EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of
October 23, 2001, is among NetGateway, Inc., a Delaware corporation (the
"Company"), Category 5 Technologies, Inc., a Nevada corporation ("Parent"), and
C5T Acquisition Corp., a Delaware corporation and a direct wholly owned
subsidiary of Parent ("Merger Sub"). Certain capitalized and non-capitalized
terms used herein are defined in Section 9.11.
RECITALS
WHEREAS, the boards of directors of the Company, Parent and Merger Sub
each have, in light of and subject to the terms and conditions set forth herein,
approved this Agreement and the transactions contemplated hereby, including the
Merger (as hereinafter defined), and the boards of directors of the Company and
Merger Sub have declared the Merger advisable and fair to, and in the best
interests of, their respective stockholders;
WHEREAS, pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding shares
of stock of the Company shall be converted into shares of common stock, par
value $.001 per share, of Parent (collectively, "Parent Common Stock");
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall be, and is hereby, adopted as a plan of reorganization for
purposes of Section 368(a) of the Code; and
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger as set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Merger Sub hereby
agree as follows:
Article I
THE MERGER
SECTION 1.1 The Merger. At the Effective Time and upon the terms and
subject to the conditions of this Agreement and in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), Merger Sub shall be
merged with and into the Company (the "Merger"). Following the Merger, the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Merger Sub shall cease.
SECTION 1.2 Effective Time. Subject to the provisions of this
Agreement, Parent, Merger Sub and the Company shall cause the Merger to be
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consummated by filing a Certificate of Merger (the "Certificate of Merger") with
the Secretary of State of the State of Delaware (the "Secretary") in such form
as required by, and executed in accordance with, the relevant provisions of the
DGCL, as soon as practicable on or after the Closing Date (as hereinafter
defined). The Merger shall become effective upon the filing of such Certificate
of Merger with the Secretary or at such later time as agreed in writing by
Parent and the Company and specified in the Certificate of Merger (the
"Effective Time").
SECTION 1.3 Closing of the Merger. The closing of the Merger (the
"Closing") will take place as soon as practicable at a time and on a date to be
specified by the parties (the "Closing Date"), which shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions), at the offices of Xxxxx & Xxxxxx, L.L.P., 00 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000, Xxxx Xxxx Xxxx, Xxxx 00000, or at such other time, date or place as
agreed to in writing by the parties hereto.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects
set forth in the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all of the properties, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.5 Certificate of Incorporation and Bylaws. Effective
immediately following the Merger, the certificate of incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable Law (as hereinafter defined); provided, however, that
at the Effective Time, the certificate of incorporation of the Surviving
Corporation shall be amended to provide that the name of the corporation is
Category 5 Marketing, Inc. Effective immediately following the Merger, the
bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the bylaws of the Surviving Corporation until amended in accordance
with applicable Law.
SECTION 1.6 Directors. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
and shall hold office from the Effective Time in accordance with the charter and
bylaws of the Surviving Corporation until their successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal.
SECTION 1.7 Officers. The officers of the Company immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation
and shall hold office from the Effective Time in accordance with the charter and
bylaws of the Surviving Corporation until their successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal.
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Article II
CONVERSION OF SECURITIES
SECTION 2.1 Conversion of Shares.
(a) At the Effective Time, each issued and outstanding share of the
common stock, par value $.001 per share, of Merger Sub shall, by virtue of the
Merger and without any action on the part of Parent, Merger Sub or the Company,
be converted into one fully paid and non-assessable share of common stock of the
Surviving Corporation.
(b) At the Effective Time, each share of common stock, par value $.001
per share, of the Company, ("Company Common Stock"), issued and outstanding
immediately prior to the Effective Time (individually, a "Share" and
collectively, the "Shares") (other than Shares to be cancelled in accordance
with Section 2.1(c) hereof or stockholders exercising appraisal rights under
DGCL Section 262 (the "Dissenting Shares")) shall, by virtue of the Merger and
without any action on the part of Parent, Merger Sub, the Company or any holder
thereof, be converted into the right to receive 0.181818 shares of Parent Common
Stock (referred to herein as the "Exchange Ratio," and all such shares of Parent
Common Stock issued pursuant to this Section 2.1(b), together with any cash in
lieu of fractional shares of Parent Common Stock to be paid pursuant to Section
2.7, being referred to herein as the "Merger Consideration") payable, without
interest, to the holder of such Company Common Stock upon surrender, in the
manner provided in this Article II, of the certificate that formerly evidenced
such Company Common Stock. At the Effective Time, the total number of issued and
outstanding shares of Company Common Stock shall not exceed 49,500,000 shares.
At the Effective Time, all Company Common Stock shall no longer be outstanding
and shall automatically be cancelled and retired and shall cease to exist, and
each holder of a certificate representing any such Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration therefore upon surrender of such certificate in accordance
with this Article II.
(c) At the Effective Time each Share of Company Common Stock held by
the Company, Parent, or any of their subsidiaries shall be cancelled and
extinguished without any consideration therefor.
(d) The Exchange Ratio shall be adjusted to reflect appropriately the
effect of any stock split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock or Company
Common Stock) reorganization, recapitalization, reclassification or other like
change with respect to Parent Common Stock or Company Common Stock occurring on
or after the date hereof and prior to the Effective Time.
SECTION 2.2 Stock Options and Warrants.
(a) As soon as practicable following the date of this Agreement, Parent
and the Company (or, if appropriate, any committee of the Board of Directors of
the Company administering the Company's stock option plans or arrangements
(collectively, the "Company Option Plans")) shall take such action, and the
Company shall obtain all such agreements and consents, if any, as may be
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required to effect the following provisions of this Section 2.2. Except as set
forth in Section 7.1(d), Parent acknowledges that in connection with the
transactions contemplated hereby that rights to acquire up to 3,000,000 shares
of Company Common Stock pursuant to Company Stock Options granted to employees,
officers, directors and consultants of the Company under the Company Option
Plans shall become fully vested and exercisable in accordance with Company
Option Plans. As of the Effective Time each outstanding option to purchase
shares of Company Common Stock pursuant to the Company Option Plans (a "Company
Stock Option") shall be replaced by a new substitute option to purchase shares
of Parent Common Stock granted under the terms of Parent's stock option plan (in
each case, an "Assumed Stock Option") as follows:
(i) In the case of any Company Stock Option to which Section 421
of the Code applies by reason of its qualification under Section 422 of
the Code, (x) the number of shares of Parent Common Stock subject to
the Assumed Stock Option shall be the product (truncated to the nearest
whole share) of the number of shares of Common Stock subject to the
Company Stock Option multiplied by the Exchange Ratio, and (y) the
exercise price per share of Parent Common Stock under the Assumed Stock
Option shall be the quotient (rounded up to the nearest $.01) of the
exercise price per share of Company Common Stock under the Company
Stock Option immediately prior to the Effective Time divided by the
Exchange Ratio.
(ii) In the case of any other Company Stock Option, (x) the number
of shares of Parent Common Stock subject to the Assumed Stock Option
shall be the product (rounded up to the nearest whole share) of the
number of shares of Company Common Stock subject to the Company Stock
Option multiplied by the Exchange Ratio, and (y) the exercise price per
share under the Assumed Stock Option shall be the quotient (truncated
to the nearest $.01) of the exercise price per share of Company Common
Stock under the Company Stock Option immediately prior to the Effective
Time divided by the Exchange Ratio.
(iii) Except as set forth in Section 7.1(d) and as determined by
the Evaluation Committee (as defined in Section 5.1), each Assumed
Stock Option shall be subject to the same expiration date and vesting
provisions as were applicable to the relevant Company Stock Option
immediately prior to the Effective Time.
(iv) As of the Effective Time each outstanding warrant to purchase
shares of Company Common Stock (a "Company Warrant") shall be assumed
by Parent and the Company Warrant shall evidence the holders right to
purchase shares of Parent Common Stock (in each case, an "Assumed
Warrant"), as adjusted herein. The number of shares of Parent Common
Stock subject to the Assumed Warrant shall be the product (rounded up
to the nearest whole share) of the number of shares of Company Common
Stock subject to the Company Warrant multiplied by the Exchange Ratio,
and (y) the exercise price per share under the Assumed Warrant shall be
the quotient (rounded to the nearest $.01) of the exercise price per
share of Company Common Stock under the Company Warrant immediately
prior to the Effective Time divided by the Exchange Ratio. Each Assumed
Warrant shall be subject to the same expiration date and other terms as
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were applicable to the relevant Company Warrant immediately prior to
the Effective Time.
SECTION 2.3 Exchange Fund. Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company reasonably acceptable to the Company
to act as exchange agent hereunder for the purpose of exchanging Shares for the
Merger Consideration (the "Exchange Agent"). At or prior to the Effective Time,
Parent shall deposit with the Exchange Agent, in trust for the benefit of
holders of Shares (other than Parent, the Company and any of their respective
subsidiaries and the holders of Dissenting Shares), certificates representing
the Parent Common Stock issuable pursuant to Section 2.1 in exchange for
outstanding Shares. Parent agrees to make available to the Exchange Agent from
time to time as needed, sufficient cash amounts payable in lieu of fractional
shares of Parent Common Stock pursuant to Section 2.7 and any dividends and
other distributions payable pursuant to Section 2.5. Any cash and certificates
of Parent Common Stock, together with any dividends or distributions with
respect thereto, deposited with the Exchange Agent shall hereinafter be referred
to as the "Exchange Fund."
SECTION 2.4 Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates") whose shares were converted
pursuant to Section 2.1(b) into Parent Common Stock (i) a letter of transmittal
which shall specify that delivery shall be effective, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent, and which letter shall be in customary form and have such other
provisions as Parent and the Company may reasonably specify; and (ii)
instructions for effecting the surrender of such Certificates in exchange for
the Merger Consideration. Upon surrender of a Certificate to the Exchange Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) a certificate or
certificates representing that number of shares of Parent Common Stock
representing, in the aggregate, the whole number of shares that such holder has
the right to receive pursuant to Section 2.1 and (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 2.5 and cash
in lieu of fractional shares pursuant to Section 2.7, and the Certificate so
surrendered shall forthwith be cancelled. No interest will be paid or will
accrue on any cash payable pursuant to Section 2.5 or Section 2.7. In the event
of a transfer of ownership of Company Common Stock which is not registered in
the transfer records of the Company, certificates evidencing, in the aggregate,
the proper number of shares of Parent Common Stock, a check in the proper amount
of cash in lieu of any fractional shares of Parent Common Stock pursuant to
Section 2.7 and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.5, may be issued with respect to such Shares to
such a transferee if the Certificate representing such Shares is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer Taxes have been
paid.
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates.
No dividends or other distributions declared or made with respect to shares of
Parent Common Stock with a record date after the Effective Time shall be paid to
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the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock that such holder would be entitled to receive upon surrender of
such Certificate, and no cash payment in lieu of fractional shares of Parent
Common Stock shall be paid to any such holder pursuant to Section 2.7 until such
holder shall surrender such Certificate in accordance with Section 2.4. Subject
to the effect of applicable Laws, following surrender of any such Certificate,
there shall be paid to such holder of shares of Parent Common Stock issuable in
exchange therefor, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.7 and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock, and (b) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender, payable with
respect to such shares of Parent Common Stock.
SECTION 2.6 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued and cash paid upon conversion of the Shares
in accordance with the terms of Article I and this Article II (including any
cash paid pursuant to Sections 2.5 and 2.7) shall be deemed to have been issued
or paid in full satisfaction of all rights under the DGCL pertaining to the
Shares.
SECTION 2.7 No Fractional Shares of Parent Common Stock.
(a) No certificates or scrip of shares of Parent Common Stock
representing fractional shares of Parent Common Stock or book-entry credit of
the same shall be issued upon the surrender for exchange of Certificates and
such fractional share interests will not entitle the owner thereof to vote or to
have any rights of a stockholder of Parent or a holder of shares of Parent
Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder
of Shares exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Parent Common Stock (after taking
into account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i) such
fractional part of a share of Parent Common Stock multiplied by (ii) the closing
price on the National Association of Securities Dealers OTC Electronic Bulletin
Board ("OTBB") for a share of Parent Common Stock on the date of the Effective
Time. As promptly as practicable after the determination of the aggregate amount
of cash to be paid to holders of fractional interests, the Exchange Agent shall
notify Parent and Parent shall cause the Surviving Corporation to deposit such
amount with the Exchange Agent and shall cause the Exchange Agent to forward
payments to such holders of fractional interests subject to and in accordance
with the terms hereof.
SECTION 2.8 Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of Certificates for twelve
months after the Effective Time shall be delivered to the Surviving Corporation
or otherwise on the instruction of the Surviving Corporation, and any holders of
the Certificates who have not theretofore complied with this Article II shall
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thereafter look only to the Surviving Corporation and Parent for the Merger
Consideration with respect to the Shares formerly represented thereby to which
such holders are entitled pursuant to Section 2.1 and Section 2.4, any cash in
lieu of fractional shares of Parent Common Stock to which such holders are
entitled pursuant to Section 2.7 and any dividends or distributions with respect
to shares of parent Common Stock to which such holders are entitled pursuant to
Section 2.5.
SECTION 2.9 No Liability. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent, or any directors, officers,
employees or agents of each of the foregoing shall be liable to any person in
respect of any Parent Common Stock, any dividends or distributions with respect
thereto, any cash in lieu of fractional shares of Parent Common Stock or any
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
SECTION 2.10 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a daily
basis. Any interest and other income resulting from such investments promptly
shall be paid to Parent.
SECTION 2.11 Lost Certificates. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
reasonably required by the Surviving Corporation, the posting by such person of
a bond in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will deliver in exchange for such lost, stolen
or destroyed Certificate the applicable Merger Consideration with respect to the
Shares formerly represented thereby, any cash in lieu of fractional shares of
Parent Common Stock and unpaid dividends and distributions on shares of Parent
Common Stock deliverable in respect thereof, pursuant to this Agreement.
SECTION 2.12 Withholding Rights. Each of the Surviving Corporation,
Parent and the Exchange Agent shall be entitled to deduct and withhold from the
Merger Consideration otherwise payable pursuant to this Agreement to any holder
of Shares such amounts as it is required to deduct and withhold with respect to
the making of such payment under the Code and the rules and regulations
promulgated thereunder, or any applicable Law. To the extent that amounts are so
withheld by the Surviving Corporation, Parent or the Exchange Agent, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect to which
such deduction and withholding was made by the Surviving Corporation, Parent or
the Exchange Agent, as the case may be.
SECTION 2.13 Stock Transfer Books. The stock transfer books of the
Company shall be closed immediately upon the Effective Time and there shall be
no further registration of transfers of Shares thereafter on the records of the
Company. On or after the Effective Time, any Certificates presented to the
Surviving Corporation, Exchange Agent (in its capacity as Exchange Agent) or
Parent for any reason shall be converted into the Merger Consideration with
respect to the Shares formerly represented thereby, any cash in lieu of
fractional shares of Parent Common Stock to which the holders thereof are
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entitled pursuant to Section 2.7 and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 2.5 and the
Certificates so presented shall be cancelled.
Article III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company
to Parent prior to the execution of this Agreement (the "Company Disclosure
Schedule") or as set forth in the Company SEC Reports (as defined in Section
3.4) filed prior to the date hereof or as permitted under Section 5.1 hereof,
the Company hereby represents and warrants to each of Parent and Merger Sub as
follows:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) The Company and each of its subsidiaries is, or will be as of the
Effective Time, a corporation or legal entity duly organized, validly existing
and in good standing under the applicable Laws of the jurisdiction of its
incorporation or organization and has all requisite corporate, partnership or
similar power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted.
(b) Exhibit 21 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001 sets forth a list of all subsidiaries of the
Company. Except as listed therein or in Section 3.1 of the Company Disclosure
Schedule, the Company does not own, directly or indirectly, beneficially or of
record, any shares of capital stock or other securities of any other entity or
any other investment in any other entity.
(c) The Company is, and each of its subsidiaries is or will be as of
the Effective Time, duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased, or operated
by it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing is not reasonably expected to have, individually
or in the aggregate, a Material Adverse Effect on the Company and its
subsidiaries taken as a whole.
(d) The Company has heretofore delivered to Parent accurate and
complete copies of the certificate of incorporation and bylaws, as currently in
effect, of the Company. The Company has heretofore delivered to Parent accurate
and complete copies of the charter or certificate of incorporation and bylaws
(or other similar organizational and governing documents), as currently in
effect, of each of its subsidiaries.
SECTION 3.2 Capitalization of the Company and Its Subsidiaries.
(a) The authorized stock of the Company consists of: (i) 240,000,000
shares of Company Common Stock, of which 41,998,565 shares are issued and
outstanding as of the date hereof and (ii) 5,000,000 shares of Preferred Stock,
par value $.001 per share, of which, as of the date hereof, no shares are issued
and outstanding. All of the issued and outstanding Shares have been validly
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issued, and are duly authorized, fully paid, non-assessable and no holder of any
securities of the Company has any preemptive rights. As of the date hereof, (i)
1,468,750 Shares are reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding Company Stock Options
issued pursuant to the Company's 1998 Stock Option Plan for Senior Executives,
(ii) 84,321 Shares are reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding Company Stock Options
issued pursuant to the Company's 1998 Stock Compensation Plan, (iii) 1,434,799
Shares are reserved for issuance and issuable upon or otherwise deliverable in
connection with the exercise of outstanding Company Stock Options issued
pursuant to the Company's 1999 Stock Option Plan for Non-executives, and (iv)
730,846 Shares are reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding Company Stock Options
issued pursuant to the Company's Galaxy Enterprises Stock Option Plan. Except as
set forth above, as of the date hereof, there are no outstanding (i) shares of
stock or other voting securities of the Company; (ii) securities of the Company
or any of its subsidiaries convertible into or exchangeable for shares of stock
or voting securities of the Company; (iii) options or other rights to acquire
from the Company or any of its subsidiaries, and no obligations of the Company
or any of its subsidiaries to issue, any stock, voting securities, or securities
convertible into or exchangeable for stock or voting securities of the Company;
or (iv) equity equivalents, interests in the ownership or net income of the
Company, or other similar rights (including stock appreciation rights)
(collectively, "Company Securities"). There are no outstanding obligations of
the Company or any of its subsidiaries to repurchase, redeem or otherwise
acquire any Company Securities. There are no stockholder agreements, voting
trusts or other agreements or understandings to which the Company or any of its
subsidiaries is a party or to which it is bound relating to the voting of any
shares of capital stock of the Company.
(b) All of the outstanding capital stock of the Company's subsidiaries
is owned by the Company, directly or indirectly, free and clear of any Lien or
any other limitation or restriction (including, any restriction on the right to
vote or sell the same) except as may be provided as a matter of Law. There are
no debt or equity securities of the Company or its subsidiaries convertible into
or exchangeable for, no options or other rights to acquire from the Company or
its subsidiaries, and no other contract, understanding, arrangement, or
obligation (whether or not contingent) providing for the issuance or sale,
directly or indirectly of, any capital stock or other ownership interests in, or
any other securities of, any subsidiary of the Company. There are no outstanding
contractual obligations of the Company or its subsidiaries to repurchase,
redeem, or otherwise acquire any outstanding shares of capital stock or other
ownership interests in any subsidiary of the Company. None of the Company's
subsidiaries owns any capital stock of the Company. For purposes of this
Agreement, "Lien" means, in respect of any asset (including any security) any
mortgage, lien, pledge, charge, security interest, or encumbrance of any kind in
respect of such asset.
SECTION 3.3 Authority Relative to This Agreement.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby and thereby (other than, in respect of the
Merger and this Agreement, the Company Requisite Vote (as hereinafter defined)).
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This Agreement has been duly and validly executed and delivered by the Company
and constitutes a valid, legal, and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar Laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
(b) As of the date hereof, the Board of Directors of the Company (the
"Company Board") has, by unanimous vote of those present (who constituted 100%
of the directors then in office), duly and validly authorized the execution and
delivery of this Agreement and approved the consummation of the transactions
contemplated hereby and thereby, taken all corporate actions required to be
taken by the Company Board for the consummation of the transactions, including
the Merger, contemplated hereby and has resolved (i) this Agreement and the
transactions contemplated hereby, including the Merger, taken together, to be
advisable and fair to, and in the best interests of, the Company and its
stockholders; and (ii) to recommend that the stockholders of the Company approve
and adopt this Agreement and approve the Merger. The Company Board has directed
that this Agreement be submitted to the stockholders of the Company for their
approval and adoption. The affirmative approval of the holders of Shares
representing a majority of the votes that may be cast by the holders of all
outstanding Shares (voting as a single class) as of the record date for the
Company (the "Company Requisite Vote") is the only vote of the holders of any
class or series of stock of the Company necessary to approve and adopt this
Agreement and approve the Merger.
SECTION 3.4 SEC Reports; Financial Statements. Since June 1, 1999, the
Company has filed all forms, reports and documents with the SEC required to be
filed by it under the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended (the "Exchange Act" and the
"Company SEC Reports", respectively), each of which complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, each as in effect on the dates such Company SEC Reports were filed. None of
the Company SEC Reports contained, when filed, any untrue statement of a
material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent amended prior to the date hereof by a
subsequently filed Company SEC Report. The consolidated financial statements of
the Company included in the Company SEC Reports complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC in respect thereof and fairly presented, in
conformity with United States generally accepted accounting principles applied
on a consistent basis during the periods involved ("GAAP") (except as may be
indicated in the notes thereto), the consolidated financial position of the
Company and its consolidated subsidiaries, in each case as of the dates thereof
and their consolidated results of operations and changes in financial position
for the periods then ended (subject, in the case of the unaudited interim
financial statements, to the absence of footnote disclosure and to normal
year-end adjustments). For purposes of this Agreement, "Company Balance Sheet"
means the consolidated balance sheet of the Company as of June 30, 2001, as set
forth in the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 2001, and "Company Balance Sheet Date" means June 30, 2001. Since the
Company Balance Sheet Date, there has not been any change, or any application or
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request for any change, by the Company or any of its subsidiaries in accounting
principles, methods or policies for financial accounting or Tax purposes, other
than as a result of any changes under GAAP or other relevant accounting
principles or changes required by any applicable Tax rule or regulation.
SECTION 3.5 No Undisclosed Liabilities. There are no material
liabilities of the Company or any of its subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
which are required to be reflected in its financial statements (or in the notes
thereto) in accordance with GAAP, other than: (a) liabilities disclosed,
provided for or reserved against in the Company Balance Sheet or in the notes
thereto; (b) liabilities arising in the ordinary course of business after the
date of the Company Balance Sheet or which arose in the ordinary course of
business prior to the date of the Company Balance Sheet but were not required to
be disclosed, provided for or reserved against in the Company Balance Sheet; (c)
liabilities disclosed in the Company SEC Reports prior to the date hereof; and
(d) liabilities arising under this Agreement and (e) liabilities set forth in
Section 3.5 of the Company Disclosure Schedule.
SECTION 3.6 Absence of Changes. Except as contemplated by this
Agreement or as set forth in Section 3.6 of the Company Disclosure Schedule, or
as disclosed in the Company's SEC Reports prior to the date hereof, since the
Company Balance Sheet Date, the Company and its subsidiaries have conducted
their business in the ordinary and usual course consistent with past practice
and there has not been:
(a) any event, occurrence or development which had or is
reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company and its subsidiaries taken as a
whole;
(b) any declaration, setting aside or payment of any dividend or
other distribution in respect of any shares of capital stock of the
Company or (except to the Company or other subsidiaries) any
subsidiary, any split, combination or reclassification of any shares of
capital stock of the Company or any subsidiary, or any repurchase,
redemption or other acquisition by the Company or any of its
subsidiaries of any Company or subsidiary securities;
(c) any amendment or change to the certificate of incorporation or
bylaws of the Company or any amendment of any term of any outstanding
security of the Company or any of its subsidiaries that would
materially increase the obligations of the Company or any such
subsidiary under such security;
(d) (i) any incurrence or assumption by the Company or any
subsidiary of any indebtedness for borrowed money other than under
existing credit facilities (or any renewals, replacements or extensions
that do not increase the aggregate commitments thereunder) except (A)
in the ordinary and usual course of business consistent with past
practice or (B) as permitted by Section 5.1, or (ii) any guarantee,
endorsement, or other incurrence or assumption of liability (whether
directly, contingently or otherwise) by the Company or any of its
11
subsidiaries for the obligations of any other person (other than any
wholly owned subsidiary of the Company), other than in the ordinary and
usual course of business consistent with past practice;
(e) any creation or assumption by the Company or any of its
subsidiaries of any Lien on any material asset of the Company or any of
its subsidiaries other than in the ordinary and usual course of
business consistent with past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any person by the Company or any of its subsidiaries
other than (i) as permitted by Section 5.1, (ii) loans, advances or
capital contributions to or investments in wholly owned subsidiaries of
the Company, (iii) loans or advances to employees of the Company or any
of its subsidiaries in the ordinary course of business consistent with
past practice or (iv) extensions of credit to customers in the ordinary
course of business consistent with past practice;
(g) any contract or agreement entered into by the Company or any
of its subsidiaries on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business, other
than contracts or agreements in the ordinary and usual course of
business consistent with past practice and those contemplated by this
Agreement;
(h) any modification, amendment, assignment, termination or
relinquishment by the Company or any of its subsidiaries of any
contract, license or other right (including any insurance policy naming
it as a beneficiary or a loss payable payee) that is reasonably
expected to have a Material Adverse Effect, after taking into account
the benefit of the consideration, if any, received in exchange for
agreeing to such modification, amendment, assignment, termination or
relinquishment, on the Company and its subsidiaries taken as a whole;
(i) any material change in any method of accounting or accounting
principles or practice by the Company or any of its subsidiaries,
except for any such change required by reason of a change in GAAP;
(j) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any of its subsidiaries
exceeding the amounts set forth in the Company's severance plans or
agreements listed in Sections 3.13(a) or 3.18 of the Company Disclosure
Schedule; (ii) entering into of any employment, deferred compensation,
severance, consulting, termination or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of the Company or any of its subsidiaries whose annual cash
compensation exceeds $100,000 other than changes or amendments that do
not and will not result in increases of more than five percent in the
salary, wages or other compensation of any such person; (iii) increase
in benefits payable under any existing severance or termination pay
policies or employment agreements; or (iv) increase in compensation,
bonus or other benefits payable to directors, officers or employees of
the Company or any of its subsidiaries other than, in the case of
clause (iv) only, increases prior to the date hereof in compensation,
12
bonus or other benefits payable to directors, officers or employees of
the Company or any of its subsidiaries in the ordinary and usual course
of business consistent with past practice or merit increases in
salaries of employees at regularly scheduled times in customary amounts
consistent with past practices;
(k) any change or amendment of the contracts, salaries, wages or
other compensation of any officer, director, employee, agent or other
similar representative of the Company or any of its subsidiaries whose
annual cash compensation exceeds $100,000 other than changes or
amendments that do not and will not result in increases of more than
five percent in the salary, wages or other compensation of any such
person;
(l) any adoption, entering into, amendment, alteration or
termination of (partially or completely) any Company Benefit Plan or
Company Employee Arrangement except as contemplated by this Agreement
or to the extent required by applicable Law or GAAP;
(m) any entering into of any contract with an officer, director,
employee or other similar representative of the Company or any of its
subsidiaries (other than a contract described in Section 3.6(j))that is
not terminable, without penalty or other liability, upon not more than
60 calendar days' notice; or
(n) any (i) making or revoking of any material election relating
to Taxes, (ii) settlement or compromise of any material claim, action,
suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes, or (iii) change to any material methods
of reporting income or deductions for federal income tax purposes.
SECTION 3.7 Information Supplied. None of the information supplied or
to be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of Parent Common Stock as required by
the terms of this Agreement pursuant to the Merger (the "S-4"), at the time the
S-4 is filed with the SEC and at the time it becomes effective under the
Securities Act, will 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 not misleading, and (ii) the proxy statement relating to the
Company Stockholder Meeting to be held in connection with the Merger (the "Proxy
Statement") will, at the date mailed to stockholders and at the time of the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event in respect of the Company, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the S-4 or the Proxy Statement, the Company shall promptly
so advise Parent and such event shall be so described, and such amendment or
supplement (which Parent shall have a reasonable opportunity to review) shall be
promptly filed with the SEC and, as required by Law, disseminated to the
13
stockholders of the Company. The Proxy Statement, insofar as it relates to the
Company Stockholder Meeting, will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder. No representation or warranty is made under this Section 3.7 with
respect to any statements made or incorporated by reference in the S-4 or the
Proxy Statement based on information supplied by Parent or Merger Sub
specifically for inclusion or incorporation by reference therein.
SECTION 3.8 Consents and Approvals. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the filing and acceptance for record of the
Certificate of Merger as required by the DGCL, and such other filings, permits,
consents and approvals which, if not obtained or made, are not reasonably
expected to have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole, no filing with or notice to, and no permit, authorization,
consent or approval of, any court or tribunal or administrative, governmental or
regulatory body, agency or authority, whether domestic or foreign (a
"Governmental Entity") is necessary for the execution and delivery by the
Company of this Agreement or the consummation by the Company of the transactions
contemplated hereby or thereby.
SECTION 3.9 No Default. Neither the Company nor any of its subsidiaries
is in violation of any term of its charter, certificate or articles of
incorporation or bylaws (or other similar organizational or governing documents.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby and thereby will not (A) result in any
violation of or conflict with, constitute a default under (with or without due
notice or lapse of time or both), require any consent, waiver or notice under
any term of, or result in the reduction or loss of any benefit or the creation
or acceleration of any right or obligation (including any termination rights)
under, (i) the charter, certificate or articles of incorporation or bylaws (or
other similar organizational or governing documents) of the Company or any of
its subsidiaries, (ii) any material agreement, material note, material bond,
material mortgage, material indenture, material contract, material lease,
material Company Permit or other material obligation or material right to which
the Company or any of its subsidiaries is a party or by which any of the assets
or properties of the Company or any of its subsidiaries is bound, or (iii) any
applicable Law, domestic or foreign law, order, writ, injunction, decree,
ordinance, award, stipulation, statute, judicial or administrative doctrine,
rule or regulation entered by a Governmental Entity ("Law"), except in the case
of clause (ii) and (iii) where any of the foregoing is not reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company and its subsidiaries taken as a whole, or (B) result in the creation of
(or impose any obligation on the Company or any of its subsidiaries to create)
any Lien upon any of the material assets or properties of the Company or any of
its subsidiaries pursuant to any such term.
SECTION 3.10 Real Property.
(a) The Company has provided Parent with the address, general use of,
and period of ownership or occupancy of all of the real property the Company and
its subsidiaries use or occupy or have the right to use or occupy, now or in the
future, pursuant to any lease, sublease, or other occupancy agreement other than
14
daily usage arrangements in connection with its Internet preview sessions and
Internet training workshops (the "Company Leased Facilities"). No real property
is owned, leased or used by the Company or its current subsidiaries in the
course of their respective businesses other than the Company Leased Facilities.
(b) With respect to each Company Leased Facility:
(i) the Company will make available to Parent a true, correct, and
complete copy of the lease, sublease or other occupancy agreement for
such Company Leased Facility (and all modifications, amendments, and
supplements thereto and all side letters to which Company or any of its
subsidiaries is a party affecting the obligations of any party
thereunder) (each such agreement is referred to herein as a "Company
Real Property Lease");
(ii) to the Company's knowledge, the Company or its subsidiary has
a good and valid leasehold interest in such Company Leased Facility
free and clear of all Liens, except (x) Taxes and general and special
assessments not in default and payable without penalty and interest,
and (y) easements, covenants and other restrictions that do not
materially impair the current use, occupancy or value, or the
marketability of the Company's or its subsidiary's interest in such
real property;
(iii) to the Company's knowledge, each Real Property Lease
constitutes the valid and legally binding obligation of the parties
thereto, enforceable in accordance with its terms, and is in full force
and effect;
(iv) all rent and other sums and charges payable by the Company or
its subsidiary as tenant under the Company Real Property Lease covering
the Company Leased Facility are current, no event or condition giving
rise to a right to terminate or uncured default on the part of the
tenant or, to the Company's knowledge, the landlord, exists under the
Company Real Property Lease. No party to such Company Real Property
Lease has given written notice to the Company or any of its
subsidiaries or made a claim in writing against the Company or any of
its subsidiaries in respect of any breach or default thereunder; and
(v) neither the Company nor its subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered its
leasehold interest in the Company Leased Facility.
SECTION 3.11 Litigation. Except as disclosed in Section 3.11 of the
Company Disclosure Schedule, there is no other suit, claim, action, proceeding
or, to the Company's knowledge, investigation, pending or, to the Company's
knowledge, threatened which is reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company and its subsidiaries
taken as a whole. Except as disclosed in Section 3.11 of the Company Disclosure
Schedule or the Company SEC Reports, none of the Company or its subsidiaries is
15
subject to any outstanding order, writ, injunction or decree which is reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company and its subsidiaries taken as a whole. To the Company's knowledge,
there is no action, suit, proceeding or investigation pending or threatened
against any current or former officer, director, employee or agent of the
Company or any of its subsidiaries (in his or her capacity as such) which is
reasonably expected to give rise to a claim for contribution or indemnification
against the Company or any of its subsidiaries. Notwithstanding the foregoing,
any shareholder litigation or litigation by any Governmental Entity, in each
case brought or threatened against the Company or any officer, director,
employee or agent of the Company in any respect of this Agreement or the
transactions contemplated hereby, shall not be deemed to have, or contribute to,
a Material Adverse Effect on the Company and its subsidiaries taken as a whole.
SECTION 3.12 Compliance with Applicable Law; Permits. The Company and
its subsidiaries hold all permits, licenses, variances, exemptions, orders, and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which are not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company and its subsidiaries taken as a whole. The Company
and its subsidiaries are in compliance with the terms of the Company Permits,
except where the failure to comply is not reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company and
its subsidiaries taken as a whole. The businesses and operations of the Company
and its subsidiaries comply in all respects with all Laws applicable to the
Company or its subsidiaries, except where the failure to so comply is not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company and its subsidiaries taken as a whole.
SECTION 3.13 Employee Plans
(a) Section 3.13(a) of the Company Disclosure Schedule sets forth a
true, correct, and complete list of:
(i) all material "employee benefit plans," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), under which the Company or any of its subsidiaries has any
obligation or liability, contingent or otherwise, including, but not
limited to, (i) all severance plans or arrangements; and (ii) any
supplemental or U.S. non-qualified retirement plans or arrangements
(the "Company Benefit Plans"); and
(ii) all employment, consulting, termination, severance or
individual compensation agreements (other than any such agreement which
is terminable within 90 days without liability or at any time without
liability exceeding two weeks' salary for each year of employment or,
in the case of employees whose annual cash compensation exceeds
$100,000, three months' salary, or is legally mandated by applicable
non-U.S. law); all stock award, stock option, stock purchase or other
equity-based (including phantom stock or stock appreciation rights)
plans or arrangements; all material bonus or other incentive
compensation plans or agreements (including, but not limited to, any
such plan or agreement covering any officer or employee whose annual
cash compensation exceeds $70,000; all material salary continuation or
deferred compensation plans or agreements (including, but not limited
to, any such plan or agreement covering any current or former officer
16
or employee whose annual cash compensation exceeds $70,000; in each
case, as to which the Company or any of its subsidiaries has any
obligation or liability (contingent or otherwise) (the "Company
Employee Arrangements").
(b) In respect of each Company Benefit Plan, a complete and correct
copy of each of the following documents (if applicable) has been provided to
Parent: (i) the most recent plan and related trust documents, and all amendments
thereto; (ii) the most recent summary plan description, and all related
summaries of material modifications thereto; (iii) the most recent Form 5500
(including, schedules and attachments); (iv) the most recent Internal Revenue
Service ("IRS") determination letter; and (v) the most recent actuarial reports
(including for purposes of Financial Accounting Standards Board report nos. 87,
106 and 112).
(c) Except as disclosed in Section 3.13(c) of the Company Disclosure
Schedule, none of the Company Benefit Plans or Company Employee Arrangements is
subject to Title IV of ERISA, constitutes a defined benefit retirement plan or
is a multi-employer plan described in Section 3(37) of ERISA, and the Company
and its subsidiaries do not have any material obligation or liability
(contingent or otherwise) in respect of any such plans to the extent such plans
constitute a defined benefit retirement plan or a multi-employer plan described
in Section 3(37) of ERISA. The Company and its subsidiaries are not members of a
group of trades or businesses (other than that consisting of the Company and its
subsidiaries) under common control or treated as a single employer pursuant to
Section 414 of the Code.
(d) The Company Benefit Plans and their related trusts intended to
qualify under Sections 401 and 501(a) of the Code, respectively, have received a
favorable determination letter from the IRS and the Company has no knowledge
that any event has occurred since the date of such letter that could cause the
IRS to revoke such determination. Any voluntary employee benefit association
which provides benefits to current or former employees of the Company and its
subsidiaries, or their beneficiaries, is and has been qualified under Section
501(c)(9) of the Code.
(e) All contributions or other payments required to have been made by
the Company and its subsidiaries to or under any Company Benefit Plan or Company
Employee Arrangement by applicable Law or the terms of such Company Benefit Plan
or Company Employee Arrangement (or any agreement relating thereto) have been
timely and properly made or have been accrued in the Company's financial
statements.
(f) The Company Benefit Plans and Company Employee Arrangements have
been maintained and administered in accordance with their terms and applicable
Laws and all required returns, reports, and filings (including, but not limited
to annual reports on Form 5500) have been timely filed. No individual who has
performed services for the Company or any of its subsidiaries has been
improperly excluded from participation in any Company Benefit Plan or Company
Employee Arrangement, except where the failure to so maintain and administer
such Company Benefit Plans or the exclusion of any such individuals is not
reasonably expected to have, individually or in the aggregate.
17
(g) There are no pending or, to the Company's knowledge, threatened
actions, claims, or proceedings against or relating to any Company Benefit Plan
or Company Employee Arrangement (other than routine benefit claims by persons
claiming benefits thereunder), and, to the knowledge of the Company, there are
no facts or circumstances which could form a reasonable basis for any of the
foregoing, except for such actions, claims or proceedings which are not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company and its subsidiaries taken as a whole.
(h) The Company and its subsidiaries do not have any material
obligation or liability (contingent or otherwise) to provide post-retirement
life insurance or health benefits coverage for current or former officers,
directors, or employees of the Company or any of its subsidiaries except (i) as
may be required under Part 6 of Title I of ERISA at the sole expense of the
participant or the participant's beneficiary, (ii) a medical expense
reimbursement account plan pursuant to Section 125 of the Code, or (iii) through
the last day of the calendar month in which the participant terminates
employment with the Company or any subsidiary of the Company.
(i) Except as set forth in Section 3.13(i) of the Company Disclosure
Schedule, none of the assets of any Company Benefit Plan is stock of the Company
or any of its affiliates, or property leased to or jointly owned by the Company
or any of its affiliates.
(j) Except as disclosed in Section 3.13(j) of the Company Disclosure
Schedule or in connection with equity compensation, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment becoming due to any employee (current,
former, or retired) of the Company or any of its subsidiaries, (ii) increase any
benefits under any Company Benefit Plan or Company Employee Arrangement
(determined without regard to the "materiality" limits set forth in the
definitions of such terms), or (iii) result in the acceleration of the time of
payment of, vesting of, or other rights in respect of any such benefits.
(k) The Company has no employees outside of the United States other
than United States based employees who have begun to travel on an intermittent
basis outside the United States in connection with its recent global expansion.
(l) The aggregate number of shares of Company Common Stock purchasable
under all outstanding purchase rights under the Company Option Plans does not
exceed the maximum number of shares remaining available for issuance under such
plan.
(m) Neither the Company, nor, to the best knowledge of Company, any
other plan "fiduciary" or "party in interest" (as such terms are defined in
Sections 3(21) and 3(14) of ERISA) of any Company Benefit Plans has engaged in
any transaction in violation of Sections 404 or 406 of ERISA or any "prohibited
transaction," as such term is defined in Section 4975 of the Code, for which no
exemption exists under Section 408 of ERISA, Section 4975 of the Code, or has
engaged in any transaction that may result in the imposition of any excise tax
under Sections 4971 through 4980E of the Code, or otherwise incurred a liability
for any excise tax, other than excise taxes that have been paid or have
otherwise been disclosed in Section 3.13(n) of the Company Disclosure Schedule.
18
SECTION 3.14 Labor Matters.
(a) The Company and its subsidiaries are not parties to any labor or
collective bargaining agreement, and no employees of the Company or any of its
subsidiaries are represented by any labor organization. There are no
representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the Company's knowledge, threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. Within the last twelve months, to
the Company's knowledge, there have been no organizing activities involving the
Company or any of its subsidiaries in respect of any group of employees of the
Company or any of its subsidiaries.
(b) There are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened in writing against or involving the Company or any of its
subsidiaries. There are no unfair labor practice charges, grievances or
complaints pending or, to the Company's knowledge, threatened in writing by or
on behalf of any employee or group of employees of the Company or any of its
subsidiaries which, if individually or collectively resolved against the Company
or any of its subsidiaries, would reasonably be expected to have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole.
(c) There are no complaints, charges or claims against the Company or
any of its subsidiaries pending or, to the Company's knowledge, threatened to be
brought or filed with any Governmental Entity or arbitrator based on, arising
out of, in connection with, or otherwise relating to the employment or
termination of employment of any individual by the Company or any of its
subsidiaries which, if individually or collectively resolved against the Company
or any of its subsidiaries, would reasonably be expected to have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole, and, to the
knowledge of the Company, there are no facts or circumstances which could form a
reasonable basis for any of the foregoing.
(d) There has been no "mass layoff" or "plant closing" as defined by
the Worker Adjustment and Retraining Notification Act, as amended ("WARN"), in
respect of the Company or any of its subsidiaries within the six months prior to
the Effective Time.
(e) All employees of the Company and its subsidiaries possess all
applicable passports, visas, permits and other authorizations required by all
applicable immigration or similar Laws to be employed by and to perform services
for and on behalf of the Company and its subsidiaries, except where the failure
to possess such passports, visas, permits or other authorizations would not,
individually or in the aggregate, reasonably be expected to materially affect
the conduct of business by the Company or its subsidiaries. The Company and its
subsidiaries, and their employees, have complied in all material respects with
all applicable immigration and similar Laws.
19
SECTION 3.15 Environmental Matters.
(a) For purposes of this Agreement:
(i) "Environmental Law" means all federal, state, local or foreign
Law, or other legal requirement regulating or prohibiting Releases of
Hazardous Materials into the indoor or outdoor environment, or
pertaining to the protection of natural resources or wildlife, the
environment or public and employee health and safety or pollution or
the exposure to Hazardous Materials, including the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42
U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation
Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33
U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401
et seq.), the Toxic Substances Control Act (15 U.S.C. Section 7401 et
seq.), the Atomic Energy Act (42 U.S.C. Section 2014 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section
136 et seq.), the Communications Act (47 U.S.C. Section 151 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.) ("OSHA"), as such laws or other legal requirements have been and
may be amended or supplemented through the Closing Date;
(ii) "Hazardous Material" means any substance, material or waste
which is regulated pursuant to any applicable Environmental Law as a
"hazardous waste," "hazardous material," "hazardous substance,"
"contaminant," "toxic waste," "toxic substance," "source material,"
"special nuclear material," "byproduct material," "high-level
radioactive waste," "low-level radioactive waste," "spent nuclear
material" or "radio frequency" and includes petroleum, petroleum
products and petroleum by-products and waste;
(iii) "Release" means any release, spill, emission, leaking,
pumping, dumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration into the indoor or outdoor environment, or into
or out of any property currently or formerly owned, operated or leased
by the applicable party or its subsidiaries; and
(iv) "Remedial Action" means all actions, including any capital
expenditures, required by a Governmental Entity or required under or
taken pursuant to any Environmental Law, to (A) clean up, remove,
treat, remediate or address any Hazardous Materials in the indoor or
outdoor environment; (B) prevent the Release or threat of Release, or
minimize the further Release of any Hazardous Material so it does not
endanger or threaten to endanger the public or employee health or
welfare or the indoor or outdoor environment; (C) perform pre-remedial
studies and investigations or post-remedial monitoring and care
pertaining or relating to a Release.
(b) Except as set forth in Section 3.15 of the Company Disclosure
Schedule:
(i) The operations of the Company and its subsidiaries are in
material compliance with all Environmental Laws, and the Company is not
20
aware of any facts, circumstances or conditions which, without
significant capital expenditures, would prevent material compliance in
the future;
(ii) To the Company's knowledge, the Company and its subsidiaries
have obtained all Company Permits, required under applicable
Environmental Laws for the continued operations of their respective
businesses; the Company and its subsidiaries have made all material
filings, reports and notices required under any Environmental Law for
the past and future operations of their respective businesses;
(iii) The Company and its subsidiaries are not subject to any
outstanding written orders or material contracts or agreements with any
Governmental Entity or other person respecting (A) Environmental Laws,
(B) any Remedial Action, (C) any Release or threatened Release of a
Hazardous Material, or (D) an assumption of responsibility for
environmental claims of another person or entity;
(iv) The Company and its subsidiaries have not received any
written communication alleging, in respect of any such party, the
material violation of or liability (real or potential) under any
Environmental Law; or requesting, with respect to any such party,
information with respect to an investigation pursuant to CERCLA, or any
foreign or state counterpart thereto, or any other Environmental Law;
(v) To the Company's knowledge, neither the Company nor any of its
subsidiaries has any material contingent liability in connection with
any Remedial Action or the Release of any Hazardous Material (whether
on-site or off-site) or employee or third party exposure to Hazardous
Materials;
(vi) To the Company's knowledge, the operations of the Company and
its subsidiaries involving the generation, transportation, treatment,
storage or disposal of Hazardous Materials are in material compliance
with applicable Environmental Laws and, to the Company's knowledge,
there has been no disposal by the Company or its subsidiaries of any
Hazardous Materials on or in any site listed or formally proposed to be
listed on the National Priorities List promulgated pursuant to CERCLA
or any foreign or state remedial priority list promulgated or
maintained pursuant to comparable foreign or state law, except where
such disposal would not reasonably be expected to create a material
adverse liability for the Company;
(vii) To the Company's knowledge, there is not now nor has there
been in the past, on, in or at any Company Leased Facility, Company
Former Facility (defined as all of the real property formerly owned,
leased or used, other than those used solely for office or
administrative purposes, by the Company or any of its current or former
subsidiaries or corporate predecessors in interest at any time in the
past), or any other facility for which the Company or its subsidiaries
has assumed responsibility for environmental claims, any of the
following: (A) any underground storage tanks; (B) landfills, dumps or
surface impoundments; (C) any Company planned, ongoing or completed
Remedial Action; (D) any asbestos-containing materials; or (E) any
polychlorinated biphenyls;
21
(viii) There is not now, nor to the Company's knowledge, has there
been in the past, on, in or at any Company Leased Facility, Company
Former Facility, or any other facility for which the Company or its
subsidiaries has assumed responsibility for environmental claims, any
site on or formally proposed to be listed on the National Priority List
promulgated pursuant to CERCLA or any foreign or state remedial
priority list promulgated or published pursuant to any comparable
foreign or state law; and
(ix) No judicial or administrative proceedings are pending or, to
the Company's knowledge, threatened against the Company or its
subsidiaries alleging the material violation of or seeking to impose
material liability pursuant to any Environmental Law and, to the
Company's knowledge, there are no investigations pending or threatened
against the Company or any of its subsidiaries under Environmental
Laws.
(c) The Company will make available to Parent copies of all material
environmentally related assessments, audits, investigations, or similar reports
(and, upon reasonable specific request, sampling reports) in its possession or
control and which were prepared in the last five years (and, upon reasonable
specific request, earlier information) relating to the Company or its
subsidiaries or any real property currently or formerly owned, operated or
leased by or for the Company or its subsidiaries, including any Company Leased
Facility, or Company Former Facility.
SECTION 3.16 Tax Matters.
(a) Each of the Company and its subsidiaries has timely filed (or has
had timely filed) all Tax Returns required to be filed by it (or on its behalf).
All such Tax Returns are complete and correct in all material respects. The
Company and its subsidiaries have paid all Taxes due for the periods covered by
such Tax Returns. The most recent Company SEC Reports reflect an adequate
reserve for all Taxes payable by the Company and its subsidiaries for all
Taxable periods and portions thereof through the date of such Company SEC
Reports. The Company has previously delivered (or, in the case of foreign Tax
Returns and audit reports, will deliver) to Parent copies of (i) all federal,
state, local and foreign income and franchise Tax Returns filed by the Company
and its subsidiaries relating to any taxable periods of the Company or any of
its subsidiaries that remains subject to audit under applicable statutes of
limitations; and (ii) any audit report issued within the last three years (or
otherwise in respect of any audit or investigation in progress) relating to
Taxes due from or in respect of the Company or its subsidiaries.
(b) No material deficiencies for any Taxes have been proposed,
asserted, or assessed against the Company or its subsidiaries that have not been
fully paid or adequately provided for in the appropriate financial statements of
the Company, no requests for waivers of the time to assess any Taxes are
pending, and no power of attorney in respect of any Taxes has been executed or
filed with any taxing authority. No material issues relating to Taxes have been
raised by the relevant taxing authority during any presently pending audit or
examination. All income and franchise Tax Returns filed by or on behalf of the
Company and its subsidiaries for the taxable years set forth on the Company
Disclosure Schedule have been reviewed by the relevant taxing authority or the
22
statute of limitations with respect to such Tax Returns has expired.
(c) No material Liens for Taxes exist in respect of any assets or
properties of the Company or its subsidiaries, except for statutory Liens for
Taxes not yet due.
(d) Neither the Company nor any of its subsidiaries is a party to or is
bound by any Tax sharing agreement, Tax indemnity obligation, or similar
agreement, arrangement, or practice in respect of Taxes (whether or not written)
(including any advance pricing agreement, closing agreement, or other agreement
relating to Taxes with any taxing authority).
(e) Neither the Company nor any of its subsidiaries (i) has ever been a
member of an affiliated group within the meaning of Section 1504(a) of the Code
(or any similar or analogous group defined under a similar or analogous state,
local or foreign Law) other than an affiliated group the common parent of which
is the Company, or (ii) has any liability under Treasury Regulation Section
1.1502-6 (or any predecessor or successor thereof or analogous or similar
provision under state, local or foreign Law), as a transferee or successor, by
contract or otherwise for Taxes of any affiliated group of which the Company is
not the common parent.
(f) Neither the Company nor any of its subsidiaries has taken or agreed
to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
(g) Except as set forth in Section 3.16(g) of the Company Disclosure
Schedule, there are no employment, severance, or termination agreements or other
compensation arrangements currently in effect which provide for the payment of
any amount (whether in cash or property or the vesting of property) as a result
of any of the transactions contemplated by this Agreement that individually or
collectively (either alone or upon the occurrence of any additional or
subsequent event), could give rise to a payment which is nondeductible by reason
of Section 280G of the Code.
(h) The Company and its subsidiaries have complied in all material
respects with all Laws applicable to the payment and withholding of Taxes and
have duly and timely withheld from employee salaries, wages and other
compensation and have paid over to the appropriate taxing authority all amounts
required to be so withheld and paid over for all periods under all applicable
Laws.
(i) No federal, state, local, or foreign audits or other administrative
proceedings or court proceedings are presently pending in respect of any Taxes
or Tax Returns of the Company or its subsidiaries and neither the Company nor
its subsidiaries have received a written notice of any pending audit or
proceeding.
(j) Except as set forth in Section 3.16(j) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has agreed to or is
required to make any adjustment under Section 481(a) of the Code or any similar
provision of state, local or foreign Law by reason of a change in accounting
method initiated by the Company or its subsidiaries or has any knowledge that a
23
taxing authority has proposed any such adjustment or change in accounting
method, or has any application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the business or
operations of the Company or its subsidiaries.
(k) Except as set forth in Section 3.16(k) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is a party to any
contract, agreement, or other arrangement which could result in the payment of
amounts that could be nondeductible by reason of Section 162(m) of the Code,
provided that no representation or warranty is made as to performance-based or
equity-based compensation.
(l) Neither the Company nor any of its subsidiaries has received any
private letter rulings from the IRS or comparable rulings from other taxing
authorities.
(m) Neither the Company nor any of its subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code (i) in the two
years prior to the date of this Agreement or (ii) in a distribution which could
otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
(n) Neither the Company nor any of its subsidiaries (i) engaged in any
"intercompany transactions" in respect of which gain was and continues to be
deferred pursuant to Treasury Regulation Section 1.1502-13 or any predecessor or
successor thereof or analogous or similar provision under state, local or
foreign Law; or (ii) has "excess loss accounts" in respect of the stock of any
subsidiary pursuant to Treasury Regulation Section 1.1502-19, or any predecessor
or successor thereof or analogous or similar provision under state, local or
foreign Law.
For purposes of this Agreement, "Tax" or "Taxes" means all federal,
state, local or foreign Taxes, charges, fees, imposts, duties, levies, gaming or
other assessments, including, all net income, gross receipts, capital, sales,
use, ad valorem, value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property, and estimated Taxes, customs
duties, fees, assessments and charges of any kind whatsoever, together with any
interest and any penalties, fines, additions to Tax or additional amounts
imposed by any taxing authority (domestic or foreign) and shall include any
transferee liability in respect of Taxes, any liability in respect of Taxes
imposed by contract, Tax sharing agreement, Tax indemnity agreement or any
similar agreement. "Tax Returns" means any report, return, document,
declaration, or any other information or filing required to be supplied to any
taxing authority or jurisdiction (domestic or foreign) in respect of Taxes,
including, information returns, any document in respect of or accompanying
payments or estimated Taxes, or in respect of or accompanying requests for the
extension of time in which to file any such report, return document,
declaration, or other information, including amendments thereof and attachments
thereto.
SECTION 3.17 Absence of Questionable Payments. To the Company's
knowledge, neither the Company nor any of its subsidiaries nor any director,
officer, agent, employee or other person acting on behalf of the Company or any
24
of its subsidiaries, has used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any other domestic or
foreign Law. To the Company's knowledge, neither the Company nor any of its
subsidiaries nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its subsidiaries has accepted or received any
unlawful contributions, payments, gifts or expenditures.
SECTION 3.18 Material Contracts.
(a) Set forth in Section 3.18(a) of the Company Disclosure Schedule is
a list of all contracts and agreements (and all amendments, modifications and
supplements thereto and all side letters to which the Company or any of its
subsidiaries is a party affecting the obligations of any party thereunder) to
which the Company or any of its subsidiaries is a party or by which any of its
assets or properties are bound that are material to the business, assets or
properties of the Company and its subsidiaries taken as a whole, all: (i)
executory employment, executory severance, material product design or
development, executory personal services, material consulting, executory
non-competition or material indemnification contracts (including, any material
contract to which the Company or any of its subsidiaries is a party involving
employees of the Company), but excluding normal indemnification provisions under
license or sale contracts; (ii) licensing, merchandising or distribution
agreements involving the payment of more than $100,000 per year; (iii) contracts
granting a right of first refusal or first negotiation involving in excess of
$100,000; (iv) partnership or joint venture agreements; (v) any agreements for
the acquisition, sale or lease of material assets or properties of the Company
(by merger, purchase or sale of assets or stock or otherwise) entered into since
June 30, 2000 involving a payment in excess of $100,000; (vi) contracts or
agreements with any Governmental Entity involving the payment of more than
$50,000 per year; (vii) loan or credit agreements, mortgages, indentures or
other agreements or instruments evidencing indebtedness for borrowed money by
the Company or any of its subsidiaries or any such agreement pursuant to which
indebtedness for borrowed money may be incurred, in each case involving in
excess of $100,000; (viii) agreements that purport to limit, curtail or restrict
the ability of the Company or any of its subsidiaries to compete in any
geographic area or line of business; (ix) assembly (packaging), testing, or
supply agreements, in each case, involving in excess of $100,000 per year; (x)
agreements, written or oral, with any officers, directors, shareholders of the
Company or any member of the immediate family of any officer, director, or
shareholder of the Company; and (xi) commitments and agreements to enter into
any of the foregoing (collectively, together with any such contracts entered
into in accordance with Section 5.1, the "Company Material Contracts"). Section
3.18 of the Company Disclosure Schedule sets forth a list of all Material
Contracts and the Company has heretofore made available to Parent true, correct,
and complete copies of all such Material Contracts.
(b) To the Company's knowledge, each of the Company Material Contracts
constitutes the valid and legally binding obligation of the Company or its
subsidiaries, enforceable in accordance with its terms, and is in full force and
effect. There is no material default under any Company Material Contract either
by the Company (or its subsidiaries) or, to the Company's knowledge, by any
25
other party thereto, and no event has occurred that with the giving of notice,
the lapse of time, or both would constitute a material default thereunder by the
Company (or its subsidiaries) or, to the Company's knowledge, any other party.
As of the date hereof, to the Company's knowledge, no party has notified the
Company in writing that it intends to terminate or fail to extend any contract
between such person and the Company within one year of the date of the
Agreement, except for any such termination or failure as would not have a
Material Adverse Effect on the Company and its subsidiaries taken as a whole.
(c) To the Company's knowledge, no party to any such Company Material
Contract has given notice to the Company of or made a claim against the Company
in respect of any material breach or default thereunder by the Company or a
subsidiary.
(d) Except as set forth in Section 3.18(d) of the Company Disclosure
Schedule, no consent of any third party is required under any Company Material
Contract as a result of or in connection with, and the enforceability of any
Company Material Contract will not be affected in any manner by, the execution,
delivery, and performance of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 3.19 Subsidies. Section 3.19 of the Company Disclosure Schedule
sets forth a list of all material grants, material subsidies and similar
material arrangements directly or indirectly between or among the Company or any
of its subsidiaries, on the one hand, and any domestic or foreign Governmental
Entity or any other person, on the other hand. Except as set forth on Section
3.19 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has requested, sought, applied for or entered into any material
grant, material subsidy or similar material arrangement directly or indirectly
from or with any domestic or foreign Governmental Entity or any other person.
SECTION 3.20 Intellectual Property.
(a) As used herein, the term "Intellectual Property" means domestic and
foreign letters patent, patents, patent applications, patent licenses, know-how
licenses, trademark registrations and applications, service xxxx registrations
and applications and copyright registrations and applications, databases,
software licenses, trade names, trade secrets, technical knowledge, know-how,
confidential information, customer lists, proprietary processes, techniques,
formulae and "mask works" (as such terms are defined in 17 U.S.C. 901), and
related ownership, use and other rights (including rights of renewal and rights
to xxx for past, present and future infringements or misappropriations thereof).
(b) To the Company's knowledge, and except as are not reasonably
expected to have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole: (i) each item of the Company's Intellectual Property comprised
of registered copyrights, copyright applications, patents, patent applications,
trademarks, and trademark applications are in compliance with applicable legal
requirements relating to the registration or maintenance of such item (including
payment of filing, examination and maintenance fees and proofs of working or
26
use, as applicable) other than any requirement that if, not satisfied, would not
result in a revocation or otherwise materially affect the enforceability of the
item of Company Intellectual Property in question, and the Company has taken
reasonable steps to protect the Company's Intellectual Property; (ii) the
Company and its subsidiaries own or have the right to use, free and clear of all
Liens, all Company Intellectual Property and unregistered works of authorship,
common law marks, trademarks and service marks, and rights and inventions
necessary for the operation of the businesses of the Company and its
subsidiaries as presently conducted and as presently proposed to be conducted;
(iii) each material item of Company Intellectual Property owned or used by the
Company and its subsidiaries immediately prior to the Effective Time will be
owned or available for use by the Surviving Corporation immediately subsequent
to the Effective Time; (iv) the Company and its subsidiaries have taken all
action deemed by the Company or the relevant subsidiary to be necessary or
reasonable, but in no event less than all commercially reasonable action, to
protect and preserve the confidentiality of all Company Intellectual Property
consisting of trade secrets; (v) the Company has had and continues to have a
requirement that all employees of the Company and its subsidiaries must execute
a non-disclosure agreement which includes an agreement to assign to the Company
or its subsidiaries all rights to the Company's Intellectual Property originated
or invented by such employee relating to the business of the Company and its
subsidiaries; and (vi) no trade secret or confidential know-how material to the
business of the Company or any of its subsidiaries as currently operated has
been disclosed or authorized to be disclosed to any third party, other than
pursuant to a non-disclosure agreement that protects the Company's or such
subsidiary's proprietary interests in and to such trade secrets and confidential
know-how.
(c) Except as set forth in Section 3.20(c) of the Company Disclosure
Schedule, to the Company's knowledge, neither the Company nor any of its
subsidiaries has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of third parties, and
neither the Company nor any of its subsidiaries has received any charge,
complaint, claim or notice alleging any such interference, infringement,
misappropriation or violation that remains unresolved and, if decided adversely
to the Company, would be reasonably likely to have a Material Adverse Effect on
the Company and subsidiaries taken as a whole. No third party has, to the
Company's knowledge, interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Company Intellectual Property rights of
the Company or its subsidiaries, except where such actions are not reasonably
expected to have a Material Adverse Effect on the Company and its subsidiaries
taken as a whole.
(d) Section 3.20(d) of the Company Disclosure Schedule identifies each
material item of the Company's Intellectual Property that any third party owns
and that the Company or any of its subsidiaries uses pursuant to license,
sublicense, agreement or permission that either (i) if such license, sublicense,
agreement or permission were denied, would reasonably be expected to have a
Material Adverse Effect on the Company or its Subsidiaries taken as a whole, or
(ii) includes any unsatisfied obligation to pay any royalty amount or any
obligation to pay a royalty, whether fixed or determined based on usage,
following the Effective Date in excess of $25,000. To the Company's knowledge,
in respect of each such item of used Company Intellectual Property:
(i) the license, sublicense, agreement or permission covering the
item is legal, valid, binding, enforceable and in full force and
effect;
27
(ii) the licenses, sublicenses, agreements or permissions will in
all material respects continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the Effective
Time;
(iii) no party to the license, sublicense, agreement or permission
is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder such as would have
a Material Adverse Effect on the Company and its subsidiaries taken as
a whole; and
(iv) no party to the license, sublicense, agreement or permission
has repudiated any provision thereof.
(e) Except as set forth in Section 3.20(e) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has granted (i) any
exclusive licenses (other than implied patent licenses in the ordinary course of
business) in any patents owned by the Company or any of its subsidiaries or (ii)
any exclusive licenses in any other Company Intellectual Property owned by the
Company or any of its subsidiaries to any third party.
(f) Except as may have been given in connection with patent licenses
set forth in Section 3.20(e) of the Company Disclosure Schedule or given in the
ordinary course of business within the scope of the Company's standard terms and
conditions of sale, neither the Company nor any of its subsidiaries has entered
into any material agreement to indemnify any other person against any charge of
infringement or misappropriation of any Company Intellectual Property.
(g) The execution, delivery and performance by the Company of this
Agreement, and the consummation of the transactions contemplated hereby, will
not (i) result in the loss or impairment of, or give rise to any right of any
third party to terminate or alter, any of the Company's or any of its
subsidiaries' rights to own any of its Intellectual Property except as are not
reasonably expected to have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole, nor (ii) require the consent of any Governmental
Entity or third party in respect of any such Company Intellectual Property that,
if not obtained, is reasonably expected to have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole.
SECTION 3.21 Opinion of Financial Advisor. SBI E2-Capital (USA) Ltd.
(the "Financial Advisor") has delivered to the Company Board its opinion, dated
the date of this Agreement, to the effect that, as of such date, the Exchange
Ratio is fair to the stockholders of the Company from a financial point of view,
and as of the date of this Agreement such opinion has not been withdrawn or
modified.
SECTION 3.22 Brokers. Except as set forth in Section 3.22 of the
Company Disclosure Schedule, no broker, finder, investment banker or other
person (other than the Financial Advisor, a true and correct copy of whose
engagement letter has been provided to Parent) is entitled to any brokerage,
finder's or other fee or commission or expense reimbursement in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of the Company or any of its affiliates.
28
SECTION 3.23 DGCL ss. 203. The Company Board has taken all action
required so that the restrictions contained in Section 203 of the DGCL
applicable to a "business combination" (as defined in DGCL ss. 203) will not
apply to the execution, delivery or performance of this Agreement or the
consummation of the Merger. No other antitakeover Laws of any state are
applicable to this Agreement or the transactions contemplated hereby or thereby.
Article IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered by Parent to
the Company prior to the execution of this Agreement (the "Parent Disclosure
Schedule") or as set forth in the Parent SEC Reports (as defined in Section 4.4)
filed prior to the date hereof or as permitted under Section 5.1 hereof, Parent
and Merger Sub hereby represent and warrant to the Company as follows:
SECTION 4.1 Organization and Qualification; Subsidiaries.
(a) Parent and Merger Sub, and each of their subsidiaries, are, or will
be as of the Effective Time, a corporation or legal entity duly organized,
validly existing and in good standing under the applicable Laws of the
jurisdiction of their incorporation or organization and have all requisite
corporate, partnership or similar power and authority to own, lease and operate
their properties and to carry on their businesses as now being conducted.
(b) In addition to Merger Sub, Exhibit 21 to Parent's Transition Report
on Form 10-KSB/T for the fiscal year ended June 30, 2001 sets forth a list of
all subsidiaries of Parent. Except as listed therein or in Section 4.1 of the
Parent Disclosure Schedule, the Company does not own, directly or indirectly,
beneficially or of record, any shares of capital stock or other securities of
any other entity or any other investment in any other entity.
(c) Parent is, and each of its subsidiaries is or will be as of the
Effective Time, duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased, or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing is not reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent and its subsidiaries taken as a
whole.
(d) Parent has heretofore delivered to the Company accurate and
complete copies of the certificate of incorporation and bylaws, as currently in
effect, of Parent. Parent has heretofore delivered to the Company accurate and
complete copies of the charter or certificate of incorporation and bylaws (or
other similar organizational and governing documents), as currently in effect,
of each of its subsidiaries.
SECTION 4.2 Capitalization of Parent. The authorized capital stock of
Parent consists of: (i) 125,000,000 shares of Common Stock, par value $.001 per
share (the "Parent Shares"), of which 12,200,000 shares are issued and
29
outstanding and as of the date hereof, and (ii) 25,000,000 shares of Preferred
Stock, par value $.001 per share, no shares of which are outstanding as of the
date hereof. All of the issued and outstanding Parent Shares have been validly
issued, and are duly authorized, fully paid, non-assessable and free of
preemptive rights. As of the date hereof, 4,000,000 Parent Shares were available
for issuance under Parent's option plans. Options to acquire approximately
1,919,000 Parent Shares were issuable upon or otherwise deliverable in
connection with the exercise of options outstanding on such date and warrants to
acquire 600,350 shares to Parent Common Stock were outstanding. Except as set
forth above, as of the date hereof, there are no outstanding (i) shares of
capital stock or other voting securities of Parent; (ii) securities of Parent
convertible into or exchangeable for shares of capital stock or voting
securities of Parent; (iii) options or other rights to acquire from Parent and
no obligations of Parent to issue, any capital stock, voting securities, or
securities convertible into or exchangeable for capital stock or voting
securities of Parent; or (iv) equity equivalents, interests in the ownership or
earnings of Parent, or other similar rights (including stock appreciation
rights) (collectively, "Parent Securities"). There are no outstanding
obligations of Parent or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Parent Securities. There are no stockholder agreements,
voting trusts or other agreements or understandings to which Parent or any of
its subsidiaries is a party or to which it is bound relating to the voting of
any shares of capital stock of Parent.
All of the outstanding capital stock of Parent's subsidiaries is owned
by Parent, directly or indirectly, free and clear of any Lien or any other
limitation or restriction (including, any restriction on the right to vote or
sell the same) except as may be provided as a matter of Law. There are no debt
or equity securities of Parent or its subsidiaries convertible into or
exchangeable for, no options or other rights to acquire from Parent or its
subsidiaries, and no other contract, understanding, arrangement, or obligation
(whether or not contingent) providing for the issuance or sale, directly or
indirectly of, any capital stock or other ownership interests in, or any other
securities of, any subsidiary of Parent. There are no outstanding contractual
obligations of Parent or its subsidiaries to repurchase, redeem, or otherwise
acquire any outstanding shares of capital stock or other ownership interests in
any subsidiary of Parent. None of Parent's subsidiaries owns any capital stock
of Parent.
SECTION 4.3 Authority Relative to This Agreement.
(a) Each of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and no other corporate proceedings on the part
of Parent or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby or thereby. This Agreement has
been duly and validly executed and delivered by each of Parent and Merger Sub
and constitutes a valid, legal and binding agreement of each of Parent and
Merger Sub, enforceable against each of Parent and Merger Sub in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar Laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity).
30
(b) The Board of Directors of Parent (the "Parent Board"), the Board of
Directors of Merger Sub and Parent as the sole stockholder of Merger Sub have
duly and validly authorized the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and taken all corporate
actions required to be taken by such Boards of Directors and Parent as the sole
stockholder of Merger Sub for the consummation of the transactions.
SECTION 4.4 SEC Reports; Financial Statements. Since May 29, 2001,
Parent has filed all forms, reports and documents with the SEC required to be
filed by it under the Securities Act and the Exchange Act (the "Parent SEC
Reports"), each of which complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in effect on
the dates such Parent SEC Reports were filed. None of the Parent SEC Reports
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
amended prior to the date hereof by a subsequently filed Parent SEC Report. The
consolidated financial statements of Parent included in the Parent SEC Reports
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC in respect
thereof and fairly presented, in conformity with GAAP on a consistent basis
(except as indicated in the notes thereto), the consolidated financial position
of Parent and its consolidated subsidiaries, in each case as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject, in the case of the unaudited interim financial
statements, to the absence of certain footnote disclosure and to normal year-end
adjustments). For purposes of this Agreement "Parent Balance Sheet" means the
consolidated balance sheet of Parent as of June 30, 2001, and "Parent Balance
Sheet Date" means June 30, 2001. Except as and to the extent disclosed in the
Parent SEC Reports, since the Parent Balance Sheet Date, there has not been any
event, occurrence or development which is reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Parent and
its subsidiaries taken as a whole.
SECTION 4.5 No Undisclosed Liabilities. There are no material
liabilities of Parent or any of its subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, which are
required to be reflected in its financial statements (or in the notes thereto)
in accordance with GAAP, other than: (a) liabilities disclosed, provided for or
reserved against in the Parent Balance Sheet or in the notes thereto; (b)
liabilities arising in the ordinary course of business after the date of the
Parent Balance Sheet or which arose in the ordinary course of business prior to
the date of the Parent Balance Sheet but were not required to be disclosed,
provided for or reserved against in the Company Balance Sheet; (c) liabilities
disclosed in the Parent SEC Reports prior to the date hereof; (d) liabilities
set forth in Section 4.4 of the Parent Disclosure Schedule, and (e) liabilities
arising under this Agreement.
SECTION 4.6 Absence of Changes. Except as contemplated by this
Agreement, as set forth in Section 4.6 of the Parent Disclosure Schedule, or as
disclosed in the Parent's SEC Reports prior to the date hereof, since the Parent
Balance Sheet Date, the Parent and its subsidiaries have conducted their
business in the ordinary and usual course consistent with past practice and
there has not been:
31
(a) any event, occurrence or development which had or is reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Parent and its subsidiaries taken as a whole;
(b) any declaration, setting aside or payment of any dividend or other
distribution in respect of any shares of capital stock of the Parent or (except
to the Parent or other subsidiaries) any subsidiary, any split, combination or
reclassification of any shares of capital stock of the Parent or any subsidiary,
or any repurchase, redemption or other acquisition by the Parent or any of its
subsidiaries of any Parent or subsidiary securities;
(c) any amendment or change to the certificate of incorporation or
bylaws of the Parent or any amendment of any term of any outstanding security of
the Parent or any of its subsidiaries that would materially increase the
obligations of the Parent or any such subsidiary under such security;
(d) (i) any incurrence or assumption by the Parent or any subsidiary of
any indebtedness for borrowed money other than under existing credit facilities
(or any renewals, replacements or extensions that do not increase the aggregate
commitments thereunder) except (A) in the ordinary and usual course of business
consistent with past practice or (B) as permitted by Section 5.1, or (ii) any
guarantee, endorsement, or other incurrence or assumption of liability (whether
directly, contingently or otherwise) by the Parent or any of its subsidiaries
for the obligations of any other person (other than any wholly owned subsidiary
of the Parent), other than in the ordinary and usual course of business
consistent with past practice;
(e) any creation or assumption by the Parent or any of its subsidiaries
of any Lien on any material asset of the Parent or any of its subsidiaries other
than in the ordinary and usual course of business consistent with past practice;
(f) any making of any loan, advance or capital contribution to or
investment in any person by the Parent or any of its subsidiaries other than (i)
as permitted by Section 5.1, (ii) loans, advances or capital contributions to or
investments in wholly owned subsidiaries of the Parent, (iii) loans or advances
to employees of the Parent or any of its subsidiaries in the ordinary course of
business consistent with past practice or (iv) extensions of credit to customers
in the ordinary course of business consistent with past practice;
(g) any contract or agreement entered into by the Parent or any of its
subsidiaries on or prior to the date hereof relating to any material acquisition
or disposition of any assets or business, other than contracts or agreements in
the ordinary and usual course of business consistent with past practice, any
such transaction with Transaxis, S.A., and those contemplated by this Agreement;
(h) any modification, amendment, assignment, termination or
relinquishment by the Parent or any of its subsidiaries of any contract, license
or other right (including any insurance policy naming it as a beneficiary or a
32
loss payable payee) that is reasonably expected to have a Material Adverse
Effect, after taking into account the benefit of the consideration, if any,
received in exchange for agreeing to such modification, amendment, assignment,
termination or relinquishment, on the Parent and its subsidiaries taken as a
whole;
(i) any material change in any method of accounting or accounting
principles or practice by the Parent or any of its subsidiaries, except for any
such change required by reason of a change in GAAP;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of the Parent or any of its subsidiaries exceeding the
amounts set forth in the Parent's severance plans or agreements listed in
Sections 4.13(a) or 4.18 of the Parent Disclosure Schedule; (ii) entering into
of any employment, deferred compensation, severance, consulting, termination or
other similar agreement (or any amendment to any such existing agreement) with
any director, officer or employee of the Parent or any of its subsidiaries whose
annual cash compensation exceeds $100,000 other than changes or amendments that
do not and will not result in increases of more than five percent in the salary,
wages or other compensation of any such person; (iii) increase in benefits
payable under any existing severance or termination pay policies or employment
agreements; or (iv) increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Parent or any of its subsidiaries other
than, in the case of clause (iv) only, increases prior to the date hereof in
compensation, bonus or other benefits payable to directors, officers or
employees of the Parent or any of its subsidiaries in the ordinary and usual
course of business consistent with past practice or merit increases in salaries
of employees at regularly scheduled times in customary amounts consistent with
past practices;
(k) any change or amendment of the contracts, salaries, wages or other
compensation of any officer, director, employee, agent or other similar
representative of the Parent or any of its subsidiaries whose annual cash
compensation exceeds $100,000 other than changes or amendments that do not and
will not result in increases of more than five percent in the salary, wages or
other compensation of any such person;
(l) any adoption, entering into, amendment, alteration or termination
of (partially or completely) any Parent Benefit Plan or Parent Employee
Arrangement except as contemplated by this Agreement or to the extent required
by applicable Law or GAAP;
(m) any entering into of any contract with an officer, director,
employee or other similar representative of the Parent or any of its
subsidiaries (other than a contract described in Section 4.6(j))that is not
terminable, without penalty or other liability, upon not more than 60 calendar
days' notice; or
(n) any (i) making or revoking of any material election relating to
Taxes, (ii) settlement or compromise of any material claim, action, suit,
33
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, or (iii) change to any material methods of reporting income
or deductions for federal income tax purposes.
SECTION 4.7 Information Supplied. None of the information supplied or
to be supplied by Parent or Merger Sub specifically for inclusion or
incorporation by reference in (i) the S-4 will, at the time the S-4 is filed
with the SEC and at the time it becomes effective under the Securities Act,
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
not misleading and (ii) the Proxy Statement will, at the date mailed to
stockholders of the Company and at the time of the Company Stockholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event in respect of
Parent, its officers and directors, or any of its subsidiaries should occur
which is required to be described in an amendment of, or a supplement to, the
S-4 or the Proxy Statement, Parent shall promptly so advise the Company and such
event shall be so described, and such amendment or supplement (which the Company
shall have a reasonable opportunity to review) shall be promptly filed with the
SEC. The S-4 will comply as to form in all material respects with the provisions
of the Securities Act and the rules and regulations thereunder. No
representation or warranty is made under this Section 4.7 with respect to any
statements made or incorporated by reference in the S-4 or the Proxy Statement
based on information supplied by the Company specifically for inclusion or
incorporation by reference therein.
SECTION 4.8 Consents and Approvals. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky Laws, the filing and acceptance for record of the
Certificate of Merger as required by the DGCL, and such other filings, permits,
authorizations, consents and approvals which, if not obtained or made, are not
reasonably expected to have a Material Adverse Effect on Parent and its
subsidiaries taken as a whole, no filing with or notice to, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery by Parent or Merger Sub of this Agreement or the
consummation by Parent or Merger Sub of the transactions contemplated hereby or
thereby.
SECTION 4.9 No Default. Neither the Parent nor any of its subsidiaries
is in violation of any term of its charter, certificate or articles of
incorporation or bylaws (or other similar organizational or governing documents.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby and thereby will not (A) result in any
violation of or conflict with, constitute a default under (with or without due
notice or lapse of time or both), require any consent, waiver or notice under
any term of, or result in the reduction or loss of any benefit or the creation
or acceleration of any right or obligation (including any termination rights)
under, (i) the charter, certificate or articles of incorporation or bylaws (or
other similar organizational or governing documents) of the Parent or any of its
subsidiaries, (ii) any material agreement, material note, material bond,
material mortgage, material indenture, material contract, material lease,
material Parent Permit or other material obligation or material right to which
the Parent or any of its subsidiaries is a party or by which any of the assets
or properties of the Parent or any of its subsidiaries is bound, or (iii) any
applicable Law, except in the case of clause (ii) and (iii) where any of the
foregoing is not reasonably expected to have, individually or in the aggregate,
34
a Material Adverse Effect on the Parent and its subsidiaries taken as a whole,
or (B) result in the creation of (or impose any obligation on the Parent or any
of its subsidiaries to create) any Lien upon any of the material assets or
properties of the Parent or any of its subsidiaries pursuant to any such term.
SECTION 4.10 Real Property.
(a) The Parent has provided the Company with the address, general use
of, and period of ownership or occupancy of all of the real property the Parent
and its subsidiaries use or occupy or have the right to use or occupy, now or in
the future, pursuant to any lease, sublease, or other occupancy agreement other
than daily usage arrangements in connection with its Internet preview sessions
and Internet training workshops (the "Parent Leased Facilities"). No real
property is owned, leased or used by the Parent or its current subsidiaries in
the course of their respective businesses other than the Parent Leased
Facilities.
(b) With respect to each Parent Leased Facility:
(i) the Parent will make available to the Company a true, correct,
and complete copy of the lease, sublease or other occupancy agreement
for such Parent Leased Facility (and all modifications, amendments, and
supplements thereto and all side letters to which Parent or any of its
subsidiaries is a party affecting the obligations of any party
thereunder) (each such agreement is referred to herein as a "Parent
Real Property Lease");
(ii) to the Parent's knowledge, the Parent or its subsidiary has a
good and valid leasehold interest in such Parent Leased Facility free
and clear of all Liens, except (x) Taxes and general and special
assessments not in default and payable without penalty and interest,
and (y) easements, covenants and other restrictions that do not
materially impair the current use, occupancy or value, or the
marketability of the Parent's or its subsidiary's interest in such real
property;
(iii) to the Parent's knowledge, each Parent Real Property Lease
constitutes the valid and legally binding obligation of the parties
thereto, enforceable in accordance with its terms, and is in full force
and effect;
(iv) all rent and other sums and charges payable by the Parent or
its subsidiary as tenant under the Parent Real Property Lease covering
the Parent Leased Facility are current, no event or condition giving
rise to a right to terminate or uncured default on the part of the
tenant or, to the Parent's knowledge, the landlord, exists under the
Parent Real Property Lease. No party to such Parent Real Property Lease
has given written notice to the Parent or any of its subsidiaries or
made a claim in writing against the Parent or any of its subsidiaries
in respect of any breach or default thereunder; and
35
(v) neither the Parent nor its subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered its
leasehold interest in the Parent Leased Facility.
SECTION 4.11 Litigation. Except as disclosed in the Parent SEC Reports
or in Section 4.11 of the Parent Disclosure Schedule, there is no other suit,
claim, action, proceeding or, to Parent's knowledge, investigation, pending or,
to Parent's knowledge, threatened which is reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent and its
subsidiaries taken as a whole. Except as disclosed in Section 4.11 of the Parent
Disclosure Schedule or the Parent SEC Reports, none of Merger Sub, Parent or its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which is reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent and its subsidiaries taken as a whole. To
Parents' knowledge, there is no action, suit, proceeding or investigation
pending or threatened against any current or former officer, director, employee
or agent of Parent or any of its subsidiaries (in his or her capacity as such)
which is reasonably expected to give rise to a claim for contribution or
indemnification against Parent or any of its subsidiaries. Notwithstanding the
foregoing, any shareholder litigation or litigation by any Governmental Entity,
in each case brought or threatened against Parent, Merger Sub or any officer,
director, employee or agent of Parent or Merger Sub in any respect of this
Agreement or the transactions contemplated hereby shall not be deemed to have,
or contribute to, a Material Adverse Effect on Parent and its subsidiaries taken
as a whole.
SECTION 4.12 Compliance with Applicable Law; Permits. The Parent and
its subsidiaries hold all permits, licenses, variances, exemptions, orders, and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Parent Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which are not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Parent and its subsidiaries taken as a whole. The Parent
and its subsidiaries are in compliance with the terms of the Parent Permits,
except where the failure to comply is not reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Parent and
its subsidiaries taken as a whole. The businesses and operations of the Parent
and its subsidiaries comply in all respects with all Laws applicable to the
Parent or its subsidiaries, except where the failure to so comply is not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Parent and its subsidiaries taken as a whole.
SECTION 4.13 Employee Plans
(a) Section 4.13(a) of the Parent Disclosure Schedule sets forth a
true, correct, and complete list of:
(i) all material "employee benefit plans," as defined in Section
3(3) of ERISA, under which the Parent or any of its subsidiaries has
any obligation or liability, contingent or otherwise, including, but
not limited to, (i) all severance plans or arrangements; and (ii) any
supplemental or U.S. non-qualified retirement plans or arrangements
(the "Parent Benefit Plans"); and
36
(ii) all employment, consulting, termination, severance or
individual compensation agreements (other than any such agreement which
is terminable within 90 days without liability or at any time without
liability exceeding two weeks' salary for each year of employment or,
in the case of employees whose annual cash compensation exceeds
$100,000, three months' salary, or is legally mandated by applicable
non-U.S. law); all stock award, stock option, stock purchase or other
equity-based (including phantom stock or stock appreciation rights)
plans or arrangements; all material bonus or other incentive
compensation plans or agreements (including, but not limited to, any
such plan or agreement covering any officer or employee whose annual
cash compensation exceeds $70,000; all material salary continuation or
deferred compensation plans or agreements (including, but not limited
to, any such plan or agreement covering any current or former officer
or employee whose annual cash compensation exceeds $70,000; in each
case, as to which the Parent or any of its subsidiaries has any
obligation or liability (contingent or otherwise) (the "Parent Employee
Arrangements").
(b) In respect of each Parent Benefit Plan, a complete and correct copy
of each of the following documents (if applicable) will be provided to the
Company: (i) the most recent plan and related trust documents, and all
amendments thereto; (ii) the most recent summary plan description, and all
related summaries of material modifications thereto; (iii) the most recent Form
5500 (including, schedules and attachments); (iv) the most recent IRS
determination letter; and (v) the most recent actuarial reports (including for
purposes of Financial Accounting Standards Board report nos. 87, 106 and 112).
(c) Except as disclosed in Section 4.13(c) of the Parent Disclosure
Schedule, none of the Parent Benefit Plans or Parent Employee Arrangements is
subject to Title IV of ERISA, constitutes a defined benefit retirement plan or
is a multi-employer plan described in Section 3(37) of ERISA, and the Parent and
its subsidiaries do not have any material obligation or liability (contingent or
otherwise) in respect of any such plans to the extent such plans constitute a
defined benefit retirement plan or a multi-employer plan described in Section
3(37) of ERISA. The Parent and its subsidiaries are not members of a group of
trades or businesses (other than that consisting of the Parent and its
subsidiaries) under common control or treated as a single employer pursuant to
Section 414 of the Code.
(d) The Parent Benefit Plans and their related trusts intended to
qualify under Sections 401 and 501(a) of the Code, respectively, have received a
favorable determination letter from the IRS and the Parent has no knowledge that
any event has occurred since the date of such letter that could cause the IRS to
revoke such determination. Any voluntary employee benefit association which
provides benefits to current or former employees of the Parent and its
subsidiaries, or their beneficiaries, is and has been qualified under Section
501(c)(9) of the Code.
(e) All contributions or other payments required to have been made by
the Parent and its subsidiaries to or under any Parent Benefit Plan or Parent
Employee Arrangement by applicable Law or the terms of such Parent Benefit Plan
or Parent Employee Arrangement (or any agreement relating thereto) have been
timely and properly made or have been accrued in the Parent's financial
statements.
37
(f) The Parent Benefit Plans and Parent Employee Arrangements have been
maintained and administered in accordance with their terms and applicable Laws
and all required returns, reports, and filings (including, but not limited to
annual reports on Form 5500) have been timely filed. No individual who has
performed services for the Parent or any of its subsidiaries has been improperly
excluded from participation in any Parent Benefit Plan or Parent Employee
Arrangement, except where the failure to so maintain and administer such Parent
Benefit Plans or the exclusion of any such individuals is not reasonably
expected to have, individually or in the aggregate.
(g) There are no pending or, to the Parent's knowledge, threatened
actions, claims, or proceedings against or relating to any Parent Benefit Plan
or Parent Employee Arrangement (other than routine benefit claims by persons
claiming benefits thereunder), and, to the knowledge of the Parent, there are no
facts or circumstances which could form a reasonable basis for any of the
foregoing, except for such actions, claims or proceedings which are not
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Parent and its subsidiaries taken as a whole.
(h) The Parent and its subsidiaries do not have any material obligation
or liability (contingent or otherwise) to provide post-retirement life insurance
or health benefits coverage for current or former officers, directors, or
employees of the Parent or any of its subsidiaries except (i) as may be required
under Part 6 of Title I of ERISA at the sole expense of the participant or the
participant's beneficiary, (ii) a medical expense reimbursement account plan
pursuant to Section 125 of the Code, or (iii) through the last day of the
calendar month in which the participant terminates employment with the Parent or
any subsidiary of the Parent.
(i) Except as set forth in Section 4.13(i) of the Parent Disclosure
Schedule, none of the assets of any Parent Benefit Plan is stock of the Parent
or any of its affiliates, or property leased to or jointly owned by the Parent
or any of its affiliates.
(j) Except as disclosed in Section 4.13(j) of the Parent Disclosure
Schedule or in connection with equity compensation, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment becoming due to any employee (current,
former, or retired) of the Parent or any of its subsidiaries, (ii) increase any
benefits under any Parent Benefit Plan or Parent Employee Arrangement
(determined without regard to the "materiality" limits set forth in the
definitions of such terms), or (iii) result in the acceleration of the time of
payment of, vesting of, or other rights in respect of any such benefits.
(k) The Parent has no employees outside of the United States other than
United States based employees who have begun to travel on an intermittent basis
outside the United States in connection with its recent global expansion.
(l) The aggregate number of shares of Parent Common Stock purchasable
under all outstanding purchase rights under the Parent Option Plans does not
exceed the maximum number of shares remaining available for issuance under such
plan.
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SECTION 4.14 Labor Matters.
(a) The Parent and its subsidiaries are not parties to any labor or
collective bargaining agreement, and no employees of the Parent or any of its
subsidiaries are represented by any labor organization. There are no
representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the Parent's knowledge, threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority. Within the last twelve months, to
the Parent's knowledge, there have been no organizing activities involving the
Parent or any of its subsidiaries in respect of any group of employees of the
Parent or any of its subsidiaries.
(b) There are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes pending or
threatened in writing against or involving the Parent or any of its
subsidiaries. There are no unfair labor practice charges, grievances or
complaints pending or, to the Parent's knowledge, threatened in writing by or on
behalf of any employee or group of employees of the Parent or any of its
subsidiaries which, if individually or collectively resolved against the Parent
or any of its subsidiaries, would reasonably be expected to have a Material
Adverse Effect on the Parent and its subsidiaries taken as a whole.
(c) There are no complaints, charges or claims against the Parent or
any of its subsidiaries pending or, to the Parent's knowledge, threatened to be
brought or filed with any Governmental Entity or arbitrator based on, arising
out of, in connection with, or otherwise relating to the employment or
termination of employment of any individual by the Parent or any of its
subsidiaries which, if individually or collectively resolved against the Parent
or any of its subsidiaries, would reasonably be expected to have a Material
Adverse Effect on the Parent and its subsidiaries taken as a whole, and, to the
knowledge of the Parent, there are no facts or circumstances which could form a
reasonable basis for any of the foregoing.
(d) There has been no "mass layoff" or "plant closing" as defined by
WARN in respect of the Parent or any of its subsidiaries within the six months
prior to the Effective Time.
(e) All employees of the Parent and its subsidiaries possess all
applicable passports, visas, permits and other authorizations required by all
applicable immigration or similar Laws to be employed by and to perform services
for and on behalf of the Parent and its subsidiaries, except where the failure
to possess such passports, visas, permits or other authorizations would not,
individually or in the aggregate, reasonably be expected to materially affect
the conduct of business by the Parent or its subsidiaries. The Parent and its
subsidiaries, and their employees, have complied in all material respects with
all applicable immigration and similar Laws.
SECTION 4.15 Environmental Matters.
(a) Except as set forth in Section 4.15 of the Parent Disclosure
Schedule:
(i) The operations of Parent and its subsidiaries are in material
compliance with all Environmental Laws, and Parent is not aware of any
39
facts, circumstances or conditions which, without significant capital
expenditures, would prevent material compliance in the future;
(ii) To Parent's knowledge, Parent and its subsidiaries have
obtained all Parent Permits, required under applicable Environmental
Laws for the continued operations of their respective businesses;
Parent and its subsidiaries have made all material filings, reports and
notices required under any Environmental Law for the past and future
operations of their respective businesses;
(iii) Parent and its subsidiaries are not subject to any
outstanding written orders or material contracts or agreements with any
Governmental Entity or other person respecting (A) Environmental Laws,
(B) any Remedial Action, (C) any Release or threatened Release of a
Hazardous Material, or (D) an assumption of responsibility for
environmental claims of another person or entity;
(iv) Parent and its subsidiaries have not received any written
communication alleging, in respect of any such party, the material
violation of or liability (real or potential) under any Environmental
Law; or requesting, with respect to any such party, information with
respect to an investigation pursuant to CERCLA, or any foreign or state
counterpart thereto, or any other Environmental Law;
(v) To Parent's knowledge, neither Parent nor any of its
subsidiaries has any material contingent liability in connection with
any Remedial Action or the Release of any Hazardous Material (whether
on-site or off-site) or employee or third party exposure to Hazardous
Materials;
(vi) To Parent's knowledge, the operations of Parent and its
subsidiaries involving the generation, transportation, treatment,
storage or disposal of Hazardous Materials are in material compliance
with applicable Environmental Laws and, to Parent's knowledge, there
has been no disposal by Parent or its subsidiaries of any Hazardous
Materials on or in any site listed or formally proposed to be listed on
the National Priorities List promulgated pursuant to CERCLA or any
foreign or state remedial priority list promulgated or maintained
pursuant to comparable foreign or state law, except where such disposal
would not reasonably be expected to create a material adverse liability
for Parent;
(vii) To Parent's knowledge, there is not now nor has there been
in the past, on, in or at any Parent Leased Facility, Parent Former
Facility (defined as all of the real property formerly owned, leased or
used, other than those used solely for office or administrative
purposes, by Parent or any of its current or former subsidiaries or
corporate predecessors in interest at any time in the past), or any
other facility for which Parent or its subsidiaries has assumed
responsibility for environmental claims, any of the following: (A) any
underground storage tanks; (B) landfills, dumps or surface
impoundments; (C) any Company planned, ongoing or completed Remedial
Action; (D) any asbestos-containing materials; or (E) any
polychlorinated biphenyls;
40
(viii) There is not now, nor to Parent's knowledge, has there been
in the past, on, in or at any Parent Leased Facility, Parent Former
Facility, or any other facility for which Parent or its subsidiaries
has assumed responsibility for environmental claims, any site on or
formally proposed to be listed on the National Priority List
promulgated pursuant to CERCLA or any foreign or state remedial
priority list promulgated or published pursuant to any comparable
foreign or state law; and
(ix) No judicial or administrative proceedings are pending or, to
Parent's knowledge, threatened against Parent or its subsidiaries
alleging the material violation of or seeking to impose material
liability pursuant to any Environmental Law and, to Parent's knowledge,
there are no investigations pending or threatened against the Parent or
any of its subsidiaries under Environmental Laws.
(b) Parent will make available to Parent copies of all material
environmentally related assessments, audits, investigations, or similar reports
(and, upon reasonable specific request, sampling reports) in its possession or
control and which were prepared in the last five years (and, upon reasonable
specific request, earlier information) relating to Parent or its subsidiaries or
any real property currently or formerly owned, operated or leased by or for
Parent or its subsidiaries, including any Parent Leased Facility, or Parent
Former Facility.
SECTION 4.16 Tax Matters.
(a) Each of the Parent and its subsidiaries has timely filed (or has
had timely filed) all Tax Returns required to be filed by it (or on its behalf).
All such Tax Returns are complete and correct in all material respects. The
Parent and its subsidiaries have paid all Taxes due for the periods covered by
such Tax Returns. The most recent Parent SEC Reports reflect an adequate reserve
for all Taxes payable by the Parent and its subsidiaries for all Taxable periods
and portions thereof through the date of such Parent SEC Reports. The Parent has
previously delivered (or, in the case of foreign Tax Returns and audit reports,
will deliver) to Parent copies of (i) all federal, state, local and foreign
income and franchise Tax Returns filed by the Parent and its subsidiaries
relating to any taxable periods of the Parent or any of its subsidiaries that
remains subject to audit under applicable statutes of limitations; and (ii) any
audit report issued within the last three years (or otherwise in respect of any
audit or investigation in progress) relating to Taxes due from or in respect of
the Parent or its subsidiaries.
(b) No material deficiencies for any Taxes have been proposed,
asserted, or assessed against the Parent or its subsidiaries that have not been
fully paid or adequately provided for in the appropriate financial statements of
the Parent, no requests for waivers of the time to assess any Taxes are pending,
and no power of attorney in respect of any Taxes has been executed or filed with
any taxing authority. No material issues relating to Taxes have been raised by
the relevant taxing authority during any presently pending audit or examination.
All income and franchise Tax Returns filed by or on behalf of the Parent and its
subsidiaries for the taxable years ended on or prior to June 30, 1997 have been
reviewed by the relevant taxing authority or the statute of limitations with
respect to such Tax Returns has expired.
41
(c) No material Liens for Taxes exist in respect of any assets or
properties of the Parent or its subsidiaries, except for statutory Liens for
Taxes not yet due.
(d) Neither the Parent nor any of its subsidiaries is a party to or is
bound by any Tax sharing agreement, Tax indemnity obligation, or similar
agreement, arrangement, or practice in respect of Taxes (whether or not written)
(including any advance pricing agreement, closing agreement, or other agreement
relating to Taxes with any taxing authority).
(e) Neither the Parent nor any of its subsidiaries (i) has ever been a
member of an affiliated group within the meaning of Section 1504(a) of the Code
(or any similar or analogous group defined under a similar or analogous state,
local or foreign Law) other than an affiliated group the common parent of which
is the Parent, or (ii) has any liability under Treasury Regulation Section
1.1502-6 (or any predecessor or successor thereof or analogous or similar
provision under state, local or foreign Law), as a transferee or successor, by
contract or otherwise for Taxes of any affiliated group of which the Parent is
not the common parent.
(f) Neither the Parent nor any of its subsidiaries has taken or agreed
to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
(g) Except as set forth in Section 4.13 (g) of the Parent Disclosure
Schedule, there are no employment, severance, or termination agreements or other
compensation arrangements currently in effect which provide for the payment of
any amount (whether in cash or property or the vesting of property) as a result
of any of the transactions contemplated by this Agreement that individually or
collectively (either alone or upon the occurrence of any additional or
subsequent event), could give rise to a payment which is nondeductible by reason
of Section 280G of the Code.
(h) The Parent and its subsidiaries have complied in all material
respects with all Laws applicable to the payment and withholding of Taxes and
have duly and timely withheld from employee salaries, wages and other
compensation and have paid over to the appropriate taxing authority all amounts
required to be so withheld and paid over for all periods under all applicable
Laws.
(i) No federal, state, local, or foreign audits or other administrative
proceedings or court proceedings are presently pending in respect of any Taxes
or Tax Returns of the Parent or its subsidiaries and neither the Parent nor its
subsidiaries have received a written notice of any pending audit or proceeding.
(j) Except as set forth in Section 4.13 (j) of the Parent Disclosure
Schedule, neither the Parent nor any of its subsidiaries has agreed to or is
required to make any adjustment under Section 481(a) of the Code or any similar
provision of state, local or foreign Law by reason of a change in accounting
method initiated by the Parent or its subsidiaries or has any knowledge that a
taxing authority has proposed any such adjustment or change in accounting
method, or has any application pending with any taxing authority requesting
permission for any changes in accounting methods that relate to the business or
operations of the Parent or its subsidiaries.
42
(k) Except as set forth in Section 4.13 (k) of the Parent Disclosure
Schedule, neither the Parent nor any of its subsidiaries is a party to any
contract, agreement, or other arrangement which could result in the payment of
amounts that could be nondeductible by reason of Section 162(m) of the Code,
provided that no representation or warranty is made as to performance-based or
equity-based compensation.
(l) Neither the Parent nor any of its subsidiaries has received any
private letter rulings from the IRS or comparable rulings from other taxing
authorities.
(m) Neither the Parent nor any of its subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code (i) in the two
years prior to the date of this Agreement or (ii) in a distribution which could
otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
(n) Neither the Parent nor any of its subsidiaries (i) engaged in any
"interParent transactions" in respect of which gain was and continues to be
deferred pursuant to Treasury Regulation Section 1.1502-13 or any predecessor or
successor thereof or analogous or similar provision under state, local or
foreign Law; or (ii) has "excess loss accounts" in respect of the stock of any
subsidiary pursuant to Treasury Regulation Section 1.1502-19, or any predecessor
or successor thereof or analogous or similar provision under state, local or
foreign Law.
SECTION 4.17 Absence of Questionable Payments. To the Parent's
knowledge, neither the Parent nor any of its subsidiaries nor any director,
officer, agent, employee or other person acting on behalf of the Parent or any
of its subsidiaries, has used any corporate or other funds for unlawful
contributions, payments, gifts or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any other domestic or
foreign Law. To the Parent's knowledge, neither the Parent nor any of its
subsidiaries nor any director, officer, agent, employee or other person acting
on behalf of the Parent or any of its subsidiaries has accepted or received any
unlawful contributions, payments, gifts or expenditures.
SECTION 4.18 Material Contracts.
(a) Set forth in Section 4.18(a) of the Parent Disclosure Schedule is a
list of all contracts and agreements (and all amendments, modifications and
supplements thereto and all side letters to which the Parent or any of its
subsidiaries is a party affecting the obligations of any party thereunder) to
which the Parent or any of its subsidiaries is a party or by which any of its
assets or properties are bound that are material to the business, assets or
properties of the Parent and its subsidiaries taken as a whole, all: (i)
executory employment, executory severance, material product design or
development, executory personal services, material consulting, executory
43
non-competition or material indemnification contracts (including, any material
contract to which the Parent or any of its subsidiaries is a party involving
employees of the Parent), but excluding normal indemnification provisions under
license or sale contracts; (ii) licensing, merchandising or distribution
agreements involving the payment of more than $100,000 per year; (iii) contracts
granting a right of first refusal or first negotiation involving in excess of
$100,000; (iv) partnership or joint venture agreements; (v) any agreements for
the acquisition, sale or lease of material assets or properties of the Parent
(by merger, purchase or sale of assets or stock or otherwise) entered into since
June 31, 2001 involving a payment in excess of $100,000; (vi) contracts or
agreements with any Governmental Entity involving the payment of more than
$50,000 per year; (vii) loan or credit agreements, mortgages, indentures or
other agreements or instruments evidencing indebtedness for borrowed money by
the Parent or any of its subsidiaries or any such agreement pursuant to which
indebtedness for borrowed money may be incurred, in each case involving in
excess of $100,000; (viii) agreements that purport to limit, curtail or restrict
the ability of the Parent or any of its subsidiaries to compete in any
geographic area or line of business; (ix) assembly (packaging), testing, or
supply agreements, in each case, involving in excess of $100,000 per year; (x)
agreements, written or oral, with any officers, directors, shareholders of the
Parent or any member of the immediate family of any officer, director, or
shareholder of the Parent; and (xi) commitments and agreements to enter into any
of the foregoing (collectively, together with any such contracts entered into in
accordance with Section 5.1, the "Parent Material Contracts"). Section 4.18 of
the Parent Disclosure Schedule sets forth a list of all Parent Material
Contracts and the Parent has heretofore made available to Parent true, correct,
and complete copies of all such Parent Material Contracts.
(b) To the Parent's knowledge, each of the Parent Material Contracts
constitutes the valid and legally binding obligation of the Parent or its
subsidiaries, enforceable in accordance with its terms, and is in full force and
effect. There is no material default under any Parent Material Contract either
by the Parent (or its subsidiaries) or, to the Parent's knowledge, by any other
party thereto, and no event has occurred that with the giving of notice, the
lapse of time, or both would constitute a material default thereunder by the
Parent (or its subsidiaries) or, to the Parent's knowledge, any other party. As
of the date hereof, to the Parent's knowledge, no party has notified the Parent
in writing that it intends to terminate or fail to extend any contract between
such person and the Parent within one year of the date of the Agreement, except
for any such termination or failure as would not have a Material Adverse Effect
on the Parent and its subsidiaries taken as a whole.
(c) To the Parent's knowledge, no party to any such Parent Material
Contract has given notice to the Parent of or made a claim against the Parent in
respect of any material breach or default thereunder by the Parent or a
subsidiary.
(d) Except as set forth in Section 4.18(d) of the Parent Disclosure
Schedule, no consent of any third party is required under any Parent Material
Contract as a result of or in connection with, and the enforceability of any
Parent Material Contract will not be affected in any manner by, the execution,
delivery, and performance of this Agreement or the consummation of the
transactions contemplated hereby.
SECTION 4.19 Subsidies. Section 4.19 of the Parent Disclosure Schedule
sets forth a list of all material grants, material subsidies and similar
material arrangements directly or indirectly between or among the Parent or any
of its subsidiaries, on the one hand, and any domestic or foreign Governmental
44
Entity or any other person, on the other hand. Except as set forth on Section
4.19 of the Parent Disclosure Schedule, neither the Parent nor any of its
subsidiaries has requested, sought, applied for or entered into any material
grant, material subsidy or similar material arrangement directly or indirectly
from or with any domestic or foreign Governmental Entity or any other person.
SECTION 4.20 Intellectual Property.
(a) To the Parent's knowledge, and except as are not reasonably
expected to have a Material Adverse Effect on the Parent and its subsidiaries
taken as a whole: (i) each item of Parent's Intellectual Property comprised of
registered copyrights, copyright applications, patents, patent applications,
trademarks, and trademark applications are in compliance with applicable legal
requirements relating to the enforceability or maintenance of such item
(including payment of filing, examination and maintenance fees and proofs of
working or use, as applicable) other than any requirement that if, not
satisfied, would not result in a revocation or otherwise materially affect the
enforceability of the item of Parent Intellectual Property in question, and the
Parent has taken reasonable steps to protect such Parent Intellectual Property;
(ii) the Parent and its subsidiaries own or have the right to use, free and
clear of all Liens, all Parent Intellectual Property and unregistered works of
authorship, common law marks, trademarks and service marks, and rights and
inventions, necessary for the operation of the businesses of the Parent and its
subsidiaries as presently conducted and as presently proposed to be conducted;
(iii) each material item of Parent Intellectual Property owned or used by the
Parent and its subsidiaries immediately prior to the Effective Time will be
owned or available for use by Parent immediately subsequent to the Effective
Time; (iv) the Parent and its subsidiaries have taken all action deemed by the
Parent or the relevant subsidiary to be necessary or reasonable, but in no event
less than all commercially reasonable action, to protect and preserve the
confidentiality of all Parent Intellectual Property consisting of trade secrets;
(v) the Parent has had and continues to have a requirement that all employees of
the Parent and its subsidiaries must execute a non-disclosure agreement which
includes an agreement to assign to the Parent or its subsidiaries all rights to
Parent Intellectual Property originated or invented by such employee relating to
the business of the Parent and its subsidiaries; and (vi) no trade secret or
confidential know-how material to the business of the Parent or any of its
subsidiaries as currently operated has been disclosed or authorized to be
disclosed to any third party, other than pursuant to a non-disclosure agreement
that protects the Parent's or such subsidiary's proprietary interests in and to
such trade secrets and confidential know-how.
(b) Except as set forth in Section 4.20(c) of the Parent Disclosure
Schedule, to the Parent's knowledge, neither the Parent nor any of its
subsidiaries has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Parent Intellectual Property rights of third
parties, and neither the Parent nor any of its subsidiaries has received any
charge, complaint, claim or notice alleging any such interference, infringement,
misappropriation or violation that remains unresolved and, if decided adversely
to the Parent, would be reasonably likely to have a Material Adverse Effect on
the Parent and subsidiaries taken as a whole. No third party has, to the
Parent's knowledge, interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Parent Intellectual Property rights of the
Parent or its subsidiaries, except where such actions are not reasonably
45
expected to have a Material Adverse Effect on the Parent and its subsidiaries
taken as a whole.
(c) Section 4.20(d) of the Parent Disclosure Schedule identifies each
material item of Parent Intellectual Property that any third party owns and that
the Parent or any of its subsidiaries uses pursuant to license, sublicense,
agreement or permission that either (i) if such license, sublicense, agreement
or permission were denied, would reasonably be expected to have a Material
Adverse Effect on the Parent or its Subsidiaries taken as a whole, or (ii)
includes any unsatisfied obligation to pay any royalty amount or any obligation
to pay a royalty, whether fixed or determined based on usage, following the
Effective Date in excess of $25,000. To the Parent's knowledge, in respect of
each such item of used Parent Intellectual Property:
(i) the license, sublicense, agreement or permission covering the
item is legal, valid, binding, enforceable and in full force and
effect;
(ii) the licenses, sublicenses, agreements or permissions will in
all material respects continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the Effective
Time;
(iii) no party to the license, sublicense, agreement or permission
is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder such as would have
a Material Adverse Effect on the Parent and its subsidiaries taken as a
whole; and
(iv) no party to the license, sublicense, agreement or permission
has repudiated any provision thereof.
(d) Except as set forth in Section 4.20(e) of the Parent Disclosure
Schedule, neither the Parent nor any of its subsidiaries has granted (i) any
exclusive licenses (other than implied patent licenses in the ordinary course of
business) in any patents owned by the Parent or any of its subsidiaries or (ii)
any exclusive licenses in any other Intellectual Property owned by the Parent or
any of its subsidiaries to any third party.
(e) Except as may have been given in connection with patent licenses
set forth in Section 4.20(e) of the Parent Disclosure Schedule or given in the
ordinary course of business within the scope of the Parent's standard terms and
conditions of sale, neither the Parent nor any of its subsidiaries has entered
into any material agreement to indemnify any other person against any charge of
infringement or misappropriation of any Parent Intellectual Property.
(f) The execution, delivery and performance by the Parent of this
Agreement, and the consummation of the transactions contemplated hereby, will
not (i) result in the loss or impairment of, or give rise to any right of any
third party to terminate or alter, any of the Parent's or any of its
subsidiaries' rights to own any of its Intellectual Property except as are not
reasonably expected to have a Material Adverse Effect on the Parent and its
Subsidiaries taken as a whole, nor (ii) require the consent of any Governmental
Entity or third party in respect of any such Parent Intellectual Property that,
46
if not obtained, is reasonably expected to have a Material Adverse Effect on the
Parent and its subsidiaries taken as a whole.
SECTION 4.21 No Prior Activities. Except for obligations incurred in
connection with its incorporation or organization or the negotiation and
consummation of this Agreement and the transactions contemplated hereby, Merger
Sub has neither incurred any obligation or liability nor engaged in any business
or activity of any type or kind whatsoever or entered into any agreement or
arrangement with any person.
SECTION 4.22 Brokers. No broker, finder, investment banker or other
person is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by and on behalf of Parent, Merger Sub or any of their
affiliates.
Article V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company and ePenzio, Inc. On the
date of this Agreement, Parent and the Company shall form a committee comprising
of two designees of Parent and two designees of the Company, all of whom shall
be acceptable to Parent and the Company (the "Evaluation Committee"). Parent and
the Company may replace its designees with notice to the other party. Except as
consented to by seventy-five percent (75%) of the designees on the Evaluation
Committee, or as contemplated by this Agreement, during the period from the date
hereof to the Effective Time, the Company and ePenzio, Inc. (a wholly-owned
subsidiary of Parent), and each of their subsidiaries, will each conduct their
operations in the ordinary and usual course of business consistent with past
practice and use reasonable best efforts to preserve intact their current
business organizations, keep available the service of its current officers and
key employees and preserve their relationships with customers, suppliers and
others having business dealings with it to the end that goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement, prior to the Effective Time, neither the Company, ePenzio, Inc., nor
any of their subsidiaries will, without the prior written consent of the
Evaluation Committee:
(a) amend their charter or bylaws (or other similar organizational or
governing instruments);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities convertible into or exchangeable for any
stock or any equity equivalents (including, any stock options or stock
appreciation rights), except for (x) the issuance of Shares upon the exercise of
outstanding Company Stock Options, and the grant to newly hired officers,
employees or agents (in the ordinary course of business consistent with past
practice) of additional Company Stock Options after the date hereof to purchase
up to 50,000 additional Shares and the issuance of shares on the exercise
thereof;
47
(c) (i) split, combine or reclassify any shares of its capital stock;
(ii) declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock (other than any dividends or distributions payable to the Company or its
subsidiaries); (iii) make any other actual, constructive or deemed distribution
in respect of any shares of its capital stock or otherwise make any payments to
stockholders in their capacity as such (other than any distributions or payments
to the Company or its subsidiaries); or (iv) redeem, repurchase or otherwise
acquire any of its securities or any securities of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any subsidiary of
Company;
(f) (i) incur or assume any indebtedness for borrowed money other than
under existing credit facilities (or any renewals, replacements or extensions
that do not increase the aggregate commitments thereunder) except (A) in the
ordinary and usual course of business consistent with past practice or (B) in
connection with any acquisition or capital expenditure permitted by this Section
5.1; (ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person, except in the ordinary and usual course of business consistent with past
practice, and except for obligations of the wholly owned subsidiaries of the
Company; (iii) make any loans, advances or capital contributions to, or
investments in, any other person (other than (A) any acquisition permitted by
this Section 5.1, (B) loans, advances or capital contributions to or investments
in wholly owned subsidiaries of the Company, (C) loans or advances to employees
of the Company or any of its subsidiaries in the ordinary course of business
consistent with past practice or (D) extensions of credit to customers in the
ordinary course of business consistent with past practice); (iv) pledge or
otherwise encumber shares of capital stock of the Company or its subsidiaries;
or (v) create or assume any Lien on any material assets of the Company or any of
its subsidiaries other than in the ordinary and usual course of business
consistent with past practice;
(g) (i) except as set forth in Section 5.1(g) of the Company Disclosure
Schedule, increase in any manner the compensation or fringe benefits of any
director, officer or employee except in the ordinary course of business
consistent with past practice or pay any benefit not required by any plan and
arrangement as in effect as of the date hereof or grant any completion bonuses
or change of control payments in respect of the Merger or that will be affected
thereby; (ii) except in the ordinary course of business consistent with past
practice, promote or change the classification or status in respect of or hire
any employee or individual; or (iii) make any contributions or other deposits to
any trust that is not qualified under Section 501(a) of the Code;
48
(h) acquire, sell, lease or dispose of any material assets outside the
ordinary and usual course of business consistent with past practice or any
assets which in the aggregate are material to the Company and its subsidiaries
taken as a whole, other than extensions or renewals in the ordinary course of
business consistent with past practice;
(i) except as may be required as a result of a change in Law or in
GAAP, make any material change in any of the accounting principles or practices
used by it;
(j) revalue in any material respect any of its assets, including,
writing down the value of inventory or writing-off notes or accounts receivable
other than in the ordinary and usual course of business consistent with past
practice or as required by GAAP;
(k) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or any equity interest therein; (ii) other than in the ordinary and
usual course of business consistent with past practice, enter into any material
contract or agreement or amend in any material respect any of the Material
Contracts or the agreements referred to in Section 3.18; (iii) authorize any new
capital expenditure or expenditures which are not provided for in the Company's
current capital expenditure plan and which, individually, is in excess of
$25,000 or, in the aggregate, are in excess of $50,000; or (iv) enter into or
amend any contract, agreement, commitment or arrangement providing for the
taking of any action that would be prohibited hereunder;
(l) make or revoke any Tax election, or settle or compromise any
material Tax liability, or change (or make a request to any taxing authority to
change) any aspect of its method of accounting for Tax purposes;
(m) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
and usual course of business consistent with past practice or in accordance with
their terms of liabilities reflected, or reserved against in, the consolidated
financial statements, including notes thereto, of the Company and its
subsidiaries or incurred since the date of such financial statements or waive
the benefits of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement related to a business combination involving the
Company to which the Company or any of its subsidiaries is a party;
(n) settle or compromise any pending or threatened suit, action or
claim relating to the transactions contemplated hereby;
(o) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any of its subsidiaries or any successor thereto or
that could, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including Parent) or any successor thereto, from
engaging or competing in any line of business or in any geographic area;
49
(p) fail to comply in any material respect with any Law applicable to
the Company, its subsidiaries, or their respective assets;
(q) enter into any direct or indirect arrangements for financial
subsidies from a Governmental Entity;
(r) adopt, enter into, amend, alter or terminate (partially or
completely) any Company Benefit Plan or Company Employee Arrangement except as
contemplated by this Agreement or to the extent required by applicable Law
except the grant of Company Stock Options as otherwise permitted by this
Agreement;
(s) enter into any contract with an officer, director, employee, agent
or other similar representative of the Company or any of its subsidiaries that
is not terminable, without penalty or other liability, upon not more than 60
calendar days' notice; or
(t) take, propose (except as permitted by Sections 6.5, 8.3 and 8.5
hereof) to take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through 5.1(s) or any action which would cause the
condition set forth in Section 7.2(a) not to be satisfied.
SECTION 5.2 Conduct of Business of Parent. Except as consented to by
the Company or as contemplated by this Agreement, during the period from the
date hereof to the Effective Time, neither Parent nor any of its subsidiaries
will:
(a) amend Parent's articles of incorporation or bylaws;
(b) take any action that would or would reasonably be expected to
prevent, impair or materially delay the ability of the Company or Parent to
consummate the transactions contemplated by this Agreement; or
(c) take, propose to take, or agree in writing or otherwise to take,
any of the actions described in Section 5.2(a) through 5.2(b) or any action
which would cause the condition set forth in Section 7.3(a) not to be satisfied.
SECTION 5.3 Access to Information.
(a) Between the date hereof and the Effective Time and subject to
applicable Law, the Company will give Parent and Merger Sub and their authorized
representatives (including counsel, financial advisors, environmental
consultants and auditors) reasonable access to all employees, plants, offices,
warehouses and other facilities and to all books and records of the Company and
its subsidiaries, will permit Parent and Merger Sub to make such inspections as
Parent and Merger Sub may reasonably require, and will cause the Company's
officers and those of its subsidiaries to furnish Parent and Merger Sub with
such financial and operating data and other information in respect of the
business, properties and personnel of the Company and its subsidiaries as Parent
or Merger Sub may from time to time reasonably request, provided that no
investigation pursuant to this Section 5.3(a) shall affect or be deemed to
modify any of the representations or warranties made by the Company; provided,
50
however, that nothing contained in this Section 5.3 shall be interpreted to
require the Company to disclose any source code or any information which it is
prohibited from disclosing pursuant to the terms of a confidentiality
undertaking to a third party.
(b) Between the date hereof and the Effective Time and subject to
applicable Law, Parent will give the Company and its authorized representatives
(including counsel, financial advisors, environmental consultants and auditors)
reasonable access to all employees, plants, offices, warehouses and other
facilities and to all books and records of Parent and its subsidiaries, will
permit the Company to make such inspections as the Company may reasonably
require, and will cause Parent's officers and those of its subsidiaries to
furnish the Company with such financial and operating data and other information
in respect of the business, properties and personnel of Parent and its
subsidiaries as the Company may from time to time reasonably request, provided
that no investigation pursuant to this Section 5.3(b) shall affect or be deemed
to modify any of the representations or warranties made by Parent; provided,
however, that nothing contained in this Section 5.3 shall be interpreted to
require Parent to disclose any source code or any information which it is
prohibited from disclosing pursuant to the terms of a confidentiality
undertaking to a third party.
(c) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and Merger Sub (i) within five business days after the
delivery thereof to management, such monthly financial statements and data as
are regularly prepared for distribution to Company management and (ii) at the
earliest time they are available, such quarterly and annual financial statements
as are prepared for the Company Board, which (in the case of this clause (ii))
shall be in accordance with the books and records of the Company.
(d) Each of Parent and the Company will hold and will cause its
authorized representatives to hold in confidence all documents and information
furnished to the other in connection with the transactions contemplated by this
Agreement pursuant to the terms of that certain Confidentiality Agreement
entered into between the Company and Parent dated October 11, 2001 (the
"Confidentiality Agreement"), which shall survive any termination of this
Agreement in all respects.
Article VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of S-4 and the Proxy Statement. Parent and the
Company will, as promptly as practicable, jointly prepare and (i) the Company
will file with the SEC the Proxy Statement in connection with the vote of the
stockholders of the Company in respect of the Merger and (ii) Parent will file
with the SEC the S-4 in connection with the registration under the Securities
Act of the shares of Parent Common Stock issuable upon conversion of the Shares
and the other transactions contemplated hereby. Parent and the Company will, and
will cause their accountants and lawyers to, use their reasonable best efforts
to have or cause the S-4 to be declared effective as promptly as practicable
after filing with the SEC and to maintain the effectiveness of the Registration
Statement through the Effective Time, including causing their accountants to
51
deliver necessary or required instruments such as opinions, consents and
certificates, and will take any other action required or necessary to be taken
under federal or state securities Laws or otherwise in connection with the
registration process (other than qualifying to do business in any jurisdiction
which it is not now so qualified or filing a general consent to service of
process in any jurisdiction). The Company and Parent shall, as promptly as
practicable after the receipt thereof, provide to the other party copies of any
written comments and advise the other party of any oral comments in respect of
the Proxy Statement or the S-4 received from the staff of the SEC. The Company
will provide Parent with a reasonable opportunity to review and comment on any
amendment or supplement to the Proxy Statement prior to filing with the SEC and
will provide Parent with a copy of all such filings with the SEC. Parent will
provide the Company with a reasonable opportunity to review and comment on any
amendment or supplement on the S-4 prior to filing with SEC and will provide the
Company with a copy of all such filings with the SEC. Parent will advise the
Company, promptly after it receives notice thereof, of the time when the Form
S-4 has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the Parent
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Form S-4 or
comments thereon and responses thereto or requests by the SEC for additional
information. The Company will use its reasonable best efforts to cause the Proxy
Statement to be mailed to its stockholders at the earliest practicable date.
SECTION 6.2 Letter of Accountants.
(a) The Company shall use all reasonable best efforts to cause to be
delivered to Parent a letter of Xxxxxxx X. Xxxxxx & Company, LLP, the Company's
independent auditors, dated as of the date on which the S-4 shall become
effective and addressed to Parent, in form and substance reasonably satisfactory
to Parent and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4.
(b) Parent shall use all reasonable best efforts to cause to be
delivered to the Company a letter of Xxxxxx + Co., the Parent's independent
auditors, dated as of the date on which the S-4 shall become effective and
addressed to the Company, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4.
SECTION 6.3 Meeting. The Company shall take all lawful action to (i)
cause a special meeting of its stockholders (the "Company Stockholder Meeting")
to be duly called and held as soon as practicable after the effective date of
the Form S-4 for the purpose of voting on the approval and adoption of this
Agreement and approval of the Merger and related matters and (ii) subject to
applicable Law, solicit proxies from its stockholders to obtain the Company
Requisite Vote for the approval and adoption of this Agreement and approval of
the Merger. Subject to the provisions of Section 6.5(b), the Company Board shall
recommend approval and adoption of this Agreement and approval of the Merger by
the Company's stockholders and the Company Board shall not withdraw, amend or
modify in a manner adverse to Parent such recommendation (or announce publicly
its intention to do so).
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SECTION 6.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement and
applicable Law, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate the Merger
and the other transactions contemplated by this Agreement. In furtherance and
not in limitation of the foregoing, each party hereto shall make appropriate
filings required under any other applicable Antitrust Law (as hereinafter
defined) in respect of the transactions contemplated hereby as promptly as
practicable and to supply as promptly as practicable any additional information
and documentary material that may be requested by the applicable Governmental
Entities administering such Laws and use its reasonable best efforts to take, or
cause to be taken, all other action consistent with this Section 6.4 necessary
to secure the applicable clearances or approvals under such Laws as soon as
practicable. For purposes of this Agreement, "Antitrust Law" means the Xxxxxxx
Act, as amended, the Xxxxxxx Act, as amended, the Federal Trade Commission Act,
as amended, and all other Laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition through merger or acquisition.
(b) Each of Parent and the Company shall, in connection with the
efforts referenced in Section 6.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under any
Antitrust Law, use its reasonable best efforts subject to applicable Law to (i)
cooperate in all respects with each other in connection with any filing or
submission and in connection with any investigation or other inquiry, including
any proceeding initiated by a private party; (ii) keep the other party informed
in all material respects of any material communication received by such party
from, or given by such party to, any Governmental Entity and of any material
communication received or given in connection with any proceeding by a private
party, in each case regarding any of the transactions contemplated hereby; and
(iii) permit the other party to review any material communication given by it
to, and consult with each other in advance of any meeting or conference with,
any domestic or foreign Governmental Entity in connection herewith or, in
connection with any proceeding by a private party, with any other person, and to
the extent permitted by such applicable domestic or foreign Governmental Entity
or other person, give the other party the opportunity to attend and participate
in such meetings and conferences.
(c) In furtherance and not in limitation of the covenants of the
parties contained in Sections 6.4(a) and (b), each of Parent and the Company
shall, subject to applicable Law, use its reasonable best efforts to resolve
such objections if any, as may be asserted by a Governmental Entity or other
person in respect of the transactions contemplated hereby under any Antitrust
Law. In connection with the foregoing, if any administrative or judicial action
or proceeding, including any proceeding by a private party, is instituted (or
threatened to be instituted) challenging any transaction contemplated by this
Agreement as violative of any Antitrust Law, each of Parent and the Company
shall cooperate in all respects with each other and use its respective
reasonable best efforts to contest and resist any such action or proceeding and
to have vacated, lifted, reversed or overturned any decree, judgment, injunction
or other order, whether temporary, preliminary or permanent, that is in effect
and that prohibits, prevents or restricts consummation of the transactions
contemplated by this Agreement. Notwithstanding the foregoing or any other
provision of this Agreement, nothing in this Section 6.4 shall (i) limit a
party's right to terminate this Agreement pursuant to Section 8.2 so long as
such party has up to then complied in all material respects with its obligations
under this Section 6.4, (ii) require Parent to dispose or hold separate any part
53
of its business or operations or agree not to compete in any geographic area or
line of business or (iii) require Parent to dispose or hold separate any part of
the Company's business or operations or agree to cause the Company not to
compete in any geographic area or line of business which would in any such case
impair in any material respect any of the benefits intended to be derived by
Parent after the Effective Time as a result of the Merger.
(d) The Company agrees that in connection with any litigation which may
be brought against the Company or its directors relating to the transactions
contemplated hereby, the Company will keep Parent, and any counsel which Parent
may retain at its own expense, informed of the course of such litigation, to the
extent Parent is not otherwise a party thereto. The Company agrees that it will
consult with Parent prior to entering into any settlement or compromise of any
such litigation, and that no such settlement or compromise will be entered into
without Parent's prior written consent, which consent shall not be unreasonably
withheld.
SECTION 6.5 Acquisition Proposals.
(a) From the date of this Agreement until the Effective Time, or, if
earlier, the termination of this Agreement in accordance with its terms, the
Company will not, nor will it permit any of its subsidiaries to, nor will it
authorize or permit any officer, director or employee of or any investment
banker, attorney, accountant or other advisor or representative of, the Company
or any of its subsidiaries to, directly or indirectly, (i) solicit, initiate or
knowingly encourage the submission of any Acquisition Proposal or (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information in respect of, or knowingly take any other
action to facilitate, any Acquisition Proposal or any inquiries or the making of
any proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal, provided, however, that nothing contained in this Section
6.5(a) shall prohibit the Company Board from furnishing any information to, or
entering into discussions or negotiations with, any person that makes an
unsolicited bona fide Acquisition Proposal if, and only to the extent that (A)
the Company Stockholder Meeting shall not have occurred, (B) the Company Board,
after consultation with outside legal counsel, determines in good faith that the
failure to take such action would be inconsistent with its fiduciary duties to
the Company's stockholders under applicable Law, as such duties would exist in
the absence of any limitation in this Agreement, (C) the Company Board
determines in good faith that such Acquisition Proposal is reasonably likely to
lead to a transaction that, if accepted, is reasonably likely to be consummated
taking into account all legal, financial, regulatory and other aspects of the
proposal and the person making the proposal, and believes in good faith, after
consultation with its Financial Advisor, based on the information available to
the Company Board at the time, that such Acquisition Proposal would, if
consummated, result in a transaction more favorable to the Company's
stockholders than the Merger (any such more favorable Acquisition Proposal being
referred to herein as a "Superior Proposal"), and (D) prior to furnishing any
information to, or entering into discussions or negotiations with any person
that makes an unsolicited bona fide Acquisition Proposal, the Company (x)
54
provides reasonable notice to Parent to the effect that it is taking such action
and (y) receives from the person submitting such Acquisition Proposal an
executed confidentiality/standstill agreement in reasonably customary form and
in any event containing terms at least as stringent as those contained in the
Confidentiality Agreement between Parent and the Company. The Company shall
notify Parent of any Acquisition Proposal (including, the material terms and
conditions thereof and the identity of the person making it) as promptly as
practicable (but in no case later than 24 hours) after its receipt thereof, and
shall thereafter inform Parent on a prompt basis of the status of any
discussions or negotiations with such third party, and any material changes to
the terms and conditions of such Acquisition Proposal, and shall promptly give
Parent a copy of any information delivered to such person which has not
previously been reviewed by Parent. The Company has ceased and terminated, and
has caused its subsidiaries and affiliates, and their respective officers,
directors, employees, investment bankers, attorneys, accountants and other
agents and representatives to cease and terminate, any existing activities,
discussions or negotiations with any parties conducted heretofore in respect of
any possible Acquisition Proposal. The Company shall take all necessary steps to
promptly inform the individuals or entities referred to in the first sentence of
this Section 6.5 of the obligations undertaken in this Section 6.5. "Acquisition
Proposal" means any inquiry, offer or proposal regarding any of the following
(other than the transactions contemplated by this Agreement) involving the
Company or any of its subsidiaries: (w) any merger, consolidation, share
exchange, recapitalization, business combination or other similar transaction;
(x) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of all or substantially all the assets of the Company and its subsidiaries,
taken as a whole, in a single transaction or series of related transactions; (y)
any tender offer or exchange offer for 20% or more of the outstanding Shares or
the filing of a registration statement under the Securities Act in connection
therewith; or (z) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
(b) The Company Board will not withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent, its approval or
recommendation of the Merger unless the Company Board after consultation with
outside legal counsel, determines in good faith that the failure to take such
action would be inconsistent with its fiduciary duties to the Company's
stockholders under applicable Law; provided, however, that the Company Board may
not approve or recommend an Acquisition Proposal (and in connection therewith,
withdraw or modify its approval or recommendation of the Merger) unless such an
Acquisition Proposal is a Superior Proposal (and the Company shall have first
complied with its obligations set forth in Section 8.3(a) and the time referred
to in the last sentence of Section 8.3(a) has expired) and unless it shall have
first consulted with outside legal counsel, and have determined that the failure
to take such action would be inconsistent with its fiduciary duties to the
Company's stockholders. Nothing contained in this Section 6.5(b) shall prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act.
Nothing contained in this Section 6.5(b) shall prohibit the Company from making
any disclosure to the Company's stockholders which, in the good faith reasonable
judgment of the Company Board, after consultation with outside legal counsel, is
required under applicable Law; provided, however, that except as otherwise
permitted in this Section 6.5(b), the Company does not withdraw or modify, or
propose to withdraw or modify, its position in respect of the Merger or approve
or recommend, or propose to approve or recommend, an Acquisition Proposal.
Notwithstanding anything contained in this Agreement to the contrary, any action
55
by the Company Board permitted by, and taken in accordance with, this Section
6.5(b) shall not constitute a breach of this Agreement by the Company. Nothing
in this Section 6.5(b) shall (i) permit the Company to terminate this Agreement
(except as provided in Article VIII hereof) or (ii) affect any other obligations
of the Company under this Agreement.
SECTION 6.6 Public Announcements. Each of Parent, Merger Sub and the
Company will consult with one another before issuing any press release or
otherwise making any public statements in respect of the transactions
contemplated by this Agreement, including, the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by applicable Law, as determined by Parent, Merger Sub
or the Company, as the case may be.
SECTION 6.7 Directors' and Officers' Indemnification and Insurance.
(a) From and after the Effective Time, the Surviving Corporation shall,
and Parent shall cause the Surviving Corporation to the fullest extent permitted
by applicable Law to, indemnify, defend, and hold harmless each person who is
now, or has been at any time prior to the date hereof, or who becomes prior to
the Effective Time, a director, officer or employee of the Company or any
subsidiary thereof, (each an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, expenses (including, reasonable
attorneys' fees and expenses), claims, damages, costs or liabilities or, subject
to the proviso of the next succeeding sentence, amounts paid in settlement, in
connection with any claim, action, suit, proceeding or investigation, whether
civil, administrative or investigative, arising out of actions or omissions
occurring at or prior to the Effective Time and whether asserted, instituted or
claimed prior to, at or after the Effective Time that are in whole or in part
based on, or arising out of the fact that such person is or was a director,
officer, or employee of the Company. Without limiting the foregoing, in the
event of any such loss, expense, claim, damage, cost or liability (whether or
not arising before the Effective Time), (A) the Surviving Corporation shall pay
the reasonable fees and expenses of counsel selected by the Indemnified Parties,
which counsel shall be reasonably satisfactory to the Surviving Corporation,
promptly after statements therefor are received and otherwise advance to such
Indemnified Party, upon request for reimbursement, documented expenses
reasonably incurred, in either case to the extent not prohibited by the DGCL and
upon receipt of any affirmation and undertaking required by the DGCL, (B) the
Surviving Corporation will cooperate in the vigorous defense of any such matter
and (C) any determination required to be made in respect of whether an
Indemnified Party's conduct complies with the standards set forth under the DGCL
and the Surviving Corporation's charter or bylaws shall be made as provided by
applicable Law, subject to the rights of the Indemnified Party to have such
determination made in a court proceeding; provided, however, that the Surviving
Corporation shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld). The
Indemnified Parties as a group may retain only one law firm in respect of each
related matter except to the extent there is, in the opinion of counsel to an
Indemnified Party, under applicable standards of professional conduct, a
conflict on any significant issue between positions of any two or more
Indemnified Parties.
56
(b) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the policies of directors'
and officers' liability insurance maintained by the Company for the benefit of
those persons who are covered by such policies at the Effective Time (or the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms that are in all material respects not less
advantageous to the insured parties in respect of matters occurring prior to the
Effective Time), to the extent that such liability insurance can be maintained
annually at a cost to the Surviving Corporation not greater than 125% of the
premium for the current Company directors' and officers' liability insurance;
provided, however, that if such insurance cannot be so maintained or obtained at
such costs, the Surviving Corporation shall maintain or obtain as much of such
insurance as can be so maintained or obtained at a cost equal to 125% of the
current annual premiums of the Company for such insurance.
(c) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity or such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, or otherwise dissolves or liquidates, then and in either such
case, proper provision shall be made so that the successors and assigns of the
Surviving Corporation (or Parent, in the case of a dissolution or liquidation)
shall assume the obligations set for in this Section 6.7.
(d) To the fullest extent permitted by Law, from and after the
Effective Time, all rights to liability limitation, exculpation or
indemnification now existing in favor of the employees, directors or officers of
the Company and its subsidiaries in respect of their activities or omissions as
such prior to the Effective Time, as provided in the Company's charter or bylaws
or in any applicable agreement, in effect on the date thereof or otherwise in
effect on the date hereof, shall survive the Merger and shall continue in full
force and effect thereafter.
(e) The provisions of this Section 6.7 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs, and his or her representatives.
SECTION 6.8 Notification of Certain Matters. The Company shall give
prompt notice to Parent and Merger Sub, and Parent and Merger Sub shall give
prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Time so as to cause the conditions set
forth in Article VII hereof to fail to be satisfied, or (ii) any material
failure of the Company, Parent or Merger Sub, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder so as to cause the conditions set forth in Article VII hereof to
fail to be satisfied; provided, however, that the delivery of any notice
pursuant to this Section 6.8 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.9 Tax-Free Reorganization Treatment. The parties hereto
intend that the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code. Each of the parties hereto shall, and shall cause
its respective subsidiaries to, use its reasonable best efforts to cause the
57
Merger to so qualify. The parties will use their reasonable best efforts to
cause the opinions of counsel contemplated by Sections 7.2(d) and 7.3(d) to be
timely delivered, including providing all supporting representations reasonably
requested by such counsel and customary in scope and substance.
SECTION 6.10 Employee Matters.
(a) The Company shall, at Parent's request, terminate the Company
Option Plans prior to the Closing Date.
(b) Except as contemplated by this Agreement, Parent will and will
cause the Surviving Corporation to honor the obligations of the Company or any
of its subsidiaries under the provisions of each Company Benefit Plan and
Company Employee Arrangement; provided that the Company shall have the right at
any time to amend or terminate any such Company Benefit Plan or Company Employee
Arrangement in accordance with its terms. The employees of the Company will be
eligible to participate in Parent's applicable employee benefit plans, as such
plans may be in effect from time to time, as soon as administratively convenient
(as determined at Parent's sole discretion) after the Effective Time and, at
Parent's sole discretion, will become employees of Parent or any of its
subsidiaries. Until such time as employees of the Company (the "Company
Employees") become eligible to participate in Parent's applicable employee
benefit plans (the "Benefits Integration Date"), Parent shall cause such
employee benefits to be maintained for such Company Employees that are, in the
aggregate, no less favorable than those provided to such Company Employees
immediately prior to the Effective Time. Following the Benefits Integration
Date, with respect to each plan maintained by Parent in which any Company
Employee participates (each, a "Parent Plan") that is an "employee benefit plan"
as defined in Section 3(3) of ERISA, for purposes of eligibility to participate,
vesting and, solely with respect to severance and vacation, level of benefit
entitlement (including for purposes of benefits accrual during the last actual
twelve months), service with the Company and its affiliates (or predecessor
employers to the extent the Company and its affiliates provided past service
credit) shall be treated as service with Parent to the same extent such service
was counted under the corresponding Company Benefit Plan, if any; provided,
however, that such service shall not be recognized to the extent that such
recognition would result in a duplication of benefits. Such service also shall
apply for purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitations. Each
Parent Plan shall waive preexisting condition limitations to the same extent
waived under the corresponding Company Benefit Plan. Company Employees shall be
given credit under the applicable Parent Plan for amounts paid under a
corresponding Company Benefit Plan during the same period as though such amounts
had been paid in accordance with the terms and conditions of the Parent Plan.
(c) Upon the request of Parent, the Company's Board of Directors shall
adopt a resolution terminating the Company's 401(k) plan and 100% vesting of
participants' accounts in the plan as of the Effective time. In addition, upon
the request of Parent, the Company shall take appropriate action to terminate
its 401(k) plan and shall seek a determination of termination from the IRS
regarding the qualified status of such 401(k) plan.
58
SECTION 6.11 Company Affiliate Agreements. Section 6.11 of the Company
Disclosure Schedule sets forth a list of all persons who are, and all persons
who to the Company's knowledge will be at the Closing Date, "affiliates" of the
Company for purposes of Rule 145 under the Securities Act. The Company will
cause such list to be updated promptly through the Closing Date. Not later than
10 days prior to the date of the Company Stockholder Meeting, the Company shall
cause its "affiliates" to deliver to Parent a Company Affiliate Agreement (the
"Company Affiliate Agreement") substantially in the form attached as Exhibit A.
SECTION 6.12 SEC and Other Filings. Each of Parent and the Company
shall promptly provide the other party (or its counsel) with copies of all
filings made by the other party or any of its subsidiaries with the SEC or any
other state, federal or foreign Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
SECTION 6.13 Fees and Expenses. Whether or not the Merger is
consummated, all Expenses incurred in connection with this Agreement and the
transactions contemplated hereby and thereby shall be paid by the party
incurring such Expenses, except (a) Expenses incurred in connection with the
filing, printing and mailing of the Proxy Statement and the S-4, which shall be
shared equally by the Company and Parent, and (b) if applicable, as provided in
Section 8.5. As used in this Agreement, "Expenses" includes all out-of-pocket
expenses (including all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its affiliates) incurred
by a party or on its behalf in connection with, or related to, the
authorization, preparation, negotiation, execution and performance of this
Agreement and the transactions contemplated hereby, including the preparation,
filing, printing and mailing of the Proxy Statement and the S-4 and the
solicitation of stockholder approvals and all other matters related to the
transactions contemplated hereby.
SECTION 6.14 Obligations of Merger Sub. Parent will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement.
SECTION 6.15 Antitakeover Statutes. If any Takeover Statute is or may
become applicable to the Merger, each of Parent and the Company shall use their
reasonable best efforts to permit the transactions contemplated by this
Agreement, as applicable, to be consummated as promptly as practicable on the
terms contemplated hereby and otherwise act to eliminate or minimize the effects
of any Takeover Statute on the Merger.
SECTION 6.16 Parent Board Seats. At the Effective Time, Parent shall
have taken all action necessary as allowed under applicable Law, its Certificate
of Incorporation and Bylaws to amend its bylaws to increase the size of Parent's
board of directors to seven (7) members. For the period of three (3) years
following the Effective Time, Xxxxxx X. Xxxxx, as representative of the holders
of Company Common Stock, shall have the right to designate three (3) individuals
to serve on Parent's board of directors, all of whom shall be acceptable to
Parent in its reasonably discretion. Assuming such designees are willing to
serve on Parent's board of directors, Parent's board of directors shall take all
reasonable actions necessary to nominate such designees to be approved by
59
Parent's stockholders. On or before the Effective Time, Parent shall have
obtained customary director and officer insurance, which shall provide claims
coverage of a minimum of $5,000,000 per claim.
SECTION 6.17 Delivery of Disclosure Schedules. On or before five (5)
business days from the date hereof, (a) the Company shall deliver to Parent the
Company Disclosure Schedule and all contracts, agreements, and documents
referred to therein, all in the form and substance satisfactory to Parent in its
sole discretion, and (b) Parent shall deliver to the Company the Parent
Disclosure Schedule, and all contracts, agreements, and documents referred to
therein, all in the form and substance satisfactory to Parent in its sole
discretion. Any provision in this Agreement indicating that documents or
information has previously been provided to Parent, Merger Sub, or the Company
or will be provided to such parties hereafter shall be deemed to require
delivery of such information within five (5) business days from the date of this
Agreement.
Article VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Effective Time of each of the following conditions, any or all of which may be
waived in whole or in part by the party being benefited thereby, to the extent
permitted by applicable Law:
(a) The Merger shall have been approved and adopted by the Company
Requisite Vote.
(b) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement and no
Governmental Entity shall have instituted any proceeding which continues to be
pending seeking any such Law.
(c) The S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending effectiveness
shall have been issued and no action, suit, proceeding or investigation by the
SEC or any state securities administrator to suspend the effectiveness thereof
shall have been threatened, initiated and be continuing.
(d) By the approval of seventy five percent (75%) of the Evaluation
Committee, the Evaluation Committee shall have (i) identified the holders of
Company Stock Options that will be required to re-vest under the Assumed Stock
Options; (ii) determined the re-vesting schedule for the applicable Assumed
Stock Options; and (iii) obtained all required consents to lawfully implement
the re-vesting of such Assumed Stock Options.
SECTION 7.2 Conditions to the Obligations of Parent and Merger Sub. The
respective obligations of Parent and Merger Sub to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Effective Time of each of the following additional conditions, any or all of
60
which may be waived in whole or part by Parent and Merger Sub, as the case may
be, to the extent permitted by applicable Law:
(a) The representations and warranties of the Company contained herein
shall have been true in all respects when made and on and as of the Closing Date
as though made on and as of the Closing Date (except for representations and
warranties made as of a specified date, which shall speak only as of the
specified date), except where the failure to be true, individually or in the
aggregate, has not had or is not reasonably expected to have a Material Adverse
Effect on the Company and its subsidiaries taken as a whole.
(b) The Company shall have performed or complied in all material
respects with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Parent a certificate, dated the
date of the Closing, signed by the President or any Vice President of the
Company (but without personal liability thereto), certifying as to the
fulfillment of the conditions specified in Sections 7.2(a) and 7.2(b).
(d) Parent shall have received an opinion of its tax counsel, Xxxxx &
Xxxxxx L.L.P., dated the Effective Time, to the effect that (i) the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code;
and (ii) each of Parent, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code. The issuance of
such opinion shall be conditioned on the receipt by such tax counsel of
representation letters from each of the Parent, Merger Sub and the Company,
substantially in the forms attached hereto as Exhibits C and D in each case, in
form and substance reasonably satisfactory to Xxxxx & Xxxxxx L.L.P. Each such
representation letter shall be dated on or before the date of such opinion and
shall not have been withdrawn or modified in any material respect.
(e) All authorizations, consents or approvals of a Governmental Entity
(other than those specified in Section 7.1(b)) required in connection with the
execution and delivery of this Agreement and the performance of the obligations
hereunder shall have been made or obtained, without any limitation, restriction
or condition that is reasonably expected to have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole (or an effect on Parent and
its subsidiaries that, were such effect applied to the Company and its
subsidiaries, is reasonably expected to have a Material Adverse Effect on the
Company), except for such authorizations, consents or approvals, the failure of
which to have been made or obtained is not reasonably expected to have a
Material Adverse Effect on the Company and its subsidiaries taken as a whole (or
an effect on Parent and its subsidiaries that, were such effect applied to the
Company and its subsidiaries, is reasonably expected to have a Material Adverse
Effect on the Company).
(f) Parent shall have received from the Company's "affiliates" a
Company Affiliate Agreement substantially in the form attached as Exhibit A.
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(g) Excluding Xxxxxxx X. Xxxxx and Xxxxxxxx Xxxxxxx, Parent shall have
received from its officers, directors, and five percent (5%) stockholders
(calculated on a post-closing basis) an executed Lock-Up Agreement in the form
attached as Exhibit B.
(h) Stockholders of the Company holding no more than 20% of the Company
Common Stock shall have elected any appraisal rights or associated payments
under Section 262 of the DCGL.
(i) All convertible debentures, convertible promissory notes, Canadian
shares, and any other equity or debt securities shall have been converted into
Company Common Stock.
(j) The Company's disputes with Xxxxx Xxxxxxxxx, Xxxxxx Xxxxxxx, Xxxxx
Xxxxxxx-Xxxxxxx, and Xxxx Xxx shall have been settled on terms acceptable to
Parent, and Xxxxx Xxxxxxxxx, Xxxxxx Xxxxxxx, Xxxxx Xxxxxxx-Xxxxxxx, and Xxxx Xxx
shall have provided a release of any known or unknown claims against the
Company.
(k) Parent shall have received an opinion, dated the Effective Time,
from Xxxxxxx Xxxxx & Xxxxxxx, counsel to the Company, in the form reasonably
acceptable to Parent and its legal counsel regarding the due authorization of
the Company entering and performing this Agreement and the Merger,
enforceability of this Agreement and the Merger, and no conflicts with the
charter or bylaws of the Company.
SECTION 7.3 Conditions to the Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or prior to the Effective Time of
each of the following conditions, any or all of which may be waived in whole or
in part by the Company to the extent permitted by applicable Law:
(a) The representations and warranties of Parent and Merger Sub
contained herein shall be true in all respects when made and on and as of the
Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall speak
only as of the specified date), except where the failure to be true,
individually or in the aggregate, has not had or is not reasonably expected to
have a Material Adverse Effect on Parent and its subsidiaries taken as a whole.
(b) Parent shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) Parent shall have delivered to the Company a certificate, dated the
date of the Closing, signed by the President or any Vice President of Parent
(but without personal liability thereto), certifying as to the fulfillment of
the conditions specified in Sections 7.3(a) and 7.3(b).
(d) (i) The Company shall have received an opinion of Xxxxx & Xxxxxx
L.L.P., dated the Effective Time, to the effect that the Merger will qualify as
a reorganization within the meaning of Section 368(a) of the Code; and (ii) each
62
of Parent, Merger Sub and the Company will be a party to the reorganization
within the meaning of Section 368(b) of the Code. The issuance of such opinion
shall be conditioned on the receipt by such tax counsel of representation
letters from each of the Parent, Merger Sub and the Company, in each case, in
form and substance reasonably satisfactory to Xxxxx & Xxxxxx L.L.P. Each such
representation letter shall be dated on or before the date of such opinion and
shall not have been withdrawn or modified in any material respect.
(e) The Company shall have received an opinion, dated the Effective
Time, from Xxxxx & Xxxxxx, L.L.P., counsel to Parent, in the form reasonably
acceptable to the Company and its legal counsel regarding the due authorization
of the Parent and Merger Sub entering and performing this Agreement and the
Merger, enforceability of this Agreement and the Merger, and no conflicts with
the charter or bylaws of Parent or Merger Sub.
(f) Excluding Xxxxxxx X. Xxxxx and Xxxxxxxx Xxxxxxx, Parent shall have
received from its officers, directors, and five percent (5%) stockholders
(calculated on a post-closing basis) an executed Lock-Up Agreement in the form
attached as Exhibit B.
Article VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval of the Merger by the Company
Requisite Vote referred to in Section 7.1(a), by mutual written consent of the
Company and Parent by action of their respective boards of directors.
SECTION 8.2 Termination by Either Parent or the Company. This Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time by action of the board of directors of either Parent or the
Company if:
(a) the Merger shall not have been consummated by February 22, 2002,
whether such date is before or after the date of approval of the Merger by the
Company Requisite Vote (the "Termination Date"); provided, however, that if
either Parent or the Company reasonably determines in good faith that additional
time is necessary in connection with obtaining any consent, registration,
approval, permit or authorization required to be obtained from any Governmental
Entity, the Termination Date may be extended by Parent or the Company from time
to time by written notice to the other party to a date not beyond March 29,
2002;
(b) the Company Requisite Vote shall not have been obtained at the
Company Stockholder Meeting or at any adjournment or postponement thereof;
(c) any Law permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether before
or after the approval of the Merger by the Company Requisite Vote); or
63
(d) any Governmental Entity shall have failed to issue an order, decree
or ruling or to take any other action which is necessary to fulfill the
conditions set forth in Sections 7.1(b) and 7.2(e), as applicable, and such
denial of a request to issue such order, decree or ruling or take such other
action shall have been final and nonappealable; provided, however, that the
right to terminate this Agreement pursuant to this Section 8.2 shall not be
available to any party that has breached in any material respect its obligations
under this Agreement in any manner that shall have proximately contributed to
the occurrence of the failure of the Merger to be consummated.
SECTION 8.3 Termination by the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Company Board:
(a) if (i) the Company Stockholder Meeting shall not have been held and
completed, (ii) the Company Board authorizes the Company, subject to complying
with the terms of this Agreement, to enter into a binding written agreement
concerning a transaction that constitutes a Superior Proposal and the Company
notifies Parent in writing that it intends to enter into such an agreement,
attaching the most current version of such agreement to such notice, and (iii)
during the three business day period after the Company's notice, (A) the Company
shall have negotiated with, and shall have caused its respective financial and
legal advisors to negotiate with, Parent to attempt to make such adjustments in
the terms and conditions of this Agreement as would enable the Company to
proceed with the transactions contemplated hereby and (B) the Company Board
shall have concluded, after considering the results of such negotiations, that
any Superior Proposal giving rise to the Company's notice continues to be a
Superior Proposal. The Company may not effect such termination unless
contemporaneously therewith the Company pays to Parent in immediately available
funds the fees required to be paid pursuant to Section 8.5. The Company agrees
(x) that it will not enter into a binding agreement referred to in clause (ii)
above until at least the day following the third business day after it has
provided the notice to Parent required thereby and (y) to notify Parent promptly
if its intention to enter into a written agreement referred to in its
notification shall change at any time after giving such notification;
(b) if there is a breach by Parent or Merger Sub of any representation,
warranty, covenant or agreement contained in this Agreement that cannot be cured
and would cause a condition set forth in Section 7.3(a) or 7.3(b) to be
incapable of being satisfied as of the Termination Date;
(c) if the Parent Disclosure Schedule is not delivered to the Company,
and accepted by the Company, as provided in Section 6.17; provided that this
termination right must be exercised on or before the fifth business day
following actual receipt of the Parent Disclosure Schedule and the contracts,
agreements, and documents referred to therein as required to be delivered
pursuant to Section 6.17; or
(d) if Parent's representations and warranties set forth in Section 4.4
are not correct in any material respect.
SECTION 8.4 Termination by Parent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by Parent,
if:
64
(a) either (i) the Company enters into a binding agreement for a
Superior Proposal, or (ii) the Company Board shall have withdrawn or adversely
modified its approval or recommendation of the Merger; or
(b) there is a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement that cannot be cured and would
cause a condition set forth in Section 7.2(a) or 7.2(b) to be incapable of being
satisfied as of the Termination Date.
(c) if the Company Disclosure Schedule is not delivered to Parent, and
accepted by the Parent, as provided in Section 6.17; provided that this
termination right must be exercised on or before the fifth business day
following actual receipt of the Company Disclosure Schedule and the contracts,
agreements, and documents referred to therein as required to be delivered
pursuant to Section 6.17.
SECTION 8.5 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article VIII, this Agreement (other than this
Section 8.5, Sections 5.3(c) and 6.13, and Article IX) shall become void and of
no effect with no liability on the part of any party hereto (or of any of its
directors, officers, employees, agents, legal and financial advisors, or other
representatives); provided, however, that except as otherwise provided herein,
no such termination shall relieve any party hereto of any liability or damages
resulting from any willful breach of this Agreement.
(b) In the event that (i) a bona fide Acquisition Proposal shall have
been made or any person shall have publicly announced an intention (whether or
not conditional) to make a bona fide Acquisition Proposal in respect of the
Company or any of its subsidiaries and thereafter this Agreement is terminated
by either Parent or the Company pursuant to Section 8.2(b) or by the Parent
pursuant to Section 8.4(b) as a result of a material breach by the Company of
any of the covenants set forth in Section 6.5 hereof (provided that within 9
months of the termination of this Agreement any Acquisition Proposal by a third
party is entered into, agreed to, or consummated by the Company) or (ii) this
Agreement is terminated by the Company pursuant to Section 8.3(a), or (iii) this
Agreement is terminated by Parent pursuant to Section 8.4(a)(i), or (iv) this
Agreement is terminated by Parent pursuant to Section 8.4(a)(ii) and, within 9
months of such termination, any Acquisition Proposal by any third party is
entered into, agreed to or consummated by the Company, then the Company shall
pay Parent a termination fee of $1,500,000 in same-day funds, on the date of
such termination, in the case of clause (ii) or (iii), or on the earlier of the
date an agreement is entered into in respect of an Acquisition Proposal or an
Acquisition Proposal is consummated in the case of clause (i) or (iv).
(c) The Company acknowledges that the agreements contained in Section
8.5(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Parent and Merger Sub would not have entered
into this Agreement; accordingly, if the Company fails to promptly pay the
amount due pursuant to Section 8.5(b), and, in order to obtain such payment,
Parent commences a suit which results in a judgment against the Company for the
fee set forth in this Section 8.5, the Company shall pay to Parent its costs and
expenses (including, attorneys' fees) in connection with such suit, together
with interest from the date of termination of this Agreement on the amounts owed
at the prime rate of Bank of America, N.A., in effect from time to time during
such period.
SECTION 8.6 Amendment. This Agreement may be amended by action taken by
the Company, Parent and Merger Sub at any time before or after approval of the
65
Merger by the Company Requisite Vote but, after any such approval, no amendment
shall be made which requires the approval of such stockholders under applicable
Law without such approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of the parties hereto.
SECTION 8.7 Extension; Waiver. At any time prior to the Effective Time,
each party hereto (for these purposes, Parent and Merger Sub shall together be
deemed one party and the Company shall be deemed the other party) may (i) extend
the time for the performance of any of the obligations or other acts of the
other party, (ii) waive any inaccuracies in the representations and warranties
of the other party contained herein or in any document, certificate or writing
delivered pursuant hereto, or (iii) waive compliance by the other party with any
of the agreements or conditions contained herein. Any agreement on the part of
either party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
any party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights.
Article IX
MISCELLANEOUS
SECTION 9.1 Entire Agreement; Assignment.
(a) This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the parties hereto in respect
of the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties in respect of the
subject matter hereof, other than the Confidentiality Agreement (which shall
remain in effect).
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by operation of Law (including by merger
or consolidation) or otherwise without the prior written consent of the other
parties. Any assignment in violation of the preceding sentence shall be null and
void. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by the parties and their respective
successors and permitted assigns.
SECTION 9.2 Nonsurvival of Representations and Warranties.
The representations and warranties made herein by the parties hereto
shall not survive the Effective Time. This Section 9.2 shall not limit any
covenant or agreement of the parties hereto which by its terms contemplates
performance after the Effective Time or after termination of this Agreement.
SECTION 9.3 Notices. All notices, requests, instructions or other
documents to be given under this Agreement shall be in writing and shall be
66
deemed given (i) five business days following sending by registered or certified
mail, postage prepaid, (ii) when sent if sent by facsimile; provided, however,
that the facsimile is promptly confirmed by telephone confirmation thereof,
(iii) when delivered, if delivered personally to the intended recipient, and
(iv) one business day following sending by overnight delivery via a national
courier service, and in each case, addressed to a party at the following address
for such party:
if to Merger Sub or to
Parent, to: Category 5 Technologies, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with copies to: Xxxxx & Xxxxxx, L.L.P.
00 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxx X. Xxxxx
Facsimile: (000) 000-0000
Telephone No.: (000) 000-0000
if to the Company, to: NetGateway, Inc.
000 Xxxx Xxxxxxxxxx Xxxxxx
Xxxx, Xxxx 00000
Attention: Xxxx X. Xxxxxxx
Facsimile: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to: Xxxxxxx Xxxxx & Xxxxxxx
000 X. Xxxx Xxxxxx, Xxxxx #0000
Xxxx Xxxx Xxxx, Xxxx 00000
Attention: Xxxxxx X. Xxxxx III
Facsimile: (000) 000-0000
Telephone No.: (000) 000-0000
or to such other address or facsimile number as the person to whom
notice is given may have previously furnished to the other in writing in the
manner set forth above.
SECTION 9.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Utah, without giving
effect to the choice of Law principles thereof.
SECTION 9.5 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns, and, except as provided in Section 6.7, nothing in this
67
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.7 Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
SECTION 9.8 Specific Performance. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Utah or in Utah state court, this being in
addition to any other remedy to which they are entitled at Law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Utah or any
Utah state court in the event any dispute arises out of this Agreement or any of
the transactions contemplated hereby, (b) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave
from any such court, and (c) agrees that it will not bring any action relating
to this Agreement or any of the transactions contemplated hereby in any court
other than a federal or state court sitting in the State of Utah.
SECTION 9.9 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.10 Interpretation.
(a) The words "hereof," "herein," "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
68
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit, and schedule references are to the articles,
sections, paragraphs, exhibits, and schedules of this Agreement unless otherwise
specified. Whenever the words "include," "includes," or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation," the word "or" shall mean "and/or." All terms defined in this
Agreement shall have the defined meanings contained herein when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, qualified or supplemented, including (in
the case of agreements and instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and all attachments
thereto and instruments incorporated therein. References to a person are also to
its permitted successors and assigns.
(b) The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to October 23, 2001. The phrase "made available" in this Agreement
shall mean that the information referred to has been actually delivered to the
party to whom such information is to be made available.
(c) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
SECTION 9.11 Definitions. As used herein,
(a) "beneficial ownership" or "beneficially own" has the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(b) "business day" shall mean any day other than Saturday, Sunday or
any day on which banks in Salt Lake City, Utah are required or authorized by Law
to be closed for business.
(c) "know" or "knowledge" means, in respect of any party, the actual
knowledge of the officers and employees of such party actively participating in
the negotiation of this agreement and related due diligence activities, without
any requirement to undertake an independent investigation, provided that, (i) in
the case of the Company, such officers and employees shall be limited to those
persons named in Section 9.11(c) of the Company Disclosure Schedule and (ii) in
the case of Parent, such officers and employees shall be limited to those
persons named in Section 9.11(c) of the Parent Disclosure Schedule
69
(d) "Material Adverse Effect" means in respect of any entity, any
material adverse effect on (i) the assets, properties, financial condition or
results of operations of such entity and its subsidiaries taken as a whole,
other than any change, circumstance, effect or development (A) relating to the
small business services industry (it being understood that this clause (A) shall
not exclude, in the case of any Material Adverse Effect with respect to either
party, any change, circumstance, effect or development relating to the small
business services industry or economy in general in any location in which such
entity operates or owns assets that materially disproportionately impacts such
party), (B) arising out of or resulting from actions contemplated by the parties
in connection with, or which is attributable to, the announcement of this
Agreement and the transactions contemplated hereby (including loss of customers,
suppliers or employees or the delay or cancellation of orders for products), or
(C) any shareholder litigation or litigation by any Governmental Entity, in each
case brought or threatened against such entity or any member of its board of
directors in respect of this Agreement or the transactions contemplated hereby;
provided that any change in the market price or trading volume of the Company
Common Stock or Parent Common Stock shall not, in and of itself, constitute a
Material Adverse Effect, or (ii) the ability of such party to consummate the
transactions contemplated by this Agreement.
(e) "person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(f) "subsidiary" means, in respect of any party, any corporation,
partnership or other entity or organization, whether incorporated or
unincorporated, of which (i) such other party or any other subsidiary of such
party is a general partner (excluding such partnerships where such party or any
subsidiary of such party does not have a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions in respect of such corporation
or other organization is directly or indirectly owned or controlled by such
party or by any one or more of its subsidiaries, or by such party and one or
more of its subsidiaries.
[THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
70
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the date first above written.
NETGATEWAY, INC.
By: /s/ Xxxxxx Xxxxx
------------------------------------
Name: Xxxxxx Xxxxx
Title: Chairman, President and CEO
CATEGORY 5 TECHNOLOGIES, INC.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chief Executive Officer
C5T ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxx
Title: President
71
Exhibit A
---------
[FORM OF COMPANY AFFILIATE AGREEMENT TO PARENT]
___________ ___, 2001
Category 5 Technologies, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Dear Sir/Madam:
Reference is made to the provisions of the Agreement and Plan of
Merger, dated as of October 23, 2001 (together with any amendments thereto, the
"Merger Agreement"), among NetGateway, Inc., a Delaware corporation (the
"Company"), Category 5 Technologies, Inc., a Nevada corporation ("Parent"), and
C5T Acquisition Corp., a Delaware corporation and a direct wholly owned
subsidiary of Parent ("Merger Sub"), pursuant to which Merger Sub will be merged
with and into the Company, with the Company continuing as the surviving
corporation (the "Merger"). This letter constitutes the undertakings of the
undersigned contemplated by the Merger Agreement, as is being furnished pursuant
to Section 6.11 thereto.
I understand that I may be deemed to be an "affiliate" of the Company,
as such term is defined for purposes of paragraphs (c) and (d) of Rule 145
("Rule 145") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Execution of this letter shall not be construed as an
admission of "affiliate" status nor as a waiver of any rights that I may have to
object to any claim that I am an "affiliate" on or after the date of this
letter.
If in fact I were to be deemed an "affiliate" of the Company under
paragraphs (c) and (d) of Rule 145, my ability to sell, transfer or otherwise
dispose of any shares of the common stock, par value $0.001 per share, of Parent
(the "Parent Shares") received by me in exchange for any shares of Company
Capital Stock (as defined in the Merger Agreement) pursuant to the Merger may be
restricted.
I hereby represent, warrant and covenant to Parent that I will not
sell, pledge, transfer, or otherwise dispose of any of the Parent Shares except
(i) pursuant to an effective registration statement under the Securities Act, or
(ii) as permitted by, and in accordance with, Rule 145 or another applicable
exemption under the Securities Act and the rules and regulations promulgated
thereunder; and
I hereby acknowledge that, except as otherwise provided in the Merger
Agreement, Parent is under no obligation to register the sale, transfer, pledge,
or other disposition of the Parent Shares or to take any other action necessary
for the purpose of making an exemption from registration available.
I understand that Parent will issue stop transfer instructions to its
transfer agents with respect to the Parent Shares and that a restrictive legend
will be placed on certificates delivered to me evidencing the Parent Shares in
substantially the following form:
A-1
"This certificate and the shares represented hereby have been issued
pursuant to a transaction governed by Rule 145 ("Rule 145") promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
sold or otherwise disposed of unless registered under the Securities Act
pursuant to a Registration Statement in effect at the time or unless the
proposed sale or disposition can be made in compliance with Rule 145 or without
registration in reliance on another exemption therefrom."
The term Parent Shares as used in this letter shall mean and include
not only the common stock of Parent as presently constituted, but also any other
stock which may be issued in exchange for, in lieu of, or in addition to, all or
any part of such Parent Shares.
I hereby acknowledge that Parent and its independent public accountants
will be relying upon this letter and that I understand the requirements of this
letter and the limitations imposed upon the transfer, sale or other disposition
of the Company Shares and the Parent Shares.
Very truly yours,
-----------------------------------
Name:
A-2
Exhibit B
---------
LOCK-UP AGREEMENT
Category 5 Technologies, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
1. In consideration of Category 5 Technologies, Inc. (the "Parent")
entering into the Agreement and Plan of Merger (the "Merger Agreement"), dated
October 23, 2001, among NetGateway, Inc., a Delaware corporation (the
"Company"), Parent, and C5T Acquisition Corp., a Delaware corporation and a
direct wholly owned subsidiary of Parent ("Merger Sub"), pursuant to which
Merger Sub will be merged with and into the Company, with the Company continuing
as the surviving corporation (the "Merger"), and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the undersigned
agrees that the undersigned will not, for a period of 12 months subsequent to
the Effective Time of the Merger, offer, sell, contract to sell or otherwise
dispose of (other than pursuant to bona fide gifts to persons who agree in
writing to be bound by the provisions of this Agreement ) any of (1) the
undersigned's options to purchase shares of Common Stock of the Company, or (2)
any shares of Common Stock of the Company, without prior written consent of the
Company; except in accordance with Rule 144(e) of the Securities Act of 1933, as
amended.
2. The undersigned hereby acknowledges that this Lock-Up Agreement is
valid and binding notwithstanding any prior agreements relating to this matter
and further agrees and consents to the entry of stop-transfer of shares of
Common Stock of the Company held by the undersigned except in compliance with
this Agreement. The undersigned also understands that the Company will proceed
in executing the Merger Agreement in reliance on this Lock-Up Agreement.
Signature:___________________________
Print Name: _________________________
Date: _______________________________
B-1
Exhibit C
---------
COMPANY CERTIFICATE
In connection with the merger (the "Merger") of C5T Acquisition Corp.
("Merger Sub"), a Delaware corporation and a direct wholly owned subsidiary of
Category 5 Technologies, Inc., a Nevada corporation ("Parent"), with and into
NetGateway, Inc., a Delaware corporation (the "Company"), pursuant to the
Agreement and Plan of Merger dated as of October 23, 2001 (the "Merger
Agreement"), among the Company, Parent and Merger Sub, the Company hereby
certifies the following (any capitalized terms used but not defined herein
having the meaning given to such term in the Merger Agreement):
(a) The consideration to be received in the Merger by the shareholders
of the Company was the result of arm's length bargaining between the managements
of Parent and the Company. The fair market value of the common stock of Parent
("Parent Common Stock") and any cash received in lieu of fractional shares to be
received by each shareholder of the Company will be approximately equal to the
fair market value of the common stock of Company ("Company Common Stock")
surrendered in the Merger.
(b) The payment of cash in lieu of fractional shares of Parent Common
Stock in the Merger is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares, if any, and does not
represent separately bargained-for consideration. The total cash consideration
that will be paid in the Merger to holders of Company Common Stock instead of
issuing fractions of Parent Common Stock will not exceed one percent (1%) of the
total consideration that will be issued in the Merger to holders of Company
Common Stock in exchange for their Company Common Stock.
(c) Prior to and in connection with the Merger, no shares of Company
Common Stock have been or will be (i) redeemed by the Company, (ii) acquired by
a person related to the Company (within the meaning of Treasury Regulation
Section 1.368-1(e)(3) determined without regard to Treasury Regulation Section
1.368-1(e)(3)(i)(A)) for consideration other than Parent Common Stock or Company
Common Stock, or (iii) the subject of any extraordinary distribution by the
Company.
(d) There is no plan or intention on the part of any shareholder of the
Company who owns five percent or more of the Company Common Stock, and to the
best knowledge of the Company there is no plan or intention on the part of any
of the remaining shareholders of the Company, to sell, exchange or otherwise
dispose of any Parent Common Stock to be received in the Merger by such holder
directly or indirectly to Parent or to a person related to Parent (within the
C-1
meaning of Treasury Regulation Section 1.368-1(e)(3)) for consideration other
than Parent Common Stock.
(e) The Company has no outstanding equity interests other than as
described in Section 3.2 of the Merger Agreement. At the Effective Time, and
following the Merger, the Company will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to which
any person could acquire stock in the Company.
(f) The Company has no plan or intention to issue additional shares of
its stock.
(g) Except as set forth in Section 6.13 of the Merger Agreement, the
Company and its shareholders will pay their respective expenses, if any,
incurred in connection with the Merger.
(h) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986, as amended (the
"Code").
(i) The Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
(j) There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued, acquired or
will be settled at a discount.
(k) None of the compensation to be received by any shareholder-employee
of the Company in the Merger will be separate consideration for, or allocable
to, any of such person's shares of Company Common Stock; none of the Parent
Common Stock to be received by any shareholder-employee of the Company will be
separate consideration for, or allocable to, any past or future services, and
the compensation to be paid to any shareholder-employee after the Merger will be
for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
(l) In the Merger, shares of Company Common Stock representing control
of the Company within the meaning of Section 368(c) of the Code will be
exchanged solely for Parent Common Stock. For purposes of this representation,
any shares of Company Common Stock exchanged for cash or other property
originating with Parent or any person related to Parent (within the meaning of
Treasury Regulation Section 1.368-1(e)(3)) will be treated as outstanding
Company Common Stock on the date of the Merger.
(m) In connection with the Merger, the Company has not sold,
transferred or otherwise disposed of any of its assets as would prevent Parent
or members of its qualified group (within the meaning of Treasury Regulation
1.368-1(d)(4)(ii)) from causing the Company after the Merger to continue the
historic business of the Company or to use a significant portion of the
Company's historic business assets in a business.
C-2
(n) On the date of the Merger, the fair market value of the assets of
the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(o) Following the Merger, the Company will hold at least 90% of the
fair market value of its net assets and at least 70% of the fair market value of
its gross assets held immediately prior to the Merger and at least 90% of the
fair market value of the net assets and at least 70% of the fair market value of
the gross assets of Merger Sub held immediately prior to the Merger. For
purposes of this representation, amounts paid by the Company to Company
shareholders who receive cash or other property in the Merger, amounts used by
the Company to pay its reorganization expenses and those of its shareholders,
and all redemptions and distributions (except for regular, normal dividends)
made by the Company will be included as assets of the Company immediately prior
to the Merger.
(p) All options, warrants or rights to acquire shares of Company Common
Stock were issued with an exercise price no less than fair market value at the
time of issue.
(q) The Merger is being affected for bona fide business reasons, as
described in the Proxy Statement.
(r) The Merger Agreement (including all exhibits and attachments
thereto) represents the full and complete agreement between Parent and the
Company regarding the Merger, and there are no other written or oral agreements
regarding the Merger.
(s) None of the Company's preferred stock is issued and outstanding.
C-3
IN WITNESS WHEREOF, the Company has executed this Certificate on this
_____ day of ___________, 2001.
NETGATEWAY, INC.
By:_____________________
Name:
Title:
C-4
Exhibit D
---------
PARENT CERTIFICATE
In connection with the merger (the "Merger") of C5T Acquisition Corp.
("Merger Sub"), a Delaware corporation and a direct wholly owned subsidiary of
Category 5 Technologies, Inc., a Nevada corporation ("Parent"), with and into
NetGateway, Inc., a Delaware corporation (the "Company"), pursuant to the
Agreement and Plan of Merger dated as of October 23, 2001 (the "Merger
Agreement"), among Company, Parent and Merger Sub, Parent hereby certifies, on
behalf of Parent and Merger Sub, the following (any capitalized terms used but
not defined herein having the meaning given to such term in the Merger
Agreement):
(a) The consideration to be issued in the Merger to the shareholders of
the Company was the result of arm's length negotiation between the managements
of Parent and the Company. The fair market value of the common stock of Parent
("Parent Common Stock") and any cash in lieu of fractional shares to be received
by each shareholder of the Company will be approximately equal to the fair
market value of the common stock of Company ("Company Common Stock") surrendered
in the Merger.
(b) The payment of cash in lieu of fractional shares of Parent Common
Stock in the Merger is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares, if any, and does not
represent separately bargained-for consideration.
(c) In connection with the Merger, no shares of Company Common Stock
will be acquired by Parent or any person related to Parent (within the meaning
of Treasury Regulation Section 1.368-1(e)(3)) for consideration other than
Parent Common Stock and cash in lieu of fractional share interests therein.
(d) In the Merger, shares of Company Common Stock representing control
of the Company, as defined in Section 368(c) of the Internal Revenue Code of
1986, as amended (the "Code"), will be exchanged solely for Parent Common Stock.
For purposes of this representation, any shares of Company Common Stock
exchanged for cash or other property originating with Parent or any person
related to Parent (within the meaning of Treasury Regulation Section
1.368-1(e)(3)) will be treated as outstanding Company Common Stock on the date
of the Merger.
(e) Following the Merger, Parent will cause the Company to hold at
least 90% of the fair market value of its net assets and at least 70% of the
fair market value of its gross assets held immediately prior to the Merger and
at least 90% of the fair market value of the net assets and at least 70% of the
D-1
fair market value of the gross assets of Merger Sub held immediately before the
Merger. For purposes of this representation, assets transferred from Parent to
Merger Sub are not included as assets of Merger Sub immediately before the
Merger where such assets are used to pay reorganization expenses, to pay
creditors of the Company or to enable Merger Sub to satisfy state minimum
capitalization requirements (where the money is returned to Parent as part of
the transaction).
(f) Following the Merger, the historic business of the Company will be
continued by, or a significant portion of the Company's historic business assets
will be used in a business of, Parent or a corporation within Parents qualified
group (within the meaning of Treasury Regulation Section 1.368-1(d)(4)(ii)).
(g) Parent has no plan or intention to liquidate the Company; to merge
the Company with or into another corporation; to sell, distribute or otherwise
dispose of Company Common Stock acquired in the Merger except for transfers or
successive transfers of Company Common Stock to one or more corporations
controlled (within the meaning of Section 368(c) of the Code) in each case by
the transferor; or to cause the Company to sell or otherwise dispose of any of
its assets or of any of the assets acquired from Merger Sub, except for
dispositions made in the ordinary course of business or transfers or successive
transfers of assets either (i) to a corporation within Parent's "qualified
group", as defined in Treasury Regulation Section 1.368-1(d)(4)(ii) or (ii) to a
partnership described in Treasury Regulation Section 1.368-1(d)(4)(iii).
(h) In connection with the Merger, neither Parent nor any person
related to Parent (within the meaning of Treasury Regulation Section
1.368-1(e)(3)) will purchase, exchange, redeem or otherwise acquire (directly or
indirectly) any Parent Common Stock issued to holders of Company Common Stock in
the Merger.
(i) Except as set forth in Section 6.13 of the Merger Agreement, Parent
and Merger Sub will pay their respective expenses, if any, incurred in
connection with the Merger, and will not pay any of the expenses of the
shareholders of the Company incurred in connection with the Merger.
(j) Neither Parent nor any person related to Parent (within the meaning
of Treasury Regulation Section 1.368-1(e)(3)) has owned during the past five (5)
years any shares of stock of the Company.
(k) Neither Parent nor Merger Sub is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(l) Before the Merger, Parent will own one hundred percent (100%) of
Merger Sub.
(m) Parent has no plan or intention to cause the Company to issue
additional shares of stock of the Company that would result in Parent losing
control of the Company within the meaning of Section 368(c) of the Code.
D-2
(n) There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Sub and the Company that was issued, acquired or
will be settled at a discount.
(o) Merger Sub will have no liabilities assumed by the Company, and
will not transfer to the Company any assets subject to liabilities, in the
Merger.
(p) None of the compensation to be received by any shareholder-employee
of the Company in the Merger will be separate consideration for, or allocable
to, any of such person's shares of Company Common Stock; none of the shares of
Parent Common Stock to be received by any shareholder-employee of the Company
will be separate consideration for, or allocable to, any past or future
services; and the compensation to be paid to any shareholder-employee after the
Merger will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
(q) The Merger is being affected for bona fide business reasons, as
described in the Proxy Statement.
(r) The Merger Agreement (including all exhibits and attachments
thereto) represents the full and complete agreement between Parent, Merger Sub
and the Company regarding the Merger, and there are no other written or oral
agreements regarding the Merger.
D-3
IN WITNESS WHEREOF, Parent has executed this Certificate on this ____
day of ____________________, 2001.
CATEGORY 5 TECHNOLOGIES, INC.
By:____________________________
Name:
Title:
D-4
================================================================================
AGREEMENT AND PLAN OF MERGER
dated as of October 23, 2001
among
NETGATEWAY, INC.
CATEGORY 5 TECHNOLOGIES, INC.
and
C5T ACQUISITION CORP.
================================================================================
TABLE OF CONTENTS
Page
Article I
THE MERGER
SECTION 1.1 The Merger.................................................................................1
SECTION 1.2 Effective Time.............................................................................1
SECTION 1.3 Closing of the Merger......................................................................2
SECTION 1.4 Effects of the Merger......................................................................2
SECTION 1.5 Certificate of Incorporation and Bylaws....................................................2
SECTION 1.6 Directors..................................................................................2
SECTION 1.7 Officers...................................................................................2
Article II
CONVERSION OF SECURITIES
SECTION 2.1 Conversion of Shares.......................................................................3
SECTION 2.2 Stock Options and Warrants.................................................................3
SECTION 2.3 Exchange Fund..............................................................................5
SECTION 2.4 Exchange Procedures........................................................................5
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates...................................5
SECTION 2.6 No Further Ownership Rights in Company Common Stock........................................6
SECTION 2.7 No Fractional Shares of Parent Common Stock................................................6
SECTION 2.8 Termination of Exchange Fund...............................................................6
SECTION 2.9 No Liability...............................................................................7
SECTION 2.10 Investment of the Exchange Fund............................................................7
SECTION 2.11 Lost Certificates..........................................................................7
SECTION 2.12 Withholding Rights.........................................................................7
SECTION 2.13 Stock Transfer Books.......................................................................7
Article III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification; Subsidiaries...............................................8
SECTION 3.2 Capitalization of the Company and Its Subsidiaries.........................................8
SECTION 3.3 Authority Relative to This Agreement.......................................................9
SECTION 3.4 SEC Reports; Financial Statements.........................................................10
SECTION 3.5 No Undisclosed Liabilities................................................................11
i
TABLE OF CONTENTS
(continued)
Page
SECTION 3.6 Absence of Changes........................................................................11
SECTION 3.7 Information Supplied......................................................................13
SECTION 3.8 Consents and Approvals....................................................................14
SECTION 3.9 No Default................................................................................14
SECTION 3.10 Real Property.............................................................................14
SECTION 3.11 Litigation................................................................................15
SECTION 3.12 Compliance with Applicable Law; Permits...................................................16
SECTION 3.13 Employee Plans............................................................................16
SECTION 3.14 Labor Matters.............................................................................19
SECTION 3.15 Environmental Matters.....................................................................20
SECTION 3.16 Tax Matters...............................................................................22
SECTION 3.17 Absence of Questionable Payments..........................................................24
SECTION 3.18 Material Contracts........................................................................25
SECTION 3.19 Subsidies.................................................................................26
SECTION 3.20 Intellectual Property.....................................................................26
SECTION 3.21 Opinion of Financial Advisor..............................................................28
SECTION 3.22 Brokers...................................................................................28
SECTION 3.23 DGCLss. 203...............................................................................29
Article IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.1 Organization and Qualification; Subsidiaries..............................................29
SECTION 4.2 Capitalization of Parent..................................................................29
SECTION 4.3 Authority Relative to This Agreement......................................................30
SECTION 4.4 SEC Reports; Financial Statements.........................................................31
SECTION 4.5 No Undisclosed Liabilities................................................................31
SECTION 4.6 Absence of Changes........................................................................31
SECTION 4.7 Information Supplied......................................................................34
SECTION 4.8 Consents and Approvals....................................................................34
SECTION 4.9 No Default................................................................................34
SECTION 4.10 Real Property.............................................................................35
SECTION 4.11 Litigation................................................................................36
ii
TABLE OF CONTENTS
(continued)
Page
SECTION 4.12 Compliance with Applicable Law; Permits...................................................36
SECTION 4.13 Employee Plans............................................................................36
SECTION 4.14 Labor Matters.............................................................................39
SECTION 4.15 Environmental Matters.....................................................................39
SECTION 4.16 Tax Matters...............................................................................41
SECTION 4.17 Absence of Questionable Payments..........................................................43
SECTION 4.18 Material Contracts........................................................................43
SECTION 4.19 Subsidies.................................................................................44
SECTION 4.20 Intellectual Property.....................................................................45
SECTION 4.21 No Prior Activities.......................................................................47
SECTION 4.22 Brokers...................................................................................47
Article V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company and ePenzio, Inc.......................................47
SECTION 5.2 Conduct of Business of Parent.............................................................50
SECTION 5.3 Access to Information.....................................................................50
Article VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of S-4 and the Proxy Statement................................................51
SECTION 6.2 Letter of Accountants.....................................................................52
SECTION 6.3 Meeting...................................................................................52
SECTION 6.4 Reasonable Best Efforts...................................................................53
SECTION 6.5 Acquisition Proposals.....................................................................54
SECTION 6.6 Public Announcements......................................................................56
SECTION 6.7 Directors' and Officers' Indemnification and Insurance....................................56
SECTION 6.8 Notification of Certain Matters...........................................................57
SECTION 6.9 Tax-Free Reorganization Treatment.........................................................57
SECTION 6.10 Employee Matters..........................................................................58
SECTION 6.11 Company Affiliate Agreements..............................................................59
SECTION 6.12 SEC and Other Filings.....................................................................59
SECTION 6.13 Fees and Expenses.........................................................................59
iii
TABLE OF CONTENTS
(continued)
Page
SECTION 6.14 Obligations of Merger Sub.................................................................59
SECTION 6.15 Antitakeover Statutes.....................................................................59
SECTION 6.16 Parent Board Seats........................................................................59
SECTION 6.17 Delivery of Disclosure Schedules..........................................................60
Article VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Merger...............................60
SECTION 7.2 Conditions to the Obligations of Parent and Merger Sub....................................60
SECTION 7.3 Conditions to the Obligations of the Company..............................................62
Article VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement...........................................................63
SECTION 8.2 Termination by Either Parent or the Company...............................................63
SECTION 8.3 Termination by the Company................................................................64
SECTION 8.4 Termination by Parent.....................................................................64
SECTION 8.5 Effect of Termination and Abandonment.....................................................65
SECTION 8.6 Amendment.................................................................................65
SECTION 8.7 Extension; Waiver.........................................................................66
Article IX
MISCELLANEOUS
SECTION 9.1 Entire Agreement; Assignment..............................................................66
SECTION 9.2 Nonsurvival of Representations and Warranties.............................................66
SECTION 9.3 Notices...................................................................................66
SECTION 9.4 Governing Law.............................................................................67
SECTION 9.5 Descriptive Headings......................................................................67
SECTION 9.6 Parties in Interest.......................................................................67
SECTION 9.7 Severability..............................................................................68
SECTION 9.8 Specific Performance......................................................................68
SECTION 9.9 Counterparts..............................................................................68
SECTION 9.10 Interpretation............................................................................68
SECTION 9.11 Definitions...............................................................................69
iv
EXHIBITS
--------
Company Affiliate Agreement A
Lock-Up Agreement. B
Company Certificate C
Parent Certificate D
v
