Exhibit 2(b)
AGREEMENT AND PLAN OF MERGER
Dated as of July 13, 1999
among
▇-▇▇▇.▇▇▇ Corp.
▇-▇▇▇.▇▇▇ Acquisition Corp.
and
Silicon Valley Communications, Inc.
TABLE OF CONTENTS
ARTICLE I THE MERGER
SECTION 1.1 The Merger.................................................................... 1
SECTION 1.2 Effective Time of the Merger.................................................. 1
ARTICLE II THE SURVIVING CORPORATION
SECTION 2.1 Articles of Incorporation..................................................... 2
SECTION 2.2 Bylaws........................................................................ 2
SECTION 2.3 Officers...................................................................... 2
ARTICLE III CONVERSION OF SHARES
SECTION 3.1 Consideration................................................................. 2
SECTION 3.2 Conversion of Company Securities in the Merger................................ 3
SECTION 3.3 Escrow Agreement.............................................................. 4
SECTION 3.4 Exchange of Certificates...................................................... 5
SECTION 3.5 Dissenting Shareholders....................................................... 7
SECTION 3.6 Closing....................................................................... 7
SECTION 3.7 Closing of the Company's Transfer Books....................................... 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
SECTION 4.1 Organization and Qualification................................................ 8
SECTION 4.2 Capitalization................................................................ 9
SECTION 4.3 Authority; Non-Contravention; Approvals....................................... 10
SECTION 4.4 Reports and Financial Statements.............................................. 11
SECTION 4.5 Investment.................................................................... 11
SECTION 4.6 Events Subsequent to Last Form 10-Q........................................... 12
SECTION 4.7 Pooling and Tax Deferred Reorganization Matters............................... 12
SECTION 4.8 Disclosure.................................................................... 12
SECTION 4.9 Brokers....................................................................... 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 5.1 Organization and Qualification................................................ 13
SECTION 5.2 Capitalization................................................................ 14
SECTION 5.3 Employees..................................................................... 14
SECTION 5.4 Subsidiaries.................................................................. 14
SECTION 5.5 Authority; Non-Contravention; Approvals....................................... 15
SECTION 5.6 Financial Statements.......................................................... 16
SECTION 5.7 Events Subsequent to Year End Financial Statements............................ 16
SECTION 5.8 Books of Account.............................................................. 18
SECTION 5.9 Absence of Undisclosed Liabilities............................................ 18
SECTION 5.10 Proxy Statement............................................................... 19
SECTION 5.11 Litigation.................................................................... 19
SECTION 5.12 No Violation of Law........................................................... 19
SECTION 5.13 Compliance with Agreements.................................................... 20
-i-
SECTION 5.14 Taxes........................................................................ 20
SECTION 5.15 Employee Benefit Plans; ERISA................................................ 21
SECTION 5.16 Labor Matters; Labor Controversies........................................... 22
SECTION 5.17 Environmental Matters........................................................ 23
SECTION 5.18 Title to Assets.............................................................. 25
SECTION 5.19 Company Shareholders' Approval............................................... 25
SECTION 5.20 No Excess Parachute Payments................................................. 25
SECTION 5.21 Trademarks and Intellectual Property......................................... 26
SECTION 5.22 Contracts, Obligations and Commitments....................................... 28
SECTION 5.23 Year 2000 Compliance......................................................... 29
SECTION 5.24 Pooling and Tax Deferred Reorganization Matters.............................. 30
SECTION 5.25 Transactions with Related Parties............................................ 31
SECTION 5.26 Insurance.................................................................... 31
SECTION 5.27 Guaranties................................................................... 32
SECTION 5.28 Bank Accounts................................................................ 32
SECTION 5.29 Business Relations........................................................... 32
SECTION 5.30 Potential Conflicts of Interest.............................................. 32
SECTION 5.31 Inventory.................................................................... 33
SECTION 5.32 Suppliers and Customers...................................................... 33
SECTION 5.33 Indebtedness................................................................. 33
SECTION 5.34 Minute Books................................................................. 34
SECTION 5.35 Assets and Properties Complete............................................... 34
SECTION 5.36 Powers of Attorney........................................................... 34
SECTION 5.37 Investors.................................................................... 34
SECTION 5.38 Brokers...................................................................... 34
SECTION 5.39 Disclosure................................................................... 34
SECTION 5.40 Affiliates................................................................... 35
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger........................ 35
SECTION 6.2 Conduct of Business by Parent and Subsidiary Pending
the Merger................................................................... 36
SECTION 6.3 Control of the Company's Operations.......................................... 37
SECTION 6.4 Control of Parent's or Subsidiary's Operations............................... 37
SECTION 6.5 Negotiations With Others..................................................... 37
ARTICLE VII ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information........................................................ 39
SECTION 7.2 Shareholders' Approvals...................................................... 39
SECTION 7.3 ASR 135 Agreement............................................................ 40
SECTION 7.4 Expenses and Fees............................................................ 40
SECTION 7.5 Agreement to Cooperate....................................................... 40
SECTION 7.6 Public Statements............................................................ 40
SECTION 7.7 Notification of Certain Matters.............................................. 41
SECTION 7.8 Directors' and Officers' Indemnification..................................... 41
-ii-
SECTION 7.9 Mandatory Registration........................................................ 41
SECTION 7.10 Parent Common Stock........................................................... 42
SECTION 7.11 Acquisition of Common Stock................................................... 43
SECTION 7.12 Exhibits and Schedules........................................................ 43
SECTION 7.13 Transition.................................................................... 43
SECTION 7.14 Company Warrants.............................................................. 43
SECTION 7.15 Company Options............................................................... 44
SECTION 7.16 Confidentiality and Noncompetition Agreements................................. 44
SECTION 7.17 Compliance with Securities Law................................................ 44
ARTICLE VIII CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger.................... 44
SECTION 8.2 Conditions to Obligation of the Company to Effect the Merger.................. 45
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary to Effect
the Merger.................................................................... 46
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination................................................................... 48
SECTION 9.2 Effect of Termination......................................................... 49
SECTION 9.3 Waiver........................................................................ 49
ARTICLE X REMEDIES FOR BREACHES
SECTION 10.1 Survival of Representations and Warranties.................................... 49
ARTICLE XI GENERAL PROVISIONS
SECTION 11.1 Notices....................................................................... 49
SECTION 11.2 Interpretation................................................................ 50
SECTION 11.3 Entire Agreement; Miscellaneous............................................... 51
SECTION 11.4 Governing Law................................................................. 51
SECTION 11.5 Counterparts.................................................................. 51
SECTION 11.6 Parties In Interest........................................................... 51
SECTION 11.7 Exhibits and Schedules........................................................ 51
SECTION 11.8 Amendment of Agreement........................................................ 51
SECTION 11.9 Severability.................................................................. 51
SECTION 11.10 Assignment.................................................................... 52
SECTION 11.11 Gender and Number............................................................. 52
SECTION 11.12 No Third-Party Beneficiaries.................................................. 52
-iii--
SCHEDULES
Schedule 2.3 Officers and Directors of Surviving Corporation
Schedule 3.1(b) Capital Leases
Schedule 5.2(b) Unexpired Warrants
Schedule 4.2(d) Litigation
Schedule 4.2(c) Rights
Schedule 4.3(b) Authority; Non-Contravention; Approvals
Schedule 4.6 Subsequent Events
Schedule 5.1(a) Organization and Qualification
Schedule 5.2(a) Capital Stock of Company
Schedule 5.2(b) Rights
Schedule 5.3 Employees
Schedule 5.4 Subsidiaries
Schedule 5.5(b) Authority; Non-Contravention; Approvals
Schedule 5.7 Subsequent Events
Schedule 5.8 Books of Account
Schedule 5.9 Absence of Undisclosed by Liabilities
Schedule 5.11 Litigation
Schedule 5.12 No Violation of Law
Schedule 5.15 Employee Benefit Plans
Schedule 5.16(a) Employment Agreements
Schedule 5.16(b) Labor Controversies
Schedule 5.16(e) Arrears of Wages
Schedule 5.18 Title to Assets
Schedule 5.20 Severance Payments
Schedule 5.21(b) Intellectual Property Rights Infringements
Schedule 5.21(c) Company Intellectual Property Rights
Schedule 5.21(d) Company Intellectual Property
Schedule 5.22(a)(i) Contracts
Schedule 5.22(a)(ii) Status of Contracts
Schedule 5.22(b) Year 2000 Notices
Schedule 5.23 Year 2000
Schedule 5.25 Transactions with Related Parties
Schedule 5.26 Insurance
Schedule 5.28 Bank Accounts
Schedule 5.30 Conflicts of Interest
Schedule 5.32 Suppliers and Customers
Schedule 5.33 Indebtedness
Schedule 5.37(b) Investors
Schedule 7.3 Affiliates
Schedule 8.3(g) Resignations
-iv-
EXHIBITS
Exhibit 1.2 Articles of Merger
Exhibit 3.2(a) Conversion Example
Exhibit 3.3 Escrow Agreement
Exhibit 7.3 ASR 135 Agreement
Exhibit 7.16 Confidentiality and Noncompetition Agreements
Exhibit 8.2(b) Matters to be Addressed in Opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
& Ingersoll, LLP
Exhibit 8.2(e) Tax Certificate of Parent and Subsidiary
Exhibit 8.3(b) Matters to be Addressed in Opinion of Fenwick & West LLP
Exhibit 8.3(i) Investor Questionnaire and Representation Agreement
Exhibit 8.3(m) Tax Certificate of Company
-v-
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of July 13, 1999 (the
"Agreement"), among ▇-▇▇▇.▇▇▇ Corp., a Pennsylvania corporation ("Parent"), C-
--------- ------
▇▇▇.▇▇▇ Acquisition Corp. a California corporation and a wholly owned subsidiary
of Parent ("Subsidiary") and Silicon Valley Communications, Inc., a California
----------
corporation (the "Company").
-------
W I T N E S S E T H:
WHEREAS the Boards of Directors of Parent, Subsidiary and the Company
have determined that the merger of the Subsidiary with and into the Company (the
"Merger") is consistent with and in furtherance of the long-term business
------
strategy of Parent and the Company and is fair to, and in the best interests of,
Parent and the Company and their respective shareholders; and
WHEREAS, Parent, Subsidiary and the Company intend the Merger to
qualify as a tax deferred reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"), and to be treated as
----
a pooling of interests under Accounting Principles Board Opinion No. 16 ("APB
---
16"); and
--
WHEREAS, in contemplation of the Merger, Parent has made loans to the
Company and has entered into a loan agreement with the Company to make
additional loans.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the California General Corporation Law (the "CGCL"), Subsidiary
----
shall be merged with and into the Company and the separate existence of
Subsidiary shall thereupon cease. The Company shall be the surviving
corporation in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation."
---------------------
SECTION 1.2 Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in Articles of
--------------
Merger, substantially in the form attached hereto as Exhibit 1.2 or such form as
-----------
is acceptable to the parties, to be filed with the Secretary of State of
the State of California in accordance with the CGCL (the "Merger Filing"). The
-------------
Merger Filing shall be made simultaneously with or as soon as practicable after
the closing of the transactions contemplated by this Agreement in accordance
with Section 3.6.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 Articles of Incorporation. The Articles of Incorporation
of the Surviving Corporation shall be amended and restated at and as of the
Effective Time to read as the Articles of Incorporation of the Subsidiary read
immediately prior to the Effective Time (except that the name of the Surviving
Corporation shall remain unchanged).
SECTION 2.2 Bylaws. The bylaws of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read as the bylaws of
the Subsidiary read immediately prior to the Effective Time (except that the
name of the Surviving Corporation shall remain unchanged).
SECTION 2.3 Officers. The officers and directors of the Surviving
Corporation shall be as designated in Schedule 2.3, and such officers and
------------
directors shall serve in accordance with the bylaws of the Surviving Corporation
until their respective successors are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Consideration.
(a) Subject to the provisions of the Escrow Agreement to be dated as
of the Closing Date provided for in Section 3.3 (the "Escrow Agreement") among
----------------
Parent, the Company, the Representative and First Union National Bank, as escrow
agent (the "Escrow Agent"), the aggregate consideration to be paid by Parent in
------------
the merger has been calculated on the basis of the issuance by Parent of the
lesser of (a) 1,800,000 shares of its common stock, par value $0.10 per share
(the "Parent Common Stock") and (b) the number of shares of Parent Common Stock
-------------------
having a value of $45 million (based on the average closing price of the Parent
Common Stock for the 20 trading days prior to the date hereof), but in no event
less than 1,200,000 shares, in exchange for all of the Company Common Stock
currently outstanding plus the Company Common Stock issuable upon conversion of
the Company Preferred Stock currently outstanding and the Company Common Stock
issuable upon exercise of all options currently outstanding which vest on or
prior to June 30, 2001, all on the assumption that the Debt (as hereinafter
defined) of the Company does not exceed $7 million at the Effective Date.
(b) For purposes of this Agreement, the term "Debt" shall include any
----
debt for borrowed money, all remaining payments due under capital leases (except
for the capital leases listed on
2
Schedule 3.1(b) attached hereto, conditional sales or title retention agreements
---------------
or any accounts payable in the ordinary course of business that are beyond
contractual terms or any employment compensation owing which is past due.
SECTION 3.2 Conversion of Company Securities in the Merger. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any shares of common stock, no par value, of the Company (the
"Company Common Stock"), upon the terms and subject to the conditions of this
--------------------
Agreement, and in accordance with applicable provisions of the laws of the
Commonwealth of Pennsylvania and State of California:
(a) Conversion of Shares. Each share of Company Common Stock, other
than shares, if any, for which dissenters' rights have been or will be perfected
in compliance with applicable law, shall be converted into shares of fully paid
and nonassessable Parent Common Stock at a conversion ratio of 0.098931 shares
of Parent Common Stock for each share of Company Common Stock, provided that if
the Debt of the Company exceeds $7 million on the Effective Date, the Conversion
Ratio shall be adjusted by multiplying it by a fraction equal to 1 minus a
fraction equal to the difference between the Debt of the Company at the
Effective Time and $7 million divided by $45 million. For clarification, an
example of the adjustment of the conversion ratio is included as Exhibit 3.2(a)
--------------
hereto. The conversion ratio calculated pursuant to this section is hereinafter
referred to as the "Conversion Ratio". Of the total shares of Parent Common
----------------
Stock issuable upon conversion of the Company Common Stock, 181,744 shares of
Parent Common Stock (the Escrow Securities (as defined below)) shall be issued
to the Escrow Agent and be subject to the terms of the Escrow Agreement and the
remainder shall be issuable to the holders of the Company Common Stock.
(b) Conversion of Company Warrants. Each unexpired warrant listed on
Schedule 5.2(b) (collectively, the "Company Warrants") to purchase Series B
--------------- ----------------
Preferred Stock shall be converted into a warrant (the "Parent Warrants") to
---------------
purchase the number of shares of Parent Common Stock determined by multiplying
the number of shares of Company Common Stock that would have been issuable upon
exercise of such Company Warrants and the immediate conversion of the Series B
Preferred Stock received thereupon by the Conversion Ratio, and the exercise
price per share of Parent Common Stock for each such Warrant will equal the
exercise price of the Company Warrant immediately prior to the Effective Time
divided by the Conversion Ratio. If the foregoing calculation results in an
assumed Company Warrant being exercisable for a fraction of a share, then the
number of shares of Parent Common Stock subject to such warrant will be rounded
down to the nearest whole number with no cash being payable for such fractional
share. Other than as provided herein, the term, exercisability and all other
terms of the Company Warrants shall otherwise be unchanged.
(c) Conversion of Company Options. Each outstanding option
(collectively, the "Company Options") to purchase Company Common Stock granted
---------------
under Company's 1995 Stock Option Plan, as amended (the "Company Stock Option
--------------------
Plan"), and listed on Schedule 5.2(b) shall be converted into an option to
---- ---------------
purchase the number of shares of Parent Common Stock, determined by multiplying
the number of shares of Company Common Stock subject to such Company Option at
the Effective Time by the Conversion Ratio, and the exercise price per share for
each such Option will equal
3
the exercise price of the Company Option immediately prior to the Effective Time
divided by the Conversion Ratio. If the foregoing calculation results in an
assumed option being exercisable for a fraction of a share, then the number of
shares of Parent Common Stock issuable upon exercise of such option will be
rounded down to the nearest whole number with no cash being payable for such
fractional share. Other than as provided herein, the term, exercisability,
vesting schedule and all other terms of the Company Options shall otherwise be
unchanged. Continuous employment with Company will be credited to an optionee
for purposes of determining the number of shares subject to exercise after the
Effective Time. Any option designated as an "incentive stock option" under
Section 422 of the Code ("ISO") shall retain such designation, and the parties
---
intend that, subject at all times to the actions of holders thereof, all options
bearing such designation shall continue to qualify as ISOs under the Code
notwithstanding any other provision of this Agreement. Parent will cause the
Parent Common Stock issuable upon exercise of the assumed Company Options to be
registered on Form S-8 of the Securities and Exchange Commission ("SEC") within
---
30 days (or such later date if required to comply with the federal securities
laws relating to the disclosure of financial statements) after the Effective
Time, will use its reasonable best efforts to maintain the effectiveness of such
registration statement for so long as such assumed Company Options remain
outstanding and will reserve a sufficient number of shares of Parent Common
Stock for issuance upon exercise thereof. Parent will administer the Company
Plan assumed pursuant to this Section 3.2 in a manner that complies with Rule
16b-3 promulgated by the SEC under the Securities Exchange Act of 1934
("Exchange Act").
------------
(d) Adjustments for Capital Changes. If prior to the Merger, Parent
or the Company recapitalizes through a split-up of its outstanding shares into a
greater number, or a combination of its outstanding shares into a lesser number,
reorganizes, reclassifies or otherwise changes its outstanding shares into the
same or a different number of shares of other classes (other than through a
split-up or combination of shares provided for in the previous clause), or
declares a dividend on its outstanding shares payable in shares or securities
convertible into shares, the number of shares of Parent Common Stock into which
the Company Common Stock are to be converted will be adjusted appropriately so
as to maintain the proportionate interests of the holders of the Company Common
Stock and the holders of Parent Common Stock.
(e) No share of Company Common Stock shall be deemed to have any
rights other than those set forth in this Section 3.2 after the Effective Time.
SECTION 3.3 Escrow Agreement.
(a) At the Closing of the Merger, Parent, the Company, the
Representative (as defined below) and the Escrow Agent will execute and deliver
the Escrow Agreement in substantially the form of Exhibit 3.3, and Parent will
-----------
issue and deliver to the Escrow Agent the number of shares of Parent Common
Stock equal to the sum of (i) the total number of shares issuable to the holders
of the Company Common Stock (the "Company Shareholders") multiplied by the 10%
--------------------
and (ii) 217,000 multiplied by the Conversion Ratio (such sum of (i) and (ii)
shall be rounded down to the nearest whole number of shares to be issued to each
such holder). The Parent Common Stock issuable to the Escrow Agent upon the
Closing of the
4
Merger shall be referred to as the "Escrow Securities". The Escrow Securities
-----------------
will be represented by certificates issued in the name of the Escrow Agent.
(b) In the event that the Merger is approved by the Company
Shareholders as provided herein, the Company Shareholders shall, without any
further act, be deemed to have consented to and approved (i) the deposit of the
Escrow Securities with the Escrow Agent in accordance with the terms of the
Escrow Agreement, (ii) the appointment of ▇▇▇▇ ▇▇▇▇ as representative of the
Company Shareholders (the "Representative") under the Escrow Agreement and as
--------------
the attorney-in-fact and agent for and on behalf of each Company Shareholder
(other that Dissenting Shareholders (defined below)), and the taking by the
Representative of any and all actions and the making of any decisions required
or permitted to be taken by him under the Escrow Agreement (including, without
limitation, the exercise of the power to: authorize delivery to Parent of Escrow
Securities in satisfaction of claims by Parent; demand arbitration, agree to,
negotiate and enter into settlements and compromises and comply with orders of
courts and awards of arbitrators with respect to such claims; resolve any claim
made pursuant to the Escrow Agreement; and take all actions necessary in the
judgment of the Representative for the accomplishment of the foregoing) and
(iii) to all of the other terms, conditions and limitations in the Escrow
Agreement.
SECTION 3.4 Exchange of Certificates.
(a) From and after the Effective Time, all Company Common Stock shall
no longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate representing shares of
Company Common Stock shall cease to have any rights with respect thereto, except
the right to receive in exchange therefor (subject to the provisions of the
Escrow Agreement), upon surrender thereof to American Stock Transfer & Trust
Company or such other agent designated by Parent (the "Exchange Agent"), a
--------------
certificate or certificates representing the number of whole shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.2.
(b) Notwithstanding any other provision of this Agreement, (i) until
holders or transferees of certificates theretofore representing shares of
Company Common Stock have surrendered them for exchange as provided herein, no
dividends shall be paid with respect to any Parent Common Stock represented by
such certificates, and (ii) without regard to when such certificates
representing shares of Company Common Stock are surrendered for exchange as
provided herein, no interest shall be paid on any Parent Common Stock dividends
(including the Escrow Securities (as defined in Section 3.3)). Upon surrender of
a certificate which immediately prior to the Effective Time represented shares
of Company Common Stock, there shall be paid to the holder of such certificate
the amount of any dividends which theretofore became payable since Closing, but
which were not paid by reason of the foregoing, with respect to the number of
whole shares of Parent Common Stock represented by the certificate or
certificates issued upon such surrender.
(c) Notwithstanding any other provision of this Agreement, no
certificates or scrip for fractional shares of Parent Common stock shall be
issued in the Merger and no Parent Common Stock dividend, stock split or
interest rate shall relate to any fractional security, and such fractional
interests shall not entitle the owner thereof to vote or to any other rights of
a security holder. The aggregate number of
5
shares being issued to each holder of Company Common Stock shall be rounded down
to the nearest whole number.
(d) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate for shares of Company
Common Stock surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and the person requesting
such exchange shall have paid to Parent or its transfer agent any applicable
transfer or other taxes required by reason of such issuance; provided that, any
such transfer shall require the prior written consent of Parent.
(e) Promptly after the Effective Time, Parent shall make available to
the Exchange Agent the certificates representing shares of Parent Common Stock
required to effect the exchanges referred to in paragraph (a) above.
(f) Promptly after the Effective Time, the Exchange Agent shall mail
to each holder of record of a certificate or certificates that immediately prior
to the Effective Time represented outstanding shares of Company Common Stock
(the "Company Certificates") (i) a letter of transmittal (which shall specify
--------------------
that delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon actual delivery of the Company Certificates
to the Exchange Agent), and (ii) instructions for use in effecting the surrender
of the Company Certificates in exchange for certificates representing shares of
Parent Common Stock. Upon surrender of Company Certificates for cancellation to
the Exchange Agent, together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall reasonably require, the holder of
such Company Certificates shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock into
which the shares of Company Common Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the provisions
of Section 3.2, less the number of shares of Parent Common Stock of such holder
deposited with the Escrow Agent, and the Company Certificates so surrendered
shall be cancelled. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of Company Common
Stock for any shares of Parent Common Stock or dividends or distributions
thereon delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) Promptly following the date which is nine months after the
Effective Time, the Exchange Agent shall deliver to Parent all certificates
(including certificates representing shares of any Parent Common Stock),
property and other documents in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Company Certificate may surrender such Company
Certificate to Parent and (subject to applicable abandoned property, escheat and
similar laws) receive in exchange therefor the Parent Common Stock to which such
person is entitled, without any interest thereon. Notwithstanding the foregoing,
none of the Exchange Agent, Parent, Subsidiary or the Surviving Corporation
shall be liable to a holder of Company Common Stock for any Parent Common Stock
delivered to a public official pursuant to applicable abandoned property,
escheat and similar laws.
6
(h) In the event any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed Company
Certificate the Parent Common Stock deliverable in respect thereof determined in
accordance with this Section 3.4. When authorizing such payment in exchange
therefor, the Board of Directors of Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Company Certificate to give Parent such indemnity as it may
reasonably direct as protection against any claim that may be made against
Parent or the Surviving Corporation with respect to the Company Certificate
alleged to have been lost, stolen or destroyed.
SECTION 3.5 Dissenting Shareholders. Shares of Company Common Stock
held by Company Shareholders who have, prior to the taking of the vote of the
Company Shareholders on the Merger, filed with the Company written demand for
the appraisal of their shares of Company Common Stock in accordance with the
applicable provisions of the CGCL, (the "Dissenting Shareholders") shall not be
-----------------------
deemed to be converted into Parent Common Stock at the Conversion Ratio (such
nonconverting shares, the "Dissenting Shares") unless, and until such time as,
-----------------
such shareholders shall have withdrawn, failed to perfect, or shall have
effectively lost, their right to appraisal of or payment for their shares of
Company Common Stock under the CGCL, at which time such shares shall be
converted into the right to receive Parent Common Stock as provided in Section
3.2. The Company shall give Parent prompt notice of any demand received by the
Company for payment for shares of Company Common Stock from Dissenting
Shareholders, and Parent shall have the right to participate in all negotiations
and proceedings with respect to such demand. The Company agrees that it will
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demand for payment. Each
Dissenting Shareholder who becomes entitled, pursuant to the provisions of the
CGCL, to the payment of the value of his, her or its Dissenting Shares shall
receive payment therefor from Parent or Subsidiary (but only after the value
thereof shall have been agreed upon or finally determined pursuant to the terms
of this Agreement and as provided in the CGCL). In the event that any Dissenting
Shareholder shall have withdrawn, failed to perfect, or shall have effectively
lost, his right to appraisal of and payment for his, her or its Dissenting
Shares, Parent shall issue and deliver, upon surrender by such Dissenting
Shareholder of his, her or its certificate or certificates representing shares
of Company Common Stock, the shares of Parent Common Stock of which such
Dissenting Shareholder may then be entitled under and pursuant to this Agreement
minus the Escrow Securities attributable to such Dissenting Shareholder, which
shall be held by the Escrow Agent pursuant to the Escrow Agreement.
SECTION 3.6 Closing. The closing (the "Closing") of the transactions
-------
contemplated by this Agreement shall take place at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ on the date and time specified by Parent and the Company that
the parties intend to be on or before the fifth business day after the
satisfaction or waiver of the last of the conditions set forth in Article VIII
and in no event later than November 30, 1999. The parties may agree in writing
to postpone the Closing Date and/or the Effective Time one time for a period of
up to 30 days (the date on which the Closing occurs is referred to in this
Agreement as the "Closing Date").
------------
7
SECTION 3.7 Closing of the Company's Transfer Books. At and after
the Effective Time, holders of Company Common Stock immediately prior to the
Effective Time shall cease to have any rights as shareholders of the Company,
except for the right to receive shares of Parent Common Stock pursuant to
Section 3.2 and the Escrow Securities (if any) pursuant to Section 3.3 and the
terms of the Escrow Agreement. At the Effective Time, the stock transfer books
of the Company shall be closed and no transfer of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time shall thereafter
be made. If, after the Effective Time, subject to the terms and conditions of
this Agreement, Company Certificates formerly representing Company Common Stock
are presented to Parent or the Surviving Corporation, they shall be cancelled
and exchanged for Parent Common Stock in accordance with this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
Parent and Subsidiary each represent and warrant to the Company as of
the date hereof as follows:
SECTION 4.1 Organization and Qualification. Each of Parent and
Subsidiary is a corporation duly organized, validly existing and in good
standing or the local equivalent thereof under the laws of the state of its
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. Each of Parent and Subsidiary is qualified to do business and
is in good standing in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and be in
good standing will not, when taken together with all other such failures of
qualification have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
Parent and its subsidiaries, taken as a whole (a "Parent Material Adverse
-----------------------
Effect"). For purposes of this Agreement, "Parent Material Adverse Effect"
------ ------------------------------
shall not include (a) a change in the market price or trading volume of the
Parent Common Stock or (b) a failure by Parent to meet any published securities
analyst estimates of revenue or earnings for any period ending or for which
earnings are released on or after the date of this Agreement. True, accurate
and complete copies of each of Parent's and Subsidiary's Articles of
Incorporation and bylaws, in each case as in effect on the date hereof,
including all amendments thereto, have been delivered to the Company.
SECTION 4.2 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
Parent consists of (i) 24,000,000 shares of Parent Common Stock, of which
10,629,919 shares were outstanding (which includes 1,433,323 shares of Parent
Common Stock which became issuable on July 9, 1999 in connection with Parent's
acquisition of ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Corporation) and (ii) 2,000,000 shares of
preferred stock, no par value, none of which is outstanding. As of the date of
this Agreement, there are issued and
8
outstanding options to acquire 2,066,623 shares of Parent Common Stock. The
options to acquire 2,066,623 shares of Parent Common Stock described in the
previous sentence include options granted by Parent as of June 23, 1999 to
acquire up to 577,000 shares of Parent Common Stock, which is currently under
review by Parent's management, and options to acquire up to 125,000 shares of
Parent Common Stock which may be awarded to recently hired employees of Parent
and its subsidiaries. As of the date of this Agreement, there are outstanding
warrants to acquire 366,930 shares of Parent Common Stock. Also as of the date
of this Agreement, Parent is obligated to issue up to 11,000 shares of Parent
Common Stock upon achievement of certain performance objectives and 2,000 shares
of Parent Common Stock in connection with restricted stock grants under the C-
COR Electronics, Inc. Incentive Plan. All of the issued and outstanding shares
of Parent Common Stock are validly issued and are fully paid, nonassessable and
free of preemptive rights.
(b) The authorized capital stock of Subsidiary consists of 100 shares
of Subsidiary Common Stock, of which 100 shares are issued and outstanding,
which shares are owned beneficially and of record by Parent.
(c) Except pursuant to a shareholder rights plan, pursuant to Parent's
existing stock option plans, as set forth in Schedule 4.2(c) or as disclosed in
---------------
Parent SEC Reports (as defined in Section 4.4), as of the date hereof there are
(i) no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion of exchange under any outstanding security, instrument or
other agreement, obligating Parent or any subsidiary of Parent to issue, deliver
or sell, or cause to be issued, delivered or sold or otherwise to become
outstanding, additional shares of the capital stock of Parent or obligating
Parent or any subsidiary of Parent to grant, extend or enter into any such
agreement or commitment, and (ii) no voting trusts, proxies or other agreements
or understandings to which Parent and any subsidiary of Parent is a party or is
bound with respect to the voting of any shares of capital stock of Parent or any
subsidiary and there are no such trusts, proxies, agreements or understandings
by, between or among any of Parent's shareholders with respect to Parent Common
Stock. There are no outstanding or authorized stock appreciation rights, phantom
stock, profit participation stock purchase rights or similar rights to acquire
Parent Common Stock with respect to Parent.
(d) The shares of Parent Common Stock to be issued pursuant to this
Agreement have been duly authorized and when issued and delivered in accordance
with the terms and conditions of this Agreement will be validly issued, fully
paid and nonassessable and free of any pre-emptive rights.
SECTION 4.3 Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have all necessary corporate power and
authority to enter into this Agreement and, subject to the Parent Required
Statutory Approvals (as defined in Section 4.3(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Boards of Directors of Parent and Subsidiary and the sole shareholder of
Subsidiary, and no other corporate proceedings on the part of Parent or
Subsidiary are necessary to authorize the execution and delivery of this
Agreement or the consummation by Parent and Subsidiary of the transactions
contemplated
9
hereby. This Agreement has been duly executed and delivered by each of Parent
and Subsidiary and, assuming the due authorization, execution and delivery
hereof by the Company, constitutes a valid and legally binding agreement of each
of Parent and Subsidiary enforceable against each of them in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by each of Parent and
Subsidiary do not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent or
Subsidiary under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of Parent or Subsidiary, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to Parent or
Subsidiary or any of their respective properties or assets, or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Parent or Subsidiary is now a party or by which Parent or
Subsidiary or any of their respective properties or assets may be bound. Except
as set forth in Schedule 4.3(b), the consummation by Parent and Subsidiary of
---------------
the transactions contemplated hereby will not result in any violation, conflict,
breach, termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence. Excluded from the foregoing sentences of this paragraph (b), insofar
as they apply to the terms, conditions or provisions described in clauses (ii)
and (iii) of the first sentence of this paragraph (b), are such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Parent Material Adverse Effect.
(c) Except for the making of the Merger Filing with the Secretary of
State of the State of California in connection with the Merger (the filing
referred to above as the "Parent Required Statutory Approvals"), no declaration,
-----------------------------------
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by Parent or Subsidiary or the
consummation by Parent or Subsidiary of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, have a Parent Material Adverse Effect or affect
Subsidiary's ability to consummate the Merger.
(d) Except as disclosed in the Parent SEC Reports and on Schedule
--------
4.3(d), (i) there are no claims, suits, actions, or proceedings pending or, to
------
the knowledge of Parent, threatened, against, relating to or affecting the
Parent or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seek to
restrain the consummation of the Merger or which could reasonably be expected,
either alone or in the aggregate with all such claims, actions or proceedings,
to cause a Parent Material Adverse Effect, and (ii) neither the Parent nor any
of its subsidiaries is subject to any judgment, decree, injunction, rule or
order of any court, governmental
10
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
by the Merger Agreement or would have any Parental Material Adverse Effect.
SECTION 4.4 Reports and Financial Statements. Since June 26, 1998,
Parent has filed with the SEC all forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it under each of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act, and the respective rules and regulations
---------------
thereunder, all of which, as amended if applicable, complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder. Parent has previously delivered to the Company
copies of its (a) Annual Report on Form 10-K for the fiscal year ended June 26,
1998, as filed with the SEC, (b) proxy and information statements relating to
(i) all meetings of its shareholders (whether annual or special), and (ii)
actions by written consent in lieu of a shareholders' meeting from June 26, 1998
until the date hereof, and (c) all other reports, including quarterly reports,
or registration statements filed by Parent with the SEC since June 26, 1998
(other than Registration Statements filed on Form S-8) (clauses (a), (b) and (c)
are herein collectively referred to as the "Parent SEC Reports"). As of their
------------------
respective dates, the Parent SEC 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 audited consolidated financial
statements and unaudited interim consolidated financial statements of Parent
included in such reports (collectively, the "Parent Financial Statements") have
---------------------------
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of Parent and its
subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein and the absence of
footnotes.
SECTION 4.5 Investment. Parent is not acquiring the Company Common
Stock with the view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
SECTION 4.6 Events Subsequent to Last Form 10-Q. Except as set forth
on Schedule 4.6 and in the Parent SEC Reports, since the date of the last report
------------
filed by Parent on Form 10-Q there has not been any change which would have a
Parent Material Adverse Effect.
SECTION 4.7 Pooling and Tax Deferred Reorganization Matters.
(a) To Parent's knowledge, neither Parent nor any of its affiliates
has taken or agreed to take any, or will take any, action that would affect the
ability of Parent to account for the business combination to be effected by the
Merger as a pooling-of-interests or to treat the Merger as a tax deferred
reorganization pursuant to Section 368(a)(2)(E) of the Code.
11
(b) There is no plan or intention by Parent or a person related to
Parent (within the meaning of Treas. Reg. (S) 1.368-1(e)(3)) to redeem (or to
acquire by means of purchase, exchange, or other transaction) any shares of
Parent Common Stock issued in the Merger.
(c) Following the Merger, the Surviving Corporation will hold at least
90 percent of the fair market value of Subsidiary's net assets and at least 70
percent of the fair market value of the gross assets held by Subsidiary as of
the Effective Time. For purposes of this representation, amounts paid by
Subsidiary to shareholders (if any) who receive cash or other property, amounts
used by Subsidiary to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Subsidiary after
the commencement of negotiations by the parties to this Agreement will be
included and treated as assets held by Subsidiary as of the Effective Time.
(d) As of the Effective Time, Subsidiary will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Subsidiary that, if exercised or
converted, would affect Parent's retention of "control" of the Surviving
Corporation, as defined in Section 368(c) of the Code.
(e) Parent is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code and 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.
(f) As of the Effective Time, the fair market value of the assets of
Parent and Subsidiary will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
SECTION 4.8 Disclosure. No representations and warranties by Parent
contained in this Agreement, and no statement made by Parent in this Agreement
or in any document listed in any Exhibit or Schedule to this Agreement or any
document or certificate furnished or to be furnished to the Company by Parent at
or prior to Closing pursuant hereto, contains or will contain on the Closing
Date any untrue statements of a material fact or omits or will omit on the
Closing Date to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances in which they were made.
SECTION 4.9 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Parent other than Warburg ▇▇▇▇▇▇ ▇▇▇▇
LLC.
12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Subsidiary that the
statements contained in this Article V are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article V), except as set forth in the various
Schedules identified below in this Article V delivered by the Company to the
Parent and Subsidiary on the date hereof (the "Disclosure Schedule"). Nothing
-------------------
in the Disclosure Schedule shall be deemed adequate to disclose an exception to
a representation or warranty made herein, unless the Disclosure Schedule
identifies the exception with particularity and describes the relevant facts in
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). As provided below, the Disclosure Schedule will be arranged in
paragraphs corresponding to the Sections and lettered paragraphs contained in
this Article V.
The Company represents and warrants to Parent and Subsidiary as
follows:
SECTION 5.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Except as
set forth on Schedule 5.1(a), the Company is qualified to do business and is in
---------------
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all other such failures, have a
Company Material Adverse Effect (as defined below). True, accurate and complete
copies of the Company's Amended and Restated Articles of Incorporation, as
amended, and bylaws, in each case as in effect on the date hereof, including all
amendments thereto, have been delivered to Parent.
(b) For purposes of this Agreement, "Company Material Adverse Effect"
-------------------------------
shall mean a material adverse effect in the business, operations, properties,
assets, condition (financial or other), results of operations of the Company and
its subsidiaries, taken as a whole or which will prevent (or would reasonably
be expected to prevent) the fundamental and basic operation of such business
after giving effect to the Merger contemplated by this Agreement.
13
SECTION 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
21,000,000 shares of Company Common Stock, of which 4,855,746 shares are issued
and outstanding, (ii) 14,000,000 shares of preferred stock (the "Preferred
---------
Stock"), of which (A) 4,000,000 shares are designated as Series A Preferred
-----
Stock, all of which are issued and outstanding and (B) 10,000,000 shares are
designated as Series B Preferred Stock, 7,345,000 of which are issued and
outstanding. All authorized capital stock and the holders of such capital stock
of the Company are set forth on Schedule 5.2(a). All issued and outstanding
---------------
shares of Company Common Stock and Preferred Stock are validly issued and are
fully paid, nonassessable and free of preemptive rights, and are held of record
as set forth in Schedule 5.2(a). Each holder of capital stock of the Company,
---------------
other than Parent, shall be referred to as a "Company Shareholder" and
-------------------
collectively as the "Company Shareholders." Neither the Company nor any
--------------------
subsidiary of the Company holds any shares of the capital stock of the Company.
(b) Except as set forth on Schedule 5.2(b), there are (i) no
---------------
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other anti-takeover
agreement, obligating the Company or any subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold or otherwise to become
outstanding, additional shares of the capital stock of the Company or obligating
the Company or any subsidiary of the Company to grant, extend or enter into any
such agreement or commitment, and (ii) no voting trusts, proxies or other
agreements or understandings to which the Company or any subsidiary of the
Company is a party or is bound with respect to the voting of any shares of
capital stock of the Company and there are no such trusts, proxies, agreements
or understandings by, between or among any of the Company's shareholders with
respect to Company Common Stock. There are no outstanding or authorized stock
appreciation rights, phantom stock, profit participation or similar rights with
respect to the Company.
SECTION 5.3 Employees. Schedule 5.3 sets forth each employee of the
------------
Company, each employment agreement that provides for the receipt of certain
consideration by an employee for his or her securities of the Company in the
event of a merger and each employment agreement that provides for any other
special rights which shall inure to an employee in the event of a merger;
SECTION 5.4 Subsidiaries. Schedule 5.4 sets forth the name and state
------------
of incorporation of each direct and indirect subsidiary (as defined below) of
the Company. Each direct and indirect subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each subsidiary of the Company is
qualified to do business, and is in good standing, in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together with all such
other failures, have a Company Material Adverse Effect. All of the outstanding
shares of capital stock of each subsidiary of the Company are validly issued,
fully paid, nonassessable and
14
free of preemptive rights and are owned directly or indirectly by the Company
free and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever except as set forth in Schedule
--------
5.4. There are no subscriptions, options, warrants, rights, calls, contracts,
---
voting trusts, proxies or other commitments, understandings, restrictions or
arrangements relating to the issuance, sale, voting, transfer, ownership or
other rights with respect to any shares of capital stock of any subsidiary of
the Company, including any right of conversion or exchange under any outstanding
security, instrument or agreement.
As used in this Agreement, the term "subsidiary" shall mean, when used
----------
with reference to any person or entity, any corporation, partnership, joint
venture or other entity which such person or entity, directly or indirectly,
controls or of which such person or entity (either acting alone or together with
its other subsidiaries) owns, directly or indirectly, 50% or more of the stock
or other voting interests, the holders of which are entitled to vote for the
election of a majority of the board of directors or any similar governing body
of such corporation, partnership, joint venture or other entity.
SECTION 5.5 Authority; Non-Contravention; Approvals.
(a) The Company has all necessary corporate power and authority to
enter into this Agreement and, subject to the Company Shareholders' Approval (as
defined in Section 7.2) and the Company Required Statutory Approvals (as defined
in Section 5.5(c)), to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize the execution and delivery of this Agreement or, except for the
Company Shareholders' Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Subsidiary, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by the Company do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of the Company or any of its subsidiaries, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
its subsidiaries is now a party or by which the Company or any of its
subsidiaries or any of their respective properties or assets may be bound.
Except as set forth in Schedule 5.5(b), the consummation by the Company of the
---------------
transactions
15
contemplated hereby will not result in any violation, conflict, breach,
termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence.
(c) Except for the making of the Merger Filing with the Secretary of
State of the State of California in connection with the Merger (the filing is
referred to as the "Company Required Statutory Approvals"), no declaration,
------------------------------------
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a Company Material Adverse Effect.
SECTION 5.6 Financial Statements. The audited consolidated financial
statements of the Company for the year ended June 30, 1998 and unaudited interim
consolidated financial statements of the Company for the nine-month period ended
March 31, 1999 (collectively, the "Company Financial Statements") have been
----------------------------
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of the Company and its subsidiaries as
of the dates thereof and the results of their operations, cash flows and changes
in financial position for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal year-end and audit adjustments
and any other adjustments described therein and the absence of footnotes.
SECTION 5.7 Events Subsequent to Year End Financial Statements.
Except as set forth on Schedule 5.7, since the date of the Financial Statements
------------
for the Company and its subsidiaries for the year ended June 30, 1998, there has
not been any change which would have a Company Material Adverse Effect. Without
limiting the generality of the foregoing, since June 30, 1998:
(a) none of the Company or its subsidiaries has sold, leased,
transferred or assigned any of its assets, tangible or intangible, other than
for a fair consideration in the ordinary course of business;
(b) none of the Company or its subsidiaries has entered into any
agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses) either involving more than $250,000 or outside
the ordinary course of business;
(c) no party (including the Company or its subsidiaries) has
accelerated, terminated, modified or canceled any agreement, contract, lease or
license (or series of related agreements, contracts, leases and licenses)
involving more than $100,000 to which the Company or its subsidiaries is a party
or by which any of them is bound;
(d) none of the Company or its subsidiaries has imposed any security
interest, mortgage, pledge, lien, restriction, covenant, charge or encumbrance
of any kind or any character upon any of its assets, tangible or intangible,
involving more than $5,000 singly or $50,000 in the aggregate;
16
(e) none of the Company or its subsidiaries has made any capital
expenditure (or series of related capital expenditures) either involving more
than $250,000 or outside the ordinary course of business;
(f) none of the Company or its subsidiaries has made any capital
investment in, any loan to or any acquisition of the securities or assets of,
any other person (or series of related capital investments, loans and
acquisitions);
(g) none of the Company or its subsidiaries has issued any note, bond
or other debt security or created, incurred, assumed or guaranteed any
indebtedness for borrowed money or capitalized lease obligations;
(h) none of the Company or its subsidiaries has canceled, compromised,
waived or released any right or claim (or series of related rights and claims);
(i) there has been no change made or authorized in the articles of
incorporation or bylaws of the Company or its subsidiaries;
(j) none of the Company or its subsidiaries has issued, sold or
otherwise disposed of any of its capital stock, or granted any options, warrants
or other rights to purchase or obtain (including upon conversion, exchange or
exercise) any of its capital stock;
(k) none of the Company or its subsidiaries has declared, set aside or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased or otherwise acquired any of
its capital stock;
(l) none of the Company or its subsidiaries has experienced any
material damage, destruction or loss (whether or not covered by insurance) to
its property;
(m) none of the Company or its subsidiaries has made any loan to, or
entered into any other transaction with, any of its directors, officers and
employees outside the ordinary course of business;
(n) none of the Company or its subsidiaries has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified in any material respect the terms of any existing such contract or
agreement;
(o) none of the Company or its subsidiaries has granted any bonuses or
a greater than five percent (5%) increase in the base compensation of any of its
directors, officers and employees outside the ordinary course of business;
(p) none of the Company or its subsidiaries has adopted, amended,
modified or terminated any bonus, profit-sharing, incentive, severance or other
plan, contract or commitment for the
17
benefit of any of its directors, officers and employees (or taken any such
action with respect to any other Company Plans (as defined in Section 5.14(a));
(q) none of the Company or its subsidiaries has made any other change
in employment terms for any of its directors, officers and employees outside the
ordinary course of business;
(r) none of the Company or its subsidiaries has made or pledged to
make any charitable or other capital contribution outside the ordinary course of
business; and
(s) there has not been any other occurrence, event, incident, action,
failure to act or transaction outside the ordinary course of business involving
the Company or its subsidiaries; and
(t) there has been no notice received by the Company or any subsidiary
from any supplier, customer or other entity with which the Company or such
subsidiary has a material contractual relationship or whose non-performance of
any obligation or duty to the Company would have a Company Material Adverse
Effect, indicating that such relationship or contract would likely be modified
or terminated as a result of any failure of the Company, any subsidiary or any
of their respective Systems (as defined in Section 5.23) to be Year 2000
Compliant (as defined in Section 5.23) in any respect.
SECTION 5.8 Books of Account. The books of account of the Company
and its subsidiaries accurately and fairly reflect, in reasonable detail and in
all material respects, the Company's and its subsidiaries' transactions and the
disposition of their assets. Except as set forth on Schedule 5.8, all notes and
------------
accounts receivable of the Company and its subsidiaries are reflected in
accordance with generally accepted accounting principles on their books and
records, are valid receivables subject to no known material setoffs or
counterclaims, are, to the best of the Company's knowledge, current and
collectible in accordance with their terms at their recorded amounts subject
only to normal adjustments in the ordinary course of business and the reserves
for contractual allowances and bad debts set forth in the balance sheet
contained in the most recent Company Financial Statements as adjusted for the
passage of time through the Closing Date in accordance with past custom and
practice of the Company and its subsidiaries. The Company and its subsidiaries
have filed all reports and returns required by any material law or regulation to
be filed by them, and have paid all taxes, duties and charges due on the basis
of such reports and returns.
SECTION 5.9 Absence of Undisclosed Liabilities. Except as set forth
on Schedule 5.9, neither the Company nor any of its subsidiaries had at June 30,
------------
1998, or has incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except: (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Company Financial Statements or reflected in the notes thereto,
or (ii) which were incurred after June 30, 1998 and were incurred in the
ordinary course of business and consistent with past practices; (b) liabilities,
obligations or contingencies which (i) would not, in the aggregate, have a
Company Material Adverse Effect, or (ii) have been discharged or paid in full
prior to the date hereof; or (c) liabilities and obligations which are of a
nature not required to be reflected or reserved against in the consolidated
financial statements of the
18
Company and its subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied and which were incurred in the
ordinary course of business.
SECTION 5.10 Proxy Statement. None of the information supplied or to
be supplied by the Company or its subsidiaries for inclusion in the notice of
meeting (other than information about Parent and Subsidiary supplied by Parent
and Subsidiary), written consent and/or proxy statement to be distributed in
connection with the approval and adoption by the Company Shareholders of this
Agreement and the transactions contemplated hereby (the "Proxy Statement") or
---------------
any amendments thereof or supplements thereto will, at the time of the mailing
of the Proxy Statement and any amendments thereof or supplements thereto, and at
the time of the meeting of the Company Shareholders to be held in connection
with the transactions contemplated by this Agreement, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 5.11 Litigation. Except as set forth on Schedule 5.11, there
-------------
are no claims, suits, actions or proceedings pending, or to the best knowledge
of the Company threatened, or any reasonable basis therefor, against, relating
to or affecting the Company or any of its subsidiaries, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain the consummation of the Merger or which
could reasonably be expected, either alone or in the aggregate with all such
claims, actions or proceedings, to have a Company Material Adverse Effect.
Neither the Company nor any of its subsidiaries is subject to any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator which
prohibits or restricts the consummation of the transactions contemplated hereby
or would have any Company Material Adverse Effect.
SECTION 5.12 No Violation of Law. Except as set forth in Schedule
--------
5.12, neither the Company nor any of its subsidiaries is in violation of or has
----
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, in the aggregate,
could not reasonably be expected to have a Company Material Adverse Effect. As
of the date of this Agreement, no investigation or review by any governmental or
regulatory body or authority is pending, or to the best knowledge of the Company
threatened, nor has any governmental or regulatory body or authority indicated
to the Company an intention to conduct the same, other than, in each case, those
the outcome of which, as far as reasonably can be foreseen, will not have a
Company Material Adverse Effect. The Company and its subsidiaries have all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively, the "Company Permits"), except
---------------
for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a Company Material Adverse Effect. The Company and its
subsidiaries are not in violation of the terms of any Company Permit, or any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
or mediator, except for delays in filing reports or violations which, alone or
in the aggregate, would not have a Company Material Adverse Effect.
19
SECTION 5.13 Compliance with Agreements. The Company and each of its
subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
notice or lapse of time or action by a third party, could result in a default
under, (a) the respective charters, bylaws or similar organizational instruments
of the Company or any of its subsidiaries; or (b) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which the Company or any of its subsidiaries is
a party or by which any of them is bound or to which any of their property is
subject except where such breach, violation or default would not have a Company
Material Adverse Effect.
SECTION 5.14 Taxes.
(a) The Company and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns (as defined below) required
to be filed by them prior to the Effective Time, other than those Tax Returns
the failure of which to file would not have a Company Material Adverse Effect,
and such Tax Returns are true, correct and complete in all material respects,
and (ii) duly paid in full or made adequate provision in the Company Financial
Statements for the payment of all Taxes for all periods ending at or prior to
the Effective Time (whether or not shown on any Tax Return), except where the
failure to pay such Taxes would not have a Company Material Adverse Effect. The
liabilities and reserves for Taxes reflected in the Company balance sheet
included in the most recent Company Financial Statements are adequate to cover
all Taxes for all periods ending at or prior to the Effective Time and there are
no material liens for Taxes upon any property or asset of the Company or any
subsidiary thereof, except for liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the Internal Revenue Service or any other
governmental taxing authority with respect to Taxes of the Company or any of its
subsidiaries which, if decided adversely, singly or in the aggregate, would have
a Company Material Adverse Effect. Neither the Company nor any of its
subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes with any entity that is not, directly or indirectly, a wholly-owned
corporate subsidiary of Company or has any liability for the Taxes of any such
entity under Treas. Reg. (S)1.1502-6 (or any similar provision of state, local,
or foreign law). Neither the Company nor any of its corporate subsidiaries has,
with regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code. The
Company is not and has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company
has not agreed, nor is it required, to make any adjustment under Section 481(a)
of the Code by reason of a change in accounting method or otherwise. There are
no limitations on the use of the Company's net operating loss carryforward of
$9,000,000 which would arise due to a change of control transaction by the
Company prior to the date hereof.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
-----
taxes, including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and
20
such term shall include any interest, fines, penalties or additional amounts and
any interest in respect of any additions, fines or penalties attributable or
imposed or with respect to any such taxes, charges, fees, levies or other
assessments.
(c) For purposes of this Agreement, the term "Tax Return" or "Tax
---------- ---
Returns" shall mean any return, report or other document or information required
-------
to be supplied to a taxing authority in connection with Taxes.
SECTION 5.15 Employee Benefit Plans; ERISA.
(a) Schedule 5.15 lists all employee benefit plans and collective
-------------
bargaining, employment or severance agreements or other similar arrangements to
which the Company, or any Controlled Group Affiliate, is or ever has been a
party or by which any of them is or ever has been bound, legally or otherwise,
including, without limitation, (i) any "employee welfare benefit plan" or
"employee pension benefit plan" (within the meaning of Sections 3(1) or 3(2) of
ERISA) (the "Company Plans"), (ii) any profit-sharing, deferred compensation,
-------------
bonus, stock option, stock purchase, pension, retainer, consulting, retirement,
severance, welfare or incentive plan, agreement or arrangement, (iii) any plan,
agreement or arrangement providing for "fringe benefits" or perquisites to
employees, officers, directors or agents, including, but not limited to benefits
relating to Company automobiles, clubs, vacation, child care, parenting,
sabbatical, sick leave, medical, dental, hospitalization, life insurance and
other types of insurance, or (iv) any employment agreement not terminable on 30
days (or less) written notice or providing for an annual salary in excess of
$140,000. The plans, agreements and contractual arrangements described in this
Section 5.15 may be referred to herein as the "Benefit Arrangements." None of
--------------------
the Benefit Arrangements is (i) a plan intended to be tax-qualified under
Section 401(a) of the Code, except for the 401(k) Plan listed on Schedule 5.15,
-------------
(ii) a plan subject to Title IV of ERISA or (iii) a "multiemployer plan" (within
the meaning of Section 3(37) of ERISA). Neither the Company nor any Controlled
Group Affiliate has ever contributed to or had an obligation to contribute to
any multiemployer plan. The Company has delivered to Parent and Subsidiary true
and complete copies of all documents and summary plan descriptions of the
Benefit Arrangements or summary descriptions relating to any such Benefit
Arrangement not otherwise in writing. The Company has delivered to Parent and
Subsidiary true and complete copies of the IRS Form 5500 filed in the most
recent plan year with respect to any Benefit Arrangement, including all
schedules thereto and financial statements with attached opinions of independent
accountants.
(b) No "prohibited transaction" (within the meaning of Section 4975 of
the Code or Sections 406 and 408 of ERISA) has occurred with respect to any
Benefit Arrangement.
(c) There is no negotiation, demand or proposal that is pending or has
been made which concerns matters now covered, or that would be covered, by any
Benefit Arrangement.
(d) All Benefit Arrangements are in full compliance with the relevant
provisions of ERISA and the Code, the regulations and published authorities
thereunder, and all other Laws applicable with respect to all such Benefit
Arrangements. All Benefit Arrangements have been operated in accordance with
their terms, and the Company and the Controlled Group Affiliates have performed
all of their
21
obligations under all Benefit Arrangements. There are no actions, suits or
claims (other than routine claims for benefits in the ordinary course) pending
or threatened against any Benefit Arrangement or arising out of any Benefit
Arrangement and no fact exists which could give rise to any such actions, suits
or claim (other than routine claims for benefits in the ordinary course).
(e) The 401(k) Plan listed on Schedule 5.15 and related trust
-------------
agreement, annuity contract, insurance contract or other funding mechanism is
qualified and tax exempt under the provisions of Code Sections 401(a) and 501(a)
and is the subject of a currently effective favorable determination letter
issued by the Internal Revenue Service . The Company has delivered to Parent and
Subsidiary a true and complete copy of such determination letter. The 401(k)
Plan listed on Schedule 5.15 has never been the subject of a corrective
-------------
procedure under the Internal Revenue Service's Employee Plans Compliance
Resolution System, or any similar administrative procedure
(f) Each of the Benefit Arrangements can be terminated by the Company
within a period of 30 days following the Closing Date, without any additional
contribution to such Benefit Arrangement or the payment of any additional
compensation or amount or the additional vesting or acceleration of any
benefits.
(g) All insurance premiums required with respect to any Benefit
Arrangement as of the Closing Date have been paid.
(h) For purposes of this Section 5.14, the Company's "Controlled Group
----------------
Affiliate" means any corporation, trade or business which is affiliated with the
---------
Company, in the manner described in Section 414(b), (c), (m) and (o) of the Code
or Section 4001(a)(14) of ERISA.
SECTION 5.16 Labor Matters; Labor Controversies.
(a) Schedule 5.16(a) sets forth all written employment agreements
----------------
between the Company and its employees.
(b) Except as set forth on Schedule 5.16(b), there are no material
----------------
controversies pending, or to the knowledge of the Company threatened, between
the Company or its subsidiaries and any of their employees.
(c) There are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries.
(d) The Company and its subsidiaries have, complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, employee benefits, hours,
equal employment opportunity/non-discrimination, occupational safety and health
and the payment of social security and similar taxes.
22
(e) Except as set forth on Schedule 5.16(e) no person has asserted
----------------
that the Company or any of its subsidiaries is liable in any material amount for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing.
(f) To the knowledge of the Company or the directors and officers (and
employees with responsibility for employment matters) of the Company and its
subsidiaries, (i) no executive, key employee, or group of employees has any
plans to terminate employment with the Company or its subsidiaries, none of the
Company and its subsidiaries is a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, except for purposes of clauses (a)-(e) such
controversies, organizational efforts, non-compliance and liabilities which,
singly or in the aggregate, could not reasonably be expected to cause a Company
Material Adverse Effect and (ii) there is no unfair labor practice charge or
complaint against the Company or any of its subsidiaries pending or threatened
before the National Labor Relations Board or any similar state agency and there
are no complaints pending or threatened in any forum by or on behalf of any
present or former employee of the Company or any of its subsidiaries alleging
breach of any express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship.
SECTION 5.17 Environmental Matters.
(a) (i) The Company and its subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws (as
defined below), including, without limitation, having all permits, licenses and
other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties owned,
leased or operated by the Company or any of its subsidiaries contain any
Hazardous Substance (as defined below) as a result of any activity of the
Company or any of its subsidiaries in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) neither the Company nor any of its
subsidiaries has received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company or any of its subsidiaries may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened against the Company or any of its subsidiaries
relating to any violation, or alleged violation, of, or liability under, any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company or any of its subsidiaries concerning the release of any
Hazardous Substance or the threatened or actual violation of any Environmental
Law, (vi) no Hazardous Substance has been disposed of, or released at, on or
from any properties presently owned, leased or operated by the Company or any of
its subsidiaries, or at, on of from any properties previously owned, leased or
operated by the Company or any of its subsidiaries during the time such
properties were owned, leased or operated by the Company or any of its
subsidiaries, (vii) the Company and its subsidiaries have not disposed of, or
arranged for the disposal of Hazardous Substances at properties not owned,
leased or operated by the Company; (viii) there have been no environmental
investigations, studies, audits, tests, reviews or other analyses regarding
compliance or noncompliance with any applicable Environmental Law conducted by
or which are in the possession of the Company or its subsidiaries relating to
the activities of the Company or its
23
subsidiaries, (ix) there are no underground storage tanks on, in or under any
properties owned, leased or operated by the Company or any of its subsidiaries
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by the
Company or any of its subsidiaries, (x) there is no asbestos or asbestos
containing material present in any of the properties owned, operated or leased
by the Company and its subsidiaries, and no asbestos has been removed from any
of such properties during the time such properties were owned, leased or
operated by the Company or any of its subsidiaries, and (xi) neither the
Company, its subsidiaries nor any of their respective properties (whether owned,
leased or operated) are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (xi) that, singly or in the aggregate, would not reasonably
be expected to have a Company Material Adverse Effect.
(b) For purposes of this Agreement, "Environmental Law" or
-----------------
"Environmental Laws" means any Federal, state, local or foreign law, statute,
------------------
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction, requirement or
agreement with any governmental entity relating to (x) the protection,
preservation or restoration of public health or safety or the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended and as in effect on the Closing Date. The term Environmental Law
includes, without limitation, (i) the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal Act, the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Federal Occupational Safety and Health Act of 1970, each as amended and as
in effect on the Closing Date, or any state counterpart thereof, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries, damages or
penalties due to, or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
(c) For purposes of this Agreement, "Hazardous Substance" means any
-------------------
substance presently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which exposure
is regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
24
SECTION 5.18 Title to Assets. Schedule 5.18 sets forth a list of all
-------------
real property leased or owned by the Company and its subsidiaries. The Company
and each of its subsidiaries has good title to all its leasehold interests and
other properties, as reflected in the most recent balance sheet included in the
Company Financial Statements, except for properties and assets that have been
disposed of in the ordinary course of business since the date of such balance
sheet, free and clear of all mortgages, liens, pledges, charges or encumbrances
of any nature whatsoever, except (i) the lien for current Taxes, payments of
which are not yet delinquent, (ii) such imperfections in title and easements and
encumbrances, if any, as are not material in character, amount or extent and do
not materially and adversely affect the value or interfere with the present use
of the property subject thereto or affected thereby, or otherwise materially
impair the Company's business operations (in the manner presently carried on by
the Company), or (iii) mortgages incurred in the ordinary course of business,
and except for such matters which, singly or in the aggregate, could not
reasonably be expected to cause a Company Material Adverse Effect. All leases
under which the Company leases real or personal property have been delivered to
Parent and are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than defaults under such leases which in the aggregate will not
have a Company Material Adverse Effect.
SECTION 5.19 Company Shareholders' Approval. The affirmative vote of
shareholders of the Company required for approval and adoption of this
Agreement, the Merger and the Transactions contemplated thereby is a majority of
the outstanding shares of Company Common Stock and of Preferred Stock voting as
separate classes ( the "Company Shareholders' Approval").
------------------------------
SECTION 5.20 No Excess Parachute Payments. Except as set forth on
Schedule 5.20 the Company has no contracts, arrangements or understandings
-------------
pursuant to which any person may receive any amount or entitlement from the
Company or any of its subsidiaries (including cash or property or the vesting of
property) that may be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code) (any such amount being an
"Excess Parachute Payment") as a result of any of the transactions contemplated
-------------------------
by this Agreement. No person is entitled to receive any additional payment from
the Company, its subsidiaries or any other person (a "Parachute Gross-up
------------------
Payment") in the event that the 20% parachute excise tax of Section 4999(a) of
-------
the Code is imposed on such person. The board of directors of the Company has
not during the six months prior to the date of this Agreement granted to any
officer, director or employee of the Company any right to receive any Parachute
Gross-Up Payment.
SECTION 5.21 Trademarks and Intellectual Property.
(a) The Company and its subsidiaries own or have the right to use,
without any material payment to any other party, all of the patents, trademarks
(registered or unregistered), trade names, service marks, copyrights and
applications applicable to all inventions, names, marks, designs and works of
authorship of any nature used or held by the Company ("Company Intellectual
--------------------
Property"), and the consummation of the transactions contemplated hereby will
--------
not alter or impair such rights in any material respect. No claims are pending
by any person with respect to the ownership, validity, enforceability or use of
any Company Intellectual Property that could reasonably be expected to have a
Company Material
25
Adverse Effect. The Company has taken all necessary action to maintain and
protect all Company Intellectual Property.
(b) Except as set forth in Schedule 5.21(b), to the best of the
-----------------
Company's knowledge, none of the Company, its shareholders or its directors,
officers or employees has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with or violated any intellectual property rights
of third parties, and none of the shareholders and the directors and officers
(and employees with responsibility for Company Intellectual Property matters) of
the Company and its subsidiaries has received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of the Company and
its subsidiaries must license or refrain from using any Company Intellectual
Property). To the knowledge of the Company (and employees with responsibility
for Company Intellectual Property matters) and its subsidiaries, no third party
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with or violated any Company Intellectual Property.
(c) Schedule 5.21(c) identifies each patent or registration that has
----------------
been issued to any of the Company and its subsidiaries with respect to any of
the Company Intellectual Property, identifies each pending patent application or
application for registration which any of the Company and its subsidiaries has
made with respect to any of the Company Intellectual Property, and identifies
each license, agreement, or other permission which any of the Company and its
subsidiaries has granted to any third party with respect to any of the Company
Intellectual Property (together with any exceptions). The Company has delivered
to Parent and Subsidiary correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to Parent and Subsidiary correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. Schedule 5.21(c) also identifies each trade
----------------
name or unregistered trademark or servicemark used by any of the Company and its
subsidiaries in connection with any of its businesses. With respect to each
item of Company Intellectual Property identified or required to be identified in
Schedule 5.21(c):
----------------
(i) the Company and its subsidiaries possess all right, title,
and interest in and to the item, free and clear of any security
interest, license, or other restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending, or to the knowledge of
any of the Company is threatened, which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(iv) none of the Company and its subsidiaries has ever agreed to
indemnify any person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
26
(d) Schedule 5.21(d) identifies each item of Company Intellectual
----------------
Property that any third party owns and that any of the Company and its
subsidiaries uses pursuant to license, sublicense, agreement, or permission.
The Company has delivered to Parent and subsidiary correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Company Intellectual Property Rights
required to be identified in Schedule 5.21(d):
----------------
(i) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect as to the Company and to the best of the Company's knowledge,
as to the other parties thereto;
(ii) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true
and correct with respect to the underlying license;
(vi) the underlying item of Company Intellectual Property
Rights is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand about which the Company has
received notice is pending, or to the knowledge of the Company and its
subsidiaries is threatened, which challenges the legality, validity,
or enforceability of the underlying item of Company Intellectual
Property Rights; and
(viii) none of the Company and its subsidiaries has granted any
sublicense or similar right with respect to the license, sublicense,
agreement, or permission.
(e) On the date hereof the Company and its subsidiaries has no
knowledge of any new products, inventions, procedures, methods of manufacturing
or processing or work of authorship that any competitors or other third parties
have developed which reasonably could be expected to supersede or make obsolete
any product or process of any of the Company and its subsidiaries.
27
SECTION 5.22 Contracts, Obligations and Commitments.
(a) Schedule 5.22 (a)(i) sets forth an accurate and complete list of
--------------------
all material contracts, agreements, options, leases (other than leases referred
to in Section 5.18), commitments and instruments involving average payment or
receipt by the Company of value equal to or greater than $25,000 ("Contracts")
---------
entered into by the Company or its subsidiaries. The Company and its
subsidiaries have provided Parent with complete and correct copies of all such
items listed on Schedule 5.22(a)(i). Except for such items listed on Schedule
------------------- --------
5.22(a)(i), there are no other material contracts or other arrangements under
----------
which goods, equipment or services are provided, leased or rendered by, or are
to be provided, leased or rendered to, the Company and its subsidiaries. Except
as set forth in Schedule 5.22(a)(ii): (i) the Contracts have not been modified,
--------------------
pledged, assigned or amended in any material respect, are legally valid, binding
and enforceable in accordance with their respective terms and are in full force
and effect with respect to the Company and, to the best of the Company's
knowledge, the other parties thereto; (ii) there are no material defaults by the
Company and its subsidiaries and, to the best of the Company's knowledge, by any
other party to the Contracts; (iii) the Company and its subsidiaries have not
received notice of any material default, offset, counterclaim or defense under
any Contract; (iv) no condition or event has occurred which with the passage of
time or the giving of notice or both would constitute a default or breach by the
Company and its subsidiaries of the terms of any Contract, except for any
consents required to consummate the transactions contemplated by this Agreement;
and (v) there does not now, and at Closing will not, exist any material security
interest, mortgage, pledge, restriction, charge, lien, encumbrance or claim of
others on any interest created under any Contract. None of the Contracts is
subject to termination from and after the Closing Date and prior to the
expiration of its stated term by any party to such Contract, except as stated in
each such Contract.
(b) Schedule 5.22(b) contains a list and description of all notices,
----------------
statements, certificates, representations, warranties, questionnaires and
responses relating to problems associated with failures to be Year 2000
Compliant (as defined in Section 5.23), whether oral or written, made, executed
or completed by the Company or any subsidiary or any of their respective
officers, directors, employees, agents or representatives, and whether sent to
or received from any third party ("Year 2000 Certificates"). A true and correct
----------------------
copy or summary of each Year 2000 Certificate has previously been made available
to Purchaser.
SECTION 5.23 Year 2000 Compliance. To the best of the Company's
knowledge, each system comprised of software, hardware, databases, or embedded
control systems (microprocessor controlled, robotic or other device)
(collectively, a "System"), that constitutes any part of, or is used in
------
connection with the use, operation or enjoyment of any material tangible or
intangible asset or real property of the Company and its subsidiaries (i) is
designed (or has been modified) to be used prior to and after January 1, 2000,
(ii) will operate without error arising from the creation, recognition,
acceptance, calculation, display, reporting, storage, retrieval, accessing,
comparison, sorting, manipulation, processing or other use of dates, or date-
based, date-dependent or date-related data, including but not limited to century
recognition, day-of-the-week recognition, leap years, date values and interfaces
of date functionalities, and (iii) will not be adversely affected by the advent
of the year 2000 or subsequent years, the advent of the twenty-first century or
the transition from the twentieth century through the year 2000 and
28
into the twenty-first century (collectively, items (i) through (iii) are
referred to herein as "Year 2000 Compliant"). To the best of Company's knowledge
-------------------
and except as set forth on Schedule 5.23, no System that is material to the
-------------
business, finances or operations of the Company or any subsidiary receives data
from or communicates with any component or system external to itself (whether or
not such external component or system is the Company's, any subsidiary's or any
third party's) that is not itself Year 2000 Compliant excepting the parts of the
external component or system within which noncompliance will have no effect on
the data or communications sent to the Company or its subsidiaries, nor on the
Systems of the Company or its subsidiaries. To the best of Company's knowledge
and except as set forth on Schedule 5.23, all licenses for the use of any
-------------
System-related software, hardware, databases or embedded control system are
certified by the manufacturer to be Year 2000 Compliant and to contain the
capabilities required to enable them to be Year 2000 Compliant within Company
and subsidiary computer Systems (hardware and software), or the licenses permit
the Company or its subsidiaries or a third party to make all modifications,
bypasses, de-bugging, work-arounds, repairs, replacements, conversions or
corrections necessary to permit the System to operate compatibly, in conformance
with their respective specifications, and to be Year 2000 Compliant. Except as
set forth on Schedule 5.23, neither the Company nor any of its subsidiaries has
-------------
received any notice from any supplier, customer or other entity with which the
Company or its Subsidiary has a material contractual relationship or whose non-
performance of any obligation or duty to the Company or its Subsidiary would
have a Company Material Adverse Effect, indicating that such relationship or
contract would likely be modified or terminated as a result of any failure of
such supplier, customer or other entity to be Year 2000 Compliant. Except as set
forth on Schedule 5.23, neither the Company nor any of its subsidiaries has any
-------------
reason to believe that it may incur material expenses arising from or relating
to the failure of any of its Systems as a result of not being Year 2000
Compliant.
SECTION 5.24 Pooling and Tax Deferred Reorganization Matters.
(a) The Company has not, during the two years preceding the earlier of
the date of this Agreement or the date the plan of combination was initiated,
been a subsidiary or division of another corporation or a part of an acquisition
which was later rescinded and, within the past two years, there has not been any
sale or spin-off of a significant amount of assets of the Company or any
affiliate of the Company. Neither the Company, nor any of the persons listed on
Schedule 7.3 (the "Principal Shareholders") owns any capital stock of Parent or
------------ ----------------------
Subsidiary. The Company has not acquired any of its own capital stock during
the past two years. Except for the Series A Preferred Stock and the Series B
Preferred Stock, which are expected to be converted to Company Common Stock, the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of the shares of its own common stock or any interest
therein or to pay any dividend or make any distribution in respect thereof.
Neither the voting capital structure of the Company nor the relative ownership
of shares among any of the holders of capital stock or other securities of the
Company has been altered or changed within the last two years in contemplation
of the transactions contemplated hereby. No shares of capital stock or other
securities of the Company were issued and are outstanding pursuant to awards,
grants or bonuses under the terms of any plan which was adopted less than two
years prior to the date the combination was initiated. Prior to the Closing or
the earlier termination of this Agreement pursuant to the terms thereof, neither
the Company nor its affiliates have purchased nor will they purchase or
otherwise acquire directly or indirectly any Parent Common Stock other than as
provided herein. Any indebtedness owed or incurred
29
by the Company to any of the Company Shareholders has been incurred and repaid
on commercially reasonable and customary terms. There are no related businesses
or business assets owned or controlled by the Company Shareholders which are
integral to this business and thus should be included as a part of this
transaction pursuant to the pooling-of-interest rules. There have not been any
dividends to Company Shareholders during the two years prior to the date the
Merger was initiated, or up to the date of Merger.
(b) There is no plan or intention by any Company Shareholder to engage
in a sale, exchange, redemption, pledge, or other transaction with Parent or
with a person related (within the meaning of Treas. Reg. (S)1.368-1(e)(3),
hereinafter "Parent Related Person") to Parent in which such Company Shareholder
would dispose of a number of shares of Parent Common Stock received in the
Merger that, in the aggregate (taking into account all such sales, exchanges,
redemptions, pledges and other transactions with Parent or a Parent Related
Person to which the Company Shareholders are parties but disregarding
transactions between the Company Shareholders and other persons), would reduce
the ownership of shares of Parent Common Stock by the Company Shareholders to a
number of shares having a value, as of the Effective Time, of less than 50% of
the aggregate value of all of the outstanding shares of the Company as of the
Effective Time. For purposes of this representation, shares of the Company held
by shareholders of the Company that, prior to the Merger, (i) have been redeemed
or sold, exchanged or otherwise transferred to Company for consideration other
than shares of the Company, (ii) with respect to which an extraordinary
distribution (within the meaning of Treas. Reg. (S)1.368-1T(e)(1)(ii)(A)) has
been made, (iii) have been sold, exchanged, or otherwise transferred to a person
related to the Company (within the meaning of Treas. Reg. (S)1.368-1(e)(3) but
without regard to Treas. Reg. (S)1.368-1(e)(3)(i)(A)) for consideration other
than shares of the Company or Parent Common Stock, and (iv) have been sold,
exchanged, or otherwise transferred to Parent or a Parent Related Person for
consideration other than shares of the Company or Parent Common Stock have been
treated, and taken into account, as outstanding shares of the Company as of the
Effective Time.
(c) Immediately following the Merger, the Company will hold at least
90 percent of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets held as of the Effective Time. For
purposes of this representation, amounts paid by the Company to shareholders
(including shareholders invoking dissenting rights), amounts used by the Company
to pay reorganization expenses, and all redemptions and distributions (except
for regular, normal dividends) made by the Company after the commencement of
negotiations by the parties to this Agreement will be included and treated as
assets held by the Company as of the Effective Time.
(d) As of the Effective Time, 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 Surviving Corporation, as defined in Section 368(c) of the
Code.
(e) The Company is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code and 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.
30
(f) As of the Effective Time, 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 are subject.
SECTION 5.25 Transactions with Related Parties. Except as set forth
on Schedule 5.25, (a) there have been no transactions by the Company or its
-------------
subsidiaries with any officer or director of the Company or its subsidiaries,
any beneficial owner of more than 5% of the Company Common Stock or their
affiliates ("Related Parties") since the date of the most recent Company
---------------
Financial Statements, and (b) there are no agreements or understandings now in
effect between the Company or its subsidiaries and any Related Parties except
for employment agreements or understandings with Related Parties who are
employees of the Company and agreements or understandings with Related Parties
who are shareholders of the Company relating to their rights as shareholders of
the Company, all of which have been delivered to Parent.
SECTION 5.26 Insurance. All of the Company's and its subsidiaries'
liability, theft, life, health, fire, title, worker's compensation and other
forms of insurance, surety bonds and umbrella policies, insuring the Company and
its subsidiaries and their directors, officers, employees, independent
contractors, properties, products, assets and business, are valid and in full
force and effect and without any premium past due or pending notice of
cancellation, are, in the reasonable judgment of the Company, adequate for the
business of the Company and its subsidiaries as now conducted, and there are no
claims, singly or in the aggregate, under such policies in excess of $200,000,
which, in any event, are not in excess of the limitations of coverage set forth
in such policies. The Company and its subsidiaries have taken all actions
reasonably necessary to insure that their independent contractors obtain and
maintain adequate insurance coverage. All of the insurance policies referred to
in this Section 5.26 are "occurrence" policies and no such policies are "claims
made" policies. The Company has no knowledge of any fact indicating that such
policies will not continue to be available to the Company and its subsidiaries
upon substantially similar terms subsequent to the Effective Time. The
provision and/or reserves in the most recent Company Financial Statements are
adequate for any and all self insurance programs maintained by the Company or
its subsidiaries. Except as set forth on Schedule 5.26, neither the Company nor
-------------
any of its subsidiaries has received with respect to its insurance policies, any
notice of actual or proposed cancellation of or reduction in coverage of, or of
any material increase in premium under, or of any exclusion of or intent to
exclude coverage of actual or potential claims by or against the Company or any
subsidiary, or their respective officers, directors or employees, arising from
or relating to any failure of the Company or any subsidiary or any System of any
of them to be Year 2000 Compliant.
SECTION 5.27 Guaranties. None of the Company or its subsidiaries is
a guarantor or otherwise is liable for any liability or obligation (including
indebtedness) of any other person.
SECTION 5.28 Bank Accounts. Schedule 5.28 sets forth all banks or
-------------
other financial institutions with which the Company has an account or maintains
a safe deposit box, showing the type and account number of each such account and
safe deposit box and the names of the persons authorized as signatories thereon
or to act or deal in connection therewith.
31
SECTION 5.29 Business Relations. On the date hereof the Company does
not know and has no reason to believe that any customer or supplier of the
Company or the subsidiaries of the Company will cease to do business with the
Company or the subsidiaries of the Company after the consummation of the
transactions contemplated hereby in the same manner and at the same levels as
previously conducted with the Company or the subsidiaries of the Company as the
case may be except where such loss of a customer or supplier would not have a
Company Material Adverse Effect.
SECTION 5.30 Potential Conflicts of Interest.
(a) Except as set forth on Schedule 5.30, no current or former
-------------
officer, director, or shareholder of the Company or any of its subsidiaries (i)
to the Company's best knowledge owns, directly or indirectly, any interest
(excepting not more than 1% stock holdings for investment purposes in securities
of publicly held and traded companies) in, or is an officer, director, employee,
or consultant of, any person or entity that is a competitor, lessor, lessee,
customer, or supplier of the Company or any of its subsidiaries; (ii) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
that the Company or any of its subsidiaries is using or the use of which is
necessary for the business of the Company or any of its subsidiaries; or (iii)
has any cause of action or other claim whatsoever against, or owes any amount
to, the Company or any of its subsidiaries, except for claims in the ordinary
course of business, such as for accrued vacation pay, accrued benefits under
employee benefit plans, and similar matters and agreements.
(b) To the best of the Company's knowledge, no officer, director,
employee, or consultant of the Company or any of its subsidiaries is presently
obligated under or bound by any agreement or instrument, or any judgment,
decree, or order of any court of administrative agency, that (i) conflicts or
may conflict with his or her agreements and obligations to use his or her best
efforts to promote the interests of the Company or any of its subsidiaries, (ii)
conflicts or may conflict with the business or operations of the Company or any
of its subsidiaries as presently conducted or as proposed to be conducted in the
short term, or (iii) restricts or may restrict the use or disclosure of any
information that may be useful to the Company or any of its subsidiaries.
SECTION 5.31 Inventory. The inventory and supplies of the Company
and its subsidiaries are adequate for their present needs, and are in usable or
saleable condition in the ordinary course of business, subject only to such
reserves for obsolescence, if any, as are reflected in their respective
accounting records.
SECTION 5.32 Suppliers and Customers. Schedule 5.32 sets forth the
-------------
five largest suppliers and ten largest customers of the Company and its
subsidiaries as of the date hereof. The relationships of the Company and such
subsidiaries with their respective suppliers and customers are good commercial
working relationships, and no supplier or customer of material importance to the
Company and its subsidiaries, taken as a whole, has canceled or otherwise
terminated, or threatened in writing to cancel or terminate, its relationship
with the Company or such subsidiary or has during the last 12 months decreased
materially, or threatened to decrease or limit materially, its services,
supplies, or materials to the Company or such subsidiary or its usage or
purchase of the services or products of the Company or such subsidiary, except
for normal cyclical changes related to customers' businesses. The Company has
no
32
knowledge that any such supplier or customer intends to cancel or otherwise
substantially modify its relationship with the Company or any of such
subsidiaries or to decrease materially or limit its services, supplies, or
materials to them or its usage or purchase or their services or products, and
the consummation of the transactions contemplated hereby will not, to the best
knowledge of the Company, adversely affect the relationship of the Company or
any of such Subsidiaries with any such supplier or customer.
SECTION 5.33 Indebtedness. Except as set forth on Schedule 5.33, at
-------------
the date hereof, neither the Company nor any of its subsidiaries has any
indebtedness for borrowed money, including any capital lease or conditional sale
or title retention agreement ("Indebtedness") outstanding. Neither the Company
------------
nor any of its subsidiaries is in default with respect to any outstanding
Indebtedness or any agreement, instrument, or other obligation relating thereto
and no such Indebtedness or any agreement, instrument or other obligation
relating thereto purports to limit the issuance of any securities by the Company
or any of its subsidiaries or the operation of their respective businesses.
Complete and correct copies of all agreements, instruments, and other
obligations (including all amendments, supplements, waivers, and consents)
relating to any Indebtedness of the Company or any of its subsidiaries have been
furnished to Parent.
SECTION 5.34 Minute Books. The copies of the minute books of the
Company and its subsidiaries made available to Parent for inspection accurately
record therein all material action taken by their respective Board of Directors
and shareholders.
SECTION 5.35 Assets and Properties Complete. The assets and
properties of the Company and each of its subsidiaries are and as of the Closing
Date shall be adequate and sufficient to conduct the business of the Company or
the relevant subsidiary as currently conducted.
SECTION 5.36 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company or its subsidiaries, except for tax
or litigation powers of attorney.
SECTION 5.37 Investors.
(a) To the best of the Company's knowledge, each Company Shareholder
who will receive Parent Common Stock under this Agreement pursuant to Regulation
S promulgated under the Securities Act (the "Regulations S Offering") is not a
----------------------
U.S. person within the meaning of Regulation S.
(b) Except as set forth on Schedule 5.37(b), to the best of the
----------------
Company's knowledge, each Company Shareholder who will receive Parent Common
Stock under this Agreement pursuant to Section 4(2) of the Securities Act and/or
Regulation D promulgated thereunder (the "Private Placement") is an accredited
------------------
investor within the meaning of Rule 501 of Regulation D.
SECTION 5.38 Brokers. The Company represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company and the Company Shareholders.
33
SECTION 5.39 Disclosure. No representations and warranties by the
Company contained in this Agreement, and no statement made by the Company in
this Agreement or in any document listed in any Exhibit or Schedule to this
Agreement or any document or certificate furnished or to be furnished to Parent
at or prior to Closing pursuant hereto, contains or will contain on the Closing
Date any untrue statements of a material fact or omits or will omit on the
Closing Date to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances in which they were made.
The Company represents and warrants that the Principal Shareholders and the
directors and officers of the Company and its subsidiaries have made due and
reasonable inquiry and investigation concerning the matters to which
representations and warranties of the Company under this Agreement pertain.
SECTION 5.40 Affiliates. Set forth on Schedule 7.3 is a list
------------
identifying all persons who may be deemed affiliates of the Company under Rule
145 of the Securities Act ("Rule 145"), including, without limitation, all
--------
directors and executive officers of the Company.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger.
Except as otherwise contemplated by this Agreement, after the date hereof and
prior to the Closing Date or earlier termination of this Agreement, unless
Parent shall otherwise agree in writing, the Company shall, and shall cause its
subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice (except changes in its
business and operations which have been approved in writing by Parent);
(b) not (i) amend or propose to amend their respective charters or
bylaws, (ii) split, combine or reclassify their outstanding capital stock; or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly owned subsidiary of the Company;
(c) except for the conversion of the Company's Series A Preferred
Stock and Series B Preferred Stock to Company Common Stock or the issuance of
Company Common Stock pursuant to exercise of warrants or options which are
listed on Schedule 5.2(b), not issue, sell, pledge or dispose of, or agree to
---------------
issue, sell, pledge or dispose of or otherwise cause to become outstanding, any
additional shares of, or any options, warrants or rights of any kind to acquire
any shares of their capital stock of any class or any debt or equity securities
convertible into or exchangeable for such capital stock;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money in excess of $1,000,000, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or any
options, warrants or rights to acquire any of its capital stock or any
34
security convertible into or exchangeable for its capital stock, except for the
conversion of the Company's Series A Preferred Stock and Series B Preferred
Stock to Company Common Stock, (iii) take any action which would jeopardize the
treatment of the Merger as a pooling-of-interests under APB 16, (iv) take or
fail to take any action which action or failure would cause the Company or its
shareholders to recognize gain or loss for federal income tax purposes as a
result of the consummation of the Merger, (v) make any acquisition of any assets
or businesses other than expenditures for fixed or capital assets in the
ordinary course of business which, in such cases of $100,000 or more, shall be
on terms reasonably acceptable to Parent, (vi) sell, pledge, dispose of or
encumber any assets or businesses other than sales in the ordinary course of
business which, in such cases involving $100,000 or more, shall be on terms
reasonably acceptable to Parent, or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of materiality and the
general status of ongoing operations;
(g) not enter into or amend any employment (including any changes to
salaries in excess of five percent), severance, special pay arrangement with
respect to termination of employment or other similar arrangements or agreements
with any directors, officers or key employees, except in the ordinary course and
consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(i) maintain with adequately capitalized insurance companies insurance
coverage for its assets and its businesses in such amounts and against such
risks and losses as are consistent with past practice;
(j) not enter into any new facility leases;
(k) not make any loans, advances, capital contributions or
investments;
(l) not extend credit to any customer which is not creditworthy in
excess of $100,000; and
35
(m) not enter into an agreement with a supplier for material with a
value over the life of such agreement equal to the amount of such material
reasonably projected to be used during the next fiscal quarter.
SECTION 6.2 Conduct of Business by Parent and Subsidiary Pending the
Merger. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing, Parent shall, and shall
cause Subsidiary to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice provided that nothing
stated herein shall limit Parent from consummating its merger with
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Corporation;
(b) preserve its business organization and not (i) except as necessary
to consummate the transactions contemplated hereby or to change Parent or
Subsidiary's name or to implement any anti-takeover device, or to provide for
any stock split or dividend permitted hereunder, amend or propose to amend their
respective charters or bylaws, (ii) stock split, or a dividend in the form of a
stock split (except where the Conversion Ratio is adjusted to reflect such
split), combine or reclassify their outstanding capital stock, (iii) declare,
set aside or pay any dividend or distribution payable in cash, stock, property
or otherwise, except as provided in clause (ii) above and for the payment of
dividends or distributions by a wholly owned subsidiary of Parent, or (iv)
except as provided in clauses (i) or (ii) above or in connection with the
potential acquisition discussed in clause (a) or in connection with Parent's
stock option or purchase plans issue any additional shares of its capital stock
or any security convertible into such stock; provided, however, that nothing
stated in this Agreement shall prohibit Parent from increasing its authorized
capital stock at its 1999 Annual Meeting of shareholders.
(c) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement; and
(d) maintain with adequately capitalized insurance companies insurance
coverage for its tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
SECTION 6.3 Control of the Company's Operations. Nothing contained
in this Agreement shall give to Parent, directly or indirectly, rights to
control or direct the Company's operations prior to the Effective Time. Prior
to the Effective Time, the Company shall exercise, consistent with and subject
to the terms and conditions of this Agreement, complete control and supervision
of its operations.
SECTION 6.4 Control of Parent's or Subsidiary's Operations. Nothing
contained in this Agreement shall give to the Company, directly or indirectly,
rights to control or direct Parent's or
36
Subsidiary's operations prior to the Effective Time. Prior to the Effective
Time, Parent shall exercise, consistent with and subject to the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.5 Negotiations With Others.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, directly or indirectly,
take any of the following actions with any party other than Parent and its
designees: (i) solicit, initiate or participate in or encourage any
negotiations or discussions with respect to, any offer or proposal to acquire
all or substantially all of the Company's business and properties or capital
stock whether by merger, purchase of assets, tender offer or otherwise, (ii)
disclose any information not customarily disclosed to any person concerning the
Company's business and properties or afford to any person or entity access to
its properties, books or records, (iii) assist or cooperate with any proposal
for a transaction of the type referred to in clause (i) or (iv) disclose the
terms or conditions of this Agreement or the Letter of Intent dated May 25, 1999
between the Company and Parent. In the event the Company shall receive any
offer or proposal, directly or indirectly, of the type referred to in clause (i)
or (iii) above, or any request for disclosure or access pursuant to clause (ii)
above, it shall promptly inform Parent as to any such offer or proposal and will
cooperate with Parent by furnishing copies of any such offer or proposal and any
information relating thereto Parent may reasonably request.
(b) Either party may refuse to close if in good faith it determines
that the transaction cannot be done as a pooling of interest transaction (a
"Permitted Termination"). If the transaction shall fail to close due to a party
----------------------
refusing to close after all of the conditions set forth in Article VIII have
been satisfied or waived by the party entitled to so waive and one of the
parties (for purposes of this paragraph Parent and Subsidiary shall constitute
one party) advises the other that it is ready, willing and able to effect the
Merger and the other party fails to effect the Merger for any reason other than
a Permitted Termination, then (x) if Parent refused to execute this Agreement or
close, Parent agrees to promptly pay to the Company $3,000,000 and in addition
make a loan promptly to the Company in a principal amount which, together with
the principal amount of all other loans by Parent to the Company then
outstanding, equals $3,000,000 and (y) if the Company refused to execute this
Agreement or close, the Company shall grant most favored nation status as to
both price and priority for sales of the Company's products to C-COR for a
period of one year from the date hereof, the Company shall promptly pay to
Parent $3,000,000 and the Company shall pay an additional $3,000,000 to Parent
in the event the Company directly or indirectly merges or sells substantially
all of its stock (including by supporting a tender offer for its shares) or
assets or agrees to do any of the foregoing prior to January 2001. Debt issued
to Parent pursuant to the foregoing sentence shall accrue interest at the prime
rate, shall be convertible into Company Common Stock immediately prior to a
change in control of the Company and shall mature on the earlier of a change in
control of the Company or January 2001.
(c) The Company and Parent each (i) acknowledge that a breach of any
of its covenants contained in Section 6.5 will result in irreparable harm to the
other party which will not be compensable in money damages, and (ii) agree that
such covenant shall be specifically enforceable and that
37
specific performance and injunctive relief shall be a remedy properly available
to the other party for a breach of such covenant.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information.
(a) The Company and its subsidiaries shall afford to Parent and
Subsidiary and their respective accountants, counsel, financial advisors and
other representatives (the "Parent Representatives") and Parent and its
----------------------
subsidiaries shall afford to the Company and its accountants, counsel, financial
advisors and other representatives (the "Company Representatives") full access
-----------------------
during normal business hours throughout the period after the date hereof and
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, shall furnish promptly to one another (i) a copy of
each report, schedule and other document filed or received by any of them
pursuant to the requirements of federal or state securities laws or filed by any
of them with the SEC or which may have a material effect on their respective
businesses, properties or personnel, and (ii) such other information concerning
their respective businesses, operations, properties, assets, condition
(financial or other) results of operations and personnel as Parent or Subsidiary
or the Company, as the case may be, shall reasonably request; provided that no
investigation pursuant to this Section 7.1 shall amend or modify any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummate the Merger. Parent and its subsidiaries
shall hold and shall use their reasonable best efforts to cause the Parent
Representatives to hold, and the Company and its subsidiaries shall hold and
shall use their reasonable best efforts to cause the Company Representatives to
hold, in strict confidence all non-public documents and information furnished to
Parent and Subsidiary or to the Company, as the case may be, in connection with
the transactions contemplated by this Agreement in accordance with the terms of
the Confidentiality and Exclusive Dealing Agreement dated May 3, 1999 between
Company and Parent, which is incorporated herein by reference and made a part
hereof (the "Confidentiality Agreement").
-------------------------
(b) In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly redeliver or destroy, as applicable, to the
other all non-public written material provided in connection with the
transactions contemplated herein in accordance with the terms of the
Confidentiality Agreement.
(c) The Company shall promptly advise Parent and Parent shall
promptly advise the Company in writing of any change or the occurrence of any
event after the date of this Agreement having, or which, insofar as can
reasonably be foreseen, in the future may have, a Company Material Adverse
Effect or a Parent Material Adverse Effect, as the case may be.
38
SECTION 7.2 Shareholders' Approvals.
The Company shall, as promptly as practicable, submit this Agreement
and the transactions contemplated hereby for the approval of its shareholders
(i) at a meeting of shareholders, or (ii) by written consent of shareholders,
and, subject to the fiduciary duties of the board of directors of the Company
under applicable law, shall use its reasonable best efforts to obtain the
Company shareholders' approval as practicable following the date hereof. The
Company shall, through its board of directors, but subject to the fiduciary
duties of the members thereof, recommend to its shareholders approval of the
transactions contemplated by this Agreement. The Company (i) acknowledges that
a breach of the Company's covenants contained in this Section 7.2 to convene a
meeting of its shareholders and call for a vote thereat or to submit a written
consent to shareholders with respect to the approval of this Agreement and the
Merger will result in irreparable harm to Parent which will not be compensable
in money damages, and (ii) agrees that such covenants shall be specifically
enforceable and that specific performance and injunctive relief shall be a
remedy properly available to Parent for a breach of such covenants.
SECTION 7.3 ASR 135 Agreement. The Company has advised the persons
identified on Schedule 7.3 of the resale restrictions imposed by applicable
------------
securities laws, including Accounting Series Release ▇▇. ▇▇▇ ("▇▇▇ ▇▇▇") and
-------
obtained from such persons a written agreement dated the date hereof and
substantially in the form of Exhibit 7.3 (each an "ASR 135 Agreement"). The
----------- -----------------
Company shall use its best efforts to obtain as soon as practicable, but prior
to Closing, any other person who may be deemed to have become an affiliate of
the Company after the date of this Agreement, a written ASR 135 Agreement.
SECTION 7.4 Expenses and Fees. Each party hereto agrees to bear its
own expenses, including reasonable and customary fees and expenses payable to
attorneys, accountants and investment bankers in connection with the
transactions contemplated hereby.
SECTION 7.5 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided and, subject
to the fiduciary duties of the board of directors of any party under applicable
law, each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable pursuant to all agreements, contracts, indentures
or other instruments to which the parties hereto are a party, or under any
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using its reasonable
efforts to (i) obtain all necessary or appropriate waivers, consents and
approvals from lenders, landlords, security holders or other parties whose
waiver, consent or approval is required to consummate the Merger, (ii) effect
all necessary registrations, filings and submissions, and (iii) lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
the Merger as expeditiously as possible).
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, Parent shall have
the right, at its own expense, to participate
39
therein, and the Company will not settle any such litigation without the consent
of Parent, which consent will not be unreasonably withheld.
SECTION 7.6 Public Statements. Unless required by law, the parties
(i) shall consult with each other prior to issuing any press release or any
written public statement with respect to this Agreement or the transactions
contemplated hereby, and (ii) shall not issue any such press release or written
public statement prior to such consultation.
SECTION 7.7 Notification of Certain Matters. Each of the Company,
Parent and Subsidiary agrees to give prompt notice to each other of, and to use
their respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material failure on its part 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 7.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 7.8 Directors' and Officers' Indemnification. Parent and
Subsidiary agree that the articles of incorporation and bylaws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are currently set forth in Article VI of the Articles of
Incorporation, as amended, of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of two years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at the Effective Time were directors or officers of the
Company unless such modification shall be required by law.
SECTION 7.9 Mandatory Registration. Within 45 days following the
Effective Time, Parent shall prepare and file with the SEC a registration
statement and such other documents, including a prospectus, as may be necessary
in order to comply with the provisions of the Securities Act so as to permit a
resale of the shares of Parent Common Stock issued to Company Shareholders
pursuant to this Agreement and the shares of Parent Common Stock underlying the
Company Warrants and the Company Options by the holders thereof ("Holders") for
-------
a consecutive period of two years or until the distribution described in the
registration statement has been completed, whichever is shorter, and Parent
shall use its reasonable best efforts to have such registration statement
declared effective by the SEC as soon as practicable after filing, provided
that, for not more than 30 consecutive trading days (or not more than 60
consecutive trading days if the event giving rise thereto is an acquisition
required to be reported in a Current Report on Form 8-K) or for a total of not
more than 90 trading days in any 12 month period, Parent may delay the
disclosure of material non-public information concerning Parent (as well as
prospectus or registration statement updating) the disclosure of which at the
time is not, in the good faith opinion of Parent, in the best interests of
Parent (an "Allowed Delay"); provided, further, that Parent shall promptly (i)
-------------
notify the Holders in writing of the existence of (but in no event, without the
prior written consent of the Holders, shall Parent disclose to Holders any of
the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Holders, in writing to cease all
sales under such
40
registration statement until the end of the Allowed Delay. Parent shall use its
reasonable best efforts to cause the registration statement to become effective
at the earliest possible time after filing with the SEC.
SECTION 7.10 Parent Common Stock.
(a) Each certificate representing Parent Common Stock received by a
Company Shareholder, holder of a Company Warrant or holder of a Company Option
pursuant to the Private Placement will be imprinted with a legend substantially
in the following form:
The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended (the "Securities Act"). The securities have been
acquired for investment and may not be sold, transferred
or assigned in the absence of an effective registration
statement for the securities under the Securities Act, or
an opinion of counsel, in form, substance and scope
reasonably acceptable to the Company, that registration
is not required under the Securities Act.
This certificate and the shares represented hereby
have been issued pursuant to a transaction governed by
Rule 145 ("Rule 145") promulgated under the Securities
Act, and may not be sold or otherwise disposed of unless
registered under the Securities Act pursuant to a
Registration Statement in effect at the time or unless
the proposed sale or disposition can be made in
compliance with Rule 145 or without registration in
reliance on another exemption therefrom.
(b) Each certificate representing Parent Common Stock received by a
Company Shareholder, holder of a Company Warrant or holder of a Company Option
pursuant to the Regulation S Offering will be imprinted with a legend
substantially in the following form:
The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended (the "Securities Act"). The securities have been
acquired for investment and may not be sold, transferred
or assigned in the absence of an effective registration
statement for the securities under the Securities Act, or
an opinion of counsel, in form, substance and scope
reasonably acceptable to the Company, that such sale,
transfer or assignment is in compliance with Regulation S
promulgated under the Securities Act or that registration
is not required under the Securities Act. Hedging
transactions involving these securities may not be
conducted unless such hedging transaction complies with
the Securities Act.
41
This certificate and the shares represented hereby
have been issued pursuant to a transaction governed by
Rule 145 ("Rule 145") promulgated under the Securities
Act, and may not be sold or otherwise disposed of unless
registered under the Securities Act pursuant to a
Registration Statement in effect at the time or unless
the proposed sale or disposition can be made in
compliance with Rule 145 or without registration in
reliance on another exemption therefrom.
(c) In addition to the legends set forth in paragraphs (a) and (b) of this
Section 7.10, each certificate representing shares of Parent Common Stock issued
to the persons listed on Schedule 7.3 shall have the following legend:
------------
The transfer of such shares is subject to certain restrictions set forth in
a letter agreement dated as of (insert date of ASR 135 Agreement) by and between
the issuer of such shares and the holder of this certificate. The issuer of such
shares will furnish a copy of these provisions to the holder hereof without
charge upon written request.
SECTION 7.11 Acquisition of Common Stock. Prior to the Closing or the
earlier termination of this Agreement pursuant to the terms hereof, the
Principal Shareholders, the Company and its subsidiaries and their affiliates
have not purchased and will not purchase or otherwise acquire directly or
indirectly any Parent Common Stock other than as provided in this Agreement.
SECTION 7.12 Exhibits and Schedules. The Company has made available
to Parent on or prior to the Closing Date, copies of all items set forth on
Exhibits or Schedules to this Agreement and any and all other consents,
documents or agreements to be delivered hereunder which have not previously been
delivered to Parent on the date hereof, which items and any such other consents,
documents or agreements shall be in form and substance reasonably satisfactory
to Parent and the Company. In addition, prior to the Closing the Company and
Parent may update the Schedules as necessary, subject to Parent's or the
Company's respective approval of any material updates of the Schedules.
SECTION 7.13 Transition. The Company shall not take any action that
is designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of the Company and its
subsidiaries from maintaining the same business relationships with the Company
and its subsidiaries after the Closing as it maintained with the Company and its
subsidiaries prior to the Closing unless such action is taken in accordance with
prudent business practices.
SECTION 7.14 Company Warrants. At the Effective Time, the Company and
Parent shall take such action as may be necessary to cause each Company Warrant,
whether currently exercisable or exercisable only after the date hereof, to be
automatically converted at the Effective Time into a Parent Warrant as provided
in Section 3.2. At the Effective Time, all references in the Company Warrants to
the Company shall be deemed to refer to Parent. At the Effective Time, Parent
shall assume all of the Company's obligations with respect to the Company
Warrants and Parent shall (i) reserve for issuance the number of shares of
Parent Common Stock that will become issuable upon the exercise of the Company
42
Warrants and (ii) at the Effective Time, issue to each holder of a Company
Warrant a document evidencing Parent's assumption of the Company's obligations
under Company Warrants as set forth in Section 3.2.
SECTION 7.15 Company Options. At the Effective Time, the Company and
Parent shall take such action as may be necessary to cause each Company Option,
whether currently exercisable or exercisable only after the date hereof, to be
automatically converted at the Effective Time into a Parent Option as provided
in Section 3.2. At the Effective Time, all references in the stock option
agreements to the Company shall be deemed to refer to Parent. At the Effective
Time, Parent shall assume all of the Company's obligations with respect to
Company Options as so amended and Parent shall (i) reserve for issuance the
number of shares of Parent Common Stock that will become issuable upon the
exercise of the Parent Options and (ii) at the Effective Time, issue to each
holder of a Company Option a document evidencing Parent's assumption of the
Company's obligations under the Company Options as set forth in Section 3.2.
SECTION 7.16 Confidentiality and Noncompetition Agreements. Prior to
Closing, each of ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇▇ ▇▇ shall have entered into a
confidentiality and noncompetition agreement with Parent (each a
"Confidentiality and Noncompetition Agreement"), substantially in the form of
--------------------------------------------
Exhibit 7.16.
------------
SECTION 7.17 Compliance with Securities Law. The Parent Common Stock
to be issued in the Merger shall be issued in material compliance with the
Securities Act. Parent shall also take any action required to be taken under
any applicable state securities or "blue sky" laws in connection with the
issuance of the Parent Common Stock pursuant to this agreement.
ARTICLE VII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the shareholders of the
Company (with the number of shareholders of the Company invoking dissenters'
rights limited to that which would permit the merger to proceed, in light of
such dissenters, and continue to qualify as both a pooling-of-interests
transaction under APB 16 and as a tax deferred reorganization under Section 368
of the Code) under applicable law;
(b) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger shall
have been issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction, order or decree lifted);
43
(c) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal;
(d) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Effective Time;
(e) all required consents and approvals of third parties to material
contracts with the Parent or the Company shall have been obtained and be in
effect at the Effective Time; provided, however, that the failure to obtain such
consents or approvals shall not be due to the default or delay of the party
responsible for obtaining such consents and approvals;
(f) KPMG LLP, as public accountants for Parent and Subsidiary, shall
have delivered a letter, dated the Closing Date, addressed to Parent stating
that, in their opinion, the Merger qualifies as a pooling-of-interests
transaction under APB 16;
(g) KPMG LLP, as public accountants for the Company, shall have
delivered a letter, dated the Closing Date, addressed to the Company stating
that, in their opinion, the Merger qualifies as a pooling-of-interests
transaction under APB 16;
(h) the Company, the Parent, the Representative and the Escrow Agent
shall have executed the Escrow Agreement; and
(i) Warburg ▇▇▇▇▇▇ ▇▇▇▇ LLC shall issue a letter or opinion
indicating that loans made by Parent to the Company constitute debt issued on
commercially reasonable terms.
SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of Parent
and Subsidiary contained in this Agreement shall be true and correct in all
material respects on and as of the date made and (except to the extent such
representation speaks as of an earlier date) on and as of the Closing Date as if
made at and as of such date, and the Company shall have received a certificate
of the Chief Executive Officer, the President or a Vice President of Parent and
of the Chief Executive Officer, the President or a Vice President of Subsidiary,
in form and substance reasonably satisfactory to the Company, to that effect;
(b) the Company shall have received an opinion from ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, special counsel to Parent and Subsidiary, dated the
Closing Date, reasonably satisfactory to the Company setting forth the matters
set forth in Exhibit 8.2(b);
--------------
44
(c) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute a Parent Material Adverse Effect;
(d) no governmental authority shall have promulgated any statute, rule
or regulation which, when taken together with all such promulgations, would
materially impair the value to the Company of the Merger; and
(e) Parent and Subsidiary shall have signed a certificate in
substantially the form attached hereto as Exhibit 8.2(e) concerning certain
--------------
factual matters relating to the qualification of the Merger as a tax deferred
reorganization under the provisions of Section 368 of the Code.
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary to
Effect the Merger. Unless waived by Parent and Subsidiary, the obligations of
Parent and Subsidiary to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on and as
of the date made and on and (except to the extent such representation speaks as
of an earlier date) as of the Closing Date as if made at and as of such date,
and Parent shall have received a Certificate of the Chief Executive Officer,
President or a Vice President of the Company in form and substance reasonably
satisfactory to Parent, to that effect;
(b) Parent shall have received an opinion from Fenwick & West LLP,
special counsel to the Company, effective as of the Closing Date, reasonably
satisfactory to Parent setting forth the matters set forth in Exhibit 8.3(b);
--------------
(c) there shall have been no changes that constitute, and no event or
events shall have occurred which have resulted in or constitute a Company
Material Adverse Effect;
(d) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to Parent of the Merger;
(e) the ASR 135 Agreements described in Section 7.3 and the
Confidentiality and Noncompetition Agreements described in Section 7.16 shall
have been executed by the appropriate parties and delivered to Parent;
(f) all of the Series A Preferred Stock and Series B Preferred Stock,
as set forth on Schedule 5.2(a), shall have been converted to Company Common
----------------
Stock in a manner consistent with APB
45
16 requirements for treatment as a pooling of interests and except for the
Company Common Stock, the Company Options and the Company Warrants, as set forth
on Schedule 5.2(b), there shall be no shares of preferred stock or other capital
---------------
stock or rights to acquire capital stock of the Company issued or outstanding or
owned by the Company or any of its subsidiaries;
(g) Parent shall have received the written resignations, effective as
of Closing, of each director and officer of the Company and its subsidiaries
listed on Schedule 8.3(g) at least five days prior to Closing;
----------------
(h) each of the Company Shareholders, except for ▇▇▇▇ ▇▇▇▇ (▇▇▇▇▇)
Zhang, receiving shares of Parent Common Stock pursuant to the Private Placement
shall have executed an investor questionnaire and representation agreement in
substantially the form set forth as Exhibit 8.3(i) with such changes as are
--------------
mutually acceptable to the parties (the "Shareholder Questionnaire and
-----------------------------
Agreement") and the information provided to Parent in connection with such
---------
documents shall indicate, in the opinion of counsel to Parent, that the issuance
of Parent Common Stock to the Company Shareholders pursuant to this Agreement
without registration will comply with state and federal securities laws;
(i) each of the Company Shareholders receiving shares of Parent Common
Stock pursuant to the Regulation S Offering shall have executed the Shareholder
Questionnaire and Agreement in substantially the form set forth as Exhibit
-------
8.3(i) and the information provided to Parent in connection with such documents
------
shall indicate, in the opinion of counsel to Parent, that the issuance of Parent
Common Stock to the Company Shareholders pursuant to this Agreement without
registration will comply with state and federal securities laws;
(j) each person who becomes a holder of Company Common Stock (each, a
"Subsequent Holder") after the date of this Agreement, but prior to the
-----------------
Effective Time, shall have executed the Shareholder Questionnaire and Agreement
in substantially the form set forth as Exhibit 8.3(i) and the information
--------------
provided to Parent in connection with such documents shall indicate, in the
opinion of counsel to Parent, that the issuance of Parent Common Stock to the
Company Shareholders and each and all of such Subsequent Holders pursuant to
this Agreement without registration will comply with state and federal
securities laws;
(k) the Company shall have executed a release or settlement agreement
satisfactory to Parent with each of (i) ▇▇ ▇▇▇▇▇▇▇ and (ii) Harmonic, Inc.;
(l) each holder of a Company Warrant shall have executed a written
consent to the conversion of all of the Company Warrants held by such holder
into warrants to acquire Parent Common Stock in accordance with the terms of
Section 3.2;
(m) ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and Guy Sucharczuk each shall have executed
a release satisfactory to Parent with respect to the 1:1 stock option conversion
ratio in their respective employee agreement; and
46
(n) Company shall have signed a certificate in substantially the form
attached hereto as Exhibit 8.3(m) concerning certain factual matters relating to
--------------
the qualification of the Merger as a tax deferred reorganization under the
provisions of Section 368 of the Code.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination. This Agreement may be terminated by the
mutual consent of the parties or at any time prior to the Closing Date, as
follows:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by November 30, 1999 other
than on account of delay or default on the part of the Company;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or
any of its five percent shareholders or any of their affiliates or
associates;
(iii) if the Parent (A) fails to perform any of its covenants in
this Agreement, and (B) does not cure such default within 30 days
after written notice of such default is given to Parent by the
Company;
(iv) if Parent shall have breached any covenant hereunder, or
failed to perform any of its obligations hereunder, or any
representation or warranty of Parent shall be untrue, such that, in
any such case any of the conditions set forth in Section 8.2 could not
be satisfied on or before November 30, 1999.
(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by November 30, 1999 other
than on account of delay or default on the part of Parent;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of Parent or
Subsidiary or any of its five percent shareholders or any of their
affiliates or associates;
(iii) if the Company (A) fails to perform any of its covenants in
this Agreement, and (B) does not cure such default within 30 days
after written notice of such default is given to the Company by
Parent;
47
(iv) if the Company shall have breached any covenant
hereunder, or failed to perform any of its obligations hereunder, or
any representation or warranty of Company shall be untrue, such that,
in any such case any of the conditions set forth in Section 8.3 could
not be satisfied on or before November 30, 1999.
SECTION 9.2 Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company as provided in 9.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Parent, Subsidiary or their respective officers or
directors (except those obligations set forth in Section 6.5, Section 7.1,
Section 7.4, this Section 9.2, Article X or Article XI, all of which shall
survive the termination). Nothing in this Section 9.2 shall relieve any party
from liability for any breach of this Agreement.
SECTION 9.3 Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto, and (c) waive compliance with any of the
agreements or conditions contained herein. Any such waiver shall not be deemed
to be continuing or to apply to any future obligation or requirement of any
party hereto provided herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
REMEDIES FOR BREACHES
SECTION 10.1 Survival of Representations and Warranties. All of the
representations, warranties and covenants of the Company contained in this
Agreement shall survive the Closing even if the damaged party knew or had reason
to know of any misrepresentation or breach of warranty, representation or
covenant at the time and continue in full force and effect for a period of 12
months thereafter in accordance with the terms of the Escrow Agreement (the
"Survival Period") provided that Parent's exclusive remedy for any
---------------
misrepresentation or breach of warranty, representation or covenant by the
Company after the Closing shall be to pursue Parent's remedies under the Escrow
Agreement. Except for claims by the Parent against the Escrow Securities in
accordance with the Escrow Agreement, no Company Shareholder will have any
liability to Parent under this Agreement.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or overnight courier, or
sent via facsimile to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
48
(a) If to Parent or Subsidiary to:
▇-▇▇▇.▇▇▇ Corp.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
(b) If to the Company, to:
Silicon Valley Communications, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Fenwick & West LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
SECTION 11.2 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and (ii) reference to any Article or
Section means such Article or Section hereof. The parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" shall mean including
49
without limitation. The parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty, or covenant.
SECTION 11.3 Entire Agreement; Miscellaneous. This Agreement and the
Confidentiality Agreement and any other written agreements between the parties
dated the date hereof supersede any and all other agreements, either oral or in
writing, between the parties hereto with respect to the subject matter and
contain all the covenants and agreements between the parties with respect to the
subject matter of this Agreement in any manner whatsoever. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not included herein, and that no other
agreement, statement or promise not contained in this Agreement or referred to
herein shall be valid or binding. This Agreement constitutes the entire
Agreement between the parties with respect to the subject matter hereof and
shall bind and inure to the benefit of the parties and their respective
successors, assigns, heirs and personal representatives, subject to the
restriction on assignment contained herein.
SECTION 11.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF
THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO CONTRACTS EXECUTED AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
SECTION 11.5 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement. Each of the parties agrees
to accept and be bound by facsimile signatures hereto.
SECTION 11.6 Parties In Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 11.7 Exhibits and Schedules. All Exhibits and Schedules
referred to in this Agreement shall be attached hereto and are incorporated
herein by reference.
SECTION 11.8 Amendment of Agreement. No amendments or variations of
the terms or conditions of this Agreement shall be valid unless made in writing
signed by all parties hereto.
SECTION 11.9 Severability. If any term, provision, condition or
covenant of this Agreement or the application thereof to any party or
circumstances shall be held to be invalid or unenforceable to any extent in any
jurisdiction, then the remainder of this Agreement and the application
50
of such term, provision, condition or covenant in any other jurisdiction or to
persons or circumstances other than those as to whom or which it is held to be
invalid or unenforceable, shall not be affected thereby, and each term,
provision, condition and covenant of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
SECTION 11.10 Assignment. The parties hereto may not assign any of
their rights or obligations hereunder without obtaining the prior written
consent of the other parties hereto, which consent shall not be unreasonably
withheld, provided that in the case of any assignment or transfer under the
terms of this Section 11.10, this Agreement shall be binding upon and inure to
the benefit of the successor, and the successor shall discharge and perform all
of the obligations of Parent under this Agreement and such assignment or
transfer shall not act as a release of the obligation of Parent hereunder.
SECTION 11.11 Gender and Number. All references to the neuter gender
shall include the feminine or masculine gender and vice versa, where applicable,
and all references to the singular shall include the plural and vice versa,
where applicable.
SECTION 11.12 No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person or entity other than the parties
and their respective successors and permitted assigns.
51
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused
this Agreement to be signed by their respective officers as of the date first
written above.
▇-▇▇▇.▇▇▇ CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & CEO
▇-▇▇▇.▇▇▇ ACQUISITION CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & CEO
SILICON VALLEY COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇ ▇▇▇-▇▇ ▇▇▇▇
----------------------------------------
Name: ▇▇▇▇ ▇▇▇-▇▇ ▇▇▇▇
Title: Chairperson & SEO
52