EXHIBIT 2.5
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered into as of September 22, 1999 by and among IAT Resources Corporation, a
Delaware corporation (the "PARENT"), Infolocity Merger Sub, Inc., a Delaware
corporation ("MERGER SUB"), Infolocity, Inc., a California corporation (the
"COMPANY"), ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., an individual ("▇▇▇▇▇"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, an individual ("▇▇▇▇▇▇▇" and, together with ▇▇▇▇▇, the "PRINCIPAL
SHAREHOLDERS").
RECITALS
A. The Boards of Directors of the Parent, Merger Sub and the Company
have determined that the merger of Merger Sub with and into the Company on the
terms set forth herein, with the Company surviving as a wholly-owned subsidiary
of the Parent, is advisable and in the best interests of their respective
corporations and stockholders and have approved this Agreement.
B. The parties hereto desire to adopt a plan of reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "CODE").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and conditions contained herein, the parties to this Agreement
hereby agree as follows:
1. DEFINITIONS; INTERPRETATION.
1.1 CERTAIN DEFINITIONS. As used in this Agreement, terms defined in
the preamble and recitals hereto shall have the respective meanings specified
therein and the following terms shall have the following meanings:
1.1.1 "ACTION" means any litigation, action, suit, proceeding,
arbitration or claim before any court or Governmental Authority, or any
investigation by any Governmental Authority.
1.1.2 "AFFILIATE" shall mean, with respect to any specified
Person, (i) any other Person who, directly or indirectly, owns or controls,
is under common ownership or control with, or is owned or controlled by, such
specified Person, (ii) any other Person who is a director, officer, manager,
member, partner or trustee of the specified Person or a Person described in
clause (i) of this definition or any spouse or non-adult child (including by
adoption) of the specified Person or any such other Person, (iii) any
relative (other than a spouse or non-adult child (including by adoption)) of
the specified Person or any other Person described in clause (ii) of this
definition who has the same principal address as such person, (iv) any trust
of which the specified Person and/or any one or more of the Persons specified
in clause (i), (ii) or (iii) of this definition has a beneficial interest, or
(v) any Person of which the specified Person and/or any one or more of the
Persons specified in clause (i),(ii) or (iii) of this definition,
individually or in the aggregate, beneficially own
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10% or more of any class of voting securities or otherwise have a substantial
beneficial interest. For purposes of this definition, "control" shall have
the meaning for such term set forth in Rule 405 under the Securities Act.
1.1.3 "ANNUAL FINANCIAL STATEMENTS" shall mean the audited
consolidated balance sheet of the Company as at June 30, 1999 and the related
audited consolidated statements of operations, changes in shareholders'
equity and cash flows for the six months then ended, including, without
limitation, the notes and schedules to such financial statements.
1.1.4 "BEST EFFORTS" shall mean the efforts that a prudent
Person desirous of achieving a result would use in similar circumstances to
ensure that the result is achieved as expeditiously as practicable under the
circumstances; PROVIDED, HOWEVER, that an obligation to use Best Efforts
under this Agreement does not require the Person subject to that obligation
to (i) take actions that would result in a material adverse change in the
benefits to such Person under this Agreement or the transactions contemplated
by this Agreement, (ii) make any significant cash payments or (iii) incur any
significant liability or obligation.
1.1.5 "BEST KNOWLEDGE" (i) with respect to the Company shall
mean the actual knowledge of each of the Principal Shareholders and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, and (ii) with respect to the Parent shall mean the actual knowledge
of each of ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
1.1.6 "BRIDGE LOAN PROMISSORY NOTE" shall mean the Bridge Loan
Promissory Note of the Company made to the Parent as holder dated August 26,
1999, which provides for loans by the Parent to the Company in the aggregate
amount of $2,000,000 on the terms and subject to the conditions contained
therein.
1.1.7 "BUSINESS CONDITION" of any Person shall mean the
business, properties, assets, revenues, operations, financial condition,
results of operations, or prospects of such Person.
1.1.8 "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in Los
Angeles, California are authorized or obligated by Law or executive order to
close.
1.1.9 "▇▇▇▇▇ EMPLOYMENT AGREEMENT" shall mean that certain
employment agreement between the Company and ▇▇▇▇▇ in the form of EXHIBIT
1.1.9 attached hereto.
1.1.10 "CGCL" shall mean the General Corporation Law of the
State of California.
1.1.11 "CHARTER DOCUMENTS" shall mean with respect to any
Person, the Articles or Certificate of Incorporation, By-Laws, Articles of
Organization, Operating Agreement or other organizational documents, as
applicable, of such Person.
1.1.12 "CLOSING VALUE OF THE PARENT COMMON STOCK" shall mean the
average per share closing sale price of the Parent Common Stock on the Nasdaq
SmallCap Market for the ten consecutive trading days immediately prior to the
Business Day prior to the Closing Date.
1.1.13 "COMMISSION" shall mean the Securities and Exchange
Commission.
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1.1.14 "COMPANY COMMON STOCK" shall mean the common stock, no
par value per share, of the Company.
1.1.15 "COMPANY SERIES A PREFERRED STOCK" shall mean the Series
A Preferred Stock, no par value per share, of the Company.
1.1.16 "COMPANY STOCK" shall mean the Company Common Stock and
the Company Series A Preferred Stock.
1.1.17 "CONDITIONAL GUARANTY" shall mean the Conditional
Guaranty dated as of August , 1999 by the Principal Shareholders to the
Parent.
1.1.18 "CONTRACT" shall mean any written or oral note, bond,
debenture, mortgage, license, agreement, commitment, contract or
understanding.
1.1.19 "DGCL" shall mean the General Corporation Law of the
State of Delaware.
1.1.20 "EQUITY SECURITIES" shall mean (i) with respect to any
Person that is a corporation, the capital stock and/or any Stock Equivalents
of such Person, and (ii) with respect to any Person that is not a
corporation, any and all partnership, limited liability company or other
equity interests and/or any Stock Equivalents of such Person.
1.1.21 "EMPLOYEE PLANS" with respect to any Person shall mean
any plan, arrangement or Contract providing compensation or benefits to, for
or on behalf of employees and/or directors of such Person, including, without
limitation, employment, deferred compensation, retirement or severance
Contracts; plans pursuant to which Equity Securities are issued, including,
without limitation, stock purchase, stock option and stock appreciation
rights plans; bonus, thrift, pension, savings, insurance, profit sharing,
severance, loan guaranty, employee loan or incentive compensation plans or
arrangements; and unemployment benefit, hospitalization or other medical,
life, dental, vision, health care or other insurance plans and policies.
1.1.22 "EXPLOIT" shall mean manufacture, advertise, license,
market, merchandise, promote, publicize, sell, use, supply or distribute, and
"EXPLOITATION" and "EXPLOITED" shall have correlative meanings.
1.1.23 "GAAP" shall mean generally accepted accounting
principles, consistently applied.
1.1.24 "▇▇▇▇▇▇▇▇ EMPLOYMENT AGREEMENT" shall mean that certain
employment agreement between the Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the form of
EXHIBIT 1.1.24 attached hereto.
1.1.25 "GOVERNMENTAL AUTHORITY" shall mean any nation or
government, any state or other political subdivision thereof, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
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1.1.26 "▇▇▇▇▇▇▇ EMPLOYMENT AGREEMENT" shall mean that certain
employment agreement between the Company and ▇▇▇▇▇▇▇ in the form of
EXHIBIT 1.1.26 attached hereto.
1.1.27 "MERGER SHARES" shall mean 7,250,000 shares of Parent
Common Stock, subject to adjustment as provided in SECTION 2.10.
1.1.28 "LAW" shall mean any federal, state or local statute,
law, rule, regulation, ordinance, order, code, policy or rule of common law,
now or hereafter in effect, and in each case as amended, and any judicial or
administrative interpretation thereof by a Governmental Authority, including,
without limitation, any judicial or administrative order, consent, decree or
judgment; PROVIDED that for purposes of SECTION 4.15 and 4.17, "Laws" shall
be limited to federal and California Laws.
1.1.29 "LIEN" shall mean any liens, options, security interests,
pledges or other encumbrances, proxies, voting trusts, voting agreements,
judgments, charges, escrows, rights of first refusal or first offer,
indentures, claims or transfer restrictions, whether arising by Contract or
operation of law.
1.1.30 "NON-DISCLOSURE AGREEMENTS" shall mean those certain
non-disclosure agreements entered into by the employees of the Company and
the Parent, each in the form of EXHIBIT 1.1.30 attached hereto.
1.1.31 "ORDER" shall mean any Law, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or
permanent).
1.1.32 "OUTSTANDING COMPANY SHARES" shall mean the sum of the
total number of shares of Company Common Stock and the total number of shares
of Company Series A Preferred Stock issued and outstanding immediately prior
to the Closing.
1.1.33 "PARENT COMMON STOCK" shall mean the common stock, par
value $0.001 per share, of the Parent.
1.1.34 "PARENT SEC REPORTS" shall mean each form, report,
schedule, registration statement and definitive proxy statement filed by the
Parent with the Commission since January 1, 1998.
1.1.35 "PERSON" shall mean an individual or a partnership,
corporation, trust, association, limited liability company, Governmental
Authority or other entity.
1.1.36 "PROXY STATEMENT" shall mean the proxy statement to be
filed by the Parent with the Commission in connection with the Parent
Stockholders Meeting.
1.1.37 "PARENT STOCKHOLDERS MEETING" mean the Parent's special
meeting of stockholders to be held after the mailing of the definitive Proxy
Statement in accordance with SECTION 7.5.2, at which meeting, among other
things, the Parent will seek the Parent Stockholders Approval.
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1.1.38 "PARENT STOCKHOLDERS APPROVAL" shall mean the approval by
the stockholders of the Parent, in accordance with the DGCL and the rules of
the Nasdaq Stock Market, of all matters which are required to be approved by
the Parent's stockholders in connection with the issuance of the Merger
Shares in the Merger and the other transactions contemplated hereby.
1.1.39 "SOFTWARE" shall mean the Company's Maximillian software.
1.1.40 "STOCK EQUIVALENTS" of any Person shall mean options,
warrants, calls, rights, commitments, convertible securities and other
securities or interests pursuant to which the holder, directly or indirectly,
has the right to acquire (with or without additional consideration) capital
stock, partnership interests, membership interests or other equity interests
of such Person.
1.1.41 "SUBSIDIARY" of any Person shall mean any entity of which
securities or other ownership interests having ordinary voting power to elect
a majority of the board of directors or other persons performing similar
functions are owned directly or indirectly by such Person.
1.1.42 "TAX" shall mean any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including taxes
under Code section 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including, without limitation, any interest, penalty, or addition
thereto, whether disputed or not.
1.1.43 "TAX LIABILITIES" shall mean all Liabilities related to
Taxes.
1.1.44 "TAX RETURN" shall mean any return, declaration, report,
claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
1.1.45 "TRANSACTION CONTRACTS" shall mean this Agreement, the
Bridge Loan Promissory Note, the ▇▇▇▇▇ Employment Agreement, the ▇▇▇▇▇▇▇▇
Employment Agreement, the ▇▇▇▇▇▇▇ Employment Agreement, the Conditional
Guaranty, the Non-Competition Agreements, the Non-Disclosure Agreements, the
Rule 145 Affiliate Letters and each other Contract or instrument executed and
delivered by any party hereto in connection with the transactions
contemplated by this Agreement.
1.1.46 "TRANSACTION EXPENSES" of a party hereto shall mean all
costs and expenses incurred by or on behalf of such party in connection with,
arising out of or relating to this Agreement and the transactions
contemplated hereby, including, without limitation, all legal fees and costs,
all broker, finder, investment banker, appraiser and similar fees and costs,
and all costs and expenses of other experts and advisors.
1.1.47 "TRANSFER" shall mean sell, assign, transfer, pledge,
grant a security interest in, or otherwise dispose of, with or without
consideration, and "TRANSFERRED" shall have a correlative meaning.
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1.2 OTHER DEFINITIONS. The following terms shall have the meanings
given the terms in the Sections set forth below:
TERM SECTION
---- -------
"Acquisition Proposal" 7.4
"Affiliate Letter" 7.7
"California Secretary of State" 2.2
"Certificate" 2.5.4
"Certificate of Merger" 2.2
"Claim" 11.5
"Claim Notice" 11.5
"Closing" 3
"Common Merger Consideration" 2.5.2
"Company Disclosure Schedule" 4
"Company Financial Schedule" 4.6
"Company Indemnified Party" 11.4
"Damages" 11.2
"Delaware Secretary of State" 2.2
"Direct Claim" 11.5
"Effective Time" 2.2
"Executive Committee" 10.2.3
"Indemnified Party" 11.5
"Indemnifying Party" 11.5
"Investor Letter" 7.11
"Letter of Transmittal" 2.6.1
"Liabilities" 4.7
"Listed Securities" 6.15
"Lock-Up Agreements" 8.9
"Material Contracts" 4.11.2
"Merger" 2.1
"Merger Consideration" 2.5.2
"Merger Share Transfer Agreement" 7.12
"Non-Competition Agreements" 8.7
"Parent Disclosure Schedule" 6
"Notices" 14.1
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TERM SECTION
---- -------
"Parent Financial Statements" 6.9
"Parent Indemnified Party" 11.2
"Permits" 4.16
"Rule 145 Affiliates" 7.7
"Surviving Corporation" 2.1
"Third Party Claim" 11.5
1.3 CONSTRUCTION OF CERTAIN TERMS AND PHRASES. Unless the context
otherwise requires, (a) words of any gender include each other gender; (b)
words using the singular or plural number also include the plural or singular
number, respectively; (c) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (d) the term
"Section" refers to the specified Section of this Agreement; (e) the terms
"and" and "or" include the term "and/or" when the context is appropriate; and
(f) the phrase "ordinary course of business" refers to the business and
practice of the Person specified. Whenever this Agreement refers to a number
of days, such number shall refer to calendar days unless Business Days are
specified. All accounting terms used herein and not expressly defined herein
shall have the meanings given to them under GAAP. Whenever this Agreement
refers to an Exhibit or Schedule attached hereto, the Exhibit or Schedule
shall be deemed to be incorporated by reference herein.
2. THE MERGER.
2.1 THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time and in accordance with the DGCL and
the CGCL, Merger Sub shall be merged with and into the Company in accordance
with this Agreement (the "MERGER") and the separate existence of Merger Sub
shall cease. The Company shall be the surviving corporation in the Merger
(hereinafter sometimes referred to as the "SURVIVING Corporation").
2.2 FILINGS; EFFECTIVE TIME OF THE MERGER. On the Closing Date, Merger
Sub and the Company shall cause the Merger to be consummated by executing,
delivering and filing a certificate of merger with the Secretary of State of
the State of Delaware (the "DELAWARE SECRETARY OF STATE") in accordance with
Section 252 of the DGCL and an agreement of merger with the Secretary of
State of the State of California (the "CALIFORNIA SECRETARY OF STATE") in
accordance with Section 1108 of the CGCL. The parties shall on the Closing
Date file such other documents with the Delaware Secretary of State and the
California Secretary of State as may be required by the provisions of the
DGCL and the CGCL and as are necessary to cause the Merger to become
effective. The Merger shall become effective when the certificate of merger,
the agreement of merger and such other necessary documents are so filed with
the Delaware Secretary of State and the California Secretary of State, as
applicable, or at such other time thereafter as provided in the certificate
of merger and the agreement of merger. The time at which the Merger becomes
effective is herein referred to as the "EFFECTIVE TIME."
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the DGCL and the CGCL. Without limiting the generality of the foregoing,
and subject thereto, at the Effective
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Time, all of the properties, rights, privileges, powers and franchises of the
Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
2.4 THE SURVIVING CORPORATION.
2.4.1 ARTICLES OF INCORPORATION. At the Effective Time, the
Articles of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation.
2.4.2 BYLAWS. At the Effective Time, the Bylaws of the Company,
as in effect immediately prior to the Effective Time, shall be the Bylaws of
the Surviving Corporation.
2.4.3 DIRECTORS AND OFFICERS. At and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance
with applicable Law or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws, Cerna, Holtorf, two individuals to be designated by the Parent not
later than two Business Days prior to the Effective Time, and one individual
to be mutually designated by the Parent, ▇▇▇▇▇ and ▇▇▇▇▇▇▇ not later than two
Business Days prior to the Effective Time shall be the directors of the
Surviving Corporation. At and after the Effective Time, until successors are
duly elected or appointed and qualified in accordance with applicable Law or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws, the officers
of the Company in office immediately prior to the Effective Time shall be the
officers of the Surviving Corporation.
2.5 CONVERSION OF CAPITAL STOCK OF THE MERGER SUB AND THE COMPANY.
2.5.1 At the Effective Time, each issued and outstanding share
of common stock, par value $0.001 per share, of Merger Sub shall be converted
into and become one fully paid and nonassessable share of common stock, par
value $0.001 per share, of the Surviving Corporation.
2.5.2 At the Effective Time, each issued and outstanding share
of Company Common Stock and each issued and outstanding share of Company
Series A Preferred Stock shall be converted into the right to receive that
number of validly issued, fully paid and non-assessable shares of Parent
Common Stock (including any fractional share, subject to SECTION 2.5.3) as is
equal to the Merger Shares divided by the Outstanding Company Shares (the
"MERGER CONSIDERATION").
2.5.3 No fractional shares of Parent Common Stock will be issued
in the Merger, but in lieu thereof, any holder of Company Stock who would
otherwise be issued a fractional share of Parent Common Stock after
aggregating all of the shares of the Parent Common Stock otherwise issuable
to such holder of Company Stock in the Merger, shall be paid cash equal to
the value of such fractional share, based on a per share value of the Parent
Common Stock of $2.05.
2.5.4 As a result of the Merger and without any action on the
part of the holders thereof, at the Effective Time, all shares of Company
Common Stock and Company Series A Preferred Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease
to exist, and each holder of shares of Company Common Stock and Company
Series A Preferred Stock shall thereafter cease to have any rights with
respect to such shares of Company
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Common Stock and Company Series A Preferred Stock, except the right to
receive, without interest, the Common Merger Consideration or the Preferred
Merger Consideration, as applicable, and cash for fractional shares of Parent
Common Stock in accordance with SECTION 2.5.3 upon the surrender of a
certificate that, immediately prior to the Effective Time, represented an
outstanding share or shares of Company Common Stock or Company Series A
Preferred Stock (in each such case, a "CERTIFICATE").
2.5.5 Notwithstanding anything contained in this SECTION 2.5 to
the contrary, each share of Company Stock issued and held in the Company's
treasury immediately prior to the Effective Time, and each share of Company
Stock owned by the Parent or Merger Sub immediately prior to the Effective
Time, shall, by virtue of the Merger, cease to be outstanding and shall be
cancelled and retired and shall cease to exist without payment of any
consideration therefor.
2.6 DELIVERY OF CONSIDERATION.
2.6.1 As soon as reasonably practicable after the Effective
Time, the Parent shall mail to each holder of record of Company Stock
immediately prior to the Effective Time (i) a letter of transmittal (a
"LETTER OF TRANSMITTAL") (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Parent and shall be in such form and
have such other customary provisions as the Parent may reasonably specify),
and (ii) instructions for use in effecting the surrender of the Certificates
in exchange for the Merger Consideration with respect to the shares of
Company Stock formerly represented thereby.
2.6.2 Upon surrender of a Certificate for cancellation to the
Parent or to any agent or agents as may be appointed by the Parent, together
with a Letter of Transmittal, duly completed and executed, and such other
documents as the Parent or any such agent may reasonably request, the holder
of such Certificate shall be entitled to receive in exchange therefor, (i) a
certificate representing the number of Merger Shares which such holder has
the right to receive pursuant to the provisions of this SECTION 2, and (ii) a
check of the Parent in an amount equal to the cash, if any, which such holder
has the right to receive pursuant to SECTION 2.5.3 (in each case, less the
amount of any required withholding taxes), and the Certificate so surrendered
shall forthwith be cancelled. Until surrendered as contemplated by this
SECTION 2.6.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive the Merger
Consideration with respect to the shares of Company Stock formerly
represented thereby.
2.7 TERMINATION OF COMPANY STOCK EQUIVALENTS. All Stock Equivalents of
the Company outstanding immediately prior to the Closing shall be terminated
in accordance with their terms and shall be of no further force or effect as
of the Closing Date.
2.8 CLOSING OF TRANSFER BOOKS. At and after the Effective Time,
transfers of the shares of Company Stock outstanding immediately prior to the
Effective Time shall not be made on the stock transfer books of the Company.
2.9 LOST CERTIFICATES. Notwithstanding the provisions of SECTION 2.6,
in the event any Certificate representing Company Stock has been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and an agreement to
indemnify the Parent against any claim that may be made against it with
respect to
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such Certificate, the Parent will issue in exchange for such lost, stolen or
destroyed Certificate the Merger Consideration into which such Company Stock
would have been converted and any fractional payment due in connection
therewith pursuant to SECTION 2.5.3.
2.10 ADJUSTMENTS TO MERGER SHARES.
2.10.1 If the Closing Value of the Parent Common Stock is less
than $1.75 per share, then, and in such event, that number of shares of
Parent Common Stock (rounded up to the nearest whole share) as is equal to
the amount determined by (i) subtracting the Closing Value of the Parent
Common Stock from $1.93, (ii) multiplying the difference by 7,250,000, and
(iii) dividing the result by the Closing Value of the Parent Common Stock
shall be added to the Merger Shares.
2.10.2 If the Parent purchases any shares of the Company Series A
Preferred Stock pursuant to SECTION 7.13, that number of shares of Parent
Common Stock (rounded up to the nearest whole share) as is equal to the
amount determined by dividing the total cash amount paid by the Parent in
purchasing such shares of Company Series A Preferred Stock by $1.93 shall be
subtracted from the Merger Shares.
3. CLOSING. The Closing of the Merger (the "CLOSING") shall, unless
another date or place is agreed to in writing by the parties, take place at
the offices of Troop ▇▇▇▇▇▇▇ Pasich Reddick & ▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ on October 31, 1999 or such
later date as is the fifth Business Day after the satisfaction or waiver of
all conditions precedent to the Merger. The date and time of the Closing is
referred to in this Agreement as the "CLOSING DATE."
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS. Except as set forth in the disclosure schedule delivered by the
Company to the Parent concurrently with the execution and delivery of this
Agreement, which schedule shall refer to the relevant Sections of this
Agreement (the "COMPANY DISCLOSURE SCHEDULE"), the Company and the Principal
Shareholders, jointly and severally, represent and warrant to the Parent and
Merger Sub as follows (the representations and warranties contained in this
SECTION 4 being the only representations and warranties of the Company
contained in this Agreement):
4.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and corporate
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted. True and correct copies of the Charter
Documents of the Company have been delivered to the Parent.
4.2 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
4.2.1 The Company has full corporate power and corporate
authority to enter into, execute and deliver each Transaction Contract to
which it is a party and perform its obligations thereunder. Subject to the
approval of the Company's shareholders, each Transaction Contract to which
the Company is a party has been duly authorized by all necessary corporate
action of the Company. This Agreement has been, and at the Closing each other
Transaction Contract to which the Company is a party will be, duly executed
and delivered by the Company. Assuming each
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Transaction Contract to which the Parent or Merger Sub is a party is duly
executed and delivered by Parent and Merger Sub, respectively, this Agreement
constitutes and, at the Closing, each other Transaction Contract to which the
Company is a party will constitute, a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally, or the availability of equitable remedies.
4.2.2 The execution and delivery by the Company of each
Transaction Contract to which it is a party do not, and compliance by the
Company with the provisions of each such Transaction Contract will not, (A)
conflict with or result in a breach or default under the Charter Documents of
the Company or any of the terms, conditions or provisions of any Contract to
which the Company is a party or otherwise bound, or to which any property or
asset of the Company is subject; (B) violate any Law applicable to the
Company; or (C) result in the creation or imposition of any Lien on any asset
of the Company.
4.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 4,000,000 shares of
Company Series A Preferred Stock. The Company Disclosure Schedule lists the
name and the place of residence of each of the holders of the Company's
outstanding Equity Securities and the class, number and material terms of
such Equity Securities held by each such holder (including, without
limitation, all Stock Equivalents) and the consideration provided to the
Company by the holder for such securities. Other than as set forth in the
Company Disclosure Schedule, there are no issued or outstanding Equity
Securities of the Company or any subscription rights (including preemptive
rights), calls or Contracts obligating the Company now or at any time in the
future to issue Equity Securities. All of the outstanding shares of Company
Stock have been duly authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive rights or
any Federal or state securities laws.
4.4 SUBSIDIARIES. The Company does not have any direct or indirect
Subsidiaries and does not own of record or beneficially any Equity Securities
of any Person.
4.5 NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings or registrations with, any
Person that are required to be obtained or made by the Company in connection
with the execution of, and the consummation of the transactions contemplated
under, this Agreement, other than the approval of the Company's shareholders
of this Agreement and the transactions contemplated hereby and the filings
with the Delaware Secretary of State and the California Secretary of State
set forth in SECTION 2.2.
4.6 FINANCIAL SCHEDULE. SECTION 4.6 of the Company Disclosure Schedule
(the "COMPANY FINANCIAL SCHEDULE") accurately sets forth the accounts
receivable and the liabilities of the Company as of August 31, 1999.
4.7 LIABILITIES. The Company does not have any obligations or
liabilities (direct or indirect, matured or unmatured, absolute, accrued,
contingent or otherwise) whether or not required by GAAP to be reflected or
reserved against on a balance sheet ("LIABILITIES") other than (a)
Liabilities set forth on the Company Financial Schedule, or (b) Liabilities
incurred in the ordinary
11
course of business consistent with past practice since August 31, 1999. None
of the Liabilities described above relates to or has arisen out of a breach
of Contract, breach of warranty, tort or infringement by or against the
Company or any claim or Action involving the Company.
4.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since June 30, 1999, the
Company has conducted its business only in the ordinary course of business
consistent with past practice and there has not been any:
4.8.1 material adverse change in the Business Condition of the
Company;
4.8.2 purchase, redemption, retirement or other acquisition by
the Company of any Equity Securities of the Company;
4.8.3 declaration or payment of any dividend or other
distribution by the Company on any of its Equity Securities;
4.8.4 increase by the Company in the compensation payable or to
become payable by the Company to any director, officer or employee of the
Company in excess of $5,000 individually or $15,000 in the aggregate;
4.8.5 payments or distributions to employees, officers or
directors of the Company except such amounts as constitute currently
effective compensation for services rendered, or reimbursement for
reasonable, ordinary and necessary out-of-pocket business expenses;
4.8.6 hiring or termination of any employee who has an annual
salary in excess of $40,000;
4.8.7 discharge of any Liability except in the usual and
ordinary course of business in accordance with past practices, or prepayment
of any Liability or Liabilities which, in the aggregate, exceed $50,000;
4.8.8 Transfer or lease of any assets to, or entry into any
Contract with, any shareholder of the Company or any officer or director of
the Company (other than payment of salaries to officers in the ordinary
course of business and consistent with past practice) or any of their
respective Affiliates;
4.8.9 revaluation of any assets of the Company, including,
without limitation, any write off of any material asset as unusable or
obsolete or for any other reason;
4.8.10 change in accounting methods, principles and practices
employed by the Company;
4.8.11 material change in the conduct or nature of any aspect of
the business of the Company;
4.8.12 casualty, damage, destruction or loss, or interruption of
use of any assets or property (whether covered by insurance or not) in excess
of $50,000 individually or in the
12
aggregate or which otherwise has had a material adverse effect on the
Business Condition of the Company;
4.8.13 Transfer or lease of any assets, except for Transfers of
cash applied in the payment of the Company's Liabilities in the ordinary
course of business consistent with past practice;
4.8.14 research and development or capital expenditures by the
Company in an amount which exceeds $50,000 in the aggregate;
4.8.15 borrowing of money other than in the ordinary course of
business consistent with past practice or issuance or sale of any bonds,
debentures, notes or other corporate securities of any class, including
without limitation, those evidencing borrowed money, or prepayment or
acceleration of any payments under any of the foregoing, or otherwise making
of any payments in respect thereof other than in accordance with regularly
scheduled payments;
4.8.16 cancellation, without full payment, of any note, loan or
other obligation owing to the Company;
4.8.17 any amendment or termination of any Contract which would be
a Material Contract if such Contract were in effect as of the date of this
Agreement, other than in the ordinary course of business consistent with past
practice;
4.8.18 issuance or sale of any Equity Securities of the Company; or
4.8.19 without limitation by the enumeration of the foregoing,
entry into any Contract with respect to any of the foregoing or entry into
any material transactions other than in the ordinary course of business
consistent with past practice.
4.9 TITLE TO PROPERTIES; ABSENCE OF ENCUMBRANCES.
4.9.1 The Company Disclosure Schedule contains a correct and
complete list of the real properties leased or occupied by the Company as of
the date hereof. The Company owns no real properties.
4.9.2 The Company enjoys peaceful and undisturbed possession to
the real property covered by all of the leases under which it is operating.
All of such leases are valid, subsisting and in full force and effect, and
the Company is not in breach or default of any such lease.
4.9.3 All material items of tangible personal property owned or
leased by the Company in the ordinary course of its business are in good
operating condition, ordinary wear and tear excepted.
4.9.4 The Company has good and marketable title to or a valid
right to use all its properties and assets, free and clear of any and all
Liens.
4.10 ACCOUNTS RECEIVABLE. The Company Financial Schedule sets
forth a true and complete schedule and description of the accounts receivable
of the Company as of August 31,
13
1999, including, without limitation, the names and addresses of the account
debtors, the balance amount and aging as of the date indicated therein. The
accounts receivable, whether reflected on the Company Financial Schedule or
subsequently created, and all books, records and documents relating to such
accounts receivable, are genuine and accurate. All accounts receivable of the
Company, whether reflected on the Company Financial Schedule or subsequently
created: (A) constitute bona fide and valid rights of the Company to collect
payments from other Persons; (B) represent credit extended in a manner
consistent with the Company's trade practices; (C) are not subject to any
defense, counterclaim or offset; and (D) except for reserves for bad debts
set forth in the Company Financial Schedule, are fully collectable within 60
days of the respective dates on which such accounts receivable were billed.
The Company has not sold, assigned, subjected to Liens or otherwise disposed
of any of its accounts receivables.
4.11 MATERIAL CONTRACTS.
4.11.1 The Company Disclosure Schedule identifies each written
Material Contract and summarizes the material terms of each Material Contract
that is not in writing. True and correct copies of each Material Contract,
including, without limitation, all amendments and modifications thereof and
waivers thereunder, have been delivered to the Parent or its counsel. Each
Material Contract is in full force and effect, and is the valid and binding
obligation of each party thereto. The Company has performed all of its
obligations required to be performed by it to date under each Material
Contract, and the Company is not in breach of or default under any Material
Contract, and no event has occurred or circumstance exists which, with notice
or lapse of time or both, would constitute a breach of or default by the
Company under any Material Contract. To the Best Knowledge of the Company,
each party to each Material Contract other than the Company has performed all
of the obligations required to be performed by such party to date under the
Material Contract and is not in breach of or in default under the Material
Contract, and no event has occurred or circumstance exists which, with notice
or lapse of time or both, would constitute a breach of or default by such
party under the Material Contract.
4.11.2 For purposes of this Agreement, "MATERIAL CONTRACTS" shall
mean the following Contracts to which the Company is a party or otherwise
bound:
4.11.2.1 each Contract pursuant to which the Company provides
services to any customer of the Company;
4.11.2.2 employment, management, consulting and other Contracts
with any current or former officer, director, employee or consultant or with
any entity in which any of the foregoing is an owner, officer, director,
employee or consultant;
4.11.2.3 Contracts for the purchase or sale of any materials,
products, services or supplies (i) calling (individually or together with any
related Contracts) for a purchase price or payment by the Company in any one
year of more than $50,000 or (ii) which are not one-time purchase orders and
cannot be canceled or terminated by the Company without liability, premium or
penalty on one month's or less notice;
4.11.2.4 leases, conditional sales Contracts, licenses and other
agreements under which the Company uses any tangible personal property
(including, without limitation, all
14
computer and peripheral and other related equipment and devices) to which any
Company security holder or officer or director of the Company or their
respective Affiliates is a party or with respect to which there are remaining
payment obligations which exceed $50,000 in the aggregate;
4.11.2.5 each Contract (1) under which the benefits cannot be
retained upon the consummation of the transactions contemplated by this
Agreement without the written consent or approval of other Person(s), (2)
under which there will be a default as a result of the consummation of the
transactions contemplated by this Agreement unless any Person(s) provide
written consent or approval or (3) which would require the making of any
payment, other than payments as contemplated by this Agreement, to any
employee of the Company or to any other Person as a result of the
consummation of the transactions contemplated herein;
4.11.2.6 Contracts with customers or suppliers for the sharing of
fees, the rebating of charges or other similar arrangements;
4.11.2.7 Contracts relating to either (i) the acquisition by the
Company of any operating business or substantially all of the assets of a
third party or (ii) the purchase or Transfer of any tangible or intangible
assets of the Company other than in the ordinary and usual course of business;
4.11.2.8 Contracts containing covenants or restrictions limiting
in any way the freedom of the Company to compete in any line of business or
with any Person in any geographical area or for any period of time;
4.11.2.9 Contracts requiring the payment to any Person of an
override or similar commission or royalty or fee;
4.11.2.10 guarantees, performance bid or completion bonds, or
other Contracts of suretyship or indemnification;
4.11.2.11 trade secret, confidentiality or similar Contracts;
4.11.2.12 joint venture, operating, shareholder and partnership
Contracts;
4.11.2.13 loan agreements, notes, security agreements, mortgages,
debentures, indentures, factoring agreements or letters of credit;
4.11.2.14 sales representative, distribution, franchise,
advertising and similar Contracts;
4.11.2.15 license Contracts;
4.11.2.16 each Contract providing the Company the right to use or
Exploit the intellectual property of any Person; and
4.11.2.17 service Contracts affecting the Company's assets where
the service charge is in excess of $50,000 in the aggregate or is not
terminable on 30 days or less notice with a payment of no more than $5,000.
15
4.12 SOFTWARE. The Company owns the Software free and clear of any
claims of ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇. The Software is accurately
described in Attachment B and the files containing the complete source code
to the Software are listed in Attachment C to the Assignment of Rights to
Software executed by ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ on April 10, 1999. To
the Best Knowledge of the Company, the Company's Exploitation of the Software
does not infringe upon the rights of any Person.
4.13 ACTIONS. There is no Action pending or, to the Best Knowledge of
the Company, threatened, in law or in equity, against the Company or any of
its officers or directors with respect to or affecting the Business Condition
of the Company or related to the consummation of the transactions
contemplated hereby. To the Best Knowledge of the Company, there are no facts
which, if known by a potential claimant or Governmental Authority, would be
reasonably likely to give rise to a Claim which, if asserted or conducted
with results unfavorable to the Company, would have a material adverse effect
on the Business Condition of the Company or on the consummation of the
transactions contemplated hereby. The Company is not a party to, or bound by,
any decree, order or arbitration award (or Contract entered into in any
administrative, judicial or arbitration proceeding with any Governmental
Authority) with respect to or affecting its Business Condition.
4.14 BROKERS. The Company has not retained or otherwise engaged or
employed any broker, finder or any other Person, or paid or agreed to pay any
fee or commission to any agent, broker, finder or other Person, for or on
account of acting as a finder or broker in connection with this Agreement or
the transactions contemplated hereby.
4.15 COMPLIANCE WITH APPLICABLE LAW. To the Best Knowledge of the
Company, the Company has complied and is in compliance with all applicable
Laws. No investigation by any Governmental Authority of any alleged violation
or noncompliance with any Law is pending or, to the Best Knowledge of the
Company, threatened.
4.16 PERMITS. The Company Disclosure Schedule lists all federal, state,
local and foreign governmental franchises, licenses, approvals,
authorizations and permits ("PERMITS") issued by any Governmental Authority
to the Company. To the Best Knowledge of the Company, each of such Permits is
in full force and effect. The Company has all Permits and other rights that
are required in order to conduct its business as presently conducted. No
violation of any of such Permits has occurred and no Action is pending or, to
the Best Knowledge of the Company, threatened to revoke or restrict any of
such Permits.
4.17 EMPLOYEES. With respect to employees of the Company:
4.17.1 To the Best Knowledge of the Company, the Company is and
has been in compliance with all applicable Laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
including, without limitation, any such Laws respecting employment
discrimination, sexual harassment, occupational safety and health,
immigration status, and unfair labor practices. There are no pending or, to
the Best Knowledge of the Company, threatened unfair labor practice charges
or employee grievance charges.
16
4.17.2 There is no request for union representation, labor
strike, dispute, slowdown or stoppage pending or, to the Best Knowledge of
the Company, threatened against or directly affecting the Company.
4.17.3 At the Closing Date, the Company shall have no Liabilities
to any of its past or current employees or any Persons who have provided
consulting, advisory or similar services to the Company, other than
liabilities reflected, reserved against or otherwise disclosed in the Company
Financial Schedule.
4.17.4 No grievance or arbitration proceeding arising out of or
under collective bargaining agreements to which the Company is a party or
otherwise bound is pending and no claims therefor exist before any
Governmental Authority.
4.17.5 The employment of each employee of the Company is
terminable at will without cost to the Company except for payment of accrued
salaries or wages and vacation pay.
4.17.6 There is no collective bargaining agreement or other
Contract that is binding on the Company with respect to collective bargaining
with any union or group of employees.
4.17.7 The Company has not experienced any work stoppage.
4.17.8 The Company Disclosure Schedule contains a true and
complete list of all employees who were employed by the Company as of
September 13, 1999, and such list correctly reflects their salaries, wages,
other compensation, dates of employment and positions. To the Best Knowledge
of the Company, no employee of the Company presently intends to terminate his
or her employment with the Company.
4.18 EMPLOYEE BENEFITS. The Company Disclosure Schedule sets forth a
list of all Employee Plans of the Company. All Employee Plans of any kind or
nature maintained by or on behalf of the Company comply with and are and have
been operated in material compliance with all applicable Laws. None of such
plans are subject to regulation under the Employment Retirement Income
Security Act of 1974, as amended.
4.19 TAX MATTERS.
4.19.1 The Company has filed all Tax Returns that it has been
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any Tax
Return) have been paid. No claim has ever been made by a Governmental
Authority in a jurisdiction where the Company does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no Liens
on any of the assets of the Company that arose in connection with any failure
(or alleged failure) to pay any Tax.
4.19.2 The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other Person.
17
4.19.3 To the Best Knowledge of the Company, no Governmental
Authority is expected to assess any additional Taxes for any period for which
Tax Returns have been filed. There is no pending or, to the Best Knowledge of
the Company, threatened dispute or claim of any Governmental Authority
relating to any Tax Liability of the Company.
4.19.4 The unpaid Taxes of the Company (A) did not, as of August
31, 1999, exceed the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth in the Company Financial Schedule and (B) do not exceed
that reserve as adjusted for the passage of time from August 31, 1999 through
the Closing Date in accordance with prudent business practice.
4.20 OTHER RELATIONSHIPS. None of the shareholders of the Company or
any of their respective Affiliates has any interest (other than as a
noncontrolling holder of securities of a publicly traded company), either
directly or indirectly, in any Person (whether as an employee, officer,
director, shareholder, partner, member, agent, independent contractor,
security holder, creditor, consultant, or otherwise) that presently (i)
provides any services or designs, produces and/or sells any products or
product lines, or engages in any activity which is the same, similar to or
competitive with any activity or business in which the Company is now
engaged; (ii) is a supplier of, customer of, creditor of, or has an existing
contractual relationship with the Company; or (iii) has any direct or
indirect interest in any asset or property used by the Company or any
property, real or personal, tangible or intangible, that is necessary or
desirable for the conduct of the business of the Company. No current or
former stockholder, director, officer or employee of the Company nor any
Affiliate of any such Person is at present or at any prior time has been,
directly or indirectly through his affiliation with any other Person, a party
to any transaction (other than as an employee) with the Company providing for
the furnishing of services by, or rental of real or personal property from,
or otherwise requiring cash payments to, any such Person.
4.21 CONFLICTS OF INTEREST. No shareholder of the Company nor any
officer, employee, agent or any other Person acting on behalf of the Company
or any shareholder of the Company has, directly or indirectly, given or
agreed to give or receive any money, gift or similar benefit (other than
legal price concessions to customers in the ordinary course of business) to
or from any customer, supplier, employee or agent of a customer or supplier,
or official or employee of any Governmental Authority or other Person who
was, is, or may be in a position to help or hinder the business of the
Company (or assist in connection with any actual or proposed transaction
therewith) which (i) might subject the Company to any Damages in any Action,
(ii) if not given in the past, might have had a material adverse effect on
the Business Condition of the Company or (iii) if not continued in the
future, might have a material adverse effect on the Business Condition of the
Company.
4.22 INSURANCE. The Company has in full force and effect insurance with
respect to its assets and businesses against such casualties and
contingencies and of such types and forms and to such extent as is customary
in the case of Persons engaged in its businesses and in its areas. The
Company Disclosure Letter contains a true and correct list of all insurance
policies maintained by the Company and a general description of such policies.
4.23 SEVERANCE PAYMENTS. The Company is not a party to any Contract and
has no policy providing for severance or termination payments to any officer,
director, consultant or employee.
18
4.24 MATERIAL MISSTATEMENTS AND OMISSIONS; PROXY STATEMENT. No
representations and warranties by the Company in this Agreement, or any
exhibit, schedule or certificate furnished by the Company to the Parent
pursuant to this Agreement, contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. The information supplied or to be supplied by
the Company for inclusion in the Parent Proxy Statement, including any
amendments and supplements thereto, will not, at the date mailed to the
Parent's stockholders or at the time of the Parent Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The information supplied or to be supplied by the
Company for inclusion in the Parent Proxy Statement, including any amendments
and supplements thereto, will not, at the date mailed to the Parent's
stockholders or at the time of the Parent Meeting or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
5. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SHAREHOLDERS. Each Principal Shareholder, severally and not jointly,
represents and warrants to the Parent and Merger Sub as follows (the
representations and warranties contained in SECTION 4 and this SECTION 5
being the only representations and warranties of the Principal Shareholders
contained in this Agreement):
5.1 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
5.1.1 Such Principal Shareholder has full power and authority to
enter into, execute and deliver each Transaction Contract to which he is a
party and perform his obligations thereunder. Each Transaction Contract to
which such Principal Shareholder is a party has been duly authorized by all
necessary action of such Principal Shareholder. This Agreement has been, and
at the Closing each other Transaction Contract to which such Principal
Shareholder is a party will be, duly executed and delivered by such Principal
Shareholder. Assuming each Transaction Contract to which the Parent or Merger
Sub is a party is duly executed and delivered by the Parent or Merger Sub,
this Agreement constitutes and, at the Closing, each other Transaction
Contract to which such Principal Shareholder is a party will constitute, a
valid and legally binding obligation of such Principal Shareholder,
enforceable against such Principal Shareholder in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws relating to or affecting
creditors' rights generally, or the availability of equitable remedies.
5.1.2 The execution and delivery by such Principal Shareholder
of each Transaction Contract to which such Principal Shareholder is a party
do not, and compliance by such Principal Shareholder with the provisions of
each such Transaction Contract will not, (A) conflict with or result in a
breach or default under any of the terms, conditions or provisions of any
Contract to which such Principal Shareholder is a party or otherwise bound,
or to which any property or asset of such Principal Shareholder is subject;
(B) violate any Law applicable to such Principal Shareholder; or (C) result
in the creation or imposition of any Lien on any asset of such Principal
Shareholder.
19
5.2 THE COMPANY STOCK. Such Principal Shareholder owns the shares of
Company Stock set forth opposite his name in the Company Disclosure Letter,
free and clear of all Liens. Such Principal Shareholder is not the beneficial
owner (as determined pursuant to Rule 13d-3 of the Exchange Act) of any
Company Stock except as set forth in SECTION 4.3 of the Company Disclosure
Schedule. Such Principal Shareholder has not Transferred any shares of
Company Stock.
5.3 BROKERS. Such Principal Shareholder has not retained or otherwise
engaged or employed any broker, finder or any other Person, or paid or agreed
to pay any fee or commission to any agent, broker, finder or other Person,
for or on account of acting as a finder or broker in connection with this
Agreement or the transactions contemplated hereby.
5.4 NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that are
required to be obtained or made by such Principal Shareholder in connection
with the execution of, and the consummation of the transactions contemplated
under, this Agreement.
5.5 ENTIRELY FOR OWN ACCOUNT. The Merger Shares to be received by such
Principal Shareholder pursuant to the Merger will be acquired for investment
for such Principal Shareholder's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and such
Principal Shareholder has no present intention of selling, granting any
participation in, or otherwise distributing the same. Such Principal
Shareholder has no Contract with any Person to sell, transfer or grant
participations to such Person or to any third Person with respect to any of
the Merger Shares that such Principal Shareholder will acquire pursuant to
the Merger.
5.6 DISCLOSURE OF INFORMATION. Such Principal Shareholder believes he
has received all the information he considers necessary or appropriate for
deciding whether to acquire the Merger Shares that he is acquiring pursuant
to this Agreement. Such Principal Shareholder has had an opportunity to ask
questions and receive answers from the Parent regarding the Merger Shares
that such Principal Shareholder is acquiring pursuant to the Merger and the
Business Condition of the Parent.
5.7 INVESTMENT EXPERIENCE. Such Principal Shareholder can bear the
economic risk of his investment in the Merger Shares that he is acquiring
pursuant to the Merger, and has such knowledge and experience in financial or
business matters that he is capable of evaluating the merits and risks of the
investment in the Merger Shares that he is acquiring pursuant to this
Agreement.
5.8 RESTRICTED SECURITIES. Such Principal Shareholder understands that
the Merger Shares that he is acquiring pursuant to this Agreement are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Parent in a transaction not
involving a public offering and that under such laws and applicable
regulations such Merger Shares may be resold without registration under the
Securities Act only in certain limited circumstances. Such Principal
Shareholder represents that he is familiar with Rule 144 under the Securities
Act, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.
6. REPRESENTATIONS AND WARRANTIES OF THE PARENT. Except as set forth in
the disclosure schedule delivered by the Parent to the Company and the
Principal Shareholders concurrently with
20
the execution and delivery of this Agreement, which schedule shall refer to
the relevant Sections of this Agreement (the "PARENT DISCLOSURE SCHEDULE"),
the Parent hereby represents and warrants to the Company and the Principal
Shareholders as follows (the representations and warranties contained in this
SECTION 6 being the only representations and warranties of the Parent and
Merger Sub contained in this Agreement):
6.1 ORGANIZATION, STANDING AND POWER. Each of the Parent and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted.
Each of the Parent and its Subsidiaries is duly qualified or licensed as a
foreign corporation and is in good standing in each jurisdiction where the
nature of its properties owned or held under lease or the nature of the
business conducted by it make such qualification necessary.
6.2 AUTHORITY; ENFORCEABILITY; EFFECT OF AGREEMENT.
6.2.1 Each of the Parent and Merger Sub has full corporate power
and corporate authority to enter into, execute and deliver each Transaction
Contract to which it is a party and perform its obligations thereunder.
Subject to the Parent Stockholders Approval, each Transaction Contract to
which the Parent or Merger Sub is a party has been duly authorized by all
necessary corporate action of the Parent or Merger Sub, respectively. This
Agreement has been, and at the Closing each other Transaction Contract to
which the Parent or Merger Sub is a party will be, duly executed and
delivered by the Parent or Merger Sub, respectively. Assuming each
Transaction Contract to which the Company or any Principal Shareholder is a
party is duly executed and delivered by the Company or such Principal
Shareholder to the extent they are parties thereto, this Agreement
constitutes and, at the Closing, each other Transaction Contract to which the
Parent or Merger Sub is a party will constitute, a valid and legally binding
obligation of the Parent or Merger Sub, respectively, enforceable against the
Parent and Merger Sub, respectively, in accordance with its terms, subject to
the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors' rights
generally, or the availability of equitable remedies.
6.2.2 The execution and delivery by each of the Parent and
Merger Sub of each Transaction Contract to which it is a party do not, and
compliance by each of the Parent and Merger Sub with the provisions of each
such Transaction Contract will not, (A) conflict with or result in a breach
or default under the Charter Documents of the Parent or Merger Sub or any of
the terms, conditions or provisions of any Contract to which the Parent or
Merger Sub is a party or otherwise bound, or to which any property or asset
of the Parent or Merger Sub is subject; (B) violate any Law applicable to the
Parent or Merger Sub; or (C) result in the creation or imposition of any Lien
on any asset of the Parent or Merger Sub.
6.3 CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Parent as of September 20, 1999 is set forth in SECTION 6.3 of
the Parent Disclosure Schedule. Other than as set forth in SECTION 6.3 of the
Parent Disclosure Schedule, as of September 20, 1999 there were no issued or
outstanding shares of the Equity Securities of the Parent or any subscription
rights (including preemptive rights), calls or Contracts obligating the
Parent now or at any time in the future to issue shares of its Equity
Securities. All of the outstanding shares of Parent Stock have
21
been duly authorized, validly issued, fully paid and non-assessable and not
issued in violation of any preemptive rights or any Federal or state
securities laws.
6.4 DIRECTORS. The Charter Documents of the Parent authorize a Board
of Directors of the Parent consisting of up to nine members and provide that
each Parent director is elected by the stockholders at each annual meeting of
the stockholders.
6.5 NO CONSENTS REQUIRED. There are no approvals, authorizations,
consents, orders or other actions of, or filings with, any Person that are
required to be obtained or made by either of the Parent or Merger Sub in
connection with the execution of, and the consummation of the transactions
contemplated under, this Agreement.
6.6 VALIDITY OF MERGER SHARES. Upon delivery of the certificates for
the Merger Shares pursuant to the terms of this Agreement, due
countersignature of the certificates by the Parent's transfer agent and
delivery to the Company Shareholders receiving Merger Shares pursuant to this
Agreement, the Merger Shares to be issued by the Parent represented thereby
will be duly authorized and validly issued, fully paid and nonassessable.
6.7 BROKERS. Other than ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (whose fee in connection with
the Merger will not exceed $280,000, payable in cash or shares of Parent
Common Stock at the Parent's election), neither the Parent nor Merger Sub has
retained or otherwise engaged or employed any broker, finder or any other
person for or on account of acting as a finder or broker in connection with
this Agreement or the transactions contemplated hereby for which either of
the Parent or Merger Sub could be responsible.
6.8 SEC REPORTS. As of their respective dates, each of the Parent SEC
Reports complied as to form in all material respects with the requirements
applicable thereto and 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. Except as disclosed in the Parent SEC
Reports, since March 31, 1999 there has not occurred any change or event
which has resulted in a material adverse effect on the Business Condition of
the Parent and its Subsidiaries taken as a whole.
6.9 FINANCIAL STATEMENTS. The books, accounts and records of the
Parent and its Subsidiaries are and have been maintained at all times in the
Parent's usual, regular and ordinary manner in accordance with GAAP,
consistently applied. The audited consolidated financial statements and
unaudited consolidated interim financial statements of the Parent included in
the Parent SEC Reports (collectively, the "PARENT FINANCIAL STATEMENTS"),
including any appended notes which are an integral part of such statements,
have been prepared in conformity with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly in all material
respects the consolidated financial position of the Parent as at their
respective dates and the consolidated results of operations and cash flows of
the Parent for the periods covered thereby, subject in the case of the
unaudited interim financial statements to normal recurring year-end
adjustments.
6.10 LIABILITIES. The Parent and its Subsidiaries do not have any
liabilities other than (a) Liabilities provided for or reserved against in
the Parent Financial Statements, (b) Liabilities
22
disclosed in the Parent SEC Reports, or (c) Liabilities incurred in the
ordinary course of business consistent with past practice since March 31,
1999. None of the Liabilities described above relates to or has arisen out of
a breach of Contract, breach of warranty, tort or infringement by or against
the Company or any claim or Action involving the Company.
6.11 ACTIONS. There is no Action pending or, to the Best Knowledge of
the Parent, threatened, in law or in equity, against the Parent, any of its
Subsidiaries or any of their respective officers or directors with respect to
or affecting the Business Condition of the Parent or its Subsidiaries or
related to the consummation of the transactions contemplated hereby. To the
Best Knowledge of the Parent, there are no facts which, if known by a
potential claimant or Governmental Authority, would be reasonably likely to
give rise to a Claim which, if asserted or conducted with results unfavorable
to the Parent or its Subsidiaries, would have a material adverse effect on
the Business Condition of the Parent or its Subsidiaries, taken as a whole,
or on the consummation of the transactions contemplated hereby. None of the
Parent and its Subsidiaries is a party to, or bound by, any decree, order or
arbitration award (or Contract entered into in any administrative, judicial
or arbitration proceeding with any Governmental Authority) with respect to or
affecting its Business Condition.
6.12 COMPLIANCE WITH APPLICABLE LAW. To the Best Knowledge of the
Parent, the Parent and each of its Subsidiaries has complied and is in
compliance with all applicable Laws. No investigation by any Governmental
Authority of any alleged violation or noncompliance with any Law is pending
or, to the Best Knowledge of the Parent, threatened against the Parent or any
of its Subsidiaries.
6.13 PERMITS. To the Best Knowledge of the Parent, each Permit issued
by any Governmental Authority to the Parent or any of its Subsidiaries is in
full force and effect. The Parent and its Subsidiaries have all Permits and
other rights that are required in order to conduct their business as
presently conducted. No violation of any of such Permits has occurred and no
Action is pending or, to the Best Knowledge of the Parent, threatened to
revoke or restrict any of such Permits.
6.14 TAX MATTERS.
6.14.1 The Parent and its Subsidiaries have filed all Tax Returns
that each of them has been required to file. All such Tax Returns were
correct and complete in all respects. All Taxes owed by the Parent and its
Subsidiaries (whether or not shown on any Tax Return) have been paid. No
claim has ever been made by a Governmental Authority in a jurisdiction where
the Parent or its Subsidiaries do not file Tax Returns that any of them is or
may be subject to taxation by that jurisdiction. There are no Liens on any of
the assets of the Parent or any of its Subsidiaries that arose in connection
with any failure (or alleged failure) to pay any Tax.
6.14.2 Each of the Parent and its Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other Person.
6.14.3 To the Best Knowledge of the Parent, no Governmental
Authority is expected to assess any additional Taxes for any period for which
Tax Returns have been filed.
23
There is no pending or, to the Best Knowledge of the Parent, threatened
dispute or claim of any Governmental Authority relating to any Tax Liability
of the Parent or any of its Subsidiaries.
6.14.4 The unpaid Taxes of the Parent and its Subsidiaries (A)
did not, as of the most recent fiscal month end, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth in the Parent
Financial Statements (rather than in any notes thereto) and (B) do not exceed
that reserve as adjusted for the passage of time from March 31, 1999 through
the Closing Date in accordance with the past custom and practice of the
Parent in filing its Tax Returns.
6.15 LISTING ON THE NASDAQ SMALLCAP MARKET. The Parent Common Stock,
the Parent's Series A Convertible Preferred Stock and the Parent's Warrants
exercisable for an aggregate of 5,100,000 shares of Parent Common Stock
(collectively, the "LISTED SECURITIES") are listed for trading on the Nasdaq
SmallCap Market. To the Best Knowledge of the Parent, there are no pending or
threatened proceedings by the Nasdaq Stock Market with respect to the
delisting of the Listed Securities from the Nasdaq SmallCap Market.
6.16 MATERIAL MISSTATEMENTS AND OMISSIONS. No representations and
warranties by the Parent or Merger Sub in this Agreement, or any exhibit,
schedule or certificate furnished by the Parent or Merger Sub to the Company
pursuant to this Agreement, contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.
7. COVENANTS PRIOR TO THE CLOSING DATE.
7.1 CONDUCT OF BUSINESS BY THE COMPANY. Prior to the Closing, except
as contemplated by this Agreement or with the prior written consent of the
Parent, the Company agrees, and the Principal Shareholders agree to cause the
Company:
7.1.1 to conduct its operations according to its ordinary and
usual course of business;
7.1.2 not to Transfer any assets, other than asset Transfers
according to its ordinary and usual course of business;
7.1.3 not to propose, adopt or authorize any amendment to the
Charter Documents of the Company except as provided for in this Agreement
(including, without limitation, the expansion of the Company's Board of
Directors to five members to allow for the composition of the Company's Board
of Directors at the Effective Time as provided in SECTION 2.4.3);
7.1.4 to promptly notify the Parent of any material change in
the Company's business, properties, assets or liabilities or in the operation
of its properties and of any governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated) or
the breach in any material respect of any representation or warranty of the
Company contained herein;
7.1.5 not to adopt, or amend to increase compensation or
benefits payable
24
under, any Benefit Plan, Contract or arrangement for the benefit of employees;
7.1.6 not to (A) except pursuant to the exercise of Stock
Equivalents of the Company existing on the date hereof and disclosed in this
Agreement, authorize, issue, sell, pledge, encumber or agree to authorize,
issue, sell, pledge or encumber any Equity Securities of the Company, (B)
effect any stock split, combination, recapitalization or otherwise change its
capitalization as it existed on the date hereof, (C) grant, confer or award
any Stock Equivalents, or alter any terms of or accelerate the vesting or
exercise date of any outstanding Stock Equivalents, (D) redeem or otherwise
acquire any of its outstanding Equity Securities or make any commitment to
take such action, or (E) declare, set aside or pay any dividend or
distribution payable in cash, Equity Securities or other property with
respect to the Company's Equity Securities;
7.1.7 not to enter into any Material Contract;
7.1.8 not to amend, modify or terminate, or grant any waiver of
any right under, any Material Contract, and not to make any payment under any
Material Contract which is not required to be made strictly in accordance
with the terms of the Material Contract;
7.1.9 to comply with all of its obligations and duties under any
Material Contract and not to create or permit to exist any default or event
of default on behalf of the Company under any Material Contract, or any event
or circumstance which, with lapse of time or notice, or both, would
constitute a default under a Material Contract;
7.1.10 not to commence or settle any Action;
7.1.11 to use its Best Efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees and maintain satisfactory relationships with those Persons having
business relationships with the Company;
7.1.12 to duly comply in all material aspects with all applicable
Laws;
7.1.13 not to (A) acquire any assets, other than in the ordinary
course of business consistent with past practice, (B) dispose of or encumber
any assets other than in the ordinary course of business consistent with past
practice or relinquish, forfeit or waive any right under any Contract, Permit
or other instrument that is material to its business or operations as
presently conducted or proposed to be conducted, (C) incur any indebtedness
for borrowed money, or assume, guarantee or otherwise as an accommodation
become responsible for, the obligations of any other Person, (D) acquire any
Equity Securities of any Person, or (E) enter into any other transaction
other than in the ordinary course of business consistent with past practice,
7.1.14 to maintain all properties necessary for the conduct of
the business of the Company, whether owned or leased, in substantially the
same condition as they now are;
7.1.15 to maintain its books, records and accounts in the usual,
regular and ordinary manner, on a basis consistent with prior periods;
25
7.1.16 not to enter into any Contract of any kind or nature with any
Affiliate, or make any payment or other asset Transfer to or for the benefit
of any Affiliate (other than employment compensation in the ordinary course
of business consistent with past practice);
7.1.17 not to enter into any transaction or perform any act which
would make any of the representations, warranties or agreements of the
Company and the Principal Shareholders contained in this Agreement false or
misleading in any material respect if made again immediately after such
transaction or act; and
7.1.18 not to take any affirmative action (including, without
limitation, entering into any Contract) or fail to take any action within its
control that is likely to cause any of the changes or events listed in this
SECTION 7.1 to occur.
7.2 CONDUCT OF BUSINESS BY THE PARENT. Prior to the Closing, except as
contemplated by this Agreement or with the prior written consent of the
Company, the Parent agrees, and agrees to cause each of its Subsidiaries:
7.2.1 to conduct its operations according to its ordinary and usual
course of business;
7.2.2 not to Transfer any assets, other than asset Transfers
according to its ordinary and usual course of business;
7.2.3 to promptly notify the Company of any material change in the
business, properties, assets or liabilities of the Parent and its
Subsidiaries or in the operation of their properties and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) or the breach in any material respect of any
representation or warranty of the Parent contained herein;
7.2.4 not to adopt, or amend to increase compensation or benefits
payable under, any Benefit Plan, Contract or arrangement for the benefit of
existing employees;
7.2.5 not to (A) except pursuant to (1) the exercise or conversion
of Stock Equivalents of the Company existing on the date hereof and disclosed
in this Agreement or (2) issuances of Parent capital stock at a price per
share not less than eighty percent of the closing price per share of the
Parent Common Stock on the Nasdaq SmallCap Market on the trading day prior to
the issuance, which issuances shall be approved by the Parent's Board of
Directors and the proceeds of such issuances shall be used for working
capital and other valid business purposes of the Parent and its Subsidiaries
as determined in good faith by the Parent's Board of Directors, authorize,
issue, sell, pledge, encumber or agree to authorize, issue, sell, pledge or
encumber any Equity Securities of the Company, (B) effect any stock split,
combination or recapitalization of its capital stock as it existed on the
date hereof, (C) redeem or otherwise acquire for cash any of its outstanding
Equity Securities or make any commitment to take such action, or (D) declare,
set aside or pay any dividend or distribution payable in cash, Equity
Securities or other property with respect to the Parent's Equity Securities,
other than regularly scheduled dividend payments on the Parent's preferred
stock;
7.2.6 to comply with all of its obligations and duties under any
Contract and not to create or permit to exist any default or event of default
on behalf of the Parent or any of its
26
Subsidiaries under any Contract, or any event or circumstance which, with
lapse of time or notice, or both, would constitute a default under a
Contract, in each case which would have a material adverse effect on the
Business Condition of the Parent and its Subsidiaries taken as a whole;
7.2.7 to use its Best Efforts to preserve intact its business
organization and goodwill, keep available (except for terminations for cause)
the services of its officers and employees and maintain satisfactory
relationships with those Persons having business relationships with the
Parent or any of its subsidiaries;
7.2.8 to duly comply in all material aspects with all applicable
Laws;
7.2.9 to maintain all properties necessary for the conduct of the
business of the Parent and its Subsidiaries, whether owned or leased, in
substantially the same condition as they now are;
7.2.10 to maintain its books, records and accounts in the usual,
regular and ordinary manner, on a basis consistent with prior periods;
7.2.11 not to make any payment or other asset Transfer to or for the
benefit of any Affiliate (other than employment compensation in the ordinary
course of business consistent with past practice);
7.2.12 not to enter into any transaction or perform any act which
would make any of the representations, warranties or agreements of the Parent
contained in this Agreement false or misleading in any material respect if
made again immediately after such transaction or act; and
7.2.13 not to take any affirmative action (including, without
limitation, entering into any Contract) or fail to take any action within its
control that is likely to cause any of the changes or events listed in this
SECTION 7.2 to occur.
7.3 INSPECTION OF RECORDS. Between the date of this Agreement and the
Closing, the Company shall allow the duly authorized officers, attorneys,
accountants and other representatives of the Parent access at all reasonable
times to the records and files, correspondence, audits and properties, as
well as to all information in each case relating to the business and affairs
of the Company.
7.4 ACQUISITION PROPOSALS. From the date hereof through the Effective
Time, the Company agrees and each of the Principal Shareholders severally,
and not jointly, agree (a) that each of them shall, and they shall direct and
use their respective Best Efforts to cause the officers, directors,
employees, agents and representatives of the Company (including, without
limitation, any investment banker, attorney or accountant retained by the
Company) not to, initiate, solicit or encourage, directly or indirectly, any
inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to the shareholders of
the Company) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of
the assets or any Equity Securities of, the Company (any such proposal or
offer being hereinafter referred to as a "ACQUISITION PROPOSAL") or engage in
any negotiations concerning, or provide any confidential information or data
to, or have any discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or
27
implement an Acquisition Proposal; (b) that each of them will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing and will take the necessary steps to inform the individuals or
entities referred to above of the obligations undertaken in this SECTION 7.4;
and (c) that each of them will notify the Parent immediately if any such
inquiries or proposals are received by, any such information is received
from, or any such negotiations or discussions are sought to be initiated or
continued with, the Company.
7.5 SHAREHOLDER MEETINGS.
7.5.1 As promptly as practicable after the date hereof, the
Principal Shareholders shall use their respective Best Efforts to obtain the
written approval of each other holder of Company Stock to this Agreement and
the transactions contemplated hereby.
7.5.2 As promptly as practicable after the date hereof, the Parent
shall prepare and file with the Commission the Proxy Statement. The Proxy
Statement shall contain, among other things, the proposals of the Parent's
Board of Directors to (i) elect ▇▇▇▇▇ and ▇▇▇▇▇▇▇ as directors of the Parent
, (ii) issue the Merger Shares in connection with the Merger and (iii)
increase the number of shares of Parent Common Stock available for issuance
under the Parent's 1998 Stock Incentive Plan from 3,000,000 to 4,000,000
shares. The Parent shall use its Best Efforts to file a definitive Proxy
Statement with the Commission as promptly as practicable after such initial
filing, and promptly thereafter the Parent shall mail the definitive Proxy
Statement to the holders of Parent Common Stock. The Company and the Parent
shall, upon request by the other, furnish the other with all information
concerning itself, its Subsidiaries, directors, executive officers and
stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Proxy Statement, or any other statement,
filing, notice or application made by or on behalf of the Company or the
Parent to any third party and/or any Government Authority in connection with
the transactions contemplated by this Agreement. The Parent shall take all
necessary or appropriate action under the DGCL and the Charter Documents of
the Parent to call the Parent Stockholders Meeting, to be held at the
earliest practicable date for the purpose of seeking the Parent Stockholder
Approval. The Board of Directors of the Parent shall recommend that the
stockholders of the Parent vote in favor of the matters that are the subject
of the Parent Stockholder Approval.
7.6 COMPANY EMPLOYMENT OFFERS. As promptly as practicable after the date
hereof, ▇▇▇▇▇ and ▇▇▇▇▇▇▇ shall submit to the Parent a written schedule of
proposed salaries, benefits and new stock option terms for each of the
Company's current employees. Upon the approval of such schedule by the
Parent, the Company shall extend new employment offers to all of its current
employees on an "at will" basis at the respective salaries, benefits and new
stock option terms for such employees set forth in the schedule as approved
by the Parent.
7.7 RULE 145 AFFILIATES. Prior to the Effective Time, the Company shall
deliver to the Parent a letter identifying all persons who were, in the
Company's reasonable judgment, at the record date for its shareholders
meeting (or the record date for receipt of a written consent) to approve this
Agreement and the Merger, "affiliates" of the Company for purposes of Rule
145 under the Securities Act ("RULE 145 AFFILIATES"). Each of such Rule 145
Affiliates will deliver to the Parent on or prior to the Effective Time a
written agreement (the "AFFILIATE LETTER") substantially in the form attached
as EXHIBIT 7.7 hereto to the effect that such person will not offer to sell,
sell or
28
otherwise dispose of any Merger Shares except pursuant to an effective
registration statement or in compliance with Rule 145, as amended from time
to time, or in a transaction which, in the opinion of legal counsel
reasonably satisfactory to the Parent, is exempt from the registration
requirements of the Securities Act. The Parent shall be entitled to place
legends as specified in such Affiliate Letters on the certificate evidencing
any Merger Shares to be received by such Rule 145 Affiliates pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for the Parent Common Stock, consistent with the terms
of such Affiliate Letters.
7.8 REORGANIZATION. From and after the date hereof and until the
Effective Time, none of the Parent, the Company, Merger Sub, the Principal
Shareholders or any of their respective Subsidiaries or other Affiliates
shall knowingly take any action, or knowingly fail to take any action, that
would jeopardize qualification of the Merger as a reorganization with the
meaning of Section 368(a) of the Code. Following the Effective Time, the
Parent shall use its Best Efforts to conduct its business in a manner that
would not jeopardize the characterization of the Merger as a reorganization
within the meaning of Section 368(a) of the Code. Each of the Parent and the
Company shall reflect the Merger on their respective federal income tax
returns as a Section 368(a)(2)(E) reorganization.
7.9 NO TRANSFER OF EQUITY SECURITIES. Each Principal Shareholder agrees
that, prior to the consummation of the Merger, such Principal Shareholder
will not transfer in any way any of the Equity Securities of the Company held
by such Principal Shareholder or any interest therein.
7.10 MERGER TAX MATTERS. The parties hereto agree that none of the
Parent, Merger Sub nor any of their respective Affiliates, nor their
officers, directors, agents, or representatives have made any representation
or warranty with respect to the tax consequences of the Merger for the
shareholders of the Company.
7.11 INVESTOR LETTER. The Company shall use its Best Efforts to obtain
from each of its shareholders an investor letter in a form acceptable to the
Parent and its counsel (an "INVESTOR LETTER") containing representations and
warranties of such shareholders substantially similar to those of the
Principal Shareholders contained in SECTIONS 5.5 through 5.8 inclusive.
7.12 MERGER SHARE TRANSFER AGREEMENTS. The Company shall use its Best
Efforts to obtain from each of its shareholders other than the Principal
Shareholders a Merger Share Transfer Agreement in the form attached as
EXHIBIT 7.12 hereto (a "MERGER SHARE TRANSFER AGREEMENT").
7.13 PURCHASE OF COMPANY SERIES A PREFERRED STOCK. Within five Business
Days from the date hereof, the Principal Shareholders shall deliver to the
Parent a list of the holders of Company Series A Preferred Stock who desire
to receive cash from the Parent for their shares of such stock. The Parent
shall offer to purchase the shares of Company Series A Preferred Stock from
the holders identified in such list for cash equal to $3.60 per share. The
closing of the Parent's purchase of such shares shall occur immediately prior
to the Effective Time of the Merger and shall be subject to the consummation
of the Merger and the execution by the selling shareholders of documentation
containing representations and warranties and other provisions reasonably
acceptable to the Parent.
7.14 PUBLIC ANNOUNCEMENTS. No public announcements or other disclosures
of this Agreement or the transactions contemplated hereby shall be made by
any party without the prior
29
written consent of the other parties until the Closing Date; PROVIDED,
HOWEVER, that upon prior notice to the Company, the Parent may make public
disclosures of such information regarding this Agreement and the transactions
contemplated hereby as it deems appropriate under applicable securities Laws
or in connection with obtaining financing contemplated by this Agreement.
7.15 FILINGS; OTHER ACTIONS. Subject to the terms and conditions herein
provided, the Parent, the Company, the Principal Shareholders and Merger Sub
shall: (a) use their respective Best Efforts to cooperate with one another in
(i) determining which filings are required to be made, and which consents,
approvals, permits or authorizations are required to be obtained, prior to
the Effective Time in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
(ii) timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; and (b) use their respective Best
Efforts to take, or cause to be taken, all other action and do, or cause to
be done, all other things necessary, proper or appropriate to consummate and
make effective the transactions contemplated by this Agreement. If, at any
time after the Effective Time, any further action is necessary or desirable
to carry out the purpose of this Agreement, the proper officers and directors
of the Parent and the Principal Shareholders shall take all such necessary
action.
7.16 TERMINATION OF LIENS. The Principal Shareholders shall cause all
Liens for the benefit of ▇▇▇▇▇ encumbering any shares of Company Common Stock
to be terminated prior to the Closing Date.
8. CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND MERGER SUB. The obligation
of the Parent and Merger Sub to consummate the Merger and to take the other
actions required to be taken by the Parent and Merger Sub at the Closing
pursuant to the Transaction Contracts is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may
be waived by the Parent in writing, in whole or in part):
8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each of the Company and the Principal Shareholders set forth in this
Agreement subject to materiality or material adverse effect qualifications
shall be true and correct, and those not so qualified shall be true and
correct in all material respects, as of the Closing Date with the same effect
as though such representations and warranties had been made at and as of the
Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties subject to materiality or material adverse effect qualifications
shall be true and correct, and those not so qualified shall be true and
correct in all material respects, on and as of such earlier date).
8.2 PERFORMANCE. Each of the Company and the Principal Shareholders shall
have performed in all material respects all obligations and complied in all
material respects with all covenants required by any Transaction Contract to
be performed or complied with by any of them on or prior to the Closing Date.
8.3 CONSENTS. All consents, Permits and approvals required, in the
reasonable opinion of counsel for the Parent, as a condition to the lawful
consummation of the Merger and of the transactions contemplated in this
Agreement, or as necessary to avoid a breach of or default or an
30
acceleration of a contractual right or payment under any material Contract to
which the Company, the Parent or any of its Subsidiaries is a party, shall
have been obtained.
8.4 CERTIFICATE. The Company and the Principal Shareholders shall have
delivered to the Parent a certificate, dated the Closing Date and executed by
the Company and each Principal Shareholder, certifying that the conditions
specified in SECTIONS 8.1, 8.2 and 8.3 have been satisfied.
8.5 AUDITED FINANCIAL STATEMENTS. The Company shall have delivered to the
Parent the Annual Financial Statements, with the report of the independent
auditors subject to no qualifications and which otherwise shall be in form
and substance satisfactory to the Parent.
8.6 GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be made
prior to the Effective Time by the Company or the Parent with, and all
consents, approvals, orders, registrations and authorizations required to be
obtained prior to the Effective Time by the Company or the Parent from
Governmental Authorities in connection with the execution and delivery of
this Agreement by the parties hereto and the consummation of the transactions
contemplated hereby by the parties hereto shall have been made or obtained
(as the case may be), except where the failure to have obtained or made such
consent, filing, authorization, order, approval or registration would not
have a material adverse effect on the Business Condition of the Company or
the Business Condition of the Parent and its Subsidiaries taken as a whole.
8.7 NON-COMPETITION AGREEMENTS. At or before the Effective Time, each of
the Principal Shareholders shall have executed and delivered to the Parent a
Non-Competition Agreement (the "NON-COMPETITION AGREEMENTS") substantially in
the form attached hereto as EXHIBIT 8.7.
8.8 NON-DISCLOSURE AGREEMENTS. Each of the Non-Disclosure Agreements
shall have been executed and delivered to the Parent by the employees of the
Company.
8.9 LOCK-UP AGREEMENTS. Prior to the Closing Date, the Parent shall have
received an agreement (each, a "LOCK-UP AGREEMENT" and collectively, the
"LOCK-UP AGREEMENTS") in a form reasonably satisfactory to it executed by
each Principal Shareholder to the effect that each such holder shall not
sell, transfer or otherwise dispose of the Merger Shares received by such
holder for a period ending on the second anniversary of the Closing; PROVIDED
that 50% of such Merger Shares issued to each Principal Shareholder shall be
free of such restriction on the one year anniversary of the Closing;
PROVIDED, FURTHER, that 300,000 of the Merger Shares issuable to ▇▇▇▇▇ shall
not be subject to such restriction and shall not be covered by ▇▇▇▇▇'▇
Lock-Up Agreement; PROVIDED, FURTHER, that the Lock-Up Agreement with respect
to a Principal Shareholder shall terminate if and when (i) such Principal
Shareholder's employment under the ▇▇▇▇▇ Employment Agreement (with respect
to ▇▇▇▇▇) or the ▇▇▇▇▇▇▇ Employment Agreement (with respect to ▇▇▇▇▇▇▇) is
terminated by the Parent and/or the Surviving Corporation other than for
Cause in accordance with the applicable employment agreement or is
voluntarily terminated by such Principal Shareholder for Good Reason as
defined in the employment agreement or (ii) a Change of Control occurs (as
defined in such Principal Shareholder's employment agreement).
8.10 COMPANY SHAREHOLDERS APPROVAL. Prior to the Effective Time, the
shareholders of the Company shall have approved the Merger in accordance with
SECTION 7.5.1 and the CGCL.
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8.11 PARENT STOCKHOLDERS APPROVAL. Prior to the Effective Time, the
Parent Stockholders Approval shall have been obtained.
8.12 INVESTOR LETTERS. The Parent shall have received Investor Letters
executed by each shareholder of the Company.
8.13 RULE 145 AFFILIATE LETTERS. Each of the Rule 145 Affiliates shall
have executed and delivered to the Parent a Rule 145 Affiliate Letter.
8.14 EMPLOYMENT AGREEMENTS. Prior to the Effective Time, each of ▇▇▇▇▇,
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have executed and delivered to the Parent
the ▇▇▇▇▇ Employment Agreement, the ▇▇▇▇▇▇▇ Employment Agreement and the
▇▇▇▇▇▇▇▇ Employment Agreement, respectively.
8.15 SHAREHOLDERS AGREEMENTS. All shareholder, voting, registration
rights or other agreements with respect to the Company Stock shall have been
terminated.
8.16 MERGER SHARE TRANSFER AGREEMENTS. The Parent shall have received
Merger Share Transfer Agreements executed by each shareholder of the Company
other than the Principal Shareholders.
8.17 TERMINATION OF LIENS. All Liens for the benefit of ▇▇▇▇▇ encumbering
any shares of Company Common Stock shall have been terminated.
8.18 AMENDMENT TO ASSIGNMENT OF RIGHTS TO SOFTWARE. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ each shall have executed and delivered to the Parent an
Amendment to Assignment of Rights to Software in the form of EXHIBIT 8.18
attached hereto.
8.19 NO ACTIONS. No Action pertaining to the transactions contemplated by
this Agreement or to their consummation shall have been instituted or
threatened on or prior to the Closing Date.
8.20 NO MATERIAL ADVERSE CHANGES. There shall not exist any circumstance
and there shall not have occurred any event which has had or reasonably could
have a material adverse effect on the Business Condition of the Company.
8.21 OPINION LETTER. The Parent shall have received from Capstone Law
Group LLP, counsel to the Company, an opinion letter, dated as of the Closing
Date and addressed to the Parent, in form and substance satisfactory to the
Parent.
9. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS. The obligation of the Company to consummate the Merger and to
take the other actions required to be taken by the Company and the Principal
Shareholders at the Closing pursuant to the Transaction Contracts is subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Company in writing, in whole or
in part):
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
each of the Parent and Merger Sub set forth in this Agreement subject to
materiality or material adverse effect qualifications shall be true and
correct, and those not so qualified shall be true and correct in all
32
material respects, as of the Closing Date with the same effect as though such
representations and warranties had been made at and as of the Closing Date,
except to the extent such representations and warranties expressly relate to
an earlier date (in which case such representations and warranties subject to
materiality or material adverse effect qualifications shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, on and as of such earlier date).
9.2 PERFORMANCE. Each of the Parent and Merger Sub shall have performed
in all material respects all obligations and complied in all material
respects with all covenants required by any Transaction Contract to be
performed or complied with by any of them on or prior to the Closing Date.
9.3 CERTIFICATE. The Parent and Merger Sub each shall have delivered to the
Company and the Principal Shareholders a certificate, dated the Closing Date and
executed by each of the Parent and Merger Sub, certifying that the conditions
specified in SECTIONS 9.1 and 9.2 have been satisfied and representing and
warranting to the Company and the Principal Shareholders that (i) as of the
Closing Date the Parent is in full compliance with all of the published
requirements of the Nasdaq SmallCap Market for the continued listing of the
Listed Securities on the Nasdaq SmallCap Market; and (ii) if the Parent's
Quarterly Report on Form 10-Q for the three months ended September 30, 1999 (the
"10-Q") has not been filed with the Commission prior to the Closing Date, the
unaudited consolidated financial statements of the Parent as of and for the
three months ended September 30, 1999 included in the draft 10-Q as of the
Closing Date, including any appended notes which are an integral part of such
statements, have been prepared in conformity with GAAP applied on a consistent
basis throughout the periods covered thereby, present fairly in all material
respects the consolidated financial position of the Parent as at their
respective dates and the consolidated results of operations and cash flows of
the Parent for the periods covered thereby, subject to normal recurring year-end
adjustments.
9.4 GOVERNMENTAL AND REGULATORY CONSENTS. All filings required to be made
prior to the Effective Time by the Parent or Merger Sub with, and all
consents, approvals, orders, registrations and authorizations required to be
obtained prior to the Effective Time by the Parent or Merger Sub from
Governmental Authorities in connection with the execution and delivery of
this Agreement by the Parent and Merger Sub and the consummation of the
transactions contemplated hereby by the Parent and Merger Sub shall have been
made or obtained (as the case may be), except where the failure to have
obtained or made such consent, filing, authorization, order, approval or
registration would not have a material adverse effect on the Business
Condition of the Parent and its Subsidiaries taken as a whole.
9.5 PARENT STOCKHOLDERS APPROVAL. Prior to the Effective Time, the Parent
Stockholders Approval shall have been obtained.
9.6 ELECTION OF ▇▇▇▇▇ AND ▇▇▇▇▇▇▇ AS PARENT DIRECTORS. Each of ▇▇▇▇▇ and
▇▇▇▇▇▇▇ shall have been elected as directors of the Parent, subject to the
consummation of the Merger and effective as of the Effective Time.
9.7 NO ACTIONS. No Action pertaining to the transactions contemplated by
this Agreement or to their consummation shall have been instituted or
threatened on or prior to the Closing Date.
33
9.8 NO MATERIAL ADVERSE CHANGES. There shall not exist any circumstance
and there shall not have occurred any event which has had or reasonably could
have a material adverse effect on the Business Condition of the Parent and
its Subsidiaries taken as a whole.
9.9 EMPLOYMENT AGREEMENTS. Prior to the Effective Time, the Parent and
Merger Sub shall have executed and delivered to ▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ the ▇▇▇▇▇ Employment Agreement, the ▇▇▇▇▇▇▇ Employment Agreement and
the ▇▇▇▇▇▇▇▇ Employment Agreement, respectively.
9.10 NET TANGIBLE ASSETS. The Parent shall have been in compliance with
the published net tangible assets requirement for the continued listing of
the Listed Securities on the Nasdaq SmallCap Market as of a date prior to the
Closing Date at least as recent as September 30, 1999, as supported by the
financial statements of the Company included in the 10-Q, which financial
statements shall have been prepared with the assistance of the accounting
firm of Parks Palmer Business Services Inc. and reviewed by the accounting
firm of Singer Lewak ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP.
9.11 OPINION LETTER. The Company and the Principal Shareholders shall
have received from Troop ▇▇▇▇▇▇▇ Pasich Reddick & ▇▇▇▇▇, LLP, counsel to the
Parent, an opinion letter, dated as of the Closing Date and addressed to the
Company and the Principal Shareholders, in form and substance satisfactory to
the Company and the Principal Shareholders.
10. FURTHER AGREEMENTS OF THE PARTIES.
10.1 CONFIDENTIALITY.
10.1.1 The parties hereto hereby acknowledge and agree that any and
all information which has been disclosed by one to the other, its directors,
partners, members, managers, employees, consultants, agents and shareholders
during the discussions and negotiations leading to the execution of this
Agreement, and all information to be disclosed by one to the other, its
directors, employees, consultants and agents and shareholders during the
period commencing on the date of execution of this Agreement through the
Closing or termination of this Agreement, shall constitute confidential
information and trade secrets of the disclosing party, and as such are
secret, confidential and unique and constitute the exclusive trade secrets
and property of such party. Such information has been made known and
available to the other party and its respective employees, consultants and
agents strictly in connection with the negotiation and execution of this
Agreement and the consummation of the transactions provided for herein. Each
party hereby acknowledges and agrees that any use or disclosure of any such
confidential information or trade secrets, other than pursuant to this
Agreement, would be wrongful and would cause irreparable injury to the other.
Accordingly, each party hereby expressly agrees, for itself and on behalf of
its shareholders, partners, members and directors, if any, and its principal
officers, managers, employees, agents, consultants and representatives, that
it and they will not at any time prior to the Closing or at any time
thereafter, use or disclose, other than in accordance with the terms and
provisions of this Agreement, any of such confidential information or trade
secrets; PROVIDED that any of the parties hereto may use or disclose such
confidential information or secrets of another party without restriction if
such information or secrets (i) were or are available to such party on a
non-confidential basis from a source other than the other party, or (ii) were
or become generally available to the
34
public (other than as a result of an impermissible disclosure by such party
or its Affiliates); and PROVIDED, FURTHER, that if a party is required (by
oral question, interrogatories, requests for information or documents,
subpoena or similar process) to disclose any of such information or secrets
of another party, such disclosure be made without liability hereunder
(although notice of such requirement shall be given to the other party so
that, if practicable, the other party may seek a protective order against
such disclosure). Each party acknowledges that, in the event of a violation
by the other of the terms and provisions of this SECTION 10.1, the remedies
at law would not be adequate; and accordingly, in such event (subject to
SECTION 14.6) such party may proceed to protect and enforce its rights under
this SECTION 10.1 by a suit in equity for specific performance and temporary,
preliminary and permanent injunctive relief from violation of any of the
provisions of this SECTION 10.1 from any court of competent jurisdiction
without the necessity of proving the amount of any actual damages to the
party resulting from the breach.
10.1.2 The Company and the Principal Shareholders acknowledge that
the Parent has public reporting obligations under the Exchange Act, and the
Parent intends to arrange for certain financing in connection with this
Agreement. Accordingly, notwithstanding the provisions of SECTION 10.1.1:
10.1.2.1 Upon prior notice to the Company and the Principal
Shareholders, the Parent may make public disclosures of such information
regarding the Company and the Principal Shareholders as it deems appropriate
under applicable securities Laws; and
10.1.2.2 Upon prior notice to the Company and the Principal
Shareholders, the Parent may disclose information regarding the Company and
the Principal Shareholders to Persons from whom the Purchaser seeks financing
in connection with this Agreement and to underwriters, finders and
broker/dealers who assist in locating such investors.
10.2 CORPORATE GOVERNANCE.
10.2.1 At the Effective Time, the Board of Directors of the Parent
shall consist of seven members. As part of the Proxy Statement, the Parent
shall nominate ▇▇▇▇▇ and ▇▇▇▇▇▇▇ to the Parent's stockholders for election as
directors at the Parent Stockholders Meeting, subject to the consummation of
the Merger and effective as of the Effective Time. From the Effective Time up
to but not including the second anniversary thereof, the Parent shall
nominate ▇▇▇▇▇ and ▇▇▇▇▇▇▇ for election as directors at each meeting or other
action of stockholders at which directors are elected and shall use its Best
Efforts to cause the election of ▇▇▇▇▇ and ▇▇▇▇▇▇▇, including soliciting
proxies in favor of the election of each of them. From the Effective Time up
to but not including the second anniversary thereof, ▇▇▇▇▇ and ▇▇▇▇▇▇▇ each
(severally and not jointly) shall vote his shares of capital stock of the
Parent to elect the nominees of the Parent as directors of the Parent at each
meeting or other action of stockholders at which directors are elected.
10.2.2 From the Effective Time up to but not including the second
anniversary thereof, the Parent shall cause the Board of Directors of the
Surviving Corporation to consist of Cerna, Holtorf, two individuals to be
designated by the Parent and one individual to be designated by the Parent,
▇▇▇▇▇ and ▇▇▇▇▇▇▇.
35
10.2.3 On the Closing Date and following each annual meeting of the
stockholders of the Parent during the period from the Effective Time up to
but not including the second anniversary thereof, the Board of Directors of
the Parent shall appoint an Executive Committee (the "EXECUTIVE COMMITTEE")
which shall report to the Board of Directors of the Parent. The
responsibilities of the Executive Committee shall include directing and
administering the day to day operations of both the Parent and the Surviving
Corporation, reviewing and making recommendations to the Parent's Board of
Directors on all potential acquisitions and investments and public and
private financings, and such other responsibilities as the Board of Directors
may delegate consistent with the DGCL. From the Effective Time up to but not
including the second anniversary thereof, the Executive Committee shall
consist of ▇▇▇▇▇, ▇▇▇▇▇▇▇ and two designees of the Parent, one of whom shall
be ▇▇▇▇▇ ▇▇▇▇▇.
10.2.4 Notwithstanding anything to the contrary contained in this
Agreement, each Principal Shareholder agrees that he shall resign from all
positions held as a member (or member of any committee) of the Board of
Directors of the Parent or any of its Subsidiaries if and when his employment
with the Parent and/or the Surviving Corporation under the ▇▇▇▇▇ Employment
Agreement (with respect to ▇▇▇▇▇) or the ▇▇▇▇▇▇▇ Employment Agreement (with
respect to ▇▇▇▇▇▇▇) is terminated by the Parent and/or the Surviving
Corporation for Cause or Disability in accordance with the applicable
employment agreement or is voluntarily terminated by such Principal
Shareholder other than for Good Reason as defined in the employment agreement.
10.3 KEY MAN INSURANCE. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ each agrees that the Company
and/or the Surviving Corporation may purchase key man insurance on him in
such amounts as the Board of Directors of the Company and the Parent deem
appropriate.
10.4 DIRECTORS AND OFFICERS LIABILITY INSURANCE. Following the Closing,
each Principal Shareholder shall be named as an insured in the directors and
officers liability insurance policies maintained by the Parent, in such a
manner as to provide the Principal Shareholder the same rights and benefits
as are accorded to the most favorably insured of the Parent's directors.
10.5 REGISTRATION STATEMENT. As soon as reasonably practicable after the
Effective Time, but in no event later than 30 days after the Effective Time,
the Parent shall prepare and file a Registration Statement on Form S-3 or
such other successor form as is then available (the "REGISTRATION STATEMENT")
with the Commission and shall include in such Registration Statement all of
the Merger Shares issued pursuant to the Merger. The Parent shall promptly
pay all registration expenses incurred in connection with the preparation and
filing of the Registration Statement and the Parent shall use its Best
Efforts to register or qualify the shares of Merger Shares covered by the
Registration Statement under such securities or blue sky laws in such
jurisdictions as the Principal Shareholders may reasonably request. The
Parent shall at all times until the third anniversary of the Closing Date use
its Best Efforts to continue to meet the conditions required in order to use
the Registration Statement and to maintain its listing on the Nasdaq SmallCap
Market or, alternatively, list on another national securities exchange.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Agreement or made in any document delivered pursuant
to this Agreement by or on behalf of
36
any party shall survive the execution and delivery of this Agreement and the
Closing, regardless of notice of or any investigation or right of
investigation made prior to or after the date of this Agreement by or on
behalf of any party, and shall terminate and expire two years following the
Closing Date, after which date they shall be of no further force or effect;
PROVIDED that the representations and warranties contained in SECTIONS 4.13,
4.19, 5.2, 6.11 and 6.14 shall terminate and expire upon the expiration of
the statute of limitations therefor.
11.2 INDEMNIFICATION BY THE PRINCIPAL SHAREHOLDERS WITH RESPECT TO THE
COMPANY. The Principal Shareholders shall, jointly and severally, indemnify,
save and hold harmless the Parent, Merger Sub, and each of their respective
officers, directors, employees, agents and Affiliates, and each of their
successors and assigns (individually, a "PARENT INDEMNIFIED PARTY" and
collectively, the "PARENT INDEMNIFIED PARTIES") from and against any and all
costs, losses, claims, liabilities, fines, penalties, damages and expenses
(including, without limitation, interest which may be imposed in connection
therewith and court costs and reasonable fees and disbursements of counsel)
("DAMAGES") incurred in connection with, arising out of, resulting from or
incident to:
11.2.1 any breach of, or any inaccuracy in any of, the
representations or warranties of the Company and the Principal Shareholders
contained in SECTION 4, or any default in any agreements made by the Company
in this Agreement, any exhibit or schedule hereto or any certificate,
instrument or writing delivered in connection herewith;
11.2.2 any failure by the Company prior to the Effective Time to
obtain or maintain in effect any Permit relating to the Company and/or its
business, assets or operations; or
11.2.3 any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in
this SECTION 11.2.
11.3 INDEMNIFICATION BY EACH PRINCIPAL SHAREHOLDER WITH RESPECT TO SUCH
PRINCIPAL SHAREHOLDER. Each Principal Shareholder shall, severally and not
jointly, indemnify, save and hold harmless the Parent Indemnified Parties
from and against any and all Damages incurred in connection with, arising out
of, resulting from or incident to:
11.3.1 any breach of, or any inaccuracy in any of, the
representations or warranties of such Principal Shareholder contained in
SECTION 5, or any default in any agreements made by such Principal
Shareholder in this Agreement, any exhibit or schedule thereto or any
certificate, instrument or writing delivered in connection herewith; or
11.3.2 any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in
this SECTION 11.3.
11.4 INDEMNIFICATION BY THE PARENT. The Parent shall indemnify, save and
hold harmless the shareholders of the Company and each of their respective
officers, directors, employees, agents and Affiliates, and each of their
successors and assigns (individually, a "COMPANY INDEMNIFIED PARTY" and
collectively, the "COMPANY INDEMNIFIED PARTIES") from and against any and all
Damages incurred in connection with, arising out of, resulting from or
incident to:
11.4.1 any breach of, or any inaccuracy in any of, the
representations or warranties of the Parent or Merger Sub contained in
SECTION 6, or any default in any agreements made by the
37
Parent or Merger Sub in this Agreement, any exhibit or schedule hereto or any
certificate, instrument or writing delivered in connection herewith; or
11.4.2 any Action, compromise, settlement, assessment or judgment
arising out of or incidental to any of the matters indemnified against in
this SECTION 11.4.
11.5 NOTICE OF CLAIM. If a claim for Damages (a "CLAIM") is to be made by
a party entitled to indemnification hereunder (an "INDEMNIFIED PARTY")
against the indemnifying party (the "INDEMNIFYING PARTY"), the Indemnified
Party shall give written notice (a "CLAIM NOTICE") to the Indemnifying Party,
which notice shall specify whether the Claim arises as a result of a claim by
a person against the Indemnified Party (a "THIRD PARTY CLAIM") or whether the
Claim does not so arise (a "DIRECT CLAIM"), and shall also specify (to the
extent that the information is available) the factual basis for the Claim and
the amount of the Damages, if known. If the Claim is a Third Party Claim, the
Indemnified Party shall provide the Claim Notice as soon as practicable after
such party becomes aware of any fact, condition or event which may give rise
to Damages for which indemnification may be sought hereunder. If any Action
is filed against any Indemnified Party, written notice thereof shall be given
to the Indemnifying Party as promptly as practicable (and in any event within
15 calendar days after the service of the citation or summons). The failure
of any Indemnified Party to give timely notice hereunder shall not affect
rights to indemnification hereunder, except to the extent that the
Indemnifying Party has been damaged by such failure.
11.6 DEFENSE OF CLAIMS. With respect to a Third Party Claim, if after
receipt of the Claim Notice the Indemnifying Party acknowledges in writing to
the Indemnified Party that the Indemnifying Party shall be obligated under
the terms of its indemnity hereunder in connection with such Third Party
Claim, the Indemnifying Party shall, at its own cost, risk and expense, (i)
take control of the defense and investigation of such Action, (ii) employ and
engage attorneys of its own choice, but, in any event, reasonably acceptable
to the Indemnified Party, to handle and defend the same unless the named
parties to such action or proceeding (including, without limitation, any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party and the Indemnified Party has been advised in writing by counsel that
there may be one or more legal defenses available to such Indemnified Party
that are different from or additional to those available to the Indemnifying
Party, in which event the Indemnified Party shall be entitled, at the
Indemnifying Party's cost, risk and expense, to engage one firm of counsel
(in addition to appropriate local counsel) of its own choosing, and (iii)
compromise or settle such Action, which compromise or settlement shall be
made only with the written consent of the Indemnified Party, such consent not
to be unreasonably withheld or delayed.
11.6.1 If the Indemnifying Party fails to assume the defense of such
Claim within 15 calendar days after receipt of the Claim Notice, the
Indemnified Party against which such Claim has been asserted will (upon
delivering notice to such effect to the Indemnifying Party) have the right to
undertake, at the Indemnifying Party's cost and expense, the defense,
compromise or settlement of such Claim on behalf of and for the account and
risk of the Indemnifying Party. If the Indemnified Party assumes the defense
of the Claim, the Indemnified Party will keep the Indemnifying Party
reasonably informed of the progress of any such defense, compromise or
settlement. The Indemnifying Party shall be liable for any settlement of any
action effected pursuant to and in accordance with this SECTION 11.6.1 and
for any final judgment (subject to any right of
38
appeal) and the Indemnifying Party agrees to indemnify and hold harmless the
Indemnified Party from and against any Damages by reason of such settlement
or judgment.
11.7 NO RIGHT OF CONTRIBUTION. The Principal Shareholders shall have no
right of contribution against the Company or against the Parent or any of
their respective Subsidiaries by reason of or arising from any claim asserted
by an Indemnified Party hereunder.
11.8 LIMITATION ON INDEMNIFICATION OBLIGATIONS. The Parent Indemnified
Parties shall not be entitled to recover under SECTION 11.2 unless the
aggregate amount of indemnifiable Damages incurred by the Parent Indemnified
Parties under SECTION 11.2 exceeds $250,000, at which time any claim for
indemnification may be made only for the excess. The Company Indemnified
Parties shall not be entitled to recover under SECTION 11.4 unless the
aggregate amount of indemnifiable Damages incurred under SECTION 11.4 exceeds
$250,000, at which time any claim for the indemnification may be made only
for the excess. Notwithstanding anything to the contrary herein contained,
the limitations contained in this SECTION 11.8 shall not apply to
indemnification for fraud by an indemnifying party in connection with this
Agreement and the transactions contemplated hereby.
12. TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between the Parent and the Principal Shareholders for
certain tax matters following the Closing Date:
12.1 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The Parent shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company for all periods ending on or prior to the Closing Date, which
are filed after the Closing Date. The Parent shall permit the Principal
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Principal Shareholders shall
reimburse the Parent for Taxes of the Company with respect to such periods
within fifteen (15) days after payment by the Parent or the Company of such
Taxes to the extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the Current Balance
Sheet.
12.2 TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. The
Parent shall prepare or cause to be prepared and file or cause to be filed
any Tax Returns of the Company for Tax periods which begin before the Closing
Date and end after the Closing Date. The Parent shall permit the Principal
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Principal Shareholders shall pay to
the Parent within fifteen (15) days after the date on which Taxes are paid
with respect to such periods an amount equal to the portion of such Taxes
which relates to the portion of such Taxable period ending on the Closing
Date to the extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the Current Balance
Sheet. For purposes of this SECTION 12, in the case of any Taxes that are
imposed on a periodic basis and are payable for a Taxable period that
includes (but does not end on) the Closing Date, the portion of such Tax
which relates to the portion of such Taxable period ending on the Closing
Date shall, in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number
of days in the Taxable period ending on the Closing Date and the denominator
of which is the number of days in the entire Taxable
39
period; and, in the case of any Tax based upon or related to income or
receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.
12.3 COOPERATION ON TAX MATTERS. The Parent, the Company and the
Principal Shareholders shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this SECTION 12 and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the retention and (upon
the other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
12.4 CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by the
Principal Shareholders when due, and the Principal Shareholders shall, at
their own expense, file all necessary Tax Returns and other documentation
with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable Law,
the Parent shall, and shall cause its affiliates to, join in the execution of
any such Tax Returns and other documentation.
13. TERMINATION. This Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time:
13.1 TERMINATION BY MUTUAL CONSENT. By the mutual agreement, in writing,
of each of the parties to this Agreement.
13.2 TERMINATION BY THE PARENT. By the Parent on behalf of the Parent and
Merger Sub by giving written notice to the Company if:
13.2.1 there has been a material violation or breach by the Company
or any Principal Shareholder of any agreement, covenant, representation or
warranty contained in any Transaction Contract, which violation or breach
shall not have been cured or corrected within 30 days after receipt of notice
thereof;
13.2.2 the Closing does not occur on or prior to December 31, 1999
or such later date as may be agreed to in writing by the parties; or
13.2.3 if the Closing Value of the Parent Common Stock is less than
$1.75 per share, thereby triggering the increase in the number of Merger
Shares set forth in SECTION 2.10.1.
13.3 TERMINATION BY THE COMPANY. By the Company on behalf of the Company
and the Principal Shareholders by giving written notice to the Parent if:
13.3.1 there has been a material violation or breach by the Parent
or Merger Sub of any agreement, covenant, representation or warranty
contained in any Transaction Contract,
40
which violation or breach shall not have been cured or corrected within ten
days after receipt of notice thereof; or
13.3.2 the Closing does not occur on or prior to December 31, 1999,
or such later date as may be agreed to in writing by the parties.
13.4 EFFECT OF TERMINATION. In the event of the termination of this
Agreement without the Closing occurring, no party shall have any obligation
or liability to any other party in respect to this Agreement, except for (i)
any material breach of any covenant contained in SECTION 7 occurring prior to
such termination, or (ii) any material breach of or material inaccuracy in
any representation or warranty occurring prior to such termination that is
intentional; and provided that SECTIONS 7.15, 10.1, 14.10 and 14.11 shall
remain in full force and effect.
14. MISCELLANEOUS.
14.1 NOTICES. All notices, requests, demands and other
communications (collectively, "NOTICES") given pursuant to this Agreement
shall be in writing, and shall be delivered by personal service, courier,
facsimile transmission (which must be confirmed) or by United States first
class, registered or certified mail, postage prepaid, to the following
addresses:
14.1.1 if to the Parent or Merger Sub, to:
IAT Resources Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
Troop ▇▇▇▇▇▇▇ Pasich Reddick & ▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esq.
14.1.2 if to the Company or ▇▇▇▇▇, to:
Infolocity, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
41
with a copy to:
Capstone Law Group LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ Won, Esq.
14.1.3 if to ▇▇▇▇▇▇▇, to:
Infolocity, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
with a copy to:
Capstone Law Group LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ Won, Esq.
Any Notice, other than a Notice sent by registered or certified mail, shall
be effective when received; a Notice sent by registered or certified mail,
postage prepaid return receipt requested, shall be effective on the earlier
of when received or the third day following deposit in the United States
mails. Any party may from time to time change its address for further Notices
hereunder by giving notice to the other parties in the manner prescribed in
this Section.
14.2 ENTIRE AGREEMENT. This Agreement, the other Transaction Contracts
and the exhibits and schedules thereto contain the sole and entire agreement
and understanding of the parties with respect to the entire subject matter of
this Agreement, and any and all prior discussions, negotiations, commitments
and understandings, whether oral or otherwise, related to the subject matter
of this Agreement are hereby merged herein. Nothing in this Agreement,
express or implied, is intended to confer upon any person other than the
parties hereto any rights or remedies under or by way of this Agreement.
14.3 ASSIGNMENT. No party may assign its rights or obligations under this
Agreement, and any attempted or purported assignment or any delegation of any
party's duties or obligations arising under this Agreement to any Person
shall be deemed to be null and void, and shall constitute a material breach
by such party of its duties and obligations under this Agreement. This
Agreement shall inure to the benefit of and be binding upon any successors of
each party by way of merger or consolidation.
42
14.4 WAIVER AND AMENDMENT.
14.4.1 At any time prior to the Effective Time, each of the parties
hereto (in the case of the Parent, the Company and Merger Sub, by action
taken or authorized by its Board of Directors) may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions of the other party contained herein. Any agreement
on the part of a party hereto to any such extension or waiver shall be valid
only if set forth in a written instrument signed on behalf of such party, but
such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
14.4.2 Prior to the Effective Time, any provision of this Agreement
may be amended or modified at any time, by an agreement in writing between
the parties hereto executed in the same manner as this Agreement, PROVIDED
that after the Company Meeting, this Agreement may not be amended if it would
violate the CGCL or reduce the amount or change the form of the consideration
to be received by the Company shareholders in the Merger.
14.5 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of California without giving effect to the principles
of conflicts of law thereof.
14.6 DISPUTE RESOLUTION. In case of any dispute arising out of this
Agreement or any dealings between any of the parties hereto relating to the
subject matter of this Agreement, the parties shall use their respective Best
Efforts for a period of not less than 30 days to resolve such dispute by
mutual agreement. If the parties fail to resolve such dispute within such
30-day period, the provisions set forth on EXHIBIT 14.6 attached hereto shall
govern the resolution of such dispute.
14.7 SEVERABILITY. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
14.8 CAPTIONS. The various captions of this Agreement are for reference
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
14.10 TRANSACTION EXPENSES. If the Closing occurs, all Transaction
Expenses incurred by each of the parties hereto shall be paid by the Parent.
If the Closing does not occur, all Transaction Expenses incurred by each
party hereto shall be paid by such party.
14.11 COSTS AND ATTORNEYS' FEES. If any Action is instituted to remedy,
prevent or obtain relief from a default in the performance by any party to
this Agreement of its obligations under this
43
Agreement, the prevailing party shall recover its reasonable attorneys' fees
incurred in each and every such Action, including, without limitation, any
and all appeals or petitions therefrom.
14.12 RIGHTS CUMULATIVE. No right granted to the parties under this
Agreement on default or breach is intended to be in full or complete
satisfaction of any Damages arising out of such default or breach, and each
and every right under this Agreement, or under any other document or
instrument delivered hereunder, or allowed by law or equity, shall be
cumulative and may be exercised from time to time.
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IN WITNESS WHEREOF, this Agreement and Plan of Merger has been made and
entered into as of the date and year first above written.
IAT RESOURCES CORPORATION,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
INFOLOCITY MERGER SUB, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Executive Vice-President
INFOLOCITY, INC.,
a California corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Title: Chief Executive Officer
▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
----------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------------------------
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LIST OF EXHIBITS
Exhibit No. Exhibit Name
----------- ------------
1.1.9 ▇▇▇▇▇ Employment Agreement
1.1.24 ▇▇▇▇▇▇▇▇ Employment Agreement
1.1.25 ▇▇▇▇▇▇▇ Employment Agreement
1.1.30 Non-Disclosure Agreement
7.7 Affiliate Letter
7.12 Merger Share Transfer Agreement
8.7 Non-Competition Agreement
8.18 Amendment to Assignment of Rights to Software
14.6 Dispute Resolution
46