UPGRADE INTERNATIONAL CORPORATION
UPGRADE ACQUISITION INC.
THE PATHWAYS GROUP, INC.
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of September ___, 2000
TABLE OF CONTENTS
Page
ARTICLE I : THE MERGER 1
1.1 Effective Time of the Merger. . . . . . . . . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effects of the Merger. . . . . . . . . . . . . . . . . . 2
1.4 Tax-Free Reorganization. . . . . . . . . . . . . . . . . . 2
1.5 Accounting Treatment . . . . . . . . . . . . . . . . . . . 2
ARTICLE II : EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS, EXCHANGE OF CERTIFICATES. . . . . . . . . . . . . . . . 3
2.1 Effect on Capital Stock. . . . . . . . . . . . . . . . . 3
2.1.1 Capital Stock of Sub . . . . . . . . . . . . . 3
2.1.2 Cancellation of Company Common Stock. . . . . 3
2.1.3 Conversion of Company Common Stock. . . . . . 3
2.1.4 Adjustments of Exchange Ratio. . . . . . . . . 3
2.1.5 Dissenters' Rights . . . . . . . . . . . . . . . 4
2.1.6 Fractional Shares. . . . . . . . . . . . . . . . 4
2.2 Exchange of Certificates. . . . . . . . . . . . . . . . . 4
2.2.1 Exchange Agent . . . . . . . . . . . . . . . . . 4
2.2.2 Upgrade to Provide Common Stock and Cash. . 5
2.2.3 Exchange Procedures. . . . . . . . . . . . . . . 5
2.2.4 No Further Ownership Rights in Company Common Stock 5
2.2.5 Return to Upgrade . . . . . . . . . . . . . . . 6
2.3 Company Options. . . . . . . . . . . . . . . . . . . . . . 6
2.3.1 Assumption by Upgrade . . . . . . . . . . . . . 6
2.3.2 Registration. . . . . . . . . . . . . . . . . . . 7
2.3.3 Notice; Reservation of Shares. . . . . . . . . 7
2.4 Employee Stock Purchase Plan. . . . . . . . . . . . . . . 7
2.5 Company Warrants. . . . . . . . . . . . . . . . . . . . . . 7
2.5.1 Assumption by Upgrade. . . . . . . . . . . . . . 7
2.5.2 Notice; Reservation of Shares . . . . . . . . . 8
2.6 Effect of Interim Financing on Exchange Ratio. . . . . 8
ARTICLE III : REPRESENTATIONS AND WARRANTIES 8
3.1 Representations and Warranties of Company. . . . . . . . 8
3.1.1 Organization, Standing and Power. . . . . . . . 8
3.1.2 Capital Structure . . . . . . . . . . . . . . . . 9
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3.1.3 Authority. . . . . . . . . . . . . . . . . . . . . 10
3.1.4 SEC Documents and Financial Statements . . . . 11
3.1.5 Nasdaq Exchange . . . . . . . . . . . . . . . . . 11
3.1.6 Information Supplied. . . . . . . . . . . . . . . 12
3.1.7 No Defaults . . . . . . . . . . . . . . . . . . . 12
3.1.8 Litigation . . . . . . . . . . . . . . . . . . . . 12
3.1.9 No Material Adverse Change. . . . . . . . . . . 13
3.1.10 Absence of Undisclosed Liabilities . . . . . . . 13
3.1.11 No Violations. . . . . . . . . . . . . . . . . . . 13
3.1.12 Certain Agreements . . . . . . . . . . . . . . . . 14
3.1.13 Collective Bargaining Agreements. . . . . . . . . 14
3.1.14 Employee Benefit Plans. . . . . . . . . . . . . . 14
3.1.15 Major Contracts. . . . . . . . . . . . . . . . . . 15
3.1.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . 15
3.1.17 Interests of Officers . . . . . . . . . . . . . . 17
3.1.18 Technology and Intellectual Property Rights . . 17
3.1.19 Vote Required. . . . . . . . . . . . . . . . . . . 19
3.1.20 Brokers and Finders . . . . . . . . . . . . . . . 19
3.1.21 Change of Control . . . . . . . . . . . . . . . . 19
3.1.22 Leases in Effect. . . . . . . . . . . . . . . . . 20
3.1.23 Environmental. . . . . . . . . . . . . . . . . . . 20
3.1.24 Certain Payments . . . . . . . . . . . . . . . . . 21
3.1.25 Reliance. . . . . . . . . . . . . . . . . . . . . . 21
3.2 Representations and Warranties of Upgrade and Sub. . . 21
3.2.1 Organization; Standing and Power. . . . . . . . 21
3.2.2 Capital Structure . . . . . . . . . . . . . . . . 22
3.2.3 Authority. . . . . . . . . . . . . . . . . . . . . 22
3.2.4 SEC Documents and Financial Statements . . . . 23
3.2.5 Information Supplied. . . . . . . . . . . . . . . 23
3.2.6 No Defaults . . . . . . . . . . . . . . . . . . . 24
3.2.7 Absence of Certain Changes or Events. . . . . 24
3.2.8 Litigation . . . . . . . . . . . . . . . . . . . . 24
3.2.9 Absence of Undisclosed Liabilities. . . . . . . 25
3.2.10 No Violations. . . . . . . . . . . . . . . . . . . 25
3.2.11 Employee Benefit Plans. . . . . . . . . . . . . . 25
3.2.12 Major Contracts. . . . . . . . . . . . . . . . . . 25
3.2.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . 25
3.2.14 Interest of Officers. . . . . . . . . . . . . . . 25
3.2.15 No Vote Required. . . . . . . . . . . . . . . . . 26
3.2.16 Brokers and Finders . . . . . . . . . . . . . . . 26
3.2.17 Interim Operation of Sub . . . . . . . . . . . . 26
3.2.18 Reliance. . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE IV : COVENANTS OF COMPANY. . . . . . . . . . . . . . . . . . 26
4.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . 26
4.1.1 Ordinary Course . . . . . . . . . . . . . . . . . 26
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4.1.2 Dividends: Changes in Stock . . . . . . . . . . 27
4.1.3 Issuance of Securities . . . . . . . . . . . . . 28
4.1.4 Governing Documents . . . . . . . . . . . . . . . 28
4.1.5 Exclusivity; Acquisition Proposals . . . . . . . 28
4.1.6 No Acquisitions . . . . . . . . . . . . . . . . . 29
4.1.7 No Dispositions . . . . . . . . . . . . . . . . . 30
4.1.8 Indebtedness . . . . . . . . . . . . . . . . . . . 30
4.1.9 Plans. . . . . . . . . . . . . . . . . . . . . . . 30
4.1.10 Claims. . . . . . . . . . . . . . . . . . . . . . . 30
4.1.11 Agreement . . . . . . . . . . . . . . . . . . . . . 30
4.2 Breach of Representations and Warranties . . . . . . . . 30
4.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.4 Nasdaq Requirements . . . . . . . . . . . . . . . . . . . . 31
4.5 Commercially Reasonable Best Efforts. . . . . . . . . . . 31
4.6 Information for Prospectus/Proxy Statement. . . . . . . . 31
4.7 Stockholder Approval. . . . . . . . . . . . . . . . . . . . 31
4.8 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . 32
4.9 Representations of Stockholders. . . . . . . . . . . . . . 32
4.10 Employee Benefits Matters . . . . . . . . . . . . . . . . . 32
4.10.1 Benefit Plans. . . . . . . . . . . . . . . . . . 32
4.10.2 Section 16 Approval . . . . . . . . . . . . . . 33
4.11 Financial Condition. . . . . . . . . . . . . . . . . . . . . 33
4.12 Opinion of Financial Advisor . . . . . . . . . . . . . . . 33
4.13 Consent of Series A Secured Note Holders. . . . . . . . 33
ARTICLE V : COVENANTS OF UPGRADE 33
5.1 Breach of Representations and Warranties . . . . . . . . 33
5.2 Conduct of Business by Upgrade Pending the Merger . . 34
5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.4 Commercially Reasonable Best Efforts. . . . . . . . . . . 34
5.5 Representations of Shareholders. . . . . . . . . . . . . . 34
5.6 Tax Free Reorganization. . . . . . . . . . . . . . . . . . 34
5.7 Stock Exchange Listing . . . . . . . . . . . . . . . . . . 35
5.8 Payment of Liabilities . . . . . . . . . . . . . . . . . . 35
ARTICLE VI : ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . 35
6.1 Preparation of S-4 . . . . . . . . . . . . . . . . . . . . 36
6.2 Access to Information; Confidentiality. . . . . . . . . . 36
6.2.1 Access . . . . . . . . . . . . . . . . . . . . . . 36
6.2.2 Confidentiality. . . . . . . . . . . . . . . . . . 36
6.3 Legal Conditions to the Merger . . . . . . . . . . . . . 37
6.4 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.5 HSR Act Filings. . . . . . . . . . . . . . . . . . . . . . 38
6.5.1 Filings and Cooperation. . . . . . . . . . . . . 38
6.5.2 Objections . . . . . . . . . . . . . . . . . . . . 38
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6.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.7 Interim Financing . . . . . . . . . . . . . . . . . . . . . 39
6.8 Additional Agreements . . . . . . . . . . . . . . . . . . . 40
6.9 Public Announcements. . . . . . . . . . . . . . . . . . . . 40
6.10 State Takeover Laws . . . . . . . . . . . . . . . . . . . . 40
6.11 State Securities Laws . . . . . . . . . . . . . . . . . . . 40
ARTICLE VII : CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . 40
7.1 Conditions to Each Party's Obligation to Effect the Merger 40
7.1.1 Stockholder Approval. . . . . . . . . . . . . . . 40
7.1.2 Consents . . . . . . . . . . . . . . . . . . . . . 40
7.1.3 S-4. . . . . . . . . . . . . . . . . . . . . . . . 41
7.1.4 No Restraints . . . . . . . . . . . . . . . . . . 41
7.1.5 Tax-Free Reorganization . . . . . . . . . . . . . 41
7.1.6 No Burdensome Condition. . . . . . . . . . . . . 41
7.1.7 No Prohibition. . . . . . . . . . . . . . . . . . 41
7.2 Conditions of Obligations of Upgrade and Sub . . . . . 41
7.2.1 Representations and Warranties of Company. . . 42
7.2.2 Performance of Obligations of Company. . . . . 42
7.2.3 Affiliates . . . . . . . . . . . . . . . . . . . . 42
7.2.4 Opinion of Company's Counsel. . . . . . . . . . 42
7.2.5 Approval of Company's Stockholders. . . . . . . 42
7.2.6 Company's Pending Acquisitions . . . . . . . . . 42
7.2.7 Company Warrant and Series A Secured Note Holder
Consent . . . . . . . . . . . . . . . . . . . . . 42
7.3 Conditions of Obligation of Company. . . . . . . . . . . 43
7.3.1 Representations and Warranties of Upgrade and Sub 43
7.3.2 Performance of Obligations of Upgrade and Sub 43
7.3.3 Opinion of Upgrade's Counsel . . . . . . . . . 43
ARTICLE VIII : DUE DILIGENCE TERMINATION, AMENDMENT AND WAIVER 43
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . 44
8.3 Break-up Fee. . . . . . . . . . . . . . . . . . . . . . . . 45
8.4 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.5 Extension, Waiver . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IX : GENERAL PROVISIONS 46
9.1 Nonsurvival of Representations, Warranties and Agreements 46
9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 47
9.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 48
9.5 Entire Agreement; No Third Party Beneficiaries. . . . . 48
9.6 No Joint Venture . . . . . . . . . . . . . . . . . . . . . 48
9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 48
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9.8 Specific Performance. . . . . . . . . . . . . . . . . . . . 48
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . 48
9.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
9.11 Succession and Assignment . . . . . . . . . . . . . . . . . 49
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INDEX OF DEFINED TERMS
Term Page
Acquisition Transaction. . . . . . . . . . . . . . . . . . . . . . . . . 28
affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Affiliate Letters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Amended Financing Agreement. . . . . . . . . . . . . . . . . . . . . . . 39
Amended Security Agreements. . . . . . . . . . . . . . . . . . . . . . . 39
Antitrust Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
blue sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Business Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Company Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . . 8
Company Financial Statements . . . . . . . . . . . . . . . . . . . . . . 11
Company Incentive and Stock Option Plans . . . . . . . . . . . . . . . . 9
Company Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 17
Company Licensed Intellectual Property . . . . . . . . . . . . . . . . . 17
Company Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Company Owned Intellectual Property. . . . . . . . . . . . . . . . . . . 17
Company Required Statutory Approvals . . . . . . . . . . . . . . . . . . 11
Company SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Company Section 16 Insider . . . . . . . . . . . . . . . . . . . . . . . 32
Company Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . 31
Company Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Company's Principal Stockholders . . . . . . . . . . . . . . . . . . . . 32
Condition Satisfaction Date. . . . . . . . . . . . . . . . . . . . . . . 2
Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . 36
Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Governmental Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
vi
Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
HSR Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
include. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
includes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
including. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Interim Financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Interim Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . . . . . 9
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Merger Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
multiemployer plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Named Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Nasdaq Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Non-U.S. Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
plan of reorganization . . . . . . . . . . . . . . . . . . . . . . . . . 2
prohibited transaction . . . . . . . . . . . . . . . . . . . . . . . . . 14
Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Proxy Statement/Prospectus . . . . . . . . . . . . . . . . . . . . . . . 11
Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
S-4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Signing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
single-employer plan . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Sub. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Superior Proposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Surviving Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . 2
tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Upgrade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Upgrade Average Closing Price. . . . . . . . . . . . . . . . . . . . . . 4
Upgrade Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Upgrade Disclosure Schedule. . . . . . . . . . . . . . . . . . . . . . . 21
Upgrade Financial Statements . . . . . . . . . . . . . . . . . . . . . . 23
Upgrade Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Upgrade Required Statutory Approvals . . . . . . . . . . . . . . . . . . 23
Upgrade SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Upgrade Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . 22
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Upgrade Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Voting Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
WBCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
viii
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION ("AgreementAgreement"), dated as of
September ___, 2000 ("Signing DateSigning Date"), among Upgrade International
Corporation, a Florida corporation, to be reincorporated as a Washington
corporation prior to the Effective Time ("UpgradeUpgrade"), Upgrade Acquisition
Inc., a Delaware corporation and a wholly-owned subsidiary of Upgrade
("SubSub"), and The Pathways Group, Inc., a Delaware corporation
("CompanyCompany").
RECITALS
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Washington Business Corporation Act (the "WBCAWBCA") and
the Delaware General Corporation Law ("DGCLDGCL"), Upgrade and Company will
enter into a business combination transaction pursuant to which Sub will merge
with and into Company (the "MergerMerger");
WHEREAS, the Board of Directors of Company (i) has determined that the
Merger is advisable and fair to, and in the best interests of, Company and its
stockholders and has adopted this Agreement, the Merger and the other
transactions contemplated by this Agreement and (ii) has recommended the
approval of this Agreement by the stockholders of Company;
WHEREAS, the respective Boards of Directors of Upgrade and Sub have
determined that the Merger is advisable and fair to, and in the best interests
of, Upgrade and Sub; and
WHEREAS, for United States federal income tax purposes, the Merger is
intended to qualify as a reorganization within the meaning of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ Internal Revenue Code of 1986, as amended.
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the
mutual representations, warranties, covenants and agreements contained herein,
Upgrade, Sub and Company hereby agree as follows:
ARTICLE I: THE MERGER
1.1 Effective Time of the Merger
Subject to the provisions of this Agreement, Sub will be merged with and
into Company. An Agreement and Plan of Merger, and articles, certificates or
other appropriate filing documents (the "Merger DocumentsMerger Documents")
shall be duly prepared, executed and acknowledged by the parties and thereafter
delivered to the Secretary of State of Delaware, for filing, as provided in the
DGCL as soon as practicable on or after the Closing Date (as defined in Section
1.2). The Merger shall become effective upon the filing of the Merger Documents
with the Secretary of State of Delaware or at such time thereafter as is
provided in the Merger Documents (the "Effective TimeEffective Time"). Company
acknowledges and agrees that Upgrade will have no obligation to make any payment
or issue any securities pursuant to this Agreement until the Merger has been
confirmed in writing by the Secretary of State of Delaware.
1
1.2 Closing
Unless another date or place is agreed to in writing by the parties hereto,
the closing of the Merger (the "ClosingClosing") will take place at the offices
of ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, PLLC, Seattle, Washington, on a date (the "Closing
DateClosing Date") that is as soon as practicable after, but no later than the
third business day after, satisfaction or waiver of the last to be fulfilled of
the conditions set forth in ARTICLE VII that by their terms are not to occur at
the Closing (the date on which such conditions are satisfied or waived being the
"Condition Satisfaction DateCondition Satisfaction Date"); provided, however,
and subject to Section 8.1(c), that the Closing Date shall not be later than
December 29, 2000; and provided further, however, that if the S-4 (as defined
below) is declared effective after November 14, 2000, the Closing Date shall not
be later than fifty (50) days after the date the S-4 is declared effective.
1.3 Effects of the Merger
At the Effective Time, (i) the separate existence of Sub shall cease and
Sub shall be merged with and into Company (Company after the Merger is sometimes
referred to herein as the "Surviving CorporationSurviving Corporation"), (ii)
the Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of Company, (iii) the Bylaws of Surviving
Corporation shall be the Bylaws of the Company, (iv) the directors of the
Surviving Corporation shall be the directors of Sub immediately prior to the
Effective Time, (v) the officers of the Surviving Corporation shall be the
officers of Company immediately prior to the Effective Time, and (vi) the Merger
shall, from and after the Effective Time, have all the effects provided by
applicable law.
1.4 Tax-Free Reorganization
The Merger is intended to be a reorganization within the meaning of Section
368 of the Internal Revenue Code of 1986, as amended (the "CodeCode"), and this
Agreement is intended to be a "plan of reorganizationplan of reorganization"
within the meaning of the regulations promulgated under Section 368 of the Code.
Each party hereto and its affiliates agree to treat the Merger as a
reorganization within the meaning of Section 368 of the Code, and this Agreement
is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under Section 368 of the Code, unless and until there is
a determination, within the meaning of Section 1313 of the Code that such
conclusions are wholly or partially incorrect.
1.5 Accounting Treatment
The business combination to be effected by the Merger is intended to be
treated for accounting purposes as a "purchase," within the meaning of GAAP.
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ARTICLE II: 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
(except as provided in Section 4.7) on the part of the holder of any shares of
Company common stock, par value $.01 per share ("Company Common StockCompany
Common Stock"):
2.1.1 Capital Stock of Sub
All issued and outstanding shares of capital stock of Sub shall continue to
be issued and outstanding with the stock certificate of Sub evidencing ownership
of such shares of capital stock of the Surviving Corporation.
2.1.2 Cancellation of Company Common Stock
All shares of Company Common Stock that are owned directly or indirectly by
Company or Upgrade or by any of the Company Subsidiaries (as defined below) or
Upgrade immediately prior to the Merger shall be canceled and no stock of
Upgrade or other consideration shall be delivered in exchange therefor. In this
Agreement, "Company SubsidiariesCompany Subsidiaries" shall mean an entity of
which an amount of the voting securities, or other voting ownership or voting
partnership interests of which is sufficient to elect a majority of its board of
directors or other governing body (or, if there are no such interests, 50% or
more of the equity interests of which) is owned directly or indirectly by
Company. All Company Subsidiaries are identified in the Company Disclosure
Schedule (as defined in Section 3.1).
2.1.3 Conversion of Company Common Stock
Subject to adjustment as provided by Sections 2.1.4 and 2.6, at the
Effective Time every fourteen and three tenths (14.3) of issued and outstanding
shares of Company Common Stock (other than shares to be canceled pursuant to
Section 2.1.2 and dissenting shares as described in Section 2.1.5) shall be
converted, without any action on the part of the holders thereof, into the right
to receive one (1) share ( as it may be adjusted pursuant to Sections 2.1.4 and
2.6, the "Exchange RatioExchange Ratio") of common stock, par value $0.001 per
share, of Upgrade (the "Upgrade Common StockUpgrade Common Stock") (the "Merger
ConsiderationMerger Consideration"). From and after the Effective Time, subject
to applicable provisions of Delaware General Corporation Law, all such shares of
Company Common Stock shall no longer be outstanding and shall cease to exist,
and each certificate (a "CertificateCertificate") previously representing any
such shares of Company Common Stock shall represent only the right to receive
(i) whole shares of Upgrade Common Stock computed in accordance with Exchange
Ratio and (ii) cash in lieu of fractional shares, in each case as provided by
this Section 2.1.
2.1.4 Adjustments of Exchange Ratio
If, between the date of this Agreement and the Effective Time, the
outstanding shares of Upgrade Common Stock or Company Common Stock shall have
been changed into a different number of shares or a different class or series or
otherwise changed by reason of any reclassification, recapitalization, split-up,
stock dividend, stock combination, exchange of shares or readjustment or similar
transaction, the Exchange Ratio shall be correspondingly adjusted.
3
2.1.5 Dissenters' Rights
Notwithstanding any provision of this Agreement to the contrary, each
outstanding share of Company Common Stock, the holder of which has demanded and
perfected such holder's right to dissent from the Merger and to be paid the fair
value of such shares in accordance with Section 262 of the DGCL, as of the
Effective Time, and which has not effectively withdrawn or lost such dissenters'
rights, shall not be converted into or represent a right to receive the Merger
Consideration, but the holder thereof shall be entitled only to such rights as
are granted by the DGCL. Company shall give Upgrade (i) prompt written notice
of any notice of intent to demand fair value for any shares of Company Common
Stock, withdrawals of such notices, and any other instruments served pursuant to
the DGCL or any other provisions of Delaware law and received by the Company,
and (ii) the opportunity to conduct jointly with the Company all negotiations
and proceedings with respect to demands for fair value for shares of Company
Common Stock under the DGCL. Company shall not, except with the prior written
consent of Upgrade, voluntarily make any payment with respect to any demands for
fair value for shares of Company Common Stock or offer to settle or settle any
such demands.
2.1.6 Fractional Shares
No fractional shares of Upgrade Common Stock shall be issued in the Merger
and such fractional interests shall not entitle the owner thereof to vote. In
lieu of any fractional share, each holder of shares of Company Common Stock who
would otherwise be entitled to receive a fraction of a share of Upgrade Common
Stock will be entitled to receive from Upgrade an amount of cash, without
interest, equal to the Upgrade Average Closing Price (as defined below)
multiplied by the fraction of a share of Upgrade Common Stock to which such
holder would otherwise be entitled. The "Upgrade Average Closing PriceUpgrade
Average Closing Price" shall mean the average closing price of the Upgrade
Common Stock as publicly reported on a national exchange or other automated
quotation system from time to time, as of 4:00 p.m. Eastern Time over the last
twenty (20) trading days ending on the fifth trading day prior to the Closing
Date.
2.2 Exchange of Certificates
2.2.1 Exchange Agent
Prior to the Closing Date, Upgrade shall appoint ChaseMellon Shareholder
Services, LLC, or other bank or trust company reasonably satisfactory to
Company, to act as exchange agent (the "Exchange AgentExchange Agent") in the
Merger. Upgrade shall instruct the Exchange Agent to cooperate with American
Stock Transfer Company, the transfer agent for the Company Common Stock, in
order to effect the exchange as described in this Section 2.2
2.2.2 Upgrade to Provide Common Stock and Cash
As promptly as practicable after the Effective Time, Upgrade shall make
available to the Exchange Agent the certificates representing whole shares of
Upgrade Common Stock issued pursuant to Section 2.1 in exchange for outstanding
shares of Company Common Stock and, as required by Section 2.1.6, cash for
payment in lieu of fractional shares.
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2.2.3 Exchange Procedures
As soon as practicable after the Effective Time, Upgrade shall cause the
Exchange Agent to mail to each holder of record as of the Effective Time of a
Certificate or Certificates, (i) a letter of transmittal (which shall be in
customary form and shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
Upgrade Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall require, the holder of such
Certificate shall be entitled to receive in exchange therefor the number of
whole shares of Upgrade Common Stock to which the holder of Company Common Stock
is entitled pursuant to Section 2.1 hereof plus cash in lieu of fractional
shares as provided in Section 2.1.6. The Certificate so surrendered shall
forthwith be canceled. Notwithstanding any other provision of this Agreement,
until holders of Certificates have surrendered them for exchange as provided
herein, (i) no dividends or other distributions shall be paid with respect to
any shares represented by such Certificates and no payment for fractional shares
shall be made, and (ii) without regard to when such Certificates are surrendered
for exchange as provided herein, no interest shall be paid on any dividends or
other distributions or any payment for fractional shares. Upon surrender of a
Certificate, there shall be paid to the holder of such Certificate the amount of
any dividends or other distributions which after the Effective Time became
payable, but which were not paid by reason of the foregoing, with respect to the
number of whole shares of Upgrade Common Stock represented by the certificate or
certificates issued upon such surrender. If any certificate for Upgrade Common
Stock is to be issued in a name other than in which the Certificate surrendered
in exchange therefor is registered, it shall be a condition of such exchange
that the person requesting such exchange pay any transfer or other taxes
required by reason of the issuance of certificates for such shares of Upgrade
Common Stock in a name other than that of the registered holder of the
Certificate surrendered, or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. In connection with
its undertakings pursuant to this Section 2.2.3, the Exchange Agent shall be
entitled to withhold any income taxes as required by the Code.
2.2.4 No Further Ownership Rights in Company Common Stock
All Upgrade Common Stock 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. After the Effective Time there shall be no
transfers on the stock transfer books of Company of shares of Company Common
Stock. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this ARTICLE II.
5
2.2.5 Return to Upgrade
Any Upgrade Common Stock and any cash in lieu of fractional share interests
made available to the Exchange Agent and not exchanged for Certificates within
one year after the Effective Time and any dividends and distributions held by
the Exchange Agent for payment or delivery to the holders of unsurrendered
Certificates representing Company Common Stock and unclaimed at the end of such
one year period shall be redelivered or repaid by the Exchange Agent to Upgrade,
after which time any holder of Certificates who has not theretofore delivered or
surrendered such Certificates to the Exchange Agent, subject to applicable law,
shall look as a general creditor only to Upgrade for payment of the Upgrade
Common Stock, cash in lieu of fractional shares, and any such dividends or
distributions. Notwithstanding any provision of this Agreement, none of Upgrade,
the Exchange Agent, the Surviving Corporation or any other party hereto shall be
liable to any holder of Company Common Stock for any Upgrade Common Stock, cash
in lieu of fractional shares or dividends or distributions delivered to a public
official pursuant to applicable abandoned property, escheat or similar law.
2.3 Company Options
2.3.1 Assumption by Upgrade
At the Effective Time, each of the then outstanding Company Options (as
defined in Section 3.1.2) shall, by virtue of the Merger and at the Effective
Time, and without any further action on the part of any holder thereof, be
assumed by Upgrade and converted into an option to purchase that number of
shares of Upgrade Common Stock determined by dividing the number of shares of
Company Common Stock subject to such Company Option at the Effective Time by the
Exchange Ratio, at an exercise price per share of Upgrade Common Stock equal to
the exercise price per share of such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio. Such converted Company Option
shall otherwise continue to have the same vesting provisions and other rights
after the Effective Time as it had prior to the Effective Time, and shall be
deemed to have been issued under the Upgrade Stock Option Plans and shall be
subject to the rights and benefits thereunder. If the foregoing calculation
results in an assumed Company Option being exercisable for a fraction of a share
of Upgrade Common Stock, then the number of shares of Upgrade Common Stock
subject to such option shall be rounded up to the nearest whole number of
shares. Continuous employment with Company or any Company Subsidiaries shall be
credited to the optionee for purposes of determining the vesting of the number
of shares of Upgrade Common Stock subject to exercise under the optionee's
converted Company Option after the Effective Time. Except as provided in this
Section 2.3.1, each Company Option assumed by Upgrade hereunder shall be
exercisable upon, and otherwise be subject to, the same terms and conditions as
under the applicable Company Amended and Restated Stock Incentive Plan (as
defined in Section 3.1.2), the applicable option agreement issued thereunder and
any other plan or agreement pertaining to the exercisability or any other term
of such Company Option. Notwithstanding anything in this Section 2.3.1 to the
contrary, the Company Options shall be assumed by Upgrade in such a manner that
Upgrade (i) is a corporation "assuming a stock option in a transaction to which
Section 424(a) applies" within the meaning of Section 424 of the Code and the
regulations thereunder or (ii) to the extent that Section 424 of the Code does
not apply to any such Company Options, would be such a corporation were Section
424 of the Code applicable to such Company Options.
6
2.3.2 Registration
Upgrade shall cause the shares of Upgrade Common Stock issuable upon
exercise of the assumed Company Options to be registered, or to be issued
pursuant to a then effective registration statement, as soon as practicable
after the Effective Time, but in no event later than ten (10) days after the
Effective Time, on Form S-8 promulgated by the SEC and shall use its
commercially reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements for so long as such assumed
Company Options remain outstanding. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act (as defined in Section 4.10.2), Upgrade shall
administer Company Options assumed pursuant to this Section 2.3 in a manner that
complies with Rule 16b-3 promulgated by the SEC under the Exchange Act, but
shall have no responsibility for such compliance by Company or its predecessors.
2.3.3 Notice; Reservation of Shares
As soon as practicable after the Effective Time, Upgrade shall deliver to
each holder of an assumed Company Option an appropriate notice setting forth
such holder's rights pursuant thereto. Upgrade shall comply with the terms of
all such Company Options and shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Upgrade Common Stock for
delivery upon exercise of the assumed Company Options.
2.4 Employee Stock Purchase Plan
Company shall cause its 2000 Employee Stock Purchase Plan to be terminated
as of the day immediately prior to the Effective Time, and all funds which have
been withheld from the wages of Company's employees for the purchase of Company
Common Stock as of such time shall be applied to a final purchase thereunder.
2.5 Company Warrants
2.5.1 Assumption by Upgrade
At the Effective Time, each of the then outstanding Company Warrants (as
defined in Section 3.1.2) shall, by virtue of the Merger and at the Effective
Time, and without any further action on the part of any holder thereof, be
assumed by Upgrade and converted into a warrant to purchase that number of
shares of Upgrade Common Stock determined by dividing the number of shares of
Company Common Stock subject to such Company Warrants at the Effective Time by
the Exchange Ratio, at an exercise price per share of Upgrade Common Stock equal
to the exercise price per share of such Company Warrants immediately prior to
the Effective Time multiplied by the Exchange Ratio. If the foregoing
calculation results in an assumed Company Warrant being exercisable for a
fraction of a share of Upgrade Common Stock, then the number of shares of
Upgrade Common Stock subject to such warrants shall be rounded to the nearest
whole number of shares. Except as provided in this Section 2.5.1, each Company
Warrant assumed by Upgrade hereunder shall be exercisable upon, and otherwise be
subject to, the same terms and conditions as under the applicable Company
Warrants (as defined in Section 3.1.2), the applicable warrant agreement issued
thereunder and any other plan or agreement pertaining to the exercisability or
7
any other term of such Company Warrant. Notwithstanding anything in this
Section 2.5.1 to the contrary, the Company Warrants shall be assumed by Upgrade
in such a manner that Upgrade (i) is a corporation "assuming a stock option in a
transaction to which Section 424(a) applies" within the meaning of Section 424
of the Code and the regulations thereunder or (ii) to the extent that Section
424 of the Code does not apply to any such Company Warrants, would be such a
corporation were Section 424 of the Code applicable to such Company Warrants.
2.5.2 Notice; Reservation of Shares
As soon as practicable after the Effective Time, Upgrade shall deliver to
each holder of an assumed Company Warrant an appropriate notice setting forth
such holder's rights pursuant thereto. Upgrade shall comply with the terms of
all such Company Warrants and shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Upgrade Common Stock for
delivery upon exercise of the assumed Company Warrants.
2.6 Effect of Interim Financing on Exchange Ratio
For every One Hundred Thousand Dollars ($100,000) advanced to Company by
Upgrade pursuant to the Interim Financing, as defined in Section 6.7 below, the
Exchange Ratio shall be increased by 0.313%.
ARTICLE III: REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Company
Except as disclosed in the Company SEC Documents (as defined below) or in a
Disclosure Schedule which identifies by section number the section and
subsection to which such disclosure relates (provided, however, that Company
shall be deemed to have adequately disclosed with respect to any section or
subsection any matters that are clearly described elsewhere in such document if
a reader(s) who has not been actively involved in Company but is generally
familiar with the smart card industry can understand the applicability of such
disclosure to such non-referenced sections or subsections) and is delivered by
Company to Upgrade concurrently with the execution of this Agreement (the
"Company Disclosure ScheduleCompany Disclosure Schedule"), whether or not the
Company Disclosure Schedule is referred to in a specific section or subsection
and except as specifically provided for in this Agreement or any agreement
attached as an Exhibit hereto, Company represents and warrants to Upgrade and
Sub as follows:
3.1.1 Organization, Standing and Power
Each of Company and the Company Subsidiaries is an entity duly organized,
validly existing and in good standing, as applicable under the laws of its
jurisdiction of incorporation or organization has all requisite power and
authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, and is duly qualified and in good standing to
do business in each jurisdiction in which it owns, leases or operates its
properties or conducts its businesses so as to require such qualification,
except where the failure to be so organized, existing, qualified or in good
standing or to have such corporate or other applicable power and authority have
not had, and would not have, a Material Adverse Effect (as hereinafter defined)
8
on the Business Condition (as hereinafter defined) of Company. As used in this
Agreement, "Business Condition"Business Condition with respect to any entity
shall mean the financial condition and results of operations (without giving
effect to the consequences of the transactions contemplated by this Agreement)
of such entity and the Company Subsidiaries or Upgrade Subsidiaries (as the
context may require) taken as a whole. For the purposes of this Agreement, the
term "Material Adverse EffectMaterial Adverse Effect" means material adverse
effect other than resulting from (i) changes attributable to conditions
affecting the Company Business or the Upgrade Business, as defined in Section
3.2.1 (as the context may require) generally or the smart card industry
generally, (ii) changes in general economic, political or regulatory conditions,
(iii) changes attributable to the announcement or pendency of the Merger, or the
other transactions contemplated hereby, or (iv) with respect to Company,
litigation arising from allegations of a breach of fiduciary duty relating to
this Agreement. Company has made available to Upgrade complete and correct
copies of the Certificate or Articles of Incorporation, Bylaws, and minutes of
each meeting of the board (and each committee thereof) of directors of Company
and each of the Company Subsidiaries, in each case, as amended to the date
hereof. "Company BusinessCompany Business" means the business generally related
to the development, design, marketing, sales and service of custom smart card
applications and services together with all other Company assets dedicated to
such business.
3.1.2 Capital Structure
The authorized capital stock of Company consists of 50,000,000 shares of
Company Common Stock of which 17,485,062 were outstanding as of August 31, 2000
and no more than a total of 26,750,000 of which shall as of the Effective Time
be outstanding (or issuable in connection with the exercise or conversion of any
Company Options and Company Warrants), none of which is or shall be held by the
Company Subsidiaries. As part of the 26,750,000 shares of Company Common Stock,
and as of August 31, 2000 there were 1,363,136 shares of Company Common Stock
issuable upon the exercise of outstanding stock options ("Company OptionsCompany
Options"), whether or not vested, under the Company's Amended and Restated Stock
Incentive Plan and the Directors' Stock Option Plan and any other stock option
plans and other options (collectively, the "Company Incentive and Stock Option
PlansCompany Incentive and Stock Option Plans"). As of August 31, 2000 there
were 3,728,840 shares of Company Common Stock issuable upon the exercise of
outstanding warrants (the "Company WarrantsCompany Warrants") as further
described in the Company Disclosure Schedule. All outstanding shares of Company
Common Stock are, and any shares of Company Common Stock issued upon exercise of
any Company Options and Company Warrants, or otherwise, will be, upon issuance
on the terms and conditions specified in the instruments pursuant to which they
are issuable, validly issued, fully paid, nonassessable and not subject to any
preemptive rights, or to any agreement to which Company or any of the Company
Subsidiaries is a party or by which Company or any of the Company Subsidiaries
may be bound. Except for the shares of Common Stock issuable upon the exercise
of Company Options and Company Warrants, there are not now and at the Effective
Time there will not be any options, warrants, calls, conversion rights,
commitments, agreements, contracts, understandings, restrictions, arrangements
or rights of any character to which Company or any of the Company Subsidiaries
is a party or by which any of them may be bound obligating Company or any of the
Company Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of Company or of any the Company
Subsidiaries or obligating Company or any the Company Subsidiaries to grant,
extend or enter into any such option, warrant, call, conversion right,
commitment, agreement, contract, understanding, restriction, arrangement or
right. Company does not have outstanding any bonds, debentures, notes or other
indebtedness the holders of which have the right to vote (or convertible or
9
exercisable into securities having the right to vote) with holders of Company
Common Stock on any matter ("Voting DebtVoting Debt"). Company is the owner,
directly or indirectly, of all outstanding shares of capital stock of each of
the Company Subsidiaries free and clear of all liens, pledges, security
interests, claims or other encumbrances and all such shares are duly authorized,
validly issued, fully paid and nonassessable.
3.1.3 Authority
Company has all requisite corporate power and authority to enter into this
Agreement and subject, in the case of this Agreement, to approval of this
Agreement by the stockholders of Company and the procurement of the Company
Required Statutory Approvals (as defined below), to consummate the transactions
contemplated hereby. The execution and delivery by Company of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Company, including
the approval of the Board of Directors of Company, subject only to approval of
this Agreement by the stockholders of Company. This Agreement has been duly
executed and delivered by Company and assuming the due authorization, execution
and delivery by Upgrade and Sub, constitutes a valid and binding obligation of
Company enforceable against Company in accordance with its terms, except that
such enforceability may be subject to (a) bankruptcy, insolvency, reorganization
or other similar laws relating to enforcement of creditors' rights generally and
(b) general equitable principles. Subject to the satisfaction of the conditions
set forth in Sections 7.1 and 7.3, the execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby 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
under, or result in the creation of a lien, pledge, security interest, charge or
other encumbrance on assets (any such conflict, violation, default, right, loss
or creation being referred to herein as a "ViolationViolation") pursuant to (x)
any provision of the Certificate of Incorporation or Bylaws of Company or the
comparable governing instruments of any of the Company Subsidiaries or (y) any
loan or credit agreement, note, bond, mortgage, indenture, contract, lease, or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Company
or any of the Company Subsidiaries or their respective properties or assets,
other than, in the case of (y), any such Violation which individually or in the
aggregate would not have a Material Adverse Effect on the Business Condition of
Company. No consent, approval, waiver, order or authorization of or
registration, declaration or filing with or exemption by (collectively
"ConsentsConsents"), any court, administrative agency or commission or other
governmental authority or instrumentality, whether domestic or foreign (each a
"Governmental EntityGovernmental Entity"), is required by or with respect to
Company in connection with the execution and delivery of this Agreement or the
consummation by Company of the transactions contemplated hereby, except for
Consents, if any, relating to (i) the filing of a premerger notification report
and all other required documents by Upgrade and Company, and the expiration of
all applicable waiting periods, under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "HSR ActHSR Act"), (ii) any filings
with the Securities and Exchange Commission (the "SECSEC") including such
reports and information as may be required under the Securities Exchange Act of
1934, as amended (the "Exchange ActExchange Act"), the Securities Act and the
rules and regulations promulgated by the SEC under the Exchange Act or the
Securities Act and the declaration of the effectiveness of the S-4 (as defined
in Section 3.1.6) by the SEC, (iii) such filings, authorizations, orders and
10
approvals as may be required under foreign laws, state securities laws and the
NASD Bylaws or "blue skyblue sky" laws, and (iv) the filing of the Merger
Documents with the Secretary of State of Delaware (the filings and approvals
referred to in clauses (i) through (iii) are collectively referred to as the
"Company Required Statutory ApprovalsCompany Required Statutory Approvals") and
except for such other Consents which if not obtained or made would not have a
Material Adverse Effect on the Business Condition of Company or the Company
Business.
3.1.4 SEC Documents and Financial Statements
Company has filed all forms, reports and documents required to be filed by
it with the SEC since April 29, 1998 through the date of this Agreement
(collectively, the "Company SEC DocumentsCompany SEC Documents"). As of their
respective filing dates, the Company SEC Documents complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as the
case may be, and the rules and regulations of the SEC thereunder applicable to
such Company SEC Documents, and none of the Company SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective filing dates, the financial statements of Company included in
the Company SEC Documents (the "Company Financial StatementsCompany Financial
Statements") complied as to form in all material respects with all applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto and were prepared in accordance with generally accepted
accounting principles ("GAAPGAAP") consistently applied (except as may be
indicated in the notes thereto) and fairly presented, in all material respects,
the consolidated financial position of Company and the Company Subsidiaries as
at the dates thereof and the results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal,
recurring audit adjustments not material in scope or amount). There has been no
change in Company's accounting policies or the methods of making accounting
estimates or changes in estimates that are material to Company Financial
Statements, except as described in the notes thereto.
3.1.5 Nasdaq Exchange
Company has made all filings required to be made of it and complied with
all rules related to Company's listing on Nasdaq SmallCap Stock Market (the
"Nasdaq ExchangeNasdaq Exchange") since its stock was listed on Nasdaq Exchange.
3.1.6 Information Supplied
None of the information supplied or to be supplied by Company or the
Company Subsidiaries, auditors, attorneys, financial advisors or other
consultants or advisors for inclusion in (i) the registration statement on Form
S-4, and any amendment thereto, to be filed under the Securities Act with the
SEC by Upgrade in connection with the issuance of the Upgrade Common Stock in or
as a result of the Merger (the "S-4S-4"), or (ii) the proxy statement and any
amendment or supplement thereto to be distributed in connection with Company's
meetings of stockholders to vote upon this Agreement and the transactions
contemplated hereby (the "Proxy StatementProxy Statement" and, together with the
prospectus included in the S-4, the "Proxy Statement/ProspectusProxy
11
Statement/Prospectus") will, in the case of the Proxy Statement and any
amendment or supplement thereto, at the time of the mailing of the Proxy
Statement and any amendment or supplement thereto, and at the time of the
meeting of stockholders of Company to vote upon this Agreement and the
transactions contemplated hereby, or, in the case of the S-4, as amended or
supplemented, at the time it becomes effective and at the time of any
post-effective amendment thereto and at the time of the meeting of stockholders
of Company, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading or
necessary to correct any statement in any earlier filing with the SEC of such
Proxy Statement/Prospectus or any amendment or supplement thereto or any earlier
communication (including the Proxy Statement/Prospectus) to stockholders of
Company with respect to the transactions contemplated by this Agreement.
3.1.7 No Defaults
Neither Company nor any of the Company Subsidiaries is, or has received
notice that it would be with the passage of time, in default or violation of any
term, condition or provision of (i) the Certificate of Incorporation or Bylaws
of Company or any comparable governing instrument of any of the Company
Subsidiaries, (ii) any judgment, decree or order applicable to Company or any of
the Company Subsidiaries or (iii) any loan or credit agreement, note, bond,
mortgage, indenture, contract, agreement, lease, license or other instrument to
which Company or any of the Company Subsidiaries is now a party or by which it
or any of its properties or assets may be bound, except for defaults and
violations which, individually or in the aggregate, would not have a Material
Adverse Effect on the Business Condition of Company.
3.1.8 Litigation
There is no claim, action, suit or proceeding pending or, to the knowledge
of Company, threatened, which would, if adversely determined, individually or in
the aggregate, have a Material Adverse Effect on the Business Condition of
Company, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Company or any of the
Company Subsidiaries having, or which, insofar as reasonably can be foreseen, in
the future would have, any Material Adverse Effect on the Business Condition of
Company. There is no investigation pending or, to the knowledge of Company,
threatened against Company or any of the Company Subsidiaries, before any
foreign, federal, state, municipal or other governmental department, commission,
board, bureau, agency, instrumentality or other Government Entity which would
have a Material Adverse Effect on the Business Condition of Company. The
Company Disclosure Schedule sets forth, with respect to any pending action,
suit, proceeding, or, to the Company's knowledge, investigation to which Company
or any of the Company Subsidiaries is a party (other than (i) cases involving
the collection of monies owed to Company or in the ordinary course of business
or (ii) trademark infringement or anti-piracy actions in the ordinary course of
business in which Company is the plaintiff), the forum, the parties thereto, the
subject matter thereof, and the amount of damages claimed.
12
3.1.9 No Material Adverse Change
Since March 31, 2000 through the date hereof, Company and the Company
Subsidiaries have conducted their respective businesses in the ordinary course
and there has not been: (i) any Material Adverse Effect on the Business
Condition of Company or any development or combination of developments of which
management of Company has knowledge which is reasonably likely to result in such
an effect; (ii) any damage, destruction or loss, whether or not covered by
insurance, having a Material Adverse Effect on the Business Condition of
Company; (iii) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to the
capital stock of Company; (iv) any material increase or change in the
compensation or benefits payable or to become payable by Company or any the
Company Subsidiaries to their employees in the aggregate, except in the ordinary
course of business consistent with past practice; (v) any acquisition or sale of
a material amount of property of Company or any of the Company Subsidiaries,
except in the ordinary course of business and which would not have a Material
Adverse Effect on the Business Condition of Company; (vi) any material increase
or modification in any bonus, pension, insurance or other employee benefit plan,
payment or arrangement made to, for, or with its employees in the aggregate; or
(vii) the granting of stock options, restricted stock awards, stock bonuses,
stock appreciation rights and similar equity based awards other than consistent
with Company's past practices and which will not result in a compensation charge
against earnings or the loss of deductions for federal or state income tax
purposes.
3.1.10 Absence of Undisclosed Liabilities
Company and the Company Subsidiaries, taken as a whole, have no liabilities
or obligations (whether absolute, accrued or contingent) ("Liabilities
Liabilities") except (i) liabilities, obligations or contingencies that are
accrued or reserved against in the unaudited consolidated balance sheet of
Company and the Company Subsidiaries as of June 30, 2000 or reflected in the
notes thereto or disclosed in the financial statements of Company filed as a
part of the Company SEC Documents, (ii) Liabilities that would not have a
Material Adverse Effect on the Business Condition of Company, or (iii)
additional Liabilities reserved against since June 30, 2000 that (x) have arisen
in the ordinary course of business and (y) are accrued or reserved against on
the books and records of Company and the Company Subsidiaries.
3.1.11 No Violations
The businesses of Company and the Company Subsidiaries are not being
conducted in violation of, or in a manner which could cause liability under any
applicable law, rule or regulation, judgment, decree or order of any
Governmental Entity, except for any violations or practices, which, individually
or in the aggregate, have not had and will not have a Material Adverse Effect on
the Business Condition of Company.
3.1.12 Certain Agreements
Neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) result in any payment
(including, without limitation, severance, unemployment compensation, parachute
payment, bonus or otherwise) becoming due to any director, employee or
13
independent contractor of Company or the Company Subsidiaries, from Company or
any of the Company Subsidiaries under any Plan (as hereinafter defined),
agreement or otherwise, (ii) materially increase any benefits otherwise payable
under any Plan or agreement, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
3.1.13 Collective Bargaining Agreements
Company and the Company Subsidiaries are not parties to or obligated under
any collective bargaining agreements.
3.1.14 Employee Benefit Plans
Each material employee benefit plan ("PlanPlan") covering active, former or
retired employees of Company and any of the Company Subsidiaries that is subject
to U.S. law ("U.S. PlansU.S. Plans") is listed in the Company Disclosure
Schedule. With respect to each U.S. Plan, Company has provided to Upgrade a copy
of each such Plan, and where applicable, any related trust agreement, annuity or
insurance contract and, where applicable, all annual reports (Form 5500) filed
with the IRS. With respect to each Plan that is not subject to U.S. law
("Non-U.S. PlansNon-U.S. Plans"), Company shall provide to Upgrade a copy of
such Plan and, where applicable, any related trust agreement, annuity or
insurance contract, as soon as practicable after the date hereof. To the extent
applicable, each U.S. Plan complies in all material respects with the
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISAERISA"), and the Code, and any U.S. Plan intended to be qualified under
Section 401(a) of the Code has been determined by the IRS to be so qualified and
has remained tax-qualified to this date and its related trust is tax-exempt and
has been so since its creation. No U.S. Plan is covered by Title IV of ERISA or
Section 412 of the Code. No material "prohibited transactionprohibited
transaction," as defined in ERISA Section 406 or Code Section 4975 has occurred
with respect to any U.S. Plan. Each U.S. Plan has been maintained and
administered in all material respects in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
U.S. Plans. There are no pending or reasonably anticipated material claims
against or otherwise involving any of the U.S. Plans and no suit, action or
other litigation (excluding claims for benefits incurred in the ordinary course
of Plan activities) has been brought against or with respect to any U.S. Plan.
All material contributions, reserves or premium payments to U.S. Plans, accrued
to the date hereof have been made or provided for. Company has not incurred any
material liability under Subtitle C or D of Title IV of ERISA with respect to
any "single-employer plansingle-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by Company, or any entity
which is considered one employer with Company under Section 4001 of ERISA.
Company has not incurred, and will not incur as a result of the transactions
contemplated by this Agreement, any withdrawal liability under Subtitle E of
Title IV of ERISA with respect to any "multiemployer planmultiemployer plan,"
within the meaning of Section 4001(a)(3) of ERISA. Company has no obligation for
retiree health and life benefits under any U.S. Plan, except as required to
avoid excise taxes under Section 4980(B) of the Code. There are no restrictions
on the rights of Company to amend or terminate any U.S. Plan without incurring
any liability thereunder (other than any liability for accrued benefits
thereunder). Company has not engaged in, nor is it a successor to, an entity
that has engaged in, a transaction described in ERISA Section 4069. There have
been no amendments to, written interpretation of, or announcement (whether or
not written) by Company relating to, or change in employee participation or
14
coverage under, any U.S. Plan that would increase materially the expense of
maintaining such Plan above the level of expense incurred in respect thereof for
the year ended December 31, 1998. Neither Company nor any of its ERISA
affiliates have any current or projected liability in respect of post-employment
or post-retirement welfare benefits for retired or former employees of Company.
No tax under Section 4980B of the Code has been incurred in respect of any U.S.
Plan that is a group health plan, as defined in Section 5000(b)(1) of the Code.
Each Non-U.S. Plan has been maintained and administered in all material respects
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations that are applicable to such Non-U.S.
Plan. Each Non-U.S. Plan that is required by contract or under applicable local
law to be funded has been funded to the extent required and if and to the extent
any Non-U.S. Plan is not funded, the unfunded obligations under such Non-U.S.
Plan are reflected on the books and records of the entity maintaining the plan.
3.1.15 Major Contracts
As of the date of this Agreement, all of Company's "material contracts" as
such term is defined under Item 601 of Regulation S-K, have been filed under the
Exchange Act. Except to the extent that such agreements have expired by their
own terms, each agreement disclosed by Company under the Exchange Act is in full
force and effect, except where the failure to be in full force and effect would
not have a Material Adverse Effect on the Business Condition of Company. None
of the parties to any of such agreements have terminated, except when such
agreements have expired under their own terms, or, to the Company's knowledge,
in any way expressed an intent to terminate or otherwise materially modify such
agreements in the future. Company has provided to Upgrade lease documents for
any real or personal property in which the amount of payments that Company is
required to make on an annual basis exceeds Fifty Thousand Dollars ($50,000) and
that have not been filed as an exhibit to any Company SEC Documents.
3.1.16 Taxes
For the purposes of this Agreement, the terms "taxtax" and "taxestaxes"
shall include all federal, state, local and foreign taxes, assessments, duties,
tariffs, registration fees, and other governmental charges including without
limitation all income, franchise, property, production, sales, use, payroll,
license, windfall profits, severance, withholding, excise, gross receipts and
other taxes, as well as any interest, additions or penalties relating thereto
and any interest in respect of such additions or penalties. Company and each of
the Company Subsidiaries has timely filed (or caused to be filed), taking into
account all extensions, all material federal, state, local and foreign tax
returns, reports and information statements ("ReturnsReturns") required to be
filed by each of them, which returns, reports and statements are true, correct
and complete in all material respects, and paid or accrued all material taxes
shown as due on such returns, reports and statements. Company and each of the
Company Subsidiaries has fully accrued in accordance with GAAP all material
unpaid taxes in respect of all periods (or the portion of any such periods)
subsequent to the periods covered by such returns). Company has received no
written notice of any claimed, proposed or assessed material deficiencies or
adjustments for any tax, nor to the best of Company's knowledge, have any such
deficiencies or adjustments been threatened. Company and the Company
Subsidiaries are not subject to any ongoing tax audit or examination nor, to the
15
best of Company's knowledge, are such audits or examinations pending or
threatened, and Company has not waived or entered into any other agreement with
respect to any statute of limitation with respect to the assessment of any tax.
Company has made available to Upgrade true and correct copies of all U.S.
Returns for the fiscal years 1996, 1997, and 1998 reasonably requested by
Upgrade. Company covenants to provide to Upgrade at its reasonable request true
and correct copies of all of Company's or Company Subsidiaries' tax returns,
information, statements, reports, work papers and other tax data as soon as
practicable after the date hereof. No consent or agreement has been made under
Section 341 of the Code by or on behalf of Company or any predecessor thereof.
Company has no interests in real estate in any state, the transfer or
disposition of which would give rise to state real estate excise tax.
Company has withheld all taxes required to be withheld in respect of wages,
salaries and other payments to all employees, officers and directors and timely
paid all such amounts withheld to the proper taxing authority. Neither the
Company nor the Company Subsidiaries are parties to any tax sharing agreements
and neither the Company nor any of the Company Subsidiaries have been members of
any affiliated group for federal income tax purposes other than the one of which
they are currently a member. The Company does not have an "overall foreign
loss" as defined in Section 904(f) of the Code. Prior to the Merger, the use of
any net operating loss carryover, net capital loss carryover, unused investment
credit or other credit carryover of the Company is not subject to any limitation
pursuant to Section 382 of the Code or otherwise, but the Company makes no
representation or warranty as to the availability of any such net operating loss
carryover, net capital loss carryover, unused investment credit or other credit
carryover of the Company after giving effect to the Merger. The Company is not
and has never been a real property holding corporation within the meaning of
Section 897 of the Code. Neither Company nor any of the Company Subsidiaries
has participated in, or cooperated with, an international boycott within the
meaning of Section 999 of the Code. There are no material liens for taxes upon
the assets of Company or the Company Subsidiaries except for taxes that are not
yet payable. The Company Disclosure Schedule contains a list of all states or
foreign jurisdictions where the Company believes it or any of the Company
Subsidiaries is required to file Returns.
Neither Company nor any of the Company Subsidiaries is a party to any
agreement, contract, or arrangement that would result in the payment of any
"excess parachute payment" within the meaning of Section 280G of the Code. None
of Company or any the Company Subsidiaries is "tax exempt use property" within
the meaning of Section 168(h) of the Code. None of the assets of Company or of
any of the Company Subsidiaries secures any debt the interest on which is tax
exempt under Section 103 of the Code.
To the knowledge of Company, there are no facts or circumstances relating
to the Company including any covenants or undertakings of the Company pursuant
to this Agreement, that would prevent counsel for Company from delivering the
opinion referred to in Section 7.1.5 as of the date hereof.
16
3.1.17 Interests of Officers
None of Company's officers or directors has, nor to the knowledge of
Company does any officer or director of any of the Company Subsidiaries have,
any material interest, directly or indirectly, in any property, real or
personal, tangible or intangible, including inventions, copyrights, trademarks
or trade names, used in or pertaining to the business of Company or that of the
Company Subsidiaries, or any supplier, distributor or customer of Company or the
Company Subsidiaries, except, in the case of Company, for the normal rights of a
stockholder, and except for rights under existing employee benefit plans.
3.1.18 Technology and Intellectual Property Rights
(a) "Company Intellectual Property" shall mean:
(i) all patents, trademarks, trade names, service marks, domain names,
copyrights and any renewal rights, applications and registrations for any
of the foregoing, and all trade dress, schematics, technology, trade
secrets, know-how, moral rights and computer software programs or
applications (in both source and object code form) owned by Company; and
(ii) all license rights in any third party intellectual property,
proprietary or personal rights, documentation, or tangible or intangible
property, including without limitation the types of intellectual property
and tangible and intangible proprietary information described in (i) above;
that are being, and/or have been, used in, or are currently under
development for use in, and are material to, the business of Company as it
has been, is currently or is currently anticipated to be (up to the
Closing), conducted. Company Intellectual Property described in clause (i)
above is referred to herein as "Company Owned Intellectual PropertyCompany
Owned Intellectual Property" and Company Intellectual Property described in
clause (ii) above is referred to herein as "Company Licensed Intellectual
PropertyCompany Licensed Intellectual Property". Unless otherwise noted,
all references to "Company Intellectual Property" shall include both
Company Owned Intellectual Property and Company Licensed Intellectual
Property.
(b) The Company Disclosure Schedule lists: (i) all patents, registered
copyrights, trademarks, and service marks and any applications and registrations
for any of the foregoing, that are included in the Company Owned Intellectual
Property; (ii) all software products and services that are currently published,
offered, or under development by Company; (iii) licenses and sublicenses of
Company Owned Intellectual Property that are material to the business of Company
as it has been, is currently or is currently anticipated to be (up to the
Closing), conducted; (iv) all Company Licensed Intellectual Property (other than
license agreements for standard "shrink wrapped, off the shelf," commercially
available, third party products used by the Company); and (v) any obligations of
exclusivity, non-competition, non-solicitation, or first negotiation to which
Company is subject under any agreement, other than those agreements described in
(iii) above and filed with the SEC or (iv) above.
(c) Each item of the Company Intellectual Property is either: (i) owned
by Company, (ii) in the public domain, or (iii) rightfully used by Company
pursuant to a valid license or other agreement. Company has all rights in the
Company Intellectual Property reasonably necessary to carry out Company's
17
current, and anticipated future (up to the Closing) activities and has or had
during the relevant period all rights in the Company Intellectual Property
reasonably necessary to carry out Company's former activities. All software and
firmware listings that are part of the Company Owned Intellectual Property are
commented in accordance with a reasonable developer standard.
(d) Company is not, nor as a result of the execution or delivery of
this Agreement, or performance of Company's obligations hereunder, will Company
be, in violation of any license, sublicense or other agreement relating to the
Company Intellectual Property or of any non-disclosure agreement to which
Company is a party or otherwise bound, except for any such violations that would
not have a Material Adverse Effect on the Business Condition of Company.
(e) Except pursuant to the terms of the agreements listed in the
Company Disclosure Schedule, Company is not obligated to provide any financial
consideration or other material consideration to any third party, nor is any
third party otherwise entitled to any financial consideration or other material
consideration, with respect to any exercise of rights by Company or its
successors in the Company Intellectual Property contained in Company's current
products as listed on the Company Disclosure Schedule or in the Company
Intellectual Property contained in any Company web site.
(f) The use, reproduction, modification, distribution, licensing,
sublicensing, sale, or any other exercise of rights in any Company Owned
Intellectual Property by Company or its licensees, does not infringe any
copyright, patent, trade secret, trademark, service ▇▇▇▇, trade name, firm name,
logo, trade dress, moral right, other intellectual property right, right of
privacy, right of publicity or right in personal or other data of any person,
except for any such violations that would not have a Material Adverse Effect on
the Business Condition of Company. Further, to the knowledge of Company, the
use, reproduction, modification, distribution, licensing, sublicensing, sale, or
any other exercise of rights in any Company Licensed Intellectual Property or
any other authorized exercise of rights in or to the Company Licensed
Intellectual Property by Company or its licensees does not infringe any
copyright, patent, trade secret, trademark, service ▇▇▇▇, trade name, firm name,
logo, trade dress, moral right, other intellectual property right, right of
privacy, right of publicity or right in personal or other data of any person,
except for any such violations that would not have a Material Adverse Effect on
the Business Condition of Company. No claims (i) challenging the validity,
enforceability, or ownership by Company of any of the Company Owned Intellectual
Property or (ii) to the effect that the use, reproduction, modification,
manufacturing, distribution, licensing, sublicensing, sale or any other exercise
of rights in any Company Owned Intellectual Property by Company or its licensees
infringes any intellectual property or other proprietary or personal right of
any person, have been asserted or, to the knowledge of Company, are threatened
by any person. To the knowledge of Company, there is no unauthorized use,
infringement or misappropriation of any of the Company Owned Intellectual
Property by any third party, employee or former employee.
(g) No parties other than Company possess any current or contingent
rights to any source code that is part of the Company Owned Intellectual
Property (including, without limitation, through any escrow account).
18
(h) Company's standard practice is to secure from all parties who have
created any material portion of, or otherwise have any material rights in or to,
the Company Owned Intellectual Property written assignments or licenses of any
such work or other rights to Company.
(i) Company has provided Upgrade with a copy of or access to all
material support and maintenance agreements relating to Company Owned
Intellectual Property or to which Company is a party as to Company Licensed
Intellectual Property.
(j) To the knowledge of Company, Company has obtained written
agreements from all employees and third parties with whom Company has shared
confidential information (i) of Company, or (ii) received from others which
Company is obligated to treat as confidential, which agreements require such
employees and third parties to keep such information confidential.
(k) Company's practices regarding the collection and use of consumer
personal information are in accordance in all material respects with Company's
privacy policy as published on its website.
3.1.19 Vote Required
The affirmative vote of the holders of a majority of the outstanding shares
of Company Common Stock and the holders of Company Warrants, voting together as
one class, is the only vote of the holders of Company's securities necessary to
approve this Agreement and the consummation of the transactions contemplated
hereby.
3.1.20 Brokers and Finders
Neither Company nor any of the Company Subsidiaries, or any of their
respective directors, officers or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or similar payments in connection with the transactions contemplated
by this Agreement.
3.1.21 Change of Control
With regard to any options, stock, restricted stock, stock bonus or other
awards granted under the Company Incentive and Stock Option Plans which are not
exercisable or vested prior to the Effective Time, Company has not taken any
action to make such options or awards exercisable or vested by reason of the
Merger. Prior to the Effective Time, Company shall take all action necessary
relating to the Company Incentive and Stock Option Plans to provide that the
occurrence of the transactions contemplated by this Agreement shall not entitle
participants under such plans to a cash-out of the stock options, restricted
stock, stock bonus or other awards granted to them thereunder.
3.1.22 Leases in Effect
All real property leases and subleases as to which Company or any of the
Company Subsidiaries is a party and any amendments or modifications thereof
which have been filed as exhibits to the Company SEC Documents or are listed on
the Company Disclosure Schedule (each a "Lease" and collectively, the "Leases")
are valid, in full force and effect, enforceable, and there are no existing
defaults on the part of Company, and Company has not received nor
19
given notice of default or claimed default with respect to any Lease, nor is
there any event that with notice or lapse of time, or both, would constitute a
default thereunder, except for defaults, claimed defaults or events that with
notice or lapse of time, or both, would constitute a default that have not had,
and would not have, individually or in the aggregate, a Material Adverse Effect
on the Business Condition of Company. No consent is required from any party
under any Lease in connection with the completion of the transactions
contemplated by this Agreement, and Company has not received notice that any
party to any Lease intends to cancel, terminate, or refuse to renew the same or
to exercise any option or other right thereunder, except where the failure to
receive such consent, or where such cancellation, termination or refusal, would
not have a Material Adverse Effect on Company's Business Condition.
3.1.23 Environmental
(a) There has not been a discharge or release on any real property at
the time it was owned or leased by Company (the "Real Property") of any
Hazardous Material (as defined below), including without limitation
contamination of soil, groundwater or the environment, generation, handling,
storage, transportation or disposal of Hazardous Materials or exposure to
Hazardous Materials, except for those that would not, individually or in the
aggregate have a Material Adverse Effect on the Business Condition of Company;
(b) No Hazardous Material has been used by Company in the operation of
Company's business in amounts or in a manner that would have a Material Adverse
Effect on the Business Condition of Company; and
(c) Company has not received from any Governmental Entity or third
party any written request for information, notice of claim, demand letter, or
other notification, notice or information that Company is or may be potentially
subject to or responsible for any investigation or clean-up or other remediation
of Hazardous Material present on any Real Property or at any other location.
"Hazardous Material" means (a) "hazardous waste" as defined by the Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of
1976 (42 U.S.C. Section 6901 et seq.), including any future amendments thereto,
and regulations promulgated thereunder; (b) "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C. Section 9601 et seq.), including any future amendments thereto, and
regulations promulgated thereunder; (c) asbestos; (d) polychlorinated biphenyls;
(e) underground storage tanks, whether empty or filled or partially filled with
any substance; (f) any substance the presence of which is or becomes prohibited
by any federal, state, or local law, ordinance, rule, or regulation; and (g) any
hazardous or toxic substance, material, or waste which under any federal, state,
or local law, ordinance, rule, or regulation requires special handling or
notification in its collection, storage, treatment or disposal.
20
3.1.24 Certain Payments
To the knowledge of Company, neither Company nor any person or other entity
acting on behalf of Company has, directly or indirectly, on behalf of or with
respect to Company: (i) made an unreported political contribution, (ii) made or
received any payment which was not legal to make or receive, (iii) engaged in
any transaction or made or received any payment which was not properly recorded
on the books of Company, (iv) created or used any "off-book" bank or cash
account or "slush fund", or (v) engaged in any conduct constituting a violation
of the Foreign Corrupt Practices Act of 1977.
3.1.25 Reliance
The foregoing representations and warranties are made by Company with the
knowledge and expectation that Upgrade and Sub are placing reliance thereon.
3.2 Representations and Warranties of Upgrade and Sub
Except as disclosed in a Disclosure Schedule which identifies by section
number the section and subsection to which such disclosure relates (unless the
applicability of such disclosure to any section or subsection is reasonably
apparent in light of the circumstances under which made) and is delivered by
Upgrade to Company concurrently with the execution of this Agreement (the
"Upgrade Disclosure Schedule"), Upgrade and Sub, jointly and severally,
represent and warrant to Company as follows:
3.2.1 Organization; Standing and Power
Each of Upgrade and Sub is a corporation duly organized, validly existing
under the laws of its jurisdiction of incorporation or organization, has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted, and is duly qualified and in
good standing to do business in each jurisdiction in which it owns, leases or
operates its properties or conducts its businesses so as to require such
qualification, except where the failure to be so organized, existing, qualified
or in good standing or to have such corporate or other applicable power and
authority have not had, and would not have, a Material Adverse Effect on the
Business Condition of Upgrade. "Upgrade Business" means, through its ownership
interests in the Upgrade Subsidiaries, the development and commercialization of
a patented, data storage technology and accompanying systems and applications
that Upgrade believes will constitute the next generation of so-called "smart
card" technology, with the specific aims of increasing the volume and security
of the information and transactions that a portable wallet-size card can store
and process.
3.2.2 Capital Structure
The authorized capital stock of Upgrade consists of 50,000,000 shares of
Upgrade Common Stock of which 19,236,717 are outstanding as of July 11, 2000 and
there are no shares of preferred stock, and no shares are held by Upgrade
Subsidiaries (as defined below). In addition, as of July 11, 2000, 2,200,000
shares of Upgrade Common Stock are reserved for issuance upon the exercise of
outstanding stock options ("Upgrade Options") under the Upgrade International
Corporation Amended 1999 Combined Incentive and Nonqualified Stock Option Plan
and the Upgrade International Corporation 2000 Stock Option Plan (collectively,
the "Upgrade Stock Option Plans"). The number of shares of Upgrade Common Stock
authorized to be issued under the Upgrade Stock Option Plans is sufficient to
accommodate the conversion of Company Options into Upgrade Options as
contemplated and required by this Agreement. The authorized capital stock of
Sub consists of 1000 shares of common stock, par value $.01, per share. As of
August 29, 2000, 100 shares of Sub's common stock are outstanding, all of which
are duly authorized, validly issued, fully paid and nonassessable and free of
any preemptive rights in respect thereof and all of which are owned by Upgrade.
The shares of Upgrade Common Stock to be issued pursuant to the Merger in
accordance with Section 2.1.3(i) will be duly authorized, validly issued, fully
21
paid and nonassessable and not subject to preemptive rights created by statute,
Upgrade's Articles of Incorporation or Bylaws or any agreement to which Upgrade
is a party or is bound and (ii) will, when issued, be registered under the
Securities Act and the Exchange Act and registered or exempt from registration
under applicable blue sky laws. In this Agreement, the "Upgrade Subsidiaries"
shall mean an entity of which an amount of the voting securities, or other
voting ownership or voting partnership interests of which is sufficient to elect
a majority of its board of directors or other governing body (or, if there are
no such interests, 50% or more of the equity interests of which) is owned
directly or indirectly by Company.
3.2.3 Authority
Upgrade and Sub have all requisite corporate power and authority to enter
into this Agreement, and subject to the procurement of the Upgrade Required
Statutory Approvals (as defined below), to consummate the transactions
contemplated hereby. The execution and delivery by Upgrade and Sub of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Upgrade and
Sub, respectively. This Agreement has been duly executed and delivered by
Upgrade and Sub and assuming the due authorization, execution and delivery by
Company, constitutes a valid and binding obligation of Upgrade and Sub
enforceable in accordance with its terms. Subject to satisfaction of the
conditions set forth in Sections 7.1 and 7.2, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with or result in any Violation of (i) any provision of the
Articles of Incorporation or Bylaws of Upgrade, the Certificate of Incorporation
or Bylaws of Sub, or the comparable governing instruments of any of the Upgrade
Subsidiaries or (ii) any loan or credit agreement note, bond, mortgage,
indenture, contract, lease, or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Upgrade, Sub or any of the Upgrade
Subsidiaries or their respective properties or assets, other than, in the case
of (ii), any such Violation, which individually or in the aggregate would not
have a Material Adverse Effect on the Business Condition of Upgrade. No Consent
is required by or with respect to Upgrade or Sub in connection with the
execution and delivery of this Agreement by Upgrade or Sub or the consummation
by Upgrade and Sub of the transactions contemplated hereby, except for (i) the
filing, if any, of a premerger notification report by Upgrade and Company under
the HSR Act, (ii) the filing of the Proxy Statement/Prospectus with the SEC
22
pursuant to the Exchange Act and the Securities Act and the declaration of the
effectiveness thereof by the SEC and compliance with various state securities or
blue sky laws, and (iii) the filing of the Merger Documents with the Secretary
of State of Delaware (the filings and approvals referred to in clauses (i)
through (iii) are collectively referred to as the "Upgrade Required Statutory
Approvals" and together with the Company Required Statutory Approvals, the
"Required Statutory Approvals") and except for such other Consents which if not
obtained or made would not have a Material Adverse Effect on the value of the
Upgrade Common Stock, the Business Condition of Upgrade or on the Upgrade
Business.
3.2.4 SEC Documents and Financial Statements
Upgrade has filed all forms, reports and documents required to be filed by
it with the SEC since April 6, 2000 through the date of this Agreement
(collectively, the "Upgrade SEC Documents"). As of their respective filing
dates, the Upgrade SEC Documents complied in all material respects with the
requirements of the Exchange Act or the Securities Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Upgrade SEC
Documents, and none of the Upgrade SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they were made, not misleading. As of their
respective filing dates, the financial statements of Upgrade included in the
Upgrade SEC Documents (the "Upgrade Financial Statements ") complied as to form
in all material respects with all applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto and were
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto) and fairly presented, in all material respects,
the consolidated financial position of Upgrade and the Upgrade Subsidiaries as
at the dates thereof and the results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal,
recurring audit adjustments not material in scope or amount). There has been no
change in Upgrade's accounting policies or the methods of making accounting
estimates or changes in estimates that are material to Upgrade Financial
Statements or estimates except as described in the notes thereto.
3.2.5 Information Supplied
None of the information supplied or to be supplied by Upgrade or the
Upgrade Subsidiaries, auditors, attorneys, financial advisors, other consultants
or advisors or Sub for inclusion in the S-4 or the Proxy Statement/Prospectus,
will, in the case of the Proxy Statement and any amendment or supplement
thereto, at the time of the mailing of the Proxy Statement and any amendment or
supplement thereto, and at the time of any meeting of stockholders of Company to
vote upon this Agreement and the transactions contemplated hereby, or in the
case of the S-4, as amended or supplemented, at the time it becomes effective
and at the time of any post-effective amendment thereto and at the time of the
meeting of stockholders of Company, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading or necessary to correct any statement in any
earlier filing with the SEC of such Proxy Statement/Prospectus or any amendment
or supplement thereto or any earlier communication (including the Proxy
Statement/Prospectus) to stockholders of Company with respect to the
transactions contemplated by this Agreement.
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3.2.6 No Defaults
Neither Upgrade nor Sub has received any notice that it would be with the
passage of time, in default or violation of any term, condition or provision of
(i) the Articles of Incorporation or Bylaws of Upgrade or Certificate of
Incorporation or Bylaws of Sub; (ii) any judgment, decree or order applicable to
Upgrade or Sub; or (iii) any loan or credit agreement, note, bond, mortgage,
indenture, contract, agreement, lease, license or other instrument to which
Upgrade or Sub is now a party or by which it or any of its respective properties
or assets may be bound, except for defaults and violations which, individually
or in the aggregate, would not have a Material Adverse Effect on the Business
Condition of Upgrade.
3.2.7 Absence of Certain Changes or Events
Since March 31, 2000 through the date of this Agreement, except as
contemplated by or as disclosed in this Agreement, as set forth in the Upgrade
Disclosure Schedule or as disclosed in any Upgrade SEC Documents filed since
April 6, 2000 and prior to the date of this Agreement, Upgrade and the Upgrade
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
any Material Adverse Effect on the Business Condition of Upgrade.
3.2.8 Litigation
There is no claim, action, suit or proceeding pending or, to the knowledge
of Upgrade, threatened, which would, if adversely determined, individually or in
the aggregate, have a Material Adverse Effect on the Business Condition of
Upgrade, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Upgrade or any of the
Upgrade Subsidiaries having, or which, insofar as reasonably can be foreseen, in
the future would have, any Material Adverse Effect on the Business Condition of
Upgrade. There is no investigation pending or, to the knowledge of Upgrade,
threatened against Upgrade or the Upgrade Subsidiaries, before any foreign,
federal, state, municipal or other governmental department, commission, board,
bureau, agency, instrumentality or other Government Entity which would have a
Material Adverse Effect on the Business Condition of Upgrade. The Upgrade
Disclosure Schedule sets forth, with respect to any pending action, suit,
proceeding, or, to Upgrade's knowledge, investigation to which Upgrade or any of
the Upgrade Subsidiaries is a party (other than (i) cases involving the
collection of monies owed to Upgrade or in the ordinary course of business or
(ii) trademark infringement or anti-piracy actions in the ordinary course of
business in which Upgrade is the plaintiff), the forum, the parties thereto, the
subject matter thereof, and the amount of damages claimed.
3.2.9 Absence of Undisclosed Liabilities
Upgrade and the Upgrade Subsidiaries, taken as a whole, have no liabilities
or obligations (whether absolute, accrued or contingent) except (i) Liabilities
that are accrued or reserved against in the unaudited consolidated balance sheet
of Upgrade and the Upgrade Subsidiaries as of March 31, 2000 or reflected in the
notes thereto or disclosed in the financial statements filed as a part of the
Upgrade SEC Documents, (ii) Liabilities that would not have a Material Adverse
Effect on the Business Condition of Upgrade, or (iii) additional Liabilities
reserved against since March 31, 2000 that (x) have arisen in the ordinary
course of business; and (y) are accrued or reserved against on the books and
records of Upgrade and the Upgrade Subsidiaries.
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3.2.10 No Violations
The businesses of Upgrade, Sub and the Upgrade Subsidiaries are not being
conducted in violation of, or in a manner which could cause liability under any
applicable law, rule or regulation, judgment, decree or order of any
Governmental Entity, except for any violations or practices, which, individually
or in the aggregate, have not had and will not have a Material Adverse Effect on
the Business Condition of Upgrade.
3.2.11 Employee Benefit Plans
Upgrade has no Plans.
3.2.12 Major Contracts
As of the date of this Agreement, all of Upgrade's "material contracts" as
such term is defined under Item 601 of Regulation S-K, have been filed under the
Exchange Act. Except to the extent that such agreements have expired by their
own terms, each agreement disclosed by Upgrade under the Exchange Act is in full
force and effect, except where the failure to be in full force and effect would
not have a Material Adverse Effect on the Business Condition of Upgrade.
3.2.13 Taxes
Upgrade and each of the Upgrade Subsidiaries has timely filed (or caused to
be filed), taking into account all extensions, all material Returns required to
be filed by each of them, which returns, reports and statements are true,
correct and complete in all material respects, and paid or accrued all material
taxes shown as due on such returns, reports and statements, except where the
failure to file or accurately complete such actions would not have a Material
Adverse Effect on the Business Condition of Upgrade.
3.2.14 Interest of Officers
None of Upgrade's officers or directors has, nor to the knowledge of
Upgrade does any officer or directory of any of the Upgrade Subsidiaries have,
any material interest, directly or indirectly, in any property, real or
personal, tangible or intangible, including inventions, copyrights, trademarks
or trade names, used in or pertaining to the business of Upgrade or any of the
Upgrade Subsidiaries, or any supplier, distributor or customer of Upgrade or any
of the Upgrade Subsidiaries.
3.2.15 No Vote Required
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No vote of the shareholders of Upgrade is required by law, Upgrade's
Articles of Incorporation or Bylaws or otherwise in order for Upgrade and Sub to
consummate the Merger and the transactions contemplated hereby.
3.2.16 Brokers and Finders
None of Upgrade or Sub or any of their respective directors, officers or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or similar payments in
connection with the transactions contemplated by this Agreement.
3.2.17 Interim Operation of Sub
Sub is a direct, wholly owned subsidiary of Upgrade, was formed solely for
the purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby. Sub has no liabilities as of the date of this Agreement,
and except for its obligations pursuant to this Agreement, will have no
liabilities as of the Closing Date.
3.2.18 Reliance
The foregoing representations and warranties are made by Upgrade with the
knowledge and expectation that Company is placing reliance thereon.
ARTICLE IV: COVENANTS OF 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, Company
agrees (except as expressly contemplated by this Agreement) that:
4.1 Conduct of Business
4.1.1 Ordinary Course
Except as set forth in the Company Disclosure Schedule, Company and the
Company Subsidiaries shall carry on their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and, to the extent consistent with such businesses, use all reasonable
efforts consistent with past practice and policies to preserve intact their
present business organizations, keep available the services of their present
officers, consultants, and employees and preserve their relationships with
customers, suppliers, distributors and others having business dealings with
them. Company shall promptly notify Upgrade of any event or occurrence or
emergency not in the ordinary course of business, of Company or the Company
Subsidiaries, and material and adverse to the Business Condition of Company.
Except as set forth in the Company Disclosure Schedule, neither Company nor any
of the Company Subsidiaries shall:
(a) accelerate, amend or change the period of exercisability or vesting
of options, restricted stock, stock bonus or other awards granted under the
Company Incentive and Stock Option Plans (including any discretionary
acceleration of the exercise periods by Company's Board of Directors permitted
under such plans) or authorize cash payments in exchange for any options,
restricted stock, stock bonus or other awards granted under any of such plans;
26
(b) except in the ordinary course of business consistent with past
practices, grant any severance or termination pay to any officer or director or
to any employee of Company or any of the Company Subsidiaries;
(c) except in the ordinary course of business consistent with past
practices and other than transfers between or among Company and any of its
wholly owned Company Subsidiaries, transfer to any person or entity any rights
to the Company Intellectual Property Rights;
(d) enter into or amend any agreements pursuant to which any other
party is granted exclusive marketing or manufacturing rights of any type or
scope with respect to any hardware or software products of Company or any of the
Company Subsidiaries;
(e) except in the ordinary course of business consistent with past
practices, commence a lawsuit other than: (i) for the routine collection of
bills; (ii) for software piracy; (iii) in such cases where Company in good faith
determines that failure to commence suit would result in a material impairment
of a valuable aspect of Company's business, provided Company consults with
Upgrade prior to filing such suit; or (iv) for a breach of this Agreement;
(f) enter into one or more leases which extend for a period of two (2)
years beyond the date of this Agreement and which obligate Company to pay
aggregate gross rent in excess of Fifty Thousand Dollars ($50,000); and
(g) extend an offer of employment to a candidate for an executive
officer position without prior consultation with Upgrade.
4.1.2 Dividends: Changes in Stock
Except as set forth in Section 4.1.2 of Company's Disclosure Schedule, and
other than transfers between or among Company and any of its wholly owned
Company Subsidiaries, Company shall not, and shall not permit any of the Company
Subsidiaries to: (i) declare or pay any dividends on or make other distributions
(whether in cash, stock or property) in respect of any of its capital stock;
(ii) split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of Company; (iii) repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock other
than repurchase of vested stock from former employees; or (iv) propose any of
the foregoing.
4.1.3 Issuance of Securities
Except as set forth in Section 4.1.3 of Company's Disclosure Schedule,
Company shall not, and shall not permit the Company Subsidiaries to, issue,
deliver, or sell, or authorize, propose or agree to, or commit to the issuance,
delivery, or sale of any shares of its capital stock of any class, any Voting
Debt or any securities convertible into its capital stock or Voting Debt, any
options, warrants, calls, conversion rights, commitments, agreements, contracts,
understandings, restrictions, arrangements or rights of any character obligating
it or any of the Company Subsidiaries to issue any such shares, Voting Debt or
other convertible securities other than any securities that may be granted to
Upgrade and/or Sub pursuant to this Agreement and/or the transactions
contemplated hereunder. Any transaction causing Company to issue securities in
27
excess of the aggregate authorized, issued and outstanding amounts described in
Section 3.1.2 (as modified by the Company's Disclosure Schedule) shall require
the prior written approval of Upgrade unless any such transaction set forth in
Section 4.1.3 of Company's Disclosure Schedule is identified as permitting the
Company to exceed the aggregate limits in Section 3.1.2.
4.1.4 Governing Documents
Company shall not, nor shall it cause or permit any of the Company
Subsidiaries to, amend its Articles or Certificate of Incorporation or Bylaws.
4.1.5 Exclusivity; Acquisition Proposals
(a) Unless and until this Agreement shall have been terminated by
either party pursuant to Section 8.1 hereof, Company shall not (and it shall use
its commercially reasonable best efforts to ensure that none of its officers,
directors, agents, representatives or affiliates) take or cause or permit any of
the Company Subsidiaries to take, directly or indirectly, any of the following
actions with any party other than Upgrade and its designees: (i) solicit,
knowingly encourage, initiate or participate in any negotiations, inquiries or
discussions with respect to any offer or proposal to acquire all or any
significant part of its business, assets or capital shares whether by merger,
consolidation, other business combination, purchase of assets, tender or
exchange offer or otherwise (each of the foregoing, an "Acquisition
Transaction"); (ii) disclose, in connection with an Acquisition Transaction, any
information not customarily disclosed to any person other than Upgrade or its
representatives concerning Company's business or properties or afford to any
person other than Upgrade or its representatives or entity access to its
properties, books or records, except in the ordinary course of business and as
required by law or pursuant to a governmental request for information; (iii)
enter into or execute any agreement relating to an Acquisition Transaction; or
(iv) make or authorize any public statement, recommendation or solicitation in
support of any Acquisition Transaction or any offer or proposal relating to an
Acquisition Transaction other than with respect to the Merger; provided,
however, that the Board of Directors of Company may recommend that the
stockholders of Company tender their shares in connection with a tender offer to
the extent the Board of Directors of Company by a majority vote determines in
its good faith judgment that such a recommendation is required to comply with
the fiduciary duties of the Board of Directors of Company to stockholders under
applicable Delaware law, after receiving the advice of outside legal counsel.
In the event Company shall receive any offer or proposal, directly or
indirectly, of the type referred to in clause (i) above, or any request for
disclosure or access with respect to information of the type referred to in
clause (ii) above, it shall immediately, and prior to taking any action in
response thereto inform Upgrade as to the existence of such offer or proposal
and generally describe the material facts concerning any such offer including
the identity of the third party making such offer, proposal or request, and will
thereafter cooperate with Upgrade by informing Upgrade of additional material
facts as they arise and furnishing to Upgrade any additional information it
furnished to any third party making such proposal or requesting information.
Nothing contained in this Agreement shall prevent the Board of Directors of
Company from (i) furnishing information to, or answering questions of, a third
party which the Board of Directors of Company reasonably believes has made a
bona fide proposal with respect to an Acquisition Transaction that is a Superior
Proposal (as defined below) not solicited in violation of this Agreement,
provided that prior to providing information, such third party executes an
28
agreement with confidentiality provisions substantially similar to those
contained in Section 6.2.2 and provided further that Upgrade is notified one
business day prior to Company's providing of such information to a third party,
or (ii) subject to compliance with the other terms of this Section 4.1.5,
considering a proposal with respect to an Acquisition Transaction, which the
Board of Directors of Company reasonably believes to be a bona fide proposal,
that is a Superior Proposal not solicited in violation of this Agreement. For
purposes of this Agreement, a "Superior Proposal" means any proposal made by a
third party to acquire, directly or indirectly, for consideration consisting of
cash and/or securities, substantially all of the equity securities of Company
entitled to vote generally in the election of directors, on terms which the
Board of Directors of Company reasonably believes (x) (after consultation with a
financial advisor of nationally recognized reputation) to be more favorable from
a financial point of view to its stockholders than the Merger and the
transactions contemplated by this Agreement taking into account at the time of
determination any changes to the financial terms of this Agreement proposed in
writing by Upgrade and (y) to be more favorable to Company and its stockholders
than the Merger and the transactions contemplated by this Agreement after taking
into account all pertinent factors deemed relevant by the Board of Directors of
Company under the laws of the State of Delaware; provided, however, that a
Superior Proposal may be subject to a due diligence review of confidential
information and to other customary conditions.
(b) Nothing contained in this Section 4.1.5 shall prohibit Company from
taking and disclosing to its stockholders a position required by Rule 14d-9 or
14e-2(a) promulgated under the Exchange Act or from making any disclosure to its
stockholders required by applicable law, rule or regulation; provided, however,
the Board of Directors of Company shall only recommend that its stockholders
tender their shares in connection with a tender offer to the extent that the
Board of Directors of Company by a majority vote determines in its good faith
judgment that such a recommendation is required to comply with the fiduciary
duties of the Board of Directors of Company to stockholders under applicable
Delaware law, after receiving the advice of outside legal counsel.
4.1.6 No Acquisitions
Except as set forth in the Company Disclosure Schedule, Company shall not,
and shall not permit any of the Company Subsidiaries to, 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 Business Condition of Company.
4.1.7 No Dispositions
Company shall not, and shall not permit any of the Company Subsidiaries to,
sell, lease, license, transfer, mortgage, encumber or otherwise dispose of any
of their assets or cancel, release, or assign any indebtedness or claim, except
in the ordinary course of business or in amounts which are not material,
individually or in the aggregate, to the Business Condition of Company.
29
4.1.8 Indebtedness
Company shall not, and shall not permit any of the Company Subsidiaries to,
incur any indebtedness for borrowed money by way of direct loan, sale of debt
securities, purchase money obligation, conditional sale, guarantee, or otherwise
in amounts which are material, individually or in the aggregate, to the Business
Condition of Company, except as otherwise permitted by or contemplated in this
Agreement. Subject to Upgrade complying with its financing commitments to
Company, Company shall not, and shall not permit any Company Subsidiaries to,
incur indebtedness pursuant to the Financing Agreement, dated as of June 30,
2000, as amended, between the Company, ▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇, ▇▇▇▇▇▇ Merchant
Partners Group LLC and Harvest Opportunity Partners L.P., other than funds
advanced by Upgrade or Sub pursuant to Section 6.7.
4.1.9 Plans
Except as set forth in the Company Disclosure Schedule, Company shall not,
and shall not permit any of the Company Subsidiaries to, adopt or amend in any
material respect any Plan, or pay any pension or retirement allowance not
required by any existing Plan. Except in the ordinary course of business
consistent with past practices, Company shall not and shall not permit any the
Company Subsidiaries to, enter into any employment contracts, pay any special
bonuses or special remuneration to officers, directors, or employees, or
increase the salaries, wage rates or fringe benefits of its officers or
employees.
4.1.10 Claims
Company shall not, and shall not permit any of the Company Subsidiaries to,
settle any claim, action or proceeding, except in the ordinary course of
business or in amounts which are not material, individually or in the aggregate,
to the Business Condition of Company.
4.1.11 Agreement
Company shall not, and shall not permit any of the Company Subsidiaries to,
agree to take any of the actions prohibited by this Section 4.1.
4.2 Breach of Representations and Warranties
Company will not knowingly take any action which would cause or constitute
a breach of any of the representations and warranties set forth in Section 3.1
or which would cause any of such representations and warranties to be inaccurate
in any material respect. In the event of, and promptly after becoming aware of,
the occurrence of or the pending or threatened occurrence of any event which
would cause or constitute any breach or inaccuracy of the representations and
warranties set forth in Section 3.1 Company will give written notice thereof to
Upgrade and will use its commercially reasonable best efforts to prevent or
promptly remedy such breach or inaccuracy.
4.3 Consents
Company will promptly apply for or otherwise seek, and use its commercially
reasonable best efforts to obtain all Consents (whether or not from a
Governmental Entity), and make all filings, required with respect to Company for
the consummation of the Merger, except such Consents as Upgrade and Company
agree Company shall not seek to obtain.
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4.4 Nasdaq Requirements
Company shall use its commercially reasonable best efforts to maintain its
listing on the Nasdaq SmallCap Market and comply with all applicable rules
related thereto, provided, however, that the Company's failure to comply with
the continued listing requirements of Nasdaq SmallCap Market as a result of the
market price of the Company's Common Stock, the issuance by the Company's
auditors of a "going concern" opinion as of December 31, 1999, or the Company's
accumulated operating deficit shall not constitute a failure to abide by the
covenant contained in this Section 4.4.
4.5 Commercially Reasonable Best Efforts
Company will use its commercially reasonable best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement provided that Company shall in no
event be required to agree to the imposition of, or comply with, any condition,
obligation or restriction on Company or any of the Company Subsidiaries or on
the Surviving Corporation described in Section 7.1.6 hereof.
4.6 Information for Prospectus/Proxy Statement
Company will as promptly as practicable provide to Upgrade and its counsel
for inclusion within the Proxy Statement/Prospectus and the S-4 in a form
reasonably satisfactory to Upgrade and its counsel, such information concerning
Company, its operations, capitalization, technology, share ownership and other
information as Upgrade or its counsel may reasonably request.
4.7 Stockholder Approval
Company will call a special Stockholders Meeting as soon as practicable but
in no event later than forty five (45) days after the Form S-4 is declared
effective by the SEC to submit this Agreement, the Merger and related matters
for the consideration and approval of Company's Stockholders ("Company
Stockholders Meeting"). Such approval will be recommended by Company's Board of
Directors, subject to the fiduciary obligations of its directors. Such meeting
will be called, held and conducted, and any proxies will be solicited, in
compliance with applicable law. Concurrently with the execution of this
Agreement, all officers and directors of Company shall have executed Voting
Agreements in the form of Exhibit 4.7 agreeing, among other things, to vote in
favor of the Merger and against any competing proposals; provided, however, that
any director of Company shall not be prevented from exercising his/her fiduciary
obligations as a director of Company.
4.8 Tax Returns
Company shall properly and timely file all Returns with respect to Company
and any of the Company Subsidiaries required to be filed prior to the Closing
Date and shall pay all taxes required to be paid prior to the Closing Date,
except for those taxes being contested in good faith. All such Returns shall be
31
prepared consistent with past practice. Company shall (i) notify Upgrade as
promptly as practicable if it receives notice of any tax audit, the assessment
of any tax, the assertion of any tax lien, or any request, notice or demand for
taxes by any taxing authority, (ii) provide Upgrade a description of any such
matter in reasonable detail (including a copy of any written materials received
from the taxing authority), and (iii) take no action with respect to such matter
without the consent of Upgrade. Company shall not (x) make or revoke any tax
election which may affect Company, (y) execute any waiver of restrictions on
assessment of any tax without the approval of Upgrade, or (z) enter into any
agreement or settlement with respect to any tax without the approval of Upgrade
which shall not be unreasonably withheld.
4.9 Representations of Stockholders
Company will use its commercially reasonable best efforts to cause (i) all
officers and directors of Company, and (ii) beneficial owners of five percent
(5%) or more of the outstanding Company Common Stock (collectively, the
"Company's Principal Stockholders") to cooperate with counsel to Company and
Upgrade to assist them in providing the tax opinions called for by Section 7.1.5
hereof; provided, however, that the failure of Company to obtain the cooperation
of any of the Company's Principal Stockholders, other than ▇▇▇▇▇ ▇▇▇▇ ▇▇, shall
not, in and of itself, constitute a default by Company under this Agreement.
4.10 Employee Benefits Matters
4.10.1 Benefit Plans
Surviving Corporation shall continue all of Company's employee benefit
plans in existence as of the Effective Time upon the same terms and conditions
then in effect. Notwithstanding the above, and without the loss of any vested
benefits but without accelerating any unvested rights (except as required by
law), at the request of Upgrade Company shall terminate or modify the Plans as
may be directed by Upgrade immediately prior to the Effective Time; provided,
however, that any such modification, termination or merger shall be contingent
upon the occurrence of the Effective Time; and provided further, that any such
action by Company requested by Upgrade which results in an additional liability
of Company shall be excluded from the determination of Company's financial
condition pursuant to Section 4.11 below but only to the extent greater than any
liability to be incurred a result of the Merger without such change requested by
Upgrade.
4.10.2 Section 16 Approval
On or after the date hereof and prior to the Effective Time, each of
Upgrade and Company shall take all necessary action such that, with respect to
(i) any Company Employee who as of the date hereof is subject to Section 16 of
the Exchange Act and (ii) any member of the Company's Board of Directors (each,
a "Company Section 16 Insider"), the acquisition by any such Company Section 16
Insider of Upgrade Common Stock or Upgrade stock options and the disposition by
any such Company Section 16 Insider of Company Common Stock or Company Options
pursuant to the transactions contemplated herein shall be exempt from the
short-swing profit liability rules of Section 16(b) of the Exchange Act pursuant
to Rule 16b-3 promulgated thereunder.
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4.11 Financial Condition
At the Effective Time, exclusive of Company's current liabilities and the
software license fee payable of Seven Hundred Thousand Dollars ($700,000), the
Company's Liabilities shall be no more than Six Million Two Hundred Fifty
Thousand Dollars ($6,250,000).
4.12 Opinion of Financial Advisor
Company will engage a recognized financial advisor that meets with
Upgrade's approval, such approval to be secured in writing, and not to be
unreasonably withheld, to issue its opinion with respect to the fairness of the
Exchange Ratio, from a financial point of view, to Company's stockholders, prior
to the Company's filing of Form S-4 with the SEC. Company will promptly provide
a copy of the opinion to Upgrade.
4.13 Consent of Series A Secured Note Holders.
Company will promptly seek, and use its reasonable best efforts to obtain,
the consent of each holder of the Company's Series A Secured Notes to the
transactions contemplated by this Agreement.
ARTICLE V: COVENANTS OF UPGRADE
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, Upgrade
agrees (except as expressly contemplated by this Agreement) that:
5.1 Breach of Representations and Warranties
Upgrade will not knowingly take any action which would cause or constitute
a breach of any of the representations and warranties set forth in Section 3.2
or which would cause any of such representations and warranties to be inaccurate
in any material respect. In the event of, and promptly after becoming aware of,
the occurrence of or the pending or threatened occurrence of any event which
would cause or constitute any breach or inaccuracy of the representations and
warranties set forth in Section 3.2, Upgrade will give notice thereof to Company
and will use its commercially reasonable best efforts to prevent or promptly
remedy such breach or inaccuracy.
5.2 Conduct of Business by Upgrade Pending the Merger
Upgrade shall promptly notify Company of any event or occurrence that is
material and adverse to the Business Condition of Upgrade; provided, however,
that the disclosure of such event or occurrence in a Upgrade SEC Document shall
satisfy such requirement so long as such Upgrade SEC Document is filed within a
reasonable period of time after Upgrade becomes aware of such event or
occurrence and in any event prior to the Closing Date, or if the Closing Date
has occurred, prior to the Effective Time.
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5.3 Consents
Each of Upgrade and Sub, as applicable, will promptly apply for or
otherwise seek, and use its commercially reasonable best efforts to obtain all
Upgrade Required Statutory Approvals, and make all filings, and obtain such
other Consents that if not obtained would have a Material Adverse Effect on the
Business Condition of Upgrade or on the ability of either Upgrade or Sub to
consummate the Merger.
5.4 Commercially Reasonable Best Efforts
Each of Upgrade and Sub will use its commercially reasonable best efforts
to effectuate the transactions contemplated hereby and to fulfill and cause to
be fulfilled the conditions to closing under this Agreement provided that
neither Upgrade nor Sub shall be required to agree to the imposition of, or
comply with, any condition, obligation or restriction on Upgrade or any of the
Upgrade Subsidiaries or on the Surviving Corporation described in Section 7.1.6
hereof.
5.5 Representations of Shareholders
Upgrade will use its commercially reasonable best efforts to cause each of
its principal shareholders who is the beneficial owner of five percent (5%) or
more of the outstanding Upgrade Common Stock to cooperate with counsel to
Upgrade and Company to assist them in providing the tax opinions called for by
Section 7.1.5. Upgrade shall provide to Company and its counsel such customary
representations as such persons shall reasonably request in connection with the
opinions contemplated in Section 7.1.5. To the knowledge of Upgrade, there are
no facts or circumstances relating to Upgrade, including any covenants or
undertakings of Upgrade pursuant to this Agreement, that would prevent counsel
for Company from delivering the opinion referred to in Section 7.1.5 as of the
date hereof.
5.6 Tax Free Reorganization
Upgrade has no present plan or intention following the Merger to take any
of the following actions:
(a) Cause Company to issue additional shares of its capital stock that
would result in Upgrade losing control of Company within the meaning of Section
368(c) of the Code;
(b) Merge Company with or into another corporation, or sell or
otherwise dispose of the capital stock of Company (except for transfers of such
stock to corporations controlled by Upgrade within the meaning of Code Section
368(a)(2)(C) and except for any cash offering of the Company's stock to the
public) so long as such offering does not disqualify the Merger as a tax-free
reorganization within the meaning of Code Section 368(a);
(c) Reacquire any shares of its capital stock issued in the Merger,
other than possible purchases in the ordinary course of business of shares held
by Company employees in connection with termination of employment of such
employees and open market repurchases in connection with its normal share
repurchase program;
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(d) Cause Company to fail to hold at least 90% of the fair market value
of the Company's net assets and at least 70% of the fair market value of its
gross assets, and at least 90% of the fair market value of Sub's net assets and
at least 70% of its gross assets held immediately prior to the Merger, other
than pursuant to a transfer of rights or assets by means of a sale, license or
merger permitted under subsection (b), provided that Company receives reasonable
arms-length consideration for any sale or license of its assets. For this
purpose, amounts paid by Company or Sub to dissenters or stockholders who
receive cash or other property, to pay reorganization expenses, and in
connection with redemptions and distributions (except for regular, normal
distributions) will be treated as assets of the Company or Sub, respectively,
held immediately prior to the Merger; and
(e) Fail to cause Company (or a transferee of Company's stock or
business to which the stock or assets of Company are transferred in a
transaction described in Section 368(a)(2)(C) of the Code) either to continue
Company's historic business or use a significant portion of its business assets
in a business.
5.7 Stock Exchange Listing
Upgrade will use its commercially reasonable best efforts (i) to cause the
shares of Upgrade Common Stock to be issued in the Merger to be quoted upon the
Effective Time on the OTC Bulletin Board or listed on such national securities
exchange as Upgrade Common Stock is listed and (ii) to cause the shares of
Upgrade Common Stock issued upon the exercise of assumed Company Options and
Company Warrants to be quoted upon issuance on the OTC Bulletin Board or listed
on such national securities exchange as shares of Upgrade Common Stock are
listed.
5.8 Payment of Liabilities
Attached hereto as Section 5.8 of the Company Disclosure Schedule is a list
of liabilities of Company as of August 31, 2000. After the Signing Date,
Company shall cooperate with Upgrade to limit those liabilities to be paid at
Closing. At the Closing, Upgrade shall pay liabilities of no more than
$6,250,000.
ARTICLE VI: ADDITIONAL AGREEMENTS
In addition to the foregoing, Upgrade and Company each agree to take the
following actions after the execution of this Agreement.
6.1 Preparation of S-4
As promptly as practicable after the date hereof, Upgrade and Company shall
prepare and file with the SEC the Proxy Statement and any other documents
required by the Exchange Act in connection with the Merger, and Upgrade shall
prepare and file with the SEC the S-4, in which the Proxy Statement will be
included as a part of the prospectus. Each of Upgrade and Company shall use its
commercially reasonable best efforts to have the S-4 declared effective under
the Securities Act as promptly as practicable after such filing. Prior to the
effective date of the S-4, Upgrade shall also take any action required to be
taken under any applicable federal or state securities or blue sky laws in
connection with the issuance of the Upgrade Common Stock in the Merger. Company
agrees that the Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of all applicable laws, including the
35
provisions of the Exchange Act and the rules and regulations of the SEC
thereunder, except that no representation is made by Company with respect to
information supplied by Upgrade specifically for inclusion therein. Upgrade
agrees that the S-4 and the Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of all applicable laws including the
provisions of the Securities Act and the Exchange Act and the rules and
regulations of the SEC thereunder, except that no representation is made by
Upgrade with respect to information supplied by Company specifically for
inclusion therein.
6.2 Access to Information; Confidentiality
6.2.1 Access
Subject to appropriate restrictions on access to information which Company
determines in good faith to be proprietary or competitively sensitive, Company
and Upgrade shall, subject to applicable law, each afford the other and their
respective accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(i) all of their, the Company Subsidiaries' and the Upgrade Subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of Company and
Upgrade and the Company Subsidiaries and the Upgrade Subsidiaries, as the other
party may reasonably request which is necessary to complete the transaction and
prepare for an orderly transition to operations after the Effective Time.
Company and Upgrade agree to provide to the other and their respective
accountants, counsel and representatives copies of internal financial statements
promptly upon the request therefor. No information or knowledge obtained in any
investigation pursuant to this Section 6.2 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.
6.2.2 Confidentiality
For purposes of this Agreement, the term "Confidential Information" shall
mean information exchanged between the parties which is not publicly known
relating to the business activities and operations of Company and/or Upgrade,
including the Company Subsidiaries and the Upgrade Subsidiaries, and shall
include all information exchanged by the parties except information which is
either (a) expressly designated as non-confidential by either party, or (b)
information now in the public domain, or that becomes part of the public domain
through no fault of the disclosing party prior to the date of any disclosure.
Company and Upgrade will exchange such information concerning their
respective operations as outlined in Section 6.2.1 and elsewhere throughout the
Agreement. Confidential Information may only be used for purposes of developing
and implementing the Merger and may not be used for any other purpose. If the
Merger and/or this Agreement is terminated, all originals and copies of
Confidential Information, whether in written, magnetic, or other form, shall be
either returned to the party who produced it, or destroyed in such fashion as to
36
render the information unusable by any party. Confidential Information shall
not be conveyed or disseminated by the party to whom it was conveyed, except to
those officers, directors, trustees, employees, consultants, or agents of the
party who have a legitimate need for the information for the purpose of
evaluating, planning or executing the Merger or this Agreement, or by order of a
court or administrative agency with applicable jurisdiction, but only after
supplying the other party notice in time to permit it to seek a protective
order. The obligations contained in Section 6.2.2 shall survive the termination
of this Agreement.
6.3 Legal Conditions to the Merger
Each of Upgrade, Sub and Company will take all reasonable actions necessary
to comply promptly with all legal requirements which may be imposed on any of
them with respect to the Merger and will promptly cooperate with and furnish
information to each other in connection with any such requirements imposed upon
the other. Each of Upgrade, Sub and Company will take, and will cause the
Company Subsidiaries and the Upgrade Subsidiaries to take, all reasonable
actions to obtain (and to cooperate with the other parties in obtaining) any
consent, approval, order or authorization of, or any exemption by, any
Governmental Entity, or other third party, required to be obtained or made by
Company or Upgrade or the Company Subsidiaries or the Upgrade Subsidiaries in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement. The foregoing shall not require any party to agree to the
imposition of, or to comply with, any condition, obligation or restriction on
Upgrade or any of the Upgrade Subsidiaries or on the Surviving Corporation
described in Section 7.1.6 hereof.
6.4 Affiliates
Upon the execution of this Agreement, the Company shall use its reasonable
best efforts to obtain an executed affiliate letter substantially in the form
attached as Exhibit 6.4 (the "Affiliate Letters") from each person that is an
executive officer, director or beneficial owner of five percent (5%) or more of
the outstanding Company Common Stock (the "Named Persons") (other than ▇▇▇▇▇ &
Co. Incorporated); provided, however, that the Company's failure, following its
reasonable best efforts, to obtain Affiliate Letters from beneficial owners of
five percent (5%) or more of the outstanding Company Common Stock who are not
officers or directors of the Company shall not constitute a failure to comply
with the condition precedent contained in this Section 6.4. Upgrade shall be
entitled to place appropriate legends on the certificate evidencing any shares
of Upgrade Common Stock to be received by the Named Persons pursuant to the
terms of this Agreement and to issue appropriate stop transfer instructions to
the transfer agent for shares of Upgrade Common Stock consistent with the terms
of the Affiliate Letters.
6.5 HSR Act Filings
6.5.1 Filings and Cooperation
Each of Upgrade and Company shall take all reasonable steps to determine
whether a HSR Act filing is necessary and, if so, (i) promptly to make or cause
to be made the filings required of such party or any of its Affiliates or the
Company Subsidiaries or the Upgrade Subsidiaries under the HSR Act with respect
to the Merger and the other transactions provided for in this Agreement, (ii) to
comply in a timely manner with any request under the HSR Act for additional
information, documents, or other material received by such party or any of its
Affiliates or the Company Subsidiaries or the Upgrade Subsidiaries from the
Federal Trade Commission or the Department of Justice or other Governmental
Entity in respect of such filings, the Merger, or such other transactions, and
(iii) to cooperate with the other party in connection with any such filing and
37
in connection with resolving any investigation or other inquiry of any such
agency or other Governmental Entity under any Antitrust Laws (as defined in
Section 6.5.2) with respect to any such filing, the Merger, or any such other
transaction. Each party shall promptly inform the other party of any material
communication with, and any proposed understanding, undertaking, or agreement
with, any Governmental Entity regarding any such filings, the Merger, or any
such other transactions. Neither party shall participate in any meeting with
any Governmental Entity in respect of any such filings, investigation, or other
inquiry without giving the other party notice of the meeting and, to the extent
permitted by such Governmental Entity, the opportunity to attend and
participate.
6.5.2 Objections
Each of Upgrade and Company shall take all reasonable steps to resolve such
objections, if any, as may be asserted by any Governmental Entity with respect
to the Merger or any other transactions provided for in this Agreement under the
HSR Act, the ▇▇▇▇▇▇▇ Act, as amended, the ▇▇▇▇▇▇▇ Act, as amended, the Federal
Trade Commission Act, as amended, and any other federal, state or foreign
statutes, rules, regulations, orders, or decrees that are designed to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade (collectively, "Antitrust Laws"). In connection therewith,
if any administrative or judicial action or proceeding is instituted (or
threatened to be instituted) challenging the Merger as violative of any
Antitrust Law, and, if by mutual agreement, Upgrade and Company decide that
litigation is in their best interests, each of Upgrade and Company shall
cooperate to vigorously contest and resist any such action or proceeding and to
have vacated, lifted, reversed, or overturned any decree, judgment, injunction,
or other order, whether temporary, preliminary, or permanent (each an "Order"),
that is in effect and that prohibits, prevents, or restricts consummation of the
Merger. Each of Upgrade and Company shall take such reasonable action as may be
required to cause the expiration of the notice periods under the HSR Act or
other Antitrust Laws with respect to the Merger and such other transactions as
promptly as possible after the execution of this Agreement. Notwithstanding
anything to the contrary in this Section 6.5.2 or in Section 6.5.1, (x) neither
Upgrade nor any of the Upgrade Subsidiaries shall be required to divest any of
their respective businesses, product lines, or assets, or to take or agree to
take any other action or agree to any limitation that would have a Material
Adverse Effect on the portable data storage device applications and services
business of Upgrade and the Upgrade Subsidiaries combined with the Surviving
Corporation after Closing, (y) neither Company nor the Company Subsidiaries
shall be required to divest any of their respective businesses, product lines,
or assets, or to take or agree to take any other action or agree to any
limitation that would have a Material Adverse Effect on the Business Condition
of Company and (z) neither Upgrade nor Company (nor any of the Company
Subsidiaries or the Upgrade Subsidiaries) shall be required to continue to
contest or resist any action or proceeding brought by a Governmental Entity if
it concludes that such action is no longer in its best interest.
6.6 Expenses
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expense, except that if the Merger is not
38
consummated expenses incurred in connection with printing and mailing of the
documents distributed or to be distributed to stockholders of Company and the
filing fee with respect to the S-4 shall be shared equally by Upgrade and
Company.
6.7 Interim Financing
(a) As soon as practicable after the Signing Date, Upgrade, Sub and
Company shall implement the interim financing plan for Company, set forth in the
Upgrade Disclosure Schedule based on the budget prepared by Company and approved
by Upgrade ("Interim Financing"). The funds advanced by Upgrade or Sub pursuant
to this Section 6.7 shall be advanced pursuant to amendments to the Company's
Financing Agreement with ▇▇▇▇▇▇ Merchant Partners Group LLC ("▇▇▇▇▇▇") and
Harvest Opportunity Partners LP ("Harvest") (the "Amended Financing Agreement")
that increases the Line of Credit under the Amended Financing Agreement to an
amount sufficient to cover all of the Interim Financing. The Interim Financing
shall be secured through related amendments to the ▇▇▇▇▇▇ and Harvest Security
Agreement, Series A Senior Secured Note, and by providing Upgrade a Warrant to
Purchase Common Stock (collectively, the "Amended Security Agreements "), with
Upgrade and/or Sub participating pari passu with ▇▇▇▇▇▇ and Harvest in the
Amended Financing Agreement and Amended Security Agreements. Proposed versions
of the Amended Financing Agreement and Amended Security Agreements, including
Upgrade's and Sub's right to convert all or any portion of such Interim
Financing to Company Common Stock are attached hereto as Exhibits 6.7 A - E,
respectively.
(b) Should the Merger be completed, Upgrade's and Sub's participation
in the Amended Financing Agreement and Amended Security Agreements shall be
terminated in consideration of the following adjustment to the Exchange Ratio:
For each One Hundred Thousand Dollars ($100,000) advanced to Company during the
period commencing July 11, 2000 and continuing up to the Effective Time (the
"Interim Period"), the Exchange Ratio shall be increased by 0.313%. For
example, if Upgrade and Sub provide Interim Financing of Five Hundred Thousand
Dollars ($500,000) to Company during the Interim Period, the Exchange Ratio
would be adjusted as follows:
[($500,000/$100,000) * .00313 * 14.3] + 14.3 = 14.524
6.8 Additional Agreements
In case at any time after the Effective Time any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement or
to vest the Surviving Corporation with full title to all properties, assets,
rights, approvals, immunities and franchises of either of the Constituent
Corporations, the proper officers and directors of each corporation which is a
party to this Agreement shall take all such necessary action.
6.9 Public Announcements
Upgrade and Company shall cooperate with each other in releasing
information concerning this Agreement and the transactions contemplated herein.
Where practicable each of the parties shall furnish to the other drafts of all
releases prior to publication. Nothing contained herein shall prevent either
39
party at any time from furnishing any information to any governmental agency or
from issuing any release when it believes it is legally required to do so.
6.10 State Takeover Laws
Company, and the Board of Directors of Company, shall grant such approvals
and take all necessary steps to exempt the transactions contemplated by this
Agreement from, or if necessary challenge the validity or applicability of,
Delaware takeover laws to the Merger.
6.11 State Securities Laws
Upgrade shall use all reasonable efforts to obtain, in a timely fashion,
all necessary permits, consents and approvals required under the applicable
state securities laws to permit the distribution of the shares of Upgrade Common
Stock to be issued in accordance with the provisions of this Agreement.
ARTICLE VII: CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction prior to the Closing Date of the following
conditions:
7.1.1 Stockholder Approval
This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the required vote of holders of Company Common Stock and
of other securities voting together with the holders of Company Common Stock.
7.1.2 Consents
Other than the filing of the Merger Documents with the Secretary of State
of Delaware, all Consents legally required for the consummation of the Merger
and the transactions contemplated by this Agreement shall have been filed,
occurred, or been obtained, other than such Consents, the failure of which to
obtain would not have a Material Adverse Effect on the consummation of the
Merger or the other transactions contemplated hereby or on the Business
Condition of Upgrade or Company.
7.1.3 S-4
The S-4 shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceedings seeking a stop order and the
Proxy Statement shall not be at the Effective Time subject to any proceedings
commenced or threatened by the SEC.
7.1.4 No Restraints
No statute, rule, regulation, executive order, decree or injunction shall
have been enacted, entered, promulgated or enforced by any United States court
or Governmental Entity of competent jurisdiction which enjoins or prohibits the
consummation of the Merger and shall be in effect.
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7.1.5 Tax-Free Reorganization
Each of Company and Upgrade shall have received a written opinion from
their respective counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code, and that Upgrade,
Sub and Company will each be a party to that reorganization. In preparing
Company and Upgrade tax opinions, counsel may rely on reasonable representations
related thereto.
7.1.6 No Burdensome Condition
There shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger by any
Governmental Entity which, in connection with the grant of any Required
Statutory Approval, imposes any restriction, condition or obligation upon
Upgrade, Company or the Surviving Corporation which would (i) have a Material
Adverse Effect on the Business Condition of Company or (ii) materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement.
7.1.7 No Prohibition
No law, regulation, order, decree or injunction binding on any of the
parties hereto shall then be in effect which would prevent consummation of the
Merger or make it illegal, the violation of which would have a Material Adverse
Effect on the Company or Upgrade. The Proxy Statement/Prospectus shall have
become effective under the Securities Act, and shall not be the subject of any
stop order or proceedings seeking a stop order.
7.2 Conditions of Obligations of Upgrade and Sub
The obligations of Upgrade and Sub to effect the Merger are subject to the
satisfaction of the following conditions unless waived by Upgrade and Sub:
7.2.1 Representations and Warranties of Company
The representations and warranties of Company set forth in this Agreement
shall be true and correct as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date. Upgrade shall have received
a certificate signed on behalf of Company by the chief executive officer or the
chief financial officer of Company to such effect on the Closing Date.
7.2.2 Performance of Obligations of Company
Company shall have performed all agreements and covenants required to be
performed by it under this Agreement prior to the Closing Date. Upgrade shall
have received a certificate signed on behalf of Company by the chief executive
officer or the chief financial officer of Company to such effect. Additionally,
Company shall have provided Upgrade a pro forma balance sheet, certified by the
chief financial officer of Company, setting forth the Company's Liabilities,
current liabilities and current assets, as of the Closing Date and certifying
compliance with the financial condition covenant in Section 4.11.
41
7.2.3 Affiliates
Upgrade shall have received from each person or entity who may be deemed
pursuant to Section 6.4 hereof to be a Named Person of Company a duly executed
Affiliate Letter substantially in the form attached hereto as Exhibit 6.4,
except as otherwise provided in Section 6.4.
7.2.4 Opinion of Company's Counsel
Upgrade shall have received an opinion dated the Closing Date of Salans
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to Company, customary for
transactions of this type, in form and substance reasonably satisfactory to
Upgrade's counsel.
7.2.5 Approval of Company's Stockholders
No more than seven and one-half percent (7.5%) of outstanding voting
securities of Company eligible to vote on the approval of the Merger shall have
been cast against the approval of Merger in the vote required by Section 4.7;
the parties hereby agree that abstentions shall not be deemed to have voted
against the Merger.
7.2.6 Company's Pending Acquisitions
Company shall have consummated its pending acquisition transactions with
Smart Card Solutions, Inc. and MS Digital, Inc. prior to the Effective Time.
7.2.7 Company Warrant and Series A Secured Note Holder Consent
Company shall have received all necessary Consents, if necessary, from
those holders of Company Warrants. Company shall have received all necessary
consents of holders of the Company's Series A Senior Secured Notes
7.3 Conditions of Obligation of Company
The obligation of Company to effect the Merger is subject to the
satisfaction of the following conditions unless waived by Company:
7.3.1 Representations and Warranties of Upgrade and Sub
The representations and warranties of Upgrade and Sub set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date. Company shall
have received a certificate signed on behalf of Upgrade by an authorized
executive officer of Upgrade to such effect on the Closing Date.
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7.3.2 Performance of Obligations of Upgrade and Sub
Upgrade and Sub shall have performed all agreements and covenants required
to be performed by them under this Agreement prior to the Closing Date. Company
shall have received a certificate signed on behalf of Upgrade by an authorized
executive officer of Upgrade to such effect.
7.3.3 Opinion of Upgrade's Counsel
Company shall have received an opinion dated the Closing Date of ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, PLLC, counsel to Upgrade, customary for transactions of this
type, in form and substance reasonably satisfactory to Company's counsel.
ARTICLE VIII: DUE DILIGENCE TERMINATION,
AMENDMENT AND WAIVER
8.1 Termination
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of Company:
(a) by mutual consent of Upgrade and Company;
(b) by either Upgrade or Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
agreement contained in this Agreement) if there has been a material breach of
any representation, warranty, covenant or agreement contained in this Agreement
and such breach has not been cured, or commercially reasonable best efforts are
not being employed to cure such breach, within twenty (20) days after notice
thereof is given to the party committing such breach;
(c) by either Upgrade or Company if the Merger shall not have been
consummated before December 29, 2000, or such other date as determined pursuant
to Section 1.2; provided, however if the parties have agreed to pursue
litigation pursuant to Section 6.5.2, such date shall be extended to June 30,
2001 and provided further, that if the S-4 has been declared effective prior to
December 29, 2000, such date shall be extended until the date which is 50 days
after the date on which the S-4 is declared effective, in accordance with
Section 1.2 hereof;
(d) by either Upgrade or Company if the approval of the stockholders of
Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote taken at any Company Stockholders Meeting or any
adjournment thereof;
(e) by either Upgrade or Company if any permanent injunction or other
order of a court or other competent authority preventing the Merger shall have
become final and not subject to appeal;
43
(f) by Upgrade if the Board of Directors of Company shall have
withdrawn or modified in a manner adverse to Upgrade its approval or
recommendation of the Merger, this Agreement or the transactions contemplated
hereby;
(g) by Upgrade if Company or any of the other persons or entities
described in Section 4.1.5 shall take any of the actions that would be
proscribed by Section 4.1.5 other than actions in exercise of Company's
fiduciary duties and satisfying all conditions of Section 4.1.5 in all material
respects;
(h) by Upgrade if, within ten (10) days from the Signing Date Upgrade
provides notice to Company that Upgrade is not reasonably satisfied with the
result of its due diligence investigation;
(i) by Company if the fairness opinion which it receives pursuant to
Section 4.12 is unfavorable;
(j) by Company, if the matter In Re Upgrade International Corporation
---------------------------------------
Securities Litigation, U.S. District Court, Western District of Washington at
---------------------
Seattle, c/a #C00-0298, currently pending against Upgrade results in a judgment
against Upgrade, and such judgment would have a Material Adverse Effect on the
Business Condition of Upgrade; or
(k) by Upgrade if Company is unable to secure the consent of each
holder of the Company's Series A Secured Notes to the transactions contemplated
by 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 of the party taking such action without any requirement to submit such
action to the shareholders or stockholders of such party.
8.2 Effect of Termination
In the event of termination of this Agreement by either Company or Upgrade
as provided in Section 8.1, this Agreement shall forthwith become void and have
no effect, and there shall be no liability or obligation on the part of Upgrade,
Sub or Company or their respective officers or directors, except that (i) all of
Sections 6.2.2, 6.6, 8.2, 8.3, and ARTICLE IX shall survive any such termination
and abandonment, and (ii) no party shall be released or relieved from any
liability arising from the breach by such party of any of its representations,
warranties, covenants or agreements as set forth in this Agreement except as
provided in Section 8.3(b).
8.3 Break-up Fee
(a) If Upgrade terminates this Agreement pursuant to (i) Section 8.1(g)
or (ii) Section 8.1(f) as a result of Company's agreement to an Acquisition
Transaction that would result in a change in the beneficial owners of more than
fifty percent (50%) of the voting power of the capital stock of Company with any
person (other than Upgrade or any of its affiliates), then Company shall
promptly pay to Upgrade a break-up fee which shall be payable, at Upgrade's
election, (x) in an amount equal to the sum of Six Hundred Thirty-Eight Thousand
44
Dollars ($638,000) in immediately available funds or (y) by the issuance by
Company of 850,667 shares of Company Common Stock; provided, that Upgrade is not
then in material breach of any representation, warranty, covenant or agreement
contained in this Agreement. Upgrade shall provide written notice of its
election to receive the cash funds or Company Common Stock, as set forth above,
within ten (10) days of providing written notice of termination to Company.
Upon issuance of Company Common Stock to Upgrade pursuant to this Section
8.3(a), such shares shall be validly issued, fully paid and nonassessable.
(b) If Company terminates this Agreement pursuant to Section 8.1(i),
company shall promptly issue to Upgrade 850,667 shares of Company Common Stock;
provided, that Upgrade is not in material breach of any representation,
warranty, consent or agreement contained in this Agreement. Upon issuance of
Company Common Stock to Upgrade pursuant to this Section 8.3(b), such shares
shall be validly issued, fully paid and nonassessable.
(c) The number and kind of shares of Company Common Stock to be issued
to Upgrade pursuant to Sections 8.3(a) and (b) above shall be adjusted
appropriately for any stock dividend, combination, division or reclassification
of Company Common Stock, or for any merger, consolidation, or other corporate
action, between the Signing Date and the date Upgrade receives such shares of
Company Common Stock, so that Upgrade receives the same number, kind or class of
Common Stock, or other securities and property as Upgrade would be entitled to
had it owned the shares of Company Common Stock prior to the record date (or in
the absence of a record date, immediately prior to the undertaking) of such
action. Any shares of Company Common Stock issuable pursuant to Sections 8.3(a)
and (b) above, whether or not adjusted by this Section 8.3(c) shall be treated
as "Registrable Shares" pursuant to the terms of the Amended Financing Agreement
(d) The right to the payment of the fees and Company Common Stock set
forth in this Section 8.3 shall be the exclusive remedy at law or in equity in
respect of this Agreement to which Upgrade may be entitled upon termination of
this Agreement under the conditions set forth in Sections 8.3(a) and (b).
Nothing herein shall be deemed to abridge any rights Upgrade and Sub may have
pursuant to the terms of the Amended Financing Agreement and related documents
in connection with the Interim Financing. Each of Upgrade and Sub acknowledge
that, when issued, (i) any shares of Common Stock that it receives pursuant to
this Section 8.3 will not be registered under the Securities Act or the
securities laws of any state in the United States, in reliance on exemptions
from such registration and (ii) a restrictive legend consistent with the
foregoing has been or will be placed on the certificates evidencing such shares.
8.4 Amendment
This Agreement may be amended by the parties hereto, by action taken by
their respective Board of Directors, at any time before or after approval of
matters presented in connection with the Merger by the stockholders of Company,
but after any such stockholder approval, no amendment shall be made which by law
requires the further approval of stockholders without obtaining such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
45
8.5 Extension, Waiver
At any time prior to the Effective Time, any party hereto, by action taken
by its Board of Directors may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the other
parties 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, covenants
or conditions for the benefit of such party contained herein. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.
ARTICLE IX: GENERAL PROVISIONS
9.1 Nonsurvival of Representations, Warranties and Agreements
All representations, warranties, covenants and agreements of the parties in
this Agreement, the Company Disclosure Schedule, the Upgrade Disclosure Schedule
or in any instrument delivered pursuant to this Agreement shall be deemed to be
conditions to the Merger and shall not survive the Effective Time, except for
the covenants and or agreements contained in ARTICLE II and in Sections 1.4,
4.10, 5.8, 6.2.2, 6.5, 6.6, 6.7, 6.8, 6.9, 6.11, 9.2 and the agreements
delivered pursuant to this Agreement. Notwithstanding the foregoing, nothing
contained in this Section 9.1 shall limit any covenant or agreement that by its
own terms contemplates performance after the Effective Time.
9.2 Notices
All notices, requests, demands or other communications which are required
or may be given pursuant to the terms of this Agreement shall be in writing and
shall be deemed to have been duly given: (i) on the date of delivery if
personally delivered by hand, (ii) upon the third day after such notice is
deposited in the United States mail, if mailed by registered or certified mail,
postage prepaid, return receipt requested, (iii) on the date of delivery if sent
by a nationally recognized overnight express courier, or (iv) upon written
confirmation of receipt by the recipient of such notice if by facsimile:
(a) If to Upgrade or Sub:
Upgrade International Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
46
with copies to:
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, PLLC
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Company, to:
The Pathways Group, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President and Chief Executive Officer
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Salans ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.3 Interpretation
When a reference is made in this Agreement to Sections or Exhibits, such
reference shall be to a section or exhibit to this Agreement unless otherwise
indicated. The words "include," "includes," and "including" when used therein
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. The "knowledge of," "the best of knowledge of," or other
derivations of "know" with respect to Upgrade or Company will mean the actual
knowledge of the executive officers and directors of Upgrade or Company, in each
case assuming the exercise of reasonable inquiry. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the language
hereof will not be construed for or against either party.
9.4 Counterparts
This Agreement may be executed in two or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to each of the other parties, it being understood that all parties need not sign
the same counterpart. Signatures transmitted by facsimile shall be deemed valid
execution of this Agreement, binding on the parties
47
9.5 Entire Agreement; No Third Party Beneficiaries
This Agreement and the documents referred to 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) is not intended to
confer upon any other person any rights or remedies hereunder (except as
otherwise expressly provided herein and except that Sections 2.3.1, 2.3.2, and
4.10 are for the benefit of holders of Company Stock Options and the other
employees of Company and said Sections are intended to confer rights on such
persons); and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided.
9.6 No Joint Venture
Nothing contained in this Agreement will be deemed or construed as creating
a joint venture or partnership between any of the parties hereto. No party is by
virtue of this Agreement authorized as an agent, employee or legal
representative of any other party. No party will have the power to control the
activities and operations of any other and their status is, and at all times,
will continue to be, that of independent contractors with respect to each other.
No party will have any power or authority to bind or commit any other. No party
will hold itself out as having any authority or relationship in contravention of
this Section.
9.7 Governing Law
This Agreement shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of Washington, without
regard to the conflicts of laws provisions of such law; provided, however that
Company's and Sub's actions related to corporate governance shall be governed by
applicable Delaware law. Company and Upgrade consent to jurisdiction and venue
in the state and federal courts in King County, Washington.
9.8 Specific Performance
The parties hereto agree that irreparable damage would occur in the event
that any provision of this Agreement were not performed in accordance with the
terms hereof and that the parties shall be entitled to specific performance of
the terms hereof, in addition to any other remedy at law or in equity.
9.9 Severability
Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
9.10 Headings
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
48
9.11 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
parties named herein and their respective successors and permitted assigns. No
party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other parties.
IN WITNESS WHEREOF, Upgrade, Sub and Company have caused this Agreement to
be signed by their respective officers thereunder duly authorized, all as of the
date first written above.
UPGRADE INTERNATIONAL CORPORATION
_______________________________________
By: ▇▇▇▇▇▇ ▇▇▇▇▇
Its: President
UPGRADE ACQUISITION INC.
_______________________________________
By:____________________________________
Its: President
THE PATHWAYS GROUP, INC.
_______________________________________
By: ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇
Its: President, Chief Executive Officer
and Chairman
49
LIST OF SCHEDULES:
Company Disclosure Schedule
Upgrade Disclosure Schedule
LIST OF EXHIBITS:
Exhibit 4.7 - Voting Agreement
Exhibit 6.4 - Affiliate Letter
Exhibit 6.7 A Amended Financing Agreement
B Amended Security Agreement
C Form of Series A Secured Note
D Form of Warrant to Purchase Common Stock
E Conversion Agreement
1