Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
dated as of
December 22, 1998,
by and among
Knowledge Revolution,
The ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇▇ Corporation,
MSC Holdings Co.
and
▇▇▇▇ ▇▇▇▇▇▇▇▇
as Shareholder Representative
AGREEMENT AND PLAN OF MERGER
This Agreement ("Agreement") is entered into as of
December 22, 1998, by and among The ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇▇
Corporation, a Delaware corporation ("Buyer"), MSC Holdings Co.,
a California corporation and wholly-owned subsidiary of Buyer
("Subsidiary"), Knowledge Revolution, a California corporation
("Company") and ▇▇▇▇ ▇▇▇▇▇▇▇▇ or his designee, as shareholder
representative (in such capacity, the "Shareholder
Representative").
R E C I T A L S
WHEREAS, the persons and other entities listed on
Schedule 2.2(b) are the owners of all of the issued and
outstanding capital stock of Company (each, a "Shareholder" and
collectively, the "Shareholders");
WHEREAS, the Board of Directors of Buyer and the Board
of Directors of Company have each determined that it is in the
respective best interests of Buyer and Company for Buyer to
acquire Company through the merger of Subsidiary with and into
Company upon the terms and subject to the conditions set forth
herein; and
WHEREAS, capitalized terms have the meanings set forth
in Article IX.
A G R E E M E N T
In consideration of the mutual promises contained
herein and intending to be legally bound the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger.
At the Effective Time, Subsidiary will merge with and
into Company, the separate corporate existence of Subsidiary
shall thereupon cease (the "Merger"), and Company will be the
surviving corporation (the "Surviving Corporation") and a wholly-
owned subsidiary of Buyer. The separate corporate existence of
Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger and Company
shall succeed, without other transfer, to all of the rights and
properties of Subsidiary and shall be subject to all of the debts
and liabilities of Subsidiary all in accordance with the
applicable provisions of the CGCL. The Articles of Incorporation
and By-Laws of Subsidiary in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and By-Laws
of the Surviving Corporation, except that, at the Effective Time,
Article I of the Articles of Incorporation of the Surviving
Corporation shall be amended to provide that the name of the
Surviving Corporation is Knowledge Revolution, Inc. The
directors and officers of the Surviving Corporation shall be as
set forth on Schedule 1.1. The directors so determined shall
remain as such until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation
or removal in accordance with the Surviving Corporation's
Articles of Incorporation and By-Laws and applicable provisions
of the CGCL.
1.2 Closing.
Unless this Agreement is earlier terminated pursuant to
Article VI hereof, the closing of the Merger and other
transactions contemplated hereby (the "Closing") shall take place
(i) at the offices of O'Melveny & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ at 10:00 A.M., Los Angeles time
as soon as practicable following the execution and delivery
hereof, but not later than the second business day after the day
on which the last of the conditions set forth in Article V hereof
shall be fulfilled or waived in accordance with this Agreement or
(ii) at such other place and time or on such other date as Buyer
and Company may agree.
1.3 Effective Time.
As soon as practicable following the Closing and in no
event later than the end of the next business day, and provided
that this Agreement has not been terminated or abandoned pursuant
to Article VI hereof, the Surviving Corporation shall file an
Agreement of Merger and appropriate certificates of approval with
the Office of the Secretary of State of the State of California.
The Merger shall thereupon become effective as of the date of
filing in accordance with the CGCL; the time of such
effectiveness is hereinafter referred to as the "Effective Time;"
and the date of such effectiveness is hereinafter referred to as
the "Effective Date."
1.4 Conversion of Shares.
(a) Company Capital Stock. Subject to the terms of
Section 1.6 hereof, at the Effective Time, by virtue of the Merger
and without any action on the part of Company, Buyer, Subsidiary
or any of the Shareholders, each then outstanding share of
Company Capital Stock shall be cancelled and extinguished, and
automatically converted into the right to receive, upon surrender
of the Certificate (as defined below) representing such share of
Company Capital Stock in accordance with the terms of Section 1.5
hereof, an amount in cash (without interest) as set forth below
in this Section 1.4(a) (together with the amounts payable
pursuant to Sections 1.4(b) and 1.4(c) hereof, the "Merger
Consideration"), all upon the terms and subject to the conditions
set forth in this Agreement and each of the Related Agreements,
including, without limitation, the escrow provisions set forth in
Article VII hereof and in the Escrow Agreement. However, any
shares of Company Capital Stock held by Company or Buyer or their
wholly owned subsidiaries (other than shares held in trust) will
be cancelled (the "Cancelled Shares"). At and after the
Effective Time, each holder of a certificate that represented
issued and outstanding shares of Company Capital Stock
immediately prior to the Effective Time (each a "Certificate")
shall cease to have any rights as a shareholder of Company,
except for the right to surrender his or her Certificate in
exchange for the Merger Consideration payable in respect of the
shares of Company Capital Stock represented by such Certificate
pursuant to this Section 1.4(a) and except as otherwise provided
by applicable law, and no transfer of shares of Company Capital
Stock shall be made on the stock transfer books of the Surviving
Corporation.
(1) Each share of Series A Preferred Stock shall
be cancelled and extinguished, and automatically converted
into the right to receive, upon surrender of the Certificate
representing such share of Series A Preferred Stock in accordance
with Section 1.5, an amount in cash (without interest) equal
to the sum of (x) the Series A Liquidation Price and (y) the
Exchange Amount.
(2) Each share of Series B Preferred Stock shall be
cancelled and extinguished, and automatically converted into the
right to receive, upon surrender of the Certificate representing
such share of Series B Preferred Stock in accordance with Section
1.5, an amount in cash (without interest) equal to the sum of (x)
the Series B Liquidation Price, and (y) the Exchange Amount.
(3) Each share of Series C Preferred Stock shall be
cancelled and extinguished, and automatically converted into the
right to receive, upon surrender of the Certificate representing
such share of Series C Preferred Stock in accordance with Section
1.5, an amount in cash (without interest) equal to the sum of (x)
the Series C Liquidation Price, and (y) the Exchange Amount.
(4) Each share of Series D Preferred Stock shall be
cancelled and extinguished, and automatically converted into the
right to receive, upon surrender of the Certificate representing
such share of Series D Preferred Stock in accordance with Section
1.5, an amount in cash (without interest) equal to the sum of (x)
the Series D Liquidation Price, and (y) the Exchange Amount.
(5) Each share of Common Stock shall be cancelled and
extinguished, and automatically converted into the right to
receive, upon surrender of the Certificate representing such
shares of Common Stock in accordance with Section 1.5, an amount
in cash (without interest) equal to the Exchange Amount.
(b) Company Options. At the Effective Time, by virtue
of the Merger and without any action on the part of Company,
Buyer, Subsidiary, any of the Shareholders, or any of the holders
of Company Options, each then outstanding Company Option shall be
cancelled and extinguished, and automatically converted into the
right to receive an amount in cash (without interest) equal to
(i) the product obtained by multiplying (x) the number of shares
of Common Stock issuable upon the exercise in full of such
Company Option, by (y) the Exchange Amount, less (ii) the
Aggregate Exercise Price of such Company Option, net of any
required tax withholdings, all upon the terms and subject to the
conditions set forth in this Agreement and each of the Related
Agreements, including, without limitation, the escrow provisions
set forth in Article VII hereof and in the Escrow Agreement.
(c) Company Warrants. At the Effective Time, by virtue
of the Merger and without any action on the part of Company, Buyer,
Subsidiary, any of the Shareholders, or any of the holders of
Company Warrants, each then outstanding Company Warrant shall be
cancelled and extinguished, and automatically converted into the
right to receive an amount in cash (without interest) equal to
the sum of (i) the product obtained by multiplying (x) the number
of shares of Series C Preferred Stock issuable upon the Net Issue
Exercise in full of such Company Warrant, by (y) the Series C
Liquidation Price , and (ii) the product of obtained by
multiplying (x) the number of shares of Series C Preferred Stock
issuable upon the Net Issue Exercise in full of such Company
Warrant, by (y) the Exchange Amount, net of any required tax
withholdings, all upon the terms and subject to the conditions
set forth in this Agreement and each of the Related Agreements,
including, without limitation, the escrow provisions set forth in
Article VII hereof and in the Escrow Agreement.
(d) Capital Stock of Subsidiary. At the Effective Time,
by virtue of the Merger and without any action on the part of
Company, Buyer, Subsidiary, or any of the Shareholders, each
share of Common Stock of Subsidiary issued and outstanding
immediately prior to the Effective Time shall be cancelled and
extinguished, and automatically converted into and exchanged for
one validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation. Each stock certificate
evidencing ownership of any such shares of common stock of
Subsidiary shall thereafter evidence ownership of an equivalent
number of shares of common stock of the Surviving Corporation.
(e) No Further Ownership Rights in Company Capital Stock.
All cash paid in respect of the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall
be deemed to be full satisfaction of all rights pertaining to
such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving
Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates representing Company Capital
Stock are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged on the terms and subject to
the conditions set forth in this Section 1.4.
1.5 Delivery of Merger Consideration.
(a) Buyer shall select a bank or trust company reasonably
acceptable to Company to act as the paying agent for the Merger
(the "Paying Agent"). At or prior to the Closing Date, Buyer
shall deposit or cause to be deposited in trust (the "Payment
Fund") with the Paying Agent an amount equal to the Total
Consideration. Out of the Payment Fund, the Paying Agent shall,
pursuant to irrevocable instructions, make the payments referred
to in Section 1.5(c) below and the escrow provisions of
Section 7.4(c). The Payment Fund shall not be used for any other
purpose. The Payment Fund may be invested by the Paying Agent,
as directed by Buyer, in (i) obligations of or guaranteed by the
United States, (ii) commercial paper rated A-1, P-1 or A-2, P-2,
and (iii) certificates of deposit, bank repurchase agreements and
bankers acceptances of any bank or trust company organized under
federal law or under the law of any state of the United States or
of the District of Columbia that has capital, surplus and
undivided profits of at least $1 billion or in money market funds
which are invested substantially in such investments. Any net
earnings with respect thereto shall be paid to Buyer as and when
requested by Buyer.
(b) As soon as reasonably practicable after the Effective
Time, Paying Agent shall mail to each holder of record immediately
prior to the Effective Time of a Certificate a letter of
transmittal in the form of Exhibit A hereto (the "Stock Letter of
Transmittal") for return to the Paying Agent providing
instructions for effecting the surrender and exchange of such
Certificate for the Merger Consideration payable in respect of
the shares of Company Capital Stock represented by such
Certificate pursuant to Section 1.4(a) and including such other
provisions as Buyer and Company may mutually agree. In the event
of a transfer of ownership of shares of Company Capital Stock
which is not registered in the transfer records of Company, the
transferee shall be entitled to receive, and Paying Agent shall
deliver or cause to be delivered to such transferee, the Merger
Consideration payable in respect of such shares of Company
Capital Stock pursuant to Section 1.4(a) hereof only if (i) the
Certificate representing such shares of Company Capital Stock
surrendered in accordance with this Section 1.5 is properly
endorsed for transfer or is accompanied by appropriate and
properly endorsed stock powers and is otherwise in proper form to
effect such transfer, (ii) the Person requesting such transfer
pays any transfer or other taxes payable by reason of such
transfer or establishes to the satisfaction of Paying Agent that
such taxes have been paid or are not required to be paid, and
(iii) such Person establishes to the satisfaction of Buyer that
such transfer would not violate any applicable federal or state
securities laws.
(c) (1) Subject to the escrow provisions of Section 7.4(c)
hereof , Buyer and the Surviving Corporation shall cause the
Paying Agent to pay to each holder of a Certificate, as soon as
practicable after receipt of any Certificate together with the
Stock Letter of Transmittal, duly executed, and any other items
specified by the Stock Letter of Transmittal, cash in an amount
equal to the product of (i) the number of shares of Company
Capital Stock represented by the Certificate so surrendered
multiplied by (ii) the Merger Consideration payable in respect of
such shares of Company Capital Stock pursuant to Section 1.4(a)
hereof, less any applicable withholding Taxes. No interest shall
be paid or accrued on any cash payable upon the surrender of any
Certificate. Each Certificate surrendered in accordance with the
provisions of this Section 1.5 shall be cancelled.
(2) Subject to the escrow provisions of Section 7.4(c)
hereof, Buyer and the Surviving Corporation shall cause the Paying
Agent to pay to each holder of a Company Option (by delivery to an
account designated in writing by the Surviving Corporation and to
be distributed to holders of Company Options by the Surviving
Corporation's regular payroll agency) and Company Warrant as soon
as practicable after the Effective Time, cash in an amount equal
to the amount payable in respect of such Company Option pursuant
to Section 1.4(b) hereof or such Company Warrant pursuant to
Section 1.4(c) hereof. No interest shall be paid in respect of
any Merger Consideration paid to the holders of Company Options
or Company Warrants after the Effective Date.
(d) In the event that any Certificate shall have been lost,
stolen or destroyed prior to its surrender to Buyer in accordance
with this Section 1.5, the holder of the shares of Company
Capital Stock represented by such Certificate shall be entitled
to receive the Merger Consideration payable in respect of such
shares of Company Capital Stock pursuant to Section 1.4(a) hereof
upon the execution and delivery by such holder to the Paying
Agent of an Affidavit of Lost Certificate in the form attached to
the Stock Letter of Transmittal together with the Stock Letter of
Transmittal.
(e) On the Closing Date, Buyer shall instruct Paying Agent
to transfer an aggregate of $2,118,200 to the Escrow Agent to fund a
custodial account as provided in the Escrow Agreement pursuant
to Section 7.4(c) hereof to be held and distributed under the
terms and conditions set forth in this Agreement and the Escrow
Agreement.
(f) Any portion of the Payment Fund (including any interest
received with respect thereto) which remains unclaimed for six
months after the Effective Time shall be paid to Buyer upon
demand. Any holders of Certificates who have not theretofore
complied with this Section 1.5 shall thereafter look only to
Buyer for payment (subject to applicable abandoned property,
escheat and similar laws) of their claim for the Merger
Consideration payable in respect of the shares of Company Capital
Stock represented by such Certificates, without interest thereon.
Notwithstanding the foregoing, neither Buyer, the Surviving
Corporation nor the Paying Agent shall be liable to a holder of a
Certificate for the Merger Consideration payable in respect of
the shares of Company Capital Stock represented by such
Certificate properly delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
1.6 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder
who has, subject to paragraph (b) below, exercised and perfected
dissenter's rights for such shares in accordance with Chapter 13
of the CGCL and who, as of the Effective Date, has not
effectively withdrawn, waived, surrendered or lost such
dissenter's rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive the Merger Consideration
pursuant to Section 1.4(a) hereof, but the holder thereof shall
only be entitled to such rights as are granted by Chapter 13 of
the California General Corporation Law.
(b) Notwithstanding the provisions of paragraph (a)
above, if any holder of Dissenting Shares shall effectively
withdraw, waive, surrender or lose (through failure to perfect or
otherwise) his or its dissenter's rights, then, as of the later
of the Effective Date and the occurrence of such event, the
shares of Company Capital Stock theretofore constituting
Dissenting Shares shall automatically be converted into and
represent only the right to receive the Merger Consideration
payable in respect of such Company Capital Stock pursuant to
Section 1.4(a) hereof, without interest, upon surrender of the
Certificate(s) representing such Company Capital Stock and
delivery of a Stock Letter of Transmittal, duly executed, and any
other items specified by the Stock Letter of Transmittal to
Paying Agent in accordance with Section 1.5 hereof.
(c) As soon as practicable prior to the Effective Date,
the Company shall give Buyer (i) prompt notice of any written
demand for the purchase by the Company of any shares of Company
Capital Stock received by the Company pursuant to the applicable
provisions of Section 1301 of the CGCL regarding dissenter's
rights and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The
Company shall not, except with the prior written consent of
Buyer, voluntarily make any payment with respect to any such
demands or offer to settle or settle any such demands. After the
Effective Date, Buyer shall solely control all negotiations and
proceedings related to such demands.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents, warrants and agrees:
2.1 Subsidiaries; Organization and Related Matters.
The Company has no subsidiaries. Schedule 2.1 lists
the jurisdiction in which Company was organized and each
jurisdiction in which Company is and is required to be qualified
or licensed to do business as a foreign person. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of California. The Company has all necessary
corporate power and authority to execute, deliver and perform
this Agreement and the Related Agreements to which it is a party
and to own its properties and assets and to carry on its business
as now conducted. Schedule 2.1 correctly lists the current
directors and officers of Company. True, correct and complete
copies of the respective charter documents of Company as in
effect on the date hereof have been delivered to Buyer.
2.2 Capitalization.
(a) The authorized capital stock of Company consists of
10,000,000 shares of Common Stock of which 1,410,072 shares are
issued and outstanding; 2,000,000 shares of Preferred Stock of
which 1,273,131 shares are designated as follows: 500,000 shares
of Series A Preferred Stock, 169,584 of which are issued and
outstanding; 179,485 shares of Series B Preferred Stock, 160,000
of which are issued and outstanding; 215,096 shares of Series C
Preferred Stock, 182,096 of which are issued and outstanding; and
378,550 shares of Series D Preferred Stock, 378,535 of which are
issued and outstanding. Schedule 2.2(a) lists all outstanding
options, warrants or other agreements for the issuance by the
Company of Equity Securities of the Company, indicating the
holder thereof, exercise price and termination date. Except as
described on Schedule 2.2(a), there are no outstanding Contracts
or other rights to subscribe for or purchase, or Contracts or
other obligations to issue or grant any rights to acquire, any
Equity Securities of Company, or to restructure or recapitalize
Company to which the Company is a party or by which it is bound.
Except as described on Schedule 2.2(a), there are no outstanding
Contracts to repurchase, redeem or otherwise acquire any Equity
Securities of the Company to which the Company is a party or by
which it is bound. All shares of Stock of Company are duly
authorized, validly issued and outstanding and are fully paid and
nonassessable and were issued in conformity with applicable Laws.
There are no preemptive rights in respect of any Equity
Securities of Company. Any Equity Securities of Company which
were issued and reacquired by Company were so reacquired (and, if
reissued, so reissued) in compliance with all applicable Laws,
and Company does not have any outstanding obligation or liability
with respect thereto. Company owns no Equity Securities of any
entity.
(b) Schedule 2.2(b) lists the name of each of the
Shareholders and the number and class of shares of stock owned by
each Shareholder as reflected in the stock record books of Company.
2.3 Financial Statements; Changes; Contingencies.
(a) Audited Financial Statements. Company has provided to
Buyer balance sheets for Company at June 30, 1998, 1997 and 1996 and
the related statements of operations, changes in shareholder's
equity and changes in financial position or cash flow for the
periods then ended. All such financial statements have been
examined by the Auditors whose reports thereon are included with
such financial statements. All such financial statements have
been prepared in conformity with GAAP. Such statements of
operations and cash flow present fairly the results of operations
and cash flows of Company for the respective periods covered, and
the balance sheets present fairly the financial condition of
Company as of their respective dates. Since June 30, 1998, there
has been no change in any of the significant accounting policies,
practices or procedures of Company.
(b) Unaudited Interim Financial Statements. Company has
provided to Buyer balance sheets for Company at September 30,
1998 and 1997, and the related statements of operations and cash
flows and changes in shareholder's equity for the periods then
ended. Except as set forth in Schedule 2.3(b), all such interim
financial statements have been prepared in conformity with GAAP
(except for the absence of notes and normal recurring year-end
adjustments). Except as set forth in Schedule 2.3(b), the
statements of operations and cash flows present fairly the
results of operations and cash flows of Company for the
respective periods covered, and the balance sheets present fairly
the financial condition of Company as of their respective dates.
(c) No Material Adverse Changes.
(i) Except as set forth in Schedule 2.3(c), since June 30,
1998, whether or not in the ordinary course of business, there
has not been, occurred or arisen any change in or event affecting
Company that has had or may reasonably be expected to have a
material adverse effect on the Business other than changes in
or events affecting general economic conditions or the computer
aided engineering business generally.
(ii) Except as set forth in Schedule 2.3(b), since September
30, 1998, whether or not in the ordinary course of business, there
has not been, occurred or arisen any agreement, condition, action
or omission which would be proscribed by (or require consent
under) Section 4.3 had it existed, occurred or arisen after the
date of this Agreement.
(d) No Other Liabilities. Except as set forth on
Schedule 2.3(d), Company does not have any liabilities of any
nature, whether accrued, absolute, contingent or otherwise, and
whether due or to become due in excess of $10,000 in any
individual case and $25,000 in the aggregate, except liabilities
that (i) are reflected in the Audited Financial Statements or the
Unaudited Interim Financial Statements or (ii) were incurred
after September 30, 1998 in the ordinary course of business and
in the aggregate do not exceed $50,000.
2.4 Tax and Other Returns and Reports.
(a) All Tax Returns required to be filed by or with respect
to the Company have been timely filed or requests for extensions to
file such returns have been timely filed, granted and have not
expired, and all such Tax Returns are complete and correct in all
material respects. Schedule 2.4(a) lists all such requests for
extensions. Company has paid, or has established reserves for
the payment therefor on the Unaudited Interim Balance Sheet, all
Taxes imposed on Company, or for which Company may otherwise be
liable, that are due from or with respect to it for all periods
(or portions thereof) ending on or before the Closing Date.
(b) Except as listed in Schedule 2.4(b), (i) the Tax
Returns referred to in clause (a) have not been examined by the
IRS or other appropriate Governmental Authority or the period for
assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (ii) there is no audit,
examination, suit, investigation or similar proceeding pending,
proposed or threatened with respect to Taxes of Company and no
basis exists therefore; and (iii) there are no outstanding
waivers extending the statutory period of limitation relating to
the payment of Taxes due from Company.
(c) Schedule 2.4(c) sets forth the amount of net operating
losses, net capital losses, foreign tax credits and investment
and other tax credits of the Company as of June 30, 1998 without
regard to the limitations imposed by Code sections 382, 383 or
384.
(d) No Closing Agreement pursuant to Section 7121 of the Code
or any similar provision of any state, local or foreign law has been
entered into by or with respect to Company which could reasonably
be expected to have an effect on Company's liability for or
reporting of Taxes in any period ending after the Closing Date.
(e) All Taxes which Company has been required by law to
withhold or to collect for payment have been duly withheld and
collected, and have been paid or accrued, reserved against and added
on the books of Company. Company has complied in all material
respects with all information reporting and backup withholding
requirements, including maintenance of required records with
respect thereto, in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other
third party.
(f) Company is not liable for the Taxes of any person,
including, without limitation, as a transferee, pursuant to
Treasury Regulations Section 1.1502-6 or any analogous provision
of state, local or foreign law, or as a result of any contractual
arrangement with any third party or any taxing authority.
(g) No consent to the application of Section 341(f)(2) of
the Code (or any similar state law provision) has been made or filed
by or with respect to Company.
(h) There is no contract or arrangement, plan or agreement
by or with Company covering any person as to which payment or vesting
thereunder (including any payment or vesting as a result of the
Merger) could result in a nondeductible expense to the Company by
reason of Section 280(G) of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code.
2.5 Material Contracts.
Schedule 2.5 lists each Contract to which Company is a
party or to which Company or any of its properties is subject or
by which any thereof is bound that is deemed a Material Contract
under this Agreement. The following Contracts shall be deemed to
be Material Contracts of the Company: any Contract that
(a) after June 30, 1998 obligates Company to pay an amount of
$25,000 or more, (b) has an unexpired term as of September 30,
1998 in excess of 1 year, (c) the Business is substantially
dependent upon or which is otherwise material to the Business,
(d) provides for an extension of credit other than credit
agreements with banks having normal credit terms, (e) limits or
restricts the ability of Company to compete or otherwise to
conduct its business in any manner or place, (f) provides for a
guaranty or indemnity by Company, (g) grants a power of attorney,
agency or similar authority to another person or entity,
(h) grants to a third party a right of first refusal, (i) grants
a right to, or obligation of, any Affiliate, officer or director
of the Company, Associate or any Shareholders of Company,
(j) requires Company to buy or sell goods or services with
respect to which there will be material losses (other than as
provided for or otherwise reserved against on the Unaudited
Interim Balance Sheet), (k) is between Shareholders or any
Affiliate of any Shareholder and Company, (l) relates to the
licensing as licensee of Intellectual Property Rights (other than
shrink-wrap licenses for readily available software), or (m) was
not made in the ordinary course of business and involves an
amount in excess of $1,000. To the knowledge of Company, each
Material Contract of Company is valid and subsisting; Company has
duly performed in all material respects all its obligations
thereunder to the extent that such obligations to perform have
accrued; and, except as set forth in Schedule 2.5(2) no breach
or default, alleged breach or default, or event which would (with
the passage of time, notice or both) constitute a breach or
default thereunder by Company has occurred or as a result of this
Agreement or performance will occur. True copies of the
agreements appearing in Schedule 2.5, including all amendments
and supplements, have been provided to Buyer.
2.6 Real Property.
Company does not own, and has never owned, any real
property or any interest, other than a leasehold interest, in any
real property. All leasehold properties held by Company as
lessee are listed and described on Schedule 2.6 and are held
under valid, binding and enforceable leases, subject only to such
exceptions as are not, individually or in the aggregate, material
to the Business.
2.7 Authorization; No Conflicts.
(a) The execution, delivery and performance by Company of
this Agreement and any Related Agreements to which Company is a party
has been duly and validly authorized by the Board of Directors of
Company and by all other necessary corporate action on the part
of Company. This Agreement and any Related Agreements to which
Company is a party constitute the legally valid and binding
obligations of Company, enforceable against Company in accordance
with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or affecting creditors rights
generally and by rules of law governing specific performance,
injunctive relief or other equitable remedies.
(b) Except as set forth in Schedule 2.7(b), neither the
execution and delivery of this Agreement and any Related
Agreements to which the Company is a party nor the consummation
or performance of any of the transactions contemplated by this
Agreement or any Related Agreements to which the Company is a
party will, directly or indirectly (with or without notice or
lapse of time):
(i) contravene, conflict with or result in a violation of
(A) any provision of the charter documents or bylaws of the
Company or (B) any resolution adopted by the board of directors
of the Company or the Shareholders;
(ii) contravene, conflict with or result in a violation of
any Law or Order to which the Company or any of the assets owned
or used by the Company, may be subject;
(iii) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental
Entity the right to revoke, withdraw, suspend, cancel, terminate
or modify, any Permit that is held by the Company or that
otherwise relates to the Business, or any of the assets owned or
used by the Company;
(iv) cause the Company to become subject to, or to become
liable for the payment of, any Tax other than withholding Taxes
incurred and required to be paid in connection with the
transactions contemplated by this Agreement;
(v) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other
Governmental Entity;
(vi) contravene, conflict with or result in a violation or
breach of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate or modify,
any Material Contract; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by the
Company,
except in the case of each of clauses (ii) through (vii)
above, for such contraventions, conflicts, violations, liabilities,
reassessments, revaluations, breaches or creations of Encumbrances
which, individually and in the aggregate, would not have a
material adverse effect on the Business.
(c) Except as set forth in Schedule 2.7(c), the Company is not,
or will not be, required to give any notice to or obtain any
Approval from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of
any of the transactions contemplated hereby.
2.8 Legal Proceedings.
Except as set forth in Schedule 2.8, there is no Order
or Action pending, or, to the knowledge of Company, threatened,
against or affecting Company or any of its properties or assets
that individually or when aggregated with one or more other
Orders or Actions has or would reasonably be expected to have a
material adverse effect on the Business, on Company's ability to
perform this Agreement, or on any aspect of the transactions
contemplated by this Agreement. Schedule 2.8 lists each Order and
each pending Action that involves a claim or potential claim of
aggregate liability in excess of $10,000 against, or that enjoins
or seeks to enjoin any activity by Company.
2.9 Dividends and Other Distributions.
There has been no dividend or other distribution of
assets or securities whether consisting of money, property or any
other thing of value, declared, issued or paid by Company to or
for the benefit of Shareholders subsequent to September 30, 1998.
2.10 Insurance.
Schedule 2.10 lists all insurance policies that are
material to the Business, and such policies are, and at all times
during the past two years have been, in full force and effect.
Company is not in default under any such policy. Company has
timely filed claims with their respective insurers with respect
to all matters and occurrences for which they believe they have
coverage. To the knowledge of Company, all insurance policies
maintained by Company will remain in full force and effect and
may reasonably be expected to be renewed on comparable terms
following consummation of the transactions contemplated by this
Agreement (subject to Company's (i) continuing compliance with
the applicable terms thereof and (ii) any right of insurers to
terminate without cause), and Company has received no written
notice or other indication from any insurer or agent of any
intent to cancel or not so renew any of such insurance policies.
2.11 Compliance with Law.
Company is organized and has conducted its business in
accordance with applicable Laws (including, without limitation,
the receipt of all Permits that are required to conduct the
Business). To the Company's knowledge, no suspension,
cancellation or termination of any Permits required by any
Governmental Entity to permit the Business to be conducted is
threatened or imminent.
2.12 Employee Benefits.
(a) Employee Benefit Plans, Collective Bargaining and Employee
Agreements, and Similar Arrangements.
(1) Schedule 2.12(a) lists all employee benefit,
compensation and fringe benefit plans and arrangements, including
without limitation, any "employee benefit plan" (within the meaning
of Section 3(3) of ERISA) to which Company is or has been a party
since July 1, 1998 or by which it is or has been bound since July
1, 1998, legally or otherwise or as to which there is or may be
any liability to Company.
(2) Company has provided to Buyer true and complete
copies of all benefit plan documents and summary plan descriptions, if
applicable, with respect to such plans, agreements and
arrangements, or summary descriptions of any such benefit plans,
agreements or arrangements not otherwise in writing.
(3) Other than as specifically contemplated by this
Agreement or claims submitted in the ordinary course of benefit
processing, there are no negotiations, demands or proposals that are
pending or have been made which concern matters now covered, or that
would be covered, by plans, agreements or arrangements of the
type described in this section.
(4) Company is in full compliance with the applicable
provisions of ERISA and all other Laws applicable with respect to all
such plans, agreements and arrangements. Company has performed all of
their obligations under all such plans, agreements and
arrangements. There are no Actions (other than routine claims
for benefits) pending or, to the knowledge of Company, threatened
against such plans or their assets, or arising out of such plans,
agreements or arrangements, and, no facts exist which could give
rise to any such Actions.
(5) Except as specified in Schedule 2.12(a), each of the
plans, agreements or arrangements can be terminated by Company within a
period of 30 days following the Closing Date, without payment of
any additional compensation or amount or the additional vesting
or acceleration of any benefits.
(b) Qualified Stock, Pension and Profit-sharing Plans.
(1) Schedule 2.12(b) lists all "employee pension benefit
plans" (within the meaning of Section 3(2) of ERISA) in Schedule
2.12 which are also stock bonus, pension or profit-sharing plans
within the meaning of Section 401(a) of the Code (the "401(k)
Plan").
(2) The 401(k) Plan is qualified in form and operation
under Section 401(a) of the Code and the trust under the 401(k) Plan
is exempt from tax under Section 501(a) of the Code. No event has
occurred that will or could subject any such plans to tax under
Section 511 of the Code. No prohibited transaction (within the
meaning of Section 4975 of the Code) or party-in-interest
transaction (within the meaning of Section 406 of ERISA) has
occurred with respect to the 401(k) Plan.
(3) Company has delivered to Buyer for the 401(k) Plan
copies of the following documents: (i) the form 5500 with all
attachments filed in each of the most recent three plan years, (ii)
the most recent determination letter from the IRS, and (iii) the
consolidated statement of assets and liabilities of such plan as
of its most recent valuation date.
(c) Section 412 or Title IV Plans.
No plan listed in Schedule 2.12 is a plan subject to
Section 412 of the Code or Title IV of ERISA. No trade or
business (whether or not incorporated) that is a member of a
group of which Company is a member and which is under common
control within the meaning of Section 414(b) and (c) of the Code
("ERISA Affiliate") participates or has participated in a plan
subject to Code Section 412 or Title IV of ERISA.
(d) Multiemployer Plans.
No plan listed in Schedule 2.12 is a "multiemployer
plan" (within the meaning of Section 3(37) of ERISA). Neither
Company nor any ERISA Affiliate has ever contributed to or had an
obligation to contribute to any multiemployer plan.
(e) Retiree Benefits.
There are no Company employees who are entitled to (i)
any pension benefit that is unfunded or (ii) any pension or other
benefit to be paid after termination of employment other than
required by Section 601 of ERISA (or similar provision of
applicable state law) or pursuant to plans intending to be
qualified under Section 401(a) of the Code, and no other benefits
whatsoever are payable to any Company employees after termination
of employment (including retiree medical and death benefits).
(f) Employee Welfare Benefit Plans.
Each employee benefit plan that is an "employee welfare
benefit plan" as that term is defined in Section 3(1) of ERISA is
either (i) funded through an insurance company contract and is
not a "welfare benefit fund" within the meaning of Section 419 of
the Code or (ii) unfunded. There is no liability in the nature
of a retroactive rate adjustment to or loss-sharing or similar
arrangement, with respect to any employee welfare benefit plan.
(g) Contributions.
All contributions or payments owed with respect to any
periods prior to the Closing under any employee benefit plan have
been made, and all other amounts which relate to such periods
have been accrued on the Unaudited Interim Balance Sheet.
2.13 Certain Interests.
No Affiliate of Company nor any officer or director of
any thereof, nor Associate of any such individual, has any
material interest in any property used in or pertaining to the
Business or any customer or supplier doing business with the
Company other than as listed on Schedule 2.13.
2.14 Bank Accounts, Powers, etc.
Schedule 2.14 lists each bank, trust company, savings
institution, brokerage firm, mutual fund or other financial
institution with which the Company has an account or safe deposit
box and the names and identification of all Persons authorized to
draw thereon or to have access thereto.
2.15 No Brokers or Finders.
No agent, broker, finder, or investment or commercial
banker, or other Person or firm engaged by or acting on behalf of
Company or any of their respective Affiliates in connection with
the negotiation, execution or performance of this Agreement or
the transactions contemplated by this Agreement, is or will be
entitled to any brokerage or finder's or similar fee or other
commission as a result of this Agreement or such transactions
other than Alliant Partners LLC.
2.16 Intangible Property.
(a) Schedule 2.16(a) lists all of the United States and
foreign: (i) patent and patent applications; (ii) registered
trademarks and trademark applications; (iii) registered copyrights
and applications for copyright applications; (iv) mask work
registrations and applications to register mask works; (v) other
registered Intellectual Property Rights; and (vi) other material
items of Intangible Property owned by, or licensed to, Company,
or in which Company has an interest and the nature of such
interest. The registrations listed on Schedule 2.16(a) are valid
and subsisting in all jurisdictions listed on Schedule 2.16(a),
all necessary registration and renewal fees have been made or
paid, all documents and certificates have been filed with the
relevant patent, copyright and trademark authorities, and, to
Company's knowledge, there are no objections or oppositions by
third parties against such registrations.
(b) Company owns exclusively, and has good title to, all
software products of Company or other works of authorship that
Company otherwise purports to own. Except as listed on Schedule
2.16(b), Company owns all Intangible Property used in and/or
necessary to the conduct of the Business and does not use any
Intangible Property by consent of any other person or pursuant to
any obligation to make any payments (and does not make any
payments) to others with respect thereto (other than shrink wrap
licenses for readily available software).
(c) The Contracts listed on Schedule 2.16(c) include all
contracts, including all licenses or sublicense agreements, to
which Company is a party with respect to any Intellectual
Property Rights licensed to or by Company and which are material
to the Business (other than shrink wrap licenses for readily
available software). Company has performed all obligations
required to be performed by it, and is not in default under any
of such Contracts.
(d) Company has not received notice from any Person (or is
otherwise aware) that its operation of the Business, including
its design, development, manufacture and sale of its products and
provision of services, conflicts with or infringes the
Intellectual Property Rights of any Person.
(e) Except as set forth on Schedule 2.16(e), all current
and former employees and consultants of Company have executed a
Confidential Information and Invention Assignment Agreement in
the form of Exhibit B.
(f) All of Company's (i) software products sold in retail
channels and (ii) internal computer hardware, software and
networks are "Year 2000 compliant" in accordance with the
standards contained in IEEE Standard 2000.1-1998.
2.17 Receivables.
All receivables of Company existing on the date hereof,
represent sales actually made in the ordinary course of business,
and are current and fully collectible net of any reserves shown
on the Unaudited Interim Balance Sheet (which reserves are
adequate and were calculated on a basis consistent with GAAP and
past practices) within 120 days after the day they became due.
Company has delivered to Buyer a complete and accurate aging list
of all receivables of the Company dated as of December 15, 1998.
2.18 Customers and Suppliers.
Schedule 2.18 lists the names of and describes all
Contracts with and the appropriate percentage of Business
attributable to, the five largest customers of and five most
significant suppliers of the Business at the date of this
Agreement, and any sole-source suppliers of significant goods or
services (other than electricity, gas, telephone or water) to
Company with respect to which alternative sources of supply are
not readily available on comparable terms and conditions.
2.19 Environmental Compliance.
Except as specifically described in Schedule 2.19, (i)
Company has not generated, used, transported, treated, stored,
released or disposed of, or has suffered or permitted anyone else
to generate, use, transport, treat, store, release or dispose of
any Hazardous Substance in violation of any Law; (ii) there has
not been any generation, use, transportation, treatment, storage,
release or disposal of any Hazardous Substance in connection with
the conduct of the Business or the use of any property or
facility of Company, or to the knowledge of Company any nearby or
adjacent properties which has created or might reasonably be
expected to create any liability under any Law or which would
require reporting to or notification of any Governmental Entity;
(iii) no asbestos or polychlorinated biphenyl or underground
storage tank is contained in or located at any facility of
Company; and (iv) any Hazardous Substance handled or dealt with
in any way in connection with the businesses of Company, whether
before or during Company's ownership, has been and is being
handled or dealt with in all respects in compliance with all
applicable Laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents, warrants and agrees:
3.1 Organization and Related Matters.
Buyer is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. Buyer has all
necessary corporate power and authority to carry on its business
as now being conducted. Buyer has the necessary corporate power
and authority to execute, deliver and perform this Agreement and
any Related Agreements to which it is a party.
3.2 Authorization.
The execution, delivery and performance of this
Agreement and any Related Agreements to which Buyer is a party by
Buyer has been duly and validly authorized by the Board of
Directors of Buyer and by all other necessary corporate action on
the part of Buyer. This Agreement and the Related Agreements to
which Buyer is a party constitute the legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance
with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and
other similar laws relating to or limiting creditors' rights
generally, and by rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.3 No Conflicts.
The execution, delivery and performance of this
Agreement and any Related Agreements to which Buyer is a party by
Buyer will not violate or constitute a breach or default (whether
upon lapse of time and/or the occurrence of any act or event or
otherwise) under (a) the charter documents or bylaws of Buyer,
(b) any Law or Order to which Buyer is subject or (c) any
Contract to which Buyer is a party that is material to the
financial condition, results of operations or conduct of the
business of Buyer.
3.4 No Brokers or Finders.
No agent, broker, finder or investment or commercial
banker, or other Person or firms engaged by or acting on behalf
of Buyer or its Affiliates in connection with the negotiation,
execution or performance of this Agreement or the transactions
contemplated by this Agreement, is or will be entitled to any
broker's or finder's or similar fees or other commissions as a
result of this Agreement or such transactions.
3.5 Legal Proceedings.
There is no Order or Action pending or to the knowledge
of Buyer, threatened against Buyer that individually or when
aggregated with one or more other Actions has or might reasonably
be expected to have a material adverse effect on Buyer's ability
to perform this Agreement.
3.6 SEC Reports.
All documents filed by Buyer with the SEC pursuant to
the Securities Act and the Exchange Act were filed on a timely
basis, complied in form in all material respects with such acts,
and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.7 Formation of the Subsidiary.
The Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of
California. The execution, delivery and performance by the
Subsidiary of this Agreement and all the agreements, documents
and instruments specifically provided for hereunder or
contemplated hereby to be executed and/or delivered by the
Subsidiary, and the consummation of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of the Subsidiary, and do
not conflict with the Articles of Incorporation or Bylaws of the
Subsidiary, and the Subsidiary has all necessary power and
authority with respect thereto. This Agreement and all the
agreements, documents and instruments specifically provided for
hereunder or contemplated hereby to be executed and/or delivered
by the Subsidiary constitute valid and binding obligations of the
Subsidiary enforceable in accordance with their respective terms,
except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws
relating to or limiting creditors' rights generally, and by rules
of law governing specific performance, injunctive relief or other
equitable remedies.
3.8 Subsidiary Stock Ownership.
Buyer owns all of the issued and outstanding capital
stock of the Subsidiary.
3.9 Adequate Financing.
Buyer has adequate funds, or available commitments from
banks or other financial institutions to provide funds, required
to pay the amounts deliverable by Buyer pursuant to Sections 1.4
and 1.5 hereof and to consummate the transactions contemplated by
this Agreement.
ARTICLE IV
COVENANTS WITH RESPECT TO CONDUCT PRIOR TO CLOSING
4.1 Access.
Company will authorize and permit Buyer and its
representatives (which term shall be deemed to include its
independent accountants and counsel) to have reasonable access
during normal business hours, upon reasonable notice and in such
manner as will not unreasonably interfere with the conduct of its
business, to all of its properties, books, records, operating
instructions and procedures, Tax Returns and all other
information with respect to the Business as Buyer may from time
to time request, and to make copies of such books, records and
other documents and to discuss its business with such other
Persons, including, without limitation, its directors, officers,
employees, accountants, suppliers, customers, and creditors, as
Buyer considers necessary or appropriate for the purposes of
familiarizing itself with the Business, obtaining any necessary
Approvals of or Permits for the transactions contemplated by this
Agreement and conducting an evaluation of the organization and
Business of Company.
4.2 Material Adverse Changes; Financial Statements.
(a) Company will promptly notify Buyer of any event which has
had or might reasonably be expected to have a material adverse
effect on the Business or which if known as of the date hereof
would have been required to be disclosed to Buyer.
(b) Company will furnish to Buyer (i) monthly unaudited
balance sheets and quarterly unaudited statements of operations and
cash flow and changes in shareholder's equity for Company and
(ii) such other reports as Buyer may reasonably request relating
to Company. Each of the financial statements delivered pursuant
to this Section 4.2(b) shall be prepared in accordance with GAAP,
except that such financial statements may omit footnote
disclosures required by GAAP to the extent the content thereof
would not materially differ from those disclosures reported in
the most recent audited period and year-end adjustments to the
extent not material.
(c) Company will furnish to Buyer all Tax Returns filed
with any Governmental Entity relating to Company.
4.3 Conduct of Business.
Between the date of this Agreement and the Closing
Date, Company covenants and agrees that it shall not without the
prior consent in writing of Buyer:
(a) conduct the Business in any manner except in the
ordinary course consistent with past practices, except as otherwise
required by the terms of this Agreement or any Related Agreement;
or
(b) except as required by their terms, amend, terminate,
renew/fail to renew or renegotiate any Material Contract to which
Company is a party or by which it is bound, or default (or take
or omit to take any action that, with or without the giving of
notice or passage of time, would constitute a default) in any of
its obligations under any Material Contract or enter into any new
Material Contract or take any action that would reasonably be
expected to result in the discontinuance of its material customer
relationships; or
(c) terminate, amend or fail to renew any existing insurance
coverage; or
(d) terminate or fail to renew or preserve any material
Permits; or
(e) incur or agree to incur any obligation or liability
(absolute or contingent) that individually calls for payment by
Company of more than $10,000 in any specific case or $50,000 in
the aggregate; or
(f) make any loan, guaranty or other extension of credit,
or enter into any commitment to make any loan, guaranty or other
extension of credit, to or for the benefit of any director,
officer, employee, shareholder or any of its Associates or
Affiliates; or
(g) sell, transfer, mortgage, encumber or otherwise dispose
of any assets or any liabilities, except (i) for dispositions of
property not greater than $10,000 in the aggregate, or (ii) in
the ordinary course of business; or
(h) issue, sell, redeem or acquire for value, or agree to
do so, any debt obligations or Equity Securities of Company; or
(i) declare, issue, make or pay any dividend or other
distribution of assets, whether consisting of money, other
personal property, real property or other thing of value, to its
shareholders, or split, combine, dividend, distribute or
reclassify any shares of its Equity Securities; or
(j) change or amend its charter documents or bylaws; or
(k) make special or extraordinary payments to any Person in
excess of $5,000 in the aggregate; or
(l) make any material investment, by purchase, contributions
to capital, property transfers, or otherwise, in any other Person;
or
(m) compromise or otherwise settle any claims; or
(n) make any Tax election or make any change in any method or
period of accounting or in any accounting policy, practice or
procedure; or
(o) dispose of or permit to lapse any Intangible Property or
any rights to its use; or
(p) grant any general or uniform increase in the rates of pay
or benefits to officers, directors or employees (or a class thereof)
or any material increase in salary or benefits of any officer,
director, employee or agent or pay any bonus to any person,
except as set forth in Schedule 4.3(p); or
(q) make any capital expenditures or commitments with respect
thereto, except as set forth in Schedule 4.3(q); or
(r) agree to or make any commitment to take any actions
prohibited by this Section 4.3.
4.4 Permits and Approvals.
Company and Buyer each agree to cooperate and use their
commercially reasonable efforts to obtain, and will as promptly
as practicable prepare all registrations, filings and
applications, requests and notices preliminary to, all Approvals
and Permits that may be necessary or which may be reasonably
requested by Buyer to consummate the transactions contemplated by
this Agreement.
4.5 Preservation of Business Prior to Closing Date.
During the period beginning on the date hereof and
ending on the Closing Date, (a) Company will use commercially
reasonable efforts to preserve the Business and to preserve the
goodwill of customers, suppliers and others having business
relations with Company and (b) Company and Buyer will consult
with each other concerning, and Company will cooperate to keep
available to Buyer, the services of the officers and employees of
Company that Buyer may wish to have Company retain. Nothing in
this Section shall obligate Buyer or Company after the Closing to
retain or offer employment to any officer or employee of Company.
4.6 Confidentiality.
All non-public information disclosed by any party (or
its representatives) whether before or after the date hereof, in
connection with the transactions contemplated by, or the
discussions and negotiations preceding, this Agreement to any
other party (or its representatives) shall be kept confidential
by such other party and its representatives and shall not be used
by any such Persons other than as contemplated by this Agreement,
except to the extent that such disclosure of information may
otherwise be required by law or to the extent such duty as to
confidentiality is waived in writing by the other party. If this
Agreement is terminated in accordance with its terms, each party
shall use all commercially reasonable efforts to return upon
written request from the other party all documents (and
reproductions thereof) received by it or its representatives from
such other party (and, in the case of reproductions, all such
reproductions made by the receiving party) that include
information not within the exceptions contained in the first
sentence of this Section 4.6, unless the recipients provide
assurances reasonably satisfactory to the requesting party that
such documents have been destroyed.
4.7 No Other Bids.
Company and its representatives and agents shall not
initiate, solicit or encourage any inquiry, offer or proposal
with respect to any acquisition, merger, tender or exchange offer
or other form of business combination, or any acquisition or
disposition of all or any substantial part of the assets or the
stock or other securities of Company. Company will promptly
notify Buyer of the details of any discussions with or proposal
or offer from any other Person relating to an acquisition,
merger, tender or exchange offer or other form of business
combination involving Company or any of its securities or
substantial assets or any other proposal, the acceptance of which
would be inconsistent with the consummation of this Agreement in
accordance with its terms. Compliance with this Section shall
not relieve Company of any other express or implied obligations
under this Agreement or under applicable Law.
4.8 Tax Returns.
Company will timely file all Tax Returns required to be
filed, and will pay all Taxes (including payments of estimated
tax sufficient to avoid penalties) required to be paid, prior to
the Closing Date. Buyer shall have the opportunity to review all
such material Tax Returns before they are filed and to approve
any positions taken therein that could materially affect the Tax
liability of the Company or its Affiliates in any post-closing
period.
4.9 Indemnification Matters.
From and after the Closing Date, Buyer shall assume,
and thereafter fulfill and honor in all respects, all obligations
of Company pursuant to and under any indemnification agreements
in effect prior to the date hereof between Company and its
directors and officers. In addition, as of the Effective Time
Buyer shall assume, and thereafter fulfill and honor, the
obligations of Company under Article IV of the Fourth Amended and
Restated Articles of Incorporation of Company, as in effect on
the date hereof, and Article VI of the Bylaws of Company, as in
effect on the date hereof.
ARTICLE V
CONDITIONS OF PURCHASE
5.1 General Conditions.
The obligations of the parties to effect the Closing
shall be subject to the following conditions unless waived in
writing by all parties:
(a) No Orders; Legal Proceedings. No Law or Order shall have
been enacted, entered, issued, promulgated or enforced by any
Governmental Entity, nor shall any Action have been instituted
and remain pending or have been threatened and remain so at what
would otherwise be the Closing Date, which prohibits or restricts
or would (if successful) prohibit or restrict the transactions
contemplated by this Agreement.
(b) Approvals. To the extent required by applicable Law,
all Permits and Approvals required to be obtained from any
Governmental Entity shall have been received or obtained on or
prior to the Closing Date without the imposition of any burdens
or conditions materially adverse to the party or parties entitled
to the benefit thereof.
(c) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by all parties thereto.
5.2 Conditions to Obligations of Buyer.
The obligations of Buyer to effect the Closing shall be
subject to the following conditions except to the extent waived
in writing by Buyer:
(a) Representations and Warranties and Covenants of Company.
The representations and warranties of Company herein contained
shall be true at the Closing Date with the same effect as though
made at such time; Company shall have performed in all material
respects all obligations and complied in all material respects
with all covenants and conditions required by this Agreement to
be performed or complied with by it at or prior to the Closing
Date, and Company shall have delivered to Buyer certificates of
Company in form and substance satisfactory to Buyer, dated the
Closing Date and signed by its Chief Executive Officer to such
effect.
(b) No Material Adverse Change. There shall not have been
any material adverse change in or affecting the Business subsequent
to the date hereof.
(c) Opinion of Counsel. Buyer shall receive at the Closing
from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to Company, an opinion
dated the Closing Date, in form and substance substantially as
set forth in Exhibit C.
(d) Consents. Company shall have obtained and provided to
Buyer all required Approvals and Permits listed on Schedule 2.7, each
in form and substance satisfactory to Buyer.
(e) Resignation of Directors. The directors of Company
listed in a letter to be delivered by Buyer to Company prior to the
Closing Date shall have submitted their resignations in writing
to Company. Such resignations of directors (in such capacity)
shall be effective as of the Effective Time.
5.3 Conditions to Obligations of Company.
The obligations of Company to effect the Closing shall
be subject to the following conditions, except to the extent
waived in writing by Company:
(a) Representations and Warranties and Covenants of Buyer.
The representations and warranties of Buyer herein contained shall
be true at the Closing Date with the same effect as though made at
such time; Buyer shall have performed in all material respects
all obligations and complied in all material respects with all
covenants and conditions required by this Agreement to be
performed or complied with by it at or prior to the Closing Date,
and Buyer shall have delivered to Company certificates of Buyer
in form and substance satisfactory to Company, dated the Closing
Date and signed by its chief executive officer, to such effect.
(b) Opinion of Counsel. Buyer shall receive at the Closing
from O'Melveny & ▇▇▇▇▇ LLP, counsel to Buyer, an opinion dated the
Closing Date, in form and substance substantially as set forth in
Exhibit D.
(c) Stay Bonus. Stay bonus letters in form and substance
substantially as set forth in Exhibit E shall have been executed
for the benefit of the individuals listed on Schedule 5.3(c) (the
"Stay Bonus Letters").
(d) Payment Fund. Buyer shall have deposited an amount
equal to the Merger Consideration in the Payment Fund with the Paying
Agent.
ARTICLE VI
TERMINATION OF OBLIGATIONS; SURVIVAL
6.1 Termination of Agreement.
Anything herein to the contrary notwithstanding, this
Agreement (except to the extent provided in Section 6.2) and the
transactions contemplated by this Agreement may be terminated by
notice by Buyer or Company to the other parties hereto after
January 15, 1999 unless such date is extended by mutual consent
in writing by the parties hereto, and may otherwise be terminated
at any time before the Closing as follows and in no other manner:
(a) Mutual Consent. By mutual consent in writing of Buyer,
Company and Subsidiary.
(b) Certain Conditions Not Met by Earlier Date. By Buyer
or Company by written notice to the other party if any conditions
set forth in Section 5.1 shall not have been satisfied or waived
on or before January 15, 1999; provided, however, that
notwithstanding the foregoing, the right to terminate this
Agreement pursuant to this Section 6.1(b) shall not be available
to any party whose action or failure to act has been a principal
direct or indirect cause in the failure of a condition set forth
in Article V to have been satisfied and such action or failure to
act constitutes a material breach of this Agreement.
(c) Conditions to Buyer's Performance Not Met. By Buyer
by written notice to Company if any event occurs or condition exists
which would render impossible the satisfaction of one or more
conditions to the obligations of Buyer to consummate the
transactions contemplated by this Agreement as set forth in
Section 5.1 or 5.2.
(d) Conditions to Company's Performance Not Met. By Company
by written notice to Buyer if any event occurs or condition exists
which would render impossible the satisfaction of one or more
conditions to the obligation of Company to consummate the
transactions contemplated by this Agreement as set forth in
Section 5.1 or 5.3.
(e) Material Breach. By Buyer or Company if there has been
a material misrepresentation or other material breach by the other
party in its representations, warranties and covenants set forth
herein and such breach has not been cured within ten (10)
calendar days after written notice thereof to the party alleged
to have committed such material breach.
(f) Pursuit of Other Offers. By Buyer, if Company solicits,
encourages, initiates or negotiates any other sale or combination
of the Company or of the Business or any substantial part
thereof.
6.2 Effect of Termination.
Subject to the immediately following sentence, if this
Agreement shall be terminated pursuant to Section 6.1, all
further obligations of the parties under this Agreement shall
terminate without further liability of any party to another;
provided that the obligations of the parties contained in
Section 4.6 and Section 8.10 shall survive any such termination.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Company.
Subject to the terms and conditions of this Article
VII, the Shareholders shall severally, and not jointly,
indemnify, save and hold harmless Buyer, Subsidiary and the
Surviving Corporation and their respective principals, directors,
officers, employees, affiliates, agents and assigns (each an
"Indemnified Buyer Party"), from and against any and all Losses
(whether or not arising out of third-party claims), incurred by a
Buyer Indemnified Party in connection with, arising out of,
resulting from or incident to (i) any breach of any
representation or warranty made by Company in this Agreement;
(ii) any breach of any covenant or agreement made by Company in
this Agreement; and (iii) any Losses arising from or related to
any Dissenting Shares.
The term "Losses" as used in this Section 7.1 is not
limited to matters asserted by third parties against any
Indemnified Party, but includes Losses incurred or sustained by
an Indemnified Party in the absence of third party claims.
Payments by any Indemnified Party of amounts for which such
Indemnified Party is indemnified hereunder shall not be a
condition precedent to recovery of Losses incurred by such
Indemnified Party. The rights and remedies provided in this
Article VII shall be exclusive as to any Losses incurred by a
party under this Agreement; provided, however, that nothing
herein shall preclude a party from exercising its rights under
this Agreement and applicable law to such equitable remedies as
may be available, including without limitation specific
performance and injunctions.
7.2 Indemnification by Buyer.
Subject to the terms and conditions of this Article
VII, Buyer shall indemnify, save and hold harmless Company and
the Shareholders and their respective principals, directors,
officers, employees, affiliates, agents and assigns (each an
"Indemnified Seller Party" and together with an Indemnified Buyer
Party, and "Indemnified Party") from and against any and all
Losses incurred in connection with, arising out of, resulting
from or incident to (i) any breach of any representation or
warranty made by Buyer in this Agreement; or (ii) any breach of
any covenant or agreement made by the Buyer in this Agreement.
7.3 Procedure.
(a) Cooperation. The Indemnified Party shall cooperate
in all reasonable respects with the indemnifying party and its
representatives (including without limitation its attorneys) in
the investigation, trial and defense of such lawsuit or action
and any appeal arising therefrom; provided, however that the
Indemnified Party may at its own cost, participate in
negotiations, arbitrations and the investigation, trial and
defense of such lawsuit or action and any appeal arising
therefrom. The parties shall cooperate with each other in any
notifications to insurers.
(b) Defense of Claim. If a claim for Losses (a "Claim")
is to be made by an Indemnified Party against the indemnifying party,
the party claiming such indemnification shall give written notice
(a "Claim Notice") to the indemnifying party as soon as
practicable after the party entitled to indemnification becomes
aware of any fact, condition or event which may give rise to
Losses for which indemnification may be sought under this Article
VII. If any lawsuit or enforcement action is filed against an
Indemnified Party, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event
within fifteen (15) calendar days after the service of the
citation or summons). The failure of any Indemnified Party to
give timely notice hereunder for any purpose shall not affect
rights to indemnification hereunder, except to the extent that
the indemnifying party has been damaged by such failure. After
such notice, except as provided in the following sentence, if the
indemnifying party shall acknowledge in writing to the
Indemnified Party that the indemnifying party shall be obligated
under the terms of its indemnity hereunder in connection with
such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at its own cost, risk and expense, (i)
to take control of the defense and investigation of such lawsuit
or action, (ii) to employ and engage attorneys of its own choice,
reasonably acceptable to the Indemnified Party, to handle and
defend the same unless the named parties to such action or
proceeding (including any impleaded parties) include both the
indemnifying party and the Indemnified Party and the Indemnified
Party has been advised in writing by counsel that there may be
one or more legal defenses available to such Indemnified Party
that are different from or additional to those available to the
indemnifying party, in which event the Indemnified Party shall be
entitled, at the indemnifying party's cost risk and expense, to
separate counsel of its own choosing (provided however, in no
event shall the indemnifying party be obligated to engage more
than one (1) additional counsel) and (iii) to compromise or
settle such lawsuit or action, which compromise or settlement
shall be made only with the written consent of the Indemnified
Party, such consent not to be unreasonably withheld; provided
however, that the indemnifying party shall be entitled to
compromise or settle any Claim solely for money damages provided
that (x) such amounts are available under the Escrow Agreement
and (y) the Indemnified Party is released from any further
liability. Shareholders may assume the defense of a lawsuit or
action as described in the preceding sentence only if
Shareholders agree to be responsible for all Losses related to
such Action and if the funds available pursuant to the Escrow
Agreement or otherwise provided as security by the Shareholders
are sufficient to cover the amount of the Claim, without regard
to the probability of success on the merits of any such Claim.
If the indemnifying party fails to assume the defense
of such lawsuit or action within fifteen (15) calendar days after
receipt of the Claim Notice, the Indemnified Party against which
such lawsuit or action has been asserted will (upon delivering
notice to such effect to the indemnifying party) have the right
to undertake the defense, compromise or settlement of such
lawsuit or action on behalf of and for the account and risk of
the indemnifying party and the indemnifying party shall, upon
request of the Indemnified Party, promptly pay to such
Indemnified Party, in accordance with the terms of this Article
VII, the amount of any Losses resulting from such lawsuit or
action; provided, however, that such lawsuit or action shall not
be compromised or settled without the written consent of the
indemnifying party, which consent shall not be unreasonably
withheld or delayed. In the event the Indemnified Party assumes
the defense of the lawsuit or action, the Indemnified Party will
keep the indemnifying party reasonably informed the progress of
any such defense, compromise or settlement. Subject to the
provisions of Section 7.4, the indemnifying party shall be liable
for any settlement of any action effected pursuant to and in
accordance with this Article VII and for any final judgment
(subject to any right of appeal) and the Indemnifying Party
agrees to indemnify and hold harmless an indemnified party from
and against any Losses by reason of such settlement or judgment.
7.4 Limitation on Indemnification; Escrow.
(a) The indemnification obligations under this Agreement
shall be limited to claims for Losses made prior to the last date of
survival thereof referred to in Section 8.11 and any Claim for
Losses made prior to the last date of survival thereof referred
to in Section 8.11 shall survive until its final resolution. The
indemnification obligations with respect to any breach of any
covenant or agreement pursuant to Sections 7.1 or 7.2
respectively, shall survive indefinitely with respect to Claims
made pursuant to the terms of this Agreement, subject to the
provisions of this Section 7.4.
(b) Notwithstanding anything to the contrary in this
Agreement, Shareholders shall not be liable for Losses incurred by
any Indemnified Buyer Party pursuant to Section 7.1(i) unless and
until the aggregate amount of Losses relating to such Claims for
which the Indemnified Buyer Parties, in the aggregate, are
seeking indemnification under Sections 7.1(i) exceeds $50,000
(the "Threshold") provided, however, that in the event the
aggregate amount of Losses for which the Indemnified Buyer
Parties are seeking indemnification pursuant to Sections 7.1(i)
exceeds the Threshold, such parties may recover the full amount
of such damages; provided, further that Claims for Losses
pursuant to Section 7.1(iii) with respect to any Dissenting
Shares ("Dissenting Share Losses") shall also not be subject to
the Threshold, but shall be recoverable when the aggregate amount
of Dissenting Share Losses exceeds $10,000, and, in the event
such aggregate amount of Dissenting Share Losses exceeds $10,000,
such parties may recover only the Losses in excess of $10,000.
Notwithstanding the foregoing, the maximum amount of Losses for
which Shareholders shall be liable shall be $2,118,200 (the
"Maximum Indemnification Amount"). The Maximum Indemnification
Amount shall be deposited in escrow in accordance with Section
7.4(c) hereof and the indemnification obligations of Shareholders
after the Closing Date under Section 7.1 hereof, subject to
Section 7.4(c) hereof, shall be satisfied solely from such
escrowed funds; provided, however, that nothing contained herein
shall constitute a waiver by Buyer or the Subsidiary or as a
limitation of any of their rights or remedies against Company or
Shareholders based on fraud. The indemnification provisions of
this Article VII shall be the exclusive remedy available to any
party hereto in the event of any breach by any other party hereto
of any representation, warranty, covenant or agreement set forth
in this Agreement.
(c) Company and Shareholders agree that on the Closing
Date Buyer shall instruct Paying Agent to deduct from the aggregate
Merger Consideration to be paid for the Company Capital Stock,
the Company Options and Company Warrants pursuant to Section 1.4
hereof the Maximum Indemnification Amount to be used to fund the
custodial account as provided in the Escrow Agreement. Paying
Agent shall deposit such funds on the Closing Date with the
escrow agent to be held, invested and disbursed in accordance
with the terms of the Escrow Agreement. In the event that any
funds in the custodial account are remaining for distribution to
the Shareholders, such funds may be used for the purpose of
paying expenses in excess of $200,000 of the Company and
Shareholders in connection with this transaction, including,
without limitation, expenses and disbursements of their
respective investment bankers, accountants and counsel. Buyer,
Company and Shareholders agree to promptly give any necessary
instructions to the escrow agent and/or Paying Agent to cause
such funds to be placed in the custodial account. Upon the
expiration of the Survival Period, any amounts not subject to
Claims made by Buyer shall be distributed to the Shareholders and
holders of Company Options and Company Warrants, pro rata on the
basis of the Merger Consideration payable to each Shareholder or
holder of Company Options and Company Warrants pursuant to
Section 1.4. The Indemnified Buyer Parties shall have the right
to make a Claim hereunder prior to the time at which the
Threshold that is applicable to such Claim has been surpassed for
the purposes of asserting such claim within the relevant survival
period of the applicable indemnification obligation and any such
Claim made within such period shall, to the extent such Threshold
ultimately is met, survive until its final resolution.
(d) Notwithstanding anything to the contrary in this
Agreement, Buyer shall not be liable for Losses incurred by any
Indemnified Seller Party pursuant to Section 7.2(i) unless and until
the aggregate amount of Losses for which the Indemnified Seller
Parties, in the aggregate, are seeking indemnification pursuant
to Section 7.2(i) exceeds the Threshold; provided, however, that
in the event the aggregate amount of Losses for which the
Indemnified Seller Parties are seeking indemnification pursuant
to Section 7.2(i) exceeds the Threshold, such parties may recover
the full amount of such Losses. Notwithstanding the foregoing,
the maximum amount of Losses for which Buyer shall be liable
shall be $2,118,200. The Indemnified Seller Parties shall have
the right to make a Claim hereunder prior to the time at which
the Threshold that is applicable to such Claim has been surpassed
for the purpose of asserting such Claim within the relevant
survival period of the applicable indemnification obligation and
any such Claim within such period shall, to the extent such
Threshold ultimately is met, survive until its final resolution.
(e) Neither (a) the termination of the representations
or warranties contained herein, nor (b) the expiration of the
indemnification obligations described above, will affect the
rights of a Person in respect of any Claim made by such Person
received by the indemnifying party prior to the expiration of the
applicable survival period provided herein.
(f) The amount of Losses for which any Indemnified Party
is entitled to indemnification under Section 7.1 or 7.2, as the
case may be, shall be offset, on a dollar for dollar basis, against
the net of any insurance proceeds actually received by such
Indemnified Party less any expenses incurred in connection with
the receipt of such proceeds under any available insurance
policies then in effect covering such Losses to which such
Indemnified Party is a party; provided however, that with respect
to any Indemnified Buyer Party, this section shall apply only to
insurance policies to which Company is a party. Nothing in this
section shall preclude an Indemnified Party from filing a Claim
for Losses pursuant to this Article VII. Each Indemnified Party
shall use its commercially reasonable efforts to obtain any
insurance reimbursement that may be available under insurance
policies then in effect to which the Indemnified Party is a party
in respect of any Losses suffered or incurred by such Indemnified
Party for which such Indemnified Party would otherwise be
entitled to indemnification under Section 7.1 or 7.2, as the case
may be; provided however, that with respect to any Indemnified
Buyer Party, this section shall apply only to insurance policies
to which Company is a party.
ARTICLE VIII
GENERAL
8.1 Amendments; Waivers.
This Agreement and any schedule or exhibit attached
hereto may be amended only by agreement in writing of all
parties. No waiver of any provision nor consent to any exception
to the terms of this Agreement or any agreement contemplated
hereby shall be effective unless in writing and signed by the
party to be bound and then only to the specific purpose, extent
and instance so provided.
8.2 Schedules; Exhibits; Integration.
Each schedule and exhibit delivered pursuant to the
terms of this Agreement shall be in writing and shall constitute
a part of this Agreement, although schedules need not be attached
to each copy of this Agreement. This Agreement, together with
such schedules and exhibits, constitutes the entire agreement
among the parties pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties
in connection therewith, including, but not limited to, the
confidentiality agreement dated October 14, 1998, between Buyer
and Company.
8.3 Best Efforts; Further Assurances.
Each party will use its best efforts to cause all
conditions to its obligations to be timely satisfied and to
perform and fulfill all obligations on its part to be performed
and fulfilled under this Agreement, to the end that the
transactions contemplated by this Agreement shall be effected
substantially in accordance with its terms as soon as feasible.
Each party shall execute and deliver both before and after the
Closing such further certificates, agreements and other documents
and take such other actions to consummate or implement the
transactions contemplated hereby or to evidence such events or
matters.
8.4 Governing Law.
This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the
laws of the State of California except to the extent that certain
matters are preempted by federal law or are governed by the law
of the jurisdiction of incorporation of the respective parties.
8.5 No Assignment.
Neither this Agreement nor any rights or obligations
under it are assignable without the express written consent of
the other parties hereto.
8.6 Headings.
The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not
constitute a part of this Agreement.
8.7 Counterparts.
This Agreement and any amendment hereto or any other
agreement (or document) delivered pursuant hereto may be executed
in one or more counterparts and by different parties in separate
counterparts. All of such counterparts shall constitute one and
the same agreement (or other document) and shall become effective
(unless otherwise provided therein) when one or more counterparts
have been signed by each party and delivered to the other party.
8.8 Publicity and Reports.
Company and Buyer shall coordinate all publicity
relating to the transactions contemplated by this Agreement and
no party shall issue any press release, publicity statement or
other public notice relating to this Agreement, or the
transactions contemplated by this Agreement, without obtaining
the prior consent of both Company and Buyer except to the extent
that independent legal counsel to Company or Buyer, as the case
may be, shall deliver a written opinion to the other party that a
particular action is required by applicable law. Company shall
obtain the prior consent of Buyer to the form and content of any
application or report made to any Governmental Entity.
8.9 Notices.
Any notice or other communication hereunder must be
given in writing and (a) delivered in person, (b) transmitted by
telex, telefax or telecommunications mechanism or (c) mailed,
postage prepaid, receipt requested as follows:
If to Buyer, addressed to:
The ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇▇ Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
O'Melveny & ▇▇▇▇▇ LLP
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: D. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Company, addressed to:
Knowledge Revolution
▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇
Selim Day
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Shareholder Representative, addressed to:
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to such other person as either party
shall have last designated by such notice to the other party.
Each such notice or other communication shall be effective (i) if
given by telecommunication, when transmitted to the applicable
number so specified in (or pursuant to) this Section 8.9 and an
appropriate answerback is received, (ii) if given by mail, three
days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (iii) if
given by any other means, when actually received at such address.
8.10 Expenses and Attorneys Fees.
Company and Buyer shall each pay their own expenses
incident to the negotiation, preparation and performance of this
Agreement and the transactions contemplated hereby, including but
not limited to the fees, expenses and disbursements of their
respective investment bankers, accountants and counsel; provided
that, Company's expenses in excess of $200,000 shall be paid for
by the Shareholders and shall not be paid by Company. Up to
$100,000 of such expenses of Company and Shareholders in excess
of $200,000 shall be paid from funds held in escrow under the
Escrow Agreement as described in Section 7.4(c). In the event of
any Action for the breach of this Agreement, the prevailing party
shall be entitled to reasonable attorney's fees, costs and
expenses incurred such Action. Buyer shall pay all fees and
expenses of Paying Agent.
8.11 Survival.
The representations and warranties contained in this
Agreement shall survive for 18 months after the Effective Date
except that if a Claim or notice is given under Article VII prior
to such expiration date, such representation or warranty shall
continue indefinitely until such Claim is finally resolved (the
"Survival Period").
8.12 Shareholder Representative.
Each Shareholder hereby appoints ▇▇▇▇ ▇▇▇▇▇▇▇▇ or his
designee, as Shareholder Representative, the true and lawful
agent and attorney-in-fact of each Shareholder in his or her
name, place and stead, with full power and authority to act,
including full power of substitution, in the name of, for and on
behalf of each Shareholder relating to any matters arising in
connection with, or related to the following actions and
omissions (such actions and omissions referred to herein
collectively as the "Transactions"):
(a) compromise and settlement of any indemnification claims;
and any and all acts and omissions involving the Shareholders in any
way related to or in furtherance of this Agreement, and the
transactions contemplated hereby or thereby; and
(b) provision of instructions and notices for distributions
and any other actions under the Escrow Agreement;
provided, however, that any payments to be made to the
Shareholders shall be made directly to the Shareholders and not
to the Shareholder Representative. The Shareholder
Representative may make, exchange, acknowledge and deliver any
and all agreements, certificates, receipts or other documents,
and in general do all things and take all actions, which the
Shareholder Representative, in his or her sole discretion may
consider necessary or proper in connection with, or to carry out
the purposes of, the Transactions.
8.13 Specific Performance.
The parties each acknowledge that, in view of the
uniqueness of the Business and the transactions contemplated by
this Agreement, each party would not have an adequate remedy at
law for money damages in the event that this Agreement has not
been performed in accordance with its terms, and therefore agrees
that the other party shall be entitled to specific enforcement of
the terms hereof in addition to any other remedy to which it may
be entitled, at law or in equity.
ARTICLE IX
DEFINITIONS
9.1 Definitions.
For all purposes of this Agreement, except as otherwise
expressly provided,
(a) the terms defined in this Article X have the meanings
assigned to them in this Article X and include the plural as well
as the singular,
(b) all accounting terms not otherwise defined herein have the
meanings assigned under generally accepted accounting principles,
(c) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles,
Sections and other subdivisions of the body of this Agreement,
(d) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms, and
(e) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision.
As used in this Agreement and the Exhibits and
Schedules delivered pursuant to this Agreement, the following
definitions shall apply.
"401(k) Plan" has the meaning specified in Section
2.12(b).
"Action" means any action, complaint, petition,
investigation, suit or other proceeding, whether civil or
criminal, in law or in equity, or before any arbitrator or
Governmental Entity.
"Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, controls, or is controlled
by, or is under common control with, a specified Person.
"Aggregate Exercise Price" shall mean, with respect to
any Company Option, an amount equal to the product of (i) the
exercise price per share of such Company Option, multiplied by
(i) the aggregate number of shares of Common Stock issuable upon
the exercise in full of such Company Option.
"Aggregate Liquidation Amount" shall mean the sum of
(i) the Aggregate Series A Liquidation Amount, (ii) the Aggregate
Series B Liquidation Amount, (iii) the Aggregate Series C
Liquidation Amount, and (iv) the Aggregate Series D Liquidation
Amount.
"Aggregate Series A Liquidation Amount" shall mean the
product obtained by multiplying (x) the Series A Liquidation
Price, by (y) the aggregate shares of Series A Preferred Stock
issued and outstanding immediately prior to the Effective Time.
"Aggregate Series B Liquidation Amount" shall mean the
product obtained by multiplying (x) the Series B Liquidation
Price, by (y) the aggregate number of shares of Series B
Preferred Stock issued and outstanding immediately prior to the
Effective Time.
"Aggregate Series C Liquidation Amount" shall mean the
product obtained by multiplying (x) the Series C Liquidation
Price, by (y) an amount equal to the sum of (i) the aggregate
number of shares of Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time and (ii) the
aggregate number of shares of Series C Preferred Stock issuable
upon the Net Issue Exercise in full of all Company Warrants
outstanding immediately prior to the Effective Time.
"Aggregate Series D Liquidation Amount" shall mean the
product obtained by multiplying (x) the Series D Liquidation
Price, by (y) the aggregate number of shares of Series D
Preferred Stock issued and outstanding immediately prior to the
Effective Time.
"Agreement" means this Agreement as amended or
supplemented together with all Exhibits and Schedules attached or
incorporated by reference.
"Agreement of Merger" means an agreement of merger to
be filed with the Office of the Secretary of State of the State
of California pursuant to Section 1.3, substantially in the form
of Exhibit F.
"Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the
foregoing, required to be obtained from, or any notice, statement
or other communication required to be filed with or delivered to,
any Governmental Entity or any other Person.
"Associate" of a Person means (i) a corporation or
organization (other than Company or a party to this Agreement) of
which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of
equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar capacity; and (iii) any
relative or spouse of such person or any relative of such spouse.
"Audited Financial Statements" means the audited
balance sheet of Company as of June 30, 1998 ("Audited Balance
Sheet") together with the related statement of operations and
cash flows and changes in shareholders' equity for the period
ended June 30, 1998.
"Auditors" means PricewaterhouseCoopers LLC,
independent public accountants to Company.
"Business" means the business of Company, and shall be
deemed to include any of the following incidents of such
business: income, cash flow, operations, condition (financial or
other), assets, properties, anticipated revenues, prospects,
liabilities, goodwill and personnel.
"Cancelled Shares" has the meaning specified in Section
1.4.
"Certificate" has the meaning specified in Section 1.4.
"CERCLA" means the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et. seq., as amended.
"CGCL" means the General Corporation Law of the State
of California.
"Claim" has the meaning specified in Section 7.3.
"Claim Notice" has the meaning specified in Section
7.3.
"Closing" has the meaning specified in Section 1.2.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as
amended, or as hereafter amended.
"Common Stock" means the common stock of Company.
"Company" means Knowledge Revolution, a California
corporation.
"Company Capital Stock" shall mean (i) the Common Stock
and (ii) the Preferred Stock.
"Company Options" means the options and any other
rights to purchase shares of Stock listed on Schedule 2.2(a),
excluding Company Warrants.
"Company Warrants" means the warrants to purchase
shares of Series C Preferred Stock listed on Schedule 2.2(a).
"Contract" means any agreement, arrangement, bond,
commitment, franchise, indemnity, indenture, instrument, lease,
license or understanding, whether or not in writing.
"Copyright Law" means the Copyright Laws of the U.S.,
Title 17 U.S.C. section 101 et. seq.
"Dissenting Shares" has the meaning set forth in
Section 1.6.
"Effective Date" has the meaning set forth in Section
1.3.
"Effective Time" has the meaning set forth in Section
1.3.
"Encumbrance" means any claim, charge, easement,
encumbrance, lease, covenant, security interest, lien, option,
pledge, rights of others, or restriction (whether on voting,
sale, transfer, disposition or otherwise), whether imposed by
agreement, understanding, law, equity or otherwise, except for
any restrictions on transfer generally arising under any
applicable federal or state securities law.
"Equity Securities" means any capital stock or other
equity interest or any securities convertible into or
exchangeable for capital stock or any other rights, warrants or
options to acquire any of the foregoing securities.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and the related regulations and
published interpretations.
"ERISA Affiliate" has the meaning set forth in Section
2.12(c).
"Escrow Agreement" means the escrow agreement
substantially in the form of Exhibit G.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Exchange Amount" shall mean an amount equal to the
quotient obtained by dividing (i) Remaining Consideration by (ii)
Total Outstanding Shares.
"GAAP" means generally accepted accounting principles
in the United States, as in effect from time to time.
"Governmental Entity" means any government or any
agency, district, bureau, board, commission, court, department,
official, political subdivision, tribunal or other
instrumentality of any government, whether federal, state or
local, domestic or foreign.
"Group" means, individually and collectively, (i)
Company and (ii) any individual, trust, corporation, partnership
or other entity as to which Company is liable for Taxes incurred
by such individual or entity as transferee, pursuant to Treasury
Regulations 1.1502-6 or pursuant to other provisions of Law.
"Hazardous Substance" means (but shall not be limited
to) substances that are defined or listed in, or otherwise
classified pursuant to, any applicable Laws as "hazardous
substances," "hazardous materials," "hazardous wastes" or "toxic
substances," or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as
ignitibility, corrosivity, reactivity, radioactivity,
carcinogenicity, reproductive toxicity or "EP toxicity," and
petroleum and drilling fluids, produced waters and other wastes
associated with the exploration, development, or production of
crude oil, natural gas or geothermal energy.
"Indemnified Buyer Party" has the meaning set forth in
Section 7.1.
"Indemnified Party" has the meaning set forth in
Section 7.2.
"Indemnified Seller Party" has the meaning set forth in
Section 7.2.
"Intangible Property" means any trade secret, secret
process or other confidential information or know-how and any and
all Intellectual Property Rights.
"Intellectual Property Rights" means any and all (by
whatever name or term known or designated) tangible and
intangible and now known or hereafter existing (a) rights
associated with works of authorship, including but not limited to
copyrights (including without limitation the sole and exclusive
right to prepare "derivative works" (as defined in the Copyright
Law) of the copyrighted work and to copy, manufacture, reproduce,
distribute copies of, modify, publicly perform and display the
copyrighted work and all derivative works thereof) and moral
rights (including without limitation any right to identification
of authorship and any limitation on subsequent modification), (b)
rights in and relating to the protection of trademarks, service
marks, trade names, goodwill, rights in packaging, rights of
publicity and privacy, merchandising rights and similar rights,
(c) rights in and relating to the protection of trade secrets and
confidential information, (d) patents, designs, algorithms and
other industrial property rights and rights associated therewith,
(e) other intellectual and industrial property and proprietary
rights (of every kind and nature however designated) relating to
intangible property that are analogous to any of the foregoing
rights (including without limitation logos, character rights,
"rental rights" and rights to remuneration), whether arising by
operation of law, contract, license or otherwise, (f)
registrations, applications, renewals, extensions, continuations,
divisions, or reissues thereof now or hereafter in force
throughout the universe (including without limitation rights in
any of the foregoing), and (g) rights in and relating to the sole
and exclusive possession, ownership and use of any of the
foregoing, including without limitation the right to license and
sublicense, franchise, assign, pledge, mortgage, sell, transfer,
convey, grant, gift over, divide, partition and use (or not use)
in any way any of the foregoing now or hereafter (including
without limitation any claims and causes of action of any kind
with respect to, and any other rights relating to the enforcement
of, any of the foregoing).
"IRS" means the Internal Revenue Service or any
successor entity.
"Law" means any constitutional provision, statute or
other law, rule, regulation, or interpretation of any
Governmental Entity and any Order.
"Loss" means any action, cost, damage, disbursement,
expense, liability, loss, deficiency, diminution in value,
obligation, penalty or settlement of any kind or nature, whether
foreseeable or unforeseeable, including but not limited to,
interest or other carrying costs, penalties, reasonable legal,
accounting and other professional fees and expenses incurred in
the investigation, collection, prosecution and defense of claims
and amounts paid in settlement, that may be imposed on or
otherwise incurred or suffered by the specified person.
"Material Contract" means any Contract material to the
business of the subject person and includes but is not limited to
those contracts deemed material by Section 2.5.
"Maximum Indemnification Amount" has the meaning set
forth in Section 7.4(b).
"Merger" has the meaning set forth in Section 1.1
"Merger Consideration" has the meaning set forth in
Section 1.4.
"Net Issue Exercise" means, with respect to Company
Warrants, the exercise of such Company Warrants on a net issue
basis in accordance with the terms thereof, assuming that the
fair market value of the shares of Series C Preferred Stock
issuable upon the exercise thereof is equal to $9.0865 per share.
"Order" means any decree, injunction, judgment, order,
ruling, assessment or writ.
"Paying Agent" has the meaning specified in Section
1.5.
"Payment Fund" has the meaning specified in Section
1.5.
"PBGC" means the Pension Benefit Guaranty Corporation
or any successor thereto.
"Permit" means any license, permit, franchise,
certificate of authority, or order, or any waiver of the
foregoing, required to be issued by any Governmental Entity.
"Person" means an association, a corporation, an
individual, a partnership, a trust or any other entity or
organization, including a Governmental Entity.
"Preferred Stock" shall mean (i) Series A Preferred
Stock, (ii) Series B Preferred Stock, (iii) Series C Preferred
Stock, and (iv) Series D Preferred Stock.
"Purchase Price" has the meaning set forth in
Section 1.2.
"Related Agreements" means the Escrow Agreement, the
Agreement of Merger, the Stay Bonus Letters and the employment
agreements between Company and each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇.
"Remaining Consideration" shall mean Total
Consideration, less the Aggregate Liquidation Amount.
"SEC" means the Securities and Exchange Commission or
any successor entity.
"Securities Act" means the Securities Act of 1933, as
amended.
"Series A Liquidation Price" shall mean $0.84.
"Series B Liquidation Price" shall mean $2.1875.
"Series C Liquidation Price" shall mean $2.3065.
"Series D Liquidation Price" shall mean $1.1095.
"Series A Preferred Stock" shall mean the Series A
Preferred Stock of Company.
"Series B Preferred Stock" shall mean the Series B
Preferred Stock of Company.
"Series C Preferred Stock" shall mean the Series C
Preferred Stock of Company.
"Series D Preferred Stock" shall mean the Series D
Preferred Stock of Company.
"Shareholder Representative" means ▇▇▇▇ ▇▇▇▇▇▇▇▇ or his
designee.
"Shareholders" has the meaning specified in the
recitals hereto.
"Stay Bonus Letters" has the meaning specified in
Section 5.3(d).
"Stock" means all of the outstanding capital stock of
Company.
"Stock Letter of Transmittal" has the meaning specified
in Section 1.5.
"Subsidiary" has the meaning set forth in the Recitals.
"Survival Period" has the meaning set forth in Section
8.11.
"Surviving Corporation" has the meaning specified in
Section 1.1.
"Tax" means any foreign, federal, state, county or
local income, sales, use, excise, franchise, ad valorem, real and
personal property, transfer, gross receipt, stamp, premium,
profits, customs, duties, windfall profits, capital stock,
production, business and occupation, disability, employment,
payroll, severance or withholding taxes, fees, assessments or
charges of any kind whatever imposed by any Governmental Entity,
any interest and penalties (civil or criminal), additions to tax,
payments in lieu of taxes or additional amounts related thereto
or to the nonpayment thereof, and any Loss in connection with the
determination, settlement or litigation of any Tax liability.
"Tax Return" means a declaration, statement, report,
return or other document or information required to be filed or
supplied with respect to Taxes including, where permitted or
required, combined or consolidated returns for any group of
entities that includes Company.
"Threshold" has the meaning specified in Section 7.4.
"Total Aggregate Exercise Price" means the sum of the
Aggregate Exercise Prices of all Company Options outstanding
immediately prior to the Effective Time.
"Total Consideration" shall mean $19,225,000.
"Total Outstanding Shares" means an amount equal to the
sum of (i) the aggregate number of shares of Common Stock issued
and outstanding immediately prior to the Effective Time, and (ii)
the aggregate number of shares of Common Stock issuable upon the
conversion, exercise or exchange of all securities convertible
into, or exercisable or exchangeable for, shares of Common Stock,
including, without limitation, all shares of Common Stock
issuable upon (a) the conversion of all Preferred Stock issued
and outstanding immediately prior to the Effective Time, and (b)
the exercise of all Company Options and Company Warrants
outstanding immediately prior to the Effective Time; provided,
however, that the number of shares issuable upon the exercise of
Company Warrants shall be calculated on the basis of a Net Issue
Exercise of such Company Warrants; provided further, that for
purposes of determining the number of Total Outstanding Shares,
all shares of Company Capital Stock or other securities
convertible into, or exercisable or exchangeable for, shares of
Stock that are held by Buyer or Subsidiary (other than shares
held in trust) shall be excluded; and provided further, that each
share of authorized Preferred Stock is convertible into one share
of Common Stock.
"Transactions" has the meaning specified in Section
8.12.
"Unaudited Interim Financial Statements" means the
unaudited balance sheet of Company as of September 30, 1998
("Unaudited Interim Balance Sheet") together with the related
statement of operations and cash flows and changes in
shareholders' equity for the period ended September 30, 1998.
IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be executed by its duly authorized
officers as of the day and year first above written.
BUYER
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
---------------------
Its: President
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------
Its: Secretary
COMPANY
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------
Its: CEO and President
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------
Its: Secretary
SUBSIDIARY
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇.
----------------------
Its: President
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------
Its: Secretary
SHAREHOLDER REPRESENTATIVE
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇, as
------------------
Shareholder Representative
