EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of December 21, 1999
TABLE OF CONTENTS
Page
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SECTION 1 THE MERGER............................................................................................... 1
1.1 Merger; Effective Time............................................................................... 1
1.2 Closing.............................................................................................. 2
1.3 Effects of the Merger................................................................................ 2
1.4 Certificate of Incorporation; Bylaws; Directors; Officers............................................ 2
1.5 Tax-Free Reorganization.............................................................................. 2
SECTION 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES...... 2
2.1 Effect on Capital Stock.............................................................................. 2
2.2 Exchange of Certificates; Issuance of Note........................................................... 6
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDER.............................. 7
3.1 Organization, Standing and Corporate Power........................................................... 7
3.2 Company Capital Structure............................................................................ 7
3.3 Subsidiaries......................................................................................... 8
3.4 Authority/Noncontravention........................................................................... 8
3.5 Financial Statements; No Undisclosed Liabilities..................................................... 9
3.6 Absence of Certain Changes or Events................................................................. 10
3.7 Litigation........................................................................................... 10
3.8 Contracts............................................................................................ 10
3.9 Compliance With Laws................................................................................. 11
3.10 Employee Matters and Benefit Plans................................................................... 12
3.11 Intentionally Omitted................................................................................ 16
3.12 Taxes................................................................................................ 16
3.13 Intentionally Omitted................................................................................ 17
3.14 Title to Properties.................................................................................. 17
3.15 Intellectual Property................................................................................ 17
3.16 Year 2000 Compliance................................................................................. 18
3.17 Voting Requirements.................................................................................. 18
3.18 Payments............................................................................................. 18
3.19 Transactions with Related Parties.................................................................... 19
3.20 Restrictions on Business Activities.................................................................. 19
3.21 Accounts Receivable; Inventory....................................................................... 19
3.22 Minute Books......................................................................................... 19
3.23 Environmental Matters................................................................................ 20
3.24 Insurance............................................................................................ 20
3.25 Warranties; Indemnities.............................................................................. 21
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TABLE OF CONTENTS
(continued)
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3.26 Representations Complete............................................................................ 21
3.27 HSR Act............................................................................................. 21
SECTION 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB........................................................ 21
4.1 Organization, Standing and Corporate Power.......................................................... 22
4.2 Authority........................................................................................... 22
4.3 Capitalization...................................................................................... 22
4.4 Financial Statements................................................................................ 23
4.5 Changes............................................................................................. 23
4.6 Material Obligations................................................................................ 24
4.7 Title to Properties and Assets; Liens, etc.......................................................... 25
4.8 Compliance with Other Instruments, None Burdensome, etc............................................. 25
4.9 Litigation, etc..................................................................................... 25
4.10 Registration Rights................................................................................. 26
4.11 Governmental Consent, etc........................................................................... 26
4.12 Tax Returns and Payments............................................................................ 26
4.13 Employee Matters.................................................................................... 26
4.14 Insurance........................................................................................... 26
4.15 Disclosure.......................................................................................... 26
4.16 Status of Shares.................................................................................... 27
4.17 Experience; Access to Data.......................................................................... 27
SECTION 5 COVENANTS............................................................................................... 27
5.1 Conduct of Business of the Company.................................................................. 27
5.2 No Solicitation..................................................................................... 29
5.3 Access to Information............................................................................... 30
5.4 Confidentiality..................................................................................... 30
5.5 Expenses............................................................................................ 30
5.6 Public Disclosure................................................................................... 30
5.7 Consents............................................................................................ 30
5.8 Tax Covenants of Shareholders....................................................................... 31
5.9 Reasonable Efforts.................................................................................. 31
5.10 Notification of Certain Matters..................................................................... 31
5.11 Blue Sky Laws....................................................................................... 31
5.12 Noncompetition Agreements........................................................................... 32
5.13 Employment Agreements............................................................................... 32
5.14 Investment Representation Agreements................................................................ 32
5.15 Cash Balances; Pre-Closing Liabilities.............................................................. 32
5.16 Certain Adjustments................................................................................. 32
5.17 Voting Agreement.................................................................................... 33
5.18 Section 338(h)(10) Election......................................................................... 33
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TABLE OF CONTENTS
(continued)
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SECTION 6 CONDITIONS TO THE MERGER................................................................................ 33
6.1 Conditions to Obligations of Each Party to Effect the Merger........................................ 33
6.2 Additional Conditions to the Obligations of Parent and Sub.......................................... 34
6.3 Additional Conditions to Obligations of Company..................................................... 35
SECTION 7 INDEMNIFICATION......................................................................................... 36
7.1 General Indemnification............................................................................. 36
7.2 Limitation and Expiration........................................................................... 38
7.3 Indemnification Procedures.......................................................................... 39
7.4 Shareholders' Representative........................................................................ 42
7.5 Survival of Representations, Warranties and Covenants............................................... 42
SECTION 8 TERMINATION, AMENDMENT AND WAIVER....................................................................... 43
8.1 Termination......................................................................................... 43
8.2 Effect of Termination............................................................................... 44
8.3 Amendment........................................................................................... 44
8.4 Extension; Waiver................................................................................... 44
8.5 Notice of Termination............................................................................... 44
SECTION 9 MISCELLANEOUS........................................................................................... 44
9.1 Notices............................................................................................. 44
9.2 Interpretation...................................................................................... 46
9.3 Counterparts........................................................................................ 46
9.4 Entire Agreement; Assignment........................................................................ 47
9.5 Severability........................................................................................ 47
9.6 Other Remedies...................................................................................... 47
9.7 Governing Law....................................................................................... 47
9.8 Further Assurances.................................................................................. 47
9.9 Absence of Third Party Beneficiary Rights........................................................... 47
9.10 Mutual Drafting..................................................................................... 48
9.11 Further Representations............................................................................. 48
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INDEX OF EXHIBITS
Exhibit A Agreement of Merger
Exhibit B Forms of Promissory Note
Exhibit C Form of Security Agreement
Exhibit D Form of Restated Articles
Exhibit E-1 Form of Joint Escrow Instructions
Exhibit E-2 Consent of Spouse
Exhibit F Form of Noncompetition Agreement
Exhibit G Form of Employment Agreement
Exhibit H Form of Investment Representation Agreement
Exhibit I Form of Legal Opinion of Counsel to the Company
Exhibit J Form of 1999 Second Amended and Restated Stockholder Rights
Agreement
Appendix A Allocation of Merger Consideration
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 21, 1999 among Numerical Technologies, Inc., a
California corporation ("Parent"), Transcription Enterprises, Inc., a Delaware
corporation and a wholly-owned subsidiary of Parent ("Sub"), Transcription
Enterprises Limited, a California corporation (the "Company"), and Messrs. ▇▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇, individuals and principal shareholders of the
Company (the "Principal Shareholders").
RECITAL
WHEREAS, the Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
shareholders that the Company merges with and into Sub, with Sub as the
surviving corporation (the "Merger"), upon the terms and subject to the
conditions of this Agreement and, in furtherance thereof, have approved the
Merger.
WHEREAS, the parties intend, that the Merger constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
SECTION 1
THE MERGER
1.1 Merger; Effective Time. Subject to the terms and conditions of this
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Agreement and the Agreement of Merger attached as Exhibit A (the "Merger
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Agreement"), at the Effective Time (as defined below), the Company shall be
merged with and into Sub in accordance with the California Corporation Code (the
"California Code") and the General Corporation Law of the State of Delaware (the
"DGCL", and together the California Code, the "State Corporation Law"). The
Merger Agreement provides, among other things, the mode of effecting the Merger
and the manner and basis of converting each issued and outstanding share of
capital stock of the Company into the Merger Consideration (as defined in
Section 2.1).
Subject to the provisions of this Agreement and the Merger Agreement, the
Merger Agreement, together with required officers' certificates, and/or
Certificate of Merger (the "Certificate of Merger") shall be filed in accordance
with the State Corporation Law on the Closing Date (as defined in Section 1.2).
The Merger shall become effective upon confirmation of such filing of the Merger
Agreement, officers' certificates and/or Certificate of Merger or at such later
time which the parties hereto shall have agreed upon and designated in such
filing as the effective date and time of the Merger (the date of confirmation of
such filing or such later time established by
the Certificate of Merger is referred to as the "Effective Date" and the time of
confirmation of such filing or such later time established by the Certificate of
Merger is referred to as the "Effective Time").
1.2 Closing. The closing of the Merger and the transactions contemplated
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hereby (the "Closing") will take place as soon as practicable on the first
business day after satisfaction or waiver of the latest to occur of the
conditions set forth in Section 6 (the "Closing Date"), at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
unless a different date or place is agreed to in writing by the parties hereto.
1.3 Effects of the Merger. At the Effective Time, the separate existence
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of the Company shall cease and the Company shall be merged with and into Sub,
and the effects of the Merger shall be as provided in this Agreement, the Merger
Agreement and the applicable provisions of the State Corporation Law. Sub after
the Merger is sometimes referred to as the "Surviving Corporation." Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Sub shall vest in the Surviving Corporation, and all debts, liabilities,
obligations and duties of the Company and Sub shall become the debts,
liabilities, obligations and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws; Directors; Officers. At the
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Effective Time, (i) the Certificate of Incorporation of Sub as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation; (ii) the Bylaws of Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until altered, amended or repealed; (iii) the directors of Sub shall
be the initial directors of the Surviving Corporation and will hold office from
the Effective Time until their respective successors are duly elected or
appointed and qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, as the same may be
amended from time to time or otherwise as provided by law; and (iv) the officers
of Sub shall be the initial officers of the Surviving Corporation.
1.5 Tax-Free Reorganization. After consultation with their respective tax
-----------------------
advisors, the parties hereto agree to report the Merger as a reorganization
within the meaning of Section 368(a) of the Code. The parties have consulted
with their own tax advisors regarding the tax consequences of the Merger and no
party makes any representation or warranty with respect to such tax
consequences.
SECTION 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Parent, Sub or the Company or their
respective shareholders:
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(a) Capital Stock of Sub. Each issued and outstanding share of common
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stock, par value $0.01 per share, of Sub shall remain outstanding and shall
represent one validly issued, fully paid and nonassessed share of common stock,
par value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of the Company.
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All shares of capital stock of the Company that are owned directly or indirectly
by the Company shall be canceled and no stock of Parent or other consideration
shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of the Company. Subject to Sections
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2.1(d), (e), (f), (h) and (i) below, each issued and outstanding share of common
stock of the Company ("Company Common Stock") (other than shares to be canceled
pursuant to Section 2.1(b)) shall automatically be canceled and extinguished and
converted, without any action on the part of the holder thereof, into the right
to receive 3.185 shares of Parent's Series E Preferred Stock which the parties
agree have a fair value of not less than $16.00 per share (The "Series E
Preferred") and $50.1575 in principal amount of a Promissory Note in the form of
Exhibit B hereto (the "Note", and together with the Series E Preferred, the
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"Merger Consideration"). The aggregate principal amount of the Notes issuable
hereunder shall be secured, pursuant to a Security Agreement in the form
attached hereto as Exhibit C, by all assets of the Surviving Corporation. The
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shares of Series E Preferred shall have the rights, privileges and preferences
as set forth in the Amended and Restated Articles of Incorporation of Parent in
the form attached hereto as Exhibit D ("Restated Articles"). All such shares of
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Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration to be issued or paid in consideration therefor upon the surrender
of such certificate in accordance with Section 2.2 of this Agreement. The ratio
pursuant to which each share of Company Common Stock will be exchanged for
shares of Series E Preferred, determined in accordance with the foregoing
provisions, is referred to as the "Exchange Ratio." The number of shares of
Series E Preferred and the principal amount of Notes each shareholder of the
Company is entitled to receive pursuant to the Merger is set forth on Appendix A
hereto.
(d) Adjustment of Exchange Ratio. If, between the date of this
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Agreement and the Effective Time, the outstanding shares of Parent Common Stock
shall have been changed into a different number of shares or a different class
by reason of any reclassification, split-up, stock dividend, stock combination
(collectively, "Recapitalization"), then the Exchange Ratio, or subject to
Section 5.1 below in the case of a Recapitalization of the Company, the Merger
Consideration, shall be correspondingly adjusted.
(e) Dissenters' Rights. Any shares of Company Common Stock held by a
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holder who has properly exercised dissenters' rights for such shares in
accordance with the California Code and who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("Dissenting Shares")
shall not be converted into Merger Consideration but shall be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the California Code. The Company shall
give Parent prompt notice of
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any demand received by the Company to require the Company to purchase shares of
Company Common Stock, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demand. The Company agrees
that, except with the prior written consent of Parent, or as required under the
California Code, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such purchase demand. Each holder of Dissenting
Shares (a "Dissenting Shareholder") who, pursuant to the provisions of the
California Code, becomes entitled to payment of the value of shares of Company
Common Stock shall receive payment therefor (but only after the value therefor
shall have been agreed upon or finally determined pursuant to such provisions).
In the event of legal obligation, after the Effective Time, to deliver the
Merger Consideration to any holder of shares of Company Common Stock who shall
have failed to make an effective purchase demand or shall have lost its status
as a Dissenting Shareholder, Parent shall issue and deliver, upon surrender by
such Dissenting Shareholder of such holder's certificate or certificates
representing shares of capital stock of the Company, the Merger Consideration to
which such Dissenting Shareholder is then entitled under this Section 2.1.
(f) Fractional Shares. No fractional shares of Series E Preferred
-----------------
shall be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of Series
E Preferred shall receive from Parent an amount of cash (rounded up to the
nearest full cent) equal to $16.00 per share multiplied by the fraction of a
share of Series E Preferred to which such holder would otherwise be entitled.
The fractional share interests of each shareholder of the Company (the
"Shareholders") shall be aggregated, so that no Shareholder shall receive cash
in an amount greater than the value of one full share of Series E Preferred or
$16.00.
(g) Stock Options. After the Effective Time, Parent shall grant to
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the employees of the Company stock options under the Parent's 1997 Stock Plan as
provided in the offer letter to be sent to each of the employees of the Company
(the "Employee Stock Options"). The Employee Stock Options (other than with
respect to the Principal Stockholders) shall vest quarterly at the rate of 1/16
per quarter over a four year period. The stock options to be issued to the
Principal Stockholders shall have terms as set forth in the Employment
Agreements (as defined in Section 5.13).
(h) Maximum Merger Consideration. The maximum Merger Consideration to
----------------------------
be paid by Parent pursuant to the Merger shall be equal to (i) 2,540,000 shares
of Series E Preferred plus (ii) $40,000,000 in aggregate principal amount of
Notes.
(i) Pledged Shares.
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(i) As collateral security for the payment of any
indemnification obligations (the "Indemnification Collateral") of the
shareholders of the Company (the "Shareholders") pursuant to Section 7 of this
Agreement, at the Closing each Shareholder shall, and by execution hereof does
hereby, transfer, pledge and assign to Parent, for the benefit of Parent, a
security interest in the following assets and authorize Parent to deliver the
Pledged Shares to the Escrow Agent (as defined below) in accordance with this
Section 2.1(i)(iii):
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(1) 1,270,000 shares of Series E Preferred issuable by Parent in
the Merger pursuant to Section 2.1 (subject to adjustment for Recapitalizations
(as defined in the Restated Articles)) occurring after the date of this
Agreement (the "Pledged Shares"), as well as the certificates and instruments
representing or evidencing the Pledged Shares, and all non-cash dividends and
other property at any time received or otherwise distributed in respect of or in
exchange or substitution for any or all of the Pledged Shares; and in the event
the Company or any Shareholder receives any such property, the Company and such
Shareholder shall immediately deliver such property to Parent as part of the
Pledged Shares; and
(2) all rights, titles, interests, privileges and preferences
appertaining or incident to the foregoing property.
The Pledged Shares shall be withheld from the Shareholders in
relation to the prorated percentage of shares of Series E Preferred issuable to
such Shareholders in the Merger as set forth in Section 2.1 (c).
(ii) All of the Pledged Shares to be issued to the Shareholders other
than the Principal Shareholders (the "Minority Shareholders") except for the
amount of such Pledged Shares required to satisfy Pending Claims as of such date
(as defined in Section 7.2) shall be released from the Indemnification
Collateral upon the closing of an initial public offering of Parent (an "IPO"),
and in the event Parent shall not have consummated an IPO within one year
following the Closing Date, (1) fifty percent (50%) of the Pledged Shares issued
to the Minority Shareholders (other than the amount of such Pledged Shares
required to satisfy Pending Claims as of such date) shall be released from the
Indemnification Collateral as soon as practicable on the first anniversary of
the Closing Date and (2) the remaining fifty percent (50%) of such Pledged
Shares (other than the amount of such Pledged Shares required to satisfy Pending
Claims as of such date) issued to the Minority Shareholders shall be released
from the Indemnification Collateral as soon as practicable following the second
anniversary of the Closing Date.
Fifty percent (50%) of the Pledged Shares to be issued to the
Principal Shareholders (other than the amount of such Pledged Shares required to
satisfy Pending Claims as of such date) shall be released from the
Indemnification Collateral as soon as practicable after the first anniversary of
the Closing Date and the remaining fifty percent (50%) of such Pledged Shares
(other than the amount of such Pledged Shares required to satisfy Pending Claims
as of such date) shall be released as soon as practicable following the second
anniversary of the Closing Date.
(iii) Each certificate evidencing the Pledged Shares issued in the
names of the Shareholders in the Merger, shall, at the Closing, be delivered to
an escrow agent designated by Parent and the Company (the "Escrow Agent"),
together with an undated stock power duly signed in blank by each such
Shareholder. Such certificate shall bear no restrictive or cautionary legend
other than those imprinted at Parent's request. The Pledged Shares and stock
power shall be held by the Escrow Agent pursuant to the Joint Escrow
Instructions substantially in the form attached as Exhibit E-1, until such time
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as Parent's rights to the Indemnification Collateral pursuant hereto are no
longer in effect. As a further condition to Parent's obligations under this
Agreement, the spouse
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of each Shareholder, if any, who resides in the State of California shall
execute and deliver to Parent the Consent of Spouse attached as Exhibit E-2.
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(iv) The Escrow Agent shall not be liable for any act it may do
or omit to do with respect to holding the Pledged Shares in escrow and while
acting in good faith and in the exercise of its judgment, except for actions
taken with gross negligence or willful misconduct.
(v) If Parent demands the Escrow Agent to transfer the Pledged
Shares to Parent to satisfy the indemnification obligations of the Shareholders
pursuant to and in accordance with the procedures and other terms set forth in
Section 7 of this Agreement, the Escrow Agent shall take all steps necessary to
accomplish such transfer.
(vi) The Shareholders shall be entitled to exercise any voting
powers incident to the Pledged Shares until such time, if ever, that they are
demanded to be transferred to Parent to satisfy the indemnification obligations
of the Shareholders pursuant to Section 7 hereof.
2.2 Exchange of Certificates; Issuance of Note.
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(a) Parent to Provide Note and Series E Preferred. Promptly after the
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Effective Time, Parent shall cause to be made available to each of the
Shareholders, in accordance with this Section 2, shares of Series E Preferred
(including cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 2.1(f)) and Notes issuable pursuant to Section 2.1, in
exchange for outstanding shares of capital stock of the Company. The Notes and
the certificates evidencing the shares of Series E Preferred shall bear
appropriate legends pursuant to the terms of this Agreement, and Parent shall be
entitled to issue appropriate stop transfer instructions to its transfer agent
consistent with the terms of this Agreement.
(b) Exchange Procedures. At the Effective Time, the Shareholders
-------------------
shall deliver to Parent the certificates (the "Certificates") representing
Company Common Stock, duly endorsed in blank by the Shareholders, or accompanied
by blank stock powers duly executed by the Shareholders and with all necessary
transfer tax and other revenue stamps, acquired at the Shareholders' expense,
affixed and canceled. The Shareholders shall promptly cure any deficiencies with
respect to the endorsement of the Certificates or other documents of conveyance
with respect to the stock powers accompanying such Certificates. The
Certificates so delivered shall forthwith be canceled. Until delivered as
contemplated by this Section 2.2(b), each Certificate shall be deemed at any
time after the Effective Time to represent the right to receive upon such
surrender the Merger Consideration as provided by Section 2.1 and the applicable
provisions of the State Corporation Law.
(c) No Further Ownership Rights in Capital Stock of the Company. The
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Merger Consideration to be delivered upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and following the Effective Time, the Certificates
shall have no further rights to, or ownership in, shares of capital stock of the
Company. There shall be no further registration of transfers on the stock
transfer books of the
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Company of the shares of Company Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section 2.
(d) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, Parent shall cause payment to be made in exchange for such
lost, stolen or destroyed certificates, upon the making of an affidavit of that
fact by the holder thereof, such Merger Consideration as provided in Section
2.1, and cash for fractional shares, if any, as may be required pursuant to
Section 2.1(f); provided, however, that Parent may, in its discretion and as a
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condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
with respect to the certificates alleged to have been lost, stolen or destroyed.
(e) No Liability. Notwithstanding anything to the contrary in this
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Section 2.2, the Surviving Corporation nor any party hereto shall be liable to a
holder of shares of Company Common Stock for any amount paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDER
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to Parent by the Company and the Principal
Shareholders and certified by a duly authorized officer of the Company and the
Principal Shareholder prior to the date of this Agreement (the "Company
Schedules"), each of the Company and the Principal Shareholders represents and
warrants to Parent and Sub as set forth below.
3.1 Organization, Standing and Corporate Power. The Company is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has all requisite corporate power
and authority to carry on its business as now being conducted. The Company is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary. The Company has
delivered to the Parent complete and correct copies of its Articles of
Incorporation and Bylaws.
3.2 Company Capital Structure.
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(a) The authorized capital stock of the Company consists of (i)
10,000,000 shares of Common Stock, of which 797,500 shares are issued and
outstanding. All of such outstanding shares have been duly authorized, validly
issued, fully paid and non-assessable and have been issued
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in compliance with all applicable federal and state securities laws. The
outstanding shares of capital stock of the Company are not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company, or any agreement to which the Company is a party or by which it may be
bound. There are no voting agreements or voting trusts with respect to any of
the outstanding shares of capital stock of the Company. The outstanding shares
of capital stock of the Company are held by the persons and in the amounts set
forth in Section 3.2 of the Company Schedules.
(b) The Company does not have and has never had any stock option
plans or any options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. As a result of
the Merger, Parent will be the record and beneficial owner of all outstanding
capital stock of the Company and rights to acquire capital stock of the Company.
3.3 Subsidiaries. The Company does not have and has never had any
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subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
3.4 Authority/Noncontravention. The Company has the requisite corporate
--------------------------
power and authority to execute and deliver this Agreement and, subject to the
approval and adoption of this Agreement and approval of the Merger by the
Company's Shareholders, to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance of this Agreement and the
Merger Agreement by the Company and the consummation by the Company of the
Merger and the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby,
subject, in each case, to the approval and adoption of this Agreement and
approval of the Merger by the Company's Shareholders. This Agreement has been
duly executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms. The execution and delivery of this Agreement do not, and, subject to
the approval and adoption of this Agreement and approval of the Merger by the
Company's Shareholders as required in connection with this Agreement and the
transactions contemplated hereby, the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit or require any consent, approval or authorization under,
or result in the creation of any pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens")
in or upon any of the properties or assets of the Company under, any provision
of (a) the Articles of Incorporation or Bylaws of the Company, (b) any loan or
credit agreement, bond,
-8-
debenture, note, mortgage, indenture, lease or other material contract,
commitment, agreement, arrangement, obligation, undertaking, instrument, permit,
concession, franchise or license applicable to the Company or its properties or
assets (including, without limitation, any of the contracts of the Company set
forth in the Company Schedules) or (c) subject to the governmental filings and
other matters referred to in the following sentence, any statute, law,
ordinance, rule or regulation or judgment, order or decree, in each case,
applicable to the Company or its properties or assets, other than, in the case
of clauses (b) and (c), any such conflicts, violations, defaults, rights, or
Liens or other occurrences that individually or in the aggregate would not have
a Material Adverse Effect on the Company. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state or local, domestic or foreign, government or any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by or with respect to the Company
in connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the Merger or the other transactions
contemplated by this Agreement, except for (a) the receipt of a valid exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), (b) the filing of the Agreement of Merger and/or
Certificate of Merger as required by the State Corporation law and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business and (c) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made individually or in the aggregate would not have a Material
Adverse Effect on the Company or impair the ability of the Company to perform
its obligations under this Agreement.
3.5 Financial Statements; No Undisclosed Liabilities.
------------------------------------------------
(a) The unaudited balance sheet of the Company as of December 31,
1998 and the related profit and loss statement of the Company, for the year then
ended (the "1998 Financial Statements"), and the unaudited balance sheet (the
"Balance Sheet") of the Company as of September 30, 1999 (the "Balance Sheet
Date") and the related profit and loss statement for the periods then ended
(collectively, with the 1998 Financial Statements, the "Financial Statements")
are in accordance with the books and records of the Company and are complete and
correct in all material respects, have each been prepared in good faith on a
cash basis method of accounting in accordance with sound accounting principles
in conformity with the practices consistently applied by the Company throughout
the periods involved and present fairly the financial position, results of
operations and cash flows of the Company as of the dates and for the periods
specified. True and complete copies of the Company Financial Statements have
previously been supplied to Parent.
(b) As of the Balance Sheet Date, the Company did not have any
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or asserted or
unasserted), which were not fully reflected in, reserved against or otherwise
described in the Balance Sheet that would be required to be disclosed on a
balance sheet prepared in good faith as of the Balance Sheet Date in conformity
with practices consistently applied by the Company with the Financial
Statements. Since the Balance Sheet Date, the Company has not incurred any
indebtedness, obligations or liabilities of any kind (whether accrued, absolute,
contingent or otherwise, and whether due or to become due or asserted or
-9-
unasserted) that would be required to be disclosed on a balance sheet prepared
in good faith as of the date hereof in conformity with practices consistently
applied by the Company with the Financial Statements, other than those incurred
in the ordinary course of business consistent with past practice, none of which
would have a Material Adverse Effect on the Company.
3.6 Absence of Certain Changes or Events. Except as set forth in Section
------------------------------------
3.6 of the Company Schedules, since the Balance Sheet Date and until the date
hereof, the Company has conducted its businesses only in the ordinary course
consistent with past practice, and there has not been (a) any Material Adverse
Effect with respect to the Company, (b) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, (c) any split,
combination, reclassification or repurchase of any of the Company's capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company's capital stock, (d) (i) any granting by the Company to any officer of
the Company of any increase in compensation, except in the ordinary course of
business consistent with past practice or as required under employment
agreements in effect as of the date hereof, (ii) any granting by the Company to
any officer of the Company of any increase in severance or termination pay,
except as was required under any employment, severance or termination agreement
in effect as of the date hereof, or (iii) any entry by the Company into (A) any
currently effective employment, severance, termination or indemnification
agreement, or consulting agreement (other than in the ordinary course of
business consistent with past practice), with any current or former officer,
director, employee or consultant or (B) any agreement with any current or former
officer, director, employee or consultant the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving the Company of the nature contemplated by this Agreement,
(e) any damage, destruction or loss, whether or not covered by insurance, that
individually or in the aggregate would have a Material Adverse Effect on the
Company, (f) any change in accounting methods, principles or practices by the
Company, or (g) any tax election that individually or in the aggregate would
have a Material Adverse Effect on the Company.
3.7 Litigation. There is no suit, claim, action, proceeding or, to the
----------
knowledge of the Company, investigation, pending or, to the knowledge of the
Company, threatened, against or affecting the Company, nor is there any
judgment, order, decree or injunction of any Governmental Entity or arbitrator
outstanding against, or, to the knowledge of the Company, investigation by any
Governmental Entity involving, the Company.
3.8 Contracts. Except as set forth in Section 3.8 of the Company
---------
Schedules, as of the date hereof, the Company is not a party to, nor are any of
their properties or assets bound by, any currently binding (i) contracts,
licenses or agreements, with respect to any intellectual property with a value
or cost in excess of $50,000, (ii) any employment or consulting agreement or
contract (or commitment to enter into any such agreement or contract) with an
employee or individual consultant or salesperson or consulting or sales
agreement or contract (or commitment to enter into any such agreement or
contract) with a firm or other organization in excess of $10,000 annually, (iii)
any agreement or plan, including, without limitation, any stock option plan,
stock appreciation rights plan or stock purchase plan, any of the benefits
-10-
of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement, (iv) any
fidelity or surety bond or completion bond, (v) any lease of personal property
having a value individually in excess of $10,000, (vi) any agreement of
indemnification, agreement providing for reimbursement of payments or providing
a right of rescission, hold harmless or guaranty, or any obligation or liability
with respect to infringement of the intellectual property rights of another
person, in excess of, or entered into in connection with a transaction in excess
of, $10,000, (vii) any agreement, contract or commitment containing any covenant
limiting the freedom of such party, any of its subsidiaries or the Surviving
Corporation to engage in any line of business or to compete with any person,
(viii) any agreement, contract or commitment relating to capital expenditures
and involving future payments by such party or any of its subsidiaries in excess
of $10,000 in one or in a series of transactions, (ix) any agreement, contract
or commitment relating to the disposition or acquisition of assets or any
interest in any business enterprise outside the ordinary course of business, (x)
any mortgages, indentures, loans or credit agreements, security agreements or
other agreements or instruments relating to the borrowing of money or extension
of credit, (xi) any purchase order or contract for the purchase of materials
involving in excess of $10,000, (xii) any construction contracts, (xiii)
contracts that relate to corporate governance, the voting or transfer of any
equity securities of such party, the registration of any securities of such
party under the Securities Act or that grants any redemption or preemptive
rights or (xiv) any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days
(collectively, the "Contracts"). The Company has delivered or otherwise made
available to Parent true, correct and complete copies of the Contracts listed in
Section 3.8 of the Company Schedules, together with all amendments,
modifications and supplements thereto and all side letters to which the Company
is a party affecting the obligations of any party thereunder. The Company has in
all material respects performed all the obligations required to be performed by
them to date, has received no notice of default and is not in violation of or in
default (with or without notice or lapse of time, or both) under any lease,
permit, concession, franchise, license or any other Contract, commitment,
agreement, arrangement, obligation or understanding to which it is a party or by
which it or any of its properties or assets is bound. Each of the Contracts is
in full force and effect with no default, anticipated or threatened default or
failure of performance or observance of any obligations or conditions contained
therein, and none of the foregoing parties nor the Company has provided any
notice of default or of its intention to terminate these agreements. As of the
Closing, after giving effect to the Merger and the transactions contemplated
hereby, the Surviving Corporation, shall be entitled to all of the benefits
under the agreements (as the same may be amended) set forth on Section 3.8 of
the Company Schedules to which the Company is entitled on the date hereof,
except as may be adversely affected by agreements (as the same may be amended)
to which Parent is a party on the date hereof.
3.9 Compliance With Laws. The Company is in compliance with all statutes,
--------------------
laws, ordinances, rules, regulations, judgments, orders and decrees of any
Governmental Entity applicable to its business or operations, except for
instances of possible noncompliance that individually or in the aggregate would
not have a Material Adverse Effect on the Company, impair in any material
respect the ability of the Company to perform its obligations under this
Agreement or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement. The
-11-
Company has in effect all Federal, state and local, domestic and foreign,
governmental consents, approvals, orders, authorizations, certificates, filings,
notices, permits, franchises, licenses and rights (collectively "Permits")
necessary for it to own, lease or operate its properties and assets and to carry
on its business as now conducted and there has occurred no violation of, or
default under, any such Permit, except for the lack of Permits and for
violations of, or defaults under, Permits which lack, violation or default
individually or in the aggregate would not have a Material Adverse Effect on the
Company.
3.10 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of "Affiliate"
-----------
set forth in Section 3.10(a)(i) below (which definition shall apply only to this
Section 3.10) for purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
---------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended;
(iii) "Company Employee Plan" shall mean any plan, program,
---------------------
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
---
(vi) "Employee" shall mean any current or former employee,
--------
consultant or director of the Company or any Affiliate;
(vii) "Employee Agreement" shall mean each management,
------------------
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee, other than oral at will employment
arrangements to pay wages for time worked between the Company and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended;
-12-
(ix) "FMLA" shall mean the Family Medical Leave Act of 1993, as
----
amended;
(x) "International Employee Plan" shall mean each Company
---------------------------
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
---
(xii) "Multiemployer Plan" shall mean any "Pension Plan" (as
------------------
defined below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA;
(xiii) "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation; and
(xiv) "Pension Plan" shall mean each Company Employee Plan which
------------
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Schedule 3.10(b) contains an accurate and complete
--------
list of each Company Employee Plan and each Employee Agreement. The Company does
not have any plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Company Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent: (i) correct and
---------
complete copies of all documents embodying each Company Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and all
related trust documents; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan; (iv) if the Company Employee Plan is funded, the
most recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and all applications and correspondence to or from the IRS
or the DOL with respect to any such application or letter; (vii) all material
written agreements and contracts relating to each Company Employee Plan,
including, but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company; (ix) all correspondence to or from any governmental agency
relating to any Company Employee Plan; (x) all COBRA forms and related notices
(or such forms
-13-
and notices as required under comparable law); (xi) all policies pertaining to
fiduciary liability insurance covering the fiduciaries for each Company Employee
Plan; (xii) the three (3) most recent plan years discrimination tests for each
Company Employee Plan; and (xiii) all registration statements, annual reports
(Form 11-K and all attachments thereto) and prospectuses prepared in connection
with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule 3.10(d),
------------------------
(i) the Company has performed in all material respects all obligations required
to be performed by it under, is not in default or violation of, and has no
knowledge of any default or violation by any other party to each Company
Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Plan as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation, or has remaining a period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such a letter and make
any amendments necessary to obtain a favorable determination as to the qualified
status of each such Company Employee Plan; (iii) no "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 4975 or Section 408 of ERISA (or any
administrative class exemption issued thereunder), has occurred with respect to
any Company Employee Plan; (iv) there are no actions, suits or claims pending,
or, to the knowledge of the Company, threatened or reasonably anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; (v) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Parent, Company or any of
its Affiliates (other than ordinary administration expenses); (vi) there are no
audits, inquiries or proceedings pending or, to the knowledge of the Company or
any Affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate has ever
------------
maintained established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multiemployer and Multiple Employer Plans. At no time has the Company
-----------------------------------------
or any Affiliate contributed to or been obligated to contribute to any
Multiemployer Plan. Neither the Company, nor any Affiliate has at any time ever
maintained, established, sponsored, participated in, or contributed to any
multiple employer plan, as described in Section 413(c) of the Code.
(g) No Post-Employment Obligations. Except as set forth in Schedule
------------------------------
3.10(g), no Company Employee Plan provides, or reflects or represents any
liability to provide, retiree life
-14-
insurance, retiree health or other retiree Employee Welfare Benefit Plan to any
person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has never represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree Employee
Welfare Benefit Plan, except to the extent required by statute.
(h) Health Care Compliance. Neither the Company nor any Affiliate has,
----------------------
prior to the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Health Insurance Portability and Accountability Act of 1996,
the requirements of the Women's Heath and Cancer Rights Act, the requirements of
the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to
each such Act, or any similar provisions of state law applicable to its
Employees.
(i) Effect of Transaction.
---------------------
(i) Except as set forth on Schedule 3.10(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
(ii) Except as set forth on Schedule 3.10(i), no payment or benefit
which will or may be made by the Company or its Affiliates with respect to any
Employee will be characterized as a "parachute payment," within the meaning of
Section 280G(b)(2) of the Code.
(j) Employment Matters. The Company: (i) is in compliance in all respects
------------------
with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld and reported all amounts required by law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund governed by or maintained by or on
behalf of any governmental authority, with respect to unemployment compensation
benefits, social security or other benefits or obligations for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending, threatened or reasonably anticipated
claims or actions against the Company under any worker's compensation policy or
long-term disability policy. Each person who is acting or has acted as a
consultant to the Company is acting or acted as an "independent contractor" and
could not, based on the facts and circumstances of his or her consultancy
reasonably be deemed to have been "employed" by the Company.
(k) Labor. No work stoppage or labor strike against the Company is
-----
pending, threatened or reasonably anticipated. The Company does not know of any
activities or proceedings
-15-
of any labor union to organize any Employees. Except as set forth in Schedule
3.10(k), there are no actions, suits, claims, labor disputes or grievances
pending, or, to the knowledge of the Company, threatened or reasonably
anticipated relating to any labor, safety or discrimination matters involving
any Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
Except as set forth in Schedule 3.10(k), the Company is not presently, nor has
it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company.
(l) International Employee Plan. Each International Employee Plan has
---------------------------
been established, maintained and administered in material compliance with its
terms and conditions and with the requirements prescribed by any and all
statutory or regulatory laws that are applicable to such International Employee
Plan. Furthermore, no International Employee Plan has unfunded liabilities that,
as of the Effective Time, will not be offset by insurance or fully accrued.
Except as required by law, no condition exists that would prevent the Company,
Parent or the Surviving Corporation from terminating or amending any
International Employee Plan at any time for any reason without liability to the
Company, Parent, the Surviving Corporation or their respective Affiliates.
3.11 Intentionally Omitted.
---------------------
3.12 Taxes. The Company has filed all tax returns and reports required to
-----
be filed by it and all such returns and reports are true and correct. All taxes
that accrue or are payable by the Company in respect of taxable periods that end
on or before the Closing Date and for any taxable period that begins before the
Closing Date and ends thereafter to the extent such taxes are attributable to
the portion of such period ending on the Closing Date, as determined under the
closing of the books method of allocation, have been (or will have been, on or
before the Closing Date) timely paid or an adequate reserve has been established
on the Balance Sheet. The most recent Financial Statements, dated December 31,
1998, (a true, correct complete copy of which has been delivered to the Parent
by the Company) reflect an adequate reserve for all taxes payable by the Company
for all taxable periods and portions thereof through the date of such financial
statements and no liabilities for taxes have been incurred since the date of
such financial statements except in the ordinary course of business. No
deficiencies for any taxes have been proposed, asserted or assessed against the
Company, and no requests for waivers of the time to assess any such taxes are
pending. As used in this Agreement, "taxes" shall include all Federal, state,
local and foreign income, property, sales, excise and other taxes, tariffs or
governmental charges of any nature whatsoever, together with an interest and
penalties, whether as primary obligor or as a result of being a "transferor"
(within the meaning of section 6901 of the Code and any corresponding state and
local law) of another person or a member of an affiliated, consolidated or
combined group. The Company uses the cash method of accounting for income tax
purposes. The Company has at all times since June 1988 had in effect (and will
have in effect through the Closing Date) a valid election to be
-16-
treated as an S Corporation under Section 1361(a)(1) of the Code. The Company
has not made an election under Section 341(f) of the Code.
3.13 Intentionally Omitted.
---------------------
3.14 Title to Properties.
-------------------
(a) The Company has good and marketable title to, or valid leasehold
interests in, all of its properties and assets except for such as are no longer
used or useful in the conduct of its business or as have been disposed of in the
ordinary course of business and except for defects in title, easements,
restrictive covenants and similar encumbrances that individually or in the
aggregate would not have a Material Adverse Effect on the Company. All such
material assets and properties, other than assets and properties in which the
Company has a leasehold interest, are free and clear of all Liens (other than
Liens for current taxes not yet due and payable), except for Liens that
individually or in the aggregate would not have a Material Adverse Effect on the
Company.
(b) The Company has complied in all material respects with the terms
of all leases to which it is a party and under which it is in occupancy, all
such leases are in full force and effect and have been made available to the
Parent. The Company enjoys peaceful and undisturbed possession under all such
leases.
3.15 Intellectual Property.
---------------------
(a) The Company owns, or has the right to use, sell or license all
intellectual property necessary or required for the conduct of its business as
presently conducted and as presently contemplated (such intellectual property
and the rights thereto are collectively referred to as the "Company IP Rights").
(b) Section 3.15 of the Company Schedules sets forth with respect to
the intellectual property of the Company: (i) for each patent and patent
application, the number, normal expiration date, title and priority information
for each country in which such patent has been issued, or, the application
number, date of filing, title and priority information for each country, (ii)
for each trademark, trade name or service ▇▇▇▇, whether or not registered, the
date first used, and, if registered, the application serial number or
registration number, the class of goods covered, the nature of the goods or
services, the countries in which the names or ▇▇▇▇ is used and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright for which registration has been sought, whether or not
registered, the date of creation and first publication of the work, the number
and date of registration for each country in which a copyright application has
been registered.
(c) The Company has taken all reasonable steps necessary or
appropriate (including, entering into appropriate confidentiality, nondisclosure
agreements with officers, directors, subcontractors, independent contractors,
full-time and part-time employees, licensees and customers) to safeguard and
maintain the secrecy and confidentiality of, and the proprietary rights in, the
Company IP Rights.
-17-
(d) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Company IP Right (the
"Company IP Rights Agreements"), will not cause the forfeiture or termination or
give rise to a right of forfeiture or termination of any Company IP Right or
impair the right of the Company, the Surviving Corporation or the Parent to use,
sell or license any Company IP Right or portion thereof.
(e) (i) Neither the manufacture, marketing, license, sale or intended
use of any product or technology currently licensed or sold by the Company
violates any license or agreement between the Company and any third party or, to
the best knowledge of the Company, infringes any proprietary right of any other
party; and (ii) there is no pending or, to the knowledge of the Company,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Company IP Right.
3.16 Year 2000 Compliance.
--------------------
(a) The Company has provided the information attached as Schedule
3.16 in response to customer inquiries regarding Year 2000 Compliance. To the
best of the Company's knowledge, such information is true and correct.
(b) For purposes of this Agreement, "Year 2000 Compliant" means that
(i) the products, services, or other items(s) at issue accurately process,
provide and/or receive all date/time data (including calculating, comparing, and
sequencing) within, from, into, and between centuries (including the twentieth
and twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (ii) neither the performance nor the functionality nor the
Company's provision of the products, services, and other item(s) at issue will
be affected by any dates/times prior to, on, after, or spanning January 1, 2000.
The design of the products, services, and other item(s) at issue includes proper
date/time data century recognition and recognition of 1999 and 2000,
calculations that accommodate single century and multi-century formulae and
date/time values before, on, after spanning January 1, 2000, and date/time data
interface values that reflect the century, 1999, and 2000.
3.17 Voting Requirements. The affirmative vote of the holders of a
-------------------
majority of the outstanding shares of Company Common Stock (the "Shareholder
Approval"), is the only vote of the holders of any capital stock of the Company
necessary to approve and adopt this Agreement and approve the Merger.
3.18 Payments. Neither the Company nor any of its representatives acting
--------
on its behalf have, directly or indirectly, paid or delivered any fee,
commission or other sum of money or property, however characterized, to any
finder, agent, government official or other party, in the U.S. or any other
country which the Company knows or has reason to believe to have been illegal
under any federal, state or local laws of the U.S. or any other country having
jurisdiction. Neither the Company nor any of its representatives acting on its
behalf, have accepted or received any unlawful contributions, payments, gifts or
expenditures.
-18-
3.19 Transactions with Related Parties. Except for compensation
---------------------------------
arrangements in the ordinary course of business, as disclosed on Section 3.19 of
the Company Schedules or for amounts less than $10,000, no Related Party (as
defined below) of the Company has (a) borrowed or loaned money or other property
to the Company which has not been repaid or returned, (b) any currently
enforceable contractual or other claims, express or implied, of any kind
whatsoever against the Company or (c) has or had any material economic interest
in any property currently used by the Company or any subsidiary thereof. For
purposes of this Agreement, (i) "Related Party" means as to any person, any of
such person's officers and directors, any Affiliate thereof or the respective
officers and directors of any such Affiliate, or any other person in which any
of the foregoing persons have any direct or material indirect interest, (ii)
"Affiliate" of a person means any other person which directly or indirectly
controls, is controlled by, or is under common control with, such person and
(iii) "control" (including, with correlative meaning, the terms "controlled by"
and "under common control with"), as used with respect to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
3.20 Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete, grant of exclusivity or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company.
3.21 Accounts Receivable; Inventory.
------------------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company reflected on the Balance Sheet ("Accounts Receivable")
along with a range of days elapsed since invoice.
(b) To the best knowledge of the Company, all Accounts Receivable of
the Company are collectible except to the extent of reserves therefor set forth
in the Balance Sheet. No person has any Lien on any of such Accounts Receivable
and no request or agreement for deduction or discount has been made with respect
to any of such Accounts Receivable.
(c) All of the inventories of the Company reflected on the Balance
Sheet and the Company's books and records on the date of this Agreement were
purchased, acquired or produced in the ordinary and regular course of business
and in a manner consistent with the Company's regular inventory practices and
are set forth on the Company's books and records in accordance with the
practices and principles of the Company consistent with the method of treating
said items in prior periods.
3.22 Minute Books. The minute books of the Company made available to
------------
counsel for Parent are the only minute books of the Company and contain an
accurate summary of all meetings of directors (or committees thereof) and
shareholders or actions by written consent since the date of incorporation of
the Company.
-19-
3.23 Environmental Matters.
---------------------
(a) Except as set forth in Section 3.23 of the Company Schedules, to
the best knowledge of the Company, no underground storage tanks and no amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state, local or other applicable law to be radioactive,
toxic, hazardous or otherwise a danger to health or the environment, including,
without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies properly and safely
maintained (a "Hazardous Material"), are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company has at any time owned, operated, occupied or leased.
(b) The Company has not transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous Materials
in violation of any law in effect on or before the Closing Date, nor has the
Company disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively, "Company Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) The Company currently holds all environmental approvals, permits,
licenses, clearances and consents (the "Environmental Permits") necessary for
the conduct of the Company's Hazardous Material Activities and other business of
the Company as such activities and business are currently being conducted other
than any Environmental Permits, the lack of which would not, individually or in
the aggregate, have a Material Adverse Effect. All Environmental Permits are in
full force and effect. The Company (A) is in compliance with all material terms
and conditions of the Environmental Permits and (B) is in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all Governmental Entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder.
(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to the Company's best
knowledge, threatened, concerning any Environmental Permit, Hazardous Material
or any Company Hazardous Materials Activity. The Company is not aware of any
fact or circumstance which could involve the Company in any environmental
litigation or impose upon the Company any material environmental liability.
3.24 Insurance. Section 3.24 of the Company Schedules lists all insurance
---------
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters
-20-
of such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and the Company is otherwise in material compliance
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has not received any
notice that the insurers intend to terminate or materially increase the premiums
payable under any of such policies.
3.25 Warranties; Indemnities. Section 3.25 of the Company Schedules
-----------------------
indicates all warranty and indemnity claims in excess of $5,000 pending, or
threatened against the Company.
3.26 Representations Complete. None of the representations or warranties
------------------------
made by the Company, nor any document, written information, statement, financial
statement, certificate, schedule or exhibit prepared or furnished by the Company
or its representatives pursuant to this Agreement or in connection with the
transactions contemplated hereby, or furnished in or in connection with any
materials mailed or delivered to the shareholders of the Company (the
"Shareholder Materials") in connection with soliciting their consent to this
Agreement and the transactions contemplated hereby, contains or will contain at
the Effective Time, any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading, except with respect to any statements made in
reliance upon and in conformity with written information concerning Parent or
Sub which has been furnished to the Company specifically for inclusion in the
Shareholder Materials. To the Company's best knowledge, there is no event, fact
or condition that has resulted in, or could reasonably be expected to result in,
a Material Adverse Effect that has not been set forth in this Agreement or in
the Company Schedules.
3.27 HSR Act. No shareholder of the Company, combined with his or her
-------
spouse and minor children, if any, and any entities controlled by any of them,
including but not limited to the Company, currently has total assets of $100
million or more, as defined under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and the regulations promulgated
thereunder, including 16 CFR 801.11. No shareholder of the Company, combined
with his or her spouse and minor children, if any, and any entities controlled
by any of them, including but not limited to the Company, had total net sales of
$100 million or more in the most recent fiscal year, as defined under the HSR
Act and the regulations promulgated thereunder, including 16 CFR 801.11.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Except as disclosed in writing in a disclosure letter referring
specifically to the representations and warranties in this Agreement that
specifically identifies the section and subsection to which such disclosure
relates and that is delivered to the Company by the Parent and certified by a
duly authorized officer of the Parent prior to the date of this Agreement,
Parent or Sub, as the case may be, represents and warrants to the Company as
follows:
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4.1 Organization, Standing and Corporate Power. Each of the Parent and
------------------------------------------
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has all requisite corporate
power and authority to carry on its business as now being conducted. Parent is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified or licensed or be in good
standing individually or in the aggregate would not have a Material Adverse
Effect on Parent.
4.2 Authority. Each of the Parent and Sub has the requisite corporate
---------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. The execution, delivery and
performance of this Agreement by the Company and the consummation by each of
Parent and Sub of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of each of Parent and
Sub and no other corporate proceedings on the part of each of Parent and Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
each of Parent and Sub and constitutes valid and binding obligations of Parent
and Sub, enforceable against the Parent and Sub in accordance with its terms.
4.3 Capitalization. The authorized capital stock of Parent consists or
--------------
will, upon the filing of the Restated Articles, consist of (i) 20,000,000 shares
of Common Stock, of which 5,830,625 shares are issued and outstanding as of the
date of this Agreement, and (ii) 8,298,820 shares of Preferred Stock, 1,500,005
of which have been designated "Series A Preferred," of which 1,500,005 are
issued and outstanding as of the date of this Agreement, 700,000 of which have
been designated "Series B Preferred," of which 700,000 are issued and
outstanding as of the date of this Agreement, 1,730,061 of which have been
designated "Series C Preferred, "of which 1,630,061 are issued and outstanding
as of the date of this Agreement, 1,698,754 of which have been designated
"Series D Preferred," of which 1,571,940 are issued and outstanding as of the
date of this Agreement, 2,540,000 of which have been designated "Series E
Preferred," all of which will be issued and outstanding upon the issuance of the
Series E Preferred as contemplated herein. The outstanding shares have been
duly authorized and validly issued in compliance with applicable laws, and are
fully paid and nonassessable. Parent has reserved (i) 2,540,000 shares of
Series E Preferred in connection with the Merger; (ii) 100,000 shares of Series
C Preferred for issuance upon exercise of warrants to purchase Series C
Preferred Stock (the "Series C Warrants"); (iii) 8,128,820 shares of Common
Stock for issuance upon conversion of the Preferred Stock (1,500,005 shares of
Common Stock reserved for conversion of Series A Preferred; 700,000 shares of
Common Stock reserved for conversion of Series B Preferred; 1,730,061 shares of
Common Stock reserved for conversion of Series C Preferred, 1,698,754 shares of
Common Shares reserved for conversion of Series D Preferred and 2,540,000 shares
of Common Shares reserved for conversion of Series E Preferred) and (iv)
2,599,321 shares of its Common Stock for issuance to employees, consultants
and/or directors pursuant to its 1997 Stock Plan, of which 1,892,050 have been
issued and exercised, of which 694,500 are subject to currently issued and
unexercised options (the "Unexercised Options"), and of which 133,916 are
reserved for issuance upon the exercise of unissued options (the "Unissued
Options"). The Common Stock, the Series A Preferred, the Series B Preferred,
the
-22-
Series C Preferred, the Series D Preferred and the Series E Preferred have the
rights, preferences, privileges and restrictions set forth in the Restated
Articles.
(a) Except for (i) the Series C Warrants, (ii) the conversion
privileges of the Series A, Series B, Series C, Series D and Series E Preferred,
(iii) the Unexercised Options, (iv) the Unissued Options and (v) the rights
provided in the Rights Agreement, there are no outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from Parent of any shares of its capital stock. Parent
is not a party or subject to any agreement or understanding, and, to Parent's
best knowledge, there are no agreements or understandings between any persons or
entities which affect or relate to the voting or giving of written consent with
respect to any security or by a director of Parent.
4.4 Financial Statements. Parent has delivered to the Company its audited
--------------------
balance sheet and statement of operations for the period ended December 31,
1998, and its unaudited balance sheet and statement of operations as for the
period ended September 30, 1999 (collectively, the "Parent Financial
Statements"). The Parent Financial Statements are complete and correct in all
material respects and accurately set out and describe the financial condition
and operating results of Parent as of the dates and during the periods indicated
therein. The Parent Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied and
present fairly the financial position of Parent as at their respective dates and
the profits and losses of Parent for the periods then ended; provided, however,
that the unaudited Parent Financial Statements do not contain additional
financial statements and footnotes required under GAAP and are subject to normal
year-end adjustments.
4.5 Changes. Since September 30, 1999, there has not been:
-------
(a) Any change in the assets, liabilities, financial condition, or
operations of Parent except changes in the ordinary course of business which
have not been in any case materially adverse;
(b) Any damage, destruction, or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties or business
of Parent (as such business is currently conducted);
(c) Any waiver or compromise by Parent of a valuable right or of a
material debt owed to it;
(d) Any loans made by Parent to its employees, officers or directors
other than travel advances made in the ordinary course of business;
(e) Any declaration or payment of any dividend or other distribution
by Parent;
(f) To the best of Parent's knowledge, any other event or condition
of any character which has materially and adversely affected the assets,
liabilities, financial condition,
-23-
operating results or business (as such business is currently conducted and
proposed to be conducted) of Parent; or
(g) Any material change in any compensation arrangement or agreement
with any employee or officer of Parent.
4.6 Material Obligations. Except as otherwise disclosed in Section 4.6 of
--------------------
the Disclosure Letter of Parent, as of the date hereof, Parent is not a party to
any contracts, the backlog of which individually exceeds $500,000. Parent has
no material liabilities or obligations, absolute or contingent (individually or
in the aggregate), except (i) the liabilities and obligations set forth in the
Parent Financial Statements, (ii) liabilities and obligations which have been
incurred subsequent to December 31, 1998, in the ordinary course of business
which have not been, either in any case or in the aggregate, material and (iii)
as set forth in the Schedule of Exceptions. None of (i) Software Production and
Distribution Agreement, dated January 9, 1998, between Parent and KLA-Tencor
Corporation, (ii) Software Purchase Agreement, dated August 1, 1998, between
Parent and Motorola, Inc., (iii) Process Development License and Support
Agreement, dated May 1, 1999, between parent and TSMC, or (iv) License Agreement
effective October 1, 1999 between Parent and Cadence Design Systems, Inc.
provided to counsel of the Company has been amended since their respective
execution dates.
(a) Material Contracts and Commitments. (i) To the best of Parent's
----------------------------------
knowledge, all of the material contracts, agreements and instruments to which
Parent is a party are valid, binding and in full force and effect in all
material respects, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
(ii) Except for the agreements explicitly contemplated hereunder,
there are no agreements, understandings or proposed transactions between Parent
and any of its officers, directors, affiliates or any affiliate thereof. There
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which Parent is a party or
by which it is bound which may involve (i) the license of any patent, copyright,
trade secret or other proprietary right to or from Parent, (ii) provisions
restricting or affecting the development, manufacture or distribution of
Parent's products or services or (iii) indemnification by Parent with respect to
infringements of proprietary rights.
(b) Intellectual Property, Trademarks, etc. Parent has the right to
--------------------------------------
use, free and clear of all liens, charges, claims and restrictions, all
intellectual property, patents, trademarks, service marks, trade names,
copyrights, licenses and rights necessary to the business of Parent as presently
conducted. To the best of Parent's knowledge, Parent is not infringing upon or
otherwise acting adversely to the right or claimed right of any other person
under or with respect to the foregoing, and Parent has not received any
communications alleging that Parent has violated or, by conducting its business
as currently conducted or as proposed to be conducted, would violate any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any person or entity.
-24-
(c) Each key employee (including independent contractors, if any) and
each officer of Parent has executed an employee confidential information and
invention agreement (the "Parent Proprietary Information Agreement"). Such
Parent Proprietary Information Agreements constitute valid and binding
obligations of Parent and such persons, enforceable in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunction relief or other equitable remedies. Parent is
not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement or subject
to any judgement, decree or order of any court of administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of Parent or that would conflict with Parent's business as currently conducted.
Neither the execution or delivery of the Agreements nor the carrying out of
Parent's business by the employees of Parent, nor the conduct of Parent's
business as currently conducted and as proposed to be conducted will, to
Parent's knowledge without special investigation, conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contracts, covenants or instruments under which any of such employees
is now obligated. Parent does not believe it is or will be necessary to utilize
any inventions of any of its employees made prior to their employment by Parent
except for any such inventions that are in the public domain.
4.7 Title to Properties and Assets; Liens, etc. Parent has good and
------------------------------------------
marketable title to all properties and assets and has good title to all its
leasehold interests necessary for its business as currently conducted in all
material respects, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of Parent, and which have not arisen otherwise than in the
ordinary course of business.
4.8 Compliance with Other Instruments, None Burdensome, etc. Parent is
-------------------------------------------------------
not in violation of any term of its Restated Articles or Bylaws, as each are
amended to date, or in any material respect of any term or provision of any
material mortgage, indebtedness, indenture, contract, agreement, instrument,
judgment or decree, and to the best of Parent's knowledge, Parent is not in
violation of any order, statute, rule or regulation applicable to Parent. The
execution, delivery and performance of and compliance with this Agreement, and
the consummation of the transactions contemplated hereby, have not resulted and
will not result (i) in any violation of, or conflict with, or constitute a
default under, Parent's Restated Articles or Bylaws, as amended to date, or (ii)
in any material violation of, conflict with or default under any of its
agreements, nor result in the creation of, any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of Parent.
4.9 Litigation, etc. There are no actions, suits, proceedings or
---------------
investigations pending against Parent or its properties before any court or
governmental agency (nor, to the best of Parent's knowledge, is there any
reasonable basis therefor or threat thereof). Parent is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by Parent currently pending or which Parent intends
to initiate.
-25-
4.10 Registration Rights. Except as set forth in the Rights Agreement
-------------------
attached hereto as Exhibit D, Parent is not under any contractual obligation to
register (as defined in Section 2.2 of the Rights Agreement) any of its
presently outstanding securities or any of its securities which may hereafter be
issued.
4.11 Governmental Consent, etc. No consent, approval or authorization of
-------------------------
or designation, declaration or filing with any governmental authority on the
part of Parent is required in connection with the valid execution and delivery
of this Agreement, or the consummation of the transactions contemplated hereby,
except (a) filing of the Restated Articles in the office of the California
Secretary of State, (b) qualification (or taking such action as may be necessary
to secure an exemption from qualification, if available) of the offer and sale
of shares of Series E Preferred (and the Parent Common Stock issuable upon
conversion of such shares) and the Notes under the California Corporate
Securities Law of 1968, as amended, which filings and qualifications, if
required, will be accomplished in a timely manner, (c) the receipt of a valid
exemption from the registration requirements of the Securities Act, (d) the
filing of the Agreement of Merger with the California Secretary of State and
appropriate documents with the relevant authorities of other states in which
Parent is qualified to do business, (e) approval and adoption of this Agreement
and approval of the Merger by Parent's shareholders and (f) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made individually or in the aggregate would
not have a Material Adverse Effect on the Parent or impair the ability of Parent
or Sub to perform their obligations under this Agreement.
4.12 Tax Returns and Payments. Parent has timely filed all tax returns
------------------------
(federal, state and local) required to be filed by it. All such tax returns are
true and correct. All taxes shown to be due and payable on such returns, any
assessments imposed, and all other taxes due and payable by Parent on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. Parent has not been advised (i) that any of its returns, federal,
state or other, have been or are being audited as of the date hereof, or (ii) of
any deficiency in assessment or proposed judgment to its federal, state or other
taxes. Parent has no knowledge of any liability of any tax to be imposed upon
its properties or assets as of the date of this Agreement that is not adequately
provided for.
4.13 Employee Matters. Except as provided in this Agreement or as
----------------
contemplated hereby, Parent has no employment contracts with any of its
employees not terminable at will. Parent does not have any collective bargaining
agreements with any of its employees and no labor union organizing activity is
pending or threatened with respect to Parent. Parent does not have any Employee
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974
("ERISA").
4.14 Insurance. Parent has in full force and effect fire and casualty
---------
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed.
4.15 Disclosure. Parent has provided to the Company and each Shareholder
----------
all information requested by such party in writing in connection with the
transactions contemplated
-26-
hereunder. Neither this Agreement (including the Exhibits hereto) nor any other
written documents or certificates delivered in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. The presentation to the
Principal Shareholders, dated August 31, 1999 (the "Presentation") was made in
good faith by Parent and with respect to any assumptions, projections and
expressions of opinion or predictions referred to in the Presentation
(collectively, "Projections"), such Projections were made in good faith based
upon assumptions Parent believed to be reasonable, provided, however, that
Parent makes no representation as to the accuracy of such Projections.
4.16 Status of Shares. The shares of (i) Series E Preferred, when issued
----------------
in the Merger in compliance with this Agreement, and (ii) common stock of Parent
issuable upon the conversion of the Series E Preferred, will be validly issued,
fully paid and nonassessable.
4.17 Experience; Access to Data. Parent has substantial experience in
--------------------------
evaluating and acquiring companies similar to the Company so that it is capable
of evaluating the merits and risks of the transactions contemplated hereby and
has the capacity to protect its own interests. Parent has had an opportunity to
discuss the Company's business, management and financial affairs with its
management. Parent has also had an opportunity to ask questions of officers of
the Company, which questions were answered to its satisfaction.
SECTION 5
COVENANTS
5.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as conducted
prior to the date of this Agreement and, to the extent consistent with such
business, use all commercially reasonable efforts consistent with past practice
and policies to preserve intact its present business organization, keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, with the objective that its
goodwill and ongoing business shall be unimpaired at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence not in the
ordinary course of business of the Company. Except as expressly contemplated by
this Agreement or disclosed in the Company Schedules, the Company shall not,
without the prior written consent of Parent:
(a) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock, or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock;
-27-
(b) Issue, deliver or sell, authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities or
authorize or propose any change in its equity capitalization;
(c) Solicit approval for or effect any amendments to the Company's
Articles of Incorporation or Bylaws;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company;
(e) Sell, lease, license, pledge or otherwise dispose of or encumber
any of its properties or assets except in the ordinary course of business
consistent with past practice (including without limitation any indebtedness
owed to it or any claims held by it);
(f) Except in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee, endorse or
otherwise become responsible for the obligations of others, or make loans or
advances;
(g) Pay, discharge or satisfy in an amount in excess of $10,000 in
any one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice of
liabilities reflected or reserved against in the Financial Statements or those
incurred after the Balance Sheet in the ordinary course of business;
(h) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its officers or employees other than in the ordinary
course of business, consistent with past practice, or change in any material
respect any management policies or procedures;
(i) Commence a lawsuit other than for the routine collection of
bills;
(j) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company IP Rights or
enter into grants to future patent rights, other than in the ordinary course of
business;
(k) Except in the ordinary course of business with prior notice to
Parent, violate, amend or otherwise modify the terms of any of the Company's
contracts binding on the Company as set forth in Section 3.8 of the Company
Schedules;
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(l) Revalue any of its assets, including without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
(m) Make any material tax election other than in the ordinary course
of business and consistent with past practice, change any material tax election,
adopt any material tax accounting method other than in the ordinary course of
business and consistent with past practice, change any material tax accounting
method, file any material tax return (other than any estimated tax returns,
payroll tax returns or sale tax returns) or any amendment to a material tax
return, enter into any closing agreement, settle any tax claim or assessment, or
consent to any tax claim or assessment, without the prior written consent of the
Parent, which consent will not be reasonably withheld;
(n) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
(o) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith; or waive or commit
to waive any rights of substantial value; or cancel, materially amend or renew
any insurance policy; or
(p) Take, or agree (in writing or otherwise) to take, any of the
actions described in Sections 5.1(a) through (o) above, or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or result in any of the conditions to the
Merger set forth in Section 6 not being satisfied.
5.2 No Solicitation. Until the earlier of the Effective Time or the
---------------
termination of this Agreement pursuant to the provisions of Section 8.1, neither
the Company nor the Principal Shareholders will (nor will the Company permit any
of the Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, conduct discussions with or engage
in negotiations with any person or take any other action intended or designed to
facilitate the efforts of any person, other than Parent, relating to the
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
capital stock or assets, (b) provide information with respect to it to any
person, other than Parent, relating to the possible acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any portion of its or their capital stock or assets, (c) enter
into an agreement with any person, other than Parent, providing for the
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any portion of its capital stock or assets
or (d) make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any portion of
its capital stock or assets by any person, other than by Parent. In addition to
the foregoing, if the Company or the Principal Shareholder receives any
unsolicited bona fide offer or proposal relating to any of the above, the
---- ----
Company or the Principal Shareholder (as the case may be) shall immediately
notify Parent thereof, including information as to the identity of the offeror
or the party making any such offer or proposal and the specific terms of such
offer or proposal, as the case may be.
-29-
5.3 Access to Information. Upon reasonable notice, the Company and Parent
---------------------
shall each afford the officers, accountants, counsel and other representatives
of the other party, reasonable access during normal business hours during the
period prior to the Effective Time to (a) all of its properties, books,
contracts, commitments and records, and (b) all other information concerning its
business, properties and personnel (subject to restrictions imposed by
applicable law) as the other may reasonably request, including without
limitation access upon reasonable request to such party's employees, customers
and vendors for due diligence inquiry. Each of Parent and the Company agrees to
provide to the other and its accountants, counsel and other representatives
copies of internal financial statements, business plans and projections promptly
upon request. No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.4 Confidentiality. Each of the parties agrees to keep such information
---------------
or knowledge obtained in any investigation pursuant to Section 5.3, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, confidential unless (i) such information
becomes known to the public generally, (ii) disclosure is required by law or the
order of any governmental authority under color of law, or (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, provided, that prior to
disclosing any information prior written notice thereof shall be given to the
other party and provide such other party with the opportunity to contest such
disclosure and the disclosing party shall cooperate with efforts to prevent such
disclosure.
5.5 Expenses. Whether or not the Merger is consummated, all reasonable
--------
and customary fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses. Such fees
and expenses of the Company and its Shareholders shall be paid entirely by the
Shareholders.
5.6 Public Disclosure. Unless otherwise required by law or otherwise
-----------------
disclosed to legal counsel or accountants of the Shareholders in connection with
evaluating the merits of the transactions contemplated hereof, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld, subject, in the case of Parent, to Parent's
obligation to comply with applicable securities laws.
5.7 Consents. Each of Parent and the Company shall promptly apply for or
--------
otherwise seek, and use its reasonable efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger, and
the Company shall use all reasonable efforts to obtain all consents, waivers and
approvals under any of the Company's agreements, contracts, licenses or leases
in order to preserve the benefits thereunder for the Surviving Corporation and
otherwise in
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connection with the Merger. All of such Company consents and approvals are set
forth in Section 5.7 of the Company Schedules.
5.8 Tax Covenants of Shareholders.
-----------------------------
(a) Liability for Taxes. Shareholders shall be liable for all income
-------------------
taxes imposed on the Company for any taxable year or period ending on or prior
to the Closing Date (other than income taxes solely arising out of changes in
method of accounting of the Company from that of a cash basis method of
accounting to that of an accrual basis method of accounting and the Company
ceasing to be taxed as an "S" corporation after the Closing) and all income
taxes imposed with respect to the Shareholder Product Receivable (as defined in
Section 5.16). Shareholders shall pay all stamp, recordation, or similar
transfer taxes attributable to the transfer of the Shares from Shareholders to
Parent.
(b) Tax Returns. Shareholders shall have the responsibility for
-----------
preparing the final returns of the Company taking into account income from
operations prior to Closing. Such returns shall be prepared in accordance with
applicable law and past practices consistently applied and shall be subject to
prior review by Parent.
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use all reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby to obtain all necessary waivers, consents and approvals and to effect all
necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.10 Notification of Certain Matters. The Company shall give prompt notice
-------------------------------
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which may cause any representation or warranty of the Company and Parent,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of the
Company or Parent, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.10
-------- -------
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
5.11 Blue Sky Laws. Parent shall take such steps as may be necessary to
-------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of Series E
-31-
Preferred pursuant hereto. The Company shall use its best efforts to assist
Parent as may be necessary to comply with the securities and blue sky laws of
all jurisdictions which are applicable in connection with the issuance of Series
E Preferred pursuant hereto.
5.12 Noncompetition Agreements. At the Effective Time, Parent and each of
-------------------------
the Principal Shareholders shall enter into noncompetition agreements in the
form attached as Exhibit F (the "Noncompetition Agreements").
---------
5.13 Employment Agreements. At the Effective Time, Parent and the
---------------------
Principal Shareholders shall enter into employment agreements in substantially
the form attached as Exhibit G (the "Employment Agreements"). The Employment
---------
Agreements shall become effective as of the Effective Time.
5.14 Investment Representation Agreements. At the Effective Time, all of
------------------------------------
the holders of outstanding shares of capital stock of the Company shall execute
and deliver to Parent Investment Representation Agreements in the form attached
hereto as Exhibit H.
---------
5.15 Cash Balances; Pre-Closing Liabilities. Any available cash balances
--------------------------------------
and prepaid expenses and deposits as of the Closing ("Closing Cash Balances")
shall be held in trust by the Surviving Corporation for the benefit of the
Shareholders. The Surviving Corporation shall be authorized to make payments on
behalf of the Company and the Shareholders with respect to any Pre-Closing
Liabilities (as defined in Section 5.16) to the extent of the Closing Cash
Balances and subject to Section 5.16(c), to extent of the Shareholder Product
Receivable (as defined in Section 5.16). Notwithstanding the foregoing, the
Surviving Corporation shall not assume any Pre-Closing Liabilities and the
Shareholders shall remain liable with respect thereto.
5.16 Certain Adjustments.
-------------------
(a) On or after January 1, 2000 and immediately prior to the Merger,
the Company shall deliver to Parent a statement (the "Statement"), certified by
an officer of the Company, setting forth the accounts receivable with respect to
the Product Revenues (as defined below) of the Company (the "Product
Receivable") as of the close of business on the Closing Date (the "Closing
Product Receivable") and the Pre-Closing Liabilities (as defined below). The
Statement shall set forth in reasonable detail the date and the corresponding
amounts of each sales which relate to the Closing Product Receivable and the
description and the corresponding amounts of each item of the Pre-Closing
Liabilities.
(b) The Company shall distribute as a dividend fifty-five percent
(55%) of the Product Receivable immediately prior to the Closing (the "Closing
Product Receivable") to the Shareholders on the basis that the Closing Product
Receivable which relate to the most dated invoices shall be allocated to the
Shareholders first (the "Shareholder Product Receivable"). Subject to the set-
off described in Section 5.16(c), the Surviving Corporation, acting as an agent
for the Shareholders, shall collect the distributed Shareholder Product
Receivable and shall distribute to the Shareholders as soon as practicable
following the last business day of each month the Shareholder Product Receivable
as are collected by the Surviving Corporation. The Shareholder
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Product Receivable shall be allocated to each Shareholder on a prorated basis by
the Surviving Corporation in relation to their shares of capital stock of the
Company.
(c) Notwithstanding any other provisions to the contrary in this
Agreement, to the extent the Pre-Closing Liabilities shall exceed the Closing
Cash Balances, the Surviving Corporation shall be entitled to set-off the amount
of such excess against the Shareholder Product Receivable (the "Excess Pre-
Closing Liabilities"). To the extent the Closing Cash Balances shall exceed the
Pre-Closing Liabilities, the Surviving Corporation shall distribute such excess
on a prorated basis to the Shareholders in relation to their allocated portion
of the Merger Consideration, and the Merger Consideration shall be deemed to
include such excess.
(d) The term "Product Receivable" shall mean the accounts receivable
of the Company as of the Closing generated from license sales of the Company's
Computer Aided Transcription System software (the "Products"), excluding any
portion of such receivable generated as a result of any maintenance, support or
other services rendered by the Company. The term "Pre-Closing Liabilities" shall
mean all operating expenses incurred by the Company on or prior to the Closing
Date which were not paid as of the Closing Date, which expenses would be shown
by a trade account payable on the financial statements of the Company had the
Company operated under an accrual method of accounting, plus expenses relating
to employee salaries and bonuses and employee accrued vacations. Such expenses
shall include, without limitation, fees to accounting firms for services
rendered in connection with the preparation and filing of the final tax returns
of the Company and any outstanding legal fees for services rendered and other
expenses in connection with the Merger, the transactions contemplated hereby
incurred by the Company on or prior to the Closing Date and lease payments with
respect to the Company Lease (as defined in Section 6.2(k)) for periods prior to
the Closing Date (but excluding any commitments to maintain, support or service
the Company's Products and any taxes imposed relating to the conversion from
that of a cash method of accounting to that of an accrual method of accounting).
5.17 Voting Agreement. The Principal Shareholders shall vote in favor of
----------------
the Merger and the transactions contemplated hereby at the meeting of the
shareholders of the Company held for the purpose of approving the Merger and the
transactions contemplated hereby in accordance with the Articles of
Incorporation of the Company and the California Code.
5.18 Section 338(h)(10) Election. The parties agree that no Section
---------------------------
338(h)(10) election under the Code shall be made.
SECTION 6
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
-33-
(a) Shareholder Approval. This Agreement, the agreements
--------------------
contemplated hereunder and the Merger and the other transactions contemplated
hereby and thereby shall have been approved and adopted by: (i) the affirmative
vote or consent of the holders of at least 75% of the outstanding shares
entitled to vote of each of Parent and the Company and no more than 10% of such
shares for each of Parent and the Company shall vote against this Agreement or
the transactions contemplated hereby, (ii) the affirmative vote or consent of at
least a majority of the outstanding shares of Common Stock of each of Parent and
the Company, (iii) the affirmative vote or consent of the holders of at least a
majority of the outstanding Preferred Stock of Parent, (iv) the affirmative vote
or consent of at least two-thirds of the outstanding shares of Series A and
Series B Preferred Stock of Parent, voting together as a single class, (v) the
affirmative vote or consent of at least a majority of the outstanding shares of
Series C Preferred Stock of Parent, (vi) the affirmative vote or consent of at
least two-thirds of the outstanding shares of Series D Preferred Stock of Parent
and (vii) the affirmative vote or consent of at least two-thirds of the
outstanding shares of Series A, Series B, Series C and Series D Preferred Stock,
voting together as a single class.
6.2 Additional Conditions to the Obligations of Parent and Sub. The
----------------------------------------------------------
obligations of Parent and Sub to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company and the Principal Shareholders in this Agreement
shall be true and correct on and as of the date of this Agreement and as of the
Closing Date as though such representations and warranties were made on and as
of such time and the Company and the Principal Shareholders shall have performed
and complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by each of them as of the Closing
Date. Parent shall have been provided with a certificate dated as of the Closing
Date executed on behalf of the Company by its Chief Executive Officer and Chief
Financial Officer to such effect.
(b) Legal Opinion. Parent shall have received a legal opinion from
-------------
▇▇▇▇▇▇▇▇▇, Parish & ▇▇▇▇▇▇, legal counsel to the Company, substantially in the
form of Exhibit I.
---------
(c) No Injunctions or Restraints on Conduct of Business. No
---------------------------------------------------
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or provision challenging Parent's proposed acquisition of the Company,
or limiting or restricting Parent's conduct or operation of the business of the
Company (or its own business) following the Merger shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending.
(d) Litigation. There shall be no action, suit, claim or
----------
proceeding of any nature pending, or overtly threatened, against the Parent, Sub
or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement, or that could
materially and
-34-
adversely affect the business, assets, liabilities, financial condition or
results of operations of the Company.
(e) Due Diligence. The Parent shall be satisfied with the results
-------------
of its due diligence review of the Company.
(f) Investment Representations. Parent shall have received from
--------------------------
each of the shareholders of the Company an executed Investment Representation
Agreement which shall be in full force and effect.
(g) No Dissenters. No Shareholder(s) representing more than 2.5% of
-------------
the outstanding capital stock of the Company shall have exercised, nor shall
they continue to have the right to exercise, appraisal rights with respect to
the transactions contemplated by this Agreement.
(h) Noncompetition Agreements; Employment Agreements. Each of the
------------------------------------------------
Noncompetition Agreements and the Employment Agreements shall have been duly
executed and delivered by the parties thereto.
(i) Securities Law Compliance. Parent shall have received from the
-------------------------
Shareholders of the Company executed investment representation statements and
completed questionnaires in form and substance satisfactory to Parent that the
issuance of the shares of Series E Preferred and the Notes pursuant to the
Merger is exempt from the registration requirements of the Securities Act and is
exempt from registration under applicable state securities laws.
(j) Restated Articles; Stockholder Approval. The Restated Articles
---------------------------------------
shall have been duly authorized, executed and filed with the Secretary of State
of the State of California. The shareholders of each of Parent and the Company
shall have approved the Merger and the transactions contemplated hereby in
accordance with the Restated Articles and the California Code.
(k) Assignment of Contracts. Each of (i) the Development and
-----------------------
Distribution Agreement, dated October 1, 1991 between the Company and KLA
Instrument Corporation, (ii) Lease, dated May 10, 1990, between Los Gatos
Business Park and the Company relating to the premises located at ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ("Company Lease") and (iii) Quicklease Agreement,
dated May 5, 1999, between the Company and IBM Credit Corporation, shall have
been assigned to the Surviving Corporation.
(l) Employment Agreements. The Employment Agreements shall have
---------------------
been executed and delivered by the parties thereto.
6.3 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
-35-
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct
(such that a breach of such representations and warranties would not have a
Material Adverse Effect on Parent) on and as of the date of this Agreement and
as of the Closing Date as though such representations and warranties were made
on and as of such time and each of Parent and Sub shall have performed and
complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Closing Date. The
Company shall have been provided with a certificate dated as of the Closing Date
and executed on behalf of Parent by an executive officer of Parent to such
effect.
(b) Stockholder Rights Agreement. The 1999 Second Amended and
----------------------------
Restated Shareholder Rights Agreement in the form of Exhibit J (the "Rights
---------
Agreement") shall have been executed and delivered by Parent.
(c) Restated Articles; Parent Stockholder Approval. The Restated
----------------------------------------------
Articles shall have been duly authorized, executed and filed with the Secretary
of State of the State of California. The shareholders of Parent shall have
approved the Merger and the transactions contemplated hereby in accordance with
the Restated Articles and the California Code.
(d) Litigation. There shall be no action, suit, claim or proceeding
----------
of any nature pending, or overtly threatened, against Parent or Sub, their
respective properties or any of their officers or directors, arising out of, or
in any way connected with, the Merger or the other transactions contemplated by
the terms of this Agreement, or that would materially and adversely affect the
business, assets, liabilities, financial condition or results of operations of
Parent.
(e) Employment Agreements. Each the Employment Agreements shall
---------------------
have been duly executed and delivered by Parent.
SECTION 7
INDEMNIFICATION
7.1 General Indemnification.
-----------------------
(a) The Shareholders covenant and agree to indemnify, defend, protect
and hold harmless Parent and the Surviving Corporation and their respective
officers, directors, employees, shareholders, assigns, successors and affiliates
from, against and in respect of:
(i) all liabilities, losses, claims, damages, punitive damages,
courses of actions, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained or incurred by the party or parties entitled
-36-
to indemnification under this Section 7.1 (individually, an "Indemnified Party"
and collectively, "Indemnified Parties") in connection with, resulting from or
arising out of, directly or indirectly:
(1) any breach of any representation or warranty of the
Company or the Principal Shareholders set forth in this Agreement or any
certificate, document or instrument delivered by or on behalf of the Company or
the Principal Shareholders in connection herewith;
(2) any non fulfillment of any covenant or agreement on the
part of the Company or the Principal Shareholders in this Agreement;
(3) the business, operations or assets of the Company prior
to the Closing Date, including without limitation, (i) the Pre-Closing
Liabilities, and (ii) all taxes of the Company attributable to any period (or
portion of any period) ending on or prior to the Closing Date, except as
otherwise disclosed in the Company Financial Statements or the Company Schedules
(other than taxes attributable to the changes in accounting methods on the
Closing Date from that of a cash method accounting to an accrual method of
accounting and the Company ceasing to be taxed as an "S" corporation after the
Closing);
(4) (i) any required pro rata refund to customers of annual
product maintenance fees previously paid to the Company pursuant to any CAT
Software License Agreements ("License Agreements") as a result of any customers
refusing to consent to the assignment of any such License Agreements to the
Surviving Corporation which consent was required pursuant to such Licensing
Agreements ("Required Assignment") and (ii) any Damages incurred by Parent or
the Surviving Corporation as a result of any third party to a non-disclosure
agreement to which the Company is a party refusing to consent to any Required
Assignment or waive any noncompliance of such nondisclosure agreements to the
extent such Damages arises from disclosure made on or prior to the Closing Date;
(5) any Claims arising out of the Shareholder Materials;
(6) the actions or omissions of the Company's directors,
officers, shareholders, employees or agents prior to the Closing Date; and
(ii) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 7.1(a).
Notwithstanding any other provision in this Agreement, except as provided
in Section 7.1(a)(i)(4), the Shareholders shall not be liable to Parent or the
Surviving Corporation or have any indemnification duties to them for any Damages
incurred as a result of a third party to any contract refusing to consent to any
Required Assignment.
(b) Parent and Sub, jointly and severally, covenant and agree to
indemnify, defend, protect and hold harmless the Shareholders from, against and
in respect of:
-37-
(i) all Damages suffered, sustained or incurred by the
Indemnified Parties in connection with, resulting from or arising out of,
directly or indirectly:
(1) any breach of any representation or warranty of the
Parent set forth in this Agreement or any certificate, document or instrument
delivered by or on behalf of Parent in connection herewith;
(2) any nonfulfillment of any covenant or agreement on the
part of Parent in this Agreement;
(3) the business, operations or assets of the Surviving
Corporation after the Closing Date (except with respect to the Shareholder
Product Receivable), including without limitation, all taxes of the Surviving
Corporation attributable to any period (or portion of any period) ending after
the Closing Date and with respect to all taxes attributable to the changes in
accounting methods on or after the Closing Date from that of a cash method
accounting to an accrual method of accounting and the Company ceasing to be
taxed as an "S" corporation after the Closing; or
(4) the actions or omissions of the Surviving Corporation's
directors, officers, shareholders, employees or agents after the Closing Date;
and
(ii) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 7.1(b).
7.2 Limitation and Expiration. Notwithstanding the above:
-------------------------
(a) There shall be no liability for indemnification under Section 7.1
unless the aggregate amount of Damages exceeds $100,000 (the "Indemnification
Threshold"), in which event the liability for indemnification will apply to the
entire aggregate amount of Damages. Subject to the Shareholders' option to
exercise the set-off described in the Notes in lieu of applying the Pledged
Shares to satisfy any claims hereunder or to pay cash as provided in Section
7.2(c) below, the Pledged Shares shall represent the exclusive means of
satisfying any claims under Section 7.1(a) and with respect to Claims (as
defined below) relating to any breach of the representation or warranties set
forth in Section 3 or the covenants set forth in Section 5, except with respect
to Claims relating to any breach of the representations and warranties set forth
in Section 3.12 (Taxes) and 3.22 (Environmental Matters) or for Claims relating
to fraud or willful misconduct. For purposes of satisfying indemnification
obligations pursuant to Section 7.1(a), the Pledged Shares shall be valued at
$16 per share, or in the event Parent shall have effected a registration
statement on Form S-1 covering the offer and sale of common stock of Parent for
the account of Parent to the public, at the greater of $16 or the average of the
closing price of such Parent Common Stock as reported on a national securities
exchange or quoted on NASDAQ for the ten trading days preceding the date of the
Claim Notice. Any Damages paid pursuant to Section 7.1(a) shall be paid on a
prorated basis by the Shareholders in relation to their allocable portion of the
Pledged Shares, and any Damages paid pursuant to Section 7.1(b) shall be paid by
Parent to the Shareholders on a pro-rated basis in relation to their allocable
portion of shares of Series E Preferred. Notwithstanding the foregoing, in the
event
-38-
Parent shall have consummated an IPO within one year following the Closing and
all of the Pledged Shares to be issued to the Minority Shareholders shall have
been released in accordance with Section 2.1(i)(ii), any Damages paid pursuant
to Section 7.1(a) shall be paid on a prorated basis by the Principal
Shareholders in relation to their allocated portion of the Pledged Shares as
among themselves without regard to the Pledged Shares issued to the Minority
Shareholders.
(b) The indemnification obligations under this Section 7 shall
terminate as follows:
(i) with respect to claims or demands (a "Claim") relating to a
breach of the representations and warranties set forth in Section 3.12 (Taxes)
and 3.22 (Environmental Matters) or fraud or willful misconduct, upon the later
of the expiration of the applicable statute of limitations period or the final
resolution of any and all such Claims pending as of such date; and
(ii) with respect to all other Claims for indemnification under
this Section 7, upon the later of the second anniversary of the Closing Date or
the final resolution of any such claims pending as of the second anniversary of
the Closing Date.
The term "Indemnification Deadline Date" refers to the expiration date of
the applicable statute of limitations period with respect to Claims under clause
(i) above and the second anniversary of the Closing Date with respect to claims
under clause (ii) above. The term "Pending Claims" refers to the pending claims
described in clauses (i) and (ii) above. From and after the applicable
Indemnification Deadline Date, the indemnification obligations under this
Section 7 shall survive only to the extent of Pending Claims.
(c) Notwithstanding any other provisions contained herein to the
contrary, the Shareholders shall have the option exercisable by prior written
notice to Parent of not more than 5 days following the Claim Date to satisfy any
claims under this Section 7 by paying in immediately available funds the amount
of Damages such Shareholders are obligated to pay hereunder. The term "Claim
Date" shall mean the date on which the Shareholders shall have adjudged to be
liable or shall have entered into settlements or compromises or shall be subject
to any arbitration awards with respect to any Claims.
7.3 Indemnification Procedures. All Claims for indemnification under this
--------------------------
Section 7 shall be asserted and resolved as follows:
(a) In the event the Indemnified Party has a Claim hereunder which
does not involve a Claim being asserted against or sought to be collected by a
third party, the Indemnified Party shall with reasonable promptness send a Claim
Notice (as defined in Section 7.3(c) below) with respect to such Claim to the
indemnifying party. If the indemnifying party does not notify the Indemnified
Party within 45 days from the date of receipt of such Claim Notice that
indemnifying party disputes such Claim, the amount of such Claim shall be
conclusively deemed a liability of the indemnifying party hereunder. In case the
indemnifying party shall object in writing to any Claim made in accordance with
this Section 7.3(a), the Indemnified Party shall have fifteen (15) days to
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respond in a written statement to the objection of the indemnifying party. If
after such fifteen (15) day period there remains a dispute as to any Claims, the
parties shall attempt in good faith for sixty (60) days to agree upon the rights
of the respective parties with respect to each of such Claims. If the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties. If no such agreement can be reached after good faith
negotiation, either party may demand arbitration of the matter unless the amount
of the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. Parent and the
Shareholders Representative (as defined in Section 7.4) shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator,
each of which arbitrators shall be independent and have at least ten years
relevant experience. The arbitrators shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys fees and costs, to the extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of a majority of the three arbitrators
as to the validity and amount of any Claim in such Claim Notice shall be binding
and conclusive upon the parties to this Agreement. Such decision shall be
written and shall be supported by written findings of fact and conclusions which
shall set forth the award, judgment, decree or order awarded by the arbitrators.
(b) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Santa ▇▇▇▇▇ County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.3, in any arbitration
hereunder in which any claim or the amount thereof stated in the Claim Notice is
at issue, the Indemnified Party shall be deemed to be the Non-Prevailing Party
in the event that the arbitrators award such Indemnified Party less than the sum
of one-half (1/2) of the disputed amount plus any amounts not in dispute;
otherwise, the Indemnifying Party shall be deemed to be the Non-Prevailing
Party. The Non-Prevailing Party to an arbitration shall pay its own expenses,
the fees of each arbitrator, the administrative costs of the arbitration, and
the expenses, including without limitation, reasonable attorneys' fees and
costs, incurred by the other party to the arbitration.
(c) In the event that any Claim for which the indemnifying party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party, the Indemnified Party shall with reasonable
promptness notify the indemnifying party of such Claim, including a copy of the
Claim made if the Claim was made in writing, specifying the nature of such claim
and the amount or the estimated amount thereof to the extent then feasible
(which estimate shall not be conclusive of the final amount of such Claim) (the
"Claim Notice"). The indemnifying party shall have 30 days from the receipt of
the Claim Notice (the "Notice Period") to notify the Indemnified Party (i)
whether or not the indemnifying party disputes the indemnifying party's
liability to the Indemnified Party hereunder with respect to such Claim and (ii)
if the indemnifying party does not dispute such liability, whether or not the
indemnifying party desires, at the sole cost
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and expense of the indemnifying party, to defend against such Claim, provided
that the indemnifying party is hereby authorized (but not obligated) prior to
and during the Notice Period to file any motion, answer or other pleading and to
take any other action which the indemnifying party shall deem necessary or
appropriate to protect the indemnifying party's interests. In the event that the
indemnifying party notifies the Indemnified Party within the Notice Period that
the indemnifying party does not dispute the indemnifying party's obligation to
indemnify hereunder and desires to defend the Indemnified Party against such
Claim and except as hereinafter provided, the indemnifying party shall have the
right to defend by appropriate proceedings, which proceedings shall be
diligently settled or prosecuted by the indemnifying party to a final
conclusion; provided that, unless the Indemnified Party otherwise agrees in
--------
writing, the indemnifying party may not settle any matter (in whole or in part)
unless such settlement includes a complete and unconditional release of the
Indemnified Party. If the Indemnified Party desires to participate in, but not
control, any such defense or settlement the Indemnified Party may do so at the
Indemnified Party's sole cost and expense. If the indemnifying party elects not
to defend the Indemnified Party against such Claim, whether by failure of the
indemnifying party to give the Indemnified Party timely notice as provided above
or otherwise, then the Indemnified Party, without waiving any rights against the
indemnifying party, may settle or defend against any such Claim in the
Indemnified Party's sole discretion and the Indemnified Party shall be entitled
to recover from the indemnifying party the amount of any settlement or judgment
and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(d) Notwithstanding Section 7.4(b) above, in the event Parent is an
Indemnified Party, Parent shall have the right to control or assume (as the case
may be) the defense of any Claim and the amount of any judgment or settlement
and fifty percent (50%) of the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the Shareholders
hereunder if any Claim seeks material prospective relief which, in the
reasonable opinion of Parent, has reasonable likelihood of success and which
success could have a material adverse effect on the assets, liabilities,
financial condition, results of operations or business prospects of Parent and
Parent shall have given the Shareholder Representative written notice of the
same. If Parent should elect to exercise such right, the Shareholder
Representative shall have the right to participate in, but not control, the
defense of such claim or demand at the sole cost and expense of the
Shareholders. Notwithstanding the foregoing, Parent shall not settle any Claim
without the written consent of the Shareholder Representative, which consent
shall not be unreasonably withheld.
(e) Nothing herein shall be deemed to prevent the Indemnified Party
from making a Claim, and an Indemnified Party may make a Claim hereunder, for
potential or contingent claims or demands provided the Claim Notice sets forth
the specific basis for any such potential or contingent claim or demand to the
extent then feasible and the Indemnified Party has reasonable grounds to believe
that such a claim or demand may be made.
(f) The Indemnified Party's failure to give reasonably prompt notice
to the indemnifying party of any actual, threatened or possible claim or demand
which may give rise to a right of indemnification hereunder shall not relieve
the indemnifying party of any liability which the
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indemnifying party may have to the Indemnified Party unless the failure to give
such notice materially and adversely prejudiced the indemnifying party.
(g) The parties will make appropriate adjustments for any tax
benefits, tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under Section 7, provided that the indemnifying
--------
party shall not be obligated to seek any payment pursuant to the terms of any
insurance policy.
7.4 Shareholders' Representative.
----------------------------
(a) Upon the closing of the Merger, ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall be
constituted and appointed as agent and attorney-in-fact (the "Shareholders'
Representative") for and on behalf of each of the Shareholders to give and
receive notices and communications, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to Claims, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Representative for
the accomplishment of the foregoing. Such agency may be changed (whether
pursuant to vacancy, removal or resignation) by the vote of a majority of the
Shareholders from time to time upon not less than thirty (30) days prior written
notice to Parent. No bond shall be required of the Shareholders' Representative,
and the Shareholders' Representative shall receive no compensation for its
services, except for payment by the Shareholders of expenses, including fees of
counsel, reasonably incurred by the Shareholders' Representative in connection
with the performance of its duties hereunder.
(b) The Shareholders' Representative shall not be liable for any act
done or omitted hereunder as Shareholders' Representative while acting in good
faith, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Shareholders shall severally
indemnify the Shareholders' Representative and hold such agent harmless against
any loss, liability or expense incurred without bad faith on the part of the
Shareholders' Representative and arising out of or in connection with the
acceptance or administration of the Shareholders' Representative's duties
hereunder.
(c) A decision, act, consent or instruction of the Shareholders'
Representative shall constitute a decision of all Shareholders and shall be
final, binding and conclusive upon each Shareholder, and Parent may rely upon
any decision, act, consent or instruction of the Shareholders' Representative
taken in such manner as being the decision, act, consent or instruction of each
and every Shareholder. Parent is hereby relieved from any liability to any
person for any acts done by them in accordance with such decision, act, consent
or instruction of the Shareholders' Representative.
7.5 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants made by the Company and the Principal
Shareholders in or pursuant to this Agreement or in any document delivered
pursuant hereto will survive the Closing and will remain in effect until, and
will expire upon the Indemnification Deadline Date, provided, however, that the
indemnification obligations with respect to any Pending Claim (and the related
representations, warranties and covenants) will survive until the final
resolution of such Pending Claim.
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SECTION 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger
-----------
abandoned at any time prior to the Effective Time, whether before or after
approval of the Merger by the Shareholders of the Company:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if the Closing has not occurred within
60 days from the date hereof: provided however, that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
action or failure to act has been the principal cause of the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement;
(c) by Parent or the Company if there shall be a final nonappealable
order of a federal or state court in effect preventing consummation of the
Merger; or there shall be any action taken, or any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make the consummation of the Merger illegal;
(d) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or the
Company's ownership or operation of all or a portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Parent as a result of
the Merger;
(e) by Parent if it is not in breach of its obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of the Company or the
Principal Shareholders and such breach has not been cured within five (5)
business days after written notice to the Company and the Principal Shareholder
(provided that no cure period shall be required for a breach which by its nature
cannot be cured);
(f) by the Company if it is not in breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of Parent or Sub
and such breach has not been cured within five (5) business days after written
notice to Parent (provided that no cure period shall be required for a breach
which by its nature cannot be cured); or
(g) by Parent if an event having a material adverse effect on the
assets, liabilities, financial condition or results of operations of the Company
shall have occurred after the date of this Agreement.
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(h) by the Company if an event having a material adverse effect on
the assets, liabilities, financial condition or results of operation of Parent
shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
---------------------
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub, the Company or
the Principal Shareholders, or their respective officers, directors or
shareholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.4, 5.5, 5.6, 7 and 8 of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time prior to the Closing by execution of an instrument in writing signed on
behalf of each of the parties hereto, provided however that no amendment shall
be made which by law requires the further approval of the shareholders of the
Company without obtaining such approval.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
-----------------
and Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
8.5 Notice of Termination. Any termination of this Agreement under
---------------------
Section 8.1 above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto.
SECTION 9
MISCELLANEOUS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
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(a) if to Parent or Sub, to:
Numerical Technologies, Inc.
▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇, Esq.
Page ▇▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to:
Transcription Enterprises Limited
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇ Parish & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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(c) if to the Principal Shareholders, to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.2 Interpretation.
--------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement the term "knowledge" means with
respect to a party hereto, with respect to any matter in question, that any of
the chief executive officer, chief operating officer, president, chief financial
officer, general counsel or controller of such party, has actual knowledge of
such matter.
(c) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or other matter, if such change, event,
violation, inaccuracy, circumstance or other matter would have a material
adverse effect on the business, prospects, assets (including intangible assets),
capitalization or financial condition of (i) such entity and its subsidiaries
taken as a whole, or (ii) the Surviving Corporation, except for those changes,
events and effects that (x) are primarily caused by conditions affecting the
United States or world economy as a whole or affecting the industry in which
such entity competes as a whole.
(d) For purposes of this Agreement, the term "subsidiary" of any
entity means any other 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 directly or indirectly owned or
controlled by such entity.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more
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counterparts have been signed by each of the parties and delivered to the other
party, it being understood that all parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
----------------------------
Exhibits hereto, the Confidentiality Agreement and the documents and instruments
and other agreements among the parties hereto referenced herein: (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies hereunder; and
(c) shall not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent and Sub may assign their respective
rights and delegate their respective obligations hereunder to their respective
affiliates. This Agreement is binding upon and will inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
9.5 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
9.9 Absence of Third Party Beneficiary Rights. No provision of this
-----------------------------------------
Agreement is intended, nor will be interpreted, to provide to create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner of any party hereto or any
other person or entity.
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9.10 Mutual Drafting. This Agreement is the joint product of the parties
---------------
hereto, and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the parties, and shall not be construed for
or against any party hereto.
9.11 Further Representations. Each party to this Agreement acknowledges and
-----------------------
represents that it has been represented by its own legal counsel in connection
with the transactions contemplated by this Agreement, with the opportunity to
seek advice as to its legal rights from such counsel. Each party further
represents that it is being independently advised as to the tax consequences of
the transactions contemplated by this Agreement and is not relying on any
representation or statements made by the other party as to such tax
consequences. The Company also represents that it has communicated the above to
its Shareholders.
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IN WITNESS WHEREOF, Parent, Sub, the Company and the Principal Shareholders
have entered into this Agreement as of the date first written above.
NUMERICAL TECHNOLOGIES, INC. TRANSCRIPTION ENTERPRISES LIMITED
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------- ----------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------- --------------------------------------
Title: CEO & President Title: President
------------------------- -------------------------------------
PRINCIPAL SHAREHOLDERS TRANSCRIPTION ENTERPRISES, INC.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------- ----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇ Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------- --------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President & Secretary
-------------------------------------
[Signature page to Reorganization Agreement]
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