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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED OCTOBER 14, 1999
BY AND AMONG
A.I.N. CORPORATION
A CALIFORNIA CORPORATION,
▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ III,
▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇ FAMILY PARTNERSHIP,
AUTOBYTEL ACQUISITION II CORP.,
A CALIFORNIA CORPORATION,
AND
▇▇▇▇▇▇▇▇▇.▇▇▇ INC.
A DELAWARE CORPORATION,
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS....................................................1
ARTICLE II THE MERGER.....................................................6
Section 2.1 The Merger.................................................6
Section 2.2 Closing; Effective Time....................................6
Section 2.3 Effect of the Merger.......................................6
Section 2.4 Articles of Incorporation; Bylaws..........................7
Section 2.5 Directors and Officers.....................................7
Section 2.6 Effect on Capital Stock....................................7
Section 2.7 Surrender of Certificates..................................8
Section 2.8 No Further Ownership Rights in Company Common Stock........9
Section 2.9 Tax Consequences...........................................9
Section 2.10 Taking of Necessary Action; Further Action.................9
Section 2.11 Escrow.....................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL SHAREHOLDERS.........................................9
Section 3.1 Validity...................................................9
Section 3.2 Organization of the Company...............................10
Section 3.3 No Conflicts..............................................10
Section 3.4 Consents and Approvals....................................11
Section 3.5 Capitalization of the Company; Title to the Company
Common Stock............................................11
Section 3.6 Options or Other Rights...................................11
Section 3.7 Corporate Minutes............................ ............11
Section 3.8 Financial Statements; Business............................12
Section 3.9 No Undisclosed Liabilities................................12
Section 3.10 Absence of Changes............................ ...........12
Section 3.11 Legal Proceedings.........................................15
Section 3.12 Compliance with Laws......................................15
Section 3.13 Permits...................................................15
Section 3.14 Regulatory Compliance.....................................16
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Section 3.15 Contracts.................................................16
Section 3.16 Title to Assets...........................................17
Section 3.17 Properties................................................17
Section 3.18 Intellectual Property; Year 2000..........................17
Section 3.19 Investments...............................................19
Section 3.20 Compensation..............................................19
Section 3.21 Employee Benefit Plans....................................20
Section 3.22 Employee Relations........................................21
Section 3.23 Insurance.................................................21
Section 3.24 Environmental Matters.....................................22
Section 3.25 Accounts..................................................22
Section 3.26 Company Business..........................................22
Section 3.27 No Brokers................................................23
Section 3.28 Full Disclosure...........................................23
Section 3.29 Powers of Attorney........................................23
Section 3.30 Restrictions on Business Activities.......................23
Section 3.31 Interested Party Transactions.............................23
Section 3.32 Investment Representations................................23
Section 3.33 Reorganization............................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.......25
Section 4.1 Due Organization..........................................25
Section 4.2 Authorization and Validity................................25
Section 4.3 Defaults..................................................25
Section 4.4 No Litigation.............................................25
Section 4.5 No Consent Required.......................................25
Section 4.6 Transfer Restrictions.....................................25
Section 4.7 Full Disclosure...........................................26
Section 4.8 SEC Reports...............................................26
Section 4.9 Financial Statements......................................26
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Section 4.10 No Material Adverse Change................................26
Section 4.11 Reorganization Representations of Parent and Merger Sub...26
Section 4.12 Valid Issuance of Shares of Parent Common Stock...........27
Section 4.13 Securities Trading Policy.................................27
ARTICLE V COVENANTS.....................................................27
Section 5.1 Conduct of Business.......................................27
Section 5.2 Access to Information; Consultation; Confidentiality......28
Section 5.3 Cooperation and Reasonable Best Efforts...................29
Section 5.4 Consents and Approvals....................................29
Section 5.5 Notification of Certain Matters...........................29
Section 5.6 No Solicitation...........................................30
Section 5.7 Financial Statements......................................30
Section 5.8 Insurance Coverage........................................31
Section 5.9 Inter-Affiliate Accounts; Affiliate Agreements............31
Section 5.10 Corporate Records.........................................31
Section 5.11 Employment Agreements.....................................32
Section 5.12 Noncompetition; Confidential Information..................32
Section 5.13 Further Assurances........................................33
Section 5.14 Payment of Professional Fees..............................33
Section 5.15 Fairness Hearing and Permit...............................33
Section 5.16 Reorganization............................................34
Section 5.17 Filings Under HSR Act.....................................34
Section 5.18 Exercise of Options and Warrants..........................35
ARTICLE VI CONDITIONS OF THE COMPANY AND THE SELLING SHAREHOLDER
TO CLOSE......................................................35
Section 6.1 Representations, Warranties and Covenants.................35
Section 6.2 Consents..................................................35
Section 6.3 Certificates..............................................35
Section 6.4 Opinion of Counsel to the Parent and Merger Sub...........35
Section 6.5 Tax Opinion...............................................35
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Section 6.6 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇.........................................36
Section 6.7 Employment Agreement......................................36
Section 6.8 Exemption Exchange of Shares..............................36
Section 6.9 Escrow Agreement..........................................36
Section 6.10 Parent Board Resolutions..................................36
ARTICLE VII CONDITIONS TO CLOSE OF THE PARENT AND MERGER SUB..............36
Section 7.1 Representations, Warranties and Covenants.................36
Section 7.2 Consents..................................................36
Section 7.3 Opinion of Counsel to the Selling Shareholders and the
Company.................................................37
Section 7.4 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇.........................................37
Section 7.5 Certificates..............................................37
Section 7.6 Employment Agreements.....................................37
Section 7.7 Financial Statements......................................37
Section 7.8 Due Diligence.............................................37
Section 7.9 Exemption for Exchange of Shares..........................38
Section 7.10 Share Certificates........................................38
Section 7.11 Dissenter's Rights........................................38
Section 7.12 Escrow Agreement..........................................38
ARTICLE VIII INDEMNIFICATION...............................................38
Section 8.1 Survival..................................................38
Section 8.2 Indemnification...........................................39
Section 8.3 Tax Indemnification.......................................40
Section 8.4 Limitation on Indemnification.............................40
ARTICLE IX TAX MATTERS...................................................41
Section 9.1 Representations and Warranties............................41
Section 9.2 Filing of Tax Returns and Payment of the Tax..............43
Section 9.3 Indemnification by the Selling Shareholders...............43
Section 9.4 Access to Information.....................................44
Section 9.5 Books and Records.........................................44
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Section 9.6 Notice of Audit...........................................44
Section 9.7 Miscellaneous.............................................44
ARTICLE X MISCELLANEOUS PROVISIONS......................................45
Section 10.1 Costs, Expenses and Taxes.................................45
Section 10.2 Notices...................................................45
Section 10.3 Press Releases............................................46
Section 10.4 Termination...............................................46
Section 10.5 Protection of Confidential Information....................46
Section 10.6 Entire Agreement..........................................47
Section 10.7 Severability Clause.......................................47
Section 10.8 Counterparts..............................................47
Section 10.9 Governing Law; Consent to Forum; Waiver of Trial by Jury..47
Section 10.11 Further Agreements........................................48
Section 10.12 Successors and Assigns; Assignment........................48
Section 10.13 Amendment; Waivers........................................48
Section 10.14 General Interpretive Principles...........................48
Section 10.15 Reproduction of Documents.................................49
Section 10.16 Advice from Independent Counsel...........................49
Section 10.17 No Agency; No Joint Venture...............................49
Section 10.18 Judicial Interpretation...................................50
Section 10.19 Good Faith................................................50
Section 10.20 Limited Liability.........................................50
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Exhibits
Exhibit A Agreement of Merger
Exhibit B Employment Agreement for Gorun
Exhibit C Escrow Agreement
Schedules
Schedule 2.6(d) Payments to Employees
Schedule 3.2(a) Qualification to do Business
Schedule 3.2(b) Fictitious Names
Schedule 3.4 Consent and Approvals
Schedule 3.5 Capitalization
Schedule 3.8(a) Financial Statements
Schedule 3.9 Undisclosed Liabilities
Schedule 3.10(a) Adverse Changes
Schedule 3.10(b) Ordinary Course of Business
Schedule 3.11 Legal Proceedings
Schedule 3.13 Permits
Schedule 3.15(a) Material Contracts
Schedule 3.15(c) Breach of Contracts
Schedule 3.17 Property
Schedule 3.18(a) Intellectual Property Ownership
Schedule 3.18(b) Licenses
Schedule 3.18(e) Indemnification for Infringement of Intellectual
Property
Schedule 3.19 Investments
Schedule 3.20 Compensation
Schedule 3.21(a) List of Employee Benefit Plans
Schedule 3.23 Insurance
Schedule 3.23(a) Insurance Cancellation
Schedule 3.25 Bank Accounts
Schedule 3.26(b) Dealers
Schedule 3.26(c) Dealer Complaints and Cancellations
Schedule 3.27 Brokers
Schedule 3.31 Interested Party Transactions
Schedule 4.5 Consents Required by Parent and Merger Sub
Schedule 4.14 Securities Trading Policy
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated
October 14, 1999, is entered into by and among, A.I.N. Corporation, a
California corporation (the "Company"), ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ III, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and the ▇▇▇▇▇▇
Family Partnership, who are the equityholders of the Company (each, a
"Selling Shareholder," and collectively, the "Selling Shareholders"),
▇▇▇▇▇▇▇▇▇.▇▇▇ inc., a Delaware corporation (the "Parent") and Autobytel
Acquisition II Corp., a California corporation and wholly-owned
subsidiary of Parent (the "Merger Sub").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of the
Merger Sub with and into the Company pursuant to the terms of this Agreement
(the "Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
common stock of the Company ("Company Common Stock") shall be converted into the
right to receive shares of voting common stock, $.001 par value, of Parent
("Parent Common Stock") and certain payments and rights as provided for herein.
C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
D. Company, Parent, Merger Sub and Selling Shareholders desire to make
certain representations and warranties and other agreements in connection with
the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
In addition to the capitalized terms otherwise defined in this
Agreement, the following words and phrases shall have the meanings specified in
this Article and shall apply to the singular and plural forms:
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Affiliate: With respect to any Person means any other Person that:
(a) directly, or indirectly, controls, is controlled by or is under
common control with, such Person;
(b) directly, or indirectly, beneficially owns or holds five percent
(5%) or more of the voting stock or partnership interests of such Person;
(c) five percent (5%) or more of the voting stock or partnership
interests of which is directly or indirectly beneficially owned or held by such
Person; or
(d) if an individual is a member of the household or family (including
siblings, parents, grandparents, children, grandchildren, aunts, uncles and
first or second cousins) of, or is currently or was formerly married to or
shared a household with, a member of the household or family of, such Person.
For purposes of this definition, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Aggregate Employee Bonus Amount. Shall have the meaning set forth in
Section 2.6(d).
Agreement: This Agreement and Plan of Merger by and among the Company,
the Selling Shareholders, the Merger Sub and Parent dated October 14, 1999
Agreement of Merger: Shall have the meaning set forth in Section 2.2.
Alternative Transaction: Shall have the meaning set forth in Section
5.6.
Alternative Transaction Proposal: Shall have the meaning set forth in
Section 5.6.
Annual Financial Statements: Shall have the meaning set forth in
Section 5.7(a).
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇: Shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP.
Audited Financial Statements: Shall have the meaning set forth in
Section 5.7(a).
Cash Payment: Shall have the meaning set forth in Section 2.6(a).
California Law: Shall have the meaning set forth in Section 2.1.
Certificates: Shall have the meaning set forth in Section 2.7(a).
Closing: Shall have the meaning set forth in Section 2.2.
Closing Date: Shall have the meaning set forth in Section 2.2 hereof.
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Code: Shall have the meaning set forth in Recital C hereof.
Company: A.I.N. Corporation, a California corporation.
Consents: Shall have the meaning set forth in Section 3.4 hereof.
Consumer Car Club Matter: Shall mean matters relating to that certain
settlement agreement between the Company, Auto Insider Service, Inc., ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, Consumers Car Club, ▇▇▇▇▇▇▇ ▇. London and American Information
Services, dated May 8, 1998.
Contracts: All written contracts, agreements, undertakings, indentures,
notes, debentures, bonds, loans, instruments, leases, mortgages, commitments or
other binding arrangements.
Current Year Financial Statements: Shall have the meaning set forth in
Section 5.7(a).
Dealer: Shall have the meaning set forth in Section 3.26(b).
Effective Time: Shall have the meaning set forth in Section 2.2.
Employment Agreement: Means the employment agreement by and between
▇▇▇▇▇▇▇ ▇▇▇▇▇ and the Company in the form attached as Exhibit B.
ERISA: The Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder.
Escrow Account: Shall have the meaning set forth in Section 2.11.
Escrowed Property: Shall have the meaning set forth in Section 2.11.
Escrowed Shares: Shall have the meaning set forth in Section 2.11.
Escrow Termination Date: Shall have the meaning set forth in Section
2.11.
Financial Statements: Shall collectively mean the Unaudited Financial
Statements, the Audited Financial Statements and the Interim Financial
Statements.
GAAP: United States generally accepted accounting principles,
consistently applied.
Governmental Entity: Any federal, state, local or foreign government,
political subdivision, legislature, court, agency, department, bureau,
commission or other governmental, quasi-governmental or regulatory authority,
body or instrumentality, including without limitation, any securities regulatory
authority and any industry or other non-governmental self-regulatory
organizations.
HSR Act: Shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976 and the rules and regulations promulgated thereunder.
Indemnified Party: Shall have the meaning set forth in Section 8.2
hereof.
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Indemnifying Party: Shall have the meaning set forth in Section 8.2
hereof.
Indemnity Period: The period of survival of the respective
representations and warranties provided for in Section 8.1 hereof.
Intangible Assets: All write-ups, goodwill, Intellectual Property,
unamortized Liabilities, deferred assets and other intangible assets and
Properties of any kind whatsoever.
Intellectual Property: Shall have the meaning set forth in Section 3.18
hereof.
Interim Financial Statements: Shall have the meaning set forth in
Section 5.7 hereof.
IRS: The United States Internal Revenue Service.
Liability: Shall have the meaning set forth in Section 3.9.
Lien or Encumbrance (or "Liens or Encumbrances" as the context may
require): Any lien, pledge, mortgage, security interest, claim, lease, charge,
option, right, easement, servitude, transfer limit, restriction or other
encumbrance.
Losses: Shall have the meaning set forth in Section 8.2.
Material Adverse Effect: Shall mean a material adverse effect on the
business, operations, condition (financial or otherwise) or prospects of the
Person with respect to whom such term is used.
Merger: Shall have the meaning set forth in Recital A.
OSHA: Shall have the meaning set forth in Section 3.22 hereof.
Other Property: Shall have the meaning set forth in Section 2.11.
Parent Common Stock: Shares of common stock of Parent, par value $.001
per share.
Parent Representatives: Shall have the meaning set forth in Section 5.2
hereof.
Permits: All licenses, certificates of authority, permits, orders,
consents, approvals, registrations, authorizations, qualifications and filings
under any federal, state, local or foreign laws or with any Governmental
Entities.
Person: Any individual, corporation, partnership, limited liability
company, limited liability partnership, firm, joint venture, association, joint
stock company, trust, unincorporated organization, Governmental Entity or other
entity or organization.
Plan: "Any employee benefit plan" (as that term is defined in section
3(3) of ERISA), as well as any other formal or informal plan, arrangement or
contract involving direct or indirect compensation, in which any current or
former officers,
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employees or independent contractors of the Company has an interest, or to which
the Company has any Liability or under which the Company has any present or
future obligations or Liability on behalf of its current or former officers,
employees or independent contractors or their dependents or beneficiaries,
including, but not limited to, each retirement, pension, profit-sharing, thrift,
savings, target benefit, employee stock ownership, cash or deferred, multiple
employer, multiemployer or other similar plan or program, each other deferred or
incentive compensation, bonus, stock option, employee stock purchase, "phantom
stock" or stock appreciation right plan, each other program providing payment or
reimbursement for or of medical, dental or visual care, psychiatric counseling,
or vacation, sick, disability or severance pay and each other "fringe benefit"
plan or arrangement.
Principal Shareholders: Shall mean ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ III and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
Properties: Real, personal, Intellectual Property or mixed property,
tangible or intangible, of any Person.
Restricted Period: Shall have the meaning set forth in Section 5.12(a)
hereof.
SEC: Shall mean the Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Selling Shareholders: Shall have the meaning set forth in the
introductory paragraph to this Agreement.
Shares: The shares of Common Stock of the Company.
Stock Payment: Shall have the meaning set forth in Section 2.6(a).
Surviving Corporation: Shall have the meaning set forth in Section 2.1.
Taxes: "Taxes" shall mean all taxes, however denominated, including all
charges, fees, imposts, levies, or other assessments, including, without
limiting the generality of the foregoing, all income taxes, payroll and employee
withholding taxes, unemployment insurance, social security, sales and use taxes,
excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and
personal property taxes, stamp taxes, transfer taxes, workmen's compensation
taxes, estimated taxes, together with any interest, penalties or additions to
tax that may become payable in respect thereof, imposed by any governmental
taxing authority (domestic or foreign) and other obligations of the same or a
similar nature, whether arising before, on or after the Closing Date; and "Tax"
shall mean any one of them. As used in this Agreement, the term "Tax Returns"
shall mean any return, report, information return, statement, schedule or other
document (including any related or supporting information) filed or required to
be filed with any governmental taxing authority in connection with the
determination, assessment, collection or administration of any Taxes, and any
amendments thereof.
Transaction Documents: Shall mean this Agreement, the Escrow Agreement,
the Employment Agreement dated the Closing Date between ▇▇▇▇ ▇▇▇▇▇
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and the Company and each other agreement or instrument executed pursuant to any
of the same.
Unaudited Financial Statements: Shall have the meaning set forth in
Section 3.8(a).
WARN Act: Shall mean the Worker Adjustment Retraining and Notification
Act.
ARTICLE II
THE MERGER
Section 2.1 The Merger. At the Effective Time (as defined in Section
2.2) and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California Corporations Code ("California Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "Surviving Corporation."
Section 2.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Articles
VI and VII hereof or at such other time as the parties hereto mutually agree in
writing (the "Closing Date"). The Closing shall take place at the offices of
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other location as the parties hereto
agree. In connection with the Closing, the parties hereto shall cause the Merger
to be consummated by filing the agreement of merger attached hereto as Exhibit A
(the "Agreement of Merger") with the Secretary of State of the State of
California, in accordance with the relevant provisions of California Law (the
time of such filing being the "Effective Time").
Section 2.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Agreement of Merger and
the applicable provisions of California 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 Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and the Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 2.4 Articles of Incorporation; Bylaws.
At the Effective Time, the Articles of Incorporation of the Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by California Law and such Articles of Incorporation; provided, however, Article
I of such Articles of Incorporation shall be amended to read as follows: "The
name of the corporation is A.I.N. Corporation."
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At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
Section 2.5 Directors and Officers. At the Effective Time, the
directors of the Surviving Corporation shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
and ▇▇▇▇▇ ▇▇▇▇. At the Effective Time, the officers of the Surviving Corporation
shall be the officers of the Merger Sub until their respective successors are
duly elected or appointed and qualified.
Section 2.6 Effect on Capital Stock. By virtue of the Merger and
without any action on the part of the Merger Sub, the Company or the holders of
any of the following securities, the following shall occur with respect to the
Company's Common Stock:
(a) Conversion of Company Common Stock. At the Effective Time, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time will be canceled, extinguished and converted automatically into
the right to receive (i) in cash, the dollar amount per share equal to the
quotient of (x) $3 million less the Aggregate Employee Bonus Amount divided by
(y) the number of shares of Company Common Stock outstanding immediately prior
to the Effective Time (the "Cash Payments"), and (ii) shares of Parent Common
Stock equal to the quotient of 1,800,000 shares of Parent Common Stock divided
by the number of shares of Company Common Stock outstanding immediately prior to
the Effective Time (the "Stock Payments"). The shares of Parent Common Stock to
be issued in connection with the Merger will not be registered under the
Securities Act and will be subject to the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER SECTION 3(a)(10) OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED
UNLESS (A) AS PERMITTED UNDER RULES 144 AND 145(d) OF THE SECURITIES
ACT, (B) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
COVERING SUCH SECURITIES OR (C) THE COMPANY RECEIVES AN OPINION OF
COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT.
(b) Capital Stock of Merger Sub. At the Effective Time, each share of
common stock of Merger Sub ("Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of Common Stock of
the Surviving Corporation, and the Surviving Corporation shall be a wholly-owned
subsidiary of Parent.
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(c) Adjustments to Exchange Ratio. The Exchange Ratio 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 or Company Common Stock), reorganization, recapitalization or other
like change with respect to Parent Common Stock or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
(d) Company Employee Bonus Amount. Upon the Closing, (i) the Company
shall pay to those Company employees listed on Schedule 2.6(d) the amounts set
forth opposite their respective names on such Schedule (less applicable federal
and California income tax, FICA and other applicable withholdings) and (ii) the
Parent shall deposit in the Company's payroll account an amount equal to the
aggregate employee bonus amounts set forth on Schedule 2.6(d), ("Aggregate
Employee Bonus Amount"). Schedule 2.6(d) may be amended by the Company prior to
the Closing Date provided that no employee shall receive a bonus greater than
$50,000 and the Aggregate Employee Bonus Amount shall not exceed $450,000.
(e) Fractional Shares. No fractional shares of Parent Common Stock will
be issued. The number of shares of Parent Common Stock awardable to each holder
of shares of Company Common Stock (after aggregating all fractional shares of
Parent Common Stock awardable to each such holder) shall be rounded down to the
nearest whole share of Parent Common Stock, unless such fraction is .5 or above,
in which case the number of shares of Parent Common Stock awardable shall be
rounded up to the nearest whole share of Parent Common Stock.
Section 2.7 Surrender of Certificates.
(a) Surrender of Certificates. At the Closing, the Selling Shareholders
shall deliver the certificate(s) representing all issued and outstanding shares
of Company Common Stock ("Certificates") for cancellation and conversion in
accordance with the terms of this Agreement. Upon surrender of the Certificates
for cancellation to Parent, at the Effective Time, Parent shall instruct its
transfer agent to issue the shares of Parent Common Stock as provided in Section
2.6(a) above which issuance shall be within five (5) business days of the
Effective Time, and the Certificates so surrendered shall be canceled.
(b) Transfers of Ownership. If any certificate for shares of Parent
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 Parent 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 established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
Section 2.8 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common 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 Common Stock, and there shall be no further registration of transfers on
the records of
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the Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time.
Section 2.9 Tax Consequences. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section 368
of the Code.
Section 2.10 Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Company and Merger Sub, the officers and
directors of Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is not inconsistent with this
Agreement.
Section 2.11 Escrow. At the Effective Time, 199,800 shares of Parent
Common Stock to be delivered to, and received by, the Selling Shareholders as
part of the Stock Payment (the "Escrowed Shares") shall be issued, segregated
and deposited with an escrow agent reasonably satisfactory to Company and Parent
(the "Escrow Account") to be held and disbursed by such agent in accordance with
the form of escrow agreement (the "Escrow Agreement") attached hereto for a
period of 18 months after the Closing Date (the "Escrow Termination Date"), for
the purpose of securing and funding part of the obligations of the Selling
Shareholders under this Agreement. Such shares shall be deducted pro rata from
the Shares allocable to each Selling Shareholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
Each of the Principal Shareholders and the Company hereby jointly and
severally makes the following representations and warranties to the Parent and
Merger Sub, on the date of this Agreement.
Section 3.1 Validity. The execution, delivery and performance of this
Agreement by each Selling Shareholder and the Company and the execution,
delivery and performance of each of the Transaction Documents to which the
Selling Shareholders or Company is a party have been duly and validly authorized
by all necessary action, including without limitation any consent required by
the Articles of Incorporation and the by-laws of the Company. This Agreement
constitutes the legally valid and binding obligation of each Selling Shareholder
and the Company, enforceable against such party in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws and equitable principles relating to or limiting
creditors' rights generally and by general principles of equity. Each of the
Transaction Documents to which each Selling Shareholder or the Company is a
party will, when executed, constitute the legally valid and binding obligation
of each Selling Shareholder and/or the Company, as applicable, enforceable
against the Company and/or each Selling Shareholder, in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors' rights generally and by general principles of equity.
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Section 3.2 Organization of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
state of California and has all requisite power and authority to own, lease and
operate its assets and Properties and to conduct its business as it is currently
being conducted. The Company is duly qualified and in good standing as a foreign
corporation in all of the jurisdictions listed in Schedule 3.2(a) hereto, and
all other jurisdictions in which such qualification or authorization is required
by law, except for such jurisdictions in which failure to be so qualified or
authorized would not have a Material Adverse Effect. The Company conducts
business under no other names except as listed on Schedule 3.2(b) hereto. The
Company owns no equity interest in any other Person.
Section 3.3 No Conflicts. Assuming all Consents set forth in Schedule
3.4 are obtained, made or given (as the case may be), the execution and delivery
by each Selling Shareholder and the Company of this Agreement, the performance
by each Selling Shareholder and the Company of his or its obligations hereunder,
and the consummation of the transactions contemplated hereby (including without
limitation the execution, delivery and performance of each of the Transaction
Documents to which each Selling Shareholder and/or the Company will be a party)
do not and will not:
(a) conflict with, result in any material breach or violation
of, constitute a material default under (or an event which with the giving of
notice or the lapse of time or both would constitute a default under), give rise
to any right of termination or acceleration of any right or obligation of the
Company and/or any such Selling Shareholder under, or result in the creation or
imposition of any Lien or Encumbrance upon any assets or Properties of the
Company or any Selling Shareholder by reason of the terms of, (i) the Articles
of Incorporation and the by-laws and any other organizational documents of the
Company, (ii) any Contract requiring aggregated payments after the Effective
Time by or to the Company of more than $25,000 and to which any Selling
Shareholder or the Company is a party or by or to which any of them or their
respective assets or Properties (including, without limitation, the capital
stock of the Company) may be bound or subject, (iii) any order, writ, judgment,
injunction, award, decree, law, statute, ordinance, rule or regulation
applicable to the Company or any such Selling Shareholder or (iv) any Permit of
the Company; or
(b) (i) give rise to any right, including but not limited to,
cancellation or termination, with respect to any Contract, (ii) result in any
alteration of any provision of any Contract or otherwise alter the applicability
of any provision in any Contract by reason of the transactions contemplated
hereby, or (iii) to the best of the Company's and Selling Shareholders'
knowledge, cause or induce any third party, that provides information which the
Company uses in its business, to cease or reduce or otherwise diminish the
quality, breadth or timeliness of delivery of such information.
No party has given notice of termination or cancellation of any
Contract or that it intends to terminate or cancel any Contract as a result of
the transactions contemplated hereby.
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Section 3.4 Consents and Approvals. Except as set forth in Schedule 3.4
hereto, no consent, approval, authorization, license or order of, registration
or filing with, or notice to, any Governmental Entity or any other Person
(collectively, "Consents") is necessary to be obtained, made or given by any
Selling Shareholder or the Company in connection with the execution and delivery
by each Selling Shareholder or the Company of this Agreement, the performance by
each Selling Shareholder or the Company of their respective obligations
hereunder, the execution, delivery and performance of each of the Transaction
Documents to which each Selling Shareholder or the Company will be a party, or
the consummation of the transactions contemplated hereby or thereby.
Section 3.5 Capitalization of the Company; Title to the Company Common
Stock. The Company Common Stock listed on the Schedule 3.5 constitutes all of
the authorized, issued and outstanding capital stock of the Company. All of the
shares of Company Common Stock have been duly authorized and validly issued, are
fully paid and non-assessable, and are owned beneficially and of record by the
Persons listed on Schedule 3.5 free and clear of any lien or encumbrance, except
as provided in the next sentence. Upon delivery of shares of the Company Common
Stock against full payment of the Merger Consolidation as herein provided,
Parent will acquire good and marketable title to such shares of the Company
Common Stock, free and clear of any Liens or Encumbrances other than (a) those
created by Parent and (b) the requirements of federal and state securities laws
respecting restrictions on the subsequent transfer thereof.
Section 3.6 Options or Other Rights. Except for this Agreement, (a)
there is no outstanding right, subscription, warrant, call, unsatisfied
preemptive right, option or other agreement of any kind to purchase or otherwise
to receive from any Selling Shareholder, the Company or any other Affiliate of
any of the foregoing, any of the outstanding, authorized but unissued,
unauthorized or treasury shares of the capital stock or any other equity
security of the Company (or any interest therein), (b) there is no outstanding
security of any kind that has been issued by the Company or any other Affiliate
of the Company that is convertible into or exchangeable for the capital stock of
the Company (or any interest therein) and (c) there is no outstanding Contract
or other agreement of or binding upon each Selling Shareholder, the Company or
any other Affiliate of any of the foregoing to purchase, redeem or otherwise
acquire any outstanding shares of the capital stock of the Company (or any
interest therein). The Company has not issued any securities in violation of any
preemptive or similar rights. The Company is not in the process and is under no
obligation to issue any shares of its capital stock or securities convertible
into or exchangeable for any shares of its capital Stock.
Section 3.7 Corporate Minutes. The Company has provided the Parent and
its counsel copies of the complete minute books of the Company. The minute books
of the Company accurately reflect all actions taken at meetings, or by written
consent in lieu of meetings, of the shareholders, Board of Directors and all
committees of the Board of Directors of the Company, since the formation of the
Company. All actions taken by the Company since such date have been duly
authorized, and no such actions have been taken in breach or violation of the
Articles of Incorporation, the by-laws or other organizational documents of the
Company.
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Section 3.8 Financial Statements; Business.
(a) Attached as Schedule 3.8(a) hereto are true and complete copies of
the unaudited (i) balance sheets as of December 31, 1997 and 1998 and the
related statements of income, of and for the 12-month periods ended December 31,
1997 and 1998 and (ii) balance sheet and related statements of income, as of and
for the 8-month period ended August 31, 1999 (such financial statements are
collectively referred to herein as the "Unaudited Financial Statements").
(b) All of the Audited Financial Statements, as and when delivered by
the Company to Parent pursuant to this Agreement, have been prepared in
accordance with the books and records of the Company have been audited by ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, and present fairly the financial position of the Company as of the
respective dates thereof and the results of operations of the Company for the
respective periods then ended. All of the Unaudited Financial Statements and
Interim Financial Statements, as and when delivered by the Company to Parent
pursuant to this Agreement, will have been prepared on a basis consistent with
the accounting principles and practices used in the preparation of all of the
Unaudited Financial Statements by the Company prior to the audit by ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, have been prepared in accordance with the books and records of the
Company and present fairly the financial position of the Company as of the
respective dates thereof and the results of operations of the Company for the
respective periods indicated therein (subject, in each case, to normal recurring
year-end audit adjustments and to the absence of footnotes), provided, however,
that (i) in 1998, the Company converted from a cash method of accounting to an
accrual method of accounting, and (ii) "exclusivity" and "training" fees are
recognized in the month the contract was entered.
Section 3.9 No Undisclosed Liabilities. Except as set forth on Schedule
3.9 hereto, the Company has no direct or indirect debt, obligation, loss,
damages, deficiency or other liability of any nature, whether absolute, accrued,
contingent or otherwise ("Liability"), other than Liabilities that are fully and
adequately reflected (as to nature and amount) and reserved against in all
applicable Financial Statements.
Section 3.10 Absence of Changes.
(a) Since August 31, 1999, except as set forth in Schedule 3.10(a),
there has been no adverse change in the business, operations, assets,
Properties, Liabilities, condition (financial or otherwise), results of
operations, prospects or Permits of the Company.
(b) Except as set forth in Schedule 3.10(b) hereto, since August 31,
1999, the Company has operated its business only in the ordinary course of
business consistent with past practice, and the Company has not directly or
indirectly:
(i) amended its Articles of Incorporation, and by-laws or
other organizational documents or changed the nature of the Company's
business, or merged with or into or consolidated with any other Person,
subdivided or in any way reclassified any capital stock or changed or
agreed to change in any manner the rights of its capital stock or the
character of its business;
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(ii) issued or sold any stock, options, warrants, calls or
other rights of any kind to purchase or otherwise receive, or any
securities or instruments convertible into or exchangeable for, or
entered into any Contract or commitment to issue or sell, any capital
stock or other equity interest or any bonds, debentures, notes, debt
instruments, evidences of indebtedness or other securities of any kind
of the Company;
(iii) declared, paid or set aside any sum for any
distributions of any kind (whether in cash, property, any combination
thereof or otherwise) to its shareholders (other than compensation
described in Schedule 3.20), or made any direct or indirect redemption,
retirement, purchase or other acquisition of any common stock or other
equity interests or any bonds, debentures, notes, debt instruments,
evidences of indebtedness or other securities of any kind of the
Company;
(iv) incurred any indebtedness or entered into any commitment
to borrow money or any contingent obligation; or incurred or assumed
any Liability or series of related Liabilities in excess of $25,000;
(v) made any change in its accounting methods or practices or
made any change in depreciation or amortization policies or rates
adopted by it;
(vi) made any change in any business policies or management
practices relating to the Company, including, without limitation,
commission or fee structures and property management or maintenance
activities; or made any change in its billing or investment policies
and practices or any change in any other activity which (A) has had the
effect of accelerating the recording and billing of fees or accounts
receivable or delaying the payment of expenses or the establishment of
reserves in connection with the business or any accounts of the Company
or (B) has had the effect of altering, modifying or changing in any
manner the historical financial or accounting practices or policies of
the Company, including accruals of and reserves for tax liabilities;
(vii) suffered any damage, destruction, casualty or loss,
whether or not covered by insurance, affecting any of its Property, the
total amount of which was or could reasonably be expected to be greater
than $25,000;
(viii) allowed the creation of any Lien or Encumbrance on any
tangible or intangible asset or Property, or any sale, transfer,
assignment, lease or abandonment of any interest in any tangible or
intangible asset or Property, other than sales, transfers, assignments
and leases in the ordinary course of business consistent with past
practice;
(ix) entered into any Contract, commitment or transaction
(including, without limitation, any capital expenditure, capital
contribution, capital financing, or purchase, lease, acquisition, sale
or disposition of assets or Properties) which requires or could require
payments in excess of $25,000 with respect to any individual Contract,
commitment or transaction or series of related Contracts, commitments
and transactions;
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(x) terminated, failed to renew, received any written notice
(that was not subsequently withdrawn) to terminate or fail to renew,
amended, altered, modified, suffered the occurrence of any default
under, failed to perform any obligations, or waived or released any
rights, under any Contract except in the ordinary course of business
consistent with past practice relating to any Contract not involving
payments in excess of $25,000;
(xi) forgiven or permitted any cancellation of any claim, debt
or account receivable, other than cancellations in the ordinary course
of business consistent with past practice of any claim, debt or account
receivable in an amount below $10,000;
(xii) made any payment, discharge or satisfaction of any
Liability in excess of $10,000 before the same became due in accordance
with its terms, other than in the ordinary course of business
consistent with past practice and as reflected or reserved against in
the Financial Statements;
(xiii) accelerated the collection, or sale to any other
Person, of any of its receivables, or delayed the payment of any of its
payables, other than accelerations or delays in the ordinary course of
business consistent with past practice involving amounts below $10,000;
(xiv) made any revaluation of any assets or properties, or
write-down or write-off of the value of any assets or properties
(including, without limitation, any receivables), in an amount in
excess of $10,000;
(xv) made any loan or advance to any Affiliate or other Person
which has not been fully reflected in the Financial Statements;
(xvi) made any acquisition of all or any substantial part of
the assets, Properties, securities or business of any other Person;
(xvii) except in the ordinary course of business consistent
with past practice, hired any new employees, consultants, agents or
other representatives or entered into any employment or consulting
agreements (other than those terminable without severance, without
penalty and without cause on not more than thirty (30) days' notice),
or terminated, or made any change in the employment terms or conditions
of, any officers, directors, employees, consultants, agents or other
representatives;
(xviii) except in the ordinary course of business consistent
with past practice, increased or agreed to increase any salary, wages,
bonus, severance, compensation, pension or other benefits payable or to
become payable, or granted any severance or termination payments or
benefits, to any of its current or former officers, directors,
employees, consultants, agents or other representatives, or amended any
Plan in any respect;
(xix) entered into any collective bargaining agreement or any
other Contract with any labor union or association representing any
employee, or been subjected to any strike, picket, work stoppage, work
slowdown, labor dispute or other labor trouble;
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(xx) adopted a plan of complete or partial liquidation,
dissolution, rehabilitation, restructuring, recapitalization,
redomestication or other reorganization; or
(xxi) entered into any Contract, commitment or transaction to
do any of the foregoing.
Section 3.11 Legal Proceedings. Except as set forth in Schedule 3.11
hereto, there is no action, suit, claim or proceeding or investigation pending
or, to the knowledge of each Selling Shareholder or the Company, threatened
against or affecting each Selling Shareholder or the Company by or before any
court, other Governmental Entity or arbitrator which, individually or in the
aggregate, could cost the Company in excess of $50,000. Except as set forth in
Schedule 3.11 hereto, there is no outstanding order, writ, judgment, injunction,
award or decree of any court, other Governmental Entity or arbitrator against or
affecting each Selling Shareholder, the Company or their Affiliates.
Section 3.12 Compliance with Laws. The Company is in compliance with
(i) the terms of its Articles of Incorporation and the by-laws or other
organizational documents, (ii) all laws, statutes, ordinances, rules,
regulations or other legal requirements, whether federal, state, local or
foreign, (iii) all orders, writs, judgments, injunctions, awards and decrees of
any court, other Governmental Entity or arbitrator and (iv) its Permits except
in the case of clauses (ii) and (iii) where the failure to comply would not,
individually or in the aggregate, prohibit or otherwise adversely affect the
consummation of the transactions contemplated hereby or result in expenses to
the Company in excess of $10,000. None of the Selling Shareholders or the
Company has received notice of any violation by the Company of, or default by
the Company under, its Articles of Incorporation, the by-laws or other
organizational documents, any law, statute, ordinance, rule, regulation or other
legal requirement, any order, writ, injunction, award or decree of any court,
other Governmental Entity or arbitrator, except for such violations or defaults
which would not, individually or in the aggregate, prohibit or otherwise
adversely affect the consummation of the transactions contemplated hereby, or
cost the Company in excess of $10,000 to remedy.
Section 3.13 Permits. Since its formation, each of the Company and/or
its personnel have possessed and currently possess all Permits necessary for the
ownership of the assets and Properties of the Company and the conduct of its
business as presently conducted. Schedule 3.13 hereto sets forth a true and
complete list of all such Permits of the Company and/or its personnel, including
all licenses and other Permits necessary to conduct its business. Schedule 3.13
hereto also sets forth a true and complete list of all pending applications for
Permits submitted by the Company or any of its personnel, and the jurisdictions
in which such applications have been submitted. The Company has heretofore
delivered to the Parent true and complete copies of all such Permits as
currently in effect. All such Permits are valid and in full force and effect,
without any restriction or impairment. There is no action, proceeding, inquiry
or investigation pending or, to the knowledge of each Selling Shareholder or the
Company, threatened for the suspension, modification, limitation, cancellation,
revocation or nonrenewal of any such Permit, and no Selling Shareholder nor the
Company has knowledge of any existing fact or circumstance which (with or
without notice or lapse of time or both) is reasonably likely to result in the
suspension, modification, limitation, cancellation, revocation or nonrenewal of
any such Permit (or, with respect to any pending application for a Permit, the
refusal of any Governmental Entity to issue any such Permit). The consummation
of
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the transactions contemplated hereby will not result in the suspension,
modification, cancellation, revocation or nonrenewal of any such Permit. The
Company is not and has not engaged in any business in any jurisdiction in which
it is not, and was not then, duly authorized or qualified to transact such
business, except where such activity would not have a Material Adverse Effect.
Except for compliance with periodic renewal procedures, no approvals or
authorizations are required to permit the Company to continue conducting its
business as presently conducted following the Closing; none of the Selling
Shareholders or the Company has been advised by any Person that any Permit will
not in the ordinary course be renewed upon its expiration or that the
transactions contemplated hereby will make it more difficult to renew or obtain
any Permit.
Section 3.14 Regulatory Compliance. The Company has filed all reports,
statements, registrations, applications, filings or other documents and
submissions required to be filed with, or provided to, any Governmental Entity.
All such reports, statements, registrations, applications, filings, documents
and submissions were in compliance with all applicable laws, statutes,
ordinances, rules or regulations and were complete and correct in all respects
when filed, and no deficiencies have been asserted by any Governmental Entity
with respect thereto. There is no action, proceeding, dispute, controversy,
inquiry or investigation pending or, to the knowledge of each Selling
Shareholder or the Company, threatened by any such Governmental Entity relating
to the Company.
Section 3.15 Contracts.
(a) Schedule 3.15(a) hereto contains a true and complete list of all
Contracts to which the Company is a party or by or to which the Company or the
assets or Properties of the Company are or may be bound or subject, as each such
Contract may have been amended, modified or supplemented; except standard Dealer
contracts, employee agreements and those Contracts entered into in the ordinary
course of business that involve consideration, payments (including contingent
payments and liquidated damages) or receipts of less than $50,000 individually
and not more than $300,000 in the aggregate.
(b) The Company has heretofore delivered to the Parent true and
complete copies of all Contracts listed on Schedule 3.15(a) ("Material
Contracts"). Each Material Contract is valid and binding in accordance with its
terms, and is in full force and effect and enforceable against the other party
or parties thereto. The Company is not in default with respect to any Contract,
nor does any condition exist, to the Company's knowledge, that with notice or
lapse of time or both would constitute a default thereunder. To the knowledge of
each Selling Shareholder and the Company, no other party to any Material
Contract is in default with respect to any such Contract, nor does any condition
exist that with notice or lapse of time or both would constitute a default
thereunder.
(c) Except as set forth in Schedule 3.15(c) hereto, there exists no
breach by the Company of a Contract which gives rise to a remedy against the
Company under such Contract.
Section 3.16 Title to Assets. Except as disclosed in the Financial
Statements, the Company owns outright and has good and marketable fee or
leasehold title to all of its assets and Properties (including, without
limitation, those reflected in the most recent applicable Financial Statements),
in each case free and clear of any Lien or
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Encumbrance except for (i) assets and Properties not necessary for the Company's
business which have been disposed of in the ordinary course of business since
December 31, 1998, (ii) lease obligations under Contracts set forth on Schedule
3.15(a) hereto entered into in the ordinary course of business, and (iii) Liens
or Encumbrances which in the aggregate are not substantial in amount and which
do not detract from the value of the assets or Properties subject thereto (as
carried on the most recent applicable Financial Statements) or interfere with
the present use of such assets or Properties.
Section 3.17 Properties. (a) Schedule 3.17 hereto contains a true and
complete list (designating the relevant owners, lessors and lessees) of (i) all
real Property owned, leased or subleased by the Company and (ii) all vehicles,
equipment, furniture, fixtures and other personal Property owned, leased,
subleased or managed by any such Person which, in the case of clause (ii) only,
had an original cost in excess of $25,000.
(b) With respect to real Property leased by the Company or otherwise
made available to the Company for use, the Company, as appropriate, has the
right to quiet enjoyment of such real Property for the full term of each such
lease or similar agreement (and any renewal option related thereto), and the
leasehold or other interest of the Company in such real Property is not subject
or subordinate to any Lien (or if subordinate, a non-disturbance agreement has
been obtained by the Company from the holder of the Lien). To the Company's
knowledge, the Company is in compliance with all terms of each such lease or
similar agreement and the other party or parties thereto are not in default of
its or their obligations thereunder nor does any such party have the right to
terminate prior to its scheduled expiration the term of any lease or similar
agreement.
(c) To the Company's and the Selling Shareholders' knowledge, neither
the whole nor any part of any real Property leased, used or occupied by the
Company is subject to any pending suit for condemnation or other taking by any
public authority, and, to the Company's knowledge, no such condemnation or other
taking is currently threatened or contemplated. Except as set forth in Schedule
3.17(c), to the Company's knowledge, the Properties leased or subleased by the
Company are sufficient to conduct the operations of the Company as currently
conducted, and the foregoing personal Properties are in sound operating
condition and repair, normal wear and tear excepted. There has not been any
interruption of the operations of the Company due to inadequate maintenance of
any such Properties.
Section 3.18 Intellectual Property; Year 2000.
(a) The Company owns, or is licensed or otherwise entitled to exercise
all rights under or with respect to, all material patents, trademarks, trade
names, service marks, copyrights, any applications for any of the foregoing,
formulae, processes, designs, schematics, compositions, ideas, technology,
know-how and tangible or intangible proprietary information, trade secrets or
material employed in or otherwise necessary for the operation of the business of
the Company as currently conducted (the "Intellectual Property"). Schedule
3.18(a) lists all patents, registered and unregistered copyrights, registered
and unregistered trademarks, trade names, service marks, and any applications
for any of the foregoing Intellectual Property and specifies the jurisdictions
in which each such issuance and registration has been filed, including the
respective registration or application numbers.
(b) Schedule 3.18(b) lists all material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
or
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any other person owns or is licensed or otherwise authorized or obligated with
respect to any Intellectual Property and includes the identity of all parties
thereto. The Company has not and is not, nor as a result of the execution and
delivery of this Agreement or the performance of the Company's obligations
hereunder will be, in violation of any material license, sublicense or other
agreement applicable to it. For purposes of Schedule 3.18(b), material licenses,
sublicenses and other agreements shall not include such licenses and sublicenses
attributable to standard, noncustomized or "shrinkwrap" software, software for
personal computer operating systems provided when the computer was purchased,
and licenses to use software for personal computers that are granted to retail
purchasers of such software.
(c) Except for the licenses and agreements set forth in Schedule
3.18(b), the Company (i) is the sole and exclusive owner of all copyrights
(whether registered or not) covering all works of authorship which are copied,
in whole or in part, and with or without modification in the Company's current
products, all applications for registration of such copyrights, and all
trademarks, service marks and similar rights (whether registered or not) used in
connection with such products; (ii) has not disclosed any of its confidential
know-how, trade secrets or similar rights subsisting based on their
confidentiality which the Company uses or proposes to use to make or sell its
products, other than to employees, consultants or distributors of the Company
who have entered written agreements not to disclose such rights of the Company,
except where such disclosure has not and will not have a Material Adverse
Effect; and (iii) is not contractually obligated to pay any compensation to any
third party with respect to any Intellectual Property, whether for the use,
license, conveyance thereof, for any service which resulted in the creation
thereof, or otherwise.
(d) No claims with respect to the Intellectual Property have been
asserted or, to the knowledge of the Company and each Selling Shareholder, are
or are likely to be threatened by any Person, nor does the Company or any
Selling Shareholder know of any grounds for any claims now or in the future (i)
to the effect that any product of the Company or any business of the Company as
previously or currently conducted infringes on or misappropriates any
intellectual property rights in which a third party has any rights, or (ii)
challenging the ownership, validity or effectiveness of any of the Intellectual
Property. No Intellectual Property is subject to any Lien or Encumbrance. All
Intellectual Property is valid and subsisting and there is no material
unauthorized use, infringement or misappropriation of any of the Intellectual
Property by any third party, including any employee. Except pursuant to the
terms of a license agreement set forth in Schedule 3.18(b), no Intellectual
Property is subject to any outstanding order, judgment, decree, stipulation or
agreement restricting in any manner the licensing or exploitation thereof by the
Company.
(e) Except as set forth in Schedule 3.18(e), the Company has not
entered into any agreement to indemnify any other person against any charge of
infringement relating to any Intellectual Property. No employee of the Company
is in violation of any term of any employment contract (whether written or
verbal), nondisclosure agreement or any other contract or agreement relating to
the relationship of any such employee with the Company or, to the knowledge of
the Company and the Selling Shareholders, any other party (including prior
employers) because of the nature of the business conducted by the Company.
(f) All of the Intellectual Property owned by the Company immediately
prior to the Closing will be owned by the Company immediately subsequent to the
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Closing hereunder, and all of the Intellectual Property used by the Company
immediately prior to the Closing hereunder will be available for use by the
Company on identical terms and conditions immediately subsequent to the Closing
hereunder.
(g) The Intellectual Property engineered, designed or developed by or
for the Company are "Year 2000 Compliant." To the Company's and the Selling
Shareholders' knowledge all other Intellectual Property owned, used or
interfaced by or with the Company are Year 2000 Compliant. Year 2000 Compliant
shall mean software programs that accurately process, calculate, compare,
sequence, transmit and receive date/time data from, into, and between the 20th
and 21st centuries and the years 1999 and 2000 and leap year calculations and
will not create any logical or mathematical inconsistency or malfunction or
cease to function when processing date/time data. The Company has reviewed the
functionality of software programs for year 2000 compliance according to
reasonable industry standards.
Section 3.19 Investments. Schedule 3.19 hereto contains a true and
complete list of all securities and other investments (including, without
limitation, short-term investments) owned by the Company as of the end of the
most recent calendar month, including the date of purchase, book value, market
value and carrying value thereof on the books and records of account of the
Company as of such date. Except as set forth in Schedule 3.19 hereto, none of
the securities and other investments owned by the Company is in default in the
payment of principal or interest or dividends.
Section 3.20 Compensation. Schedule 3.20 hereto sets forth (i) the name
and total compensation (payable by the Company) of each director, officer and
employee of the Company other than employees whose total compensation did not
exceed $25,000 in 1998 and is not expected to exceed such amount in 1999, (ii)
all bonuses and other incentive compensation received by such Persons since
January 1, 1999, and any accrual for such bonuses and incentive compensation,
and (iii) all Contracts or commitments by the Company or its Affiliates to
increase the compensation or to modify the conditions or terms of employment of
its directors or officers or employees whose total compensation exceeds (or,
after giving effect thereto, will exceed) $25,000 per annum. Except as set forth
in Schedule 3.20 hereto, none of the Selling Shareholders, directors or officers
of the Company, nor any relative or Affiliate of any such Persons, is directly
or indirectly a party to any Contract or arrangement with the Company providing
for the furnishing of services by, the purchase, acquisition, lease or rental of
property from, or otherwise requiring payments to each Selling Shareholder,
director, officer or relative or Affiliate (other than for service in such
capacity as a director or officer).
Section 3.21 Employee Benefit Plans.
(a) Schedule 3.21(a) hereto contains a true and complete list of all
Plans. To the extent required by applicable law or regulation, each Plan has at
all times been operated and administered in compliance with the applicable
requirements of ERISA, the Code and all other applicable laws, and the terms of
such Plan. Each Plan that is intended to be tax-qualified under Section 401(a)
of the Code is tax-qualified under that section, and to the knowledge of the
Company and each Selling Shareholder, no facts exist that would give the IRS
reasonable grounds for questioning or disallowing its past or future
tax-qualified status.
(b) No actual or threatened disputes, lawsuits, claims (other than
routine claims for benefits), investigations, audits or complaints to, or by,
any Person have been
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filed or are pending with respect to the Plans, the Company in connection with
any Plan or the fiduciaries responsible for such Plans and, to the knowledge of
each Selling Shareholder and the Company, no set of facts or conditions exist
which could be expected to subject the Company to any Liability (other than
routine claims for benefits). With respect to each Plan, there has not occurred,
and no person or entity is contractually bound to enter into, any nonexempt
"prohibited transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA.
(c) No Plan is or has been subject to the requirements of Section 412
of the Code or Title IV of ERISA, and no Liability under Title IV of ERISA has
been or is expected to be incurred by the Company, whether in respect of the
Plans or any other plan currently or formerly maintained by the Company or any
entity that is treated as a single employer with the Company under Section 414
of the Code. There are no Plans that are either "multiemployer plans" as defined
in Section 3(37) of ERISA or "multiple employer plans" subject to the
requirements of Section 413(c) of the Code. There are no Plans that promise or
provide health or life benefits to retirees or former employees of the Company
other than as required by Section 4980B of the Code or Section 601 of ERISA.
(d) All contributions made or deemed to have been made to each Plan
that is a deferred compensation plan are presently, and have been during the
years to which they relate, fully deductible pursuant to Section 404 of the
Code. All contributions to and payments with respect to or under the Plans that
are required to be made with respect to periods ending on or before the Closing
Date have been made or accrued before the Closing Date in accordance with the
appropriate plan documents, insurance contracts or financial statement.
(e) With respect to each Plan, the Company has delivered to Parent true
and complete copies of the following documents: (1) current plan documents,
subsequent plan amendments, or any and all other documents that establish or
describe the existence of the plan, trust, arrangement, contract, policy or
commitment; (2) current summary plan descriptions and summaries of
modifications, if any; (3) the most recent tax qualified determination letters,
if any, received from or applications pending with the IRS; (4) the three most
recent Form 5500 Annual Reports, if any, including related schedules and audited
financial statements and opinions of independent certified public accountants;
(5) with respect to each Section 401(k) Plan, nondiscrimination testing results
and the most recent annual and quarterly or monthly valuations; (6) with respect
to each Plan that is a pension plan, a copy of the most recent actuarial
valuation report or other statement of plan assets and liabilities.
(f) The consummation of the transactions contemplated by this Agreement
will not directly or indirectly (including together with a termination of
employment) entitle any current or former employee of the Company to severance
or termination pay or any similar payments nor accelerate the timing of any
payment or the vesting of any rights or increase the amount of any compensation
due any such employee. As a direct or indirect result of the consummation of the
transactions contemplated hereby, neither the Company nor the Parent will be
obligated to make a payment to an individual that would not be deductible as a
result of the application of Section 280G of the Code. Notwithstanding the
foregoing, the Parent's payment obligations as set forth in Section 2.6 hereto
shall be absolute and unconditional, regardless of the application of Section
280G of the Code.
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Section 3.22 Employee Relations. There are no collective bargaining or
other labor union contracts to which the Company is a party or which is
applicable to any Person employed by the Company. There is no pending or, to the
knowledge of each Selling Shareholder and the Company, threatened union
organizational effort, labor dispute, strike or work stoppage against the
Company. To each Selling Shareholder's or the Company's knowledge, neither the
Company, nor its respective representatives or employees has committed any
unfair labor practices in connection with the operation of the Company's
business, and there is no pending or threatened charge or complaint against the
Company by the National Labor Relations Board or any comparable state agency.
The Company is in compliance with all applicable laws respecting employment,
employment practices, equal employment opportunity, labor relations, wages,
hours, safety, health and terms and conditions of employment, including the
Occupational Health and Safety Act ("OSHA"). The Company has not within the past
12 months, experienced a "plant closing" or "mass layoff" within the meaning of
the WARN Act.
Section 3.23 Insurance. Schedule 3.23 hereto contains a true and
complete list of all insurance policies (including the insurers, types of
coverage, expiration dates, annual premiums, coverage limits, deductibles or
self-insured or net retentions and other terms thereof, and the aggregate
amounts paid thereunder and any pending or outstanding claims thereunder in
excess of $10,000) that insure the business, operations, officers, directors,
employees, assets, Properties or affairs of the Company, or are maintained for
the benefit of the Company, as an insured. All such insurance policies and
Contracts are valid and binding in accordance with their terms and will remain
in full force and effect at all times until the Closing. The Company nor, to the
knowledge of each Selling Shareholder and the Company, any other party to any
such insurance policy or Contract is in default with respect thereto, nor does
any condition exist that with notice or lapse of time or both would constitute
such a default by any party thereunder. Except as set forth on Schedule 3.23(a)
hereto, no such insurance policy or Contract contains any provision providing
that any other party thereto may terminate or cancel the same by reason of the
transactions contemplated by this Agreement, or any other provision which would
be altered or otherwise become applicable by reason of such transactions, and no
party has given notice of cancellation or non-renewal of any such insurance
policy or Contract or that it intends to cancel or fail to renew any such
insurance policy or Contract as a result of the transactions contemplated
hereby. To each Selling Shareholder's and the Company's knowledge, neither the
Company, nor its Affiliates has failed to give any notice or present any claim
under any such insurance policy or Contract in due or timely fashion or as
required thereby in a manner which may jeopardize full recovery thereunder. All
such insurance policies and Contracts provide coverage in amounts and upon terms
that the Company believes are reasonable and adequate for the Company prior to
and on the Closing. The Company has never been denied coverage under any claim
made nor has any insurance company refused to provide insurance coverage to the
Company.
Section 3.24 Environmental Matters. There has not been any release,
spill, emission, leaking, deposit, disposal, discharge, dispersal or leaching
into the environment of any hazardous material at, in, on, under or from any
real property leased, used or managed by the Company or in connection with its
business, that could, to each Selling Shareholder's or the Company's knowledge,
individually or in the aggregate, have an adverse effect. No hazardous materials
are being stored or being used by the Company, or to the Company and Selling
Shareholder's knowledge otherwise are present at, in, on or under any real
property leased, used or managed by the Company or in connection with its
business where such activity is not in compliance with any environmental law.
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The Company is in compliance, in all respects, with all environmental laws
applicable to it. Neither the Selling Shareholders, nor the Company, or any of
their Affiliates has received notice of any violation by or non-compliance with
any of the same of, or default by any of the same under, any environmental law,
and neither the Selling Shareholders nor the Company has knowledge of any
existing facts or circumstances that are likely to result in any such violation,
non-compliance or default. There is no action or proceeding pending or, to the
knowledge each Selling Shareholder or the Company, threatened against the
Company, or any of its Affiliates that alleges or would allege any violation of
or non-compliance with any environmental law.
Section 3.25 Accounts. Schedule 3.25 hereto contains a true and
complete list of (i) the names and locations of all banks, trust companies,
securities brokers and other financial institutions at which the Company has an
account, deposit, lock box or safety deposit box for its own benefit or
maintains a banking, custodial, trading or other similar relationship for its
own benefit, (ii) each such account, deposit, box or relationship and (iii) the
name of every Person authorized to draw thereon or having access thereto.
Section 3.26 Company Business.
(a) The Company conducts no business other than (i) being an
Internet-based aggregator of new and used automobile information and a provider
of marketing and referral services to automobile dealers, (ii) licensing of
software products to banks, credit unions, other financial institutions and
automobile dealers relating to financing of, and information concerning,
automobiles, (iii) licensing aggregated vehicle data to Persons such as internet
portals, and (iv) selling e-mail addresses to Persons and all such business is,
and has been since the formation of the Company, conducted directly by the
Company and not through any Affiliates.
(b) Schedule 3.26(b) hereto sets forth (i) the name of each automobile
dealer with whom the Company has a Contract or other arrangement (each a
"Dealer" or collectively "Dealers") and (ii) the revenue accrued for the months
of August and September of 1999.
(c) Except as set forth in Schedule 3.26(c) hereto, none of the Selling
Shareholders has reason to believe that any of the 150 Dealers who generated the
most accrued revenue for the Company for the months of August and September of
1999, or any group of Dealers owned by common control, intends to cancel or
otherwise terminate or to decrease its relationship with the Company, either as
a result of the transactions contemplated hereby or otherwise.
Section 3.27 No Brokers. Except as set forth in Schedule 3.27 and
Section 5.14, no broker, finder or investment banker has been retained or
engaged on behalf of such Selling Shareholder, the Company, or their Affiliates,
or is entitled to any brokerage, finder's or other fee, compensation or
commission from any such Person in connection with the transactions contemplated
by this Agreement.
Section 3.28 Full Disclosure. All documents and papers delivered by or
on behalf of any Selling Shareholder, the Company, or their Affiliates in
connection with this Agreement and the transactions contemplated hereby were
prepared and delivered in good faith by such Person and are complete and
authentic in all respects. Each Selling Shareholder, the Company and their
Affiliates have complied in good faith with all
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requests of the Parent and its representatives for documents, papers and
information relating to the Company in connection with the transactions
contemplated hereby, and have not knowingly withheld any document, paper or
other information requested by the Parent or any of its representatives in
connection herewith. No representation or warranty by any Selling Shareholder or
the Company contained in this Agreement (including the exhibits and schedules
hereto and thereto) contains any untrue statement of a fact or omits to state a
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which it was made, not false or
misleading.
Section 3.29 Powers of Attorney. There are no outstanding powers of
attorney granted by the Company to any Person.
Section 3.30 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which either the Company, or any Selling Shareholder is a party or otherwise
binding upon the Company, or any Selling Shareholder which has or reasonably
could be expected to have the effect of prohibiting or impairing any business
practice of the Company, the Surviving Corporation, or Parent, any acquisition
of property (tangible or intangible) by the Company, the Surviving Corporation,
or Parent or the conduct of business by the Company, the Surviving Corporation,
or Parent. Except for exclusive territory agreements with certain Dealers,
neither the Company nor the Selling Shareholders has entered into any agreement
restricting their ability to sell, license or otherwise distribute any
automotive related products or information to any class of customers in any
geographical area.
Section 3.31 Interested Party Transactions. Except as set forth on
Schedule 3.31, no officer, director or shareholder of the Company (nor any
relative or Affiliate of such persons), has or has had, directly or indirectly,
(i) an economic 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, (ii) an economic 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.
Section 3.32 Investment Representations. Each Selling Shareholder is
acquiring the Parent Common Stock and other rights in the Merger for his own
account, not as a nominee or agent, for investment and not with a view to the
distribution or resale thereof in any transaction not exempt from registration
under the Securities Act and state securities laws. Each Selling Shareholder
understands that the Parent Common Stock has not been registered under the
Securities Act by reason of a specific exemption therefrom and may not be
transferred or resold except pursuant to an exemption from the registration and
prospectus delivery requirements of the Securities Act. Each Selling Shareholder
has been furnished with such materials and has been given access to such
information relating to Parent as requested and has been afforded the
opportunity to ask questions regarding Parent as each Selling Shareholder has
found necessary to make an informed investment decision. Each Selling
Shareholder has the knowledge and experience in financial and business matters
and investments in general that Shareholder is capable of evaluating the merits
and risks of the transactions contemplated by this Agreement.
Section 3.33 Reorganization. The Company and Selling Shareholders
represent that (a) in the aggregate, an amount of shares of the Company Common
Stock
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representing control of the Company, as defined in Section 368(c)(1) of the
Code, will be exchanged solely for voting stock of the Parent in the Merger, (b)
the fair market value of the Company Common Stock surrendered in the exchange
will be approximately equal to the fair market value of the Parent Common Stock
and other consideration received by the Selling Shareholders, (c) at the time of
the Merger, the Company will not have outstanding any warrants, options,
convertible securities or any other type of right pursuant to which any person
could acquire stock in the Company that, if exercised or converted, would affect
Parent's acquisition or retention of Control of the Company, as defined in
Section 368(c)(1) of the Code, (d) on the date of the Merger, the Fair Market
Value of the assets of the Company will exceed the sum of its liabilities, plus
the amount of liabilities, if any, to which the assets of the Company are
subject, and (e) the Company is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby make the following representations and
warranties to the Company and the Selling Shareholders:
Section 4.1 Due Organization. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite power and authority to execute, deliver and perform
this Agreement and to consummate the transactions as contemplated herein. Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of California with all requisite power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
as contemplated herein.
Section 4.2 Authorization and Validity. The execution, delivery and
performance of this Agreement by Parent and by Merger Sub have been duly and
validly authorized by all necessary corporate action. This Agreement constitutes
the legally valid and binding obligation of Parent and of Merger Sub enforceable
against Parent and Merger Sub in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws and equitable principles relating to or limiting creditors' rights
generally and by general principles of equity.
Section 4.3 Defaults. The execution and delivery of this Agreement by
Parent and by Merger Sub and the performance of their respective obligations
hereunder are not in violation or breach of, and do not conflict with or
constitute a default under, any law, rule or regulation of any governmental
authority or court or, as applicable, any of the terms or provisions of Parent's
Articles of Incorporation or by-laws or any agreement, license or other
instrument, to which Parent is a party, or any of the terms or provisions of
Merger Sub's Articles of Incorporation or by-laws or any agreement, license, or
other instrument, to which Merger Sub is a party.
Section 4.4 No Litigation. There are no actions, suits or proceedings
pending against Parent or against Merger Sub, for which service of process has
been made on Parent or on Merger Sub, in any court or by or before any other
governmental
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agency or instrumentality that would, taken in the aggregate, materially and
adversely affect the ability of Parent or Merger Sub to carry out the terms of
this Agreement.
Section 4.5 No Consent Required. Except for the filings referred to on
Schedule 4.5 hereto, no consent, approval, authorization or order of any court
or governmental agency is required for the execution and delivery of this
Agreement by Parent and Merger Sub or for the performance by Parent and Merger
Sub of their respective obligations hereunder or, if required, such consent,
approval, authorization or order will have been obtained on or prior to the
Closing Date.
Section 4.6 Transfer Restrictions. Parent is acquiring the Common Stock
for its own account and not with a view to the distribution or resale thereof in
any transaction not exempt from the registration requirements of the Securities
Act and applicable state securities laws. Parent acknowledges that the Common
Stock is subject to transfer restrictions imposed by the Securities Act and
state securities law. Parent recognizes that it will not be able to transfer the
Common Stock unless any such security is registered under the Securities Act or
resold pursuant to an exemption under applicable securities laws.
Section 4.7 Full Disclosure. No representation or warranty by Parent or
by Merger Sub contained in this Agreement (including the exhibits and schedules
hereto and thereto) contains any untrue statement of fact or omits to state a
fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which it was made, not false or
misleading. In addition, Parent has made all necessary filings with the SEC and
there are no material mistakes or omissions in such filings.
Section 4.8 SEC Reports. The Parent has previously filed with the SEC
complete and accurate copies, as amended or supplemented, of (i) Registration
Statement on Form S-1 filed January 15, 1999 and all amendments thereto; (ii)
Form 10-Q for the quarter ended March 31, 1999; (iii) Form 10-Q for the quarter
ended June 30, 1999; (iv) Form 8-K dated April 30, 1999, (v) Form 8-K dated July
30, 1999 and (vi) Form 8-K dated October 4, 1999 (such reports and other
filings, together with any amendments or supplements thereto, are collectively
referred to herein as the "Parent Reports"). As of their respective dates, the
Parent Reports did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Parent Reports comply in all material respects with the
rules and regulations promulgated by the SEC.
Section 4.9 Financial Statements. The financial statements of the
Parent included in the quarterly or other reports filed as of the date of this
Agreement by the Parent with the SEC (the "Parent Financial Statements"), have
been prepared in accordance with GAAP consistently applied and fairly present
the financial position of the Parent at the dates specified in such financial
statements and the results of operations and changes in financial position for
the periods then ended.
Section 4.10 No Material Adverse Change. Except for filings with the
SEC, since the Parent's filing on Form 10-Q for the quarter ended June 30, 1999,
there has not been any material adverse change in the business of the Parent
except as disclosed in any filing by the Company with the SEC.
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Section 4.11 Reorganization Representations of Parent and Merger Sub.
The Parent does not own, directly or indirectly, and has not owned directly or
indirectly during the past five years, any shares of Company Common Stock. Based
on the representation of the Company and Selling Shareholders in Section 3.33(b)
hereof, the fair market value of the Parent Common Stock and other consideration
received by the Selling Shareholders will be approximately equal to the fair
market value of the Company Common Stock surrendered in the exchange. The Parent
has no plan or intention to reacquire any of the Parent Common Stock issued in
the Merger. The Parent has no plan or intention to cause the Company to issue
shares of Company stock that would result in the Parent losing control of the
Company, as defined in Section 368(c)(1) of the Code. Merger Sub will have no
material liabilities assumed by the Company and will not transfer to the Company
any assets subject to material liabilities. Immediately following the Merger,
the Company will hold at least 90% of the fair market value of the Company's net
assets and at least 70% of the fair market value of Merger Sub's gross assets
held immediately prior to the Merger. For purposes of the foregoing sentence,
amounts used by the Company or Merger Sub to pay expenses of the Merger, and all
redemptions or distributions by the Parent (except for regular, normal year-end
bonuses) will be included as assets of the Company or Merger Sub, respectively
immediately prior to the Merger. The Parent has no present plan or intention to
liquidate the Company, to merge the Company with or into another corporation, to
sell or otherwise dispose of the stock of the Company, in each case except the
transfer of stock to corporations controlled by the Parent, or to cause the
Company to sell or otherwise dispose of any of its assets or any of the assets
acquired from Merger Sub, except for dispositions made in the ordinary course.
Section 4.12 Valid Issuance of Shares of Parent Common Stock. The
shares of the Parent Common Stock, when issued, sold or delivered to Selling
Shareholder in accordance with the terms hereof for the consideration described
herein, and assuming the representations and warranties in Section 3.32 by the
Selling Shareholders are true, will be duly and validly issued, fully paid and
nonassessable and will be issued in compliance with all applicable federal and
California securities laws.
Section 4.13 Securities Trading Policy. Attached as Schedule 4.14 is an
accurate, complete and correct copy of Parent's securities trading policy.
ARTICLE V
COVENANTS
Each of the parties, jointly and severally, covenants and agrees to
take all action necessary to comply with each of the following covenants and
agreements from the date hereof until the Effective Time.
Section 5.1 Conduct of Business.
(a) The Company will, and each Selling Shareholder will cause the
Company to, (i) conduct its operations in the ordinary course of business
consistent with past practice and use its best efforts to preserve intact its
business organization, goodwill and Permits, to keep available the services of
its officers and employees and to maintain existing relationships with Dealers,
agents and others having business dealings with the Company, (ii) maintain
insurance coverages and its books, records and accounts in the
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usual manner consistent with prior practice, (iii) comply in all material
respects with all laws, statutes, ordinances, rules and regulations of
Governmental Entities applicable to the Company, (iv) maintain and keep its
Properties and equipment in good repair, working order and condition, normal
wear and tear excepted, and (v) perform in all material respects its obligations
under all Contracts and commitments to which the Company is a party or by or to
which it is bound or subject.
(b) Except as set forth in Schedule 5.1(b), the Company will not, and
each Selling Shareholder will not permit the Company to, directly or indirectly
(i) amend or modify its Articles of Incorporation, by-laws or other
organizational documents, except as may be required to consummate the
transactions contemplated hereby, (ii) authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, calls, commitments, subscriptions,
rights to purchase or otherwise) any capital stock or any other equity interest,
or any bonds, debentures, notes, debt instruments, evidences of indebtedness or
other securities of any kind, (iii) split, combine or reclassify any capital
stock, or declare, pay or set aside any sum for any dividend or other
distribution (whether in cash, common stock or Property, any combination thereof
or otherwise) in respect of its capital stock, or redeem, purchase or otherwise
acquire (or agree to redeem, purchase or otherwise acquire) any capital stock or
any of its other securities, (iv) adopt a plan of complete or partial
liquidation, dissolution, rehabilitation, merger, consolidation, restructuring,
recapitalization, redomestication or other reorganization, sell, transfer,
lease, assign or otherwise dispose of any asset or Properties of the Company,
except in the ordinary course of business, (v) make any change in any financial
reporting, tax or accounting methods or practices, (vi) make any tax election or
settle or compromise any federal, state, local or foreign income Tax Liability
either not in accordance with past practice, or which could have a material
adverse effect on the business, operations, condition (financial or otherwise),
prospects, assets or Properties of the Company, (vii) purchase or sell
securities or other investments, or invest or reinvest income and proceeds in
respect thereof, other than in the ordinary course of business consistent with
past practice, (viii) make any changes in the executive officers or senior
management of the Company or change the compensation payable to any of such
persons, (ix) engage in any business other than its present business described
in Section 3.26(a) or make any changes in the product offerings currently
offered by the Company without prior written consent from the Parent, (x) borrow
money or otherwise become obligated in respect of (either directly or
indirectly) any Liability for borrowed money, or (xi) without the prior written
consent of the Parent, take any of the other actions described in Section
3.10(b) hereof or take any action, or omit to do any act, that individually or
in the aggregate could, or could be reasonably likely to, result in (A) any of
the representations and warranties set forth in Article III of this Agreement
not being true in all material respects (or, in the case of any such
representations or warranties which are qualified as to materiality, true in all
respects) or (B) any of the conditions set forth in Articles VII and VIII not
being satisfied or (C) any breach of any covenant or obligation hereunder or (D)
a Material Adverse Effect on the business, operations, condition (financial or
otherwise), prospects, assets or Properties of the Company.
Section 5.2 Access to Information; Consultation; Confidentiality. Each
Selling Shareholder will, and will cause the Company to, (i) allow the Parent
and its officers, employees, counsel, accountants, consultants and other
authorized representatives ("Parent Representatives") to have reasonable access
to the books, records, Contracts, facilities, management and personnel of the
Company, (ii) furnish promptly to the Parent and the Parent Representatives all
information and documents
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concerning the Company as the Parent or the Parent Representatives may
reasonably request, and (iii) cause the respective officers, employees and
representatives of the Company and its Affiliates to cooperate in good faith
with the Parent and the Parent Representatives in connection with all such
access. In addition, each Selling Shareholder will, and will cause the Company
to, consult with the Parent a reasonable period of time prior to entering into
any transaction or arrangement or taking any action which is or may be adverse
to the Company, in a manner which will allow the Parent a reasonable opportunity
to evaluate and present its views to each Selling Shareholder, the Company, and
such Persons regarding such transaction, arrangement or action. No investigation
or review by the Parent or any of the Parent Representatives shall affect or be
deemed to modify any of the representations, warranties, covenants or agreements
of each Selling Shareholder or the Company under this Agreement or otherwise; it
being understood that, notwithstanding any right of the Parent fully to
investigate the affairs of the Company, the Parent and Merger Sub have the right
to rely fully upon the representations, warranties, covenants and agreements of
each Selling Shareholder and the Company contained in this Agreement.
Section 5.3 Cooperation and Reasonable Best Efforts. Subject to the
terms and conditions hereof, (a) each of the parties hereto shall cooperate with
each other, and each Selling Shareholder will cause the Company, and its
respective Affiliates to cooperate with the Parent and Merger Sub, in connection
with consummating the transactions contemplated by this Agreement in a timely
manner and (b) each of the parties hereto agrees to, and each Selling
Shareholder will cause the Company and its Affiliates to, use their best efforts
to take, or cause to be taken, all reasonable actions, and to do, or cause to be
done, all reasonable things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions contemplated
by this Agreement in a timely manner.
Section 5.4 Consents and Approvals. As soon as practicable after the
execution of this Agreement and at such time as any Consent may be required to
be obtained in connection with the Merger (in sufficient enough time so as not
to interfere with the Merger), each of the parties hereto shall, and each
Selling Shareholder shall cause the Company and its respective Affiliates to,
obtain any necessary Consents of, and make any filing with or give any notice
to, any Governmental Entities and other Persons as are required to be obtained,
made or given by such party to consummate the transactions contemplated by this
Agreement. The parties hereto shall cooperate with one another in exchanging
such information and reasonable assistance as may be required by any such
Governmental Entity or as any other party may request in connection with the
foregoing.
Section 5.5 Notification of Certain Matters. Each Selling Shareholder
and the Parent shall give prompt notice to the other of (a) the occurrence or
nonoccurrence of any event which would be reasonably likely to cause any
representation or warranty of either Selling Shareholder or the Company, on the
one hand, or the Parent or Merger Sub, on the other hand, contained in this
Agreement to be untrue or inaccurate in any material respect (or, in the case of
any representation or warranty which is qualified as to materiality, untrue or
inaccurate in any respect) at or prior to the Effective Time and (b) any
material failure of any of Selling Shareholder or the Company on the one hand,
or the Parent or Merger Sub, on the other hand, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.5 shall not cure such failure or limit or otherwise affect the
remedies available hereunder to the parties
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receiving such notice. Any notice given pursuant to this Section 5.5 shall be
written notice with sufficient specificity to allow for identification on the
part of the Selling Shareholders or the Parent and shall be sent by facsimile or
by overnight delivery. Without limiting the generality of the foregoing, from
the date hereof through the Closing Date, the Selling Shareholders and the
Parent shall promptly notify the other of any action, suit, claim, proceeding or
investigation of the type required to be described in Schedule 3.11 or Section
4.4, respectively, hereof that is commenced or, to its or their knowledge,
threatened, and of any request for additional information or documentary
materials by any Governmental Entity in connection with the transactions
contemplated hereby.
Section 5.6 No Solicitation. Each Selling Shareholder, the Company,
their respective Affiliates and their respective officers, directors, employees,
representatives and agents shall immediately cease any existing discussions,
communications or negotiations, if any, with any Persons, other than the Parent
and the Parent Representatives, conducted heretofore with respect to any direct
or indirect acquisition of any material portion of the assets or Properties of,
or any of the capital stock of or other equity interest in, the Company or any
business combination with the Company (whether by merger, consolidation or
otherwise) or any other transaction inconsistent with consummation of, or
similar in whole or in part to, the transactions contemplated herein (any of the
foregoing, an "Alternative Transaction"), and will not, directly or indirectly,
solicit, encourage, participate in or initiate discussions or negotiations with,
or provide any information or documents to, or cooperate in any way with, any
Person (other than the Parent and the Parent Representatives) concerning any
Alternative Transaction or consummate any such Alternative Transaction. In the
event that any Selling Shareholder or the Company receives any oral or written
proposal relating to an Alternative Transaction (an "Alternative Transaction
Proposal"), or any inquiry is received by, any information is requested from, or
any discussions or negotiations are sought to be initiated or continued with any
Selling Shareholder or the Company in connection with an Alternative Transaction
or Alternative Transaction Proposal, such Selling Shareholder shall
(i) not respond or inform the Person making such Alternative
Transaction Proposal that such Selling Shareholder is required by
contract to refrain from discussing any Alternative Transaction,
(ii) not make any other statement or engage in any other
discussions with such Person concerning any Alternative Transaction,
and
(iii) promptly after requested by Parent, notify the Parent of
the Alternative Transaction Proposal.
Section 5.7 Financial Statements.
(a) As soon as practicable after they become available (and in any
event 14 days prior to the Closing), the Company shall deliver to Parent as part
of Schedule 3.8(a) the Company's (i) audited balance sheets as of December 31,
1997 and 1998 and the related audited statements of income, cash flows and
retained earnings as of and for the 12-month periods ended December 31, 1997 and
1998 (all such financial statements are collectively referred to herein as the
"Annual Financial Statements"), (ii) audited balance sheet and related audited
statements of income, cash flow and retained earnings as of and for the 9-month
period ended September 30, 1999 (such financial statements are
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collectively referred to herein as the "Current Year Financial Statements"), and
(iii) unaudited balance sheets and related statements of income, cash flow and
retained earnings as of and for the monthly periods following September 30, 1999
(such financial statements are collectively referred to herein as the "Interim
Financial Statements"). The Annual Financial Statements and the Current Year
Financial Statements are collectively referred to herein as the "Audited
Financial Statements."
(b) The Audited Financial Statements shall be audited by ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇. The Financial Statements shall each be prepared in accordance with
GAAP on a basis consistent with the accounting principles and practices used in
the preparation of financial statements audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ for Parent
and in accordance with the books and records of the Company and will present
fairly the financial condition of the Company as of the respective dates thereof
and the results of operations of the Company for the respective periods then
ended. The Interim Financial Statements shall be prepared in accordance with
GAAP on a basis consistent with the accounting principles and practices used in
the preparation of financial statements audited by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ for Parent
and in accordance with the books and records of the Company and will present
fairly the financial condition of the Company as of the respective dates thereof
and the results of operations of the Company for the respective periods then
ended, except for the absence of footnotes thereto and subject to normal
recurring year-end audit adjustments. The Selling Shareholders and the Company
acknowledge and agree that the Audited Financial Statements are being audited
and prepared by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ at the expense of Parent and, therefore, Parent
shall retain the use of the Audited Financial Statements, and the Selling
Shareholders and the Company shall not use or disclose the Audited Financial
Statements without the written approval of Parent.
(c) The Selling Shareholders and the Company acknowledge and agree that
they will use their respective best efforts to cooperate with and assist ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ in the timely preparation of the Audited Financial Statements,
including, without limitation, (i) providing ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ with timely access
to all books and records of the Company which ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ necessary to
complete the audit, and (ii) executing any management representation or other
similar letters or certificates requested by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in connection with
the audit.
Section 5.8 Insurance Coverage. Each Selling Shareholder will, and will
cause the Company and its Affiliates to, cooperate with the Parent, upon
request, in obtaining, at the expense of Parent, continued or replacement
insurance coverage, effective as of the Closing Date, providing coverage to the
Company comparable to that provided by the policies listed on Schedule 3.23
hereto. Without limiting the generality of the foregoing, each Selling
Shareholder will provide such information, and cause the Company to complete and
execute such applications, as may be reasonably necessary to arrange for such
continuation or replacement insurance coverage.
Section 5.9 Inter-Affiliate Accounts; Affiliate Agreements. Each
Selling Shareholder shall, and shall cause the Company to, cause all accounts
receivable or payable (whether or not currently due or payable) between (i) the
Company, on the one hand, and (ii) each Selling Shareholder, or any of the
directors, officers, employees or relatives or Affiliates of any of the same, on
the other hand, to be settled in full (without any premium or penalty, and at
values mutually agreed upon by the parties hereto) at or prior to the Closing.
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Section 5.10 Corporate Records. At or prior to the Closing, the Selling
Shareholders shall deliver to the Parent (or its designee) all minute books,
ledgers, books, cancelled or unused stock certificates, seals, records, files
and Properties of the Company that are in the possession or control of the
Selling Shareholders or any of their respective Affiliates, provided, however,
the Selling Shareholders shall have access to the Company records reasonably
necessary for tax, litigation and other personal matters.
Section 5.11 Employment Agreements. On or prior to the Closing Date,
▇▇▇▇▇▇▇ ▇▇▇▇▇ and the Company shall enter into the Employment Agreement in the
form attached as Exhibit B.
Section 5.12 Noncompetition; Confidential Information.
(a) To protect the trade secrets, confidential information and good
will of the Company, and as a specific material inducement to Parent to enter
into this Agreement and purchase the Shares contemplated hereby (which such
Selling Shareholder acknowledges is conditioned on the noncompete contained
herein), at all times during the period from the date hereof until three (3)
years after the Closing (the "Restricted Period") and within each county in the
State of California and each other state in which the Company is then doing
business on the date such Selling Shareholder's employment with the Company
terminates, the Principal Shareholders shall not:
(i) directly or indirectly, in any capacity, solicit for
employment or identify to third parties any persons receiving wage
compensation of any type (whether as an employee, consultant, or
independent contractor), whether currently or at any time within the
past twelve months from the date of the relevant action, from the
Company, the Parent or any of their Affiliates;
(ii) directly or indirectly, in any capacity, accept for
employment or contract for the services of, any persons receiving
compensation of any type (whether as an employee, consultant, or
independent contractor), whether currently or at any time within the
past twelve months from the date of the relevant action, from the
Company, the Parent or any of their Affiliates, unless such Principal
Shareholder delivers to the Parent the reasonable placement fee of
$50,000 for each such person retained;
(iii) directly or indirectly, in any capacity assist, whether
for pay or otherwise, any company, corporation, organization, entity,
person, partnership or individual to do that which such Person could
not do directly under Subparagraphs (i) and/or (ii) above;
(iv) directly or indirectly, in any capacity engage, whether
for pay or otherwise, in the same business, or any business similar to,
or competitive with, the business currently conducted by the Company;
provided, however, this Subparagraph (iv) shall solely apply to ▇▇▇▇▇▇▇
▇▇▇▇▇; or
(v) directly or indirectly, in any capacity assist, whether
for pay or otherwise, other than the Parent, or any of their
Affiliates, any company, corporation, organization, entity, person,
partnership or individual to engage in the same business, or any
business similar to or competitive with, the business conducted by the
Company, provided, however, this Subparagraph (v) shall solely apply to
▇▇▇▇▇▇▇ ▇▇▇▇▇.
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(b) At all times during the Restricted Period, no Selling Shareholder
shall:
(i) disclose or reveal to any Person (other than directors,
officers and authorized employees and Representatives of the Parent and its
subsidiaries) any Intellectual Property, including without limitation, computer
software, technology, data, customer lists, trade secrets, documents or other
information relating to the business, operations or activities of the Parent or
any of its Affiliates, including the Company (except and only to the extent that
such Intellectual Property (A) is readily ascertainable from public or published
information or trade sources; (B) known to such individual prior to his initial
employment with the Company; or (C) upon advice of counsel, are required to be
disclosed in order to comply with applicable law or regulatory authority, and
such employee notifies the Parent prior to making such disclosure); or
(ii) use any such customer lists, trade secrets, documents or
information other than to the extent necessary or appropriate in the performance
of duties under the related Employment Agreement (except and only to the extent
that such customer lists, trade secrets or other information (A) are readily
ascertainable from public or published information or trade sources; (B) known
to such individual prior to his initial employment with the Company, or (C) upon
advice of counsel, are required to be disclosed in order to comply with
applicable law or regulatory authority, and such employee notifies the Parent
prior to making such disclosure).
Section 5.13 Further Assurances. Each Selling Shareholder, for himself
and his successors and assigns, hereby covenants and agrees that, at the
Parent's sole expense and without the assumption of any additional Liability
therefor, upon the reasonable written request of the Parent, such Selling
Shareholder will execute and deliver to the Parent and its successors and
assigns such further instruments of sale, conveyance, assignment and transfer,
and take such other action in order more effectively to sell, convey, grant,
assign, transfer and deliver the Shares to the Parent, and to assure and confirm
to any other person the ownership of the Company Common Stock by the Parent, and
to permit the Parent to exercise any of the rights or privileges intended to be
conveyed, assigned, transferred and delivered by such Selling Shareholder to the
Parent pursuant to this Agreement.
Section 5.14 Payment of Professional Fees.
(a) At the Effective Time, Parent will pay on behalf of Company (i) up
to $1,000,000 of any investment banking fee incurred by the Company due to the
Merger, and (ii) up to the first $75,000 (the "Initial Fee Threshold") and half
of the next $25,000 of any legal fees (the "Fee Sharing Cap") incurred by the
Company in connection with or for the Merger. At the Effective Time, the Selling
Shareholders shall pay any investment banking fee in excess of $1,000,000
incurred by the Company due to the Merger and shall also pay half of the first
$25,000 of legal fees incurred in excess of the Initial Fee Threshold and shall
pay all legal fees in excess of the Fee Sharing Cap and all other professional
fees incurred by the Company in connection with or related to the Merger.
(b) If this Agreement is terminated pursuant to Section 10.4(a)(iii) or
(v), the Parent shall pay up to $75,000 of the reasonable legal fees and
expenses incurred by the Company in connection with the Merger.
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Section 5.15 Fairness Hearing and Permit. All parties hereto
acknowledge that Parent intends to issue Parent Common Stock to the Shareholders
pursuant to an exemption from the registration requirements of the Securities
Act of 1933, as amended (the "Act"), provided by Section 3(a)(10) of the Act,
and that in order to qualify for such exemption Parent must apply to the
California Commissioner of Corporations for a permit (the "Permit"), which may
only be issued after a public hearing on the fairness of the terms and
conditions of the Merger (the "Fairness Hearing"). Within fifteen (15) days from
the date of this Agreement, Parent at its sole cost and expense and with the
full cooperation and assistance of the Company, shall prepare an Application for
Qualification of Securities by Permit under Section 25121 of the California
Corporate Securities Law of 1968, as amended, a related Notice of Hearing and a
proxy statement (to the extent required) and other disclosure materials (the
"Disclosure Document") to be supplied to the Shareholders of the Company in
connection with the transactions contemplated hereby (collectively, the "Hearing
Documents"). Within said fifteen (15) day period, Parent shall cause to be
filed, at its sole cost and expense and with the full cooperation of the
Company, the Disclosure Document and the Hearing Documents with the California
Department of Corporations and request a hearing on the fairness of the Merger
pursuant to Section 25132 of such California Corporate Securities Law. Parent
and the Company will thereafter endeavor in good faith to obtain a finding of
fairness and the issuance of a permit to such effect by the California
Department of Corporations as a result of such hearing, but they shall in no
event be required to alter the terms of the Merger in order to obtain such
finding and issuance.
All parties hereto shall proceed expeditiously and cooperate fully in
making available all information necessary to complete the Permit application
and to participate as may be necessary or appropriate at the Fairness Hearing.
Section 5.16 Reorganization. The parties mutually desire and intend
that the Merger shall qualify as a reorganization under Section 368 of the Code.
In furtherance of this intended result, Parent, Merger Sub, the Company and the
Selling Shareholders each agree (a) to exercise its reasonable best efforts to
cause the Merger to qualify as a reorganization under Section 368 of the Code;
(b) treat the acquisition of Merger Sub's assets by the Company as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code; and (c) not to take any action which is inconsistent with that
treatment, unless required to do so by any court, federal or state governmental
department, commission, bureau or agency or other public body or authority.
Parent and Merger Sub further represent that (a) they plan and intend to
continue the corporate existence of the Company and the operation of the
Company's "historic" business activities in a fashion similar to and with
substantially the same or increased assets as the business was conducted before
the Merger; and (b) they have no plan or intention to cause or allow the
transfer or disposition of any significant portion of the Company's business or
to sell or otherwise dispose of the stock of the Company.
Section 5.17 Filings Under HSR Act. As soon as practicable, each of
Parent and Company shall, if necessary, file with the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division") a premerger notification form and any supplemental
information (other than privileged information) which may be requested in
connection therewith pursuant to the HSR Act, which filings and supplemental
information will comply in all material respects with the requirements of the
HSR Act. Each of Parent and Company shall cooperate fully with the other in
connection with the preparation of such filings and shall use best efforts to
respond to any requests for supplemental information from the FTC or the
Antitrust
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Division and to obtain early termination of any waiting period applicable to the
Merger under the HSR Act. Any party to this Agreement required to make a
premerger notification filing pursuant to the HSR Act shall be responsible for
payment of the filing fees required to be paid in connection with any such
filing.
Section 5.18 Exercise of Options and Warrants. The Selling Shareholders
and the Company shall cause all outstanding options, warrants and other
contingent securities granted or issued by the Company to be exercised and the
underlying shares of Company Common Stock to be authorized, issued and
outstanding prior to the Effective Time.
ARTICLE VI
CONDITIONS OF THE COMPANY AND THE SELLING
SHAREHOLDER TO CLOSE
The obligations of the Selling Shareholders to consummate the Merger
shall be subject to the satisfaction or waiver of the following conditions at or
prior to the Closing.
Section 6.1 Representations, Warranties and Covenants. The
representations and warranties of the Parent and Merger Sub contained in this
Agreement shall be true and correct, as of the date of this Agreement and
(except for any such representations and warranties which are made as of and
relate solely to a particular date) as of the Closing Date with the same force
and effect as though made on and as of the Closing Date. The Parent and Merger
Sub shall have performed and complied in all material respects with all
applicable covenants and agreements required to be performed or complied with by
the Parent and Merger Sub hereunder on or prior to the Closing Date.
Section 6.2 Consents. All consents, if any, required to be obtained by
the Parent and Merger Sub in connection with the consummation of the
transactions contemplated hereby shall have been duly obtained, made or given
and shall be in full force and effect.
Section 6.3 Certificates. The Parent and Merger Sub shall have
delivered to the Selling Shareholders a certificate dated the date of the
Closing Date, signed by officers of the Parent and of the Merger Sub, certifying
as to the satisfaction of the conditions set forth in Section 6.1 relating to
the respective representations, warranties, covenants and agreements of the
Parent and Merger Sub.
Section 6.4 Opinion of Counsel to the Parent and Merger Sub. The
Selling Shareholders and the Company shall have received the opinion, dated the
Closing Date, of Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, Counsel of the Parent
and Merger Sub, in form and substance reasonably acceptable to counsel for the
Company.
Section 6.5 Tax Opinion. The Selling Shareholders shall have received
the opinion, dated the Closing Date, of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, Counsel to the
Selling Shareholders, in form and substance reasonably satisfactory to the
Selling Shareholders, on the basis of facts, representations and assumptions set
forth in such opinion, to the effect that the merger constitutes a
"reorganization" qualifying under the provisions of
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Section 368(a) of the Code and that each of Parent, Merger Sub and the Company
is a "party to a reorganization" within the meaning of Section 368(b) of the
Code. In rendering such opinion, such counsel shall be entitled to rely upon
representations of officers of Parent and the Company to the extent set forth in
this Agreement.
Section 6.6 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. Any waiting period applicable to the
Merger under the HSR Act shall have expired or terminated.
Section 6.7 Employment Agreement. The Company shall have entered into
the Employment Agreement.
Section 6.8 Exemption Exchange of Shares. The Company shall have
received advice from its counsel that all conditions necessary to effect a valid
exchange under Section 3(a)(10) of the Securities Act shall have been satisfied.
Section 6.9 Escrow Agreement. The Escrow Agreement substantially in the
form of Exhibit C, shall have been executed and delivered by all parties
thereto.
Section 6.10 Parent Board Resolutions. The Parent shall have delivered
to ▇▇▇▇▇▇▇ ▇▇▇▇▇ a certified copy of the resolutions adopted by the board of
directors of Parent stating that the acquisition by ▇▇▇▇▇▇▇ ▇▇▇▇▇ of 1,538,600
shares of Common Stock of the Parent pursuant to this Agreement is approved for
the purpose of exempting such acquisition under Rule 16b-3 of the Securities and
Exchange Act of 1934, as amended.
ARTICLE VII
CONDITIONS TO CLOSE OF THE PARENT AND MERGER SUB
The obligation of the Parent to close the Merger and to pay the Cash
Payment and the Stock Payment and the obligation of the Merger Sub to close the
Merger shall be subject to the satisfaction or waiver of the following
conditions at or prior to the Closing.
Section 7.1 Representations, Warranties and Covenants. The
representations and warranties of each Selling Shareholder and the Company
contained or incorporated by reference in this Agreement shall be true and
correct, as of the date of this Agreement and (except for any such
representations and warranties which are made as of and relate solely to a
particular date) as of the Closing Date with the same force and effect as though
made on and as of the Closing Date. Each Selling Shareholder and the Company
shall have performed and complied in all material respects with all covenants
and agreements required to be performed or complied with by such parties
hereunder on or prior to the Closing Date.
Section 7.2 Consents. All Consents required to be obtained by the
Selling Shareholders and the Company in connection with the consummation of the
transactions contemplated hereby shall have been duly obtained, made or given
and shall be in full force and effect, without the imposition upon the Parent or
the Company of any material condition, restriction or required undertaking.
Section 7.3 Opinion of Counsel to the Selling Shareholders and the
Company. The Parent shall have received the opinion, dated the date hereof, of
▇▇▇▇▇▇▇▇
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& ▇▇▇▇▇▇▇▇, counsel to the Selling Shareholders and the Company, in form
reasonably acceptable to counsel for the Parent. Such opinion will include an
opinion to the effect that upon consummation of the Merger as contemplated
hereby Parent will acquire good and valid title in and to the Shares.
Section 7.4 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. Any waiting period applicable to the
Merger under the HSR Act shall have expired or terminated.
Section 7.5 Certificates. Each of the Selling Shareholders and the
Company shall have executed and delivered to the Parent (or shall have caused to
be executed and delivered to the Parent by the appropriate persons) the
following:
(a) A certified copy of the resolutions adopted by the Board
of Directors authorizing and approving this Agreement and each of the
transactions contemplated hereby;
(b) A copy of the Company's corporate charter certified as of
a recent date by the appropriate Secretary of State;
(c) A copy of the by-laws of the Company certified, by the
secretary of the Company;
(d) A certificate issued as of a recent date by the Secretary
of State of the State of California certifying that the Company is in
good standing;
(e) True and correct copies of all Consents and other
documents specified in Schedule 3.4 attached hereto.
(f) A certified copy of the resolutions unanimously adopted by
all of the Selling Shareholders authorizing and approving this
Agreement and each of the transactions contemplated thereby.
Section 7.6 Employment Agreements. The Employment Agreement, shall have
been executed and delivered by ▇▇▇▇▇▇▇ ▇▇▇▇▇.
Section 7.7 Financial Statements. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ has delivered to the
Parent the Financial Statements of the Company, the results of which shall be
satisfactory to the Parent in its sole discretion, including, without
limitation, Parent's review of the Interim Financial Statements to be provided
by Company pursuant to this Agreement.
Section 7.8 Due Diligence.
(a) Within 30 days after the date of this Agreement, the
Parent shall have completed its legal due diligence investigation of the Company
and its due diligence investigations concerning the Year 2000 Compliance of the
Intellectual Property owned, used or interfaced by the Company, the results of
which shall be satisfactory to the Parent in its sole discretion. This condition
to the Closing shall be deemed satisfied or waived if Parent does not notify the
Company in writing of a material concern discovered from its due diligence
investigation.
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(b) The Parent shall have completed its financial due
diligence investigations of the Company, the results of which shall be
satisfactory to the Parent in its sole discretion.
Section 7.9 Exemption for Exchange of Shares. The Parent shall have
received advice from its counsel that all conditions necessary to effect a valid
exchange under Section 3(a)(10) of the Securities Act shall have been satisfied.
Section 7.10 Share Certificates. The Selling Shareholders shall have
delivered to the Parent certificates representing the outstanding shares of the
capital stock of the Company being purchased on the Closing Date duly endorsed
by the Selling Shareholder transferring title to the Shares to the Parent or
accompanied by appropriate stock powers duly executed in blank necessary to
transfer title to the Shares to the Parent.
Section 7.11 Dissenter's Rights. There are no dissenting shareholders
and there are no outstanding options or warrants granted by the Company.
Section 7.12 Escrow Agreement. The Escrow Agreement substantially in
the form of Exhibit C, shall have been executed and delivered by all parties
thereto.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival. The representations and warranties of the parties
contained in this Agreement, or in any Schedule or Exhibit hereto or any
certificate delivered pursuant hereto, shall survive until the third anniversary
of the Closing Date hereunder; provided, however, that (a) the representations
and warranties contained in Sections 3.5 and 3.6 shall survive indefinitely, (b)
the representations and warranties contained in Sections 3.21 and 3.24 shall
survive for the applicable statute of limitations periods subsequent to the
Closing Date, (c) any representations and warranties implicated due to any claim
for Losses related or connected to, or arising under, the Consumer Car Club
Matter shall survive indefinitely and (d) any representations and warranties
contained in Article IX shall survive as provided therein. The period of
survival of the respective representations and warranties provided for in this
Section is referred to herein as the "Indemnity Period." No claim for
indemnification for breach of a representation or warranty may be asserted after
the expiration of the applicable Indemnity Period; provided that the written
assertion of any claim by a party against another hereunder with respect to the
breach or alleged breach of any representation or warranty (or a series of facts
which would support such breach) shall extend the applicable Indemnity Period
with respect to such claim through the date such claim is conclusively resolved.
No investigation by a party shall relieve another party from any Liability for
any misrepresentation or breach of warranty made by such other party in this
Agreement, or in any Schedule or Exhibit hereto or any certificate delivered
pursuant hereto.
Section 8.2 Indemnification. The Selling Shareholders and, until such
time as the Parent owns all of the capital stock of the Company, the Company
shall unconditionally and jointly and severally indemnify, defend and hold
harmless the Parent and the Merger Sub (and their directors, officers,
employees, representatives, agents, Affiliates, successors and assigns) from and
against any losses, Liabilities, damages, expenses, claims, fines, penalties,
interest, costs of investigation, assessments, judgments,
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actions, proceedings and suits of whatever kind and nature and all costs and
expenses relating thereto (including, without limitation, reasonable attorneys'
and accountants' fees and expenses) incurred in connection with the
investigation or defense thereof or in asserting rights hereunder (collectively,
"Losses"), based upon, arising out of or otherwise resulting from (i) any
inaccuracy in any representation or breach of any warranty of any Selling
Shareholder or the Company (without regard to any limitation or qualification as
to knowledge or materiality set forth in such representation, warranty or
certificate on the scope, accuracy or completeness thereof) contained in this
Agreement, any Transaction Document or in any Exhibit, Schedule or certificate
delivered pursuant hereto or thereto, (ii) the breach or nonfulfillment of any
covenant, agreement or other obligation of the Selling Shareholders or the
Company under this Agreement or any Transaction Document (other than the
Employment Agreement) which breach or nonfulfillment remains uncured for thirty
(30) days after the date of written notice of the breach or nonfulfillment,
(iii) all compensation due or payable to any officers, employees or agents of
the Company arising or related to services or activities prior to the Closing,
(iv) the conduct of business on or prior to the Closing, and (v) any claim
related or connected to, or arising under, the Consumer Car Club Matter.
Notwithstanding anything herein to the contrary, in the event the
Merger is consummated, the Selling Shareholders hereby irrevocably and
unconditionally waive and agree never to assert or exercise any rights of
contribution against the Company in respect of their indemnification obligations
or any Liabilities for breach of any representation, warranty, covenant,
agreement or obligation concerning pre-Closing matters hereunder.
The Parent hereby agrees to indemnify, defend and hold harmless the
Selling Shareholders and, until such time as the Parent owns all of the capital
stock of the Company, the Company, (and their respective successors and assigns)
from and against any Losses based upon, arising out of or otherwise resulting
from (i) any inaccuracy in any representation or breach of any warranty of the
Parent or Merger Sub (without regard to any limitation or qualification as to
knowledge or materiality set forth in such representation, warranty, or
certificate on the scope, accuracy or completeness thereof) contained in this
Agreement, any Transaction Document or in any Exhibit, any or in any Schedule or
certificate delivered pursuant hereto or thereto, (ii) the breach or
nonfulfillment of any covenant, agreement or other obligation of the Parent or
Merger Sub under this Agreement or any Transaction Documents (other than the
Employment Agreement) which breach or nonfulfillment remains uncured for thirty
(30) days after the date of written notice of the breach or nonfulfillment or
(iii) the conduct of business after the Closing Date (but only to the extent
that any such Loss (x) relates to a third party claim which is brought against,
or involves, any of the Selling Shareholders and (y) does not relate to the
conduct of the business on or prior to the Closing Date).
Promptly after the receipt by any party hereto of notice of any third
party claim or the commencement of any third party action, suit or proceeding
subject to indemnification hereunder (a "Third Party Claim"), such party (the
"Indemnified Party") will, if a claim in respect thereto is to be made against
any party obligated to provide indemnification hereunder (the "Indemnifying
Party"), give such Indemnifying Party reasonable written notice of such Third
Party Claim; provided, however, that the failure to provide such notice will not
relieve the Indemnifying Party of any of its or his obligations, or impair the
right of the Indemnified Party to indemnification, pursuant to this Section 8.2
unless, and only to the extent that, such failure materially prejudices the
Indemnifying Party's opportunity to defend or compromise the Third Party Claim.
Such
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Indemnifying Party shall have the right, at its or his option, to defend at its
or his own expense and by its or his own counsel any Third Party Claim, provided
that (i) the Indemnifying Party acknowledges in writing (at the time such
Indemnifying Party elects to assume such defense) its or his obligation under
this Section 8.2 to indemnify the Indemnified Party with respect to such Third
Party Claim, (ii) such counsel is reasonably satisfactory to the Indemnified
Party, (iii) the Indemnified Party is kept fully informed of all developments,
and is furnished with copies of all documents and papers, related thereto and is
given the right to participate in the defense and investigation thereof as
provided below, and (iv) such counsel proceeds with diligence and in good faith
with respect thereto. If any Indemnifying Party shall undertake to defend any
Third Party Claim, such Indemnifying Party shall notify the Indemnified Party of
its or his intention to do so promptly (and in any event no later than twenty
(20) days) after receipt of notice of the Third Party Claim, and the Indemnified
Party agrees to cooperate in good faith with the Indemnifying Party and its
counsel in the defense of such Third Party Claim. Notwithstanding the foregoing,
the Indemnified Party shall have the right to participate in the defense and
investigation of any Third Party Claim with its own counsel at its or his own
expense, except that the Indemnifying Party shall bear the expense of such
separate counsel if (A) in the view of counsel to the Indemnified Party
reasonably acceptable to the Indemnifying Party, use of counsel of the
Indemnifying Party's choice would be expected to give rise to a conflict of
interest, (B) there are or may be legal defenses available to the Indemnified
Party that are different from or additional to those available to the
Indemnifying Party, (C) the Indemnifying Party shall not have employed counsel
to represent the Indemnified Party within 20 days after notice of the Third
Party Claim is given to the Indemnifying Party or notice that the Indemnifying
Party intends to assume the defense of the Third Party Claim is given to the
Indemnified Party or (D) the Indemnifying Party shall authorize the Indemnified
Party to employ separate counsel at the expense of the Indemnifying Party. The
Indemnifying Party shall not settle any Third Party Claim without the prior
written consent of the Indemnified Party, which shall not be unreasonably
withheld; provided, however, that an Indemnified Party shall not be required to
consent to any settlement involving the imposition of equitable remedies; and,
provided, further, that in no circumstances shall the Indemnifying Party consent
to the entry of a judgment with respect to any Third Party Claim or enter into
any settlement which does not include a provision whereby the plaintiff or
claimant in such matter unconditionally releases the Indemnified Party from all
Liability with respect thereto.
Section 8.3 Tax Indemnification. Notwithstanding anything in this
Article VIII to the contrary, the rights and obligations of the parties with
respect to the breach of representations, warranties, covenants, and agreements
set forth in Article IX (concerning Tax Matters) and the indemnification for
Taxes shall be governed by the provisions of Article IX and not by this Article
VIII unless otherwise stated in a specific section of this Agreement.
Section 8.4 Limitation on Indemnification. The right to indemnification
under this Article VIII and Article IX shall be subject to the following terms:
(a) Except with respect to any claim for Losses arising with respect to
the Consumer Car Club Matter. No indemnification shall be payable pursuant to
this Agreement unless and until the amount of all claims for indemnification
exceeds $100,000 in the aggregate (the "Basket"), whereupon indemnification
pursuant to this Agreement shall be payable for all such claims including the
claims included in the Basket.
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(b) The maximum liability of ▇▇▇▇ ▇▇▇▇▇▇▇▇ and the ▇▇▇▇▇▇ Family
Partnership for any breach of a representation, warranty or covenant of the
Company or a Selling Shareholder shall be limited to those shares of Parent
Common Stock in which ▇▇▇▇ ▇▇▇▇▇▇▇▇ and the ▇▇▇▇▇▇ Family Partnership has an
interest that are held pursuant to the Escrow Agreement.
(c) Except with respect to any claim for Losses arising with respect to
the Consumer Car Club Matter, none of the Parent, the Company or the Principal
Shareholders shall be liable for any amount in excess of $30 million.
(d) In determining the amount of any indemnity, there shall be taken
into account any tax benefit, insurance proceeds or other similar recovery or
offset realized, directly or indirectly, by the party to be indemnified.
ARTICLE IX
TAX MATTERS
Section 9.1 Representations and Warranties. Except as set forth in
Schedule 9.1 hereto, the Company and each of the Selling Shareholders hereby,
jointly and severally, represents and warrants to the Parent on the date of this
Agreement and on the Closing Date as follows:
(a) All Tax Returns in respect of Taxes required to be filed on or
before the Closing Date have been or will be timely filed with the appropriate
governmental taxing authority. All such Tax Returns (i) were or will be prepared
in the manner required by applicable law, (ii) are or will be true, correct and
complete in all material respects and (iii) accurately reflect or will so
reflect in all material respects the Liability for applicable taxes. The Company
has not requested any extension of time within which to file Tax Returns in
respect of any Taxes, which Tax Returns have not been filed.
(b) All Taxes of the Company due to be paid on or prior to the Closing
Date (taking into account extensions) have been paid or will be paid prior to
the Closing Date or an adequate reserve has been (or, with respect to periods
for which financial reports have not yet been prepared, will be) established
therefor in accordance with GAAP. The Company does not have any material
Liability for Taxes in excess of such amounts so paid or reserves so
established.
(c) The Company has withheld and paid over to the appropriate taxing
authority or will withhold and pay over to the appropriate taxing authority from
its employees, customers, and other payees all material amounts required by the
tax withholding provisions of applicable federal, state, local, and foreign laws
(including, without limitation, income, social security, and employment tax
withholding for all types of compensation, and withholding on payments to
non-United States persons) through the Closing Date.
(d) No material deficiencies for Taxes have been claimed, proposed or
assessed by any governmental taxing authorities against the Company for any
taxable year. There are no pending or, to the Company's or the Selling
Shareholders' knowledge, threatened audits, investigations or claims for or
relating to any material
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additional Liability against the Company or the Selling Shareholders in respect
of Taxes, and there are no matters under discussion with any governmental taxing
authority with respect to Taxes that is likely to result in a material
additional Liability for Taxes for the Company. No waivers or extensions of a
statute of limitations relating to Taxes is in effect with respect to the
Company. There has been no waiver granted or requested of any applicable statute
of limitations or extension of the time for the assessment of any Taxes of the
Company for which the Company or such Selling Shareholder could be liable under
any provision of federal, state, local, or foreign law.
(e) There are no outstanding requests for information made by a taxing
authority to the Company or such Selling Shareholder in respect of Taxes of the
Company; and there are no outstanding requests by the Company or such Selling
Shareholder to a taxing authority for a ruling, determination, permission,
consent, or similar item in respect of the Company. No closing agreement (as
defined in section 7121 of the Code) or any similar provision of any state,
local, or foreign law has been entered into by or with respect to the Company.
(f) No power of attorney that is currently in force has been granted to
any Person with respect to any matter relating to Taxes that could affect the
Company.
(g) Each such Selling Shareholder is not a foreign person within the
meaning of Section 1.1445-2(b) of the Treasury Regulations.
(h) The Company does not have any material item of income, gain, loss,
or deduction reportable in a taxable period ending after the Closing Date but
attributable to a transaction (e.g., an installment sale, a deferred
intercompany transaction, or an adjustment pursuant to Section 481 of the Code
that occurred in a taxable period ending on or before the Closing Date.
(i) The Company has not, with regard to any property held by it, agreed
to have Section 341(f)(2) of the Code apply to any disposition of a "subsection
(f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by
the Company.
(j) No property of the Company is "tax-exempt use property" within the
meaning of Section 168(h) of the Code; nor is the Company a party to any lease
made pursuant to Section 168(f) (8) of the Internal Revenue Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982 of
the Code.
(k) The Company is not a party to any Tax allocation or sharing
agreement.
(l) The Company (i) has not been a member of an affiliated group filing
a consolidated federal income Tax Return and (ii) has no Liability for the Taxes
of any Person (other than the Company) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(m) The Company is not a party to any agreement, contract or
arrangement, nor maintains or sponsors any Employee Plans, that will result,
separately or in the aggregate, in the payment of (A) any "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code, determined
without regard to Section 280G(b)(4) of the Code, and no Employee Plan provides
for the reimbursement
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of excise taxes under Section 4999 of the Code or any income taxes under the
Code or (B) amounts that will be disallowed as a deduction under Section 162(m)
of the Code.
Section 9.2 Filing of Tax Returns and Payment of the Tax.
(a) ▇▇▇▇▇▇▇ ▇▇▇▇▇ shall cause the Company to timely file or cause to be
timely filed all Tax Returns that are required to be filed (with extensions) on
or before the Closing Date. The Company shall timely pay or cause to be timely
paid all Taxes that are due and payable on or prior to the Closing Date.
(b) The Parent shall prepare or cause to be prepared and timely file or
cause to be timely filed all Tax Returns for the Company for all periods ending
on or prior to the Closing Date which may be filed after the Closing Date.
(c) ▇▇▇▇▇▇▇ ▇▇▇▇▇ shall cooperate fully with the Parent and the
Company, as and to the extent reasonably requested by the Parent or the Company,
in connection with the filing of Tax Returns that they are required to file
pursuant to Section 9.2(b) hereof and any audit, litigation or other proceeding
with respect to Taxes.
Section 9.3 Indemnification by the Selling Shareholders. (a) Each of
the Selling Shareholders hereby, jointly and severally, agrees to indemnify,
defend, and hold the Parent and the Company (and their respective officers,
directors, employees, affiliates, successors and assigns) harmless from and
against:
(i) any and all Taxes incurred by the Parent or the Company in
connection with or arising from any inaccuracy, breach, or nonfulfillment of any
representation, warranty, covenant, or agreement of such Selling Shareholder or
the Company pursuant to this Article IX and Sections 3.16 and 3.33 of this
Agreement;
(ii) any and all Taxes imposed on the Company or the Parent,
directly or indirectly, (A) for any taxable period ending prior to or on the
Closing Date, or (B) any taxable period beginning before and ending after the
Closing Date to the extent such Taxes are apportioned to the portion of the
taxable period prior to Closing Date except with respect to either clause (A) or
(B) to the extent that such Taxes are set forth in the tax reserve on the
Financial Statements or the Interim Financial Statements;
(iii) any cost or expense (including, without limitation,
reasonable attorneys' and accountants' fees) incurred by the Parent, the
Company, or any of their successors or assigns in connection with any Tax
described in this Section 9.3.
For purposes of Section 9.3(a)(ii), Taxes based on income or gross
receipts shall be apportioned to the portion of the taxable period prior to the
Closing Date on a closing the books method, and Taxes not based on income or
gross receipts shall be apportioned to the portion of the taxable period prior
to the Closing Date by multiplying the total amount of such Taxes by a fraction,
the numerator of which is the number of days in the portion of the taxable
period ending prior to the Closing Date and the denominator of which is the
total number of days in the taxable period.
Section 9.4 Access to Information. From the date hereof, ▇▇▇▇▇▇▇ ▇▇▇▇▇
shall cause the Company to make available to the Parent and Parent's
Representatives, and the Parent shall cause to be made available to the Selling
Shareholders and their representatives: (a) all Tax Returns and all documents
and records in connection with the
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preparation thereof for any taxable period or portion thereof ending on or
before the Closing Date and any examination reports and statements of
deficiencies assessed against, proposed to be assessed against, or agreed to by
the Company for such taxable periods; and (b) any Tax sharing or allocation
agreement or arrangement involving the Company at any time during the three-year
period ending on the Closing Date and a true and complete description of any
such unwritten or informal agreement or arrangement.
Section 9.5 Books and Records. The Parent shall retain or cause the
Company to retain all books and records pertinent to the Company for each
taxable Period or portion thereof ending on or prior to the Closing Date until
the expiration of the applicable statute of limitations (giving effect to any
and all extensions and waivers) and to abide by or cause compliance with all
record retention agreements entered into by or on behalf of the Company with any
taxing authority.
Section 9.6 Notice of Audit.
(a) If any party to this Agreement receives any written notice from any
taxing authority proposing an adjustment to any Tax for which any other party
hereto may be obligated to indemnify under this Agreement, such party shall give
prompt written notice thereof to the other that describes such proposed
adjustment in reasonable detail ("Notice of Audit"), and shall indicate the
amount (estimated, if necessary) of the Tax and other items that may be suffered
by the Parent, the Company, or the Selling Shareholders, as the case may be. The
failure to give a Notice of Audit pursuant to this Section 9.6, however, shall
not reduce the obligations of a party hereunder unless, and only to the extent
that, such failure prejudices the rights of the other party to contest such tax.
(b) Parent and Company shall, as to any Taxes in respect of which the
Selling Shareholders are obligated to indemnify Parent or the Company, permit
the Selling Shareholders, at the Selling Shareholders' expense, to participate
in any audit or proceeding with respect to such Taxes. Neither Parent nor the
Company shall consent to the settlement or final determination of any such Taxes
without the prior written consent of the Selling Shareholders (which consent
shall not be unreasonably withheld). The failure of Parent and Company to comply
with the provisions of this Section 9.6(b) shall constitute a waiver by Parent
and Company of the right to indemnification for any Taxes arising out of such
audit or examination only if, and only to the extent that, such failure
prejudices the rights of the Selling Shareholders.
Section 9.7 Miscellaneous. All representations and warranties contained
in this Article IX with respect to any tax shall survive until the expiration of
the applicable statute of limitations.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Costs, Expenses and Taxes. Except as provided in Section
5.14, all other costs and expenses in connection with the preparation,
execution, delivery, filing, recording, and administration of this Agreement,
including, without limitation, the reasonable fees and expenses of counsel to
each such party and other reasonable costs and expenses incurred in connection
with the transfer and delivery of the Common Stock
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shall be paid by the party incurring such costs and expenses except that Parent
shall be responsible for and shall pay the expenses associated with ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇'▇ work to prepare the Financial Statements.
Section 10.2 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given, if delivered in person or by courier or by facsimile transmission or
mailed by certified or registered mail, postage prepaid:
If to the Company or Selling Shareholders:
A.I.N. Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
With copies to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ "Chip" Lion III, Esq.
If to the Parent:
▇▇▇▇▇▇▇▇▇.▇▇▇ inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
Attention: Chief Operating Officer
With copies to:
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Any party may, by written notice to the other, change the address to
which notices to such party are to be delivered or mailed.
Section 10.3 Press Releases. No party hereto shall issue any press
releases or make any public announcements of any of the transactions
contemplated by this
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Agreement except as may be mutually agreed to in writing by the Company, the
Selling Shareholders and the Parent, except that each party will in any event
have the right to issue any such release or statement upon advice of its counsel
that such issuance is required in order to comply with applicable law or stock
exchange rules so long as such party determines in good faith that it is
necessary to do so and uses its reasonable best efforts to agree upon the
content of the proposed disclosure in advance.
Section 10.4 Termination.
(a) This Agreement may be terminated and the transactions contemplated
hereby abandoned (i) by the written consent of the Parent and the Company; (ii)
by the Parent if there has been a material misrepresentation or material breach
on the part of Selling Shareholder or the Company in the representations,
warranties or covenants of any Selling Shareholder or the Company set forth
herein, or if there has been any material failure on the part of a Selling
Shareholder or the Company to comply with his or its obligations hereunder;
(iii) by the Company if there has been a material misrepresentation or material
breach on the part of the Parent in the representations, warranties or covenants
of the Parent set forth herein, or if there has been any material failure on the
part of the Parent to comply with its obligations hereunder; (iv) by the Parent
or the Company if any court of competent jurisdiction shall have issued an
order, decree or ruling or taken any other action enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and nonappealable or (v)
by the Parent or the Company if the Closing has not occurred by December 31,
1999 and the party attempting to terminate this Agreement has used its or their
best efforts to cause the Closing conditions applicable to it to have been
satisfied as promptly as possible.
(b) If this Agreement is terminated and the transactions contemplated
by this Agreement are abandoned pursuant to Section 10.4(a)(i) or (a)(iv) other
than Parent's obligations under Section 5.14(b), this Agreement shall become
void and of no further force and effect and no party hereto shall have any
Liability or obligation to any other party hereto hereunder, except the
obligations of the parties pursuant to Sections 10.2, 10.3, 10.5, 10.6, 10.7,
10.8, 10.9, 10.10 and 10.20.
Section 10.5 Protection of Confidential Information. Each of the
Selling Shareholders, the Company and the Parent shall keep confidential and
shall not divulge to any party, without the prior written consent of the other
parties hereto, any of the terms of this Agreement, unless any such information
or documents (a) is or becomes generally available to the public (other than as
a result of a disclosure by such party or any of its or his representatives),
(b) was already known by or available on a non-confidential basis to such party
prior to being furnished hereunder, (c) is or becomes available to such party
from a third party not bound by any contractual obligation to keep such
information confidential or (d) upon advice of counsel, is required to be
disclosed in order to comply with applicable law or regulatory authority
(provided that the disclosing party shall use reasonable good faith efforts to
notify the party who furnished such information and documents, and attempt to
obtain the reasonable approval of the latter party, prior to such disclosure).
In the event of the termination of this Agreement in accordance with
its terms, the Parent will, upon request of a Selling Shareholder, promptly
deliver to the Company all written information and documents provided under this
Section 10.5 in the
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possession of the Parent, including all copies, reproductions, summaries,
analyses and extracts thereof or based thereon.
Section 10.6 Entire Agreement. This Agreement, including the Exhibits
and Schedules hereto, contains the entire agreement of the parties with respect
to the subject matters hereof, and supersedes all prior agreements between them,
whether oral or written, of any nature whatsoever with respect to the subject
matter hereof, including the letter agreements, dated June 9, 1998, June 23,
1998 and the term sheet dated September 14, 1999 between the Selling
Shareholders and the Parent.
Section 10.7 Severability Clause. Any part, provision, representation
or warranty of this Agreement that is prohibited or that is held to be void or
unenforceable shall be ineffective solely to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any part,
provision, representation or warranty of this Agreement that is prohibited or
unenforceable or is held to be void or unenforceable in any jurisdiction shall
be ineffective, as to such jurisdiction, to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereto waive any provision of law that
prohibits or renders void or unenforceable any provision hereof. If the
invalidity of any part, provision, representation or warranty of this Agreement
shall deprive any Person of the economic benefit intended to be conferred by
this Agreement, the parties shall negotiate, in good-faith, to develop a
structure, the economic effect of which is as close as possible to the economic
effect of this Agreement, without regard to such invalidity.
Section 10.8 Counterparts. This Agreement may be executed
simultaneously in any number of counterparts. Each counterpart shall be deemed
to be an original, and all such counterparts shall constitute one and the same
instrument.
Section 10.9 Governing Law; Consent to Forum; Waiver of Trial by Jury.
(a) This Agreement has been executed and delivered at and shall be
deemed to have been made in California. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California
without giving effect to the conflict of laws rules therein. The parties hereto
hereby consent and agree that the California State Court located in the County
of Orange or, at any party's option, the United States District Court for the
Central District of California, shall have exclusive jurisdiction to hear and
determine any claims or disputes among the parties hereto pertaining to this
Agreement or to any matter arising out of or related to this Agreement. The
parties hereto expressly submit and consent in advance to such jurisdiction in
any action or suit commenced in any such court, and hereby waive any objection
which it may have based upon lack of personal jurisdiction, improper venue or
forum non conveniens and hereby consent to the granting for such legal or
equitable relief as is deemed appropriate by such court. Nothing in this
Agreement shall be deemed or operate to affect the right of any party to serve
legal process in any other manner permitted by law, or to preclude the
enforcement by any party of any judgment or order obtained in such forum or the
taking of any action under this Agreement to enforce same in any other
appropriate forum or jurisdiction.
(b) Each party hereto waives the right to trial by jury in any action,
suit, proceeding or counterclaim of any kind arising out of or related to this
Agreement. In the
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event of litigation, this Agreement may be filed as a written consent to a trial
by the court.
Section 10.11 Further Agreements. The Parent, the Company and each of
the Selling Shareholders agree to execute and deliver to the other such
additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Agreement.
Section 10.12 Successors and Assigns; Assignment. This Agreement shall
bind and inure to the benefit of and be enforceable by each of the Selling
Shareholders, the Company and the Parent and the respective successors and
assigns of the Selling Shareholders, the Company and the Parent. This Agreement
shall not be assigned, pledged or hypothecated by any of the Selling
Shareholders or the Company to a third party without the prior written consent
of the Parent. This Agreement shall not be assigned, pledged or hypothecated by
the Parent to a third party without the prior written consent of the Selling
Shareholders; provided, however, that the Parent shall be entitled to assign,
pledge or hypothecate this Agreement without the consent of the Selling
Shareholders to any Affiliate of the Parent for tax, accounting or
administrative purposes so long as such transfer would not change the nature of
the arrangements contemplated hereby.
Section 10.13 Amendment; Waivers. This Agreement may be amended from
time to time only by written agreement of ▇▇▇▇▇▇▇ ▇▇▇▇▇, on behalf of the
Selling Shareholders, the Company, the Merger Sub and the Parent. No term or
provisions of this Agreement may be waived or modified unless such waiver or
modification is in writing and signed by the party against whom such waiver or
modification is sought to be enforced. No failure on the part of the Parent to
exercise and no delay in exercising, any right, power, or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Agreement preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
this Agreement are cumulative and not exclusive of any remedies provided by law.
Section 10.14 General Interpretive Principles. For purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the headings in this Agreement are for convenience only and are not
intended to influence its interpretation.
(b) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and the
use of any gender herein shall be deemed to include the other gender;
(c) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(d) references herein to "Articles", "Sections", "Subsections",
"Paragraphs", and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
this Agreement;
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(e) a reference to a Subsection without further reference to a Section
is a reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions;
(f) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision; and
(g) the term "include" or "including" shall mean without limitation by
reason of enumeration.
Section 10.15 Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed, (b) documents received by any
party at the Closing, and (c) financial statements, certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process. The parties agree that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not such
reproduction was made by a party in the regular course of business, and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
Section 10.16 Advice from Independent Counsel. The parties hereto
understand that this Agreement is a legally binding agreement that affects such
party's rights. Each party represents to the other parties that it has received
legal advice from counsel of its choice regarding the meaning and legal
significance of this Agreement and that it is satisfied with its legal counsel
and the advice received from it.
Section 10.17 No Agency; No Joint Venture. Neither the Parent nor the
Selling Shareholders is the agent or representative of the other, and nothing in
this Agreement shall be construed to make any of the Parent nor the Selling
Shareholders liable to any third party for services performed by such third
party or for debts or claims accruing to such third party against any of the
Parent or the Selling Shareholders. Nothing contained herein nor the acts of the
parties hereto shall be construed to create a partnership, agency or joint
venture between (i) the Parent and (ii) the Selling Shareholders.
Section 10.18 Judicial Interpretation. Should any provision of this
Agreement require judicial interpretation, it is agreed that a court
interpreting or construing the same shall not apply a presumption that the terms
hereof shall be more strictly construed against any Person by reason of the rule
of construction that a document is to be construed more strictly against the
Person who itself or through its agent prepared the same, it being agreed that
all the parties hereto have participated in the preparation of this Agreement.
Section 10.19 Good Faith. The parties hereto shall implement the terms
and provisions of this Agreement in good faith in accordance with applicable
law.
Section 10.20 Limited Liability. No recourse under this Agreement shall
be had against, and no personal Liability shall attach to, any officer,
employee, director, Affiliate or shareholder of the Parent, as such, by the
enforcement of any assessment by any legal or equitable proceeding, by virtue of
any statute or otherwise in respect of this
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Agreement, it being expressly agreed and understood that this Agreement is
solely a corporate obligation of the Parent, and that any and all personal
Liability, either at common law or in equity, or by statute or constitution, of
every such officer, employee, director, Affiliate or shareholder for breaches by
the Parent of any obligations under this Agreement is hereby expressly waived as
a condition of and in consideration for the execution and delivery of this
Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, each of the Company, the Selling Shareholders, the
Merger Sub and the Parent have caused their names to be signed hereto as of the
day and year first above written.
THE COMPANY:
A.I.N. CORPORATION,
a California corporation
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: President
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------------
Name:
Title: Secretary
THE SELLING SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇ ▇▇▇▇▇▇
------------------------------------------------
▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ III
------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ III
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ FAMILY PARTNERSHIP
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------------------------
[Signatures Continued on Next Page]
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MERGER SUB:
AUTOBYTEL ACQUISITION II CORP.
a California corporation
By: /s/ Hoshi Printer
------------------------------------------
Name: Hoshi Printer
Title: Vice-President
By: /s/ ▇▇▇▇▇ ▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇
Title: Vice-President and Secretary
THE PARENT:
▇▇▇▇▇▇▇▇▇.▇▇▇ INC.
a Delaware corporation
By: /s/ Hoshi Printer
------------------------------------------
Name: Hoshi Printer
Title: Senior Vice President and CFO
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Executive Vice-President and COO
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