EXHIBIT 2.10
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
USWEB CORPORATION
USWEB ACQUISITION CORPORATION 113
AND
INTERNET CYBERNAUTICS, INC.
DATED AS OF AUGUST 31, 1997
TABLE OF CONTENTS
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ARTICLE I - THE MERGER...............................................................2
1.1 The Merger................................................................2
1.2 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 of Merger on the Capital Stock of the Constituent Corporations.....3
1.7 Surrender of Certificates.................................................4
1.8 No Further Ownership Rights in Company Capital Stock......................6
1.9 Lost, Stolen or Destroyed Certificates....................................6
1.10 Purchase Price Adjustments................................................6
1.11 Parent Common Stock.......................................................8
1.12 Tax Consequences..........................................................9
1.13 Taking of Necessary Action; Further Action................................9
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................9
2.1 Organization of the Company...............................................9
2.2 Company Capital Structure................................................10
2.3 Subsidiaries.............................................................10
2.4 Authority................................................................10
2.5 No Conflict..............................................................10
2.6 Consents.................................................................11
2.7 Company Financial Statements.............................................11
2.8 No Undisclosed Liabilities...............................................11
2.9 No Changes...............................................................11
2.10 Tax Matters..............................................................13
2.11 Restrictions on Business Activities......................................15
2.12 Title to Properties; Absence of Liens and Encumbrances;
Condition of Equipment...................................................15
2.13 Intellectual Property....................................................16
2.14 Agreements, Contracts and Commitments....................................18
2.15 Interested Party Transactions............................................20
2.16 Governmental Authorization...............................................20
2.17 Litigation...............................................................20
2.18 Accounts Receivable......................................................21
2.19 Minute Books.............................................................21
2.20 Environmental Matters....................................................21
2.21 Brokers' and Finders' Fees; Third Party Expenses.........................22
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TABLE OF CONTENTS
(continued)
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2.22 Employee Benefit Plans and Compensation..................................22
2.23 Insurance................................................................25
2.24 Compliance with Laws.....................................................25
2.25 Warranties; Indemnities..................................................25
2.26 Complete Copies of Materials.............................................25
2.27 Representations Complete.................................................25
2.28 Business Plan............................................................25
2.29 Backlog Report...........................................................25
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB......................26
3.1 Organization, Standing and Power.........................................26
3.2 Authority................................................................26
3.3 No Conflict..............................................................26
3.4 Consents.................................................................26
3.5 Capital Structure........................................................27
3.6 Brokers' and Finders' Fees...............................................27
3.7 No Changes...............................................................27
3.8 Complete Copies of Materials.............................................28
3.9 Parent Financial Statements..............................................28
3.10 Litigation...............................................................28
3.11 Compliance with Laws.....................................................28
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME....................................29
4.1 Conduct of Business of the Company.......................................29
4.2 No Solicitation..........................................................31
ARTICLE V - ADDITIONAL AGREEMENTS...................................................32
5.1 Confidentiality..........................................................32
5.2 Expenses.................................................................32
5.3 Post-Closing Employment of Company Employees.............................32
5.4 Access to Information....................................................34
5.5 Public Disclosure........................................................34
5.6 Consents.................................................................35
5.7 FIRPTA Compliance........................................................35
5.8 Best Efforts.............................................................35
5.9 Notification of Certain Matters..........................................35
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TABLE OF CONTENTS
(continued)
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5.10 Additional Documents and Further Assurances..............................35
5.11 Section 368 Compliance...................................................35
5.12 Parent Policies..........................................................35
5.13 Tax Returns..............................................................36
ARTICLE VI - CONDITIONS TO THE MERGER...............................................36
6.1 Conditions to Obligations of Each Party to Effect the Merger.............36
6.2 Additional Conditions to Obligations of Company..........................36
6.3 Additional Conditions to the Obligations of Parent and Sub...............37
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; ESCROW....................................................39
7.1 Survival of Representations and Warranties...............................39
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER....................................39
8.1 Termination..............................................................39
8.2 Effect of Termination....................................................40
8.3 Amendment................................................................40
8.4 Extension; Waiver........................................................40
ARTICLE IX - GENERAL PROVISIONS.....................................................40
9.1 Notices..................................................................40
9.2 Interpretation...........................................................41
9.3 Counterparts.............................................................41
9.4 Entire Agreement; Assignment.............................................42
9.5 Severability.............................................................42
9.6 Other Remedies...........................................................42
9.7 Governing Law............................................................42
9.8 Rules of Construction....................................................42
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AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made and entered into on September 26, 1997 to be effective as
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of August 31, 1997 (the "Agreement Date"), among USWeb Corporation, a Utah
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corporation ("Parent"), USWeb Acquisition Corporation 113, a Delaware
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corporation and a wholly owned subsidiary of Parent ("Sub"), and Internet
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Cybernautics, Inc., a Delaware corporation (the "Company").
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RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub believe
it is in the best interests of each company and their respective stockholders
that Parent acquire the Company through the statutory merger of the Company with
and into Sub (the "Merger" or "Acquisition") and, in furtherance thereof, have
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approved the Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company shall be converted into the
right to receive shares of Common Stock of Parent.
C. Fifty Percent (50%) of the shares of Common Stock of Parent issued in
connection with the Merger at the Effective Time shall be placed in a one-year
escrow for the purposes of (i) satisfying damages, losses, expenses and other
similar charges which result from breaches of representations, warranties or
covenants or (ii) making adjustments to the purchase price paid by Parent.
D. The Company, Parent and Sub desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
E. The parties hereto desire that each employee of the Company prior to
the Merger shall be offered an opportunity of employment by Sub or Parent
following the Merger. Each party understands and agrees that any such employee
or Sub or Parent shall have the right to terminate any such employment at any
time.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
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the Company shall be merged with and into Sub, the separate corporate existence
of the Company shall cease and Sub shall continue as the surviving corporation
and as a wholly owned subsidiary of Parent. Sub as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
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Corporation."
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1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
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to Section 8.1, the closing of the Merger (the "Closing") will take place as
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promptly as practicable, but no later than five (5) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
unless another place or time is agreed to in writing by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
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to be consummated by submitting for filing an Agreement and Plan of Merger (or
like instrument) with the Secretary of State of Delaware (the "Merger
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Articles"), in accordance with the relevant provisions of Delaware Law (the time
of filing with the Secretary of State of Delaware being referred to herein as
the "Effective Time").
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1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
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(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Sub shall be
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of 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. The director(s) of Sub immediately prior to
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the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Sub
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation. Parent shall cause ▇▇▇▇▇
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▇▇▇▇▇▇▇▇ to be elected immediately after the Effective Time as "Vice President
and General Manager" of the Surviving Corporation to hold office in accordance
with the Bylaws of the Surviving Corporation.
1.6 Effect of Merger on the Capital Stock of the Constituent Corporations.
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(a) Exchange of Stock; Purchase Price Adjustments. As of the
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Effective Time of the Merger, each share of the Company's Common Stock, $0.001
par value (the "Company Common Stock") and each share of the Company's Preferred
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Stock, $0.001 par value (the "Company Preferred Stock"), that is issued and
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outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of Sub, the Company, or the Company's
stockholders (the "Company Stockholders"), be canceled and extinguished and each
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Company Stockholder shall have the right to receive, subject to Article II of
the Indemnification and Escrow Agreement in substantially the form attached as
Exhibit E (the "Indemnification Agreement"), (i) (A) with respect to each share
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of Company Preferred Stock owned by such Company Stockholder immediately prior
to the Effective Time, a fractional share of Parent Common Stock, par value
$0.001 per share ("Parent Common Stock"), equal to the result of dividing (1)
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$0.95 by (2) the Fair Value Per Share of Parent Common Stock as of the Closing
Date, or (B) with respect to each share of Company Common Stock owned by such
Company Stockholder immediately prior to the Effective Time, a fractional share
of Parent Common Stock equal to the result of dividing (1) 1,341,550 minus the
number of shares of Parent Common Stock to be issued in connection with the
Merger at the Effective Time pursuant to the preceding sub-clause (A), by (2)
the number of shares of Company Common Stock outstanding immediately prior to
the Effective Time, plus (ii) such Company Stockholder's pro rata portion of
that number of additional shares of Parent Common Stock as and to the extent
provided in Section 1.10 of this Agreement (the "Purchase Price Adjustment").
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For purposes of Clause (ii) of the immediately preceding sentence: (A) the pro
rata portion of the Purchase Price Adjustment in the case of a holder of Series
A Preferred of the Company shall be determined by multiplying (1) the percentage
of shares of Parent Common Stock issued at the Effective Time with respect to
Company Preferred Stock (excluding shares issued to holders of Company Series B
Preferred Stock) by (2) a fraction, the numerator of which is the number of
shares of Series A Preferred Stock of the Company beneficially owned by such
Company Stockholder immediately prior to the Effective Time and the denominator
of which shall be the total number of shares of Series A Preferred Stock of the
Company outstanding immediately prior to the Effective Time; and (B) the pro
rata portion of the Purchase Price Adjustment in the case of a holder of Company
Common Stock shall be determined by multiplying (1) the percentage of shares of
Parent Common Stock issued at the Effective Time with respect to Company Common
Stock (excluding shares issued to holders of Company Series B Preferred Stock)
by a fraction, the numerator of which is the number of shares of Company Common
Stock beneficially owned by such Company Stockholder immediately prior to the
Effective Time and the denominator of which shall be the total number of shares
of Company Common Stock outstanding immediately prior to the Effective Time.
Notwithstanding the foregoing, subject to Purchase Price Adjustments pursuant to
Section 1.10, the maximum number of shares of Parent Common Stock to be issued
by Parent in connection with the Merger at the Effective Time shall be 1,341,550
and the Company shall adjust the exchange ratios set forth in Section 1.6(a)(i)
if necessary to avoid the issuance of more than such maximum number of shares of
Parent Common Stock. The
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Original Purchase Price and the Purchase Price Adjustments, if any, are
hereinafter collectively referred to as the "Merger Consideration."
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(b) Stock Options. At or prior to the Effective Time, all warrants,
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rights convertible into capital stock, options or similar rights to purchase
Company capital stock shall be canceled and of no further force and effect.
(c) Adjustments to Parent Common Stock. The number of shares of
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Parent Common Stock issuable hereunder 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 Parent Common Stock, Company
Common Stock or Company Preferred Stock), reorganization, recapitalization or
other like change with respect to Parent Common Stock, Company Common Stock or
Company Preferred Stock occurring after the date hereof.
(d) Fractional Shares. No fractional share of Parent Common Stock
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shall be issued in the Merger, including a Purchase Price Adjustment pursuant to
Section 1.10 below. In lieu thereof, the number of shares otherwise issued or
issuable shall be rounded to the nearest whole share, with one-half share or
more being rounded up.
(e) Definitions.
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(i) Fair Value Per Share. The Fair Value Per Share of Parent
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Common Stock, as of any particular date, shall mean, if Parent's Common Stock is
then traded on an exchange or national quotation system, the average closing
price per share of Parent's Common Stock as traded on such exchange or national
quotation system during the 10 trading day period ending three business days
prior to the date of determination or, if not so traded, the fair market value
per share of such Parent's Common Stock as most recently determined by Parent's
Board of Directors acting in good faith.
(ii) Escrow Amount; Escrow Agent. The "Escrow Amount" shall be
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equal to (i) Fifty Percent (50%) of the number of shares of Parent Common Stock
issued in connection with the Merger at the Effective Time and shall be
delivered into escrow pursuant to the Indemnification Agreement by the Company
Stockholders (except holders of the outstanding shares of Series B Preferred
Stock of the Company) pro rata based on such Company Stockholders' relative
interest in the Purchase Price Adjustment calculated as provided in Section
1.6(a). The Escrow Agent shall be the secretary of Parent, or his designee, so
long as Parent is a privately held company. Thereafter, any transfer agent for
Parent's Common Stock may be appointed Escrow Agent.
(iii) Original Purchase Price. For purposes of this Agreement,
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the "Original Purchase Price" is $4,024,650.
(f) Broadview Shares. Parent acknowledges that the Company shall
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issue immediately prior to the Effective Time to Broadview Associates
("Broadview") shares of Company Series B Preferred Stock (the "Broadview
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Shares") in satisfaction of the Company's obligations
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4
under the letter agreement between the Company and Broadview Associates dated
July 22, 1997, as amended (the "Broadview Letter Agreement").
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1.7 Surrender of Certificates.
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(a) Exchange Agent. The Secretary of Parent or such other entity
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reasonably designated by Parent shall serve as exchange agent (the "Exchange
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Agent") in the Merger.
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(b) Parent to Provide Common Stock. Promptly after the Effective
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Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I the shares of Parent Common Stock issuable
pursuant to Section 1.6(a) in exchange for outstanding shares of Company Common
Stock and Company Preferred Stock; provided, that on behalf of the Company
Stockholders, Parent shall deposit the Escrow Amount into the Escrow Fund.
(c) Exchange Procedures. Promptly after the Effective Time, the
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Surviving Corporation shall cause to be mailed to each Company Stockholder (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates (the "Certificates") which
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immediately prior to the Effective Time represented outstanding shares of
Company Common Stock or Company Preferred Stock whose shares were converted into
the right to receive the Merger Consideration pursuant to Section 1.6, shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the Company
Stockholder shall be entitled to receive in exchange therefor a certificate
representing the number of shares issuable to such Company Stockholder as part
of the Original Purchase Price (less the number of shares of Parent Common Stock
to be deposited in the Escrow Fund (as defined in the Indemnification Agreement)
on such holder's behalf pursuant to the Indemnification Agreement) and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Indemnification Agreement, Parent shall cause to be distributed to the Escrow
Agent (as defined in the Indemnification Agreement) a certificate or
certificates representing that number of shares of Parent Common Stock equal to
the Escrow Amount. Such consideration shall be beneficially owned by the
holders on whose behalf such consideration was deposited in the Escrow Fund and
shall be available to compensate Parent as provided in the Indemnification
Agreement. Until surrendered to the Exchange Agent, each outstanding
Certificate that, prior to the Effective Time, represented shares of Company
Common Stock or Company Preferred Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence only the right to receive Merger Consideration pursuant to Section
1.6 hereof.
(d) Distributions With Respect to Unexchanged Shares. No dividends
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or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with
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respect to the shares of Parent Common Stock issuable upon conversion of the
shares of Company Common Stock or Company Preferred Stock represented thereby
until the holder of record of such Certificate shall surrender 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 Parent Common Stock issued in exchange therefor, without interest, at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
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Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Sub or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered or have established to the satisfaction of Sub or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
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Section 1.7, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock, Company
Common Stock or Company Preferred Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Capital Stock. All shares of
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Parent Common Stock issued upon the surrender for exchange of shares of Company
capital stock in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of Company
capital stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company capital 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
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Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock as may be required pursuant to Section 1.6(a); provided, however,
that Sub 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 Parent, Sub or the Exchange Agent with respect to
the Certificates alleged to have been lost, stolen or destroyed.
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1.10 Purchase Price Adjustments. The Original Purchase Price shall be
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subject to adjustment as follows:
(a) Six-Month Adjustment. As promptly as commercially practicable
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after the close of business on January 31, 1998 (the "First Adjustment Date"),
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Parent shall conduct a valuation of Sub according to the operation of Parent's
Valuation Model attached as Exhibit A (the "Valuation Model"). Parent shall
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then calculate the "First Adjustment to Purchase Price" as follows:
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FAPP = FADV - OPP
where FAPP is the First Adjustment to Purchase Price;
FADV is the "First Adjustment Date Value" as calculated on the
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First Adjustment Date using the Valuation Model; and
OPP is the "Original Purchase Price."
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(i) If FAPP is greater than zero, then Parent pursuant to
Section 1.10(c) shall pay to the Company Stockholders (except the holders of the
shares of Series B Preferred Stock of the Company outstanding immediately prior
to the Effective Time) promptly after the First Adjustment Date a number of
shares calculated as follows:
FSP = (FAPP / FVPSFAD) x .25
where FSP is the "First Shares Payment";
FAPP is the First Adjustment to Purchase Price as calculated
above; and
FVPSFAD is the Fair Value Per Share of Parent's Common Stock on
the First Adjustment Date.
(ii) If FAPP is less than zero, then the Escrow Agent
pursuant to Section 1.10(c) shall pay to Parent from the Escrow Amount promptly
after the First Adjustment Date a number of shares calculated as follows:
FSP = (-FAPP / FVPSAD)
where FSP is the "First Shares Payment;"
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FAPP is the First Adjustment to Purchase Price as calculated
above; and
FVPSAD is $3.00.
If FAPP equals zero, no adjustment to the Original Purchase Price shall be made
for the First Adjustment Date.
(b) Twelve-Month Adjustment. As promptly as commercially practicable
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after the close of business on July 31, 1998 (the "Second Adjustment Date"),
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Parent shall conduct a valuation of Sub according to the Valuation Model.
Parent shall then calculate the "Second Adjustment to Purchase Price" as
follows:
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▇▇▇▇ = SADV - FADV
where ▇▇▇▇ is the "Second Adjustment to Purchase Price;"
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SADV is the "Second Adjustment Date Value" as calculated on the
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Second Adjustment Date using the Valuation Model; and
FADV is the First Adjustment Date Value.
(i) If ▇▇▇▇ is greater than zero, then Parent pursuant to
Section 1.10(c) shall pay to the Company Stockholders (except the holders of
Series B Preferred Stock of the Company outstanding immediately prior to the
Effective Time) promptly after the Second Adjustment Date a number of shares
calculated as follows:
SSP = (▇▇▇▇ / FVPSSAD) x .25
where SSP is the "Second Shares Payment";
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▇▇▇▇ is the Second Adjustment to Purchase Price as calculated
above; and
FVPSSAD is the "Fair Value Per Share of Parent's Common Stock on
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the Second Adjustment Date."
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(ii) If ▇▇▇▇ is less than zero, then the Escrow Agent
pursuant to Section 1.10(c) shall pay to Parent from the Escrow Amount promptly
after the Second Adjustment Date a number of shares calculated as follows:
SSP = (-▇▇▇▇ / FVPSAD)
where SSP is the "Second Shares Payment;"
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▇▇▇▇ is the Second Adjustment to Purchase Price as calculated
above; and
FVPSAD is $3.00.
If ▇▇▇▇ equals zero, no adjustment to the Original Purchase Price shall be made
for the Second Adjustment Date.
(c) As promptly as commercially practicable after the First
Adjustment Date and the Second Adjustment Date, Parent shall deliver to the
Representative (as defined in the Indemnification Agreement) a reasonably
detailed report indicating the basis for its respective calculations of FAPP and
▇▇▇▇. The Representative shall have two weeks from the date of delivery of each
such report to determine whether to dispute the calculation. Parent shall make
available to the Representative, if reasonably requested by Representative in
connection with its review, at a reasonable time and for a reasonable period of
time a representative of Parent or Sub involved in making such calculations or
analyzing the supporting data. Promptly upon the later of (i) the expiration of
the two-week period following each date of delivery Parent's report of FAPP and
▇▇▇▇ or (ii) the resolution of a dispute with respect to Parent's calculations
of FAPP and ▇▇▇▇, Parent or the Escrow Agent, as applicable, shall deliver the
number of shares, if any, required under Sections 1.10(a) or 1.10(b),
respectively. Any payment by Parent of additional shares of Parent
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Common Stock pursuant to Sections 1.10(a)(i) or 1.10(b)(i) and any delivery by
the Escrow Agent to Parent pursuant to Sections 1.10(a)(ii) or 1.10(b)(ii) shall
be made to the Company Stockholders or from the Escrow Amount, as applicable,
pro rata (based on such Company Stockholders' respective interests in the
Purchase Price Adjustment calculated as provided in Section 1.6(a). Any dispute
regarding an adjustment in the Original Purchase Price pursuant to this Section
1.10 shall be resolved in accordance with the mechanism described in Article II
of the Indemnification Agreement.
1.11 Parent Common Stock. The shares of Parent Common Stock issued in
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connection with the Merger will not be registered under the Securities Act of
1933, as amended (the "Securities Act"). Such shares may not be transferred or
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resold thereafter, except in compliance with the terms of this Agreement and
following registration under the Securities Act or in reliance on an exemption
from registration under the Securities Act.
1.12 Tax Consequences. It is intended by the parties hereto that the
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Merger will constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and it shall be treated
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as such for the Valuation Model. Each party has consulted its own tax advisors
with respect to the tax consequences of the Merger. The Company Stockholders
shall not be liable to the Company, Surviving Corporation or Parent for any
taxes incurred by the Company, Surviving Corporation or Parent for taxes
incurred by them, and except for a breach of Section 5.11 below, nor shall the
Company, Surviving Corporation or Parent be liable to the Company Stockholders
for taxes incurred by them, if the Merger does not constitute a reorganization
within the meaning of Section 368 of the Code.
1.13 Taking of Necessary Action; Further Action. If, at any time after
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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 the Company and Sub, the officers and directors of the
Company, Parent and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
For purposes of this Article II, references to the Company shall encompass
any predecessor of the Company, except with respect to such references that
appear in Sections 2.1 through 2.5, 2.25, and 2.27 through 2.29. The Company
hereby represents and warrants to Parent and Sub, subject to such exceptions as
are specifically disclosed in Exhibit C attached hereto (referencing the
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appropriate section and paragraph numbers), as follows:
2.1 Organization of the Company. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each
9
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets), financial
condition or results of operations of the Company (hereinafter referred to as a
"Company Material Adverse Effect") or could reasonably be expected to have a
-------------------------------
material adverse effect on the business, assets (including intangible assets),
financial condition or results of operations of the Surviving Corporation based
on the current management's plans as of the Agreement Date (hereinafter referred
to as a "Surviving Corporation Material Adverse Effect"). The Company has
---------------------------------------------
delivered a true and correct copy of its Certificate of Incorporation and
Bylaws, each as amended to date, to Parent. Exhibit C lists the directors and
---------
officers of the Company. The operations now being conducted by the Company have
not been conducted under any other name.
2.2 Company Capital Structure. As of the Agreement Date:
-------------------------
(a) The authorized capital stock of the Company consists of
18,500,000 shares of Common Stock, none of which is issued and outstanding, and
5,500,000 shares of Preferred Stock. Of such authorized Preferred Stock,
3,500,000 shares are designated "Series A Preferred Stock" and 2,839,274 are
------------------------
issued and outstanding. There are no other classes or series of capital stock of
the Company of any kind outstanding. The Company capital stock is held by the
persons, with the domicile addresses and in the amounts set forth on
Exhibit C. All outstanding shares of Company capital stock are duly authorized,
---------
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is
bound.
(b) There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company or obligating the
Company to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement.
2.3 Subsidiaries. The Company does not have any subsidiaries and does
------------
not otherwise own any shares in the capital of or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity. The Company has never had any subsidiaries and
has never otherwise owned shares in the capital of or any interest in or
control, directly or indirectly of, any other corporation, partnership
association, joint venture or other business entity.
2.4 Authority. The Company has all requisite corporate power and
---------
authority to enter into this Agreement and all agreements required by the terms
hereof to be entered into by the Company (the "Company Ancillary Agreements")
----------------------------
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Company Ancillary Agreements
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of the
Company, and no further action is required on its part to authorize the
Agreement and the Company Ancillary Agreements and the transactions
10
contemplated hereby and thereby (other than the approval of the Company
Stockholders). This Agreement has been and the Company Ancillary Agreements will
be at or prior to the Closing duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and to rules of law governing specific performance, injunctive relief or
other equitable remedies.
2.5 No Conflict. The execution and delivery of this Agreement and the
-----------
Company Ancillary Agreements 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, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Certificate of Incorporation and Bylaws the
---------
Company, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which the Company or any
of its properties or assets is subject, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or assets, which such conflict, violation, default or (if exercised)
right would have a Company Material Adverse Effect or could reasonably be
expected to have a Surviving Corporation Material Adverse Effect.
2.6 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
-------------------
third party, including a party to any agreement with the Company or by which the
Company is bound (so as not to trigger any Conflict), is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as have previously been obtained or as
may be required under applicable securities laws thereby, and (ii) the filing of
the Agreement of Merger with the Secretary of State of the State of Delaware.
2.7 Company Financial Statements. Exhibit C sets forth the Company's
---------------------------- ---------
unaudited balance sheet as of December 31, 1996, and the related unaudited
statements of income and cash flow for year then ended (the "1996 Financials")
---------------
and the Company's unaudited balance sheet of June 30, 1997, and the related
unaudited statements of income and cash flow for the six (6) months then ended
(the "1997 Financials" and, collectively, the "Company Financials"). The 1996
--------------- ------------------
Financials and the 1997 Financials are correct in all material respects and have
been prepared in accordance with United States generally accepted accounting
principles ("USGAAP") applied on a basis consistent throughout the periods
------
indicated and consistent with each other. The Company Financials present fairly
in all material respects the financial condition, operating results and cash
flows of the Company as of the dates and during the periods indicated therein,
subject in the case of the 1997 Financials, to normal year-end adjustments. The
Company's Balance Sheet as of December 31, 1996 shall be referred to as the
"Balance Sheet."
-------------
11
2.8 No Undisclosed Liabilities. Except as set forth in Exhibit C, the
-------------------------- ---------
Company has no material liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with USGAAP), which (i) has not been
reflected in the Balance Sheet or in the Company Financials, or (ii) has not
arisen in the ordinary course of business consistent with past practices since
December 31, 1996.
2.9 No Changes. Except as set forth in Exhibit C, since June 30, 1997,
---------- ---------
there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance);
(e) to the knowledge of the Company, labor trouble or claim of
wrongful discharge or other unlawful labor practice or action;
(f) material change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its material assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment, by the Company, of a bonus or other additional salary or compensation
to any such person;
(j) any agreement, contract, lease or commitment (collectively a
"Company Agreement") or any extension or modification the terms of any Company
------------------
Agreement which (i) involves the payment of greater than $25,000 per annum or
which extends (and cannot be terminated without penalty) for more than one year,
(ii) involves any payment or obligation to any
12
affiliate of the Company other than in the ordinary course of business as
conducted on that date and consistent with past practices, or (iii) involves the
sale of any material assets;
(k) sale, lease, license or other disposition of any of the material
assets or properties of the Company, or any creation of any security interest in
such assets or properties except in the ordinary course of business as conducted
on that date and consistent with past practices;
(l) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(m) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(n) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(o) the commencement or notice or, to the knowledge of the Company,
threat of commencement of any lawsuit or proceeding against, or investigation
of, the Company or its affairs;
(p) notice of any claim of ownership by a third party of the Company's
Intellectual Property (as defined in Section 2.13 below) or notice of
infringement by the Company of any third party's Intellectual Property rights;
(q) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(r) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property (as defined in Section 2.13 below) to
the Company;
(s) any event of which the Company is aware and which is not generally
applicable to similar companies in the Company's industry that has or would have
a Company Material Adverse Effect or could reasonably be expected to have a
Surviving Corporation Material Adverse Effect; or
(t) negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
13
2.10 Tax Matters.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
------------------- ---
or, collectively, "Taxes," means (i) any and all federal, state, local and
-----
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Exhibit C:
---------------------- ---------
(i) The Company as of the Closing Date will have prepared
and timely filed or made a timely request for extension for all required
federal, state, local and foreign returns, estimates, information statements and
reports "Returns") relating to any and all Taxes concerning or attributable to
-------
the Company, or its operations and such Returns are true and correct and have
been completed in accordance with applicable law.
(ii) The Company as of the Closing Date (A) will have paid
or accrued all Taxes it is required to pay or accrue as shown on the Returns and
(B) will have withheld and timely remitted with respect to its employees all
income taxes and other Taxes required to be withheld and remitted.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed or proposed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) To the knowledge of the Company, no audit or other
examination of any Return of the Company, is presently in progress, nor has the
Company been notified of any request for such an audit or other examination.
(v) The Company has no liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
in accordance with USGAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise.
(vi) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal and state income and all state sales and
use Returns filed for all years as to which any applicable statute of
limitations has not expired.
14
(vii) There are no Liens of any sort on the assets of the
Company the relating to or attributable to Taxes other than Liens for taxes not
yet due and payable.
(viii) The Company Stockholders have no knowledge of any basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on any material assets of the
Company.
(ix) As of the Closing, there will not be any contract,
agreement, plan or arrangement, with the exception of this Agreement, covering
any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by the Company as an expense under Sections 162, 280G or 404 of the
Code.
(x) The Company is not a party to a tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement.
(xi) The Company uses the accrual method of accounting for
income tax purposes and its tax basis in its assets for purposes of determining
its future amortization, depreciation and other federal income tax deductions is
accurately reflected on the Company's tax books and records.
2.11 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), contract, commitment, judgment, injunction, order or
decree to which the Company is a party or otherwise binding upon the Company
which has or may have the effect of prohibiting any business practice of the
Company, any acquisition of property (tangible or intangible) by the Company or
the conduct of business by the Company or which has or may limit the freedom of
the Company to engage in any line of business or to compete with any person,
other than this Agreement and the Company Ancillary Agreements. The Company has
not entered into any agreement under which the Company is prohibited from
providing services to customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.12 Title to Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment.
---------
(a) The Company does not own any real property, nor has it ever
owned any real property. Exhibit C sets forth a list of all real property
---------
currently leased by the Company and the Company has delivered to Parent copies
of all applicable leases. All such current leases are in full force and effect,
are valid and effective in accordance with their respective terms, and there is
not, under any of such leases, any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default)
on the part of the Company or, to the knowledge of the Company, on the part of
any other party.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used or held for use
in its business, free and clear of any Liens, except as reflected in the
15
Company Financials or in Exhibit C and except for liens for taxes not yet due
---------
and payable and such imperfections of title and encumbrances, if any, which are
not material in character, amount or extent, and which do not detract from the
value, or interfere with the present use, of the property subject thereto or
affected thereby.
(c) Exhibit C lists all material items of equipment (the
---------
"Equipment") owned or leased by the Company and such Equipment is, taken as a
---------
whole, (i) adequate for the conduct of the business of the Company as currently
conducted and (ii) in good operating condition, regularly and properly
maintained, subject to normal wear and tear.
(d) The Company is entitled to possess and use all customer files
and other customer information relating to Company's customers in the possession
or control of the Company (the "Customer Information").
--------------------
2.13 Intellectual Property.
---------------------
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"Intellectual Property" shall mean any or all of the following and
---------------------
all rights in, arising out of, or associated therewith: (i) all United States
and foreign patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof; (ii) all inventions (whether patentable or not), invention disclosures,
improvements, trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to any of the
foregoing; (iii) all copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto throughout the world; (iv)
all mask works, mask work registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (v) all industrial designs
and any registrations and applications therefor throughout the world; (vi) all
trade names, logos, common law trademarks and service marks; trademark and
service ▇▇▇▇ registrations and applications therefor throughout the world; (vii)
all databases and data collections and all rights therein throughout the world;
and (viii) all computer software including all source code, object code,
firmware, development tools, files, records and data, all media on which any of
the foregoing is recorded, and all documentation related to any of the foregoing
throughout the world.
"Intellectual Property of Company" shall mean any Intellectual
--------------------------------
Property that: (i) is owned by or exclusively licensed to the Company, or (ii)
which is necessary to the operation of the Company, including the design,
manufacture and use of the products or performance of the services of the
Company as it currently is operated or is reasonably anticipated by the current
management of the Company as of the Agreement Date to be operated in the future,
but shall specifically not include any rights in or to materials created for
clients as "work-made-for-hire" or which are subject to an exclusive assignment
or license in favor of clients of the Company.
16
(b) Exhibit C lists all of Company's United States and foreign: (i)
---------
patents, patent applications (including provisional applications); (ii)
registered trademarks, applications to register trademarks, intent-to-use
applications, or other registrations related to trademarks; (iii) registered
copyrights and applications for copyright registration; (iv) mask work
registrations and applications to register mask works; and (v) any other
Intellectual Property of Company that is the subject of an application,
certificate or registration filed with, issued by, or recorded by, any state,
government or other public legal authority (all of the foregoing, the
"Registered Intellectual Property").
--------------------------------
(c) Each item of Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been made and all
documents and certificates necessary to maintain such Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may be,
for the purposes of maintaining such Registered Intellectual Property.
(d) The contracts, licenses and agreements listed in Exhibit C
---------
include all contracts, licenses and agreements, to which the Company is a party
relating in any material respect to any Intellectual Property with a stated
value or cost in excess of $10,000, other than "shrink wrap" and similar
commercial end-user licenses.
(e) The contracts, licenses and agreements listed in Exhibit C
---------
relating to the Intellectual Property of Company are in full force and effect.
The Company is in compliance with, and has not breached any term of, the
contracts, licenses and agreements listed in Exhibit C, and, to the knowledge of
---------
the Company, all other parties to the contracts, licenses and agreements listed
in Exhibit C are, in material compliance with, and have not breached any term
---------
of, such contracts, licenses and agreements. Following the Closing Date,
Surviving Corporation will be permitted to exercise all of the Company's rights
under the contracts, licenses and agreements listed in Exhibit C without the
---------
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay,
assuming the Surviving Corporation's compliance with the terms thereof.
(f) To the knowledge of the Company, the Company has not granted to
any Person, or authorized any Person to retain, any rights in the Intellectual
Property of Company.
(g) The Company owns and has good and exclusive title to each item
of Intellectual Property listed in Exhibit C, free and clear of any lien or
---------
encumbrance; and the Company owns, or has the right, pursuant to a valid
Contract to use or operate under, all other Intellectual Property of Company.
(h) The operation of the business of the Company as it currently is
conducted, including its design, development, manufacture and sale of its
products (including with respect to products currently under development) and
provision of services, does not infringe or misappropriate the Intellectual
Property of any other person, violate the rights of any person (including rights
to privacy or publicity), or constitute unfair competition.
17
(i) The Company has not received notice from any person that the
operation of the business of the Company, including its design, development,
manufacture and sale of its products (including with respect to products
currently under development) and provision of its services, infringes or
misappropriates the Intellectual Property of any person, violates the rights of
any person (including rights to privacy or publicity), or constitutes unfair
competition.
(j) The Company owns or has the right to all Intellectual Property
necessary to the conduct of its business as it currently is conducted or is
reasonably contemplated by the current management of the Company as of the
Agreement Date to be conducted, including, without limitation, the design,
development, manufacture and sale of all products currently manufactured or sold
by the Company or under development by the Company and the performance of all
services provided by the Company.
(k) Exhibit C lists all contracts, licenses and agreements between
---------
the Company and any other person wherein or whereby the Company has agreed to,
or assumed, any obligation or duty to indemnify, hold harmless or otherwise
assume or incur any obligation or liability with respect to the infringement by
the Company or such other Person of the Intellectual Property rights of any
other person.
(l) There are no contracts, licenses and agreements between the
Company and any other person with respect to Intellectual Property of Company
under which there is any dispute known to the Company regarding the scope of
such agreement, or performance under such agreement including with respect to
any payments to be made or received by the Company thereunder which could have a
Company Material Adverse Effect or a Surviving Corporation Material Adverse
Effect.
(m) To the knowledge of the Company, no person is infringing or
misappropriating any of the Intellectual Property of Company.
(n) To the knowledge of the Company, there are no Intellectual
Property claims of infringement or misappropriation of Intellectual Property
asserted against the Company or against any customer of the Company, related to
any product or service of the Company.
(o) No Intellectual Property of Company or product or service of
the Company is subject to any outstanding decree, order, judgment, or
stipulation specifically applicable to and naming the Company restricting in any
manner the use or licensing thereof by the Company.
(p) The Company has, and enforces, a policy requiring each employee
and contractor to execute proprietary information and confidentiality agreements
substantially in the Company's standard forms and all current and former
employees and contractors of the Company have executed such an agreement.
(q) No (i) product, service or publication of the Company, (ii)
material published or distributed by the Company or (iii) conduct or statement
of Company, constitutes obscene
18
material, a defamatory statement or material, or violates any rights, including
rights of publicity or privacy, of any person, nor is the Company aware of any
such claim asserted against the Company.
2.14 Agreements, Contracts and Commitments.
-------------------------------------
(a) The Company is not a party to, nor is it bound by (other than
this Agreement and the Company Ancillary Agreements):
(i) any collective bargaining agreement,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000,
(x) any agreement, contract or commitment relating to the
disposition or acquisition of material assets or any interest in any business
enterprise outside the ordinary course of the Company's business,
(xi) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof,
19
(xii) any purchase order or contract for the purchase of
materials involving $25,000 or more,
(xiii) any construction contracts,
(xiv) any distribution, joint marketing or development
agreement, or
(xv) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) The Company has not breached, violated or defaulted under, or
received notice that it has breached, violated or defaulted under, any of the
terms or conditions of any agreement, contract, license or commitment to which
it is a party or by which it is bound (any such agreement, contract, license or
commitment, a "Contract"), nor is the Company aware of any event that would
--------
constitute such a breach, violation or default with the lapse of time, giving of
notice or both. Each Contract is in full force and effect and to the knowledge
of the Company, is not subject to any default thereunder by any party obligated
to the Company pursuant thereto. The Company has obtained all necessary
consents, waivers and approvals of parties to any Contract as are required
thereunder in connection with the Merger so that all such Contracts will remain
in effect without modification after the Closing.
2.15 Interested Party Transactions. No officer, director or stockholder
-----------------------------
of the Company (nor any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services
or products that the Company furnishes or sells, or proposes to furnish or sell,
or (ii) any interest in any entity that purchases from or sells or furnishes to,
the Company, any goods or services or (iii) a beneficial interest in any
Contract; provided, that ownership of no more than one percent (1%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"interest in any entity" for purposes of this Section 2.15.
2.16 Governmental Authorization. Exhibit C lists each consent, license,
-------------------------- ---------
permit, grant or other authorization issued to the Company by a governmental
entity (i) pursuant to which the Company currently operates or holds any
interest in any of its properties or (ii) which is required for the operation of
its business or the holding of any such interest (herein collectively called
"Company Authorizations"). The Company Authorizations are in full force and
-----------------------
effect and constitute all Company Authorizations required to permit the Company
to operate or conduct its business or hold any interest in its properties or
assets.
2.17 Litigation. There is no action, suit or proceeding of any nature
----------
pending, or to the Company's knowledge threatened, against the Company, its
properties or any of its officers or directors, nor, to the knowledge of the
Company, is there any reasonable basis therefor which if adversely determined
could reasonably be expected to have a Company Material Adverse Effect or a
Surviving Corporation Material Adverse Effect. There is no investigation
pending or, to the
20
Company's knowledge threatened, against the Company, its properties or any of
its officers or directors (nor, to the best knowledge of the Company, is there
any reasonable basis therefor) by or before any governmental entity. To the
knowledge of the Company, no governmental entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products or services in the present manner or style thereof.
2.18 Accounts Receivable.
-------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of July 31, 1997 ("Accounts Receivable") along with
-------------------
the number of days elapsed since such invoice.
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with USGAAP
consistently applied and are collectible except to the extent of reserves
therefor set forth in the Balance Sheet. No person has any Lien on any of such
Accounts Receivable and no agreement for deduction or discount has been made
with respect to any of such Accounts Receivable.
2.19 Minute Books. The minutes of the Company made available to counsel
------------
for Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of the
Company and its stockholders or actions by written consent since the time of
incorporation of the Company.
2.20 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not: (i) operated any
------------------
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PBS, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
-------------------
safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Company or, to the Company's knowledge, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has either the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
21
foregoing being collectively referred to as "Hazardous Materials Activities") in
------------------------------
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
-------
permits, licenses, clearances and consents (the "Environmental Permits")
---------------------
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company which could
reasonably be expected to have a Company Material Adverse Effect or a Surviving
Corporation Material Adverse Effect. The Company is not aware of any fact or
circumstance which could involve the Company in any environmental litigation or
impose upon the Company any environmental liability which could reasonably be
expected to have a Company Material Adverse Effect or a Surviving Corporation
Material Adverse Effect.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth
------------------------------------------------
in Exhibit C, the Company has not incurred, nor will it incur, directly or
---------
indirectly, any liability for brokers' or finders' fees or agents' commissions
or any similar charges in connection with the Agreement or any transaction
contemplated hereby. Exhibit C sets forth the Company's current reasonable
---------
estimate of all third party expenses expected to be incurred by the Company in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby.
2.22 Employee Benefit Plans and Compensation.
---------------------------------------
(a) For purposes of this Section 2.22, the following terms shall have
the meanings set forth below:
(i) "Employee Plan" shall refer to any plan, program,
-------------
policy, practice, contract, agreement or other arrangement providing for
bonuses, severance, termination pay, performance awards, stock or stock-related
awards, fringe benefits or other employee benefits of any kind, whether formal
or informal, funded or unfunded and whether or not legally binding, including
without limitation, any plan which is or has been maintained, contributed to, or
required to be contributed to, by the Company for the benefit of any "Employee"
(as defined below), and pursuant to which the Company has or may have any
material liability, contingent or otherwise; and
(ii) "Employee" shall mean any current, former, or retired
--------
employee, officer, or director of the Company.
(iii) "Employee Agreement" shall refer to each employment,
------------------
severance, consulting or similar agreement or contract between the Company and
any Employee;
22
(b) Schedule. Exhibit C contains an accurate and complete list of
-------- ---------
each Company Employee Plan and each Employee Agreement. The Company does not
have any plan or commitment, whether legally binding or not, to establish any
new Company Employee Plan or Employee Agreement, to modify any Company Employee
Plan or Employee Agreement (except to the extent required by law or to conform
any such Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement, nor does it have any commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent: (i) correct and
---------
complete copies of all documents embodying each Employee Plan and each Employee
Agreement including all amendments thereto and copies of all forms of agreement
and enrollment used therewith; (ii) the most recent annual actuarial valuations,
if any, prepared for each Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv)
the most recent summary plan description together with the most recent summary
of material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (v) all IRS determination letters and rulings relating to
Company Employee Plans and copies of all applications and correspondence to or
from the IRS or the Department of Labor ("DOL") with respect to any Company
---
Employee Plan; (vi) if the Employee Plan is funded, the most recent annual and
periodic accounting of Employee Plan assets; and (vii) copies of all written
communications material to any Employee or Employees relating to any Employee
Plan and any proposed Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
liability to the Company.
(d) Employee Plan Compliance. (i) The Company has performed all
------------------------
obligations required to be performed by it under each Employee Plan and each
Employee Plan has been established and maintained in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including ERISA and the Code, in all material respects; (ii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company Employee Plan;
(iii) there are no actions, suits or claims pending, or, to the knowledge of the
Company threatened or anticipated (other than routine claims for benefits)
against any Employee Plan or against the assets of any Employee Plan; (iv) each
Employee Plan can be amended, terminated or otherwise discontinued after the
Closing Date in accordance with its terms, without liability to the Company,
Parent or Sub (other than ordinary administration expenses typically incurred in
a termination event); (v) there are no inquiries or proceedings pending or, to
the knowledge of the Company threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vi) the Company is not subject to any penalty or
tax with respect to any Company Employee Plan under Section 402(i) of ERISA or
Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
23
(f) Multiemployer Plans. At no time has the Company contributed to or
-------------------
been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan
------------------------------
provides, or has any liability to provide, life insurance, medical or other
employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and the Company
has not represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except to
the extent required by statute.
(h) Continuing Liabilities. No Employee Plan provides, or has any
----------------------
liability to provide, life insurance, medical or other employee benefits to any
Employee upon his or her retirement or termination of employment for any reason,
except as may be required by statute, and the Company has not represented,
promised or contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(i) No Conflicts. The execution of this Agreement and the
------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(j) Employment Matters. The Company (i) is in compliance with all
------------------
applicable laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
(k) Labor. No work stoppage or labor strike against the Company is
-----
pending, or to the knowledge of the Company, threatened. The Company is not
involved in or to the knowledge of the Company threatened with any labor
dispute, grievance, or litigation relating to labor, safety, discrimination, or
harassment matters involving any Employee, including, without limitation,
charges of unfair labor practices, discrimination, or harassment complaints,
which, if adversely determined, would, individually or in the aggregate, result
in material liability to the Company, Parent or Sub. The
24
The Company is not presently, nor has it in the past, been a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Company.
2.23 Insurance. Exhibit C lists all insurance policies and fidelity bonds
--------- ---------
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company. There is no claim by the Company 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 the Company
is otherwise in compliance with the terms of such policies and bonds (or other
policies and bonds providing substantially similar insurance coverage) in all
material respects. The Company has no knowledge of any threatened termination
of, or premium increase with respect to, any of such policies.
2.24 Compliance with Laws. The Company has complied with, is not in
--------------------
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation, except where such
failure to comply or such violation could not reasonably be expected to have a
Company Material Adverse Effect.
2.25 Warranties; Indemnities. Exhibit C sets forth a summary of all
----------------------- ---------
warranties and indemnities relating to products sold or services rendered by the
Company, and no warranty or indemnity has been given by the Company which
differs therefrom in any respect. Exhibit C also indicates all warranty and
---------
indemnity claims in excess of $25,000 made against the Company.
2.26 Complete Copies of Materials. The Company has delivered or made
----------------------------
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
2.27 Representations Complete. None of the representations or guarantees
------------------------
made by the Company or the Principal Stockholders (as modified by the Exhibit
-------
C), nor any statement made in Exhibit C or any certificate furnished by the
---------
Company or the Company Stockholders pursuant to this Agreement, or furnished in
or in connection with documents mailed or delivered to the Company Stockholders
in connection with soliciting their consent to this Agreement and the Merger,
contains or will contain at the Closing, any untrue statement of a material
fact, or omits or will omit at the Closing 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.
2.28 Business Plan. The Company has provided to Parent a current, accurate
-------------
and detailed business plan for the Company's planned operations during the
twelve months following the Closing Date which includes, without limitation, a
description of the Company's capital requirements, staffing needs, and a pro
forma income statement. The business plan is attached to Exhibit C hereto. The
---------
Company makes no representation with respect to the Company's or the Surviving
Corporation's ability to execute such business plan except that it reasonably
believes that the assumptions underlying the business plan and the projections
in the business plan are reasonable under the circumstances.
25
2.29 Backlog Report. The Company has provided to Parent a detailed and
--------------
accurate list of all orders booked but not yet completed, giving the status of
each order as of a recent date. The backlog report is attached to Exhibit C
---------
hereto.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly represent and warrant to the Company and the Company
Stockholders as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Utah. Sub is a corporation duly organized, validly existing and in good standing
under the laws of Delaware. Each of Parent and Sub has the corporate power to
own its properties and to carry on its business as now being conducted and is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the failure to be so qualified would have a
material adverse effect on the business, assets (including intangible assets)
financial condition or results of operation of Parent or Sub taken together as a
whole (a "Parent Material Adverse Effect").
------------------------------
3.2 Authority. Parent and Sub have all requisite corporate power and
---------
authority to enter into this Agreement and all agreements required by the terms
hereof to be entered into by Parent or Sub (the "Parent Ancillary Agreements")
---------------------------
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Parent Ancillary Agreements and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Parent and Sub,
and no further action is required on the part of either Parent or Sub to
authorize the Agreement and the Parent Ancillary Agreements and the transactions
contemplated hereby and thereby. This Agreement has been and the Parent
Ancillary Agreements will be at or prior to the Closing duly executed and
delivered by Parent and Sub and constitute the valid and binding obligations of
Parent and Sub, enforceable in accordance with their terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
3.3 No Conflict. The execution and delivery of this Agreement and the
-----------
Parent Ancillary Agreements by Parent and Sub do not, and the consummation of
the transactions contemplated hereby and thereby will not, conflict with (i) any
provision of the respective Articles of Incorporation or Bylaws of Parent or
Sub, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which either Parent or
Sub or any of their respective parties is subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to either of
Parent or Sub.
3.4 Consents. No consent, waiver, approval, order or authorization, or
--------
registration, declaration or filing with, any Governmental Entity or any third
party is required by or with respect to
26
either of Parent or Sub in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
3.5 Capital Structure.
-----------------
(a) The authorized stock of Parent consists of 100,000,000 shares of
Common Stock, $0.001 par value, of which 30,372,368 shares of Common Stock are
issued and outstanding as of August 29, 1997, and 38,188,501 shares of Preferred
Stock, $0.001 par value, of which (x) 18,678,500 shares are designated Series A
Preferred Stock, 18,518,500 of which are issued and outstanding as of the
Agreement Date, and (y) 9,310,001 shares are designated Series B Preferred
Stock, all of which are issued and outstanding as of August 29, 1997 and (z)
10,200,000 shares are designated Series C Preferred Stock, 8,454,580 of which
are issued and outstanding as of August 29, 1997. There are no other classes or
series of capital stock of Parent of any kind outstanding or issuable. All such
shares have been duly authorized, and all such issued and outstanding shares
have been validly issued, are fully paid and nonassessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof.
(b) Parent has also reserved (i) 3,900,000 shares of Common Stock for
issuance to employees and consultants pursuant to Parent's 1996 Stock Option
Plan and the 1996 Equity Compensation Plan, (ii) 160,000 shares of Series A
Preferred Stock for issuance upon the exercise of outstanding warrants to
purchase Series A Preferred Stock (the "Warrant Stock"), (iii) 160,000 shares of
-------------
Common Stock for issuance upon conversion of the Warrant Stock, (iv) 1,000,000
shares of Common Stock for issuance upon the exercise of warrants issued or
outstanding warrants to purchase issuable pursuant to the Company's Affiliate
Warrant Program, and (v) 24,000,000 shares of Common Stock for issuance under
the Company's 1997 Acquisition Stock Option Plan. There are no other options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which Parent is a party or by which it is bound obligating Parent to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Parent or
obligating Parent to grant, extend, or enter into any such option, warrant,
call, right, commitment or agreement.
(c) The shares of Parent Common Stock to be issued pursuant to the
Merger (including any shares issued pursuant to the exercise of any options to
be granted pursuant to Article V) will be duly authorized, validly issued, fully
paid and non-assessable.
(d) All shares of the capital stock of Sub have been validly issued,
are fully paid and nonassessable, are free of any liens or encumbrances, are not
subject to any right of first refusal and are owned by Parent.
3.6 Brokers' and Finders' Fees. Parent has not incurred, nor will it
--------------------------
incur, directly or indirectly, any liability for brokers' or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
27
3.7 No Changes. Except as otherwise disclosed in this Agreement, the
----------
information contained in the Confidential Offering Memorandum dated February
1997, relating to Parent's Series C Preferred Stock offering (i) was true and
correct as of its date, (ii) accurately described Parent's business, operating
results, financial condition, and, to Parent's knowledge, prospects as of its
date, (iii) contained no untrue statement of a material fact as of its date,
and (iv) omitted no material fact necessary to make the statements contained
therein, in light of the circumstances under which made in such document, not
misleading as of its date. None of the representations made by Parent as of the
Agreement Date, or any certificate or Exhibit furnished by Parent pursuant to
this Agreement, contains any untrue statement of a material fact, or omits to
state any material fact necessary in order to make the statements contained
therein, in light of the circumstances under which made, not misleading.
3.8 Complete Copies of Materials. Parent has delivered or made available
----------------------------
true and complete copies of each document (or summaries of same) that has been
requested by the Company or its counsel, including without limitation the
Articles or Certificate of Incorporation and Bylaws of Parent and Sub, in each
case as amended to date.
3.9 Parent Financial Statements. Parent has provided to the Company the
---------------------------
Parent's audited balance sheets as of December 31, 1995 and 1996 and the related
audited statements of income and cash flow for the years then ended, and the
Parent's unaudited balance sheet as of June 30, 1997, and the related unaudited
statements of income and cash flow for the six months then ended (the "Parent
------
Financials"). The Parent Financials are correct in all material respects and
----------
have been prepared in accordance with USGAAP applied on a basis consistent
throughout the periods indicated and consistent with each other. The Parent
Financials present fairly in all material respects the financial condition,
operation results and cash flows of the Parent on a consolidated basis as of the
dates and during the periods indicated therein, subject in the case of the
unaudited financial statements to normal year-end adjustments.
3.10 Litigation. There is no action, suit or proceeding of any nature
----------
pending, or to Parent's knowledge threatened, against Parent, its properties or
any of its officers or directors, nor to the knowledge of Parent, is there any
reasonable basis therefor which if adversely determined could reasonably be
expected to have a Parent Material Adverse Effect. There is no investigation
pending or, to Parent's knowledge threatened, against Parent, its properties or
any of its officers or directors (nor, to the best knowledge of Parent, is there
any reasonable basis therefor) by or before any governmental entity. To the
knowledge of Parent, no governmental entity has at any time challenged or
questioned the legal right of Parent to manufacture, offer or sell any of its
products or services in the present manner or style thereof.
3.11 Compliance with Laws. Parent has complied with, is not in violation
--------------------
of, and has not received any notices of violation with respect to, any foreign,
federal, state or local statute, law or regulation, except where such failure to
comply or such violation could not reasonably be expected to have a Parent
Material Adverse Effect.
28
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve intact
the Company's present business organization, keep available the services of
present officers and key employees and preserve relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired the Company's
goodwill and ongoing businesses at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of business of the Company, and any material event involving the
Company. Except as expressly contemplated by this Agreement, the Company shall
not, without the prior written consent of Parent:
(a) Except for recourse loans by the Company, to Company employees or
directors that will allow them to exercise their options to purchase Company
Common Stock in connection with the Agreement, which loans shall be secured by
the Company Common Stock issued upon the exercise of such options (and proceeds
thereof), enter into any commitment or transaction not in the ordinary course of
business or any commitment or transaction of the type described in Section 2.9
hereof;
(b) Transfer to any person or entity any rights to the Intellectual
Property of Company;
(c) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in Exhibit C;
---------
(e) Commence any litigation;
(f) Declare, set aside 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 capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor), except in
each case shares issued upon the exercise of options to purchase Company Common
Stock outstanding on the date hereof;
29
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, 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, except in each case shares issued upon the exercise of
options to purchase Company Common Stock outstanding on the date hereof;
(h) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws other than amendment to its Certificate of Incorporation
to increase the number of authorized shares of Company capital stock, to create
a Series B Preferred Stock, and possibly change the conversion ratio of the
Preferred Stock in a manner that does not adversely affect Parent or Sub;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities 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 business;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practices;
(k) Incur in excess of $10,000 of any indebtedness for borrowed money
or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(l) Grant any loans to others or purchase debt securities of others
or amend the terms of any outstanding loan agreement, except (i) except for
recourse loans by the Company to Company employees or directors that will allow
them to exercise their options to purchase Company Common Stock in connection
with the Agreement, which loans shall be secured by the Company Common Stock
issued upon the exercise of such options (and proceeds thereof), or (ii) in the
ordinary course of business and consistent with past practices;
(m) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(o) 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;
(p) Pay, discharge or satisfy, in an amount in excess of $10,000 (in
any one case) or $25,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or
30
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in the Company Financials (or the notes thereto);
(q) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(r) Enter into any strategic alliance or joint marketing arrangement
or agreement; or
(s) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (s) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the date
---------------
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (and will not permit any of the Company's officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Parent and its
designees: (a) solicit, conduct discussions with or engage in negotiations with
any person, relating to the possible acquisition of the Company (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its capital stock or assets, (b) provide information with
respect to it to any person, other than Parent, relating to the possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its capital stock or
assets, (c) enter into an agreement with any person, other than Parent,
providing for the acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise) or any material portion of
its or their capital stock or assets or (d) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of the
Company (whether by way of merger, purchase of capital stock, purchase of assets
or otherwise) or any material portion of its or their capital stock or assets by
any person, other than by Parent. In addition to the foregoing, if the Company
receives prior to the Effective Time or the termination of this Agreement any
offer or proposal relating to any of the above, the Company shall immediately
notify Parent thereof, including information as to the identity of the offeror
or the party making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be, and such other information related
thereto as Parent may reasonably request.
31
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Confidentiality. Each of the parties hereto hereby agrees to keep
---------------
such information or knowledge obtained pursuant to the negotiation and execution
of this Agreement, or the effectuation of the transactions contemplated hereby,
confidential (including without limitation any information obtained by Parent or
Sub pursuant to Section 5.4); provided, however, that the foregoing shall not
apply to information or knowledge which (a) a party can demonstrate was already
lawfully in its possession prior to the disclosure thereof by the other party,
(b) is or becomes generally known to the public and did not become so known
through any violation of law or this Agreement by the non-disclosing party, (c)
is later lawfully acquired by such party from other sources, (d) is required to
be disclosed by order of court or government agency after seeking any reasonably
available protection against general disclosure or (e) which is disclosed in the
course of any litigation between any of the parties hereto; it being understood
that the parties may disclose relevant information and knowledge to their
respective employees and agents on a need to know basis, provided that the
parties cause such employees and agents to treat such information and knowledge
confidentially.
5.2 Expenses. Whether or not the Acquisition is consummated, all fees and
--------
expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses.
5.3 Post-Closing Employment of Company Employees.
--------------------------------------------
(a) Company shall terminate each employee of Company on and as of the
Closing Date, effective as of close of business on the Closing Date. Parent
will hire on the Closing Date, effective as of the close of business on the
Closing Date, on an "at will" basis and subject to Parent's terms, conditions
and policies of employment, if any, each of those persons who are employed by
Company and are terminated by Company on the Closing Date pursuant to the
foregoing sentence. Nothing contained in this Section is intended or shall be
deemed to (a) require Parent to employ such persons for any fixed or pre-
determined time after the Closing, or (b) confer upon any employee of Company,
past, present, or future, any rights of employment of any nature, it being
understood and agreed that the provisions of this Section are intended to set
forth an agreement among Parent and Company, and are not intended to benefit any
persons not party to this Agreement, including such employees. Parent and
Company hereby agree to adopt the alternate procedure of Rev. Proc. 96-60 for
purposes of employer payroll withholding.
(b) In connection with hiring the Company's employees (the "New
---
Employees") as set forth in Section 5.3(a) above, Parent shall grant to the New
---------
Employees incentive stock options and will grant to certain consultants
nonqualified stock options to purchase Parent Common Stock in an aggregate
number equal to the number of shares paid as the Original Purchase Price. Such
32
incentive stock options shall be issued to the New Employees and such
nonqualified stock options shall be issued to such consultants, in the amounts,
requested by the Company in writing at the Closing. The exercise price of each
option shall be the fair market value of the Common Stock subject to such option
on the Closing Date as determined in good faith and authorized by the Board of
Directors of the Parent. Such options shall not be exercisable at the date of
grant, but shall become exercisable as to one-thirty-sixth (1/36) of the shares
subject to such option each month after the agreement date of this Agreement,
provided, however, that no option shall become exercisable with respect to any
shares at any time following the date that the New Employee to whom the option
was granted ceases to be an employee or consultant of the Parent (an "Employee
--------
Termination"), and provided further that the term of any such option shall
-----------
expire if not exercised, and to the extent not exercisable, ninety (90) days
after the date of the Employee Termination. Accordingly, any New Employee who
receives an option must exercise it (but only to the extent then exercisable),
if at all, within ninety (90) days after an Employee Termination.
Notwithstanding the foregoing, in the event of any Employee Termination due to
the death or disability of the New Employee, the New Employee or his estate
shall have twelve (12) months to exercise the option to the extent it was
exercisable on the date of the Employee Termination; thereafter, the option
shall terminate as to any unexercised portion. New Employee acknowledges that
New Employee may be taxed under the Code on the difference between the fair
market value of shares purchased pursuant to any exercised option less the
exercise price paid on the date of any such exercise and that the Parent may
withhold any applicable taxes from New Employee's regular pay or, if
insufficient, that New Employee will make any required withholding payment to
the Parent. New Employee also acknowledges that there may be state or local tax
due upon exercise of the option, and that any such tax is the obligation of the
New Employee and not the Parent. The terms of the options as described in this
paragraph are subject to the definitive form of option agreement attached hereto
as Exhibit B.
---------
(c) Also in connection with hiring the New Employees and the
consultants (as described in Section 5.3(b)), Parent agrees to issue to each of
them a bonus payable in Parent Common Stock equal to the aggregate exercise
price of the options described in Section 5.3(b) above. Such bonus shall be, as
to each such person, for such number of shares of Parent Common Stock as shall
be equal, on the date paid, and in the good faith judgment of the Parent's Board
of Directors, to the aggregate exercise price of the exercisable portion of the
option granted to such person described in the foregoing paragraph. The bonus
payment described in this paragraph shall be made to such person on the earlier
of: (i) in the event that the New Employee's employment by or the consultant's
consulting relationship with Parent or any wholly owned subsidiary of Parent
terminates before the date three years subsequent to the date of this Agreement,
on the date of such termination (but only that number of shares required
pursuant to this paragraph), (ii) if on the date three years subsequent to the
date of this Agreement the Parent shall have a class of equity securities that
has been publicly traded on a national exchange or quotation system for at least
180 days, then on such date three years subsequent to the date of this Agreement
and (iii) in the event that on the date three years subsequent to the date of
this Agreement the Parent shall not have a class of equity securities that has
been publicly traded on a national securities exchange or quotation system for
at least 180 days, then on the first business day after the date three years
subsequent to the date of this Agreement that the Parent shall have a class of
equity securities that has been publicly traded on a national securities
exchange or quotation system for 180 days. The Company acknowledges that there
may be
33
federal, state or local tax due upon receipt of the bonus, that Parent may
withhold any applicable taxes from New Employee's regular pay or, if
insufficient, that New Employee will make any required withholding payment to
Parent, and that any such tax is the obligation of the New Employee and not the
Parent.
(d) In addition to the stock option (the "Original Option") and stock
---------------
bonus grants described in subsections (b) and (c) of this Section, in the event
that any additional shares of Parent's Common Stock are issued pursuant to the
Purchase Price Adjustment provisions of Section 1.10, an additional option, in
form and substance substantially similar to the Original Option (but with an
exercise price determined based on the date of issuance) (the "Additional
----------
Option"), and an additional stock bonus commitment (the "Additional Stock
------ ----------------
Bonus") proportionate to the Additional Option, in form and substance
substantially similar to that described in paragraph (c) of this Section, shall
be issued by the Parent to any then-remaining employee of Parent or Sub who
received an Original Option. The number of shares subject to any such Additional
Option shall be calculated by taking the number of shares issued pursuant to
such Purchase Price Adjustment provisions multiplied by three (3) and then
determining the individual recipients' pro rata share based on the number of
shares subject to each recipient's Original Option compared to the number of
shares subject to the total of Original Options granted to then remaining
employees. For each recipient, the number of shares granted in the Additional
Stock Bonus shall be proportionate to the Additional Option. Any such Additional
Options and Additional Stock Bonuses shall be granted at the next regularly
scheduled meeting of the Parent's board of directors following the date of any
Purchase Price Adjustment pursuant to Section 1.10.
(e) Parent shall use commercially reasonable efforts to permit all
New Employees to transfer their respective accounts under the Company's 401(k)
Plan into Parent's 401(k) Plan.
5.4 Access to Information. Each of the Company and Parent shall afford
---------------------
the other and their respective accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the
Effective Time to (a) all of its properties, books, contracts, commitments and
records, and (b) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of such party as
the requesting party may reasonably request. Each of the Company and Parent
agrees to provide the other and their respective accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
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 Public Disclosure. Unless otherwise required by law, prior to the
-----------------
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld.
5.6 Consents. The Company shall use its best efforts to obtain the
--------
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such
34
consents, waivers and approvals are set forth in Exhibit C) so as to preserve
---------
all rights of, and benefits to, the Company thereunder.
5.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
-----------------
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 Best Efforts. Subject to the terms and conditions provided in this
------------
Agreement, each of the parties hereto shall use its best efforts to take
promptly, or cause to be taken, all actions, and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its affiliates
or of the Company or its affiliates, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
5.9 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise
affect any remedies available to the party receiving such notice.
5.10 Additional Documents and Further Assurances. Each party hereto, at
-------------------------------------------
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.11 Section 368 Compliance. From and after the Effective Time, neither
----------------------
Parent, Sub, or the Company shall take any action that will cause the Merger not
to be treated as a reorganization within the meaning of Section 368 of the Code.
5.12 Parent Policies. Parent has provided to the Company a true and
---------------
correct copy of Parent's policies regarding the operation of subsidiary entities
such as the Company will be following the Merger. The Company acknowledges and
agrees that such policies, or any such amended or replacement policies that are
reasonably similar in scope, nature or effect, are anticipated to be in place
following the Merger, and the Company hereby indicates its intention to act in
substantial
35
compliance with all such policies. Such policies shall not provide for Parent
overhead allocations from Parent to Company or Sub, unless otherwise agreed in
advance by the parties.
5.13 Tax Returns. The Company shall prepare or cause to be prepared and
-----------
file or cause to be filed all Tax Returns for the Company for all periods ending
on or prior to the Closing Date, including without limitation the income Tax
Returns for the 1996 Tax year for which the Company has filed an extension.
Such Returns shall be prepared in accordance with applicable law and past
practices consistently applied. The Company shall permit Parent to review and
comment on each such Tax Return prior to filing.
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 effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) 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 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.
(b) Litigation. There shall be no action, suit, claim or proceeding
----------
of any nature pending, or overtly threatened, against Parent, Sub or the
Company, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
the Company 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, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and each of
Parent and Sub shall have performed and complied in all material respects with
all covenants and obligations of this Agreement required to be performed and
complied with by it as of the Effective Time.
36
(b) Certificate of Parent. Company shall have been provided with a
---------------------
certificate executed on behalf of Parent by its President to the effect that, as
of the Effective Time:
(i) all representations and warranties made by Parent and
Sub in this Agreement are true and correct in all material respects;
(ii) all covenants and obligations of this Agreement to be
performed by Parent on or before such date have been so performed in all
material respects.
(c) Claims. There shall not have occurred any claims (whether or not
------
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Parent
Material Adverse Effect.
(d) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations of Parent, taken as a whole since
July 31, 1997.
(e) Offer Letters. Parent shall have been delivered to each of the
-------------
Company Executives employment offer letters in substantially the form of the
drafts of such letters delivered to the Company Executives on the date this
Agreement is executed and delivered.
6.3 Additional Conditions to the Obligations of Parent and Sub. The
----------------------------------------------------------
obligations of Parent and 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, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of the Effective Time and the Company shall
have performed and complied in all material respects with all covenants and
obligations of this Agreement required to be performed and complied with by it
as of the Effective Time.
(b) Certificate of the Company. Parent shall have been provided with
--------------------------
a certificate executed on behalf of the Company by its Chief Executive Officer
to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company
in this Agreement are true and correct in all material respects; and
(ii) all covenants and obligations of this Agreement to be
performed by the Company on or before such date have been so performed in all
material respects.
37
(c) Claims. There shall not have occurred any claims (whether or not
------
asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Company
Material Adverse Effect or Surviving Corporation Material Adverse Effect.
(d) Third Party Consents. Any and all consents, waivers, and
--------------------
approvals listed in Exhibit C shall have been obtained.
---------
(e) Company Stockholders Agreement; Company Executives Agreement.
------------------------------------------------------------
Parent and each of the Company Stockholders shall have executed and delivered
the Company Stockholders Agreement in substantially the form attached hereto as
Exhibit D1 and the Representative shall have been appointed as the
----------
representative of the Company Stockholders and Parent and each of the Company
Executives shall have executed and delivered the Company Executives Agreement in
substantially the form attached hereto as Exhibit D2.
----------
(f) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, assets (including intangible assets),
results of operations, liabilities (contingent or accrued), or financial
condition of the Company since July 31, 1997.
(g) Company Stockholder Approval. Each of the Company Stockholders
----------------------------
shall have approved this Agreement and the Merger and the transactions
contemplated thereby, and no Company Stockholder shall have exercised, or have
any continuing right to exercise, appraisal, dissenters' or similar rights by
virtue of the Merger.
(h) Indemnification and Escrow Agreement. The Company Stockholders
------------------------------------
shall have executed and delivered to Parent the Indemnification and Escrow
Agreement in substantially the form of Exhibit E.
---------
(i) Broadview Letter Agreement. The Company shall have received from
--------------------------
Broadview a binding agreement or receipt acknowledging payment in full
satisfaction of any and all obligations owed by the Company to Broadview under
the Broadview Letter Agreement.
(j) Termination of Indemnification Agreements. The Company shall have
-----------------------------------------
entered into binding agreements with each person it is contractually required to
indemnify amending such indemnification agreements to provide that neither the
Company nor its successors or assigns, including without limitation, the
Surviving Corporation, is obligated to indemnify such person against Losses with
respect to which such person, as a Company Stockholder, is obligated to
indemnify the Company or its successors or assigns, including without
limitation, the Surviving Corporation.
(k) Assumption of Silicon Valley Bank Credit Facilities. Surviving
---------------------------------------------------
Corporation shall be entitled to assume, effective as of the Effective Date, the
Company's credit facilities with Silicon Valley Bank on terms satisfactory to
Surviving Corporation and Parent.
38
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant hereto shall terminate on the second anniversary of the Effective Time;
provided, however, that the representations and warranties relating or
pertaining to any Tax or Returns related to such Tax set forth in Section 2.10
hereof or relating to environmental laws or matters set forth in Section 2.20
hereof, shall survive until ninety (90) days following the expiration of all
applicable statutes of limitations, or extensions thereof, governing each Tax or
Returns related to such Tax or environmental laws or matters. All of Parent's
and Sub's representations and warranties contained herein or in any instrument
delivered pursuant to this Agreement shall terminate on the second anniversary
of the Effective Time.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
-----------
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by November 1, 1997; (ii) there shall be a final nonappealable order of
a federal or state court in effect preventing consummation of the Merger; or
(iii) there shall be any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Merger by any governmental entity that
would make consummation of the Merger illegal;
(c) by Parent or the Company if there shall be any action taken, or
any statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
Parent's or Sub's ownership or operation of any portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of Sub or Parent as a result of the
Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and such breach has not been cured within ten (10) calendar days after
written notice to the Company (provided that, no cure period shall be required
for a breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Sub and such breach has not been
39
cured within ten (10) calendar days after written notice to Parent (provided
that, no cure period shall be required for a breach which by its nature cannot
be cured); or
(f) by Parent, Sub or Company if an event having a Company Material
Adverse Effect shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub or the Company,
or their respective officers, directors or stockholders, provided that each
party shall remain liable for any breaches of this Agreement prior to its
termination; provided further that, the provisions of Sections 5.1 and 5.2 and
Article IX of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
---------
the Company Stockholders approve this Agreement, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party 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.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
40
(a) if to Parent or Sub, to:
USWeb Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Company to:
Internet Cybernautics, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." 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 party, it being understood that all
parties need not sign the same counterpart.
41
9.4 Entire Agreement; Assignment. This Agreement, and Exhibits hereto and
----------------------------
the documents and instruments and other agreements among the parties hereto
referenced herein: (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; (b) are not intended to confer upon any other person any
rights or remedies hereunder; and (c) shall not be assigned by operation of law
or otherwise except as otherwise specifically provided, except that Parent and
Sub may assign their respective rights and delegate their respective obligations
hereunder to their respective affiliates.
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.
9.6 Other Remedies. 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 California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Santa ▇▇▇▇▇ County, State of California, 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 California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation 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.
42
IN WITNESS WHEREOF, Parent, Sub, the Company and the Company Stockholders
have caused this Agreement to be signed by their duly authorized respective
officers, all as of the date first written above.
INTERNET CYBERNAUTICS, INC. USWEB CORPORATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,Chief
Executive Officer
ESCROW AGENT USWEB ACQUISITION CORPORATION 113
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Secretary of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
USWeb Corporation
[SIGNATURE PAGE TO AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION]
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
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Exhibit A Form of Valuation Model
Exhibit B Form of Option Agreement
Exhibit C Schedule of Exceptions
Exhibit D1 Form of Company Stockholders Agreement
Exhibit D2 Form of Company Executives Agreement
Exhibit E Form of Indemnification and Escrow Agreement
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EXHIBIT A
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Valuation Model
EXHIBIT B
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Form of Option Agreement
EXHIBIT C
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Schedule of Exceptions
EXHIBIT D1
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Form of Company Stockholders Agreement
EXHIBIT D2
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Form of Company Executives Agreement
EXHIBIT E
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Form of Indemnification and Escrow Agreement