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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act Of 1934
Date of Report (Date of earliest event reported) April 3, 2000
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SONIC FOUNDRY, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 1-14007 39-1783372
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
754 Williamson Street, Madison, WI 53703
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(Address of principal executive offices)
(608)256-3133
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(Issuer's telephone number)
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Item 1. Changes in Control of Registrant
None
Item 2. Acquisition or Disposition of Assets
On April 3, 2000, Sonic Foundry, Inc. closed the acquisition (the
"Acquisition") of STV Communications, Inc. pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") dated March 15, 2000 by and among Sonic Foundry,
Inc. ("Sonic"), New Sonic, Inc., a Maryland corporation and wholly-owned
subsidiary of Sonic ("New Sonic"), and STV Communications, Inc., a California
corporation ("STV"). Sonic acquired STV by means of a merger of STV into New
Sonic (the "Merger"), with New Sonic remaining as the surviving corporation in
the Merger. At the effective time of the Merger, the outstanding shares of the
capital stock of STV were converted into the right to receive shares of Sonic
common stock. As a result, stockholders of STV became stockholders of Sonic. New
Sonic continues to conduct the business and operations of STV as a wholly-owned
subsidiary of Sonic. The Company is the process of analyzing historical STV
equity transactions as well as the terms of the Acquisition in order to
determine the availability of pooling accounting treatment. Results of
operations for STV will be included in Sonic's consolidated operating results
for periods subsequent to the date of acquisition. Pursuant to the Merger
Agreement, an aggregate of $1,222,273 in cash was paid and 1,053,548 shares of
Sonic common stock were issued in exchange for all of the issued and outstanding
capital stock of STV. In addition, 242,792 options or warrants to purchase
common stock were issued. Each outstanding share of STV common stock was
converted into the right to receive 0.1327 of a share of Sonic common stock (the
"Common Exchange Ratio"). Each outstanding share of STV preferred stock was
converted into the right to receive a number of shares of Sonic common stock
equal to the number of shares of STV common stock into which such share of STV
Preferred stock was convertible immediately prior to the Merger, multiplied by
0.1327. All options, warrants and other rights to purchase shares of STV common
stock outstanding immediately prior to the Merger were assumed by Sonic. Each
such option, warrant and other right became exercisable for that number of
shares of Sonic common stock equal to the product of (a) the Common Exchange
Ratio and (b) the number of shares of STV common stock subject to such option,
warrant or other right immediately prior to the Merger. The per share exercise
price of each such option, warrant or other right was adjusted to equal the
quotient of (x) the per share exercise price of such option, warrant or other
right immediately prior to the Merger and (y) the Common Exchange Ratio. The
consideration paid by Sonic for the outstanding capital stock of STV and the
other terms of the Merger Agreement were determined on the basis of arms' length
negotiations. The Acquisition is valued at approximately $67 million based on
the closing price of Sonic common stock as of the date the transaction was
publicly announced.
Sonic has agreed to register for resale under the Securities Act of 1933,
as amended, the shares of its common stock issued in the Acquisition. The
registration will apply to the resale of the shares by the former STV
shareholders. Sonic plans to file the registration statement within 90 days of
the Acquisition and is obligated to maintain the effectiveness of the
registration statement for one year.
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In connection with the Acquisition, Sonic and certain of its major
stockholders have agreed to nominate a designee of STV as director and vote for
such designee at the next annual stockholders meeting.
Sonic is a leader in the development of, and has seeded the Internet
streaming market with, software tools designed to create, edit and deliver audio
and video content for a variety of Internet formats. In addition Sonic recently
expanded their product offering to include encoding services and system sales.
STV is a provider of an array of Internet media services that include broadcast,
webcasting, production, encoding, and hosting. STV will join forces with Sonic
to provide turnkey media software, services and systems solutions.
Item 7. Financial Statements
(a). Financial Statements Of Business Acquired.
The financial information required to be filed pursuant to Item 7(a)
of Form 8-K was not available at the time of filing this Current Report on
Form 8-K and will be filed on a Form 8-K/A as soon as practicable, but in
no event later than 60 days after the date this Current Report on Form 8-K
is required to be filed.
(b). Pro Forma Financial Information.
The pro forma financial information required to be filed pursuant to
Item 7(b) of Form 8-K was not available at the time of filing this Current
Report on Form 8-K and will be filed on a Form 8-K/A as soon as
practicable, but in no event later than 60 days after the date this Current
Report on Form 8-K is required to be filed.
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(c) EXHIBIT LIST
NUMBER DESCRIPTION
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2.1 Agreement And Plan Of Merger, dated as of March 15, 2000, by and
among the Registrant, New Sonic, Inc. and STV Communications, Inc.
(Schedules and exhibits have been omitted pursuant to Item 601(b)(2)
of Regulation S-K. The Company hereby undertakes to furnish
supplementally copies of the omitted schedules and exhibits upon
request by the Securities and Exchange Commission.)
99.1 Press Release dated February 28, 2000 regarding acquisition of STV
Communications, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sonic Foundry, Inc.
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(Registrant)
April 17, 2000 By: /s/ Kenneth A. Minor
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Kenneth A. Minor
Chief Financial Officer
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AGREEMENT AND PLAN OF MERGER
by and among
SONIC FOUNDRY, INC.
NEW SONIC, INC.
and
STV COMMUNICATIONS, INC.
Dated as of March 15, 2000
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EXHIBITS
Exhibit A Stock Restriction and Registration Agreement
Exhibit B Voting and Option Agreement
Exhibit C Matters covered by legal opinion of Morrison & Foerster LLP
Exhibit D Matters covered by legal opinion of McBreen & Kopko
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I The Merger........................................................... 7
1.1 Effective Time of the Merger........................................... 7
1.2 Closing................................................................ 7
1.3 Effects of the Merger.................................................. 7
1.4 Directors and Officers................................................. 7
Article II Conversion of Securities............................................ 7
2.1 Conversion of Capital Stock............................................ 7
2.2 Exchange of Certificates............................................... 9
2.3 Dissenters' Rights..................................................... 11
Article III Representations and Warranties of The Company...................... 12
3.1 Organization, Standing and Power....................................... 12
3.2 Capitalization......................................................... 13
3.3 Authority; No Conflict; Required Filings and Consents.................. 14
3.4 Financial Statements................................................... 15
3.5 No Undisclosed Liabilities............................................. 15
3.6 Conduct of the Business................................................ 16
3.7 Taxes.................................................................. 16
3.8 Owned and Leased Real Properties....................................... 17
3.9 Intellectual Property.................................................. 17
3.10 Agreements, Contracts and Commitments.................................. 18
3.11 Litigation............................................................. 18
3.12 Environmental Matters.................................................. 19
3.13 Employee Benefit Plans................................................. 20
3.14 Compliance With Laws................................................... 22
3.15 Permits................................................................ 22
3.16 Labor Matters.......................................................... 22
3.17 Insurance.............................................................. 22
3.18 Business Activity Restrictions......................................... 22
3.19 Year 2000 Compliance................................................... 23
3.20 Assets................................................................. 24
3.21 Customers.............................................................. 24
3.22 Accounts Receivable.................................................... 24
3.23 No Existing Discussions................................................ 24
3.24 The Board of Directors................................................. 24
3.25 Brokers; Schedule of Fees.............................................. 24
3.26 Takeover Statutes...................................................... 24
3.27 Non-Recourse Debt and Obligations...................................... 25
Article IV Representations And Warranties Of The Buyer And New Sonic........... 25
</TABLE>
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<TABLE>
<S> <C>
4.1 Organization, Standing and Power....................................... 25
4.2 Capitalization......................................................... 25
4.3 Authority; No Conflict; Required Filings and Consents.................. 26
4.4 SEC Filings; Financial Statements...................................... 27
4.5 Absence of Certain Changes or Event.................................... 27
4.6 Litigation............................................................. 27
4.7 No agent, broker....................................................... 27
Article V Conduct Of Business.................................................. 28
5.1 Covenants of the Company............................................... 28
5.2 Cooperation............................................................ 30
5.3 Confidentiality........................................................ 31
Article VI Additional Agreements............................................... 31
6.1 No Solicitation........................................................ 31
6.2 Access to Information.................................................. 32
6.3 Stockholders Meeting................................................... 32
6.4 Stockholder and Employee Agreements.................................... 32
6.5 Legal Conditions to the Merger......................................... 32
6.6 Public Disclosure...................................................... 34
6.7 Taxes.................................................................. 34
6.8 American Stock Exchange Listing........................................ 34
6.9 Company Stock Plans and the Company Warrants........................... 34
Stockholder Litigation...................................................... 35
6.10 Stockholder Litigation................................................. 35
6.11 Indemnification........................................................ 35
6.12 Notification of Certain Matters........................................ 36
6.13 Employment Agreements; Employees....................................... 36
6.14 Sale or Transfer of Buyer Stock........................................ 37
6.15 Takeover Statutes...................................................... 37
Article VII Conditions to Merger............................................... 37
7.1 Conditions to Each Party's Obligation To Effect the Merger............. 37
7.2 Additional Conditions to Obligations of the Buyer and the New Sonic.... 38
7.3 Additional Conditions to Obligations of the Company.................... 39
Article VIII Termination and Amendment......................................... 39
8.1 Termination............................................................ 39
8.2 Effect of Termination.................................................. 40
8.3 Fees and Expenses...................................................... 40
8.4 Amendment.............................................................. 42
8.5 Extension; Waiver...................................................... 42
Article IX Miscellaneous....................................................... 42
9.1 Nonsurvival of Representations and Warranties.......................... 42
</TABLE>
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<TABLE>
<S> <C>
9.2 Notices................................................................ 42
9.3 Entire Agreement....................................................... 43
9.4 No Third Party Beneficiaries........................................... 43
9.5 Assignment............................................................. 43
9.6 Severability........................................................... 44
9.7 Counterparts and Signature............................................. 44
9.8 Interpretation......................................................... 44
9.9 Governing Law.......................................................... 44
9.10 Remedies............................................................... 44
9.11 Waiver of Jury Trial................................................... 45
</TABLE>
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Exhibit 10.20
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 15,
2000, is by and among Sonic Foundry, Inc., a Maryland corporation (the "Buyer");
New Sonic, Inc., a Maryland corporation (sometimes "New Sonic" and sometimes the
"Surviving Corporation"), which is a wholly-owned subsidiary of Buyer; and STV
Communications, Inc., a Delaware corporation (the "Company"). New Sonic and the
Company are sometimes referred to as the "Constituent Corporations."
WHEREAS, the Boards of Directors of the Buyer and the Company deem it
advisable and in the best interests of each corporation and its respective
stockholders that the Buyer and the Company combine in order to advance the
long-term business interests of the Buyer and the Company;
WHEREAS, the combination of the Buyer and the Company shall be effected by
the terms of this Agreement through a merger of the Company into New Sonic, as a
result of which the outstanding shares of capital stock of the Company shall be
exchanged for shares of Buyer Common Stock (as defined below) (the "Merger");
WHEREAS, as a condition and inducement to Buyer's willingness to enter into
this Agreement, concurrently with the execution and delivery of this Agreement,
(i) certain stockholders of the Company, consisting of Jan Brzeski, Jeffrey
Gerst, David Fife, and Fife Waterfield, are entering into a Stock Restriction
and Registration Agreement dated as of the date of this Agreement in the form
attached hereto as Exhibit A (the "Stock Restriction and Registration
Agreement"), pursuant to which (a) such stockholders have agreed, among other
things, to restrict from resale their shares of Buyer Common Stock received in
the Merger, for a specified period of time, and (b) the Company has agreed to
register such shares of Buyer Common Stock, all as set forth therein; and (ii)
such stockholders are also entering into a Voting and Option Agreement in the
form attached hereto as Exhibit B (the "Voting and Option Agreement"), pursuant
to which, among other things, (a) such stockholders (x) agree to vote their
shares of Company Capital Stock in favor of the Merger and the consummation of
the transactions contemplated thereby and (y) agree to grant to the Buyer an
option to purchase their shares of Company Capital Stock (as defined below)
upon the occurrence of certain events, and (b) the Buyer and certain
shareholders of the Buyer agree to cause a designee of the Company to be
appointed to the Buyer's Board of Directors.
WHEREAS, it is intended that the Merger shall qualify as a
"reorganization," within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that each of the Buyer, New Sonic and
the Company will be a "party to a reorganization," within the meaning of Section
368(b) of the Code, with respect to the Merger; and
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Buyer, New Sonic and the Company agree as follows:
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ARTICLE I
The Merger
1.1 Effective Time of the Merger. Subject to the provisions of this Agreement,
prior to the Closing (as defined in Section 1.2), the Buyer shall prepare,
and on the Closing Date (as defined in Section 1.2) the Buyer shall cause
to be filed (a) with the Secretary of State of the State of Delaware, a
certificate of merger (the "Certificate of Merger") executed by the
Surviving Corporation and (b) with the State Department of Assessments and
Taxation of the State of Maryland, Articles of Merger executed by the
Company and the Surviving Corporation.
The Merger shall become effective upon the filings of the Certificate of
Merger and Articles of Merger as set forth above or at such later time within 30
calendar days after the filing with the State of Maryland as is agreed to by the
Buyer and the Company in writing (the "Effective Time").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at
10:00 a.m., Central time, on a date to be specified by the Buyer and the
Company (the "Closing Date"), which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in
Article VII (other than delivery of items to be delivered at the Closing),
at the offices of McBreen & Kopko, 20 North Wacker Drive, #2520, Chicago,
Illinois 60606, unless another date, place or time is agreed to in writing
by the Buyer and the Company.
1.3 Effects of the Merger. At the Effective Time (i) the separate existence of
the Company shall cease and the Company shall be merged with and into New
Sonic, (ii) the Articles of Incorporation of New Sonic shall be amended so
that Article [Second] (which sets forth the name of the Surviving
Corporation) shall read in its entirety as "The name of the corporation
[(hereinafter called the "Corporation")] is "STV Communications, Inc.", and
(iii) the Articles of Incorporation of New Sonic as so amended and the
Bylaws, respectively, of New Sonic in effect at the Effective Time shall be
the Articles of Incorporation and Bylaws of the Surviving Corporation,
subject to the right of the directors and the stockholders of the Surviving
Corporation to amend such documents in accordance with their terms and the
General Corporation Law of Maryland.
1.4 Directors and Officers. The directors and officers of New Sonic immediately
prior to the Effective Time shall be the initial directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation.
ARTICLE II
Conversion of Securities
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
the capital stock of the Company or capital stock of the Surviving
Corporation:
(a) Cancellation of Treasury Stock and Buyer-Owned Stock. All shares of
common Company Capital Stock (as defined below) that are owned by the Company as
treasury stock or
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by any wholly owned Subsidiary (as defined in Section 3.1) of the Company and
any shares of Company Capital Stock owned by the Buyer, the Surviving
Corporation or any other wholly owned Subsidiary of the Buyer shall be cancelled
and retired and shall cease to exist and no stock of the Buyer or other
consideration shall be delivered in exchange therefor. For purposes of this
Agreement, "Subsidiary" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which directly or
indirectly at least 50% of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries. For purposes of this Agreement, "Person" means an individual, a
corporation, a limited liability company, a partnership, an association, a trust
or any other entity or organization, including a Governmental Entity (as
hereinafter defined).
(b) Exchange Ratio for Company Capital Stock. Subject to Section 2.2, each
share of Company Capital Stock (other than shares to be cancelled in accordance
with Section 2.1(a)) issued and outstanding immediately before the Effective
Time, and all rights in respect thereof, shall be automatically converted into
0.1327 shares (the "Exchange Ratio") of common stock, $.01 par value per share,
of the Buyer ("Buyer Common Stock"). As of the Effective Time, all such shares
of Company Capital Stock shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Capital Stock shall cease to
have any rights with respect thereto, except the right to receive the shares of
Buyer Common Stock and any cash in lieu of fractional shares of Buyer Common
Stock to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.2, without interest.
(c) Adjustments to Exchange Ratio. The 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 Buyer
Common Stock or Company Capital Stock), reorganization, recapitalization or
other like change with respect to Buyer Common Stock or Company Capital Stock
occurring after the date hereof and prior to the Effective Time.
(d) Unvested Stock. At the Effective Time, any unvested shares of Company
Capital Stock awarded to employees, directors or consultants pursuant to any of
the Company's plans or arrangements and outstanding immediately prior to the
Effective Time shall be assumed by the Buyer and converted to unvested shares of
Buyer Common Stock in accordance with the Exchange Ratio and shall remain
subject to the same terms, restrictions and vesting schedule as in effect
immediately prior to the Effective Time, except to the extent by their terms
such unvested shares of Company Capital Stock vest at the Effective Time and
copies of the relevant agreements governing such vesting had been provided to
Buyer. All outstanding rights which the Company may hold immediately prior to
the Effective Time to repurchase unvested shares of Company Capital Stock shall
be assigned to and assumed by the Buyer in the Merger and shall thereafter be
exercisable by the Buyer upon the same terms and conditions in effect
immediately prior to the Effective Time, except that the shares purchasable
pursuant to such rights and the purchase price payable per share shall be
adjusted to reflect the Exchange Ratio.
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(e) Treatment of Company Options and Company Warrants. Outstanding Company
Options and Company Warrants (in each case as defined in Section 3.2(b)) shall
be treated following the Effective Time in the manner set forth in Section 6.9.
2.2 Exchange of Certificates. The procedures for exchanging outstanding shares
of Company Capital Stock for Buyer Common Stock pursuant to the Merger are
as follows:
(a) Exchange Agent. As of the Effective Time, at the Buyer's discretion,
either the Buyer shall deliver to the stockholders of the Company or
deposit with a bank or trust company designated by the Buyer (the
"Exchange Agent"), for the benefit of the holders of shares of the
Company Capital Stock, for exchange in accordance with this Section
2.2, (i) certificates representing the shares of Buyer Common Stock
(such shares of Buyer Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as
the "Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of the Company Capital Stock, (ii) cash in an
amount sufficient to make payments required pursuant to Section
2.2(e), and (iii) any dividends or distributions to which holders of
Certificates (as defined below) may be entitled pursuant to Section
2.2(c).
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, but in no event more than five (5) business days
thereafter, the Buyer (or the Exchange Agent) shall mail to each
holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of the
Company Capital Stock (the "Certificates") whose shares were converted
pursuant to Section 2.1 into the right to receive shares of Buyer
Common Stock (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Buyer (or the Exchange Agent) and shall be in such form and have such
other provisions as the Buyer may reasonably specify) and (ii)
instructions for effecting the surrender of the Certificates in
exchange for certificates representing shares of Buyer Common Stock
(plus cash in lieu of fractional shares, if any, of Buyer Common Stock
and any dividends or distributions as provided below). Upon surrender
of a Certificate for cancellation to the Buyer (or the Exchange Agent
or to such other agent or agents as may be appointed by the Buyer),
together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Buyer or its
agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole
shares of Buyer Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II plus cash in
lieu of fractional shares pursuant to Section 2.2(e) and any dividends
or distributions pursuant to Section 2.2(c), and the Certificate so
surrendered shall immediately be cancelled. In the event of a transfer
of ownership of Company Capital Stock which is not registered in the
transfer records of the Company, a certificate representing the proper
number of shares of Buyer Common Stock plus cash in lieu of fractional
shares pursuant to Section 2.2(e) and any dividends or distributions
pursuant to Section 2.2(c) may be issued and paid to a person other
than the person in whose name the Certificate so surrender is
registered, if such Certificate is presented to the Buyer (or its
agent), accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock
9
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transfer taxes have been paid. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after
the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of Buyer Common Stock
plus cash in lieu of fractional shares pursuant to Section 2.2(e) and
any dividends or distributions pursuant to Section 2.2(c) as
contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with
respect to Buyer Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Buyer Common Stock represented thereby and no
cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 2.2(e) until the holder of record of such
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there
shall be issued and paid to the record holder of the Certificate, (i)
certificates representing whole shares of Buyer Common Stock issued in
exchange therefor, without interest, (ii) at the time of such
surrender, the amount of any cash payable in lieu of a fractional
share of Buyer Common Stock to which such holder is entitled pursuant
to Section 2.2(e) and the amount of dividends or other distributions
with a record date after the Effective Time previously paid with
respect to such whole shares of Buyer Common Stock, and (iii) at the
appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Buyer Common Stock.
(d) No Further Ownership Rights in Company Capital Stock. All shares of
Buyer Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash
or other distributions paid pursuant to Sections 2.2(c) or 2.2(e))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Capital Stock, and from and after
the Effective Time there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares
of Company Capital Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Exchange Agent for any
reason, they shall be cancelled and exchanged as provided in this
Article II.
(e) No Fractional Shares. No certificate or scrip representing fractional
shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a
stockholder of the Buyer. Notwithstanding any other provision of this
Agreement, each holder of shares of Company Capital Stock exchanged
pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Buyer Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in
lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Buyer Common Stock multiplied by $61.50.
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(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Capital Stock for 180
days after the Effective Time shall be delivered to the Buyer, upon
demand, and any holder of Company Capital Stock who has not previously
complied with this Section 2.2 shall thereafter look only to the Buyer
for payment of its claim for Buyer Common Stock, any cash in lieu of
fractional shares of Buyer Common Stock and any dividends or
distributions with respect to Buyer Common Stock.
(g) No Liability. To the extent permitted by applicable law, none of the
Buyer, the Surviving Corporation, the Company or the Exchange Agent
shall be liable to any holder of shares of Company Capital Stock or
Buyer Common Stock, as the case may be, for such shares (or dividends
or distributions with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
If any Certificate shall not have been surrendered prior to five years
after the Effective Time (or immediately prior to such earlier date on
which any shares of Buyer Common Stock, and any cash payable to the
holder of such Certificate pursuant to this Article II or any
dividends or distributions payable to the holder of such Certificate
would otherwise escheat to or become the property of any Governmental
Entity (as defined in Section 3.3(c)), any such shares of Buyer Common
Stock or cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become
the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto.
(h) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Certificate the shares
of Buyer Common Stock and any cash in lieu of fractional shares, and
unpaid dividends and distributions on shares of Buyer Common Stock
deliverable in respect thereof pursuant to this Agreement.
2.3 Dissenters' Rights. Any shares held by a holder of Company Capital
Stock who shall have taken the necessary steps to seek appraisal of and to
demand payment for such shares of Common Stock pursuant to the dissenter's
rights provisions of applicable law and regulations (each such holder a
"Dissenting Stockholder," and the shares subject to such demand the "Dissenting
---------------------- ----------
Shares") shall not be converted into the right to receive Buyer Common Stock at
- ------
or after the Effective Time unless and until the Dissenting Stockholder
withdraws his or her demand for such appraisal and payment with the consent of
the Buyer or the Company, if such consent is required, or becomes ineligible for
such appraisal and payment. If a holder of Dissenting Shares shall withdraw in
writing his or her demand for such appraisal and payment with the consent of the
Buyer or the Company, if such consent is required, or shall become ineligible
for such appraisal and payment (through failure to comply with the requirements
of applicable law therefor or otherwise), then, as of the later of the Effective
Time or the occurrence of such event, such holder's Dissenting Shares shall be
automatically converted into and represent the right to receive Buyer Common
Stock in accordance with this Section 2.2(i) (without interest thereon). The
Company shall give the Buyer prompt notice of any demands for appraisal,
withdrawals of demands for appraisal and any other instruments served pursuant
to
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applicable law or regulations that are received by the Company or its
representatives. The Company shall not voluntarily make any payment with respect
to any such demands for appraisal and shall not, except with the prior written
consent of the Buyer, settle or offer to settle any such demands. Each holder of
Dissenting Shares shall have only such rights and remedies as are granted to
such holder under the provisions of applicable law and regulations. Dissenting
Shares shall not, after the Effective Time, be entitled to vote for any purpose
or be entitled to the payment of dividends or other distributions (except any
such dividends or other distributions as may have been payable to the
stockholders of the Buyer of record prior to the Effective Time).
ARTICLE III
Representations and Warranties of The Company
The Company represents and warrants to the Buyer and New Sonic that the
statements contained in this Article III are true and correct, except as set
forth herein or in the disclosure letter delivered by the Company to the Buyer
on or before the date of this Agreement (the "Company Disclosure Schedule"). The
Company Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III and the
disclosure in any paragraph shall qualify other paragraphs in this Article III
only to the extent that it is reasonably apparent from a reading of such
disclosure that it also qualifies or applies to such other paragraphs.
3.1 Organization, Standing and Power.
(a) Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite
corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified
to do business and is in good standing as a foreign corporation
in each jurisdiction in which the failure to be so qualified,
individually or in the aggregate, would be reasonably likely to
have a Company Material Adverse Effect. "Company Material Adverse
Effect" shall mean a material adverse effect on the business,
properties, financial condition, results of operations or
prospects of the Company taken as a whole or a material adverse
effect on the ability of the Company to consummate the
transactions contemplated by this Agreement, excluding any
material adverse effect (a) arising or resulting, directly or
indirectly, from general industry, economic or stock market
conditions, (b) caused by the public announcement of, and the
response or reaction of current or prospective customers,
vendors, licensors, investors or employees of such entity or
group of entities to, this Agreement or any of the transactions
contemplated by this Agreement or (c) as otherwise specifically
provided in Section 3.1(a) of the Company Disclosure Schedule.
(b) Except as set forth herein or in the Company Disclosure Schedule,
the Company does not directly or indirectly own any equity,
membership, partnership or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity,
membership, partnership or similar interest in, any corporation,
partnership, joint venture, limited liability company or other
business association or entity, whether incorporat ed or
unincorporated.
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3.2 Capitalization.
(a) The authorized capital stock of the Company consists twelve
million (12,000,000) shares of common stock of the Company, $.001
par value per share ("Company Common Stock"), and eight million
(8,000,000) shares of preferred stock, $.001 par value per share
("Company Preferred Stock"). (The Company Common Stock and the
Company Preferred Stock shall be referred to collectively herein
as the "Company Capital Stock".) As of the close of business on
the date of this Agreement: (i) 3,000,932 shares of Company
Common Stock were issued and outstanding; (ii) 4,938,394 shares
of Company Preferred Stock were issued and outstanding, of which
200,000 shares were comprised of Series A Preferred Stock,
368,000 shares were comprised of Series B Preferred Stock,
1,462,400 shares were comprised of Series C Preferred Stock,
699,994 shares were comprised of Series D Preferred Stock, and
2,208,000 shares were comprised of Series E Preferred Stock; and
(iii) no shares of Company Capital Stock were held in the
treasury of the Company.
(b) Section 3.2(b) of Company Disclosure Schedule lists the number of
shares of Company Capital Stock reserved for future issuance
pursuant to stock options granted and outstanding as of the date
of this Agreement and the plans under which such options were
granted (collectively, the "Company Stock Plans") and sets forth
a complete and accurate list of all holders of outstanding
options to purchase shares of Company Capital Stock (such
outstanding options, the "Company Stock Options"), indicating the
number of shares of Company Capital Stock subject to each Company
Stock Option, and the exercise price, the date of grant, vesting
schedule and the expiration date thereof. Section 3.2 of the
Company Disclosure Schedule shows the number of shares of Company
Capital Stock reserved for future issuance pursuant to warrants
or other outstanding rights to purchase shares of Company Capital
Stock outstanding as of the date of this Agreement (such
outstanding warrants or other rights, the "Company Warrants") and
the agreement or other document under which such Company Warrants
were granted and sets forth a complete and accurate list of all
holders of Company Warrants indicating the number and type of
shares of Company Capital Stock subject to each Company Warrant,
and the exercise price, the date of grant and the expiration date
thereof. Except (x) as set forth in this Section 3.2, and (y) as
reserved for future grants under Company Stock Plans, (i) there
are no equity securities of any class of the Company, or any
security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding and (ii)
there are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which the Company
is a party or by which the Company is bound obligating the
Company to issue, transfer, deliver or sell, or cause to be
issued, transferred, delivered or sold, additional shares of
capital stock of the Company or any security or rights
convertible into or exchangeable or exercisable for any such
shares, or obligating the Company to grant, extend, accelerate
the vesting of, otherwise modify or amend or enter into any such
option, warrant, equity security, call, right, commitment or
agreement. The Company does not have issued and outstanding any
stock appreciation rights, phantom stock, performance based
rights or similar rights or obligations. To the knowledge of the
Company, other than the Stock Restriction and Registration
Agreement, there are no agreements or understandings with respect
to the voting
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(including voting trusts and proxies) or sale or transfer
(including agreements imposing transfer restrictions) of any
shares of capital stock of the Company.
(c) All outstanding shares of Company Capital Stock are, and all
shares of Company Capital Stock subject to issuance as specified
above, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be, duly
authorized, validly issued, fully paid and nonassessable and not
subject to or issued in violation of any purchase option, call
option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the DGCL, the
Company's Certificate of Incorporation or By-laws or any
agreement to which the Company is a party or is otherwise bound.
There are no obligations, contingent or otherwise, of the Company
to repurchase, redeem or otherwise acquire any shares of the
Company Capital Stock or to provide funds to or make any material
investment (in the form of a loan, capital contribution or
otherwise) in the Company or any other entity. All of the
outstanding shares of capital stock of, or other equity interest
in, each of the Company's Subsidiaries have been duly authorized
and validly issued and are fully paid and nonassessable and are
owned directly or indirectly by the Company, free and clear of
all Liens and free and clear of any other restriction (including
any restriction on the right to vote, sell or otherwise dispose
of such shares or other equity interests). For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset.
3.3 Authority; No Conflict; Required Filings and Consents.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated by this Agreement by the Company have been duly
authorized by all necessary corporate action on the part of the
Company, except for the favorable vote of the Merger by the
requisite number of the Company's stockholders under the DGCL.
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.
(b) The execution and delivery of this Agreement by the Company does
not, and the consummation of the transactions contemplated by
this Agreement will not, (i) conflict with, or result in any
violation or breach of, any provision of the Certificate of
Incorporation or By-laws of the Company or the charter, by-laws,
or other organizational document of any Subsidiary of the
Company, (ii) conflict with, or result in any violation or breach
of, or constitute (with or without notice or lapse of time, or
both) a default (or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any
material benefit) under, or require a consent or waiver under,
any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract or other agreement,
instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) subject to compliance
with the requirements specified in clauses (i), (ii) and (iii)of
Section 3.3(c), conflict with or violate any permit, concession,
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franchise, license, judgment, injunction, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries or any of its or their properties or
assets, except in the case of (ii) and (iii) for any such
conflicts, violations, breaches, defaults, terminations,
cancellations or accelerations which, individually or in the
aggregate, are not reasonably likely to have a Company Material
Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of,
or registration, declaration, notice or filing with, any court,
arbitrational tribunal, administrative agency or commission or
other governmental or regulatory authority or agency (a
"Governmental Entity") is required by or with respect to the
Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the
consummation of the transactions contemplated by this Agreement,
except for (i) if required, the filing of a pre-merger
notification report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the
filing of the Certificate of Merger with the Delaware Secretary
of State and (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be
required under applicable state securities laws.
(d) Once the Company Voting Proposal (as defined below) shall have
been approved and adopted at the Company Meeting, at which a
quorum is present, by the affirmative vote of the holders of a
majority of the shares of (i) the Company Common Stock, (ii) each
class of Preferred Stock, and (iii) a majority of the issued and
outstanding shares of capital stock, voting as a single class, in
each case outstanding on the record date for the Company Meeting,
no other corporate proceedings on the part of the Company are
necessary to approve this Agreement or the transactions
contemplated hereby. There are no bonds, debentures, notes or
other indebtedness of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of the
Company may vote.
3.4 Financial Statements. Each of the financial statements (the "Financial
Statements") set forth in the Company Disclosure Schedule were
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes to such financial statements), and
fairly present in all material respects (subject in the case of
unaudited statements to normal, recurring audit adjustments) the
financial position of the Company and its Subsidiaries as of the
respective dates and the consolidated results of its operations and
cash flows for the periods indicated.
3.5 No Undisclosed Liabilities. Except as disclosed in the Company
Disclosure Schedule, and except for normal or recurring liabilities
incurred since the date of the Company balance sheet dated December
31, 1999 (the "Company Balance Sheet") in the ordinary course of
business consistent with past practices, the Company and the
Subsidiaries do not have any liabilities, either accrued, contingent
or otherwise (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting
principles), and whether due or to become due, which, individually or
in the aggregate, are reasonably likely to have a Company Material
Adverse Effect.
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3.6 Conduct of the Business. Except as disclosed in the Company Disclosure
Schedule, since the date of the Company Balance Sheet set forth
therein, the Company and the Subsidiaries have conducted their
business only in the ordinary course and in a manner consistent with
past practice and, since such date, there has not been (i) any event,
change or development in the business, properties, financial
condition, results of operations or prospects of the Company or its
Subsidiaries, which, has had, or is reasonably likely to have, a
Company Material Adverse Effect; or (ii) any damage, destruction or
loss (whether or not covered by insurance) with respect to the Company
or any of its Subsidiaries which, individually or in the aggregate,
has had, or is reasonably likely to have, a Company Material Adverse
Effect; or (iii) any other action or event that would have required
the consent of the Buyer pursuant to Section 5.1 of this Agreement had
such action or event occurred after the date of this Agreement.
3.7 Taxes.
(a) Each of the Company and its Subsidiaries has filed all Tax Returns (as
defined below) that it was required to file. The Company and each of
its Subsidiaries has paid on a timely basis all Taxes (as defined
below) that are shown to be due on any such Tax Returns. The unpaid
Taxes of the Company for Tax periods through the date of the Company
Balance Sheet do not materially exceed the accruals and reserves for
Taxes set forth on the Company Balance Sheet exclusive of any accruals
and reserves for "deferred taxes" or similar items that reflect timing
differences between Tax and financial accounting principles. All Taxes
that the Company and each of its Subsidiaries is or was required by
law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the proper Governmental
Entity. For purposes of this Agreement, (i) "Taxes" means all taxes,
charges, fees, levies or other similar assessments or liabilities,
including income, gross receipts, ad valorem, premium, value-added,
excise, real property, personal property, sales, use, services,
transfer, withholding, employment, payroll and franchise taxes imposed
by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of
the United States or any such government, and any interest, fines,
penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest
or dispute thereof and (ii) "Tax Returns" means all reports, returns,
declarations, statements or other information required to be supplied
to a taxing authority in connection with Taxes.
(b) The Company has made available to the Buyer correct and complete
copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by the
Company and each of its Subsidiaries since inception. The Company has
made available to the Buyer correct and complete copies of all other
Tax Returns of the Company and each of its Subsidiaries together with
all related examination reports and statements of deficiency for all
periods from and after January 1, 1997. No examination or audit of any
Tax Return of the Company or any Subsidiary by any Governmental Entity
is currently in progress or, to the knowledge of the Company,
threatened. The Company has not been informed by any Governmental
Entity that the Governmental Entity believes that the Company or any
Subsidiary was required to file any Tax Return that was not filed.
Neither the Company nor any
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Subsidiary has waived any statute of limitations with respect to Taxes
or agreed to an extension of time with respect to a Tax assessment or
deficiency.
3.8 Owned and Leased Real Properties.
(a) The Company and each Subsidiary do not own and have never owned any
real property.
(b) The Company has provided to the Buyer a complete and accurate list of
all real property currently leased by the Company and each Subsidiary
(collectively "Company Leases") and the location of the premises.
Neither the Company nor any Subsidiary is in default under any of the
Company Leases. Each of the Company Leases is in full force and effect
and will not cease to be in full force and effect as a result of the
transactions contemplated by this Agreement.
3.9 Intellectual Property.
(a) The Company, including its Subsidiaries, exclusively owns, or is
licensed or otherwise possesses legally enforceable rights to use, all
patents, trademarks, trade names, domain names, service marks and
copyrights, any applications for and registrations of such patents,
trademarks, trade names, domain names, service marks and copyrights, and
all processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are used or necessary to
conduct the business of the Company and each of its Subsidiaries as
currently conducted (the "Company Intellectual Property Rights"), except
where the failure to so own, be so licensed or otherwise so possess
would not result in a Company Material Adverse Effect.
(b) The execution and delivery of this Agreement and consummation of the
Merger will not result in the breach of, or create on behalf of any
third party the right to terminate or modify, any material license,
sublicense or other agreement relating to the Company Intellectual
Property Rights, or any license, sublicense and other agreement as to
which the Company is a party and pursuant to which the Company or any
Subsidiary is authorized to use any third party patents, trademarks,
copyrights or trade secrets (the "Company Third Party Intellectual
Property Rights"), including software that is used in the manufacture
of, incorporated in, or forms a part of any product or service sold by
or expected to be sold by the Company or any Subsidiary.
(c) The Company has applied for a provisional patent, but has no registered
patents, and the Company has no registered copyrights. All registered
trademarks and service marks which are held by the Company or any
Subsidiary and which are material to the business of the Company or any
Subsidiary are valid and subsisting. The Company and each Subsidiary has
taken reasonable measures to protect the proprietary nature of the
Company Intellectual Property Rights that are material to the business
of the Company and its Subsidiaries and to maintain in confidence all
trade secrets and confidential information owned or used by the Company
and its Subsidiaries and that are material to the business of the
Company and its Subsidiaries. To the knowledge of the executive
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officers of the Company, after reasonable inquiry, no other person or
entity is infringing, violating or misappropriating any of the Company
Intellectual Property Rights. None of the activities or business
previously or currently conducted by the Company or its Subsidiaries
infringes, violates or constitutes a misappropriation of, any patents,
trademarks, trade names, service marks and copyrights, any applications
for and registrations of such patents, trademarks, trade names, service
marks and copyrights, and all processes, formulae, methods, schematics,
technology, know-how, computer software programs or applications and
tangible or intangible proprietary information or material of any other
person or entity, except where such infringement, violation or
misappropriation would not result in a Company Material Adverse Effect.
Neither the Company nor any Subsidiary has received any written
complaint, claim or notice alleging any such infringement, violation or
misappropriation. Neither Jan Brzeski, Jeffrey Gerst, David Fife, Fife
Waterfield, nor Carl Hebeler has received (whether in writing or
orally), nor has actual knowledge of, any complaint, claim or notice
alleging any such infringement, violation or misappropriation.
3.10 Agreements, Contracts and Commitments.
(a) There are no contracts or agreements that are material contracts with
respect to the Company or any Subsidiary (the "Company Material
Contracts"), other than the Company Material Contracts identified in
the Company Disclosure Schedule. Each Company Material Contract has not
been terminated or expired by its terms and is in full force and
effect. Neither the Company nor any Subsidiary is in violation of or in
default under (nor does there exist any condition which, upon the
passage of time or the giving of notice or both, would cause such a
violation of or default under) any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise,
license or other contract, arrangement or understanding to which it is
a party or by which it or any of its properties or assets is bound,
except for violations or defaults which, individually or in the
aggregate, have not resulted in, and are not reasonably likely to
result in, a Company Material Adverse Effect.
(b) Section 3.10(b) of the Company Disclosure Schedule sets forth a
complete list of each contract or agreement to which the Company and
each Subsidiary is a party or bound with any Affiliate of the Company.
The term "Affiliate" means any entity controlling, controlled by, or
under common control with any other entity.
(c) Neither the Company nor any Subsidiary is a party to any
agreement that expressly limits the ability of the Company or such
Subsidiary to compete in or conduct any line of business or compete with
any Person or in any geographic area or during any period of time except
to the extent that any such limitation would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect
after giving effect to the Merger.
3.11 Litigation. Except as disclosed in the Company Disclosure Schedule,
there is no action, suit, proceeding, claim, arbitration or investigation
pending or, to the knowledge of the Company, threatened against or
affecting (other than those affecting the Company or any Subsidiary to
which the Company or any such Subsidiary is not a party, but which may
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have an effect on the industry in which the Company is engaged) the Company
or any Subsidiary which, individually or in the aggregate, has had, or is
reasonably likely to have, a Company Material Adverse Effect. There are no
judgments, orders or decrees outstanding against the Company or any
Subsidiary.
3.12 Environmental Matters.
(a) Except as disclosed in the Company Disclosure Schedule and except for
such matters which, individually or in the aggregate, have not had, and
are not reasonably likely to have a Company Material Adverse Effect:
(i)(A) the Company and each Subsidiary has complied with, and is not in
violation of, any applicable Environmental Laws (as defined in Section
3.12(b)); (B) neither the Company nor any Subsidiary has received any
notice, demand, letter, claim or request for information from any
Governmental Entity alleging that the Company or such Subsidiary may be in
violation of, liable under or have obligations under any Environmental
Law; (C) neither the Company nor any Subsidiary is subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
is subject to any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; and (D) there are no circumstances or conditions involving the
Company or any Subsidiary that could reasonably be expected to result in
any claims, liability, obligations, investigations, costs or restrictions
on the ownership, use or transfer of any property of the Company pursuant
to any Environmental Law; and (ii) to the actual knowledge of Jan Brzeski,
Jeffrey Gerst, David Fife, Fife Waterfield, and Carl Hebeler, (A) the
properties currently owned or operated by the Company and each Subsidiary
(including soils, groundwater, surface water, buildings or other
structures) are not contaminated with any Hazardous Substances (as defined
in Section 3.12(c)); (B) the properties formerly owned or operated by the
Company and each Subsidiary were not contaminated with Hazardous
Substances prior to or during the period of ownership or operation by the
Company or such Subsidiary; (C) neither the Company nor any Subsidiary is
subject to liability for any Hazardous Substance disposal or contamination
on the property of any third party; and (D) neither the Company nor any
Subsidiary has released any Hazardous Substance to the environment.
(b) For purposes of this Agreement, "Environmental Law" means any law,
regulation, order, decree, permit, authorization, opinion, common law or
agency requirement of any jurisdiction relating to: (A) the protection,
investigation or restoration of the environment, human health and safety,
or natural resources, (B) the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance or (C) noise, odor,
wetlands, pollution, contamination or any injury or threat of injury to
persons or property.
(c) For purposes of this Agreement, "Hazardous Substance" means any substance
that is: (A) listed, classified, regulated or which falls within the
definition of a "hazardous substance" or "hazardous material" pursuant to
any Environmental Law; (B) any petroleum product or by-product, asbestos-
containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon; or (C) any other
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substance which is the subject of regulatory action by any Governmental
Entity pursuant to any Environmental Law.
(d) The Company Disclosure Schedule sets forth a complete and accurate list
of all documents (whether in hard copy or in electronic form) that
contain any environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Company or any
Subsidiary (whether conducted by or on behalf of the Company or such
Subsidiary or a third party, and whether done at the initiative of the
Company or a Subsidiary directed by a Governmental Entity or other third
party) which were issued or conducted during the past five years and
which the Company or a Subsidiary has possession of or access to. A
complete and accurate copy of each such document has been provided to the
Buyer.
3.13 Employee Benefit Plans.
(a) The Company Disclosure Schedule sets forth a complete and accurate list
of all Employee Benefit Plans (as defined below) maintained, or
contributed to, by the Company, or any ERISA Affiliate (as defined below)
(together, the "Company Employee Plans"). For purposes of this Agreement,
the following terms shall have the following meanings: (i) "Employee
Benefit Plan" means any "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), any "employee welfare benefit plan" (as defined
in Section 3(1) of ERISA), and any other material written or oral plan,
agreement or arrangement involving direct or indirect compensation,
including insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation; (ii) "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended; and (iii) "ERISA Affiliate"
means any entity which is or at any applicable time was a member of (1) a
controlled group of corporations (as defined in Section 414(b) of the
Code), (2) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations
under Section 414(o) of the Code), any of which includes or included the
Company.
(b) With respect to each Company Employee Plan, the Company has furnished to
the Buyer, a complete and accurate copy of (i) such Company Employee Plan
(or a written summary of any unwritten plan), (ii) the most recent annual
report (Form 5500) filed with the IRS (if applicable) and (iii) each
trust agreement, group annuity contract and summary plan description, if
any, relating to such Company Employee Plan.
(c) Each Company Employee Plan has been administered in all material
respects in accordance with its terms and each of the Company, and their
ERISA Affiliates has in all material respects met its obligations with
respect to such Company Employee Plan and has made all required
contributions thereto (or reserved for such contributions on the Company
Balance Sheet). With respect to the Company Employee Plans, no event has
occurred, and to the knowledge of the Company, there exists no condition
or set of circumstances in connection with which the Company could be
subject to any liability
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under ERISA, the Code or any other applicable law which, individually or
in the aggregate, is reasonably likely to have a Company Material Adverse
Effect.
(d) With respect to the Company Employee Plans, there are no funded benefit
obligations for which contributions have not been made or properly
accrued and there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance
with generally accepted accounting principles, on the financial
statements of the Company.
(e) All the Company Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service, or were adopted using a prototype plan of a
sponsor as to which the sponsor obtained a determination letter from the
Internal Revenue Service, to the effect that such Company Benefit Plans
are qualified and the plans and trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of
the Code, no such determination letter has been revoked and revocation
has not been threatened, and no such Employee Benefit Plan has been
amended or operated since the date of its most recent determination
letter or application therefor in any respect, and no act or omission has
occurred, that would adversely affect its qualification or materially
increase its cost.
(f) Neither the Company nor any ERISA Affiliate has (i) ever maintained a
Company Employee Plan which was ever subject to Section 412 of the Code
or Title IV of ERISA or (ii) ever been obligated to contribute to a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). No
Company Benefit Plan is funded by, associated with or related to a
"voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(g) Except with respect to benefits already accrued, each Company Benefit
Plan is amendable and terminable unilaterally by the Company at any time
without liability to the Company as a result thereof and no Company
Benefit Plan, plan documentation or agreement, summary plan description
or other written communication distributed generally to employees by its
terms prohibits the Company from amending or terminating any such Company
Benefit Plan.
(h) Except as disclosed in the Company Disclosure Schedule, neither the
Company nor any Subsidiary is a party to any oral or written (i)
agreement with any stockholders, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term
of employment or compensation guarantee or (C) providing severance
benefits or other benefits after the termination of employment of such
director, executive officer or key employee; or (ii) agreement, plan or
arrangement under which any person may receive payments from the Company
or any Subsidiary that may be subject to the tax imposed by Section 4999
of the Code or included in the determination of such person's "parachute
payment" under Section 280G of the Code; or (iii) agreement or plan
binding the Company or any Subsidiary, including any stock option plan,
stock appreciation right plan, restricted
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stock plan, stock purchase plan or severance benefit plan, any of the
benefits of which will be increased, or the vesting of the 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.
3.14 Compliance With Laws. The Company and each Subsidiary has complied with, is
not in violation of, and has not received any notice alleging any violation
with respect to, any applicable provisions of any statute, law or regulation
with respect to the conduct of its business, or the ownership or operation of
its properties or assets, except for failures to comply or violations which,
individually or in the aggregate, have not had, and are not reasonably likely
to have, a Company Material Adverse Effect.
3.15 Permits. The Company and each Subsidiary has all permits, licenses and
franchises from Governmental Entities required to conduct its business as now
being conducted or as presently contemplated to be conducted (the "Company
Permits"), except for such permits, licenses and franchises the absence of
which, individually or in the aggregate, have not resulted in, and are not
reasonably likely to result in, a Company Material Adverse Effect. The
Company and each Subsidiary is in compliance, in all material respects, with
the terms of the Company Permits.
3.16 Labor Matters. Neither the Company nor any Subsidiary is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. Neither
the Company nor any Subsidiary is the subject of any proceeding asserting
that the Company or such Subsidiary has committed an unfair labor practice or
is seeking to compel it to bargain with any labor union or labor
organization, nor is there pending or, to the knowledge of the Company,
threatened, any labor strike, dispute, walkout, work stoppage, slow-down or
lockout involving the Company or any Subsidiary.
3.17 Insurance. The Company and each Subsidiary maintains those certain
insurance policies (the "Insurance Policies") listed on the Disclosure
Schedule. Each Insurance Policy is in full force and effect and is valid,
outstanding and enforceable, and all premiums due thereon have been paid in
full. None of the Insurance Policies will terminate or lapse (or be affected
in any other materially adverse manner) by reason of the transactions
contemplated by this Agreement. The Company and each Subsidiary has complied
in all material respects with the provisions of each Insurance Policy under
which it is the insured party. No insurer under any Insurance Policy has
canceled or generally disclaimed liability under any such policy or indicated
any intent to do so or not to renew any such policy. All material claims
under the Insurance Policies have been filed in a timely fashion.
3.18 Business Activity Restrictions. There is no non-competition or other
similar agreement, commitment, judgment, injunction, order to create to which
the Company or any Subsidiary is a party or subject to that has or could
reasonably be expected to have the effect of prohibiting or impairing the
conduct of the business by the Company or any Subsidiary in any material
respect. Neither the Company nor any Subsidiary has entered
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into any agreement under which it is restricted in any material respect from
selling, licensing or otherwise distributing any of its technology or
products, or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or any
segment of the market or line of business.
3.19 Year 2000 Compliance.
(a) The Company has conducted "year 2000" audits with respect to (i) all of
the Company's internal systems used in the business or operations of the
Company, including, without limitation, computer hardware systems, software
applications, firmware, equipment firmware and other embedded systems, and
(ii) the software, hardware, firmware and other technology which constitute
part of the products and services marketed or sold by the Company or
licensed by the Company to third parties.
(b) All of (i) the Company's material internal systems used in the business or
operations of the Company, including, without limitation, computer hardware
systems, software applications, firmware, equipment containing embedded
microchips and other embedded systems, and (ii) the software, hardware,
firmware and other technology which constitute a material part of the
products and services marketed or sold by the Company or licensed by the
Company to third parties are Year 2000 Compliant in all material respects.
(c) The Company has no knowledge of any failure to be Year 2000 Compliant of
any material third-party system used in connection with the business or
operations of the Company.
(d) For purposes of this Agreement, "Year 2000 Compliant" means that the
applicable system or item:
(i) will accurately receive, record, store, provide, recognize and
process all date and time data from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all
leap years;
(ii) will accurately perform all date-dependent calculations and
operations (including, without limitation, mathematical operations,
sorting, comparing and reporting) from, during, into and between the
twentieth and twenty-first centuries, the years 1999 and 2000 and all
leap years; and
(iii) will not malfunction, cease to function or provide invalid or
incorrect results as a result of (x) the change of years from 1999 to
2000 or from 2000 to 2001, (y) date data, including date data which
represents or references different centuries, different dates during
1999 and 2000, or more than one century or (z) the occurrence of any
particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems
used in conjunction with such system or item which are not owned or
licensed by the Company correctly exchange date data with or provide data
to such system or item.
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(e) The Company has not provided any guarantee or warranty for any product
sold or licensed, or service provided, by the Company to the effect that
such product or service (i) complies with or accounts for the fact of the
arrival of the year 2000, (ii) will not be adversely affected with respect
to functionality, interoperability, performance or volume capacity
(including, without limitation, the processing and reporting of data) by
virtue of the arrival of the year 2000 or (iii) is otherwise Year 2000
Compliant.
3.20 Assets. The Company and each Subsidiary owns or leases all tangible assets
necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. All of such tangible assets which are
owned, are owned free and clear of all mortgages, security interest,
pledges, liens and encumbrances ("Liens") except for (i) Liens which are
disclosed in the Company Disclosure Schedule, (ii) other Liens which,
individually and in the aggregate, do not materially interfere with the
ability of the Company and each Subsidiary to conduct their business as
currently conducted and as presently proposed to be conducted and have not
resulted in, and are not reasonably likely to result in, a Company Material
Adverse Effect. The tangible assets of the Company and each Subsidiary have
been maintained in accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear and tear) and are
suitable for the purpose for which they are presently used.
3.21 Customers. No customer of the Company that represented 5% or more of the
Company's consolidated revenues in the fiscal year ended December 31, 1999
has notified the Company in writing that it will stop, or decrease the rate
of, buying products or services from the Company. Neither Jan Brzeski,
Jeffrey Gerst, David Fife, Fife Waterfield, nor Carl Hebeler have received
in writing or orally, nor has actual knowledge of, any notice that a
customer of the Company will stop, or decrease the rate of, buying products
or services from the Company.
3.22 Accounts Receivable. All material accounts receivable of the Company
reflected on the Company Balance Sheet are valid receivables, arose from
bona fide sales of goods and services in the ordinary course of business,
and are not subject to any setoffs or counterclaims.
3.23 No Existing Discussions. As of the date of this Agreement, the Company is
not engaged, directly or indirectly, in any discussions or negotiations with
any other party with respect to an Acquisition Proposal (as defined in
Section 6.1).
3.24 The Board of Directors believes that the Exchange Ratio is fair to the
holders of the Company Capital Stock from a financial point of view.
3.25 Brokers. No agent, broker, investment banker, financial advisor or other
firm or person is or will be entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with any of the
transactions contemplated by this Agreement.
3.26 Takeover Statutes. To the best of the Company's knowledge, no "fair
price", "moratorium", "control share acquisition" or other similar
antitakeover statute or
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regulation enacted under state or federal laws in the United States (each, a
Takeover Statute") applicable to the Company or any of its Subsidiaries is
applicable to the Merger or the other transactions contemplated herein.
3.27 Non-Recourse Debt and Obligations. Neither the Company nor any
Subsidiary has any guarantees, keep well arrangements nor any liabilities with
respect to the indebtedness of the Company, and, except as provided therein, has
no continuing financial or commercial obligations to such entities, including
with respect to the support or funding of such entities.
ARTICLE IV
Representations And Warranties Of The Buyer And
New Sonic
The Buyer and New Sonic jointly and severally represent and warrant to the
Company that the statements contained in this Article IV are true and correct,
except as set forth herein or in the disclosure letter delivered by the Buyer to
the Company on or before the date of this Agreement (the "Buyer Disclosure
Schedule"). The Buyer Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV and the disclosure in any paragraph shall qualify other paragraphs in this
Article IV only to the extent that it is reasonably apparent from a reading of
such document that it also qualifies or applies to such other paragraphs.
4.1 Organization, Standing and Power. Each of the Buyer and
New Sonic is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified, individually or in the aggregate, would be reasonably likely to have
a material adverse effect on the business, properties, financial condition,
results of operations or prospects of the Buyer or to have a material adverse
effect on the ability of the Buyer to consummate the transactions contemplated
by this Agreement, excluding any material adverse effect (a) arising or
resulting, directly or indirectly, from general industry, economic or stock
market conditions, (b) demonstrably shown to have been proximately caused by the
public announcement of, and the response or reaction of customers, vendors,
licensors, investors or employees of such entity or group of entities to, this
Agreement or any of the transactions contemplated by this Agreement or (c) as
otherwise specifically provided in Section 4.1 of the Buyer Disclosure Schedule
(a "Buyer Material Adverse Effect").
4.2 Capitalization. The authorized capital stock of the Buyer consists of
20,000,000 shares of Buyer Common Stock, $.01 par value per share, 10,000,000
shares of Series B 5% cumulative convertible preferred stock, $.01 par value per
share ("Series B Preferred Stock"), and 5,000,000 shares of unclassified
preferred stock, $.01 par value per share, of which at the close of business on
March 13, 2000, there were issued and outstanding 9,478,098 shares of Common
Stock and no shares of Series B Preferred Stock or other preferred stock. All
outstanding shares of Buyer Common Stock have been duly authorized, validly
issued, fully paid and nonassessable. All of the shares of Buyer
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Common Stock issuable in connection with the Merger, when issued in
accordance with this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable.
4.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of the Buyer and New Sonic has all requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
by this Agreement by the Buyer and New Sonic have been duly authorized
by all necessary corporate action on the part of each of the Buyer and
New Sonic (including the approval of the Merger by the Buyer as the
sole stockholder of New Sonic). This Agreement has been duly executed
and delivered by each of the Buyer and New Sonic and constitutes the
valid and binding obligation of each of the Buyer and New Sonic,
enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement by each of the Buyer and
New Sonic does not, and the consummation of the transactions
contemplated by this Agreement will not, (i) conflict with, or result
in any violation or breach of, any provision of the Articles of
Incorporation or By-laws of the Buyer or New Sonic, (ii) conflict with,
or result in any violation or breach of, or constitute (with or without
notice or lapse of time, or both) a default (or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of
any material benefit) under, or require a consent or waiver under, any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract or other agreement, instrument or
obligation to which the Buyer or New Sonic is a party or by which any
of them or any of their properties or assets may be bound, or (iii)
subject to compliance with the requirements specified in clauses (i),
(ii), (iii), (iv), (v) and (vi) of Section 4.3(c), conflict with or
violate any permit, concession, franchise, license, judgment,
injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to the Buyer, or any of its properties or assets, except in
the case of (ii) and (iii) for any such conflicts, violations,
breaches, defaults, terminations, cancellations or accelerations which,
individually or in the aggregate, are not reasonably likely to have a
Buyer Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental
Entity is required by or with respect to the Buyer in connection with
the execution and delivery of this Agreement by the Buyer or New Sonic
or the consummation of the transactions contemplated by this Agreement,
except for (i) the filing of the Certificate of Merger set forth in
Section 1.1 of Article I. with the Secretary of State of the State of
Delaware, (ii) the filing of the Articles of Merger with the State
Department of Assessments and Taxation of the State of Maryland, (iii)
the filings of such reports or schedules under Section 13 of the
Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, (iv) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may
be required under applicable state securities laws and (v) the filing
with the American Stock Exchange of a Notification
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Form for Listing of Additional Shares with respect to the Buyer
Common Stock issuable in connection with the Merger.
4.4 SEC Filings; Financial Statements.
(a) The Buyer has filed and made available to the Company all forms,
reports and other documents required to be filed by the Buyer
with the SEC since January 1, 1998. All such required forms,
reports and other documents (including those that the Buyer may
file after the date hereof until the Closing) are referred to
herein as the "Buyer SEC Reports." The Buyer SEC Reports (i) were
or will be filed on a timely basis, (ii) were or will be prepared
in compliance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the
case may be, and the rules and regulations of the SEC thereunder
applicable to such Buyer SEC Reports, and (iii) did not or will
not at the time they were or are filed contain any untrue
statement of a material fact or omit to state a material fact
required to be stated in such Buyer SEC Reports or necessary in
order to make the statements in such Buyer SEC Reports, in the
light of the circumstances under which they were made, not
misleading.
(b) Each of the financial statements (including, in each case, any
related notes and schedules) contained or to be contained in the
Buyer SEC Reports (i) complied or will comply as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto,
(ii) were or will be prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in
the notes to such financial statements or, in the case of
unaudited statements, as permitted by the SEC on Form 10-Q under
the Exchange Act) and (iii) fairly presented or will fairly
present the financial position of the Buyer as of the dates and
the results of its operations and cash flows for the periods
indicated, consistent with the books and records of the Buyer,
except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which
were not or are not expected to be material in amount. The
unaudited balance sheet of the Buyer as of December 31, 1999 is
referred to herein as the "Buyer Balance Sheet."
4.5 Absence of Certain Changes or Events. Except as disclosed in the Buyer
SEC Reports filed prior to the date of this Agreement, since the date
of the Buyer Balance Sheet, there has not been any event, change or
development in the business, properties, financial condition, results
of operations or prospects of the Buyer, which has had, or is
reasonably likely to have, a Buyer Material Adverse Effect.
4.6 Litigation. Except as disclosed in the Buyer SEC Reports filed prior
to the date of this Agreement, there is no action, suit, proceeding,
claim, arbitration or investigation pending or, to the knowledge of
the Buyer, threatened against or affecting the Buyer, which has had,
or is reasonably likely to have, a Buyer Material Adverse Effect.
There are no judgments, orders or decrees outstanding against the
Buyer.
4.7 No agent, broker, investment banker, financial advisor or other firm
or person is or will be entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in
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connection with any of the transactions contemplated by this Agreement, except
Century Capital, whose fees and expenses will be paid by the Buyer or New Sonic.
ARTICLE V
Conduct Of Business
5.1 Covenants of the Company. Except as expressly provided herein or in
Section 5.1 of the Company Disclosure Schedule, or as consented to in
writing by the Buyer, from and after the date of this Agreement until
the earlier of the termination of this Agreement in accordance with
its terms or the Effective Time, the Company and its Subsidiaries
shall act and carry on its business in the usual, regular and ordinary
course in substantially the same manner as previously conducted, pay
its debts and Taxes and perform its other obligations when due
(subject to good faith disputes over such debts, Taxes or
obligations), and use reasonable efforts, consistent with past
practices, to maintain and preserve its business organization, assets
and properties, keep available the services of its present officers
and employees and preserve its advantageous business relationships
with customers, suppliers, distributors and others having business
dealings with it for the purpose of not having its goodwill and
ongoing business materially impaired at the Effective Time. Without
limiting the generality of the foregoing, from and after the date of
this Agreement until the earlier of the termination of this Agreement
in accordance with its terms or the Effective Time, neither the
Company nor any Subsidiary shall, directly or indirectly, do any of
the following without the prior written consent of the Buyer:
(a) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in
respect of, any of its capital stock; (B) 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 of shares of its capital stock; or (C) purchase,
redeem or otherwise acquire any shares of its capital stock or
any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities (except for
repurchases of unvested shares at cost upon termination of
employment or services);
(b) issue, deliver, sell, grant, pledge or otherwise dispose of or
encumber any shares of its capital stock, any other voting
securities or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible or exchangeable
securities (other than (i) the issuance of shares of Company
Capital Stock upon the exercise of Company Options or Company
Warrants outstanding on the date of this Agreement in accordance
with their present terms and, (ii) provided the Buyer does not
disapprove within two business days the written request of the
Company, the granting to up to five employees not more than
20,000 new options each ("Permitted New Options"));
(c) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents, except as
expressly provided by this Agreement;
(d) acquire (A) by merging or consolidating with, or by purchasing a
substantial portion of the assets or any stock of, or by any
other manner, any business or any corporation,
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partnership, joint venture, limited liability company,
association or other business organization or division thereof or
(B) any assets that are material, in the aggregate, to the
Company, except purchases of inventory in the ordinary course of
business consistent with past practice;
(e) except in the ordinary course of business consistent with past
practice, sell, lease, license, pledge, or otherwise dispose of
or encumber any properties or assets of the Company;
(f) whether or not in the ordinary course of business or consistent
with past practice, sell or dispose of any assets material to the
Company (including any accounts, leases, contracts or
intellectual property, but excluding the sale of products and
services in the ordinary course of business consistent with past
practice);
(g) adopt or implement any stockholder rights plan;
(h) except as permitted by Section 6.1, enter into an agreement with
respect to any merger, consolidation, liquidation or business
combination, or any acquisition or disposition of all or
substantially all of the assets or securities of the Company;
(i) (A) other than indebtedness to fund expenditures permitted by
subsection (j) below, incur or suffer to exist any indebtedness
for borrowed money other than such indebtedness which existed as
of December 31, 1999 as reflected on the Company Balance Sheet or
guarantee any such indebtedness of another person, (B) issue or
sell any debt securities or warrants or other rights to acquire
any debt securities of the Company, guarantee any debt securities
of another person, enter into any "keep well" or other agreement
to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any
of the foregoing, or (C) make any loans, advances (other than
routine advances to employees of the company in the ordinary
course of business consistent with past practice) or capital
contributions to, or investment in, any other person;
(j) make any capital expenditures or expenditures in excess of
$150,000 in the aggregate for the Company;
(k) make any changes in accounting methods, principles or practices,
except insofar as may have been required by a change in generally
accepted accounting principles or, except as so required, change
any assumption underlying, or method of calculating, any bad
debt, contingency or other reserve;
(l) (A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto)
of the Company dated December 31, 1999 or incurred thereafter in
the ordinary course of business consistent with past practice, or
(B) waive any material benefits of any confidentiality,
standstill or similar agreements to which the Company is a party;
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(m) modify, amend or terminate any material contract or agreement to
which the Company is a party, or knowingly waive, release or
assign any material rights or claims (including any write-off or
other compromise of any accounts receivable of the Company);
(n) (A) except in the ordinary course of business consistent with
past practice enter into any material contract or agreement or
(B) license any material intellectual property rights to or from
any third party;
(o) except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof, (A) adopt,
enter into, terminate or amend any employment, severance or
similar agreement or benefit plan for the benefit or welfare of
any current or former director, officer or employee or any
collective bargaining agreement, (B) increase in any material
respect the compensation or fringe benefits of, or pay any bonus
to, any director, officer or key employee, (C) accelerate the
payment, right to payment or vesting of any compensation or
benefits, including any outstanding options or restricted stock
awards, (D) pay any material benefit not provided for as of the
date of this Agreement under any benefit plan, (E) grant any
awards under any bonus, incentive, performance or other
compensation plan or arrangement or benefit plan (including the
grant of stock options, stock appreciation rights, stock based or
stock related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or
agreements or awards made thereunder), or (F) take any action
other than in the ordinary course of business consistent with
past practice to fund or in any other way secure the payment of
compensation or benefits under any employee plan, agreement,
contract or arrangement or benefit plan, except for the grant of
Permitted Options;
(p) make or rescind any material Tax election, settle or compromise
any material Tax liability or amend any Tax return in any
material respect;
(q) initiate, compromise or settle any material litigation or
arbitration proceeding;
(r) close any facility or office;
(s) invest funds in debt securities or other instruments maturing
more than 90 days after the date of investment;
(t) fail to pay accounts payable and other obligations in the
ordinary course of business consistent with past practice; or
(u) authorize any of, or commit or agree, in writing or otherwise, to
take any of, the foregoing actions or any action which would make
any representation or warranty in Article III untrue or incorrect
in any material respect, or would materially impair or prevent
the occurrence of any conditions Article VII hereof.
5.2 Cooperation. Subject to compliance with applicable law, from and after
the date of this Agreement and continuing until the earlier of the
termination of this Agreement in accordance with its terms or the
Effective Time, the Company shall make its officers
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available to confer on a regular and frequent basis with one or more
representatives of the Buyer to report on the general status of
ongoing operations and shall promptly provide the Buyer or its counsel
with copies of all filings made by such party with any Governmental
Entity in connection with this Agreement, the Merger and the
transactions contemplated hereby.
5.3 Confidentiality. The parties acknowledge that the Buyer and the
Company have previously executed a Mutual Confidentiality Agreement
dated February 28, 2000 (the "Confidentiality Agreement"), which
Confidentiality Agreement will continue in full force and effect in
accordance with its terms, except as expressly modified herein.
ARTICLE VI
Additional Agreements
6.1 No Solicitation.
(a) From and after the date of this Agreement until the earlier of
the termination of this Agreement in accordance with its terms or
the Effective Time, the Company shall not, directly or
indirectly, through any officer, director, employee, financial
advisor, representative or agent (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a proposal or offer for a
merger, consolidation, business combination, sale of substantial
assets, tender offer, sale of shares of capital stock (excluding
sales pursuant to existing Company Stock Options, the Company
Warrants and grants and exercises of Permitted New Options) or
similar transaction involving the Company, other than the
transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to
any person or entity relating to, any Acquisition Proposal, or
(iii) agree to or recommend any Acquisition Proposal.
(b) The Company will immediately cease any and all existing
activities, discussions or negotiations with any parties
conducted heretofore of the nature described in Section 6.1(a)
and will use reasonable efforts to obtain the return of any
confidential information furnished to any such parties.
(c) The Company shall notify the Buyer immediately (but in any event,
within 24 hours) after receipt by the Company (or its advisors)
of any Acquisition Proposal or any request for nonpublic
information in connection with an Acquisition Proposal or for
access to the properties, books or records of the Company by any
person or entity that informs the Company that it is considering
making, or has made, an Acquisition Proposal. Such notice shall
be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions
of such proposal, inquiry or contact.
(d) Nothing in this Section 6.1 shall (i) permit the Company to
terminate this Agreement (except as specifically provided in
Section 8.1 hereof), (ii) permit the Company to enter into any
agreement with respect to an Acquisition Proposal during the term
of this
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Agreement (it being agreed that during the term of this Agreement, the
Company shall not enter into any agreement with any person that
provides for, or in any way facilitates, an Acquisition Proposal) or
(iii) affect any other obligation of the Company under this Agreement.
6.2 Access to Information. The Company shall afford to the Buyer's
officers, employees, accountants, counsel and other representatives,
reasonable access, during normal business hours during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments, personnel and records and, during such period, the
Company shall furnish promptly to the Buyer (a) a copy of each report,
schedule, registration statement and other document filed or received
by it during such period pursuant to the requirements of federal or
state securities laws and (b) all other information concerning its
business, properties, assets and personnel as the Buyer may reasonably
request. Unless otherwise required by law, the Buyer will hold any
such information which is nonpublic in confidence in accordance with
the Confidentiality Agreement. No information or knowledge obtained in
any investigation pursuant to this Section or otherwise shall affect
or be deemed to modify any representation or warranty contained in
this Agreement or the conditions to the obligations of the parties to
consummate the Merger.
6.3 Stockholders Meeting. The Company, acting through its Board of
Directors, shall, subject to and according to applicable law and its Certificate
of Incorporation and By-laws, promptly and duly call, give notice of, convene
and hold as soon as practicable following the date hereof a meeting of the
stockholders of the Company (the "Company Meeting") for the purpose of voting to
approve and adopt this Agreement and the Merger (the "Company Voting Proposal").
The Board of Directors of the Company shall (i) recommend approval and adoption
of the Company Voting Proposal by the stockholders of the Company and (ii) take
all action that is both reasonable and lawful to solicit and obtain such
approval.
6.4 Stockholder and Employee Agreements. Jan Brzeski, Jeffrey Gerst, David
Fife, and Fife Waterfield have each executed and delivered the Stock
Restriction and Registration Agreement and the Voting and Option
Agreement to the Buyer concurrently with the signing of this
Agreement.
6.5 Legal Conditions to the Merger.
(a) Subject to the terms hereof, the Company and the Buyer shall each
use its reasonable efforts to (i) take, or cause to be taken, all
actions, and do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective the transactions
contemplated hereby as promptly as practicable, (ii) obtain from
any Governmental Entity or any other third party any consents,
licenses, permits, waivers, approvals, authorizations, or orders
required to be obtained or made by the Company or the Buyer in
connection with the authorization, execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby, (iii) as promptly as practicable, make all necessary
filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the
Securities Act and the Exchange Act, and any other applicable
federal or state securities laws, (B) any other applicable law
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and (iv) execute or deliver any additional instruments necessary
to consummate the transactions contemplated by, and to fully
carry out the purposes of, this Agreement. The Company and the
Buyer shall cooperate with each other in connection with the
making of all such filings, including providing copies of all
such documents to the non-filing party and its advisors prior to
filing and, if requested, to accept all reasonable additions,
deletions or changes suggested in connection therewith. The
Company and the Buyer shall use their respective reasonable
efforts to furnish to each other all information required for any
application or other filing to be made pursuant to the rules and
regulations of any applicable law in connection with the
transactions contemplated by this Agreement.
(b) Subject to the terms hereof, the Buyer and the Company agree, to
cooperate and to use their respective reasonable efforts to
obtain any government clearances or approvals required for
Closing under the HSR Act, the Sherman Act, as amended, the
Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other federal, state or foreign law or,
regulation or decree designed to prohibit, restrict or regulate
actions for the purpose or effect of monopolization or restraint
of trade (collectively "Antitrust Laws"), to respond to any
government requests for information under any Antitrust Law, and
to contest and resist any action, including any legislative,
administrative or judicial action, and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other
order (whether temporary, preliminary or permanent) (an
"Antitrust Order") that restricts, prevents or prohibits the
consummation of the Merger or any other transactions contemplated
by this Agreement under any Antitrust Law. The parties hereto
will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments,
opinions and proposals made or submitted by or on behalf of any
party hereto in connection with proceedings under or relating to
any Antitrust Law. The Buyer shall be entitled to direct any
proceedings or negotiations with any Governmental Entity relating
to any of the foregoing, provided that it shall afford the
Company a reasonable opportunity to participate therein.
Notwithstanding anything to the contrary in this Section, the
Buyer shall not be required to (i) divest any of its business,
product line or assets, or to take or agree to take any other
action or agree to any limitation, that could reasonably be
expected to have a material adverse effect on the Buyer or on the
Buyer combined with the Company after the Effective Time or (ii)
take any action under this Section if the United States
Department of Justice or the United States Federal Trade
Commission formally authorizes its staff to seek a preliminary
injunction or restraining order to enjoin consummation of the
Merger.
(c) Each of the Company and the Buyer shall give any notices to third
parties, and use its reasonable efforts to obtain any third party
consents related to or required in connection with the Merger
that are (A) necessary to consummate the transactions
contemplated hereby, (B) disclosed or required to be disclosed in
the Company Disclosure Schedule or the Buyer Disclosure Schedule,
as the case may be, or (C) required to prevent a Company Material
Adverse Effect or a Buyer Material Adverse Effect from occurring
prior to or after the Effective Time.
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6.6 Public Disclosure. The Buyer and the Company shall issue a joint press
release announcing the Merger promptly following the execution of this
Agreement and each shall use its reasonable efforts to consult with
the other before issuing any other press release or otherwise making
any public statement with respect to the Merger or this Agreement and
shall not issue any such press release or make any such public
statement prior to using such efforts, except as may be required by
law.
6.7 Taxes.
(a) Each of Buyer, New Sonic and the Company shall use its best
efforts to cause the Merger to qualify, and has not taken and
will not (whether before or after consummation of the Merger)
take any actions that could prevent the Merger from qualifying,
as a reorganization under the provisions of Section 368 of the
Code and each party shall not take any position to the contrary.
(b) Following the Merger, Buyer and the Surviving Corporation will
comply with the record-keeping and information filing
requirements of Section 1.368-3 of the Treasury Regulations.
6.8 American Stock Exchange Listing. As soon as practicable after the
Effective Time, the Buyer (i) shall file for listing on the American
Stock Exchange, or on such other securities exchange or national
securities association on which the Buyer Common Stock is then listed
or quoted, the shares of Buyer Common Stock issued pursuant to Section
2.1(c) and upon exercise of Company Stock Options and Company Warrants
assumed pursuant to Section 6.9 and (ii) shall use its best efforts to
cause such shares to be listed thereon.
6.9 Company Stock Plans and the Company Warrants.
(a) At the Effective Time, each outstanding Company Stock Option,
whether vested or unvested, shall be assumed by Buyer and deemed
to constitute an option to acquire, on the same terms and
conditions as were applicable under the Company Stock Option
immediately prior to the Effective Time (including, if
applicable, status as an "incentive stock option" under the
Code), the same number of shares of Buyer Common Stock as the
holder of the Company Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Time (rounded
down to the nearest whole number), at a price per share (rounded
up to the nearest whole cent) equal to (y) the aggregate exercise
price for the shares of Company Capital Stock purchasable
pursuant to the Company Stock Option immediately prior to the
Effective Time divided by (z) the number of full shares of Buyer
Common Stock deemed purchasable pursuant to the Company Stock
Option in accordance with the foregoing. Continuous employment
with Company shall be credited to the optionee for purposes of
determining the vesting of all assumed Company Options after the
Effective Time.
(b) As soon as practicable after the Effective Time, the Buyer shall
deliver to the participants in the Company Stock Plans
appropriate notice setting forth such participants' rights
pursuant thereto and the grants pursuant to the Company Stock
Plans
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shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section after giving
effect to the Merger).
(c) The Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock
for delivery upon exercise of the Company Stock Options assumed
in accordance with this Section. As soon as practicable after the
Effective Time, the Buyer shall file a registration statement on
Form S-8 (or any successor form) with respect to the shares of
Buyer Common Stock subject to such options and shall use its best
efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for
so long as such options remain outstanding.
(d) The Board of Directors of the Company shall, prior to or as of
the Effective Time, take all necessary actions, pursuant to and
in accordance with the terms of Company Stock Plans and the
instruments evidencing the Company Stock Options, to provide for
the conversion of the Company Stock Options into options to
acquire Buyer Common Stock in accordance with this Section 6.9.
(e) At the Effective Time, each outstanding Company Warrant shall be
assumed by Buyer and deemed to constitute a warrant to acquire,
on the same terms and conditions as where applicable under the
Company Warrant immediately prior to the Effective Time, the same
number of shares of Buyer Common Stock as the holder of the
Company Warrant would have been entitled to receive pursuant to
the Merger had such holder exercised such warrant in full
immediately prior to the Effective Time (rounded down to the
nearest whole number), at a price per share (rounded up to the
nearest whole cent) equal to (y) the aggregate warrant exercise
price for the shares of Company Capital Stock purchasable
pursuant to the Company Warrant immediately prior to the
Effective Time, divided by (z) the number of full shares of Buyer
Common Stock deemed purchasable pursuant to the Company Warrant
in accordance with the forgoing.
(f) Buyer will treat the Company Stock Options and Company Warrants
assumed by Buyer in accordance with this Section 6.9 consistently
with the Company's treatment thereof for federal income tax
purposes.
6.10 Stockholder Litigation. Until the earlier of the termination of this
Agreement in accordance with its terms or the Effective Time, the
Company shall give the Buyer the opportunity to participate at its
expense in the defense or settlement of any stockholder litigation
against the Company or its Board of Directors relating to this
Agreement or any of the transactions contemplated by this Agreement,
and shall not settle any such litigation without the Buyer's prior
written consent, which will not be unreasonably withheld or delayed.
6.11 Indemnification. From and after the Effective Time, the Buyer shall,
to the fullest extent permitted by law, cause the Surviving
Corporation, for a period of six years from the Effective Time, to
honor all of the Company's obligations to indemnify and hold harmless
each present and former director and officer of the Company (the
"Indemnified Parties"), against any costs or expenses (including
attorneys' fees), judgments, fines,
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losses, claims, damages, liabilities or amounts paid in settlement
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or
occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the extent that
such obligations to indemnify and hold harmless exist on the date of
this Agreement.
6.12 Notification of Certain Matters. The Buyer will give prompt notice to
the Company, and the Company will give prompt notice to the Buyer, of
the occurrence, or failure to occur, of any event, which occurrence or
failure to occur would be reasonably likely to cause (a) (i) any
representation or warranty of such party contained in this Agreement
that is qualified as to materiality to be untrue or inaccurate in any
respect or (ii) any other representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material
respect, in each case at any time from and after the date of this
Agreement until the earlier of the termination of this Agreement in
accordance with its terms or the Effective Time, or (b) any material
failure of the Buyer and the Surviving Corporation or the Company, as
the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
Notwithstanding the above, the delivery of any notice pursuant to this
Section will not limit or otherwise affect the remedies available
hereunder to the party receiving such notice or the conditions to such
party's obligation to consummate the Merger.
6.13 Employment Agreements; Employees. As soon as practicable after the
execution of this Agreement, the Buyer and New Sonic, on the one hand,
and Jan Brzeski and Jeff Gerst, on the other hand, shall discuss in
good faith and agree upon the terms and conditions of the Employment
Agreements which shall be entered into with each such individual (the
"Employment Agreements"). The Employment Agreements shall contain
mutually agreed terms regarding salary, stock options (which shall
vest over time but have accelerated vesting in the event of a "change
of control" of the Buyer or a termination by New Sonic or the Buyer
without "cause") and other terms and conditions that are equivalent in
nature and kind to those of other senior executive officers of the
Buyer. Except as otherwise set forth in the Employment Agreements, the
Buyer will have no obligation to retain any employee or group of
employees of the Company following the Effective Time. As soon as
practicable after the execution of this Agreement, the Company and the
Buyer shall confer and work together in good faith to agree upon
mutually acceptable employee benefit and compensation arrangements so
as to provide benefits to Company employees initially upon the Merger
which are generally equivalent to those being provided to employees of
Company immediately preceding the Effective Time, as well as to
determine appropriate termination benefits for Company employees
generally and certain members of Company management in particular, in
addition to any and all severance, separation, retention and salary
continuation plans, programs or arrangements disclosed on the Company
Disclosure Schedule. Continuous employment with the Company shall be
credited to Company employees who become Buyer employees for all
purposes of eligibility and vesting of benefits, but not for purposes
of accrual of benefits.
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6.14 Sale or Transfer of Buyer Stock. The Buyer shall register with the
Securities and Exchange Commission of all of the shares of Buyer
Common Stock issued to the stockholders of the Company as a "shelf
offering" in accordance with Rule 415 of the rules and regulations of
the Securities and Exchange Commission under the Securities Act of
1933 (the "Rules and Regulations"), and the Buyer shall register with
the Securities and Exchange Commission on a Form S-8 registration
statement all of the shares of Buyer Common Stock issuable upon
exercise of Company Stock Options and Company Warrants assumed
pursuant to Section 6.9, all pursuant to the Stock Restriction and
Registration Agreement; provided, however, that (i) no such shares may
be sold prior to such effective registration except in accordance with
Rule 144 of the Rules and Regulations or in a sale which the regular
legal counsel to the Buyer or another legal counsel acceptable to the
Buyer has issued an opinion stating that such sales are exempt from
registration under Section 4(1) of the Securities Act of 1933, and
(ii) that no sale of such shares other than in accordance with the
Stock Restriction and Registration Agreement may be made by Jan
Brzeski, David Fife, Jeffery Gerst, and Fife Waterfield except as set
forth in the Stock Restriction and Registration Agreement. It is a
condition of this Agreement that the Merger shall not be made
effective until such stockholders of the Company referred to in clause
(ii) immediately above have executed agreements carrying out the
provisions of and in accordance with this Section 6.14.
6.15 Takeover Statutes. If any Takeover Statute is or may become applicable
to the Merger, each of Company and Buyer shall take such actions as
are necessary so that the Merger and the other transactions
contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to
eliminate or minimize the effects of any Takeover Statute on the
Merger and such other transactions.
ARTICLE VII
Conditions to Merger
7.1 Conditions to Each Party's Obligation To Effect the Merger'. The
respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction prior to the Closing Date
of the following conditions:
(a) Stockholder Approval. The Company Voting Proposal shall have been
approved and adopted at the Company Meeting, at which a quorum is
present, by the affirmative vote of the holders of a majority of
the shares of (i) the Company Common Stock, (ii) each class of
Preferred Stock, and (iii) a majority of the issued and
outstanding shares of capital stock, voting as a single class, in
each case outstanding on the record date for the Company Meeting.
(b) Governmental Approvals. Other than the filings provided for by
Section 1.1, all authorizations, consents, orders or approvals
of, or declarations or filings with, or expirations of waiting
periods imposed by, any Governmental Entity, the failure of which
to file, obtain or occur is reasonably likely to have a Buyer
Material Adverse Effect or a Company Material Adverse Effect
shall have been filed, been obtained or occurred.
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(c) No Injunctions. No Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any
order, executive order, stay, decree, judgment or injunction
(each an "Order") or statute, rule or regulation which is in
effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
7.2 Additional Conditions to Obligations of the Buyer and the New Sonic
The obligations of the Buyer and New Sonic to effect the Merger are
subject to the satisfaction of each of the following additional
conditions, any of which may be waived in writing exclusively by the
Buyer and the Surviving Corporation:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be
true and correct (i) as of the date of this Agreement (except to
the extent such representations and warranties are specifically
made as of a particular date, in which case such representations
and warranties shall be true and correct as of such date) and
(ii) as of the Closing Date as though made on and as of the
Closing Date (except (x) to the extent such representations and
warranties are specifically made as of a particular date, in
which case such representations and warranties shall be true and
correct as of such date, (y) for changes contemplated by this
Agreement and (z) where the failures to be true and correct
(without regard to any materiality, Company Material Adverse
Effect or knowledge qualifications contained therein),
individually or in the aggregate, have not had, and are not
reasonably likely to have, a Company Material Adverse Effect);
and the Buyer shall have received a certificate signed on behalf
of the Company by the chief executive officer and the chief
financial officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing
Date; and the Buyer shall have received a certificate signed on
behalf of the Company by the chief executive officer and the
chief financial officer of the Company to such effect.
(c) Third Party Consents. The Company shall have obtained (i) all
consents and approvals of third parties referred to in Section
3.3(b) of the Company Disclosure Schedule and (ii) any other
consent or approval of any third party (other than a Governmental
Entity) the failure of which to obtain, individually or in the
aggregate, is reasonably likely to have a Company Material
Adverse Effect.
(d) Dissenter's Rights. Dissenting Stockholders shall have exercised
their dissenters rights with respect to no more than fifteen
percent (15%) of the outstanding Company Capital Stock.
(e) Legal Fees. The legal fees and expenses of Morrison & Foerster
LLP accrued through the Closing Date shall have been paid by the
Company.
(f) Legal Opinion. The Buyer shall have received the opinion, dated
the Closing Date, of Morrison & Foerster LLP covering the matters
set forth on Exhibit C attached hereto.
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7.3 Additional Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction of
each of the following additional conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and
warranties of the Buyer and the New Sonic set forth in this
Agreement shall be true and correct (i) as of the date of this
Agreement (except to the extent such representations are
specifically made as of a particular date, in which case such
representations and warranties shall be true and correct as of
such date) and (ii) as of the Closing Date as though made on and
as of the Closing Date (except (x) to the extent such
representations and warranties are specifically made as of a
particular date, in which case such representations and
warranties shall be true and correct as of such date, (y) for
changes contemplated by this Agreement and (z) where the failures
to be true and correct (without regard to any materiality, Buyer
Material Adverse Effect or knowledge qualifications contained
therein), individually or in the aggregate, have not had, and are
not reasonably likely to have, a Buyer Material Adverse Effect);
and the Company shall have received a certificate signed on
behalf of the Buyer by the chief executive officer or the chief
financial officer of the Buyer to such effect.
(b) Performance of Obligations of the Buyer and New Sonic. The Buyer
and New Sonic shall have performed in all material respects all
obligations required to be performed by them under this Agreement
at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of the Buyer by the chief
executive officer or the chief financial officer of the Buyer to
such effect.
(c) Repayment of Unsecured Promissory Notes. The Buyer shall have
repaid in full on behalf of the Company the principal amount
outstanding on each of those certain Unsecured Promissory Notes
listed on Section 3.4 of the Company Disclosure Schedule, and all
interest accrued thereon through the Closing Date.
(d) Legal Opinion. The Company shall have received the opinion, dated
the Closing Date, of McBreen & Kopko covering the matters set
forth on Exhibit D attached hereto.
ARTICLE VIII
Termination and Amendment
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time (with respect to Sections 8.1(b) through 8.1(f), by
written notice by the terminating party to the other party):
(a) by mutual written consent of the Buyer and the Company; or
(b) by either the Buyer or the Company if the Merger shall not have
been consummated by April 30, 2000 (the "Outside Date") (provided
that the right to terminate this Agreement under this Section
8.1(b) shall not be available to any party whose failure to
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fulfill any obligation under this Agreement has been a principal
cause of or resulted in the failure of the Merger to occur on or
before such date); or
(c) by either the Buyer or the Company if a Governmental Entity of
competent jurisdiction shall have issued a nonappealable final
order, decree or ruling or taken any other nonappealable final
action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; or
(d) by either the Buyer or the Company if at the Company Meeting
(including any adjournment or postponement), the requisite vote
of the stockholders of the Company in favor of the Company Voting
Proposal shall not have been obtained (provided that the right to
terminate this Agreement under this Section 8.1(d) shall not be
available to any party seeking termination who at the time is in
breach of or has failed to fulfill its obligations under this
Agreement); or
(e) by the Buyer if: (i) the Board of Directors of the Company shall
have withdrawn or modified its recommendation of the Company
Voting Proposal; (ii) the Board of Directors of the Company fails
to reconfirm its recommendations of this Agreement or the Merger
within five business days after the Buyer requests in writing
that the Board of Directors of the Company do so; (iii) for any
reason the Company fails to hold the Company Meeting by the date
which is one business day prior to the Outside Date; or (iv)
Dissenting Stockholders shall have exercised their dissenters
rights with respect to more than fifteen percent (15%) of the
outstanding Company Capital Stock; or
(f) by either the Buyer or the Company, if there has been a breach of
any representation, warranty, covenant or agreement on the part
of the other party set forth in this Agreement, which breach (i)
causes the conditions set forth in Section 7.2(a) or 7.2(b) (in
the case of termination by the Buyer) or Section 7.3(a) or 7.3(b)
(in the case of termination by the Company) not to be satisfied,
and (ii) shall not have been cured within 20 days following
receipt by the breaching party of written notice of such breach
from the other party.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of the
Buyer, the Company, the Surviving Corporation or their respective
officers, directors, stockholders or Affiliates, except as set forth
in Sections 5.3, 8.3 and Article IX; provided that any such
termination shall not relieve any party from liability for any willful
breach of this Agreement (which includes without limitation the making
of any representation or warranty by a party in this Agreement that
the party knew was not true and accurate when made), and Sections 5.3,
8.3 and Article IX of this Agreement and the Confidentiality Agreement
shall remain in full force and effect and survive any termination of
this Agreement.
8.3 Fees and Expenses.
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(a) Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
fees and expenses, whether or not the Merger is consummated.
(b) The Company shall pay the Buyer up to $100,000 as reimbursement
for expenses of the Buyer actually incurred relating to the
transactions contemplated by this Agreement prior to termination
(including, but not limited to, fees and expenses of the Buyer's
counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the
termination of this Agreement by the Buyer pursuant to (i)
Section 8.1(b) as a result of the failure to satisfy the
condition set forth in Section 7.2(a) or Section 7.2(b); (ii)
Section 8.1(d) or 8.1(e); or (iii) Section 8.1(f) as a result of
the failure to satisfy the conditions set forth in Sections
7.2(a) or 7.2(b).
(c) The Company shall pay the Buyer a termination fee of $1,000,000
(the "Termination Fee") upon the earliest to occur of the
following events:
(i) the termination of this Agreement by the Buyer
pursuant to Section 8.1(b) as a result of the failure to
satisfy the conditions set forth in Section 7.2(a) or 7.2(b)
or 8.1(e); or
(ii) the termination of this Agreement pursuant to
Section 8.1(d) or 8.1(e); or
(iii) the termination of this Agreement by the Buyer
pursuant to Section 8.1(f) after a breach by the Company of
this Agreement; or
(d) The Buyer shall pay the Company up to $100,000 as reimbursement
for expenses of the Company actually incurred relating to the
transactions contemplated by this Agreement prior to termination
(including, but not limited to, fees and expenses of the
Company's counsel, accountants, and financial advisors, but
excluding any discretionary fees paid to such financial
advisors), upon the termination of this Agreement by the Company
pursuant to (i) Section 8.1(b) as a result of the failure to
satisfy the condition set forth in Section 7.3(a) or 7.3(b) or
(ii) Section 8.1(f) as a result of the failure to satisfy the
condition set forth in Sections 7.3(a) or 7.3(b).
(e) The Buyer shall pay the Company a termination fee of $1,000,000
(the "Termination Fee") upon the earliest to occur of the
following events:
(i) the termination of this Agreement by the Company
pursuant to Section 8.1(b) as a result of the failure to
satisfy the conditions set forth in Sections 7.3(a) or
7.3(b); or
(ii) the termination of this Agreement by the Company
pursuant to Section 8.1(f) after a breach by the Buyer of
this Agreement.
(f) The expenses and fees, if applicable, payable pursuant to Section
8.3(b), 8.3(c), 8.3(d), and 8.3(e) shall be paid within one
business day after demand therefor following the first to occur
of the events giving rise to the payment obligation described
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in Section 8.3(b), 8.3(c), 8.3(d), or 8.3(e). If one party fails to
promptly pay to the other any expense reimbursement or fee due
hereunder, the defaulting party shall pay the costs and expenses
(including legal fees and expenses) in connection with any action,
including the filing of any lawsuit or other legal action, taken to
collect payment, together with interest on the amount of any unpaid
fee at the publicly announced prime rate of Bank of America, N.A. plus
five percent per annum, compounded quarterly, from the date such
expense reimbursement or fee was required to be paid.
8.4 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document
delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions 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 a written instrument signed on behalf of such party.
ARTICLE IX
Miscellaneous
9.1 Nonsurvival of Representations and Warranties. The respective
representations and warranties of the Company, the Buyer and the
Surviving Corporation contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall expire with, and be
terminated and extinguished upon, the Effective Time.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly delivered (i) four business days
after being sent by registered or certified mail, return receipt
requested, postage prepaid, or (ii) one business day after being sent
for next business day delivery, fees prepaid, via a reputable
nationwide overnight courier service, in each case to the intended
recipient as set forth below:
(a) if to the Buyer, to
Sonic Foundry, Inc.
754 Williamson Street
Madison, WI 53703
Attention: Rimas P. Buinevicius
Telecopy: (608) 256-6689
with a copy to:
McBreen & Kopko
20 N. Wacker Drive
Suite 2520
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Chicago, IL 60606
Attention: Frederick H. Kopko
Telecopy: (312) 332-2657
(b) if to the Company, to
STV Communications, Inc.
2910 Nebraska Avenue
Santa Monica, CA 90404
Attention: Jan Brzeski
Telecopy: (310) 453-6696
with a copy to:
Morrison & Foerster LLP
555 West Fifth Street, Suite 3500
Los Angeles, CA 90013
Attention: Derek H. Wilson
Telecopy: (213) 892-5454
Any party may give any notice or other communication hereunder using any other
means (including personal delivery, messenger service, telecopy, telex, ordinary
mail or electronic mail), but no such notice or other communication shall be
deemed to have been duly given unless and until it actually is received by the
party for whom it is intended. Any party may change the address to which notices
and other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
9.3 Entire Agreement. This Agreement (including the Schedules and Exhibits
hereto and the documents and instruments referred to herein that are
to be delivered at the Closing), the Stock Restriction and
Registration Agreement, the Voting and Option Agreement, and the
Confidentiality Agreement constitutes the entire agreement among the
parties hereto and supersedes any prior understandings, agreements or
representations by or among the parties hereto, or any of them,
written or oral, with respect to the subject matter hereof. The Letter
of Understanding dated February 23, 2000 (including without limitation
the Option Agreement attached thereto as Exhibit A), as amended, is
hereby terminated and of no further force or effect.
9.4 No Third Party Beneficiaries. Except as provided in Section 6.13, this
Agreement is not intended, and shall not be deemed, to confer any
rights or remedies upon any person other than the parties hereto and
their respective successors and permitted assigns, to create any
agreement of employment with any person or to otherwise create any
third-party beneficiary hereto.
9.5 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the
parties hereto without the prior written consent of the other parties,
and any such assignment without such prior written consent shall be
null and void.
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9.6 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction. If the
final judgment of a court of competent jurisdiction declares that any
term or provision hereof is invalid or unenforceable, the parties
agree hereto that the court making such determination shall have the
power to limit the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision
with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so
modified. In the event such court does not exercise the power granted
to it in the prior sentence, the parties hereto agree to replace such
invalid or unenforceable term or provision with a valid and
enforceable term or provision that will achieve, to the extent
possible, the economic, business and other purposes of such invalid or
unenforceable term.
9.7 Counterparts and Signature. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all
of which together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of
the parties hereto and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. This
Agreement may be executed and delivered by facsimile transmission.
9.8 Interpretation. When reference is made in this Agreement to an Article
or a Section, such reference shall be to an Article or Section of this
Agreement, unless otherwise indicated. The table of contents, table of
defined terms and headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. The language used in this
Agreement shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party. Whenever the context
may require, any pronouns used in this Agreement shall include the
corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural, and vice versa.
Any reference to any federal, state, local or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. Whenever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Wisconsin without
giving effect to any choice or conflict of law provision or rule
(whether of the State of Wisconsin or any other jurisdiction) that
would cause the application of laws of any jurisdictions other than
those of the State of Wisconsin.
9.10 Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this
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<PAGE>
Agreement were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions
hereof this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11 Waiver of Jury Trial. EACH OF THE BUYER, NEW SONIC AND THE COMPANY
HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE BUYER, NEW
SONIC OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE
AND ENFORCEMENT OF THIS AGREEMENT.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
45
<PAGE>
IN WITNESS WHEREOF, the Buyer, New Sonic and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
SONIC FOUNDRY, INC.
By: _________________________________
Title:
NEW SONIC, INC.
By: _________________________
Title:
STV COMMUNICATIONS, INC.
By: _________________________
Title:
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<PAGE>
Exhibit 99.1
Sonic Foundry to Acquire STV Streaming Media
$66 Million Acquisition Will Form Single Source Internet Media Company, Offering
Software, Production, Encoding, Webcasting, and Hosting Services
Monday, February 28, 2000 MADISON, WI - Sonic Foundry, Inc. (AMEX: SFO), a
leading developer and marketer of Internet software tools, services, and
systems, and privately held STV Communications, Inc., a premier provider of
streaming media services, announced today that they have entered into a letter
of intent for Sonic Foundry to acquire STV in a stock for stock transaction
valued at $66 million.
Sonic Foundry and STV have distinguished themselves as industry leaders in the
delivery of traditional media through the Internet. Sonic Foundry has seeded the
Internet streaming market through the development of a leading-edge suite of
software tools designed to create, edit, and deliver audio and video content for
a variety of Internet formats. In addition, Sonic Foundry has recently formed a
Media Services division to provide "next generation" turnkey media solutions,
effectively merging the mass communications market with the Internet. STV has
established an industry-wide reputation, providing a complete array of
value-added services that include broadcast, quality webcasting, production,
encoding, and hosting.
STV's worldwide operations, along with its 80 employees that are experts in the
convergence of traditional media with the Internet, will join forces and be
marketed as part of the Sonic Foundry Media Services Division. Jan Brzeski,
Chairman and Chief Executive Officer of STV, will continue to oversee streaming,
syndication, and live event production as well as head up business development
for the combined company. In total, the combined company will have more than 300
employees with five offices worldwide.
"The entire media industry is about to explode with the opportunity to reach an
enormous, new audience for audio and video content on the Internet," said Jan
Brzeski. "We are very excited to be joining with Sonic Foundry, a legendary
force in audio and video software. Together, we are positioned at the epicenter
of the media revolution."
"This is a fabulous opportunity for Sonic Foundry to merge with one of the most
forward looking companies in the Internet media marketplace," said Rimas
Buinevicius, Chairman and Chief Executive Officer of Sonic Foundry, Inc. "STV's
business model provides a perfect overlap to Sonic Foundry's technology focused
business. The combined entity will create one of the Internet's most dynamic
streaming media companies and will provide a single source bridge to all content
owners who desire delivery of media over the Internet. We expect future
endeavors in broadcast and content syndication will become another business
driver for the combined entity."
Both Sonic Foundry and STV bring a long list of prestigious corporate customers
and leading industry partners. The two companies' customer base includes a who's
who of media and technology companies including: Microsoft, RealNetworks,
Intervu, Columbia Records, Capitol Records, Disney, Universal, Virgin Records,
Atlantic Records, EMI, Sony Music, Launch.com, Sony Pictures Entertainment, New
Line Cinema, Columbia/TriStar, Warner Brothers, VH1.com, iFilm, Best Buy,
Beyond.com, Buy.com, Hewlett Packard, Macromedia, Creative Labs, Matrox, and
Sony Electronics.
Upon completion of the transaction closing, Sonic Foundry will expand its
leading position, providing the industry's most powerful combination of
proprietary technologies and value added services including:
. Media services that incorporate encoding, production, webcasting, hosting, and
syndication;
. Software products that allow the best in media creation, authoring, and
delivery;
. Complete media systems that provide end-to-end integration at the client site
for production, encoding, and transfer to hosting providers;
. Consulting services from world leaders in streaming media production and
delivery methods designed to assist large media partners with direction on
Internet media delivery.
<PAGE>
Under terms of the agreement, Sonic Foundry will acquire STV by issuing
approximately 1.073 million shares of Sonic Foundry common stock in exchange for
all outstanding shares of STV stock. Additionally, Sonic Foundry will convert
outstanding STV stock options and warrants into Sonic Foundry options and
warrants. The acquisition is subject to certain closing conditions, including
regulatory approvals and the approval of STV stockholders, and is expected to
close during the second quarter of 2000.
About STV
STV is a premier streaming media services provider, offering webcasting,
production and post-production services, high-end encoding, signal acquisition,
hosting, content management, digital rights management, and syndication. In
addition, STV retains exclusive online distribution rights to unique content
libraries. STV's customers use its services to create, obtain, encode, and
deliver content from music, movies, television, radio, advertising, and live
events to the Internet. More information can be found at www.stv.com.
About Sonic Foundry
Founded in 1991, Sonic Foundry is a leading developer and marketer of digital
media and Internet software tools, services, and systems. Sonic Foundry's award-
winning products and services are used worldwide for multimedia and Internet
applications, music and audio post-production, broadcast production, and digital
content creation. Built on the principle of 'Create, Edit, and Deliver,' Sonic
Foundry's products and services offer media consumers everywhere the ability to
create and capture media, edit the content, and deliver the information via
fixed media channels or electronic distribution.
Sonic Foundry Media Services/TM/, a division of Sonic Foundry(R), Inc., offers
premium solutions for delivering audio and video content online. The division
provides the industry's most powerful combination of proprietary technologies
that incorporate high-end encoding, webcasting, syndication systems, content and
digital rights management, and consulting services.
Certain statements contained in this news release regarding matters that are not
historical facts may be forward-looking statements. Because such forward-looking
statements include risks and uncertainties, actual results may differ materially
from those expressed in or implied by such forward-looking statements. Factors
that could cause actual results to differ materially include, but are not
limited to, uncertainties pertaining to continued market acceptance for the
Company's products, the Company's ability to succeed in capturing significant
revenues from media services, the effect of new competitors in the Company's
markets, and other risk factors identified from time to time in the Company's
filings with the Securities and Exchange Commission.
Press Contacts:
Sonic Foundry, Inc.
Dawn Tappy, PR Strategist
608.280.7495
[email protected]
