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EXHIBIT 2-1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CARRIER ACCESS CORPORATION
MILLENIA ACQUISITION CORPORATION
AND
MILLENNIA SYSTEMS, INC.
Dated as of August 4, 2000
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TABLE OF CONTENTS
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INDEX OF EXHIBITS AND SCHEDULES..................................................... iv
ARTICLE I THE MERGER................................................................ 1
1.1 The Merger............................................................. 1
1.2 Effective Time; Closing................................................ 2
1.3 Effect of the Merger................................................... 2
1.4 Articles of Incorporation; Bylaws...................................... 2
1.5 Directors and Officers................................................. 2
1.6 Effect on Capital Stock................................................ 3
1.7 Dissenting Shares...................................................... 5
1.8 Surrender of Certificates.............................................. 5
1.9 No Further Ownership Rights in Company Common Stock.................... 7
1.10 Lost, Stolen or Destroyed Certificates................................. 7
1.11 Tax and Accounting Consequences........................................ 7
1.12 Taking of Necessary Action; Further Action............................. 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 8
2.1 Organization of the Company............................................ 8
2.2 Company Capital Structure.............................................. 8
2.3 Subsidiaries........................................................... 9
2.4 Authority.............................................................. 9
2.5 Company Financial Statements........................................... 10
2.6 No Undisclosed Liabilities............................................. 10
2.7 No Changes............................................................. 10
2.8 Tax and Other Returns and Reports...................................... 12
2.9 Restrictions on Business Activities.................................... 14
2.10 Title to Properties; Absence of Liens and Encumbrances................. 14
2.11 Intellectual Property.................................................. 15
2.12 Agreements, Contracts and Commitments.................................. 16
2.13 Interested Party Transactions.......................................... 18
2.14 Compliance with Laws................................................... 18
2.15 Litigation............................................................. 18
2.16 Insurance.............................................................. 19
2.17 Minute Books........................................................... 19
2.18 Environmental Matters.................................................. 19
2.19 Brokers' and Finders' Fees; Third Party Expenses....................... 20
2.20 Employee Matters and Benefit Plans..................................... 20
2.21 Employees.............................................................. 22
2.22 Governmental Authorization............................................. 22
2.23 Third Party Consents................................................... 23
2.24 Representations Complete............................................... 23
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................. 23
3.1 Organization, Standing and Power....................................... 23
3.2 Authority.............................................................. 23
3.3 Parent Capital Structure; Issuance of Shares........................... 23
3.4 SEC Filings; Parent Financial Statements............................... 24
3.5 No Conflict............................................................ 24
3.6 Governmental Approvals................................................. 24
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME...................................... 25
4.1 Conduct of Business of the Company..................................... 25
4.2 No Solicitation........................................................ 27
ARTICLE V ADDITIONAL AGREEMENTS..................................................... 28
5.1 Issuance of Parent Common Stock; Registration under Securities Act..... 28
5.2 Stockholder Approval................................................... 29
5.3 Access to Company Information.......................................... 29
5.4 Confidentiality........................................................ 30
5.5 Expenses............................................................... 30
5.6 Public Disclosure...................................................... 30
5.7 Consents............................................................... 30
5.8 FIRPTA Compliance...................................................... 30
5.9 Reasonable Efforts..................................................... 30
5.10 Notification of Certain Matters........................................ 31
5.11 Additional Documents and Further Assurances............................ 31
5.12 Nasdaq Listing; Blue Sky Laws.......................................... 31
5.13 Hart-Scott-Rodino Filings.............................................. 31
5.14 Financial Statements................................................... 31
5.15 Form S-8............................................................... 32
5.16 Employees.............................................................. 32
5.17 Administaff............................................................ 32
ARTICLE VI CONDITIONS TO THE MERGER................................................. 32
6.1 Conditions to Obligations of Each Party to Effect the Merger........... 32
6.2 Additional Conditions to Obligations of the Company.................... 32
6.3 Additional Conditions to the Obligations of Parent and Merger Sub...... 33
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW...................... 34
7.1 Survival of Representations and Warranties............................. 34
7.2 Escrow Arrangements.................................................... 35
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ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...................................... 41
8.1 Termination............................................................ 41
8.2 Effect of Termination.................................................. 42
8.3 Termination Payment.................................................... 42
8.4 Amendment.............................................................. 43
8.5 Extension; Waiver...................................................... 43
ARTICLE IX GENERAL PROVISIONS....................................................... 43
9.1 Notices................................................................ 43
9.2 Interpretation......................................................... 44
9.3 Counterparts........................................................... 45
9.4 Entire Agreement....................................................... 45
9.5 Severability........................................................... 45
9.6 Other Remedies......................................................... 45
9.7 Specific Performance................................................... 45
9.8 Governing Law.......................................................... 45
9.9 Rules of Construction.................................................. 46
9.10 Assignment............................................................. 46
9.11 Absence of Third Party Beneficiary Rights.............................. 46
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<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
Exhibit Description
Exhibit A Form of Stock Option Assumption Agreement
Exhibit B Declaration of Registration Rights
Exhibit C Form of Legal Opinion of Counsel to the Company
Exhibit D Form of Legal Opinion of Counsel to Parent
Exhibit E Form of Stockholder Certificate
Exhibit F Form of Employment Agreement
Exhibit G Form of Escrow Agreement
Schedule Description
2.2(a) Stockholder List
2.2(b) Option Holders
2.2 Subsidiaries
2.3 Governmental and Third Party Consents
2.4 Company Financial
2.5 Undisclosed Liabilities
2.6 No Changes
2.7 Tax Returns and Audits
2.8 Restrictions of Business Activities
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Trademarks and Servicemarks
2.11(b) Intellectual Property Licenses
2.11(c) Claims of Intellectual Property Infringement
2.11(d) Indemnification Contracts
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches of Contract
2.13 Interest Party Transactions
2.15 Litigation
2.16 Insurance
2.18 Environmental Matters
2.19 Expenses of Transactions
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(i)(i) Effect of Transaction
2.20(i)(ii) Excess Parachute Payments
2.20(k) Labor
2.23 Third Party Consents
4.1 Conduct of the Business of the Company
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INDEX OF EXHIBITS AND SCHEDULES
(continued)
5.16 Employee Stock Options
6.3(c) Third Party Consents Required of the Company
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AGREEMENT AND PLAN OF REORGANIZATION
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This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
August 4, 2000 among Carrier Access Corporation, a Delaware corporation
("Parent"), Millenia Acquisition Corporation, a Virginia corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Millennia Systems, Inc., a
Virginia corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Parent, Company and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. 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
common stock of the Company (as further defined in Section 2.2, the "Company
Common Stock") shall be converted into the right to receive shares of Common
Stock of Parent ("Parent Common Stock") and cash as set forth herein, and all
outstanding options (whether vested or unvested) to acquire shares of Company
Common Stock shall be assumed by Parent and shall thereafter represent options
to acquire shares of Parent Common Stock upon payment to Parent of the
applicable exercise price under such options.
C. A portion of the shares of Parent Common Stock issued by Parent in
connection with the Merger shall be placed in escrow by Parent, the release of
which shares shall be contingent upon certain events and conditions, all as set
forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Title 13.1 of the Code of Virginia (1950, as amended)
Corporations ("Virginia Law"), Merger Sub shall be merged
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with and into the Company, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of Parent. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by filing
mutually agreed upon Articles of Merger with the State Corporation Commission of
the Commonwealth of Virginia (the "SCC") in accordance with the relevant
provisions of Virginia Law (the "Articles of Merger") The Merger shall be
consummated shortly after the subsequent approval of the Articles of Merger by
the SCC and the issuance of a Certificate of Merger by the SCC (with the time
stated as such in the Certificate of Merger issued by the SCC being the
"Effective Time" of this Agreement). Unless the context otherwise requires, the
term "Agreement" as used herein refers collectively to this Agreement and Plan
of Reorganization and the Articles of Merger and the Certificate of Merger. The
closing of the Merger (the "Closing") shall take place as soon as practicable
after the Effective Time at a location, time and date to be mutually agreed upon
by the parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI (the "Closing
Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
Virginia Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all of the property, rights, privileges, powers
and franchises of Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities, duties and obligations of Company and
Merger Sub shall become the debts, liabilities, duties and obligations of the
Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation of the Surviving Corporation;
provided, however, that at the Effective Time the Articles of
Incorporation of the Surviving Corporation shall be amended so that the name of
the Surviving Corporation shall be "Millennia Systems, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Company immediately prior to the Effective Time.
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1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, as of the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or the holder of any shares of the
Company Common Stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Company Common
Stock (as defined in Section 2.2) issued and outstanding immediately prior to
the Effective Time (other than any shares of Company Common Stock to be canceled
pursuant to Section 1.6(b) and any Dissenting Shares (as defined and to the
extent provided in Section 1.7)), will be canceled and extinguished and be
converted automatically into the right to receive upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.8 the following (the "Merger Consideration"):
(i) that number of shares of Common Stock of Parent (the "Parent
Common Stock") equal to the amount obtained by (a) the quotient of $10,722,000
divided by the Deemed Closing Market Price (defined below) divided by (b) the
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number of Total Outstanding Shares (defined below) of Company (the "Exchange
Ratio"); and
(ii) the cash amount equal to $2,278,000 divided by the Total
Outstanding Shares of Company (the "Per Share Cash Consideration").
For purposes of this Agreement, the term "Total Outstanding Shares" shall
mean the sum of the number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time, on a fully-diluted, as-
converted basis, assuming that all options to purchase shares of Company Common
Stock, whether or not vested, and other rights to acquire Company Common Stock
outstanding immediately prior to the Effective Time are exercised immediately
prior to the Effective Time.
Additionally, for purposes of this Agreement, the term "Deemed Closing
Market Price" shall mean the average of the closing price per share of Parent
Common Stock as quoted on the Nasdaq National Market System for the consecutive
trading days ending the trading day immediately prior to the Closing Date (the
"Ending Date") and beginning on the day that is as many days prior to July 20,
2000 as the Ending Date is after July 20, 2000 and as adjusted to relect fully
any stock split, reverse stock split, or stock dividend, provided, that, if such
average is equal to, or greater than, $69.33 per share of Parent Common Stock,
the Deemed Closing Market Price shall be deemed to be $69.33 per share.
(b) Cancellation of Company-Owned Stock. Each share of Company Common
Stock owned by the Company of any direct or indirect wholly-owned subsidiary of
the Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Stock Options. At the Effective Time, all options to purchase
Company Common Stock issued by the Company and outstanding (the "Option
Agreements") shall be assumed by Parent in a Stock Option Assumption Agreement,
in accordance with provisions described below, substantially in the form
attached hereto as Exhibit A.
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(i) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each a "Company Option") under the Option
Agreements, whether vested or unvested, shall be assumed by Parent. Each Company
Option so assumed by Parent under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Option Agreements
governing such Company Option immediately prior to the Effective Time, except
that: (A) such Company Option shall be exercisable (when vested) for that number
of whole shares of Parent Common Stock equal to the product of the number of
shares of Company Common Stock that were issuable upon exercise of such Company
Option immediately prior to the Effective Time multiplied by the Option Exchange
Ratio (as defined below), rounded down to the nearest whole number of shares of
Parent Common Stock, and (B) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Company Option shall
be equal to the quotient determined by dividing the exercise price per share of
Company Common Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Option Exchange Ratio, rounded up to the
nearest whole cent.
(ii) It is the intention of the parties that the Company Options
assumed by Parent will not qualify, following the Effective Time, as incentive
stock options as defined in Section 422 of the Code.
(iii) Promptly following the Effective Time, Parent will issue to
each holder of an outstanding Company Option an assignment document evidencing
the foregoing assumption of such Company Option by Parent in the form set forth
in Exhibit F attached hereto. After Closing, each holder of a vested option
shall be entitled to exercise their option and acquire Parent Common Stock as
provided in their respective Option Agreement and assignment document.
(iv) "Option Exchange Ratio" shall mean that number of shares of
Parent Common Stock equal to the amount obtained by (a) the quotient of
$12,494,500 divided by the Deemed Market Price divided by the number of Total
Outstanding Shares.
(d) Capital Stock of Merger Sub. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
Certificate of Merger Sub evidencing ownership of any such shares of Common
Stock of Merger Sub shall, as of the Effective Time, evidence ownership of such
shares of Common Stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio and Option
Exchange Ratio shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Company Common Stock), reorganization,
recapitalization or other like change with respect to Company Common Stock that
occurs or has a record date after the date hereof and prior to the Effective
Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating
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all fractional shares of Parent Common Stock to be received by such holder)
shall be entitled to receive, without any interest, from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the Deemed Closing Market Price of a share of
Parent Common Stock.
1.7 Dissenting Shares
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Company Common Stock held by a holder who has demanded and
perfected appraisal or dissenters' rights for such shares in accordance with
Virginia Law and who, as of the Effective Time, has not effectively withdrawn or
lost such appraisal or dissenters' rights ("Dissenting Shares") shall not be
converted into or represent a right to receive Parent Common Stock pursuant to
Section 1.6, but the holder thereof shall only be entitled to such rights as are
granted by Virginia Law.
(b) Notwithstanding the provisions of subsection (a), if any holder
of shares of Company Common Stock who is otherwise entitled to exercise
dissenters' rights under Virginia Law shall effectively withdraw or lose
(through failure to perfect or otherwise) such dissenters' rights, then, as of
the later of the Effective Time and the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive Parent Common Stock and payment for any fractional share as provided in
Section 1.6(f), without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for the exercise of dissenters' rights in respect of any shares of
Company Common Stock, withdrawals of such demands, and any other instruments
served pursuant to Virginia Law (including without limitation instruments
concerning appraisal or dissenters' rights) and received by the Company and(ii)
the opportunity to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any demands for the
exercise of dissenters' rights in respect of any shares of Company Common Stock
or offer to settle or settle any such demands.
1.8 Surrender of Certificates
(a) Exchange Agent. Wilson Sonsini Goodrich & Rosati shall serve as
Exchange Agent in the Merger.
(b) Parent to Provide Common Stock. At or prior to the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, the shares of Parent Common Stock and cash
issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Common Stock; provided that, on behalf of the holders of record of all of the
Company Common Stock, Parent shall cause the Exchange Agent to deposit into an
escrow account a number of shares of Parent Common Stock equal to the value
(based on the Deemed Closing Market Price) of $1,300,000 (the "Escrow Amount").
The portion of the Escrow Amount contributed on behalf of each holder of Company
Common Stock shall be in proportion to the aggregate number of shares of Parent
Common Stock which such holder would otherwise be entitled
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to receive under Section 1.6 by virtue of ownership of outstanding shares of
Company Common Stock.
(c) Exchange Procedures. At Closing, provided that the holders have
surrendered to the Exchange Agent their Certificates (as defined below), on or
prior to Closing or otherwise as soon as the Exchange Agent shall have received
the Certificates, Parent shall cause the Exchange Agent to mail to each holder
of record of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock and which shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.6, (i) a certificate
representing the number of whole shares of Parent Common Stock (less the number
of shares of Parent Common Stock to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article VII hereof) to which such holder is entitled
pursuant to Section 1.6, (ii) cash in lieu of fractional shares in accordance
with Section 1.6(f) (the "Additional Payments"), (iii) any dividends or other
distributions to which holder is entitled pursuant to Section 1.8(d) (the
"Distributions") and (iv) the Per Share Cash Consideration, and the Certificate
so surrendered shall forthwith be cancelled. The holders shall execute a letter
of transmittal in a customary and reasonable form in connection with the
surrender of the Certificates if reasonably requested by the Exchange Agent. At
Closing, provided that the holders have surrendered to the Exchange Agent their
Certificates on or prior to Closing, or otherwise as soon as practicable after
the Effective Time, and subject to and in accordance with the provisions of
Article VII hereof, Parent shall cause to be distributed to the Escrow Agent (as
defined in Article VII) a certificate or certificates representing that number
of shares of Parent Common Stock equal to the Escrow Amount, which certificate
shall be registered in the name of the Escrow Agent. Such shares: (i) shall be
beneficially owned by the holders on whose behalf such shares were deposited in
the Escrow Fund; (ii) shall be available to compensate Parent as provided in
Article VII; and (iii) shall entitle the beneficial owners to receive the
Distributions as provided in Article VII hereof. From the Closing and until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, to represent solely (i) ownership of
the number of full shares of Parent Common Stock into which such shares of
Company Common Stock shall have been so exchanged and (ii) the right to receive
the Additional Payments, Distributions, and Per Share Cash Consideration.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions with respect to Parent Common Stock declared or made with
a record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, 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.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is
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registered, it will be a condition of the issuance thereof that the certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to Parent
or any agent designated by it any transfer or other taxes required by reason of
the issuance of a certificate for shares of Parent Common Stock in any name
other than that of the registered holder of the certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued pursuant to the Merger upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
(including any cash paid in respect thereof) shall be deemed to have been issued
in full satisfaction of all rights pertaining to such shares of Company Common
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon receiving notice from the holder thereof
and upon the making of an affidavit of that fact by such holder, such shares of
Parent Common Stock and the Additional Payments, Distributions, and Per Share
Cash Consideration; provided, however, that Parent may, in its discretion and,
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against Parent
or the Exchange Agent with respect to the Certificates alleged to have been
lost, stolen or destroyed.
1.11 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code. The
parties hereto adopt this Agreement as a
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"plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-
3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall be
treated as a "purchase" for accounting purposes.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or reasonably desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company and Merger Sub, the
officers and directors of the Company and Merger Sub are fully authorized in the
name of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are clearly disclosed in the disclosure letter
supplied by the Company to Parent which identify the section and subsection to
which such disclosure relates (the "Company Schedules") and dated as of the date
hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia. The Company has the corporate power and authority to
own its properties and to carry on its business as now being conducted. The
Company is duly qualified to do business and in good standing as a foreign
corporation in each state or other jurisdiction in which the failure to be so
qualified would have a material adverse effect on the business, assets
(including intangible assets), financial condition, results of operations or
prospects of the Company (hereinafter referred to as a "Material Adverse
Effect"); but provided, however, that any threatened litigation or negative
impact on consulting revenue that occurs as a result of the public announcement
of the Merger shall not constitute a Material Adverse Effect. The Company has
delivered a true and correct copy of its Articles of Incorporation and Bylaws,
each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock the Company consists of (i) 25,000
shares of authorized Class A Voting Common Stock, no par value of which Eight
Thousand (8,000) shares are issued and outstanding (the "Voting Common") and
(ii) 25,000 shares of authorized Class B Non-Voting Common Stock, no par value,
of which Seven Hundred Fifty (750) shares are authorized and outstanding (the
"Non-Voting Common") (the Voting Common and the Non-Voting Common shall be
collectively referred to the "Company Common Stock"). Except as set forth in the
immediately preceding sentence, no shares of capital stock or other equity
securities of the Company are issued, reserved for issuance or outstanding. The
Company Common Stock is held of record by the persons, with the addresses of
record and in the amounts set forth on Schedule 2.2(a). All outstanding shares
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of Company Common Stock are, and at the Effective Time will be, duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is
bound. None of the outstanding Company Common Stock or other securities of the
Company was issued in violation of the Securities Act of 1933, as amended, or
any applicable state Blue Sky laws.
(b) In addition, there are currently issued and outstanding options
outstanding to purchase an aggregate of One Thousand Three Hundred Sixty (1,360)
shares of Company Class B Non-Voting Common Stock issued to employees pursuant
to the Company Option Agreements. The Company Options are held by the persons
and in the amounts set forth on Schedule 2.2(b). Except as set forth in
Schedule 2.2(b), there are no other options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to the Company. There are no voting trusts, proxies, or other agreements
or understandings with respect to the capital stock of the Company.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the Company does
not have and has never had any subsidiaries or affiliated companies and does not
otherwise own and has never otherwise owned any shares of capital stock or any
interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company, subject
only to the approval of the Merger by the Company's stockholders. The Company's
Board of Directors has met and unanimously approved the Merger and this
Agreement. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies. Subject only to the approval of the Merger and this
Agreement by the Company's stockholders, the execution and delivery of this
Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Articles of Incorporation or Bylaws of the
Company or (ii) any mortgage, indenture,
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lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets. No consent, waiver,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other federal, state,
county, local or foreign governmental authority, instrumentality, agency or
commission ("Governmental Entity") or any third party (so as not to trigger any
Conflict), is required by or with respect to the Company in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Articles of Merger with
the SCC, (ii) the issuance by the SCC of the Certificate of Merger, (iii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iv) such filings as are required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), if any, (v) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as shall have been obtained prior to the Effective Time, and (vi) such
other consents, waivers, authorizations, filings, approvals and registrations
which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
(i) unaudited balance sheets as of December 31, 1998 and 1999, and the related
unaudited statements of operations, cash flows and stockholders equity (deficit)
for the two fiscal years then ended, and (ii) the Company's unaudited balance
sheet as of June 30, 2000 (the "June Balance Sheet") and the related unaudited
statement of operations, cash flow and stockholder's equity (deficit) for the
six-month period then ended (collectively, the "Company Financial Statements").
There shall not be any reduction in property and equipment or increase in total
liabilities between June 30, 2000 and the Closing Date in an amount greater than
$10,000 except for an increase in the debt under the existing line of credit to
cover payroll costs. The Company Financial Statements are complete and correct
and have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent throughout the periods
indicated and consistent with each other except as set forth in Schedule 2.5.
The Company Financial Statements present fairly the financial condition and
operating results and cash flows of the Company as of the dates and during the
periods indicated therein (subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments and to the extent they may
not include footnotes or may be condensed or summary statements).
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), that individually exceeds
$10,000 or in the aggregate exceeds $20,000, and which (i) has not been
reflected or reserved against in the June Balance Sheet, or (ii) has arisen
other than in the ordinary course of the Company's business and consistent with
past practices since June 30, 2000.
2.7 No Changes. Except as set forth in Schedule 2.7, since June 30, 2000,
there has not been, occurred or arisen any:
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(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company of $10,000 in
any individual case or $20,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) disputes between labor and management or claim of wrongful or
other unlawful labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement other than any such
increase, declaration, payment or commitment in the ordinary course of business
as conducted on that date and consistent with past practice;
(j) sale, lease, license or other disposition of any of the assets
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for incurring business expenses in the
ordinary course of business, consistent with past practices;
(m) waiver or release of any right or claim of the Company, including
any write-off of provisions for uncollectible accounts receivable of the
Company;
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(n) commencement or notice or threat of commencement of any lawsuit
or proceeding against or investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any shares of capital stock,
or securities exchangeable, convertible or exercisable therefor, or of any other
of its securities;
(q) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company;
(r) event or condition of any character that has or could reasonably
be expected to have a Material Adverse Effect on the Company; or
(s) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or, collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability for
taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared and
filed on a timely basis, all required federal, state, local and foreign returns,
estimates, information statements and reports due to be filed on or before the
Effective Time ("Returns") relating to any and all Taxes concerning or
attributable to the Company or its operations and, such Returns are true,
correct and complete and have been completed in accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will have timely
paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees (and paid over to the appropriate Tax
authorities) all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
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(iii) The Company has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against on the June Balance Sheet whether asserted or unasserted contingent or
otherwise, and the Company has no knowledge of any basis for the assertion of
any such liability attributable to the Company, its assets or operations.
(vi) The Company has provided to Parent copies of all federal
and state income and all state sales and use Tax Returns for all periods through
its fiscal year ended December 31, 1999.
(vii) There are (and as of immediately following the Closing
there will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes, other than Liens for Taxes not yet due and payable.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions of
this Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 280G or 162 of the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to a Tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
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(xiv) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is consistent with the amounts reported on the Company's federal
income tax returns.
(xv) No adjustment relating to any Returns filed by the Company
has been proposed in writing, formally or informally, by any Tax authority to
the Company or any of its subsidiaries or any representative thereof.
(xvi) The Company has (a) never been a member of an affiliated
group (within the meaning of Code Section 1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was the
Company), (b) no liability for the Taxes of any person (other than the Company
or any of its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise and (c) never been a party to any joint venture,
partnership or other agreement that could be treated as a partnership for Tax
purposes.
(xvii) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock qualifying
for tax-free treatment under Section 355 of the Code (x) in the two years prior
to the date of this Agreement or (y) 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.
2.9 Restrictions on Business Activities. Except as set forth on Schedule
2.9, there is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably would be expected to have the effect of
prohibiting or materially impairing any business practice (including, without
limitations, the licensing of any product) of the Company, any acquisition of
property (tangible or intangible) by the Company or the conduct of business by
the Company. Except as set forth in Schedule 2.9, without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor and the date of the lease and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) by the
Company or, to the knowledge of the Company, any other party.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets used or held for use in
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its business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financials or in Schedule 2.10(b) and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
2.11 Intellectual Property.
(a) Except as set forth in Schedule 2.9 and 2.11(a), the Company
owns, or is licensed to use all patents, registered and unregistered trademarks,
trade names, service marks, trade secrets, copyrights, and any applications
therefor, net lists, schematics, technology, know-how, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material that are required for
the conduct of business of the Company as currently conducted by the Company
(the "Company Intellectual Property Rights"). Schedule 2.11(a) sets forth a
complete list of all patents, registered and unregistered trademarks, registered
copyrights, trade names and service marks, and any applications therefor,
included in the Company Intellectual Property Rights, and specifies, where
applicable, the jurisdictions in which each such Company Intellectual Property
Right has been issued or registered or in which an application for such issuance
and registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 2.11(b) sets forth a complete list of all material
licenses, sublicenses and other agreements to which the Company is a party and
pursuant to which the Company or any other person is authorized to use any
Company Intellectual Property Right (excluding object code end-user licenses
granted to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the same
("End-User Licenses") and non-disclosure agreements that permit the sharing of
confidential information between the Company and its suppliers and customers) or
trade secret of the Company, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty or
other fees and the term thereof. The execution and delivery of this Agreement by
the Company, and the consummation of the transactions contemplated hereby, will
neither cause the Company to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except as set forth in Schedules 2.11(a) or 2.11(b), the Company is
the sole and exclusive owner or licensee of, with all right, title and interest
in and to (free and clear of any liens or encumbrances), the Company
Intellectual Property Rights, and has sole and exclusive rights (and is not
contractually obligated to pay any material compensation to any third party in
respect thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect of which the Company
Intellectual Property Rights are being used.
(c) No claims with respect to the Company Intellectual Property
Rights have been asserted or are, to the Company's knowledge, threatened by any
person, nor to the Company's knowledge, are there any valid grounds for any bona
fide claims, (i) to the effect that the production, sale, licensing or use of
any of the products or projects worked on by the Company infringes on any
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copyright, patent, trademark, service mark, trade secret or other proprietary
right, (ii) against the use by the Company of any trademarks, service marks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted by the Company, or (iii) challenging the ownership by the
Company, or the validity or effectiveness of, any of the Company Intellectual
Property Rights. All registered trademarks, service marks and copyrights held by
the Company are valid and subsisting. To the best of the Company's knowledge,
the Company has not infringed, and the business of the Company as currently
conducted does not infringe or misappropriate, any copyright, patent, trademark,
service mark, trade secret or other intellectual property right of any third
party. To the best of the Company's knowledge, there is no material unauthorized
use, infringement or misappropriation of any of the Company Intellectual
Property Rights by any third party, including any employee or former employee of
the Company. No Company Intellectual Property Right or, to the Company's
knowledge, project of the Company is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing thereof by the
Company. Except as set forth in Schedule 2.11(c), each employee, consultant or
contractor of the Company has executed a proprietary information and
confidentiality agreement substantially in the Company's standard forms. All
software included in the Company Intellectual Property Rights included in its
two patent disclosures is original with the Company and has been either created
by employees of the Company on a work-for-hire basis or by contractors who have
created such software themselves and have assigned or are under an obligation to
assign all rights they may have had in such software to the Company.
(d) Schedule 2.11(d) lists all contracts, licenses and agreements
between the Company and any other person wherein the Company has agreed to, or
assumed, any material obligation or material duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any material
obligation or liability or provide a right of rescission with respect to the
infringement or misappropriation by the Company or such other person of the
intellectual property of any person or entity other than the Company.
(e) All of the products currently offered by the Company accurately
record, store, process, calculate and present calendar dates falling on and
after (and if applicable, spans of time including) January 1, 2000, and
calculate any information dependent on or relating to such dates in the same
manner, and with the same functionality, data integrity and performance, as the
products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively, "Year 2000 Compliant"). All of the products
currently offered by the Company (i) lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
All of the Company's internal computer and technology products and systems are
Year 2000 Compliant.
2.12 Agreements, Contracts and Commitments. Except as set forth on Schedule
2.12(a), the Company does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
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(ii) any agreements or arrangements that contain any severance
pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements;
(iv) any employment or consulting agreement or contract with an
employee or individual consultant or salesperson or consulting or sales
agreement or contract, under which a firm or other organization provides
services to the Company pursuant to which the Company is obligated to make
payments in excess of $10,000 per year;
(v) any agreement or plan, including, without limitation, any
stock option plan, stock option agreements, stock appreciation rights plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value individually
in excess of $10,000;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000 individually or
$20,000 in the aggregate;
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof;
(xiii) any purchase order or contract for the purchase of raw
materials involving $10,000 or more;
(xiv) any construction contract;
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(xv) any material distribution, joint marketing or development
agreement;
(xvi) any agreement, contract or commitment pursuant to which
the Company has granted or may grant in the future, to any party a source-code
license or option or other right to use or acquire source-code; or
(xvii) any other agreement, contract or commitment that involves
$20,000 or more or is not cancelable without penalty within thirty (30) days.
Schedule 2.12(a) sets forth a list of the Company's top 15 customers
according to revenue for the fiscal year ended December 31, 1999, and each
customer with which the Company currently has an agreement that the Company in
good faith expects to be one of the Company's top 15 customers for the fiscal
year ending December 31, 2000, and a list of all effective agreements between
such customer and the Company.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time, giving
of notice, or both, all of which are noted in Schedule 2.12(b), the Company has
not breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule 2.12(a)
or Schedule 2.12(b) (any such agreement, contract or commitment, a "Contract")
which would result in a Material Adverse Effect. Each Contract is in full force
and effect and, except as otherwise disclosed in Schedule 2.12(b), is not
subject to any default thereunder of which the Company has knowledge by any
party obligated to the Company pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule 2.13,
no officer, director, affiliate (as defined under Regulation C under the
Securities Act of 1933, as amended) or, to the knowledge of the Company,
stockholder of the Company (nor, to the knowledge of the Company, any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an economic
interest), has or has had, directly or indirectly, (i) an economic interest in
any entity which furnished or sold, or furnishes or sells, services or products
that the Company furnishes or sells, or proposes to furnish or sell, or (ii) an
economic interest in any entity that purchases from or sells or furnishes to,
the Company, any goods or services or (iii) a beneficial interest in any
contract or agreement set forth in Schedule 2.12(a) or Schedule 2.11(b);
provided, that ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed an "economic
interest in any entity" for purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation, except where any such violations or failures to comply would not,
individually or in the aggregate, have a Material Adverse Effect.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or, to the best of the
Company's knowledge, threatened against the Company,
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its properties or any of its officers or directors, in their respective
capacities as such. Except as set forth in Schedule 2.15, to the best of the
Company's knowledge there is no investigation pending or threatened against the
Company, its properties or any of its officers or directors by or before any
Governmental Entity. Schedule 2.15 sets forth, with respect to any such pending
or threatened action, suit, proceeding or investigation, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof.
2.16 Insurance. The insurance policies and fidelity bonds set forth in
Schedule 2.16 cover the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, and there is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and the Company is otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company has no knowledge of any threatened termination
of, or material premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (including committees
thereof) and stockholders or actions by written consent since the time of
incorporation of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released in violation of
applicable law any material amount of any substance that has been designated by
any Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, urea-
formaldehyde and all substances listed as hazardous substances pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, (a "Hazardous Material"), but excluding
office and janitorial supplies properly and safely maintained. No Hazardous
Materials are present, as a result of the actions of the Company, or, to the
Company's knowledge, except as set forth in Schedule 2.18, as a result of any
actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased that would result in a Material Adverse Effect.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of, released or knowingly exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the
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Company disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (any or all of the foregoing being collectively referred to
as "Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any significant
environmental liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth
on Schedule 2.19, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth (i) the principal terms and
conditions of any agreement with respect to such fees, and (ii) the Company's
current reasonable estimate of all Third Party Expenses (as defined in Section
5.5) expected to be incurred by the Company in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate"
set forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits or remuneration of
any kind, whether formal or informal, funded or unfunded, including without
limitation, each "employee benefit plan", within the meaning of Section 3(3) of
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ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any Employee,
and pursuant to which the Company or any Affiliate has or may have any material
liability, contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any Pension Plan which is
a "multiemployer plan", as defined in Section 3(37) of ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee Plan
which is an "employee pension benefit plan", within the meaning of Section 3(2)
of ERISA.
(b) Administaff. The Company has contracted with Administaff Companies,
Inc. ("Administaff") to provide certain benefit services for the Company (the
"Benefit Services") as set forth in the agreement between the Company and
Administaff dated March 2, 1999 (the "Administaff Agreement"). Other than the
Benefit Services, the Company has no other Company Employee Plan, Multiemployer
Plan, Pension Plan, multiple employer plan or plan described in Section 413 of
the Code except as set forth in Schedule 2.20(a) and has no commitment to
establish any of the foregoing.
(c) No Post-Employment Obligations. Except as set forth in Schedule
2.20(c), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason, except as may be
required by statute, and the Company has never represented to, promised to or
contracted with (whether in oral or written form) any Employee (either
individually or to or with Employees as a group) that such Employee(s) would be
provided with life insurance, medical or other employee welfare benefits upon
their retirement or termination of employment, except to the extent required by
statute.
(d) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under the Benefit Services or any Employee Agreement, trust
or loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting, distribution,
increase in benefits or obligation to fund benefits with respect to any
Employee.
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(ii) Except as set forth on Schedule 2.20(i), no payment or
benefit which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
(e) Employment Matters. The Company, either alone or though its
relationship with Administaff (i) is in compliance in all material respects with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(f) Labor. No work stoppage or labor strike against the Company is
pending or, to the best knowledge of the Company, threatened. Except as set
forth in Schedule 2.20(k), the Company is not involved in or, to the knowledge
of the Company, threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would result in any
liability to the Company. Neither the Company nor any of its subsidiaries has
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act which would directly or indirectly result in any liability to the
Company. Except as set forth in Schedule 2.20(k), the Company is not presently,
nor has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company.
2.21 Employees. To the best of the Company's knowledge, no employee of the
Company (i) is in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
the Company because of the nature of the business conducted or presently
proposed to be conducted by the Company or to the use of trade secrets or
proprietary information of others and (ii) has given notice to the Company, nor
is the Company otherwise aware, that any employee intends to terminate his or
her employment with the Company.
2.22 Governmental Authorization. The Company possesses all material
consents, licenses, permits, grants or other authorizations issued to the
Company by a governmental entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest,
other than such consents, licenses, permits, grants or authorizations the
failure to obtain which would not, either individually or in the aggregate, have
a Material Adverse Effect (herein collectively called "Company Authorizations"),
which Company Authorizations are in full force and effect and
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constitute all Company Authorizations required to permit the Company to operate
or conduct its business or hold any interest in its properties or assets.
2.23 Third Party Consents. Except as set forth on Schedule 2.23, no
consent or approval is needed from any person or entity in order to consummate
any of the transactions contemplated by this Agreement.
2.24 Representations Complete. To the best of the Company's knowledge,
none of the representations or warranties made by the Company (as modified by
the Company Schedules), nor any statement made in any Schedule or certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or delivered to the stockholders of the Company
in connection with soliciting their consent to this Agreement and the Merger,
contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading in any material
respect. This representation shall not alter the force of any representation in
this Agreement given without knowledge.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Virginia. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.3 Parent Capital Structure; Issuance of Shares.
(a) The authorized capital stock of Parent consists of 60,000,000
shares of Common Stock, $0.001 par value, of which 24,327,304 shares were issued
and outstanding as of June 30, 2000. As of June 30, 2000, Parent had currently
reserved an aggregate of 4,963,001 shares
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of Common Stock for issuance pursuant to Parent's 1998 Stock Incentive Plan,
under which options to purchase 2,437,239 shares were outstanding.
(b) The Shares of Parent Common Stock to be issued pursuant to the
Merger have been duly authorized by all necessary corporate action and, when
issued in accordance with the terms and provisions of this Agreement, will be
validly issued, fully paid and non-assessable.
3.4 SEC Filings; Parent Financial Statements. Parent has furnished the
Company true and correct copies of its Annual Report on Form 10-K for the year
ended December 31, 1999 and its Quarterly Reports on Form 10-Q for the quarter
ended March 31, 2000 and its definitive Proxy Statement dated May 2, 2000, each
as filed with the Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (all of the
foregoing being collectively referred to as the "SEC Documents"). As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Exchange Act, and the applicable rules and
regulations of the SEC thereunder, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a document subsequently filed with the SEC prior to the date
hereof or the Effective Time and delivered to the Company (or which will be
delivered to the Company prior to the Effective Time). The financial statements
of Parent, including the notes thereto, included in the SEC Documents (the
"Parent Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
consistently applied (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC) and present
fairly the consolidated financial position of Parent at the dates thereof and of
its consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments) and there has been no material adverse change in the financial
results of Parent since the date of release of Parent's earnings for the quarter
ended June 30, 2000.
3.5 No Conflict. Neither the execution and delivery of this Agreement by
Parent or Merger Sub, nor the consummation by Parent or Merger Sub of the
transactions contemplated hereby, nor compliance by Parent or Merger Sub with
any of the provisions hereof, will (i) conflict with or result in a breach of
any provision of Parent's or Merger Sub's Articles of Incorporation or Bylaws,
(ii) constitute or result in a default under, or require any consent pursuant
to, or result in the creation of any lien on any material asset of any Parent or
Merger Sub under, any contract of Parent or Merger Sub, where such default or
lien, or any failure to obtain such consent, is reasonably likely to have,
individually or in the aggregate, a material adverse effect on Parent and its
subsidiaries, taken as a whole.
3.6 Governmental Approvals. No consent, waiver, approval, order or
authorization of, or registration declaration or filing with, any Governmental
Entity or any third party is required by or with respect to Parent or Merger Sub
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of
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the Articles of Merger with the SCC, (ii) the issuance by the SCC of the
Certificate of Merger, (iii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws, if any, (vi) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as shall have been obtained prior to the Effective Time, and (v) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings the failure to obtain which would not either materially
delay the ability of Parent or Merger Sub to consummate the Merger or have a
material adverse effect on Parent and its subsidiaries, taken as a whole.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing, which consent shall not be
unreasonably withheld, delayed or conditioned) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes before delinquent, to pay or
perform other obligations before delinquent, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers as requested by Parent, suppliers, distributors,
licensors, licensees, and others having business dealings with it, all with the
goal of preserving unimpaired its goodwill and ongoing businesses at the
Effective Time except to the extent any such business relationships are
adversely affected by the announcement of the Merger. The Company shall promptly
notify Parent of any event or occurrence or emergency not in the ordinary course
of business, and any material event involving or adversely affecting the Company
or its business. Except as expressly contemplated by this Agreement, or
disclosed in Schedule 4.1, the Company shall not, without the prior written
consent of Parent, which consent shall not be unreasonably withheld, delayed or
conditioned:
(a) Enter into any commitment or transaction not in the ordinary
course of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any other
party is granted manufacturing, marketing, distribution or similar rights of any
type or scope with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
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(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor), other than
pursuant to the Company's repurchase right under employee restricted stock
purchase agreements;
(g) Except for the issuance of shares of Company Common Stock upon
exercise of the presently outstanding Company Options, issue, grant, deliver or
sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Articles of Incorporation
or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are individually in excess of $10,000 or in the aggregate, $20,000;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practice;
(k) Incur any indebtedness for borrowed money other than an increase
in the debt under the existing line of credit to cover payroll costs or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities of others;
(l) Grant any severance or termination pay to any director, officer,
employee or consultant, except payments made pursuant to standard written
agreements outstanding on the date hereof (which are disclosed on Schedule
4.1(l));
(m) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment offer,
pay or agree to pay any special bonus or special remuneration to any director,
employee or consultant, or increase the salaries or wage rates of its employees
except as required by law;
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business and consistent with past practice;
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(o) Pay, discharge or satisfy, in an amount in excess of $10,000 in
any one case or $20,000 in the aggregate, any claim, liability, obligation,
judgement or levy (absolute, accrued, asserted or unassented, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the Company
Financial Statements;
(p) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) Take any action, including the acceleration of vesting of any
restricted stock or any options or other rights to acquire shares of the capital
stock of the Company which would be reasonably likely to jeopardize the tax-free
reorganization hereunder;
(r) Enter into any strategic alliance, joint development or joint
marketing agreement;
(s) Waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $20,000, in the aggregate;
(t) Cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(u) Alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest on the date hereof; or
(v) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (u) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, initiate, entertain or encourage any proposals
or offers from, or conduct discussions with or engage in negotiations with, any
person, relating to, any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its Subsidiaries, (b)
provide information with respect to it to any person, other than Parent,
relating to, or otherwise cooperate with, facilitate or encourage any effort or
attempt by any such person with regard to, any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the
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Company or any of its subsidiaries, (c) enter into an agreement with any person,
other than Parent, providing for the acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries, or (d)
knowingly and intentionally make or authorize any statement, recommendation or
solicitation intended to foster a possible acquisition of the Company or any of
its subsidiaries (whether by way of merger, purchase of capital stock, purchase
of assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries, by any
person, other than by Parent. The Company shall immediately cease and cause to
be terminated any such contracts or negotiations with third parties relating to
any such transaction or proposed transaction. In addition to the foregoing, if
the Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company shall
immediately notify Parent thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Parent may reasonably request. Except as contemplated by this
Agreement or as required pursuant to a court order or other legal process,
disclosure by the Company of the terms hereof (other than the prohibition of
this section) shall be deemed to be a violation of this Section 4.2.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Issuance of Parent Common Stock; Registration under Securities Act
(a) The shares of Parent's Common Stock to be issued pursuant to the
Merger have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon exemptions from registration provided
by Rule 506 and/or Section 4(2) under the Securities Act. The certificates for
shares of Parent Common Stock to be issued pursuant to the Merger shall bear
appropriate legends to identify such shares as being "restricted securities"
within the meaning of Rule 144(a)(3) under the Securities Act and to comply with
applicable state securities laws. The Parent Common Stock being offered and sold
pursuant to this Agreement in reliance upon such exemptions from registration is
based in part upon the representations of each stockholder of the Company
contained in the Stockholder Certificate attached hereto as Exhibit A.
(b) Restrictive Legends: Stop Transfer Instructions. Each
certificate representing shares of Parent Common Stock issued pursuant to
Article I shall bear a legend substantially in the form set forth below, which
legend shall be removed by delivery of substitute certificates upon the second
anniversary of the Effective Time or, for shares sold by a stockholder, at such
earlier time as requested by a stockholder after a registration statement with
respect to the shares represented by such certificate has become effective. The
sale or transfer of such shares of Parent Common Stock may only be made (A) in
conformity with the provisions of Rule 144 under the Securities Act of 1933, as
amended (the "Securities Act") or (B) pursuant to the receipt by Parent of an
opinion in
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form and substance reasonably satisfactory to Parent from counsel reasonably
satisfactory to Parent to the effect that such transfer may be made without
registration under the Securities Act.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SHARES MAY
NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE DISPOSED
OF, DIRECTLY OR INDIRECTLY, UNLESS (I) THERE IS AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE ACT OR (II) SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OF THE ACT."
Parent may instruct its transfer agent to stop the transfer of any shares of
Parent Common Stock issued pursuant to Article I unless Parent shall have been
provided evidence of compliance with the restrictions set forth in such legend
reasonably satisfactory to Parent.
(c) Promptly after the Closing Date Parent shall file a registration
statement on Form S-3 to register under the Securities Act the Parent Common
Stock issued pursuant to the Merger in accordance with the terms and conditions
set forth in the Declaration of Registration Rights in substantially the form
attached hereto as Exhibit B. Parent will, at its expense (excluding any broker
fees and commissions), use its best efforts to have such registration statement
become effective within 180 days of the Effective Time and to keep such
registration statement effective for the lesser of one year or until all such
shares of Parent Common Stock have been sold.
5.2 Stockholder Approval. Promptly following the execution of the
Agreement, the Company shall submit this Agreement and the transactions
contemplated hereby to its stockholders for approval and adoption by written
consent as provided by Virginia Law and its Articles of Incorporation and
Bylaws. The Company shall use its commercially reasonable efforts to solicit and
obtain the consent of its stockholders holding 100% of Company Common Stock to
approve the Merger and this Agreement and to enable the Closing to occur as
promptly as practicable. The materials submitted to the Company' stockholders
shall be subject to review and reasonable approval by Parent and include
information regarding the Company, the terms of the Merger and this Agreement
and the unanimous recommendation of the Board of Directors of the Company in
favor of the Merger and this Agreement.
5.3 Access to Company Information. Subject to any applicable contractual
confidentiality obligations, Company shall afford to Parent and its accountants,
counsel and other representatives, reasonable access (including, but not limited
to, nor materially disrupting the Company's normal business operations) during
normal business hours during the period prior to the Effective Time to (a) all
of its properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of Company as may reasonably request. No
information or knowledge obtained in any investigation pursuant to this Section
5.3 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Merger.
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5.4 Confidentiality. Each of the parties hereto hereby agrees to maintain
the confidentiality of the information obtained in any investigation pursuant to
Section 5.3, or pursuant to the negotiation of this Agreement, in accordance
with the provisions of the confidentiality agreement between Parent and the
Company dated as of July 13 and such information will not be disclosed to any
person without the prior written consent of the other party, except as required
by law of regulatory authority or judicial process.
5.5 Expenses. If the Merger is not consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("Third Party Expenses") shall be the obligation of the party that
incurred such Third Party Expenses except as provided in Section 8.3. If the
Merger is consummated, the reasonable Third Party Expenses incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby shall be
paid by Parent up to an amount not to exceed $50,000, and any such expenses in
excess of $50,000 shall be borne and paid by the stockholders of the Company pro
rata based on the aggregate Parent Common Stock to which such stockholders are
entitled hereunder.
5.6 Public Disclosure. Except as required by law or regulatory authority
or judicial process, no disclosure (whether or not in response to an inquiry) of
the existence or nature of this Agreement shall be made by any party hereto
unless approved by duly authorized officers of both Parent and the Company prior
to release, provided that such approval shall not be unreasonably withheld and
subject also, in any event, to Parent's obligation to comply with applicable
securities law and Nasdaq Stock Market regulations.
5.7 Consents. Parent and the Company shall each use their reasonable
efforts to obtain the consents, waivers and approvals as may be required in
connection with the Merger so as to preserve all rights of, and benefits to
Parent or the Company thereunder.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings, and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided, that Parent shall not be required to agree to any divestiture by
Parent or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the
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imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock.
5.10 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company and Parent or Merger Sub,
respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of the
Company, 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; provided, however, that the delivery of any notice pursuant to this
Section 5.10 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.11 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or reasonably desirable for effecting completely and promptly the
consummation of this Agreement and the transactions contemplated hereby.
5.12 Nasdaq Listing; Blue Sky Laws.
(a) On or before the Closing Date, Parent shall apply for the
additional listing on the Nasdaq National Market of the shares of Parent Common
Stock issuable, and those required to be reserved for issuance, in connection
with the Merger, upon official notice of issuance.
(b) Parent shall take such steps as may be necessary to comply with
the securities and blue sky laws of all jurisdictions which are applicable to
the issuance of the Parent Common Stock pursuant hereto. The Company shall use
its best efforts to assist Parent as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Parent Common Stock pursuant hereto.
5.13 Hart-Scott-Rodino Filings. Each of Parent and Company shall, if
required, promptly make its filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") and shall make any required
submissions under the HSR Act with respect to the Merger, and shall cooperate
with respect to the foregoing. Parent and Company shall give prior notice and
consult prior to any meeting Company or Parent has with the United States
Federal Trade Commission or Department of Justice with respect to the filings of
Company and Parent under the HSR Act or any review by either of the foregoing
agencies. Each of Parent and Company agrees to use its commercially reasonable
efforts to cause the condition to closing referred to in Section 6.1(c) to be
met and agrees to take all reasonable steps necessary to obtain early
termination of the waiting period under the HSR Act.
5.14 Financial Statements. The Company will use its commercially
reasonable efforts to cause its management to facilitate on a timely basis the
preparation of financial statements (including
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pro forma financial statements if required) as required by Parent to comply with
applicable SEC regulations.
5.15 Form S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Options as soon as is reasonably practical after the Effective Date.
5.16 Employees. On or before the date of this Agreement, the Chief
Executive Officer of the Company and the Corporate Development Officer of Parent
will use their best efforts to agree upon the guidelines within which the
Company will proceed with respect to retention of existing Company employees
including, but not limited to grandfathering of hire dates and providing
compensation and stock benefits substantially in line with other similary
situated employees of Parent in comparable positions.
5.17 Administaff. Before the Effective Time, the Chief Executive Officer
of the Company and the Corporate Development Officer of Parent will use their
best efforts to work with Administaff to amend the existing contract between the
Company and Administaff to provide for the maintenance of the Administaff
benefits through December 31, 2000 and the amendment of the agreement to provide
for the subsequent transition of such employees to Parent's benefit plans.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the stockholders of the Company by the requisite
vote under applicable law and the Company's Articles of Incorporation.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(c) Government Approvals. All approvals of governments and
government agencies necessary to consummate the Merger hereunder, shall have
been received.
6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
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(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a material adverse
effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by a duly authorized officer of Parent.
(c) Legal Opinion. The Company shall have received a legal opinion
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to
Parent and Merger Sub, in substantially the form attached hereto as Exhibit C.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects on and as of the Closing, except for changes contemplated by
this Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date), with the same force and effect as if made on and as of the Effective
Time, except, in all such cases, for such breaches, inaccuracies or omissions of
such representations and warranties which have neither had nor reasonably would
be expected to have a Material Adverse Effect on the Company; and Parent and
Merger Sub shall have received a certificate to such effect signed on behalf of
the Company by the chief executive officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or complied
in material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by the chief executive officer of the Company;
(c) Third Party Consents. Parent shall have been furnished with evidence
satisfactory to it that the Company has obtained the consents, approvals and
waivers set forth in Schedule 2.23.
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(d) Legal Opinion. Parent shall have received a legal opinion from
Flippin, Densmore, Morse & Jessee, legal counsel to the Company, in
substantially the form attached hereto as Exhibit'C.
(e) Material Adverse Change. Since the June 30, 2000 Balance Sheet, no
event shall have occurred that would constitute a Material Adverse Effect on the
Company.
(f) Stockholder Approval. Holders of at least 98% of the outstanding
shares of Company Common Stock shall have voted to approve of the Merger.
(g) Stockholder Certificate. Except for any holders of Company Common
Stock who have exercised their dissenters' or similar rights under applicable
law with respect to their shares, each of the Company's stockholders shall, not
later than the Effective Time, have executed and delivered to Parent the
Stockholder Certificate in the form attached hereto as Exhibit E.
(h) Employment Acceptances. Each of Kenneth Ferris, Phil Couch, and Mark
Sanders shall have accepted offers of employment from the Parent and executed
Employment Agreements (including non-competition clauses) having substantially
the form attached hereto as Exhibit F.
(i) Waiver of Acceleration Provisions. Each employee of the Company
inpossession of a Company Option which contains a provision or provisions which
provides accelerated vesting upon a change of control (an "Acceleration Clause")
shall have waived such Acceleration Clause.
(j) Stock Option Exercise. No holder of a Company Option shall have
exercised such option between the date of this Agreement and the Closing.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., Eastern Standard Time, on the
second anniversary date of the Closing Date (the "Expiration Date"); provided,
however, that the Company's representations and warranties relating to or
pertaining to Sections 2.2 and 2.8 shall survive until the expiration of all
applicable statutes of limitations, or extensions thereof, governing such
matters and provided further that the Company's representations and warranties
relating to or pertaining to Section 2.11 shall survive until the third
anniversary of the Closing Date. Subject to the following requirements, the
Escrow Fund (as defined in Section 7.2(a) below) shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
Eastern Standard Time, on the date which is two years following the Closing Date
(the "Escrow Period"); provided, that the Escrow Period shall not terminate with
respect to such amount (or some portion thereof) that is necessary in the
reasonable judgment of Parent, subject to the
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objection of the Stockholder Agent (as defined below) and the subsequent
adjudication of the matter in the manner provided in this Article VII, to
satisfy any unsatisfied claims concerning facts and circumstances existing prior
to the termination of such Escrow Period specified in any Officer's Certificate
(as defined in Section 7.2(d) below) delivered to the Escrow Agent prior to
termination of such Escrow Period; provided further, that the Escrow Fund will
terminate in full upon final and complete resolution of all disputed matters.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time the Company's stockholders
will be deemed to have received and consented to the deposit with the Escrow
Agent (as defined below) of the Escrow Amount (plus any additional shares as may
be issued upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time), without any act required on the part of any
stockholder in accordance with the terms and provisions of an Escrow Agreement
in substantially the form attached hereto as Exhibit G (the "Escrow Agreement").
As soon as practicable after the Effective Time, the Escrow Amount, without any
act required on the part of any stockholder, will be deposited with an escrow
agent acceptable to Parent and the Stockholder Agent (as defined in Section
7.2(g)(i) below) as Escrow Agent (the "Escrow Agent"), such deposit to
constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth herein and in the Escrow Agreement and at Parent's cost and expense. The
portion of the Escrow Amount contributed on behalf of each stockholder of the
Company shall be in proportion to the aggregate Parent Common Stock to which
such holder would otherwise be entitled under Sections 1.6(a) and 1.6(b). The
Escrow Amount shall be contributed entirely out of the shares of Parent Common
Stock issuable upon the Merger in respect of Company Common Stock. The Escrow
Fund is available to compensate Parent and its affiliates for any claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defenses (hereinafter individually a "Loss" and collectively "Losses") incurred
by Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of the Company contained in Article II herein, or any
failure by the Company to perform or comply with any covenant contained herein,
or for any Losses suffered by Parent or the Company as a result of the failure
by Administaff to provide the Benefit Services or the improper provision of the
Benefit Services as a result of which Parent or the Company is subject to
liability to the Company's employees or a governmental agency.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
(Eastern Standard Time) on the Expiration Date (the "Escrow Period"); provided,
that the Escrow Period shall not terminate with respect to such amount (or some
portion thereof), that together with the aggregate amount remaining in the
Escrow Fund is necessary in the reasonable judgment of Parent (subject to
reduction as may be determined by adjudication of the matter as provided in
Section 7.2(f) hereof in the event of the objection of the Stockholder Agent in
the manner provided in Section 7.2(e) hereof) to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
Escrow Period and to the extent specified in any Officer's Certificate delivered
to the Escrow Agent prior to termination of
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such Escrow Period. As soon as all such claims have been resolved, the Escrow
Agent shall transfer to the stockholders of the Company, pursuant to written
instructions by Parent, the remaining portion of the Escrow Fund not required to
satisfy such claims. Deliveries of Escrow Amounts to the stockholders of the
Company pursuant to this Section 7.2(b) shall be made in proportion to their
respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock split)
("New Shares") in respect of Parent Common Stock in the Escrow Fund which have
not been released from the Escrow Fund as of the time of such issuance or
distribution by Parent shall be added to the Escrow Fund and become a part
thereof. New Shares issued in respect of shares of Parent Common Stock which
have been released from the Escrow Fund as of the time of such issuance or
distribution by Parent shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof. Cash dividends on shares of Parent
Common Stock shall not be added to the Escrow Fund, but shall be distributed to
the record holders of such shares.
(iii) Each stockholder shall be entitled to control the vote of the
shares of Parent Common Stock contributed to the Escrow Fund by such stockholder
(and on any voting securities added to the Escrow Fund in respect of such shares
of Parent Common Stock), and the Escrow Agent in whose name the shares are held
shall vote such shares on all matters as instructed by the respective
stockholders in writing.
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before the
last day of the Escrow Period of a certificate signed by any officer of Parent
(an "Officer's Certificate"): (A) stating that Parent has paid or properly
accrued or has received information that causes it to reasonably anticipate
during the last 90 days of the Escrow Period in good faith and with reasonable
detail that it will have to pay or accrue Losses, and (B) specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid or properly accrued, or the basis for
such reasonably anticipated liability, and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related, the Escrow Agent
shall, subject to the provisions of Section 7.2(e) hereof, transfer to Parent
out of the Escrow Fund, as promptly as practicable, shares of Parent Common
Stock held in the Escrow Fund in an amount equal to such Losses. Such payments
of shares from the Escrow Fund will be made pro rata in proportion to the
stockholders original contributions to the Escrow Fund.
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(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
the average closing sale price of a share of Parent Common Stock, as reported on
the Nasdaq National Market, for the twenty (20) most recent trading days ending
on the trading day two (2) days prior to the delivery to Parent of such shares.
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Stockholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no transfer to Parent of any Escrow
Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Stockholder Agent to make such transfer.
After the expiration of such thirty (30) day period, the Escrow Agent shall
transfer shares of Parent Common Stock from the Escrow Fund in accordance with
Section 7.2(d) hereof, provided, that no such transfer may be made if the
Stockholder Agent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(f) Resolution of Conflicts.
(i) In case the Stockholder Agent shall object in writing to any
claim or claims made in any Officer's Certificate as provided in Section 7.2(e)
hereof, the Stockholder Agent and Parent shall attempt in good faith to agree
upon the rights of the respective parties with respect to each of such claims.
If the Stockholder Agent and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of Parent Common Stock from the Escrow
Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholder Agent may bring a legal action to
resolve the matter.
(g) Stockholder Agent; Power of Attorney.
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any stockholder, Kenneth Ferris shall be
appointed as agent and attorney-in-fact (the "Stockholder Agent") for each
stockholder of the Company (except such stockholders, if any, as shall have
perfected their appraisal or dissenters' rights under Delaware Law), for and on
behalf of stockholders of the Company, to give and receive notices and
communications, to authorize delivery to Parent of shares of Parent Common Stock
from the Escrow Fund in satisfaction of claims by Parent, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Stockholder Agent for the accomplishment of the
foregoing. Such agency may be changed by the stockholders of the Company from
time to time upon not less than thirty (30) days prior written notice to Parent;
provided, that the Stockholder Agent may not be removed unless holders of a two-
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thirds interest of the Escrow Fund agree to such removal and to the identity of
the substituted agent. Any vacancy in the position of Stockholder Agent may be
filled by approval of the holders of a majority in interest of the Escrow Fund.
No bond shall be required of the Stockholder Agent, and the Stockholder Agent
shall not receive compensation for its services. Notices or communications to or
from the Stockholder Agent shall constitute notice to or from each of the
stockholders of the Company.
(ii) The Stockholder Agent shall not be liable for any act done
or omitted hereunder as Stockholder Agent while acting in good faith and in the
exercise of reasonable judgment. In no event shall the Stockholder Agent be
liable for punitive, incidental or consequential damages. The stockholders of
the Company on whose behalf the Escrow Amount was contributed to the Escrow Fund
shall severally on a pro rata basis (based on the Aggregate Parent Common Stock
to which such stockholders are entitled) indemnify the Stockholder Agent and
hold the Stockholder Agent harmless against any loss, liability or expense
incurred without gross negligence or willful misconduct on the part of the
Stockholder Agent and arising out of or in connection with the acceptance or
administration of the Stockholder Agent's duties hereunder, including the
reasonable fees and expenses of any legal counsel retained by the Stockholder
Agent.
(h) Actions of the Stockholder Agent. A decision, act, consent or
instruction of the Stockholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Stockholder Agent as being the
decision, act, consent or instruction of each every such stockholder of the
Company. The Escrow Agent and Parent are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Stockholder Agent.
(i) Third-Party Claims. In the event Parent becomes aware of a third-
party claim which Parent reasonably believes may result in a demand against the
Escrow Fund, Parent shall notify the Stockholder Agent of such claim in
accordance with Section 7.2(e), and the Stockholder Agent, as representative for
the stockholders of the Company, shall be entitled, at his expense, to
participate in any defense of such claim. Parent shall have the right in its
sole discretion to control the defense of all such claims and to settle any such
claim; provided, however, that no settlement of any such claim with third party
claimants in excess of $25,000 shall permit any claim against the Escrow Fund,
except with the consent of the Stockholder Agent, which consent shall not be
unreasonably withheld and provided further, that Stockholder Agent may control
the non-judicial settlement of claims in an amount less than $25,000 provided
that neither Parent nor the Company are required to sign any release in
connection with such settlement, and that there are no restrictions on the
future operation and activities of the Surviving Corporation or Parent. In the
event that the Stockholder Agent has consented to any such settlement and
acknowledged that the claim is a valid claim against the Escrow Fund, the
Stockholder Agent shall be deemed to have agreed to the claim by Parent against
the Escrow Fund in an amount equal to such settlement.
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(j) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein and in the Escrow Agreement,
and as set forth in any additional written escrow instructions which the Escrow
Agent may receive after the date of this Agreement which are signed by an
officer of Parent and the Stockholder Agent, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith, provided, that the Escrow Agent has exercised
reasonable care in the selection of such counsel.
(ii) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties hereto
or to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account
of the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder absent gross negligence or willful misconduct.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent absent gross negligence or willful
misconduct.
(v) In performing any duties under the Agreement, the Escrow Agent
shall not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel provided that the Escrow Agent has exercised
reasonable care in the selection of such counsel. The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
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(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings. In
such event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and shares of Parent Common Stock held in escrow, except
all cost, expenses, charges and reasonable attorney fees incurred by the Escrow
Agent due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by the
terms of this Agreement.
(vii) The parties and their respective successors and assigns agree
jointly and severally to indemnify and hold Escrow Agent harmless against any
and all losses, claims, damages, liabilities, and expenses, including reasonable
costs of investigation, counsel fees, and disbursements that may be imposed on
Escrow Agent or incurred by Escrow Agent in connection with the performance of
his/her duties under this Agreement, including but not limited to any litigation
arising from this Agreement or involving its subject matter other than losses,
claims, damages, liabilities and expenses that arise from the gross negligence
or willful misconduct of Escrow Agent.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of Colorado. The
successor escrow agent shall execute and deliver an instrument accepting such
appointment and it shall, without further acts, be vested with all the estates,
properties, rights, powers, and duties of the predecessor escrow agent as if
originally named as escrow agent. The Escrow Agent shall be discharged from any
further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow
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Agent shall be reasonably compensated by Parent for such extraordinary services
and reimbursed for all costs, attorney's fees, and expenses occasioned by such
default, delay, controversy or litigation.
(l) Exclusive Remedy. The Escrow Fund provided for herein is
intended by the parties to this Agreement to apply to breaches by the Company of
any representation, warranty, covenant or agreement of the Company contained
herein, by reason of any misrepresentation by the Company made in or pursuant to
Article II of this Agreement and resort to the Escrow Fund shall be the
exclusive remedy of Parent for such breaches. Notwithstanding the foregoing, the
existence of this Article VII and of the rights and restrictions set forth
herein do not limit any other potential remedies of Parent for (i) breach of the
representations set forth in Sections 2.2 and 2.8 for which liability shall be
capped at the proceeds of the transaction to each shareholder, or (ii) any
fraudulent misrepresentation contained in this Agreement or the Disclosure
Schedule.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination . This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time of the Merger, whether before
or after approval of the Merger by the stockholders of the Company:
(a) by mutual written consent of the Company and Parent;
(b) by either Parent or the Company if: (i) the Effective Time has
not occurred by August 11 (provided, that the right to terminate this Agreement
under this clause 8.1(b)(i) shall not be available to any party whose failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date); (ii) there shall
be a final nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity that would make consummation of the Merger
illegal;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action (an "Order"), in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by Parent if the required approval of the stockholders of Company
contemplated by this Agreement shall not have been obtained by reason of the
failure to obtain the required vote or written consent of Company stockholders;
(e) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of any portion
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of the business of the Company or (ii) compel Parent or the Company to dispose
of or hold separate, as a result of the Merger, any portion of the business or
assets of the Company or Parent;
(f) by Company if it is not in material breach of its obligations
under this Agreement and there has been a breach of any material representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any material representation or warranty of Parent shall have
become untrue, in either case such that the conditions set forth in Section
6.2(a) or Section 6.2(b) would not then be satisfied; provided, that if such
material inaccuracy in Parent's representations and warranties or breach by
Parent is curable by Parent through the exercise of its commercially reasonable
efforts, then Company may only terminate this Agreement under this Section
8.1(f) if the breach is not cured within fifteen (15) days following the date of
written notice from Company of such breach (but no cure period shall be required
for a breach which by its nature cannot be cured); or
(g) by Parent if it is not in material breach of its obligations
under this Agreement and there has been upon a breach of any material
representation, warranty, covenant or agreement on the part of Company set forth
in this Agreement, or if any material representation or warranty of Company
shall have become untrue, in either case such that the conditions set forth in
Section 6.3(a) or Section 6.3(b) would not then be satisfied; provided, that if
such material inaccuracy in Company's representations and warranties or breach
by Company is curable by Company through the exercise of its commercially
reasonable efforts, then Company may only terminate this Agreement under this
Section 8.1(g) if the breach is not cured within fifteen (15) days the date of
written notice from Parent of such breach (but no cure period shall be required
for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officers, directors or stockholders except as set
forth below in Section 8.3, provided, that each party shall remain liable for
any breaches of this Agreement prior to its termination; and provided further,
that, the provisions of Sections 5.4, 5.5, 5.6 and Article VIII of this
Agreement shall remain in full force and effect and survive any termination of
this Agreement. The inability of Company to obtain any third party consent
including, but not limited to, the waiver of any optionholder of their
Acceleration Clause shall entitle Parent to terminate this Agreement but shall
not be deemed a breach by Company of the terms and provisions of this Agreement.
8.3 Termination Payment. If, and only if, Parent, either unilaterally or
in conjunction with the Company, as applicable, terminates this Agreement under
Sections 8.1(a) or 8.1(b) above due to the refusal by one or more Company
employees other than Kenneth Ferris, Phil Couch or Mark Sanders to waive their
Acceleration Clause as set forth in Section 6.3(j), then Parent shall pay,
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up to a maximum of $15,000, of all reasonable costs and expenses incurred by
Company and its shareholders.
8.4 Amendment. Except as is otherwise required by applicable law after
the stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time only by execution of an instrument in
writing signed by both of the parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing, shall be effective when received, and shall in any event be deemed to
have been received (i) when delivered, if delivered personally or by commercial
delivery service, (ii) five (5) business days after deposit with U.S. Mail, if
mailed by registered or certified mail (return receipt requested), (iii) one (1)
business day after the business day of deposit with Federal Express or similar
overnight courier for next day delivery (or, two (2) business days after such
deposit if deposited for second business day delivery), if delivered by such
means, or (iv) one (1) business day after delivery by facsimile transmission
with copy by U.S. Mail, if sent via facsimile plus mail copy (with
acknowledgment of complete transmission), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Merger Sub, to:
Carrier Access Corporation
5395 Pearl Parkway
Boulder, CO 80301
Attention: Corporate Development Officer
Telephone No.: (303) 442-5455
Facsimile No.: (303) 218-5797
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with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Mark A. Bertelsen, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Millennia Systems, Inc.
1354 Eighth Street, S.W.
Suite 400
Roanoke, VA 24015
Attention: Kenneth Ferris, President
Telephone No.: (540) 345-7503
Facsimile No.: (540) 345-2356
with a copy to:
Flippin, Densmore, Morse & Jessee
1800 First Union Tower
Drawer 1200
Roanoke, VA 24006
Attention: Douglas W. Densmore, Esq.
Telephone No.: (540) 510-3024
Facsimile No.: (540) 510-3050
(c) if to the Escrow Agent:
Guaranty Bank and Trust Company
1331 17th Street
P.O. Box 5847
Denver, CO 80217
Attention: Robert L. Mueller
Telephone No.: (303) 296-9600
Facsimile No.: (303) 296-4113
9.2 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"the business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.
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9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement. This Agreement, the Company Schedule, and the
documents and instruments and other agreements among the parties hereto
specifically referenced herein: (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise specifically provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy .
9.7 Specific Performance. The parties hereto 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 prior to or at Closing. It is accordingly agreed that the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement occurring prior to or at Closing and to enforce specifically the terms
and provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity prior to or at Closing.
9.8 Governing Law. Except as otherwise set forth, this Agreement and all
matters arising there from or related thereto shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof; provided that issues involving the corporate governance of any of the
parties hereto shall be governed by their respective jurisdictions of
incorporation. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any state or federal court within the State of Delaware, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, other than issues involving the corporate
governance of any of the parties hereto, agrees that process may be served upon
them in any manner authorized by the laws of the State of Delaware for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction and such process.
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9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder, by operation of law or otherwise,
without the prior written approval of the of the other party. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
9.11 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner of any party hereto or any other person or entity
unless specifically provided otherwise herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized respective officers as of the date first written
above.
CARRIER ACCESS CORPORATION
By: /s/ Roger L. Koenig
_________________________________
Name: Roger L. Koenig
Title: Chief Executive Officer
MILLENNIA ACQUISITION CORPORATION
By: /s/ Roger L. Koenig
_________________________________
Name: Roger L. Koenig
Title: Chief Executive Officer
MILLENNIA SYSTEMS, INC.
By: /s/ Kenneth Ferris
_________________________________
Name: Kenneth Ferris
Title: President
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