that the statements contained in this
Article II-A are true and correct, except as set forth in the disclosure letter
delivered by the Principal Stockholders to Acquiror prior to the execution and
delivery of this Agreement (the "Principal Stockholders Disclosure Letter"). The
Principal Stockholders Disclosure Letter shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II-A, provided that items disclosed for any particular section herein shall be
deemed disclosed for all purposes where the context reasonably relates. Any
reference in this Article II-A to an agreement being "enforceable" shall be
deemed to be qualified to the extent such enforceability is subject to (i) laws
of general application relating to bankruptcy, insolvency, moratorium and the
relief of debtors, and (ii) the availability of specific performance, injunctive
relief and other equitable remedies.
2A.1 Authority.
(a) Each Principal Stockholder has all requisite power,
corporate or otherwise, and authority to enter into this Agreement, the Voting
Agreement and the Escrow Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Principal Stockholder. This Agreement and other
Transaction Documents have been duly executed and delivered by each Principal
Stockholder and constitute the valid and binding obligations of each such
Principal Stockholder enforceable against such Principal Stockholder in
accordance with their terms.
(b) The execution and delivery of this Agreement and the other
Transaction Documents by each Principal Stockholder do not, and the consummation
of the transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) if applicable,
any provision of the Certificate of Incorporation or Bylaws or other
organizational documents of such Principal Stockholder, as amended, or (ii) any
material contract or any material permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to such Principal Stockholder or any of its properties or assets.
23
2A.2 Title to Stock. Each Principal Stockholder has good and valid
title to the Target Common Stock held by it, free and clear of all liens,
encumbrances, equities or claims. There are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any such subsidiary, or otherwise
obligating the Principal Stockholder or any such subsidiary to issue, transfer,
sell, purchase, redeem or otherwise acquire any such securities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
---------------------------------------------------------
Acquiror and Merger Sub, jointly and severally, represent and warrant
to Target that the statements contained in this Article III are true and
correct, except as set forth in the disclosure schedule delivered by Acquiror to
Target prior to the execution and delivery of this Agreement (the "Acquiror
Disclosure Schedule"). The Acquiror Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article III, provided that items disclosed for any particular section
herein shall be deemed disclosed for all purposes where the context reasonably
relates. Any reference in this Article III to an agreement being "enforceable"
shall be deemed to be qualified to the extent such enforceability is subject to
(i) laws of general application relating to bankruptcy, insolvency, moratorium
and the relief of debtors, and (ii) the availability of specific performance,
injunctive relief and other equitable remedies.
3.1 Organization, Standing and Power. Each of Acquiror and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect on Acquiror. Acquiror has delivered a true and correct copy of
the Certificate of Incorporation and Bylaws or other charter documents, as
applicable, of Acquiror and its subsidiaries, each as amended to date, to
Target. Neither Acquiror nor Merger Sub (or any other subsidiary) is in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
or equivalent organizational documents. Acquiror is the owner of all outstanding
shares of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Acquiror free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Acquiror or any such subsidiary
to issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Acquiror SEC Documents (as defined in
Section 3.4), Acquiror does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
24
3.2 Capital Structure. The authorized capital stock of Acquiror
consists of 200,000,000 shares of Common Stock, $0.001 par value, and 10,000,000
shares of Preferred Stock, $0.001 par value, of which there were issued and
outstanding as of the close of business on the date hereof, 26,720,364 shares of
Common Stock and no shares of Preferred Stock. There are no other outstanding
shares of capital stock or voting securities of Acquiror and no outstanding
commitments to issue any shares of capital stock or voting securities after the
date of this Agreement other than pursuant to the exercise of options issued
under the 1999 Stock Incentive Plan (the "Acquiror Stock Option Plan"). The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
$0.001 par value, all of which are issued and outstanding and are held by
Acquiror. All outstanding shares of Acquiror and Merger Sub have been duly
authorized, validly issued, fully paid and are nonassessable and free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof and are not subject to preemptive rights, rights of
first refusal or other similar rights created by statute, the Certificate of
Incorporation or Bylaws of Acquiror or Merger Sub or any agreement to which
Acquiror or Merger Sub is a party or by which it is bound. As of the date
hereof, Acquiror had reserved (i) 6,655,600 shares of Common Stock for issuance
to employees, directors and independent contractors pursuant to the Acquiror
Stock Option Plan, of which approximately 498,247 shares had been issued
pursuant to option exercises, and approximately 5,785,448 shares were subject to
outstanding, unexercised options, (ii) 750,000 shares of Common Stock pursuant
to Acquiror's Employee Stock Purchase Plan, and (iii) 4,182,800 shares of
Acquiror Common Stock upon the exercise of options not issued under the Acquiror
Stock Option Plan. Other than as set forth above and the commitment to issue
shares of Common Stock pursuant to this Agreement, there are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Acquiror or Merger Sub is a party or by which either of them is bound obligating
Acquiror or Merger Sub to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Acquiror or Merger Sub or obligating Acquiror or Merger Sub to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement. The shares of Acquiror Common Stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid, and
non-assessable, will not be subject to any preemptive or other statutory right
of stockholders, will be issued in compliance with applicable U.S. Federal and
state securities laws and will be free of any liens or encumbrances other than
any liens or encumbrances created by or imposed upon the holders thereof. There
are no contracts, commitments or agreements relating to voting, registration,
purchase or sale of Acquiror's capital stock (i) between or among Acquiror and
any of its stockholders or (ii) to the best of Acquiror's knowledge, between or
among any of Acquiror's stockholders or between any of Acquiror's stockholders
and any third party.
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3.3 Authority.
(a) Each of Acquiror and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and the other
Transaction Documents and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of each of Acquiror and Merger Sub. This Agreement and the other Transaction
Documents have been duly executed and delivered by each of Acquiror and Merger
Sub and constitute the valid and binding obligations of each of Acquiror and
Merger Sub enforceable against Acquiror and Merger Sub in accordance with their
terms.
(b) The execution and delivery of this Agreement and the other
Transaction Documents do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the Certificate
of Incorporation or Bylaws of Acquiror or any of its subsidiaries, as amended,
or (ii) any material agreement contained or required to be contained as an
exhibit to any Acquiror SEC Documents (as defined) or any instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or any of its subsidiaries
or their properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the other Transaction Documents by
Acquiror or the consummation by Acquiror of the transactions contemplated hereby
or thereby, except for (i) the filing of the Agreement of Merger, together with
the required officers' certificates, as provided in Section 1.2, (ii) the filing
of a Form 8-K with the SEC and National Association of Securities Dealers
("NASD") within 15 days after the Closing Date, (iii) any filings as may be
required under applicable state securities laws and the securities laws of any
foreign country, (iv) such filings as may be required under HSR, (v) the filing
with the Nasdaq National Market of a Notification Form for Listing of Additional
Shares, with respect to the shares of Acquiror Common Stock issuable upon
conversion of the Target Capital Stock in the Merger and upon exercise of the
options under the Target Stock Option Plan assumed by Acquiror, and (vii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Acquiror and
would not prevent, materially alter or delay any of the transactions
contemplated by this Agreement.
26
3.4 SEC Documents; Financial Statements. Acquiror has furnished to
Target a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act of 1933, as amended (the "Securities Act")), definitive proxy
statement, and other filing filed with the SEC by Acquiror since its inception,
and, prior to the Effective Time, Acquiror will have furnished Target with true
and complete copies of any additional documents filed with the SEC by Acquiror
prior to the Effective Time (collectively, the "Acquiror SEC Documents"). In
addition, Acquiror has made available to Target all exhibits to the Acquiror SEC
Documents filed prior to the date hereof, and will promptly make available to
Target all exhibits to any additional Acquiror SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Target SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Acquiror nor any of its subsidiaries is in default
thereunder. As of their respective filing dates, the Acquiror SEC Documents
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Securities Act,
and none of the Acquiror 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
subsequently filed Acquiror SEC Document. The financial statements of Acquiror,
including the notes thereto, included in the Acquiror SEC Documents (the
"Acquiror Financial Statements") were complete and correct in all material
respects as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto as of their respective dates,
and have been prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto or, in the case of unaudited statements
included in Quarterly Reports on Form 10-Qs, as permitted by Form 10-Q). The
Acquiror Financial Statements fairly present the consolidated financial
condition and operating results of Acquiror and its subsidiaries at the dates
and during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments).
3.5 Absence of Certain Changes. Since June 30, 2000 (the "Acquiror
Balance Sheet Date"), Acquiror has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect on
Acquiror; or (ii) any change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Acquiror or any
revaluation by Acquiror of any of its assets.
3.6 Litigation. Except as disclosed in the Acquiror SEC Documents,
there is no private or governmental action, suit, proceeding, claim, arbitration
or investigation pending before any agency, court or tribunal, foreign or
domestic, or, to the knowledge of Acquiror or any of its subsidiaries,
threatened (including allegations that could form the basis for such future
actions) against Acquiror or any of its subsidiaries or any of their respective
properties or any of their respective officers or directors (in their capacities
as such) that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect on Acquiror. There is no judgment, decree or
order against Acquiror or any of its subsidiaries or, to the knowledge of
Acquiror or any of its subsidiaries, any of their respective directors or
officers (in their capacities as such) that could prevent, enjoin, or materially
alter or delay any of the transactions contemplated by this Agreement, or that
could reasonably be expected to have a Material Adverse Effect on Acquiror.
Acquiror does not have any plans to initiate any litigation, arbitration or
other proceeding against any third party, other than for routine collection on
bills.
27
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 Conduct of Business of Target and Acquiror. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, Target and Acquiror each agree (except
to the extent expressly contemplated by this Agreement or as consented to in
writing by the other), to carry on its and its subsidiaries' business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted. Each of Target and Acquiror further agrees to (i) pay and
to cause its subsidiaries to pay debts and Taxes when due subject to good faith
disputes over such debts or Taxes, (ii) subject to the other's consent to the
filing of material Tax Returns if applicable, to pay or perform other
obligations when due, and (iii) to use all commercially reasonable efforts
consistent with past practice and policies to preserve intact its and its
subsidiaries' present business organizations, keep available the services of its
and its subsidiaries' present officers and key employees and preserve its and
its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Target and Acquiror agree
to promptly notify the other of any event or occurrence not in the ordinary
course of its or its subsidiaries' business, and of any event which could have a
Material Adverse Effect on it. Without limiting the foregoing, except as
expressly contemplated by this Agreement, neither Target nor Acquiror shall do,
cause or permit any of the following, or allow, cause or permit any of its
subsidiaries to do, cause or permit any of the following, without the prior
written consent of the other:
(a) Charter Documents. Cause or permit any amendments to its
Certificate or Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(c) Other. Take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(a) and (b) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.2 Conduct of Business of Target During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Target shall not do, cause or permit any of the following, or allow,
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of Acquiror:
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(a) Material Contracts. Enter into any material contract,
agreement, license or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its material contracts, agreements or licenses other
than in the ordinary course of business consistent with past practice;
(b) Stock Option Plans, etc. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans;
(c) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of Target Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
(d) Intellectual Property. Transfer to or license any person
or entity or otherwise extend, amend or modify any rights to its Intellectual
Property other than the grant of non-exclusive licenses in the ordinary course
of business consistent with past practice;
(e) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing, manufacturing
or other exclusive rights of any type or scope with respect to any of its
products or technology;
(f) Dispositions. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material, individually or
in the aggregate, to its and its subsidiaries' business, taken as a whole;
(g) Indebtedness. Incur or commit to incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others other than in the ordinary
course of business consistent with past practices;
(h) Leases. Enter into any operating lease requiring payments
in excess of $50,000;
(i) Payment of Obligations. Pay, discharge or satisfy in an
amount in excess of $50,000 in any one case or $150,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the applicable Financial Statements;
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(j) Capital Expenditures. Incur or commit to incur any capital
expenditures in excess of $50,000 in the aggregate;
(k) Insurance. Materially reduce the amount of any insurance
coverage provided by existing insurance policies;
(l) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(m) Employee Benefits; Severance. Take any of the following
actions: (i) increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
non-officer employees in the ordinary course of business and in accordance with
past practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any officer or employee,
(iii) enter into any collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees;
(n) Lawsuits. Commence a lawsuit or arbitration proceeding
other than (i) for the routine collection of bills, or (ii) for a breach of this
Agreement;
(o) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole;
(p) Taxes. Make any material tax election other than in the
ordinary course of business and consistent with past practice, change any
material tax election, adopt any tax accounting method other than in the
ordinary course of business and consistent with past practice, change any tax
accounting method, file any tax return (other than any estimated tax returns,
immaterial information returns, payroll tax returns or sales tax returns) or any
amendment to a tax return, enter into any closing agreement, settle any Tax
claim or assessment or consent to any Tax claim or assessment provided that
Acquiror shall not unreasonably withhold or delay approval of any of the
foregoing actions;
(q) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or
(r) Related Parties. Enter into any agreements, commitments or
contracts with any of its affiliates (as defined in the Exchange Act) or other
related parties, or otherwise dispose of any assets or waive any rights or
obligations in favor of the foregoing.
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(s) Other. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.2(a) through (r) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not to
perform its covenants hereunder.
4.3 Notices. Each of Acquiror and Target shall give all notices and
other information required to be given to its employees, any collective
bargaining unit representing any group of its employees, and any applicable
government authority under the National Labor Relations Act, the Internal
Revenue Code, the Consolidated Omnibus Budget Reconciliation Act, and other
applicable law in connection with the transactions provided for in this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 No Solicitation.
(a) From and after the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Target shall
not, directly or indirectly, through any officer, director, employee,
stockholder, representative or agent, except to the extent required by
applicable law, (i) solicit, initiate, or encourage any inquiries or proposals
that constitute, or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, business combination, sale of all or substantially
all of the assets, sale of shares of capital stock (including without limitation
by way of a tender offer) or similar transactions involving Target, other than
the transactions contemplated by this Agreement (any of the foregoing inquiries
or proposals being referred to in this Agreement as a "Takeover Proposal"), (ii)
engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Takeover Proposal, or (iii)
agree to, approve or recommend any Takeover Proposal.
(b) Target shall notify Acquiror immediately (and no later
than 24 hours) after receipt by Target (or its advisors or agents) of any
Takeover Proposal or any request for information in connection with a Takeover
Proposal or for access to the properties, books or records of Target by any
person or entity that informs Target that it is considering making, or has made,
a Takeover Proposal prior to the earlier of the Effective Time or the
termination of this Agreement. Such notice shall be made orally and in writing
and shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact.
5.2 Intentionally Omitted.
5.3 Stockholder Meeting or Consent Solicitations. Target shall promptly
after the date hereof take all actions necessary to either (i) call a meeting of
its stockholders to be held for the purpose of voting upon this Agreement and
the Merger or (ii) commence a consent solicitation to obtain such approvals.
Target will, through its Board of Directors, recommend to its stockholders
approval of such matters as soon as practicable after the date hereof. Target
shall use all reasonable efforts to solicit from its stockholders proxies or
consents in favor of such matters.
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5.4 Access to Information.
(a) Each of Acquiror and Target shall afford the other party
and its accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (i) all
of its and its subsidiaries' properties, books, contracts, commitments and
records, and (ii) all other information concerning its business, properties and
personnel as the other may reasonably request. Each of Acquiror and Target
agrees to provide to the other party and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.5 Confidentiality. The parties acknowledge that Acquiror and Target
have previously executed a non-disclosure agreement dated August 24, 2000 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
5.6 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by Acquiror to comply with the
rules and regulations of the SEC or any obligations pursuant to any listing
agreement with any national securities exchange.
5.7 Consents; Cooperation.
(a) Each of Acquiror and Target shall promptly apply for or
otherwise seek, and use its reasonable best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its reasonable best efforts to
obtain all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or otherwise.
The parties hereto will consult and cooperate with one another, and consider in
good faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of any party hereto in connection with
proceedings under or relating to HSR or any other federal or state antitrust or
fair trade law.
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(b) Each of Acquiror and Target shall use all commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by this
Agreement under the HSR, the Sherman Act, as amended, the Clayton Act, as
amended, the Federal Trade Commission Act, as amended, and any other Federal,
state or foreign statutes, rules, regulations, orders or decrees that are
designed to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade (collectively, "Antitrust Laws"). In
connection therewith, if any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, each of
Acquiror and Target shall cooperate and use all commercially reasonable efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an "Order"), that
is in effect and that prohibits, prevents, or restricts consummation of the
Merger or any such other transactions, unless by mutual agreement Acquiror and
Target decide that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither Target nor Acquiror shall have any
obligation to litigate or contest any administrative or judicial action or
proceeding or any Order beyond the earlier of (i) November 30, 2000 or (ii) the
date of a ruling preliminarily enjoining the Merger issued by a court of
competent jurisdiction. Each of Acquiror and Target shall use all commercially
reasonable efforts to take such action as may be required to cause the
expiration of the notice periods under the HSR or other Antitrust Laws with
respect to such transactions as promptly as possible after the execution of this
Agreement.
(c) Notwithstanding the foregoing, neither Acquiror nor Target
shall be required to agree, as a condition to any approval, to divest itself of
or hold separate any subsidiary, division or business unit which is material to
the business of such party and its subsidiaries, taken as a whole, or the
divestiture or holding separate of which would be reasonably likely to have a
Material Adverse Effect on (A) the business, properties, assets, liabilities,
financial condition or results of operations of such party and its subsidiaries,
taken as a whole or (B) the benefits intended to be derived as a result of the
Merger.
5.8 Update Disclosure; Breaches. From and after the date of this
Agreement until the Effective Time, each party hereto shall promptly notify the
other party, by written update to its Disclosure Schedule, of (i) the occurrence
or non-occurrence of any event which would be likely to cause any condition to
the obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied, or (ii) the failure of
Target or Acquiror, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it pursuant to this
Agreement which would be likely to result in any condition to the obligations of
any party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied. The delivery of any notice pursuant to this
Section 5.8 shall not cure any breach of any representation or warranty
requiring disclosure of such matter prior to the date of this Agreement or
otherwise limit or affect the remedies available hereunder to the party
receiving such notice, provided that such party, within ten days after receipt
of such notice, advises the other party of its objection to the matter disclosed
in such notice and the nature of such objection.
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5.9 Stockholder Agreements. Upon the execution of this Agreement,
Target will provide Acquiror with a list of those persons who are, in Target's
reasonable judgment, "affiliates" of Target, within the meaning of Rule 145
under the Securities Act ("Rule 145"). Each such person who is an "affiliate" of
Target within the meaning of Rule 145 is referred to herein as an "Affiliate."
Target shall provide Acquiror such information and documents as Acquiror shall
reasonably request for purposes of reviewing such list and shall notify Acquiror
in writing regarding any change in the identity of its Affiliates prior to the
Closing Date. Target shall use its best efforts to deliver or cause to be
delivered to Acquiror as soon as practicable after the date hereof from each of
the Affiliates of Target, an executed agreement, in the form attached hereto as
Exhibit D ("Target Affiliate Agreement"). Acquiror shall be entitled to place
appropriate legends on the certificates evidencing any Acquiror Common Stock to
be received by Affiliates of Target pursuant to the terms of this Agreement, and
to issue appropriate stop transfer instructions to the transfer agent for the
Acquiror Common Stock, consistent with the terms of the Target Affiliate
Agreement.
5.10 Indemnification.
(a) From and after the Effective Time, Acquiror and the
Surviving Corporation jointly and severally shall indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
this Agreement or who becomes prior to the Effective Time, an officer, director
or employee of Target or any of its subsidiaries (the "Indemnified Parties") in
respect of acts or omissions occurring on or prior to the Effective Time to the
fullest extent permitted under applicable law and as provided under Target's
Certificate of Incorporation, Bylaws and indemnification agreements in effect on
the date hereof.
(b) If Acquiror or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person or entity and shall not be the continuing or surviving person of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person or entity, then and in each such case,
proper provision shall be made so that such successors or assigns of Acquiror or
the Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.10.
5.11 Voting Agreements. Target shall use its best efforts to cause the
Principal Stockholders and its directors and officers to execute and deliver to
Acquiror a Voting Agreement substantially in the form of Exhibit B attached
hereto concurrently with the execution of this Agreement.
5.12 Legal Requirements. Each of Acquiror and Target will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
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5.13 Promissory Notes; Deferred Compensation. The Unsecured Convertible
Promissory Note payable to Peregrine Systems, Inc., dated October 25, 1999, in
the principal amount of $100,000 shall be paid and satisfied in full by Target
prior to the Effective Date. All of Target's obligations under the Deferred
Compensation Agreements, dated February 24, 1997 between Target and Bart
Greenwood and Target and Justin Williams for deferred compensation shall be
satisfied prior to the Effective Date. The promissory notes, dated January 1,
2000, issued by Justin Williams in the principal amount of $57,812.50 and to
Bart Greenwood in the principal amount $429,680 shall be amended such that such
notes shall be due and payable on December 31, 2000.
5.14 Blue Sky Laws. Acquiror shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its reasonable best efforts to assist Acquiror as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of Acquiror
Common Stock in connection with the Merger.
5.15 Stock Options.
(a) At the Effective Time, the Target Stock Option Plan and
each Target Option, whether vested or unvested, shall be assumed by Acquiror,
and Target's repurchase right with respect to any unvested option shares granted
under the Target Stock Option Plan shall be assigned to Acquiror. On the Closing
Date, Target shall deliver to Acquiror an updated Option Schedule current as of
such date. Each Target Option so assumed by Acquiror under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Target Stock Option Plan immediately prior to the Effective Time, except
that (i) such Target Option shall be exercisable for that number of whole shares
of Acquiror Common Stock equal to the product of the number of shares of Target
Common Stock that were issuable upon exercise of such Target Option immediately
prior to the Effective Time multiplied by the Option Exchange Ratio (as defined
below) and rounded down to the nearest whole number of shares of Acquiror Common
Stock, (ii) the per share exercise price for the shares of Acquiror Common Stock
issuable upon exercise of such Target Option shall be equal to the quotient
determined by dividing the exercise price per share of Target Common Stock at
which such option was exercisable immediately prior to the Effective Time by the
Option Exchange Ratio, rounded up to the nearest whole cent. Except as provided
in the Target Disclosure Letter, the vesting of any unvested Target Options will
not accelerate as a result of the execution of this Agreement or the
consummation of the transactions contemplated hereby. Within 45 business days
after the Effective Time, Acquiror will issue to each person who, immediately
prior to the Effective Time was a holder of a Target Option a document
evidencing the foregoing assumption of such Target Option by Acquiror. The
"Option Exchange Ratio" shall equal the quotient obtained by dividing the Option
Shares (as defined below) by the number of shares of Target Common Stock
issuable pursuant to the exercise of all Target Options. The "Option Shares"
shall equal the quotient obtained by dividing the Target Optionholder
Consideration by the Closing Price.
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(b) Acquiror shall take all corporate action necessary to
reserve and make available for issuance a sufficient number of shares of
Acquiror Common Stock for delivery under Target Options assumed in accordance
with this Section 5.15. Promptly after the Effective Time, Acquiror shall file a
registration statement on Form S-8 (or any successor or other appropriate forms)
with respect to the shares of Acquiror Common Stock subject to such Target
Options and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such Target
Options remain outstanding to the extent permitted by the SEC.
5.16 Escrow Agreement. On or before the Effective Time, Acquiror,
Target, the Escrow Agent and the Stockholders' Agent (as defined in Article VIII
hereto) will execute the Escrow Agreement contemplated by Article VIII in the
form attached hereto as Exhibit C.
5.17 Listing of Additional Shares. Prior to the Effective Time, if
required, Acquiror shall file with Nasdaq a Notification Form for Listing of
Additional Shares with respect to the Total Acquiror Shares and any additional
shares of Acquiror Common Stock required to be reserved for issuance upon
exercise of Target Options assumed by Acquiror and shall use reasonable best
efforts to get such shares accepted for quotation.
5.18 Additional Agreements; Reasonable Best Efforts. Each of the
parties agrees to use their reasonable best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including cooperating
fully with the other party, including by provision of information. In case at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement or to vest the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities and
franchises of either of Target or Acquiror, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
5.19 Employee Benefits. Acquiror shall take such reasonable actions, to
the extent permitted by Acquiror's benefits program, as are necessary to allow
eligible employees of Target to participate in the benefit programs of Acquiror,
or alternative benefits programs in the aggregate substantially comparable to
those applicable to employees of Acquiror on similar terms, as soon as
practicable after the Effective Time of the Merger. For purposes of satisfying
the terms and conditions of such programs, to the extent permitted by Acquiror's
benefit programs, Acquiror shall give full credit for eligibility, or vesting
for each participant's period of service with Target. Notwithstanding the
foregoing, Acquiror's undertakings described in this Section 5.19 are subject to
the terms and conditions of any applicable insurance policies and requirements
of relevant insurers.
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5.20 Reincorporation. Immediately prior to the Effective Time, Target
shall reincorporate as a corporation organized under the DGCL.
5.21 Lock-Up Agreements. Each stockholder of Target shall execute a
lock-up agreement in the form of Exhibit H attached hereto.
5.22 Subsidiary. All capital stock outstanding of Synet Deutschland
Servicegesellschaft mbH not owned by Target shall be exchanged for 13,750 shares
of Class B Common Stock of Target.
ARTICLE VI
CONDITIONS TO THE MERGER
------------------------
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of Target Common Stock as
of the record date set for the Target Stockholders Meeting, or solicitation of
stockholder consents, and any agreements or arrangements that may result in the
payment of any amount that would not be deductible by reason of Section 280G of
the Code shall have been approved by such number of stockholders of Target as is
required by the terms of Section 280G(b)(5)(B) and the parties to such
agreements shall have agreed in writing to forego payments if stockholder
approval is not obtained.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(c) Governmental Approval. Acquiror and Target and their
respective subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act, under state Blue Sky laws, and under HSR.
37
(d) Tax Opinion. Target shall have received a written opinion
from Willkie Farr & Gallagher, dated as of the Effective Date, to the effect
that the Merger will constitute a reorganization within the meaning of Section
368 of the Code. In preparing such tax opinion, counsel may rely on reasonable
assumptions and may also rely on (and to the extent reasonably required, the
parties and Target's stockholders shall make) reasonable representations related
thereto.
(e) Listing of Additional Shares. If required, the filing with
the Nasdaq National Market of a Notification Form for Listing of Additional
Shares, with respect to the shares of Acquiror Common Stock issuable upon
conversion of the Target Common Stock in the Merger and upon exercise of the
options under the Target Stock Option Plan assumed by Acquiror shall have been
made and accepted.
(f) Escrow Agreement. Acquiror, Target, Escrow Agent and the
Stockholder's Agent (as defined in Article VIII hereto) shall have entered into
an Escrow Agreement substantially in the form attached hereto as Exhibit C.
6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
(a) Representations, Warranties and Covenants. Except as
disclosed in the Acquiror Disclosure Schedule, (i) the representations and
warranties of Acquiror and Merger Sub in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality which
representations and warranties as so qualified shall be true in all respects) on
and as of the Effective Time as though such representations and warranties were
made on and as of such time and (ii) Acquiror and Merger Sub shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
them as of the Effective Time.
(b) Certificate of Acquiror. Target shall have been provided
with a certificate executed on behalf of Acquiror by its chief executive officer
and chief financial officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by
Acquiror and Merger Sub under this Agreement are true and complete in all
material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality which representations and
warranties as so qualified shall be true in all respects) on and as of the
Effective Time as though such representations and warranties were made on and as
of such time; and
(ii) all covenants, obligations and conditions of
this Agreement to be performed by Acquiror and Merger Sub on or before such date
have been so performed in all material respects.
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(c) Legal Opinion. Target shall have received a legal opinion
from Acquiror's legal counsel substantially in the form attached as Exhibit E
hereto.
(d) No Material Adverse Changes. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects (a "Material Adverse Change") of
Acquiror and its subsidiaries, taken as a whole, except for such as are directly
or indirectly attributable to or arise out of general market or industry
conditions; provided, that, a decline in the market price of the Acquiror Common
Stock shall not be deemed a Material Adverse Change absent any other occurrence
or event that itself would be deemed a Material Adverse Change.
(e) Third Party Consents. Target shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the material contracts of Acquiror filed or required to be filed as exhibits to
the Acquiror SEC Documents, if failure to obtain such consents or approvals
would or would reasonably be expected to have a Material Adverse Effect on
Acquiror.
(f) Injunctions or Restraints on Merger and Conduct of
Business. No proceeding brought by any administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Acquiror and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
6.3 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) Representations, Warranties and Covenants. Except as
disclosed in the Target Disclosure Schedule (i) the representations and
warranties of Target in this Agreement shall be true and correct in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality which representations and warranties
as so qualified shall be true in all respects) on and as of the Effective Time
as though such representations and warranties were made on and as of such time
and (ii) Target shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
39
(b) Certificate of Target. Acquiror shall have been provided
with a certificate executed on behalf of Target by its chief executive officer
and chief financial officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Target
under this Agreement are true and complete in all material respects (except for
such representations and warranties that are qualified by their terms by a
reference to materiality which representations and warranties as so qualified
shall be true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time; and
(ii) all covenants, obligations and conditions of
this Agreement to be performed by Target on or before such date have been so
performed in all material respects.
(c) Third Party Consents. Acquiror shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the contracts of Target set forth on Schedule 2.26 hereto, if failure to obtain
such consents or approvals would or would reasonably be expected to have a
Material Adverse Effect on Target.
(d) Injunctions or Restraints on Merger and Conduct of
Business. No proceeding brought by any administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinion. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form attached hereto
as Exhibit G.
(f) No Material Adverse Changes. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target and its subsidiaries,
taken as a whole, except for such as are directly or indirectly attributable to
or arise out of general market or industry conditions.
(g) Affiliate Agreements. Acquiror shall have received from
the Affiliates of Target an executed Affiliate Agreement in substantially the
form attached hereto as Exhibit D.
(h) Employment and Non-Competition Agreements. Employees of
Target identified by Acquiror prior to the Effective Date shall have entered
into an Employment and Non-Competition Agreement with Acquiror in a form
reasonably acceptable to Acquiror.
40
(i) Dissenting Shares. The number of Dissenting Shares shall
be less than 5% of the outstanding Target Common Stock.
(j) Lock-up Agreements. Each stockholder of Target shall have
executed and delivered a Lock-up Agreement in the form of Exhibit H hereto.
ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
-------------------------------------------
7.1 Termination. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the stockholders of Target or Acquiror, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Boards of
Directors of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the
terminating party, the Closing shall not have occurred on or before October 31,
2000 (provided, a later date may be agreed upon in writing by the parties
hereto, and provided further that the right to terminate this Agreement under
this Section 7.1(b) shall not be available to any party whose action or failure
to act has been the cause or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach of
this Agreement);
(c) by Acquiror, if (i) Target shall breach any
representation, warranty, obligation or agreement hereunder and such breach
shall not have been cured within ten (10) business days of receipt by Target of
written notice of such breach (15 business days if Target is at the end of such
10 day period taking reasonable steps to cure such breach), provided that the
right to terminate this Agreement by Acquiror under this Section 7.1(c)(i) shall
not be available to Acquiror where Acquiror is at that time in willful breach of
this Agreement, (ii) the Board of Directors of Target shall have withdrawn or
modified its recommendation of this Agreement or the Merger in a manner adverse
to Acquiror or shall have resolved to do any of the foregoing, provided that the
right to terminate this Agreement by Acquiror under this Section 7.1(c)(ii)
shall not be available to Acquiror where Acquiror is at that time in willful
breach of this Agreement, or (iii) for any reason Target fails to call and hold
the Target Stockholders Meeting or commence solicitation of stockholder consents
by October 15, 2000, provided that the right to terminate this Agreement by
Acquiror under this Section 7.1(c)(iii) shall not be available to Acquiror where
Acquiror is at that time in material breach of this Agreement;
(d) by Target, if (i) Acquiror shall breach any
representation, warranty, obligation or agreement hereunder and such breach
shall not have been cured within ten (10) days following receipt by Acquiror of
written notice of such breach (15 business days if Acquiror is at the end of
such 10 day period taking reasonable steps to cure such breach), provided that
the right to terminate this Agreement by Target under this Section 7.1(d)(i)
shall not be available to Target where Target is at that time in material breach
of this Agreement, or (ii) the Board of Directors of Acquiror shall have
withdrawn or modified its recommendation of this Agreement or the Merger in a
manner adverse to Target or shall have resolved to do any of the foregoing,
provided that the right to terminate this Agreement by Target under this Section
7.1(d)(ii) shall not be available to Target where Target is at that time in
willful breach of this Agreement;
41
(e) by Acquiror if (i) any permanent injunction or other order
of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable or (ii) if any required
approval of the stockholders of Target shall not have been obtained by reason of
the failure to obtain the required vote upon a vote held at a duly held meeting
of stockholders and any adjournment thereof; or
(f) by Target if any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 5.5 (Confidentiality), Section 7.3
(Expenses and Termination Fees) and this Section 7.2 shall remain in full force
and effect and survive any termination of this Agreement.
7.3 Expenses and Termination Fees. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby (including, without limitation, the
fees and expenses of its advisers, accountants and legal counsel) shall be paid
by the party incurring such expense. The Principal Stockholders shall pay all
fees and expenses set forth on Schedule 2.20 hereto pro rata based on the number
of shares of Target Common Stock owned by each.
7.4 Amendment. The Boards of Directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto and in accordance with
applicable law.
7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed and in its sole and absolute
discretion, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
42
ARTICLE VIII
ESCROW AND INDEMNIFICATION
--------------------------
8.1 Survival of Representations, Warranties and Covenants.
Notwithstanding any investigation conducted before or after the Closing Date,
and notwithstanding any implied knowledge or notice of any facts or
circumstances which Acquiror or Target may have as a result of such
investigation or otherwise, Acquiror and Target will be entitled to rely upon
the other party's representations, warranties and covenants set forth in this
Agreement, provided that neither Target nor Acquiror shall be liable to the
other for breaches of any representations, warranties or covenants if the other
had actual knowledge of such breach and, notwithstanding such actual knowledge,
signed this Agreement and consummated the Merger. The obligations of Target and
the Principal Stockholders with respect to their representations, warranties,
agreements and covenants will survive the Closing and continue in full force and
effect until the date 12 months following the Effective Time (the "Termination
Date"), at which time, subject to Section 8.5, the representations, warranties
and covenants of the parties set forth in this Agreement and any liability of
the parties with respect to those representations, warranties and covenants will
terminate; provided that the representations and warranties contained in Section
2.14 shall survive the Termination Date until the expiration of the applicable
statute of limitations. If a claim is made by Acquiror or Merger Sub prior to
the expiration of any representations, warranties, agreements or covenants, such
claim shall survive until such claim is finally resolved. The obligations of
Acquiror and Merger Sub with respect to their representations, warranties,
agreements and covenants will terminate at the Closing.
8.2 Indemnity. From and after the Effective Time of the Merger, and
subject to the provisions of Section 8.1, Acquiror and the Surviving Corporation
(on or after the Closing Date) shall be indemnified and held harmless by the
Principal Stockholders, jointly and severally, against, and reimbursed for, any
liability, damage, loss, obligation, demand, judgment, fine, penalty, cost or
expense, including reasonable attorneys' fees and expenses, and the costs of
investigation incurred in defending against or settling such liability, damage,
loss, cost or expense or claim therefor and any amounts paid in settlement
thereof, imposed on or reasonably incurred by Acquiror or the Surviving
Corporation as a result of (i) any breach of any representation, warranty,
agreement or covenant on the part of Target or the Principal Stockholders under
this Agreement or (ii) any of the matters listed on Schedule 2.8 (collectively
the "Damages"); provided, however, that the term "Damages" shall include only
direct, and not consequential, damages unless such damages result from a breach
of a representation, warranty, agreement or covenant on the part of Target or
the Principal Stockholders not made in good faith, in which case "Damages" shall
also include consequential damages. "Damages" as used herein is not limited to
matters asserted by third parties, but includes Damages incurred or sustained by
Acquiror in the absence of claims by a third party. Notwithstanding the
foregoing, any representation and warranty made herein by a Principal
Stockholder relating to the Principal Stockholder individually shall be made on
an individual basis and shall be made severally but not jointly, and any
indemnification obligation resulting therefrom shall likewise be several and not
joint. Furthermore, notwithstanding anything to the contrary in this Agreement,
in no event shall a Principal Stockholder be liable for Damages in an amount in
excess of the aggregate consideration received by such Principal Stockholder in
the Merger.
43
8.3 Escrow Fund. As security for the indemnity provided for in Section
8.2 hereof, the Escrowed Consideration shall be deposited by Acquiror in an
escrow account with The Chase Manhattan Bank (or other mutually acceptable
institution) as Escrow Agent (the "Escrow Agent"), as of the Effective Time,
such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by
the terms set forth in this Agreement and the provisions of an Escrow Agreement
to be executed and delivered pursuant to Section 5.16. The Escrow Fund shall be
allocated among the Principal Stockholders on a pro-rata basis in accordance
with the number of shares of Target Common Stock held by the Principal
Stockholders at the Effective Time (excluding for purposes of this calculation
any Dissenting Shares). Upon compliance with the terms hereof and subject to the
provisions of this Article VIII, Acquiror and the Surviving Corporation shall be
entitled to obtain indemnity from the Escrow Fund for Damages covered by the
indemnity provided for in Section 8.2 of this Agreement. Any and all
distributions of stock or any securities of Acquiror issued in respect thereof
(including, without limitation, any shares issued pursuant to any stock
dividend, stock split, reverse stock split, combination or reclassification
thereof) shall be the property of the Principal Stockholders, shall be deposited
with the Escrow Agent and shall be treated as Escrowed Consideration pursuant to
the terms of this Agreement. Cash dividends or other property distributed in
respect of Acquiror Common Stock shall be delivered to the Principal
Stockholders on a pro-rata basis in accordance with the number of shares of
Target Common Stock held by the Principal Stockholders at the Effective Time and
shall not be deposited with or retained by the Escrow Agent. The Principal
Stockholders shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Acquiror Common Stock held in the Escrow
Fund (the "Escrow Shares") or any part thereof for any purpose not inconsistent
with the terms of this Agreement.
8.4 Damage Threshold. Notwithstanding the foregoing, Acquiror may not
receive any payment from the Escrow Fund unless and until an Officer's
Certificate (as defined in Section 8.6 below) identifying Damages the aggregate
amount of which exceeds $250,000 has been delivered to the Escrow Agent and the
Stockholders' Agent as provided in Section 8.6 below and such amount is
determined pursuant to this Article VIII to be payable, in which case Acquiror
shall receive payment equal in value to the full amount of Damages. In
determining the amount of any Damage attributable to a breach, any materiality
standard contained in a representation, warranty or covenant of Acquiror shall
be disregarded.
8.5 Escrow Period. The Escrow Period shall terminate at the expiration
of twelve (12) months after the Effective Time; provided, however, that a
portion of the Escrowed Consideration, which is necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent prior to termination of the Escrow Period with respect to
facts and circumstances existing prior to expiration of the Escrow Period, shall
remain in the Escrow Fund until such claims have been finally resolved,
including without limitation any claims relating to items set forth on Schedule
2.8 hereto.
8.6 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the
Termination Date of a certificate signed by the chief financial or chief
executive officer of Acquiror (an "Officer's Certificate"):
44
(i) stating that Acquiror or the Surviving
Corporation has incurred, paid or properly accrued (in accordance with GAAP) or
knows of facts giving rise to a reasonable probability that it will have to
incur, pay or accrue (in accordance with GAAP) Damages in an aggregate stated
amount with respect to which Acquiror or the Surviving Corporation is entitled
to payment from the Escrow Fund pursuant to this Agreement; and
(ii) specifying in reasonable detail the individual
items of Damages included in the amount so stated, the date each such item was
incurred, paid or properly accrued (in accordance with GAAP), or the basis for
such anticipated liability and the specific nature of the breach to which such
item is related,
the Escrow Agent shall, subject to the provisions of Section 8.7 of this
Agreement, deliver to Acquiror shares of Acquiror Common Stock in an amount
necessary to indemnify Acquiror for the Damages claimed; provided, however, that
no shares of Acquiror Common Stock shall be delivered to Acquiror, as a result
of a claim based upon an accrual of, or upon a reasonable probability of having
to incur, pay or accrue Damages until such time as the Acquiror has actually
incurred or paid Damages. All shares of Acquiror Common Stock subject to such
claims shall remain in the Escrow Fund until Damages are actually incurred or
paid or the Acquiror determines in its reasonably good faith judgment that no
Damages will be required to be incurred or paid (in which event such shares
shall be distributed to the Principal Stockholders in accordance with Section
8.10 below).
(b) For the purpose of compensating Acquiror for its Damages
pursuant to this Agreement, the Acquiror Common Stock in the Escrow Fund shall
be valued at the closing market price of the Acquiror Common Stock on the
Effective Date.
8.7 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent and for a period of forty-five
(45) days after such delivery to the Escrow Agent, the Escrow Agent shall make
no delivery of cash or Acquiror Common Stock or other property pursuant to
Section 8.6 hereof unless the Escrow Agent shall have received written
authorization from the Stockholders' Agent to make such delivery. After the
expiration of such forty-five (45) day period, the Escrow Agent shall make
delivery of the cash and Acquiror Common Stock or other property in the Escrow
Fund in accordance with Section 8.6 hereof, provided that no such payment or
delivery may be made if the Stockholders' 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 Escrow Agent and to Acquiror prior to the
expiration of such forty-five (45) day period.
8.8 Resolution of Conflicts; Arbitration.
(a) In case the Stockholders' Agent shall object in writing to
any claim or claims by Acquiror made in any Officer's Certificate, the
Stockholders' Agent and Acquiror shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Stockholders' Agent and Acquiror should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and shall distribute the cash or Acquiror Common Stock or other
property from the Escrow Fund in accordance with the terms thereof.
45
(b) If no such agreement can be reached after good faith
negotiation for sixty (60) days, either Acquiror or the Stockholders' Agent may,
by written notice to the other, demand arbitration of the matter unless the
amount of the Damage is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. Within fifteen (15)
days after such written notice is given, Acquiror and the Stockholders' Agent
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The decision of the arbitrators 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 8.6 hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
New York, New York under the commercial rules then in effect of the American
Arbitration Association. For purposes of this Section 8.8, in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Acquiror shall be deemed to be the Non-Prevailing Party
unless the arbitrators award Acquiror more than one-half (1/2) of the amount in
dispute, plus any amounts not in dispute; otherwise, the Principal Stockholders
shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
8.9 Stockholders' Agent.
(a) Michael J. Wethington shall be constituted and appointed
as agent ("Stockholders' Agent") for and on behalf of the Principal Stockholders
to give and receive notices and communications, to authorize delivery to
Acquiror of the Acquiror Common Stock or other property from the Escrow Fund in
satisfaction of claims by Acquiror, to deliver to the Principal Stockholders
cash received from the Acquiror in satisfaction of claims by the Principal
Stockholders, 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 Stockholders' Agent for
the accomplishment of the foregoing. Such agency may be changed by the holders
of a majority in interest of the Escrow Fund from time to time upon not less
than 10 days' prior written notice to Acquiror. No bond shall be required of the
Stockholders' Agent, and the Stockholders' Agent shall receive no compensation
for its services. Notices or communications to or from the Stockholders' Agent
shall constitute notice to or from each of the Principal Stockholders.
46
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' Agent while acting in good faith and
in the exercise of reasonable judgment, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Principal Stockholders shall severally indemnify the Stockholders' Agent and
hold it harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Stockholders' Agent shall be entitled to a
distribution from the Escrow Fund equal to any such indemnity claim which has
not been satisfied; provided, however, that no such distribution shall be made
until all claims of Acquiror set forth in any Officer's Certificate delivered to
the Escrow Agent on or prior to the Termination Date have been resolved.
8.10 Distribution Upon Termination of Escrow Period. Within five (5)
business days following the Termination Date, the Escrow Agent shall deliver to
the Principal Stockholders all of the shares in the Escrow Fund in excess of any
amount of such shares reasonably necessary to satisfy any unsatisfied or
disputed claims for Damages specified in any Officer's Certificate delivered to
the Escrow Agent on or before the Termination Date and any unsatisfied or
disputed claims by the Stockholder's Agent under Section 8.9. As soon as all
such claims have been resolved, the Escrow Agent shall deliver to the Principal
Stockholders all shares remaining in the Escrow Fund and not required to satisfy
such claims. Deliveries of cash and shares to the Principal Stockholders
pursuant to this section shall be made in proportion to the allocation set forth
in Section 8.3.
8.11 Actions of the Stockholders' Agent. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all
Principal Stockholders for whom shares of Acquiror Common Stock otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such Principal Stockholder, and the Escrow Agent and
Acquiror may rely upon any decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of each
and every such Principal Stockholder. The Escrow Agent and Acquiror 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 Stockholders'
Agent.
8.12 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall notify the Stockholders' Agent of such claim, and
the Stockholders' Agent shall be entitled, at his expense, to participate in any
defense of such claim. Acquiror shall have the right in its sole discretion to
settle any such claim; provided, however, that Acquiror may not effect the
settlement of any such claim without the consent of the Stockholders' Agent,
which consent shall not be unreasonably withheld or delayed. In the event that
the Stockholders' Agent has consented to any such settlement, the Stockholders'
Agent shall have no power or authority to object under Section 8.6 or any other
provision of this Article VIII to the amount of any claim by Acquiror against
the Escrow Fund for indemnity with respect to such settlement.
47
ARTICLE IX
GENERAL PROVISIONS
------------------
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Predictive Systems, Inc.
417 Fifth Avenue
New York, NY 10016
Attention: General Counsel
Facsimile No.: (212) 898-1331
Telephone No.: (212) 659-3400
with a copy to:
Gunderson Dettmer Stough Villeneuve Franklin
& Hachigian, LLP
733 Third Avenue, Suite 220
New York, NY 10017
Attention: Babak Yaghmaie
Facsimile No.: (212) 687-6665
Telephone No.: (212) 687-5222
(b) if to Target or the Principal Stockholders, to:
Synet Service Corporation
120 South Sixth Street, Suite 900
Minneapolis, MN 55402
Attention: Chief Executive Officer
Facsimile No.: (612) 630-3440
Telephone No.: (612) 339-4880
with a copy to:
Parsinen Kaplan Rosberg & Gotlieb, P.A.
100 South Fifth Street, Suite 1100
Minneapolis, MN 55402
Attn: David Gotlieb, Esq.
Facsimile No.: (612) 333-6798
Telephone No.: (612) 342-0389
48
9.2 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
prospects, operations or results of operations of such entity and its
subsidiaries, taken as a whole, but shall exclude events, changes or effects
directly or indirectly arising out of or attributable to general market or
industry conditions. In this Agreement, any reference to a party's "knowledge"
means such party's actual knowledge after inquiry of officers, directors and
other employees of such party and its subsidiaries reasonably believed to have
substantive knowledge of such matters. The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement", "the date hereof", and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
September 25, 2000. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement, the
other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Schedule
and the Acquiror Disclosure Schedule (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
9.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
49
9.6 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to applicable
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within the State of Delaware,
in connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.8 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
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IN WITNESS WHEREOF, Target, Acquiror, Merger Sub, the Principal
Stockholders and the Stockholders' Agent have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the date first written above.
PREDICTIVE SYSTEMS, INC.
By: /s/ Robert Belau
-------------------------------------
Name: Robert Belau
Title: President
SALMON ACQUISITION CORPORATION
By: /s/ Robert Belau
-------------------------------------
Name: Robert Belau
Title: President
SYNET SERVICE CORPORATION
By: /s/ Michael J. Wethington
-------------------------------------
Name: Michael J. Wethington
Title: President
PRINCIPAL STOCKHOLDER:
/s/ Michael J. Wethington
----------------------------------------
Name: Michael J. Wethington
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
PRINCIPAL STOCKHOLDER:
/s/ Bart Greenwood
----------------------------------------
Name: Bart Greenwood
STOCKHOLDERS' AGENT:
/s/ Michael J. Wethington
----------------------------------------
Name: Michael J. Wethington
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION