SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): June 16, 2000
COVAD COMMUNICATIONS GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 000-25271 77-0461529
(State or Other (Commission File Number) (I.R.S. Employer
Jurisdiction Identification No.)
of Incorporation)
4520 Burton Drive, Santa Clara, California 95054
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 844-7500
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Item 5. Other Events.
On June 16, 2000, Covad Communications Group, Inc. ("Covad") announced
that it had entered into an Agreement and Plan of Merger, dated as of June
15, 2000 (the "Merger Agreement"), which sets forth the terms and conditions
of the merger of a subsidiary of Covad with and into BlueStar Communications
Group, Inc. ("BlueStar") (the "Merger") pursuant to which BlueStar will
become a wholly owned subsidiary of Covad. A copy of the Merger Agreement is
included herein as Exhibit 2.1 and a copy of the press release of Covad with
respect to the Merger is included herein as Exhibit 99.1. The Merger
Agreement and the press release are incorporated by reference into this Item
5 and the foregoing description of such documents is qualified in its
entirety by reference to such exhibits.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits:
2.1 Agreement and Plan of Merger and Reorganization, dated as of June
15, 2000, among Covad Communications Group, Inc., Covad Acquisition
Corp. and BlueStar Communications Group, Inc.
99.1 Press Release, dated June 16, 2000, announcing the acquisition by
Covad Communications Group, Inc. of BlueStar Communications Group,
Inc.
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SIGNATURE
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.
Date: June 26, 2000
COVAD COMMUNICATIONS GROUP, INC.
By: /s/ Dhruv Khanna
----------------------------------------
Name: Dhruv Khanna
Title: Executive Vice President, General
Counsel and Secretary
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EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger and Reorganization, dated as of
June 15, 2000 among Covad Communications Group, Inc., Covad
Acquisition, Corp. and BlueStar Communications Group, Inc.
99.1 Press Release, June 16, 2000 announcing the acquisition by Covad
Communications Group, Inc. of BlueStar Communications Group,
Inc.
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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
COVAD COMMUNICATIONS GROUP, INC.,
COVAD ACQUISITION CORPORATION
and
BLUESTAR COMMUNICATIONS GROUP, INC.
dated as of
June __, 2000
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TABLE OF CONTENTS
Page
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing; Effective Time . . . . . . . . . . . . . . 2
1.3 Effect of the Merger . . . . . . . . . . . . . . . . 2
1.4 Certificate of Incorporation; By-laws . . . . . . . 2
1.5 Directors and Officers . . . . . . . . . . . . . . . 3
1.6 Taking of Necessary Action; Further Action . . . . . 3
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF
CERTIFICATES . . . . . . . . . . . . . . . . . . . 3
2.1 Total Consideration . . . . . . . . . . . . . . . . 3
2.2 Effect on Capital Stock; Conversion of Securities . 4
2.3 Exchange of Certificates . . . . . . . . . . . . . . 6
2.4 Form S-4 . . . . . . . . . . . . . . . . . . . . . . 10
2.5 Dissenters' Rights . . . . . . . . . . . . . . . . . 11
2.6 Alternate Transaction Structures . . . . . . . . . . 11
2.7 Rights to Receive Additional Shares of Parent
Common Stock . . . . . . . . . . . . . . . . . . . 12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . 14
3.1 Organization, Standing and Power; Subsidiaries . . . 15
3.2 Capital Structure . . . . . . . . . . . . . . . . . 16
3.3 Authority . . . . . . . . . . . . . . . . . . . . . 17
3.4 Financial Statements . . . . . . . . . . . . . . . . 18
3.5 Absence of Certain Changes . . . . . . . . . . . . . 19
3.6 Absence of Undisclosed Liabilities . . . . . . . . . 21
3.7 Litigation . . . . . . . . . . . . . . . . . . . . . 22
3.8 Restrictions on Business Activities . . . . . . . . 22
3.9 Governmental Authorization . . . . . . . . . . . . . 22
3.10 Title to Property . . . . . . . . . . . . . . . . . 23
3.11 Intellectual Property . . . . . . . . . . . . . . . 23
3.12 Environmental Matters . . . . . . . . . . . . . . . 25
3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . 26
3.14 Employee Benefit Plans . . . . . . . . . . . . . . . 27
3.15 Employee Matters . . . . . . . . . . . . . . . . . . 29
3.16 Transactions with Affiliates . . . . . . . . . . . . 31
3.17 Insurance . . . . . . . . . . . . . . . . . . . . . 31
3.18 Compliance With Laws . . . . . . . . . . . . . . . . 31
3.19 Minute Books . . . . . . . . . . . . . . . . . . . . 31
3.20 Brokers' and Finders' Fees . . . . . . . . . . . . . 32
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3.21 Stockholder Agreement; Irrevocable Proxies . . . . . 32
3.22 Vote Required . . . . . . . . . . . . . . . . . . . 32
3.23 Board Approval . . . . . . . . . . . . . . . . . . . 32
3.24 Accounts Receivable . . . . . . . . . . . . . . . . 32
3.25 Customers and Suppliers . . . . . . . . . . . . . . 32
3.26 Material Contracts . . . . . . . . . . . . . . . . . 33
3.27 No Breach of Material Contracts . . . . . . . . . . 35
3.28 Third Party Consents . . . . . . . . . . . . . . . . 35
3.29 Year 2000 . . . . . . . . . . . . . . . . . . . . . 35
3.30 Affiliates . . . . . . . . . . . . . . . . . . . . . 36
3.31 Outstanding Stock Options . . . . . . . . . . . . . 36
3.32 Prospectus and Proxy Statement and S-4 . . . . . . . 36
3.33 Representations Complete . . . . . . . . . . . . . . 36
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . 37
4.1 Organization, Standing and Power . . . . . . . . . . 37
4.2 Capital Structure . . . . . . . . . . . . . . . . . 37
4.3 Authority . . . . . . . . . . . . . . . . . . . . . 38
4.4 SEC Documents; Financial Statements . . . . . . . . 38
4.5 Broker's and Finders' Fees . . . . . . . . . . . . . 39
4.6 No Prior Activities . . . . . . . . . . . . . . . . 39
4.7 Prospectus and Proxy Statement and S-4 . . . . . . . 39
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . 40
5.1 Conduct of Business of the Company . . . . . . . . . 40
5.2 Restricted Conduct of the Company . . . . . . . . . 40
5.3 No Solicitation . . . . . . . . . . . . . . . . . . 44
5.4 Additional Bridge Financing . . . . . . . . . . . . 45
ARTICLE VI ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . 45
6.1 Prospectus and Proxy Statement . . . . . . . . . . . 45
6.2 Meeting of Stockholders . . . . . . . . . . . . . . 46
6.3 Access to Information . . . . . . . . . . . . . . . 46
6.4 Public Disclosure . . . . . . . . . . . . . . . . . 47
6.5 Consents; Cooperation . . . . . . . . . . . . . . . 47
6.6 Company Affiliate Agreements . . . . . . . . . . . . 48
6.7 Stock Restriction Agreement . . . . . . . . . . . . 48
6.8 Legal Requirements . . . . . . . . . . . . . . . . . 48
6.9 Blue Sky Laws . . . . . . . . . . . . . . . . . . . 49
6.10 Escrow Agreement . . . . . . . . . . . . . . . . . . 49
6.11 Form S-8 . . . . . . . . . . . . . . . . . . . . . . 49
6.12 Listing of Additional Shares . . . . . . . . . . . . 49
6.13 Confidentiality . . . . . . . . . . . . . . . . . . 49
6.14 Expenses . . . . . . . . . . . . . . . . . . . . . . 50
6.15 Further Assurances . . . . . . . . . . . . . . . . . 50
6.16 Indemnification of Directors, Officers, etc . . . . 51
6.17 Reorganization for Federal Income Tax Purposes . . . 51
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6.18 Funding To Be Arranged By Parent . . . . . . . . . . 51
6.19 Non-solicitation of Employees . . . . . . . . . . . 52
6.20 Loan Acceleration . . . . . . . . . . . . . . . . . 52
6.21 Employee Benefits . . . . . . . . . . . . . . . . . 52
ARTICLE VII CONDITIONS TO THE MERGER . . . . . . . . . . . . . . 52
7.1 Conditions to Obligations of Each Party to Effect
the Merger . . . . . . . . . . . . . . . . . . . . 52
7.2 Additional Conditions to Obligations of the
Company . . . . . . . . . . . . . . . . . . . . . 53
7.3 Additional Conditions to the Obligations of
Parent and Merger Sub . . . . . . . . . . . . . . 54
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . 57
8.1 Termination . . . . . . . . . . . . . . . . . . . . 57
8.2 Effect of Termination . . . . . . . . . . . . . . . 58
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . 58
8.4 Extension; Waiver . . . . . . . . . . . . . . . . . 59
ARTICLE IX ESCROW AND INDEMNIFICATION . . . . . . . . . . . . . 59
9.1 Escrow Fund . . . . . . . . . . . . . . . . . . . . 59
9.2 Indemnification. . . . . . . . . . . . . . . . . . . 59
9.3 Damage Threshold . . . . . . . . . . . . . . . . . . 60
9.4 Escrow Period. . . . . . . . . . . . . . . . . . . . 61
9.5 Claims upon Escrow Fund. . . . . . . . . . . . . . . 61
9.6 Objections to Claims. . . . . . . . . . . . . . . . 61
9.7 Resolution of Conflicts; Arbitration. . . . . . . . 62
9.8 Stockholders' Agent. . . . . . . . . . . . . . . . . 63
9.9 Actions of the Stockholders' Agent. . . . . . . . . 64
9.10 Third-Party Claims. . . . . . . . . . . . . . . . . 64
9.11 Earn-Out Fund. . . . . . . . . . . . . . . . . . . 64
ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . 65
10.1 Survival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . 65
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . 65
10.3 Interpretation . . . . . . . . . . . . . . . . . . . 66
10.4 Counterparts . . . . . . . . . . . . . . . . . . . . 66
10.5 Entire Agreement; Nonassignability; Parties in
Interest . . . . . . . . . . . . . . . . . . . . . 67
10.6 Severability . . . . . . . . . . . . . . . . . . . . 67
10.7 Remedies Cumulative . . . . . . . . . . . . . . . . 67
10.8 Governing Law . . . . . . . . . . . . . . . . . . . 67
10.9 Rules of Construction . . . . . . . . . . . . . . . 67
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EXHIBITS:
Exhibit A - Stockholder Agreement
Exhibit B - Exchange Ratios
Exhibit C - Earn-Out Calculations
Exhibit D - Stock Restriction Agreement
Exhibit E - Escrow Agreement
Exhibit F - Interim Financing
Exhibit G - FIRPTA Notice
Exhibit H - Treasury Notice
Exhibit I - Company Affiliate Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is made and entered into as of June __, 2000, by and among Covad
Communications Group, Inc., a Delaware corporation ("Parent"), Covad
Acquisition Corporation, a Delaware corporation and a direct, wholly owned
subsidiary of Parent ("Merger Sub"), and Big Sur, a Delaware corporation (the
"Company").
R E C I T A L S :
WHEREAS, the boards of directors of Parent, Merger Sub and
the Company have determined that it is advisable and in the best interests of
their respective companies and stockholders to enter into a business
combination by means of the merger of Merger Sub with and into the Company
(the "Merger") and, in furtherance thereof, have approved this Agreement and
the transactions contemplated hereby, including the Merger;
WHEREAS, pursuant to the Merger, among other things, each
outstanding share of capital stock of the Company ("Company Capital Stock")
shall be converted into shares of Parent Common Stock (as defined in Section
4.2 below), in the manner set forth herein;
WHEREAS, for United States Federal income tax purposes, it
is intended that the Merger shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(together with the rules and regulations promulgated thereunder, the "Code"),
and that this Agreement shall be, and hereby is, adopted as a plan of
reorganization for purposes of Section 368 of the Code; and
WHEREAS, concurrently with the execution of this Agreement
and as an inducement to Parent to enter into this Agreement, certain
stockholders of the Company have entered into an agreement in the form
attached hereto as Exhibit A (the "Stockholder Agreement") to vote the shares
of the Company Capital Stock owned by such person or entity to approve this
Agreement and the Merger.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, and intending to be legally bound hereby, the parties hereto
agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the General
Corporation Law of the State of Delaware (the "Delaware Law"), at the
Effective Time (as defined in Section 1.2), Merger Sub shall be merged with
and into the Company. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation").
1.2 Closing; Effective Time. The closing of the
transactions contemplated hereby (the "Closing") shall take place as soon as
practicable following the satisfaction or waiver of each of the conditions
set forth in Article VII hereof, or at such other time as the parties hereto
agree (the "Closing Date"). The Closing shall take place at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, or at
such other location as the parties hereto agree. In connection with the
Closing, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware and shall make all other filings
or recordings required under Delaware Law. The Merger shall become effective
at such time as the Certificate of Merger shall have been duly filed with the
Secretary of State of the State of Delaware, or at such later time as is
agreed by Parent and the Company and specified in the Certificate of Merger
(the time the Merger becomes effective under the Delaware Law being the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in this Agreement, the Certificate
of Merger and the applicable provisions of the Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises
of Merger Sub and the Company shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Merger Sub and the Company shall become
the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; By-laws. At the
Effective Time, the Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time and as may be amended by the
Certificate of Merger, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended. The By-laws of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the By-laws of
the Surviving Corporation until thereafter amended as provided by the
Delaware Law.
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1.5 Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, and the officers of Merger Sub immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
1.6 Taking of Necessary Action; Further Action. If, at
any time after the Effective Time, the Surviving Corporation shall consider
or be advised that any deeds, bills of sale, assignments, assurances, or any
other actions or things are necessary or desirable to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation its rights,
title or interest in, to or under any of the rights, properties or assets of
either Merger Sub or the Company or their subsidiaries acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of Merger Sub and the Company, all
such deeds, bills of sale, assignments and assurances and to take and do, in
the name and on behalf of each of Merger Sub and the Company or otherwise,
all such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets of the Surviving Corporation or otherwise
to carry out this Agreement in accordance with its terms.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1 Total Consideration. The number of shares of Parent
Common Stock (as defined in Section 4.2) to be issued (including Parent
Common Stock to be reserved for future issuance upon exercise of all
outstanding Company Options (as hereafter defined) and Company Warrants (as
hereafter defined) assumed by Parent) in exchange for the acquisition by
Parent by virtue of the Merger of all outstanding Company Capital Stock and
all unexpired and unexercised Company Options and Company Warrants shall be
eight million (8,000,000) shares of Parent Common Stock (the "Closing
Shares"), reduced as a result of any Dissenting Shares (as hereafter
defined), Interim Funding Shares (as defined in Section 6.18) and Closing Fee
Shares (as defined in Section 6.14) and subject to reduction for fractional
shares, the disposition of which shall be governed by Sections 2.2, 2.3 and
2.5. In addition, a further five million (5,000,000) shares of Parent Common
Stock (the "Additional Shares") shall be issued and distributed in accordance
with Section 2.7.
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2.2 Effect on Capital Stock; Conversion of Securities.
(a) Conversion Ratios. At the Effective Time,
by virtue of the Merger and without any action on the part of Merger Sub or
the Company or the holders of any of the Company's Capital Stock:
(i) Each share of Series A Preferred
(as defined in Section 3.2) of the Company issued and outstanding
immediately prior to the Effective Time, other than any shares to be
canceled pursuant to Section 2.2(c) and any Dissenting Shares, shall
be converted into the right to receive such number of shares of
Parent Common Stock as shall be determined in accordance with Exhibit
B hereto (the "Series A Conversion Ratio").
(ii) Each share of Series B Preferred
(as defined in Section 3.2) of the Company issued and outstanding
immediately prior to the Effective Time, other than any shares to be
canceled pursuant to Section 2.2(c) and any Dissenting Shares, shall
be converted into the right to receive such number of shares of
Parent Common Stock as shall be determined in accordance with Exhibit
B hereto (the "Series B Conversion Ratio").
(iii) Each share of Series C Preferred
(as defined in Section 3.2) of the Company issued and outstanding
immediately prior to the Effective Time, other than any shares to be
canceled pursuant to Section 2.2(c) and any Dissenting Shares, shall
be converted into the right to receive such number of shares of
Parent Common Stock as shall be determined in accordance with Exhibit
B hereto (the "Series C Conversion Ratio").
(iv) Each share of Company Common Stock
(as defined in Section 3.2) issued and outstanding immediately prior
to the Effective Time, other than any shares to be canceled pursuant
to Section 2.2(c) and any Dissenting Shares, shall be converted into
the right to receive such number of shares of Parent Common Stock as
shall be determined in accordance with Exhibit B hereto (the "Common
Stock Conversion Ratio").
(b) Adjustment to Exchange Ratios. Each of the
Series A Conversion Ratio, the Series B Conversion Ratio, the Series C
Conversion Ratio and the Common Stock Conversion 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 or
exchangeable into Parent Common Stock or Company Capital Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock or Company Capital Stock occurring after the date hereof and
prior to the Effective Time.
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(c) Cancellation of Company Capital Stock Owned
by the Company. At the Effective Time, all shares of Company Capital Stock
that are owned by the Company as treasury stock shall be canceled and
extinguished without any conversion thereof.
(d) Options. At the Effective Time, the
Company Stock Plans (as defined herein), and each outstanding option to
purchase shares of Company Capital Stock, whether granted pursuant to a
Company Stock Plan or otherwise, whether vested or unvested ("Company
Option") and each outstanding grant of restricted shares of Company Common
Stock ("Restricted Stock") (all such Company Options and Restricted Stock
being set forth on Schedule 3.2 and Schedule 3.31) will be assumed by Parent,
pursuant to the terms of the applicable Company Stock Option Plan. Each such
Company Option and grant of Restricted Stock so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Company Stock Plans and the applicable stock
option agreement or stock purchase agreement immediately prior to the
Effective Time (but giving effect to changes in such terms and conditions
resulting from the consummation of the Merger), except that (x) such Company
Option will be exercisable for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of the Company Common
Stock underlying such assumed Company Option immediately prior to the
Effective Time, multiplied by the Common Stock Conversion Ratio and rounded
down to the nearest whole number of shares of Parent Common Stock, (y) the
per share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Option will be equal to the quotient
determined by dividing the exercise price per share of the Company Common
Stock at which such Option was exercisable immediately prior to the Effective
Time by the Common Stock Conversion Ratio, rounded up to the nearest whole
cent, and (z) each share of Restricted Stock shall be converted into shares
of Parent Common Stock pursuant to Section 2.2(a)(iv). Within five (5)
business days after the Effective Time, Parent will distribute to each person
who appears as a holder of a Company Option listed on Schedule 3.31 and the
Record Schedule (as defined in Section 2.3(b)) a document evidencing the
assumption of such Company Option by Parent pursuant to this Section 2.2(d).
For purposes of the Agreement, "Company Stock Plans" shall mean the Company
1999 Stock Option/Stock Issuance Plan, Company 1999 Incentive Stock Option
Plan, and Company 2000 Stock Incentive Plan.
(e) Warrants. At the Effective Time, all
outstanding warrants exercisable for shares of Company Capital Stock (as set
forth on Schedule 3.2) ("Company Warrants") shall be assumed by Parent and
shall be exchangeable for a new warrant to purchase Parent Common Stock
having the same terms and subject to the same conditions set forth in the
agreement providing for the terms and conditions of the Company Warrant
immediately prior to the Effective Time, except that (i) each such Company
Warrant will be exercisable for that number of whole shares of Parent Common
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Stock equal to the product of the number of shares of Company Common Stock
that were issuable upon exercise of such Company Warrant immediately prior to
the Effective Time multiplied by the Common Stock Conversion Ratio and
rounded down to the nearest whole number of shares of Parent Common Stock,
and (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Warrant will be equal to the
quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Warrant was exercisable immediately prior
to the Effective Time by the Common Stock Conversion Ratio, rounded up to the
nearest whole cent. Within five (5) business days after the Effective Time,
Parent will issue to each person who, immediately prior to the Effective
Time, was a holder of an outstanding Company Warrant a document evidencing
the assumption of such Company Warrant by Parent pursuant to this Section
2.2(e).
(f) Repurchase Rights. All rights which the
Company may hold immediately prior to the Effective Time with respect to the
repurchase of any Company Warrant or Company Capital Stock (the "Repurchase
Rights") shall be assigned to Parent in the Merger and shall thereafter be
exercisable by Parent, with respect to the Parent Common Stock issued in
exchange for such Company Capital Stock, upon the same terms and conditions
in effect immediately prior to the Effective Time, except as shall be
adjusted to reflect the Common Stock Conversion Ratio and except as such
terms and conditions may be changed as a result of the consummation of the
Merger.
(g) Capital Stock of Merger Sub. At the
Effective Time, each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. Each stock certificate of Merger
Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of common stock of the Surviving Corporation.
2.3 Exchange of Certificates.
(a) Exchange Agent. Parent's transfer agent
shall act as exchange agent (the "Exchange Agent") in the Merger, at Parent's
expense. Promptly after the Effective Time, Parent shall deposit with, or
cause to be deposited with, the Exchange Agent for the benefit of the holders
of shares of the Company's Capital Stock, for exchange in accordance with
this Article II through the Exchange Agent, (i) certificates evidencing such
number of shares of Parent Common Stock issuable pursuant to Section 2.2 in
exchange for shares of Company Capital Stock outstanding immediately prior to
the Effective Time less the number of shares of Parent Common Stock to be
deposited in an escrow fund (the "Escrow Fund") pursuant to the requirements
of Article IX and (ii) cash in the amount sufficient to permit payment of
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cash in lieu of fractional shares pursuant to Section 2.3(h) (such
certificates for shares of Parent Common Stock together with any dividends or
distributions with respect thereto and such cash, being hereinafter referred
to as the "Exchange Fund").
(b) Exchange Procedures. At or prior to the
Closing, the Company shall provide to Parent a schedule of all holders of
Company Capital Stock, Company Warrants and Company Options as of the date of
the Closing, containing such information in such format as shall be
reasonably requested by Parent or the Exchange Agent (the "Record Schedule"),
and such schedule shall be certified as complete and correct by an authorized
officer of the Company. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to
the Effective Time represented outstanding shares of Company Capital Stock,
whose shares were converted into the right to receive shares of Parent Common
Stock (and cash in lieu of fractional shares) pursuant to Section 2.2, (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 receipt
of the certificates by the Exchange Agent, and shall be in such form and have
such other provisions as Parent and the Company shall agree) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock (and
cash in lieu of fractional shares). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holder
of such Certificate shall be entitled to receive in exchange therefor (x) a
certificate representing the number of whole shares of Parent Common Stock to
which that holder is entitled pursuant to Section 2.2, less the number of
shares of Parent Common Stock to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article IX hereof, and (y) payment in lieu of
fractional shares which such holder has the right to receive pursuant to
Section 2.3(h), and (z) any payments to which such holder may be entitled
pursuant to Section 2.3(c), and the Certificate so surrendered shall
forthwith be canceled. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Company Capital
Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends (which shall be governed by
Section 2.3(c)), to evidence the ownership of the number of full shares of
Parent Common Stock into which such shares of Company Capital Stock shall
have been so converted and the right to receive an amount in cash in lieu of
the issuance of any fractional shares in accordance with Section 2.3(h). As
soon as practicable after the Effective Time, and subject to and in
accordance with the provisions of Article IX hereof, Parent shall cause to be
deposited with the Escrow Agent (as defined in Section 9.1 hereto) a
certificate or certificates representing 800,000 shares (which number shall
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be adjusted in the same manner as provided for in Section 2.2(b)) of Parent
Common Stock issuable in the Merger pursuant to Section 2.2 (the "Escrow
Shares") which shall be registered in the name of the Escrow Agent as nominee
for the holders of Certificates canceled pursuant to this Section 2.3(b). The
Escrow Shares shall be vested shares not subject to any repurchase rights,
shall be beneficially owned by such holders and shall be held in escrow and
shall be available to compensate Parent for certain damages as provided in
Article IX. To the extent not used for such purposes, such shares shall be
released, all as provided in Article IX hereof.
(c) Distributions with Respect to Unexchanged
Shares of Parent Common Stock. No dividends or other distributions declared
or made with respect to Parent Common Stock with a record date on or after
the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock represented
thereby, and no other part of the merger consideration shall be paid to any
such holder, until the holder of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid promptly to the holder, whole shares of
Parent Common Stock issued in exchange therefor, the amount of any cash
payable with respect to a fractional share of Parent Common Stock to which
such holder is entitled pursuant to Section 2.3(h) and the amount of
dividends or other distributions with a record date on or after the Effective
Time theretofore paid with respect to such whole shares of Parent Common
Stock, and 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 occurring after surrender, payable with respect
to such whole shares of Parent Common Stock. No interest shall be paid on
the merger consideration.
(d) Transfers of Ownership. If any certificate
for shares of Parent Common Stock is to be issued in a name other than that
in which the Certificate surrendered in exchange therefor is registered, it
will be a condition of the issuance thereof that the Certificate so
surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to
Parent or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Parent Common Stock in
any name other than that of the registered holder of the Certificate
surrendered, or will have established to the reasonable satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(e) No Liability. None of the Exchange Agent,
Parent, Merger Sub or the Surviving Corporation shall be liable to any holder
of shares of Company Capital Stock for any such shares of Parent Common Stock
(or dividends or distributions with respect thereto) or cash delivered to a
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public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Dissenting Shares. The provisions of this
Section 2.3 shall also apply to Dissenting Shares that lose their status as
such, except that the obligations of Parent under this Section 2.3 shall
commence on the date of loss of such status and the holder of such shares
shall be entitled to receive in exchange for such shares the number of shares
of Parent Common Stock to which such holder is entitled pursuant to Section
2.2 hereof and the amount of cash, if any, to which such holder is entitled
pursuant to Sections 2.3(c) and 2.3(h) hereof.
(g) No Further Ownership Rights in the Company
Capital Stock. All shares of Parent Common Stock issued upon the surrender
for exchange of shares of Company Capital Stock in accordance with the terms
hereof (including any cash paid in lieu of fractional shares) and pursuant to
the rights granted in Section 2.7, shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares of Company Capital
Stock, and following the Effective Time there shall be no further
registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article II.
(h) No Fractional Shares. No certificates or
scrip evidencing a fraction of a share of Parent 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 rights of a
stockholder of Parent. In lieu of any fractional shares remaining after
aggregating all such fractional shares of a holder, each holder of Company
Capital Stock upon surrender of a Certificate for exchange pursuant to this
Section 2.3 shall be paid an amount in cash (without interest), rounded up to
the nearest whole cent, equal to the product of (i) such fraction, multiplied
by (ii) the closing price of one share of Parent Common Stock on the Nasdaq
National Market on the third business day prior to the Closing Date.
(i) Lost, Stolen or Destroyed Certificates. In
the event any Certificates shall have been lost, stolen or destroyed, the
Exchange Agent shall issue and pay, as appropriate, in exchange for such
lost, stolen or destroyed Certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of Parent Common Stock and cash
in lieu of fractional shares as may be required pursuant to Sections 2.2,
2.3(c) and 2.3(h); provided, however, that Parent may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it
may reasonably direct as indemnity against any claim that may be made against
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Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
(j) Termination of Exchange Fund. Any portion
of the Exchange Fund which remains undistributed to the holders of Company
Capital Stock twelve (12) months after the deposit thereof by Parent with the
Exchange Agent shall be delivered to Parent, upon demand, and any holders of
Company Capital Stock who have not theretofore complied with this Article II
shall thereafter look only to Parent for the Merger Consideration to which
they are entitled.
(k) Withholding Rights. Parent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Capital Stock
such amounts as Parent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent, such
withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Capital Stock in
respect of which such deduction and withholding was made by Parent.
2.4 Form S-4. Parent and the Company shall cooperate in
preparing and filing with the SEC, as soon as is reasonably practicable after
the date hereof, a registration statement on Form S-4 (the "S-4") and they
shall cooperate using commercially reasonable efforts to have the S-4
declared effective by the SEC promptly thereafter. The S-4 shall include a
disclosure document for the offer and issuance of the shares of Parent Common
Stock issued in respect of the Merger (including the Earn-Out Shares, as
defined below) and for the stockholders of the Company to approve the Merger
(the "Prospectus and Proxy Statement") and shall be prepared in accordance
with this Section 2.4 and Section 6.1. Parent and the Company shall use
their respective best efforts to cause the S-4 to comply with applicable
federal and state securities laws requirements. Each of Parent and the
Company shall provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment
of the providing party, may be required or appropriate for inclusion in the
S-4, or in any amendments or supplements thereto, and cause its counsel and
auditors to cooperate with the other's counsel and auditors in the
preparation of the S-4. The Company will promptly advise Parent, and Parent
will promptly advise the Company, in writing if at any time prior to the
Effective Time either Target or the Company shall obtain knowledge of any
facts that might make it necessary or appropriate to amend or supplement the
S-4 in order to make statements contained or incorporated by reference
therein not misleading or to comply with applicable law. The Company shall
cause Brobeck, Phleger & Harrison LLP to deliver an opinion supporting the
disclosure of the tax matters and tax consequences to the stockholders of the
Company as set forth in the S-4. Parent and the Company shall furnish each
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other with all information concerning themselves, their subsidiaries,
directors, officers and stockholders and such other matters as may be
necessary or advisable (as determined by the providing party's counsel) for
the S-4, the proxy or information statement which forms a part thereof,
filings under the Blue Sky laws of any pertinent states, and any other
statement or application made by or on behalf of Parent or the Company with
respect to such filings.
2.5 Dissenters' Rights. Notwithstanding any other
provisions of this Agreement to the contrary, shares of Company Capital Stock
that are outstanding immediately prior to the Effective Time and which are
held by stockholders who shall have not voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
appraisal for such shares in accordance with Section 262 of the Delaware Law
(collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the merger consideration otherwise applicable
to such shares pursuant to Sections 2.2(a), 2.3(b) and 2.7. Such
stockholders shall be entitled to receive payment of the appraised value of
such shares of Company Capital Stock held by them in accordance with the
provisions of such Section 262, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares of Company Capital
Stock under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable, as of the Effective Time, for the right
to receive, without any interest thereon, the merger consideration applicable
to such shares pursuant to Sections 2.2(a) and 2.3(b), upon surrender, in the
manner provided in Section 2.3, of the certificate or certificates that
formerly evidenced such shares of Company Capital Stock, and the right to
receive Earn-Out Shares pursuant to Section 2.7.
2.6 Alternate Transaction Structures. Parent may at any
time change the method of effecting the Merger, including by merging the
Company with and into Parent or by merging the Company with and into a direct
or indirect wholly owned subsidiary of Parent, and the Company shall
cooperate in such efforts, including by entering into an appropriate
amendment to this Agreement; provided, however, that such actions shall not
(a) alter or change the amount or kind of consideration to be issued to
holders of Company Capital Stock as provided for in this Agreement, (b)
adversely affect the tax treatment to the Company's stockholders as a result
of receiving Parent Common Stock pursuant to Section 2.2, (c) materially
delay the consummation of the transactions contemplated by this Agreement or
(d) otherwise materially adversely affect the stockholders of the Company.
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2.7 Rights to Receive Additional Shares of Parent Common
Stock.
(a) Additional Shares. At the Effective Time,
Parent shall issue the Additional Shares and shall, as soon as practicable,
deliver a certificate or certificates in respect of such shares to the Escrow
Agent to be held in a separate and distinct fund (the "Earn-Out Fund"). The
Additional Shares shall be held in the Earn-Out Fund until distributed in
accordance with this Section 2.7.
(b) Calculation of Earn-Out Shares. For the
Surviving Corporation's fiscal year 2001, Parent shall, no later than 15
days following the availability of audited financial statements for such
period, prepare and deliver to the Stockholders' Agent (pursuant to Section
2.7(e)) a report (the "Report") containing a calculation, in accordance with
Exhibit C hereto and giving reasonable detail, of the Earn-Out Share Number
(as defined in Exhibit C hereto), together with a copy of the financial
statements from which such calculation is derived. As set forth in Exhibit
C, the Earn-Out Share Number shall be determined based on the Surviving
Corporation's (i) fiscal Year 2001 Revenues, and (ii) its fiscal Year 2001
EBITDA, provided that (as set forth in Exhibit C) if the Surviving
Corporation fails to meet the minimum threshold for either Year 2001 Revenues
or Year 2001 EBITDA then the Earn-Out Share Number shall be zero (0). Within
30 days after its receipt of the Report, the Stockholder's Agent shall notify
Parent in writing whether it disputes the accuracy of the calculation in the
Report, setting forth in reasonable detail the reason for such dispute. If
the Stockholders' Agent does not so notify Parent, then he shall be deemed to
have accepted the Report on behalf of all of the former holders of Company
Capital Stock, and the Earn-Out Share Number calculation shall be deemed to
be final and binding for purposes of this Agreement. The parties shall use
their best efforts to resolve any disagreement within 30 days after the
Stockholders' Agent has notified Parent of its dispute of the Earn-Out Share
Number calculation. If the parties fail to resolve their dispute following
such efforts, the dispute shall be resolved in accordance with Section 9.7(b)
and (c), below.
(c) Distribution Procedures. On the date (the
"Earn-Out Distribution Date") seven days after the date that the Report and
the Earn-Out Share Number calculation become final and binding, the Escrow
Agent shall distribute in the manner provided in Section 2.7(d) below, a
number of Additional Shares (the "Earn-Out Shares") equal to: (i) the Earn-
Out Share Number, less (ii) the Earn-Out Transaction Fee Shares (as defined
in Section 6.14), less (iii) any fractional shares, plus (iv) any Recovered
Shares (as defined in Section 2.7(f)); provided that, if there is any pending
claim against the Escrow Fund pursuant to Section 9.5 at the Earn Out
Distribution Date, a number of Earn-Out Shares of adequate value (in
combination with any amount remaining in the Escrow Fund, and as calculated
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pursuant to Section 9.5(b)) to satisfy all such pending claims, to a maximum
of ten percent (10%) of the Earn-Out Shares, shall be deposited into the
Escrow Fund with the Escrow Agent and made available for the satisfaction of
any such claim until all such claims are finally satisfied or resolved, and
provided further that such Earn-Out Shares shall be deemed to have been part
of the Escrow Fund from the Effective Time. The Additional Shares remaining
after the subtraction of the Earn-Out Shares shall be transferred to Parent.
Any fractional shares shall be dealt with in accordance with Section 2.3(h),
except that the price of Parent Common Stock pertinent to that section shall
be determined as of the third business day preceding the Earn-Out
Distribution Date.
(d) Distribution of Earn-Out Shares.
(i) At the Effective Time, each share
of Company Capital Stock held immediately prior to the Effective Time
shall represent the right to receive from the Earn-Out Fund (at the
Earn-Out Distribution Date, and subject to reduction for fractional
shares and deposit in the Escrow Fund in accordance with Section
2.7(c)) a number of Earn-Out Shares calculated in accordance with
Section B of Exhibit C hereto.
(ii) At the Effective Time, each Company
Option shall represent the right to receive upon the later of (x) the
Earn-Out Distribution Date and (y) the date of exercise of the
Option, a number of Earn-Out Shares determined according to Section C
of Exhibit C hereto. After the Earn-Out Distribution Date, if the
Option has not yet been exercised, such shares shall be transferred
from the Earn-Out Fund to Parent.
(iii) At the Effective Time, each Company
Warrant shall represent the right to receive upon the later of (x)
the Earn-Out Distribution Date and (y) the date of exercise of the
Warrant, a number of Earn-Out Shares determined according to Section
D of Exhibit C hereto. After the Earn-Out Distribution Date, if the
Warrant has not yet been exercised, such shares shall be transferred
from the Earn-Out Fund to Parent.
(iv) The rights created hereby to
receive any number of the Additional Shares (if any) are not
assignable, and any purported assignment of any such right is void.
(e) Stockholder's Agent. The Stockholders'
Agent (as defined in Section 9.8) shall be the same Stockholders' Agent as
appointed pursuant to Article IX of this Agreement, and shall be constituted
and appointed as agent for and on behalf of the Company stockholders, option
holders and warrant holders to give and receive notices and communications,
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to agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to, the Earn-Out Shares, and to take all actions necessary or
appropriate in the judgment of the Stockholders' Agent for the accomplishment
of the foregoing. Such agency may be changed by holders of a majority of the
shares of Parent Common Stock received pursuant to Section 2.2 of this
Agreement, from time to time upon not less than ten (10) days' prior written
notice to Parent. No bond shall be required of the Stockholders' Agent, and
the Stockholders' Agent shall receive no compensation for services rendered.
Notices or communications to or from the Stockholders' Agent shall constitute
notice to or from each of the Company stockholders. The Stockholders' Agent
shall not be liable for any act done or omitted hereunder as Stockholders'
Agent except to the extent it has acted with gross negligence or willful
misconduct, and any act done or omitted pursuant to the advice of counsel
shall be conclusive evidence that it did not act with gross negligence or
willful misconduct. The Company stockholders shall severally indemnify the
Stockholders' Agent and hold him harmless against any loss, liability or
expense incurred without gross negligence or bad faith on the part of the
Stockholders' Agent and arising out of or in connection with the acceptance
or administration of the duties hereunder. The Stockholders' Agent shall be
a third party beneficiary of the terms of this Section 2.7(e).
(f) Recovered Shares. Prior to the Earn-Out
Distribution Date, the Chief Financial Officer of Parent shall certify to the
Escrow Agent the number of shares of Parent Common Stock underlying all
Company Options assumed at the Effective Time by Parent, which Company
Options are unvested and have, since the Effective Time, become incapable of
exercise due to their holder leaving the employ of the Surviving Corporation
after the Effective Time ("the Recovered Shares"). This number of Additional
Shares shall be added to the Earn-Out Shares pursuant to Section 2.7(c), and,
if there are not sufficient Additional Shares to satisfy this requirement,
Parent shall transfer such shares to the Earn-Out Fund prior to on or the
Earn-Out Distribution Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In this Agreement, any reference to any event, change,
condition or effect being "material" with respect to any entity or group of
entities means any material event, change, condition or effect related to the
condition (financial or otherwise), properties, assets (including intangible
assets), liabilities, business, prospects, operations or results of
operations of such entity or group of entities. In this Agreement, any
reference to a "Material Adverse Effect" with respect to any entity or group
of entities means any event, change or effect that is materially adverse to
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the condition (financial or otherwise), properties, assets, liabilities,
business, prospects, operations or results of operations of such entity and
its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "knowledge"
means actual knowledge of such party's officers and directors, provided that
such persons shall have made reasonable inquiry of those employees of such
party and its subsidiaries whom such officers and directors reasonably
believe would have actual knowledge of the matters represented.
The Company represents and warrants to each of Parent and
Merger Sub as follows:
3.1 Organization, Standing and Power; Subsidiaries. The
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Schedule 3.1 contains a list of each direct or indirect
subsidiary of the Company, the jurisdiction of organization of such
subsidiary and such subsidiary's authorized and issued capital stock or other
ownership interests. The Company and each of its subsidiaries has the
corporate power to own its properties and to carry on its business as now
being conducted and as currently proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a
Material Adverse Effect on the Company. The Company has delivered or made
available to Parent a true and correct copy of the Certificate or Articles of
Incorporation and By-laws or equivalent organizational documents, as
applicable, of the Company and each of its subsidiaries, each as amended to
date. The Company is the owner of all outstanding shares of capital stock or
other ownership interests of each of its subsidiaries and all such shares and
other ownership interests are duly authorized, validly issued, fully paid and
nonassessable. All of the outstanding shares of capital stock or other
ownership interests of each subsidiary are owned by the Company free and
clear of all liens, charges, claims, security interests or encumbrances or
rights of others. There are no outstanding subscriptions, options, warrants,
puts, calls, rights, exchangeable or convertible securities or other
commitments or agreements of any character relating to the issued or unissued
capital stock or other ownership interests of any such subsidiary, or
otherwise obligating the Company or any such subsidiary to issue, transfer,
sell, purchase or redeem or otherwise acquire any such securities. The
Company does not directly or indirectly own any equity or similar interest
in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
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3.2 Capital Structure.
(a) The authorized capital stock of the Company
consists of (i) 22,689,584 shares of Preferred Stock, par value $0.01 per
share (the "Company Preferred Stock") consisting of 12,346,941 shares of
Series A Preferred Stock (the "Series A Preferred"), 8,177,040 shares of
Series B Preferred Stock (the "Series B Preferred"), 2,165,603 shares of
Series C Preferred Stock (the "Series C Preferred"), and (ii) 60,000,000
shares of Common Stock, par value $0.01 per share (the "Company Common
Stock"). Except for shares of Company Common Stock issued upon the exercise
of Company Options or Company Warrants, there are issued and outstanding
12,345,003 shares of Series A Preferred that are convertible into 12,345,003
shares of Company Common Stock, 8,177,040 shares of Series B Preferred that
are convertible into 8,177,040 shares of Company Common Stock, 2,165,603
shares of Series C Preferred that are convertible into 2,165,603 shares of
Company Common Stock, and 13,173,525 shares of Company Common Stock.
(b) Except as set forth on Schedule 3.2, there
are no other authorized or outstanding shares of Company Capital Stock or
voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities of Company other than (i) pursuant to the
exercise of Company Warrants listed on Schedule 3.2, which are exercisable
for the number of shares of Company Capital Stock at the exercise prices set
forth on Schedule 3.2, and (ii) pursuant to the exercise of Company Options
outstanding under the Company Stock Option Plans (as defined in Section
2.2(d)) and listed on Schedule 3.31. Schedule 3.2 lists the name, address
and stock and warrant holdings of each record holder of Company Capital Stock
and Company Warrants.
(c) Except as set forth on Schedule 3.2, all
outstanding shares of Company Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any liens, charges,
claims, security interests or encumbrances, other than liens, charges,
claims, security interests and encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Certificate of Incorporation or By-laws of
the Company or any agreement to which Company is a party or by which it is
bound. The Company has reserved 22,687,646 shares of Company Common Stock
for issuance upon conversion of the shares of Company Preferred Stock. The
Company has reserved 360,000 shares of Company Common Stock for issuance to
holders of Company Warrants, of which no shares have been issued pursuant to
warrant exercises, and 360,000 shares are subject to outstanding, unexercised
Company Warrants (43,340 of which would be subject to repurchase rights of
the Company if exercised at the date hereof). The Company has reserved
11,815,815 shares of Company Common stock for issuance to holders of options
pursuant to the Company Stock Option Plan, of which 3,443,875 shares have
been issued pursuant to option exercises (of which 2,248,792 shares are
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subject to repurchase rights of the Company) and 5,220,640 shares are
subject to outstanding, unexercised Company Options.
(d) Except for (i) the rights created pursuant
to this Agreement, and (ii) as described on Schedule 3.2 and Schedule 3.31,
there are no options, warrants, calls, rights, commitments or agreements of
any character to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. Except
as stated on Schedule 3.2 there are no other contracts, commitments or
agreements relating to voting, purchase or sale of Company Capital Stock (i)
between or among the Company and any of its stockholders and (ii) to the
Company's knowledge, between or among any of the Company's stockholders. The
terms of the Company Warrants and the Company Stock Option Plan permit the
assumption or substitution of warrants or options, as the case may be, to
purchase Parent Common Stock as provided in this Agreement, without the
consent or approval of the holders of such securities, the Company
stockholders, or otherwise. True and complete copies of all agreements and
instruments to which the Company is a party relating to the Company Warrants
and the Company Stock Plans, the Company Options and Restricted Stock issued
thereunder have been delivered to Parent, and such agreements and instruments
as so delivered have not been amended, modified or supplemented, and there
are no agreements to amend, modify or supplement such agreements or
instruments in any case from the forms made available to Parent. All
outstanding shares of Company Capital Stock and all Company Warrants and
Company Options were issued in compliance with all applicable securities
laws.
3.3 Authority. The Company has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject only to the approval of the Merger by the Company's
stockholders as contemplated by Sections 3.22, 7.1(a) and 7.3(a). This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms. Except for (i) limitations by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors' rights generally,
(ii) limitations relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) indemnification
provisions contained herein that may be limited by applicable federal or
state securities laws, the execution and delivery of this Agreement by the
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Company does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss
of any benefit under (i) any provision of the Certificate of Incorporation or
By-laws of the Company, as amended, (ii) any Material Contract (as defined in
Section 3.26), or (iii) any lease, license or other agreement or instrument,
or any permit, concession, franchise, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
properties or assets, except, as to clauses (ii) and (iii) only, where such
conflicts, violations, defaults, terminations, cancellations, accelerations
or losses would not, individually or in the aggregate, cause a Material
Adverse Effect on the Company. Except as set forth on Schedule 3.3, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality (each, a "Governmental Entity") is
required by or with respect to the Company in connection with the execution
and delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby, except for (i) the filing of
the Certificate of Merger as provided in Section 1.2; (ii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and applicable federal and state securities
laws and the securities laws of any foreign country; and (iii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made by the Company, would not have a Material Adverse Effect on
the Company or its subsidiaries and would not prevent, materially alter or
delay any of the transactions contemplated by this Agreement.
3.4 Financial Statements. The Company has delivered to
Parent its audited financial statements (balance sheet, statement of
operations and statement of cash flows) on a consolidated basis for the
fiscal years ended December 31, 1998 and 1999, and its unaudited financial
statements (balance sheet, statement of operations and statement of cash
flows) as at, and for the three-month period ended, March 31, 2000
(collectively, and together with the notes thereto, the "Financial
Statements"). The Financial Statements have been prepared from the books and
records of accounts of the Company and its subsidiaries and in accordance
with United States Generally Accepted Accounting Principles ("U.S. GAAP")
(except that the unaudited financial statements do not have notes thereto and
are subject to normal year-end audit adjustments) applied on a consistent
basis throughout the periods indicated and with each other. Except as may be
set forth in the notes to the Financial Statements or on Schedule 3.4, the
Financial Statements fairly present in all material respects the consolidated
financial condition and operating results of the Company and its subsidiaries
as of the dates, and for the periods, indicated therein, subject in the case
of the unaudited financial statements to normal year-end audit adjustments.
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The Company and its subsidiaries maintain and will continue to maintain an
adequate system of internal controls established and administered in
accordance with generally accepted accounting principles.
3.5 Absence of Certain Changes. (a) Since March
31, 2000 (the "Company Balance Sheet Date"), the Company and its subsidiaries
have conducted their business in the ordinary course consistent with past
practice and, except as expressly contemplated by this Agreement or as set
forth in Schedule 3.5, there has not occurred:
(i) as of the date hereof, any change,
event or condition (whether or not covered by insurance) that has
resulted in, or would reasonably be expected to result in, a Material
Adverse Effect to the Company;
(ii) any acquisition, sale or transfer
of any material asset of the Company or its subsidiaries;
(iii) any change in accounting methods or
practices by the Company or any revaluation by the Company of any of
its, or its subsidiaries' assets;
(iv) any issuance or sale by the Company
of any shares of its capital stock (or any option or right to acquire
same, other than Company Options listed on Schedule 3.31 or stock
issued upon the exercise of Company Options) or of any other equity
securities (including, without limitation, any warrants, options or
other rights to acquire its capital stock or other equity securities)
or any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company
of any of its shares of capital stock (other than the repurchase of
unvested shares of Company Common Stock issued under the Company
Stock Option Plan);
(v) except as disclosed in Schedule
3.26, any Material Contract entered into by the Company or any of its
subsidiaries, or any material amendment or termination of, or default
by any of them, or, to the Company's knowledge, any other party
thereto, under any Material Contract to which the Company is a party
or by which it is bound;
(vi) any amendment or change to the
Certificate of Incorporation or By-laws of the Company or any of its
subsidiaries;
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(vii) any (x) increase in or modification
of the compensation or benefits payable or to become payable by the
Company or any of its subsidiaries to any current or former directors
or employees in excess of $10,000 individually or $100,000 in the
aggregate, (y) grant of severance or termination pay to any current
or former director or employee of the Company or any of its
subsidiaries or (z) establishment, adoption, entrance into, amendment
or termination of any Company Plan;
(viii) any issuance of notes, bonds or
other debt securities;
(ix) any borrowing of any amount or the
incurrence of any liabilities, except current liabilities incurred in
the ordinary course of business and liabilities under contracts
entered into in the ordinary course of business;
(x) any discharge or satisfaction of
any mortgage, pledge, security interest, encumbrance, lien or charge
of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof), any
sale of receivables with recourse against the Company or any of its
Affiliates, any filing or agreement to file a financing statement as
debtor under the Uniform Commercial Code or any similar statute other
than to reflect ownership by a third party of property leased to the
Company or any of its subsidiaries under a lease which is not in the
nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (collectively, a
"Lien") or paid any obligation or liability, other than current
liabilities paid in the ordinary course of business;
(xi) any mortgage or pledge of any of
its, or its subsidiaries', properties or assets or the incurrence of
any Lien, except Liens for current property taxes not yet due and
payable;
(xii) any sale, assignment or transfer of
any of its, or its subsidiaries', tangible assets, except in the
ordinary course of business, or cancellation of any debts or claims;
(xiii) any sale, assignment, transfer,
license or other disposition, in whole or in part, of its, or its
subsidiaries', Intellectual Property except nonmaterial ones in the
ordinary course of business;
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(xiv) any extraordinary losses or any
waiver of any material rights of value, whether or not in the
ordinary course of business or consistent with past practice;
(xv) any capital expenditures or
commitments therefor by the Company or its subsidiaries that
aggregate in excess of $500,000, which have not been paid for in
cash;
(xvi) any loans or advances to,
guarantees for the benefit of, any direct or indirect investments in,
or any capital contributions by the Company or its subsidiaries to
any persons in excess of $10,000 in the aggregate, except for loans
or advances to officers or employees listed in Schedule 3.16;
(xvii) any charitable contributions or
pledges;
(xviii) any damage, destruction or casualty
loss exceeding in the aggregate $50,000 and not covered by insurance;
(xix) any direct or indirect investment
in or taken steps to incorporate any subsidiary;
(xxi) any agreement to do any of the
things described in the preceding clauses (i) through (xix) other
than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement;
(xxii) delay or other change in the manner
of payment of accounts payable or other liabilities; or
(xxiii) any other transaction other than in
the ordinary course of business or entered into any other material
transaction, whether or not in the ordinary course of business.
(b) The Company has not at any time made any payments
for political contributions or made any bribes, kickback payments or other
illegal payments.
3.6 Absence of Undisclosed Liabilities. Except as set
forth in Schedule 3.6, the Company has no material obligations or liabilities
of any nature (matured or unmatured, fixed or contingent) other than (i)
those set forth or adequately provided for in the Consolidated Balance Sheet
dated as of March 31, 2000 (the "Company Balance Sheet") included in the
Financial Statements, (ii) those incurred in the ordinary course of business
and not required to be set forth in the Company Balance Sheet under U.S.
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GAAP, (iii) those incurred in the ordinary course of business since the
Company Balance Sheet Date and consistent with past practice, and (iv) those
incurred in connection with the execution and performance of this Agreement.
3.7 Litigation. Except as set forth in Schedule 3.7,
there is no private or governmental action, suit, proceeding, claim,
arbitration or investigation (each an "Action") pending or, to the knowledge
of the Company, threatened before any agency, court or tribunal, foreign or
domestic, against the Company or any of its subsidiaries or any of their
respective properties or any of their respective officers or directors (in
their capacities as such) or any Company Plan (as defined in Section 3.14(a)
hereof) or any fiduciary thereof, that could prevent, enjoin, or materially
alter or delay any of the transactions contemplated by this Agreement, or
that could reasonably be expected to have a Material Adverse Effect on the
Company or any of its subsidiaries. Except as set forth in Schedule 3.7,
there is no judicial, administrative or governmental order (each, an "Order")
against the Company, or, to the knowledge of the Company or any of its
subsidiaries, any of their respective directors or officers (in their
capacities as such), that could prevent, enjoin, or materially alter or delay
any of the transactions contemplated by this Agreement, or that could
reasonably be expected to have a Material Adverse Effect on the Company or
any of its subsidiaries. Schedule 3.7 also lists all litigation that the
Company or any of its subsidiaries has pending against other parties.
3.8 Restrictions on Business Activities. Except as set
forth on Schedule 3.8, there is no agreement, judgment, injunction, order or
decree binding upon the Company or any of or its subsidiaries which has or
could reasonably be expected to have the effect of prohibiting or impairing
any current or future business practice of the Company any of or its
subsidiaries, any acquisition of property by the Company or any of its
subsidiaries or the conduct of business by the Company or any of its
subsidiaries as currently conducted or as proposed to be conducted by any of
them.
3.9 Governmental Authorization. Except as set forth in
Schedule 3.9, the Company and each of its subsidiaries has obtained each
federal, state, county, local or foreign governmental consent, license,
permit, grant, or other authorization of a Governmental Entity (i) pursuant
to which the Company or any of its subsidiaries currently operates or holds
any interest in any of its properties or (ii) that is required for the
operation of the Company's or any of its subsidiaries' business or the
holding of any such interest in their properties (the items referenced in
clauses (i) and (ii) herein collectively referred to as "Company
Authorizations"), and all of such Company Authorizations are in full force
and effect, except where the failure to obtain or have any such
authorizations could not reasonably be expected to have a Material Adverse
Effect on the Company.
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3.10 Title to Property. Except as set forth in Schedule
3.10, the Company and each of its subsidiaries has good and marketable title
to (or, with respect to leased properties and assets, to its knowledge, valid
leasehold interests in) all of its owned properties, interests in properties
and assets, real and personal, reflected in the Company Balance Sheet or
acquired after the Company Balance Sheet Date (except properties, interests
in properties and assets sold or otherwise disposed of since the Company
Balance Sheet Date in the ordinary course of business), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) as reflected in the Financial Statements, (ii) the lien of current
taxes not yet due and payable, and (iii) such imperfections of title, liens
and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or
otherwise materially impair business operations involving such properties.
All material plants, property and equipment of the Company and each of its
subsidiaries that are used in the operations of its business are in good
operating condition and repair subject to normal wear and tear. All
properties used in the operations of the Company and its subsidiaries are
reflected in the Company Balance Sheet to the extent U.S. GAAP require them
to be so reflected. Schedule 3.10 also identifies each parcel of real
property owned or leased by the Company or any of its subsidiaries.
3.11 Intellectual Property.
(a) To the Company's knowledge, the Company or
its subsidiaries own, license or have other enforceable contractual rights to
use all intellectual property, including without limitation, patents,
trademarks, trade names, service marks, domain names, trade dress,
copyrights, copyrightable works, mask works, hardware, discoveries,
databases, systems, networks, documentation, drawings, research and
development, schematics, technology, know-how, trade secrets, inventions,
ideas, algorithms, processes, computer software programs or applications (in
source code and/or object code form), and proprietary information or material
("Intellectual Property") that are used in the business of the Company and
its subsidiaries as currently conducted.
(b) Schedule 3.11 lists (i) all issued or
registered Intellectual Property and any applications therefor, (ii) all
licenses, sublicenses, royalty, consent and other agreements as to which the
Company or its subsidiaries is a party or is otherwise bound and which
concern Intellectual Property, including any Intellectual Property
incorporated or included in any the Company products or services, but
excluding Commercial Software. "Commercial Software" means packaged
commercially available software which has been licensed to the Company
pursuant to standard end-user licenses but is in no way a component of,
incorporated in or specifically required to develop or support any of the
Company's services, products and business.
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(c) To the Company's knowledge, or that of its
subsidiaries, there is no unauthorized use, disclosure, infringement or
misappropriation (each an "Infringement") of any Intellectual Property rights
of the Company or its subsidiaries by any third party, including any of their
employees or former employees of the Company. Neither Company nor any of its
subsidiaries has agreed to indemnify any other person against any charge of
Infringement of any Intellectual Property, other than indemnification
provisions contained in end-user purchase orders or sales contracts arising
in the ordinary course of business.
(d) To the Company's knowledge, all material
Intellectual Property owned or used by the Company and its subsidiaries is
valid and subsisting. Neither Company nor any of its subsidiaries has been
sued in any Action which involves a claim of Infringement of any third party.
To the Company's knowledge, the manufacturing, marketing, licensing or sale
of the Company's products and services and operation of its business does not
infringe any patent, trademark, service mark, copyright, trade secret or
other proprietary right of any third party. The Company has not brought any
Action for Infringement of Intellectual Property or breach of any agreement
involving Intellectual Property against any third party. There are no
outstanding or, to the Company's knowledge, imminent Actions or Orders nor,
to the Company's knowledge, threatened Actions or Orders that seek to limit
or challenge the use, ownership, validity, enforceability or value of any
Intellectual Property of the Company, nor, to the Company's knowledge, is
there a valid basis for any such Action or Order.
(e) The Company or its subsidiaries secured
valid written assignments from all consultants and employees who contributed
to the creation or development of the Company's Intellectual Property of the
rights to such contributions that the Company does not already own by
operation of law.
(f) The Company has used commercially
reasonable efforts to protect and preserve the confidentiality of all of its
Intellectual Property that is confidential in nature ("Confidential
Information"). All use, disclosure or appropriation of material Confidential
Information owned by the Company by or to a third party has been pursuant to
the terms of a written agreement between the Company and such third party.
All use, disclosure or appropriation by the Company of material Confidential
Information not owned by the Company has been pursuant to the terms of a
written agreement between the Company and the owner of such Confidential
Information, or is otherwise lawful. The Company has used commercially
reasonable efforts to protect and preserve the integrity and security of its
software, systems and networks and the information thereon from any
unauthorized use, access or appropriation.
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(g) There are no actions that must be taken by
the Company or its subsidiaries within sixty (60) days of the Closing Date
that, if not taken, will result in the loss of any Intellectual Property
right, including the payment of any fees or the filing of any responses or
documents needed to obtain, maintain, perfect, preserve or renew any
Intellectual Property.
3.12 Environmental Matters. (a) (i) The Company and its
subsidiaries comply and have complied in all material respects with all
applicable Environmental Laws, and possess and comply with and have possessed
and complied in all material respects with all Environmental Permits; (ii)
there are and have been no Materials of Environmental Concern, or other
conditions, at any property owned, operated, or otherwise used by the Company
or its subsidiaries now or in the past (to the Company's knowledge), or at
any other location, in circumstances that would reasonably be expected to
result in liability to the Company or its subsidiaries under any
Environmental Law or result in costs to the Company or its subsidiaries
arising out of any Environmental Law; (iii) no judicial, administrative, or
arbitral proceeding (including any notice of violation or alleged violation)
under any Environmental Law to which the Company or its subsidiaries are, or
to their knowledge of the Company will be, named as a party is pending, or to
their knowledge are threatened, nor are they the subject of any investigation
or the recipient of any request for information in connection with any such
proceeding or potential proceeding; (iv) to the knowledge of the Company and
its subsidiaries, the foregoing representations and warranties are also true
and correct with respect to any entity for which the Company may be liable;
and (v) the Company has provided to Parent true and complete copies of all
material Environmental Reports in the possession or control of the Company
and its subsidiaries.
(b) For purposes of this Agreement, the terms
below shall be defined as follows:
(i) "Environmental Laws" shall mean any
and all laws, rules, orders, regulations, statutes, ordinances,
guidelines, codes, decrees, or other legally enforceable requirement
(including, without limitation, common law) of any foreign
government, the United States, or any state, local, municipal or
other governmental authority, regulating, relating to or imposing
liability or standards of conduct concerning protection of the
environment or of human health, or employee health and safety.
(ii) "Environmental Permits" shall mean
any and all permits, licenses, registrations, notifications,
exemptions and any other authorization required under any applicable
Environmental Law.
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(iii) "Environmental Report" shall mean
any report, study, assessment, audit, or other similar document that
addresses any issue of actual or potential noncompliance with, actual
or potential liability under or cost arising out of, or actual or
potential impact on business in connection with, any Environmental
Law or any proposed or anticipated change in or addition to
Environmental Law, that may in any way affect the Company, or any
entity for which it may be liable.
(iv) "Materials of Environmental
Concern" shall mean any gasoline or petroleum (including crude oil or
any fraction thereof) or petroleum products, polychlorinated
biphenyls, urea-formaldehyde insulation, asbestos, pollutants,
contaminants, radioactivity, and any other substances of any kind,
whether or not any such substance is defined as hazardous or toxic
under any Environmental Law, that is regulated pursuant to or could
give rise to liability under any Environmental Law.
3.13 Taxes. The Company and its subsidiaries and any
consolidated, combined, unitary or aggregate group for Tax (as defined below)
purposes of which Company is or has been a member, have properly completed
and timely filed all Tax Returns (as defined below) required to be filed by
them and have paid all Taxes shown thereon to be due, other than any Taxes
for which adequate reserves in accordance with generally accepted accounting
principles have been reflected in the Financial Statements. The Company's
Financial Statements reflect any Taxes of the Company and its subsidiaries
that have not been paid, whether or not shown as being due on any Tax Returns
other than Taxes arising in the ordinary course of business after the date of
the Financial Statements. The Company and its subsidiaries have not, or will
not have at the Effective Time, any material liability for unpaid Taxes
accruing after the date of their latest Financial Statements except for Taxes
incurred in the ordinary course subsequent to March 31, 2000. There is (i)
no material claim for Taxes that is a lien against the property of the
Company (or any of its subsidiaries) or is being asserted against the Company
or any of its subsidiaries other than liens for Taxes not yet due and
payable, (ii) no audit of any Tax Return of the Company or any of its
subsidiaries being conducted by a Tax Authority (as defined below), (iii) no
extension of the statute of limitations on the assessment of any Taxes
granted by the Company or any of its subsidiaries and currently in effect,
and (iv) no agreement, contract or arrangement to which the Company or any of
its subsidiaries is a party that may result in the payment of any amount that
would not be deductible by reason of Section 280G or Section 404 of the Code.
Neither the Company nor any of its subsidiaries has been or will be required
to include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
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Neither the Company nor any of its subsidiaries has filed nor will file any
consent to have the provisions of paragraph 341(f)(2) of the Code (or
comparable provisions of any state Tax laws) apply to the Company. Neither
the Company nor any of its subsidiaries is a party to any Tax sharing or Tax
allocation agreement nor does the Company or any of its subsidiaries have any
liability or potential liability to another party under any such agreement.
Neither the Company nor any of its subsidiaries has filed any disclosures
under Section 6662 or comparable provisions of state, local or foreign law to
prevent the imposition of penalties with respect to any Tax reporting
position taken on any Tax Return. Neither the Company nor any of its
subsidiaries has ever been a member of a consolidated, combined or unitary
group of which the Company was not the ultimate parent corporation. The
Company and its subsidiaries have in their possession receipts for any Taxes
paid to foreign Tax authorities. The Company has never been a "United States
Real Property Holding Corporation" within the meaning of Section 897 of the
Code. For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means
(i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or
other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental entity (a "Tax Authority")
responsible for the imposition of any such tax (domestic or foreign), (ii)
any liability for the payment of any amounts of the type described in (i) as
a result of being a member of an affiliated, consolidated, combined or
unitary group for any Taxable period, and (iii) any liability for the payment
of any amounts of the type described in (i) or (ii) as a result of being a
transferee of or successor to any person or as a result of any express or
implied obligation to indemnify any other person. As used herein, "Tax
Return" shall mean any return, statement, report or form (including, without
limitation, estimated tax returns and reports, withholding tax returns and
reports and information reports and returns) required to be filed with
respect to Taxes.
3.14 Employee Benefit Plans.
(a) Schedule 3.14 contains a true and complete
list of each "employee benefit plan" (within the meaning of section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, without limitation, multiemployer plans within the meaning of
ERISA section 3(37)), and each stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject
to ERISA (including any funding mechanism therefor now in effect or required
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in the future as a result of the transaction contemplated by this Agreement
or otherwise), whether oral or written, under which any current or former
employee or director of the Company or its subsidiaries ("Company Employees")
has any current or future right to benefits or under which the Company or its
subsidiaries have any current or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively
referred to as the "Company Plans".
(b) With respect to each Company Plan, the
Company has delivered or made available to Parent a current, accurate and
complete copy (or, to the extent no such copy exists, an accurate
description) thereof and, to the extent applicable: (i) any related trust
agreement or other funding instrument; (ii) the most recent determination
letter; (iii) any summary plan description and other written communications
(or a description of any oral communications) by the Company or its
subsidiaries to Company Employees concerning the extent of the benefits
provided under the Company Plans; and (iv) for the two most recent years (A)
the Form 5500 and attached schedules and (B) audited financial statements.
(c) (i) Each Company Plan has been established and
administered in accordance with its terms, and in compliance with the
applicable provisions of ERISA, the Code and other applicable laws, rules and
regulations; (ii) each Company Plan which is intended to be qualified within
the meaning of Code section 401(a) is so qualified, has received a favorable
determination opinion, notification or advisory letter as to its
qualification, or has a period of time remaining under applicable Treasury
regulations or Internal Revenue Service pronouncements in which to apply for
such letter and to make any amendments necessary to so qualify, and nothing
has occurred, whether by action or failure to act, that could reasonably be
expected to cause the loss of such qualification; (iii) no event has occurred
and no condition exists that would subject the Company, either directly or by
reason of its affiliation with any member of its "Controlled Group" (within
the meaning of Section 414(b), (c), (m) or (o) of the Code), to any tax,
fine, lien, penalty or other liability imposed by ERISA, the Code or other
applicable laws, rules and regulations, except as would not be reasonably
expected to have a Material Adverse Effect; and (iv) no "reportable event"
(as defined in Section 4043 of ERISA) or "prohibited transaction" (as defined
in Section 406 of ERISA and Section 4975 of the Code) has occurred with
respect to any Company Plan that would result in liability to the Company or
its subsidiaries; and (v) except as required by Section 4980B of the Code or
any similar state statute, no Company Plan provides retiree welfare benefits
and the Company has no obligations to provide any retiree welfare benefits.
(d) No Company Plan is subject to Title IV of
ERISA or Section 412 of the Code, and the Company could not have, directly or
indirectly, any current or future liability under Title IV of ERISA or
Section 412 of the Code (including, without limitation, an obligation to
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indemnify any person or entity for liability related to a plan subject to
Title IV of ERISA or Section 412 of the Code). No Company Plan is a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA), and neither
the Company nor any member of its Controlled Group (within the meaning of
Section 414(b), (c), (m) or (o) of the Code) has any liability or contributes
(or has at any time contributed or had an obligation to contribute) to any
multiemployer plan.
(e) Except with respect to each Company
Employee and each such employee's right or benefit set forth in Schedule
3.14(e), no Company Plan exists that, as a result of the execution of this
Agreement or the transaction contemplated by this Agreement, could result in
the payment to any Company Employee of any money or other property or could
result in the increase, acceleration or provision of any other rights or
benefits to any Company Employee, including without limitation any partial
acceleration of the vesting and exercisability of any Company Option or the
partial lapse of any restrictions imposed on any Restricted Stock.
3.15 Employee Matters. Except as set forth in Schedule
3.15, (1) the Company and its subsidiaries are in compliance in all material
respects with all applicable laws, regulations, agreements, contracts and
policies relating to employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices; (2) the Company and its subsidiaries have withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries, and other payments to employees, and the Company and its
subsidiaries are not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; (3) the Company and
its subsidiaries are not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to any unpaid
unemployment compensation benefits, social security or other benefits or
obligations for employees (other than routine payments to be made in the
normal course of business and consistent with past practice); (4) as of the
date hereof, there are no pending claims against the Company or its
subsidiaries under any workers compensation plan or policy or for long-term
disability; (5) there are no controversies pending or, to the knowledge of
the Company, threatened, between the Company or its subsidiaries and any of
their respective employees, which controversies have resulted, or could
reasonably be expected to result, in an action, suit, complaint, proceeding,
claim, arbitration or investigation before or by any governmental agency,
administrative agency, court, commission or tribunal, foreign or domestic by
or on behalf of any employee, prospective employee, former employee, retiree,
labor organization or other representative of the Company's or its
subsidiaries employees; (6) neither the Company nor any of its subsidiaries
is a party to any collective bargaining agreement or other labor union
contract, and the Company does not know of any activities or proceedings of
any labor union in connection with an attempt to organize any such employees;
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(7) to the Company's knowledge, no employees of the Company or its
subsidiaries are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any restrictive covenant
to a former employer relating to the right of any such employee to be
employed by the Company or its subsidiaries because of the nature of the
business conducted by the Company or its subsidiaries or to the use of trade
secrets or proprietary information of others; (8) since March 31, 2000, no
employee of the Company or its subsidiaries has given notice to the Company
or its subsidiaries, and the Company and its subsidiaries are not otherwise
aware, that any such employee intends to terminate his or her employment with
the Company or its subsidiaries; (9) the Company or its subsidiaries are not
party to any employment agreement or consulting agreement with any person or
entity, nor is any such contract or agreement presently being negotiated;
(10) there is no unfair labor practice charge or complaint pending or, to the
best knowledge of the Company or any subsidiary, threatened against or
otherwise affecting the Company or any subsidiary; (11) there is no labor
strike, slowdown, work stoppage, dispute, lockout or other labor controversy
in effect, threatened against or otherwise affecting the Company or any
subsidiary, and the Company and its subsidiaries have not experienced any
such labor controversy within the past five years; (12) no grievance is
pending or, to the best knowledge of the Company or any subsidiary,
threatened which, if adversely decided, could have a material adverse effect
on the Company or any subsidiary; (13) neither the Company nor any subsidiary
is a party to, or otherwise bound by, any consent decree with, or citation
by, any Government agency relating to employees or employment practices; (14)
the Company and its subsidiaries have paid in full to all employees of the
Company and its subsidiaries all wages, salaries, commissions, bonuses,
benefits and other compensation due to such employees or otherwise arising
under any policy, practice, agreement, plan, program, statute or law; (15)
neither the Company nor any subsidiary is liable for any severance pay or
other payments to any employee or former employee arising from the
termination of employment, nor will the Company or any subsidiary have any
liability under any benefit or severance policy, practice, agreement, plan,
or program which exists or arises, or may be deemed to exist or arise, under
any applicable law or otherwise, as a result of or in connection with the
transactions contemplated hereunder or as a result of the termination by the
Company or any subsidiary of any persons employed by the Company or any
subsidiary on or prior to the Closing Date; (16) neither the Company nor any
subsidiary have closed any plant or facility, effectuated any layoffs of
employees or implemented any early retirement, separation or window program
within the past five years, nor has the Company or any subsidiary planned or
announced any such action or program for the future; (17) neither the Company
nor any subsidiary will, at any time within the 90-day period prior to the
Closing Date, effectuate a "plant closing" or "mass layoff", as those terms
are defined in the Worker Adjustment and Retraining Notification Act of 1988,
as amended ("WARN") or any state law, affecting in whole of in part any site
of employment, facility, operating unit or employee; and (18) the Company and
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its subsidiaries are in compliance with their obligations pursuant to WARN,
and all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise.
3.16 Transactions with Affiliates. Except as set forth
on Schedule 3.16, no officer, director, employee, stockholder of five percent
(5%) or more of the Company's common stock or "affiliates" of the Company
(within the meaning of Rule 144 of the Securities Act) or any immediate
family member of any such individual or any entity in which any such person
or individual owns at least a five percent (5%) interest, is a party to any
agreement, contract, commitment or transaction with the Company or any
subsidiary or has any material interest in any material property used by the
Company or any subsidiary; provided that the following events need not be
disclosed: (a) dividends, redemptions, stock purchases and other
distributions otherwise permitted under this Agreement, (b) the payment of
reasonable fees to directors of the Company who are employees of the Company,
(c) any transaction with an officer or member of the board of directors of
the Company in the ordinary course of business involving compensation,
indemnity, employee benefit arrangements or expense reimbursement, (d) loans
or advances to employees otherwise permitted under this Agreement and (e)
customary employment arrangements and benefit programs on reasonable terms as
approved by the board of directors of the Company or a committee thereof.
3.17 Insurance. The Company and its subsidiaries have
policies of insurance and bonds of the type and in amounts customarily
carried by persons conducting businesses or owning assets similar to those of
the Company and its subsidiaries. There are no material claims pending under
any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All
premiums due and payable under all such policies and bonds have been paid and
the Company or its subsidiary, as applicable, is otherwise in compliance with
the terms of such policies and bonds. Neither the Company nor any of its
subsidiaries have any knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
3.18 Compliance With Laws. The Company and its
subsidiary have complied with, are not in violation of, and have not received
any notices of violation with respect to, any federal, state, local or
foreign statute, law or regulation with respect to the conduct of their
business, or the ownership or operation of its business, except for such
violations or failures to comply as would not be reasonably expected to have
a Material Adverse Effect on the Company and its subsidiaries.
3.19 Minute Books. The minute books of the Company and
its subsidiaries made available to Parent contain a complete and accurate
summary of all meetings or actions by written consent of directors or
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stockholders since the time of incorporation of the Company and its
subsidiaries.
3.20 Brokers' and Finders' Fees. The Company has not
incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or investment bankers' fees
or any similar charges in connection with this Agreement or any transaction
contemplated hereby, except as set forth in Schedule 3.20.
3.21 Stockholder Agreement; Irrevocable Proxies. Holders
of more than 51% of the outstanding shares of Company Capital Stock and more
than 51% of all such series of the Company Preferred Stock have agreed in
writing to vote for approval of the Merger pursuant to voting agreements
substantially in the form attached hereto as Exhibit A.
3.22 Vote Required. The affirmative vote of the holders
of at least (i) a majority of the outstanding shares of all series of Company
Preferred Stock, with each series voting together as a single class and (ii)
a majority of the outstanding shares of Company Capital Stock, in each case
outstanding on the record date set for the special meeting of the Company
stockholders called for the purpose of approving the Merger and related
matters (the " Company Stockholders' Meeting") (or any written consent in
lieu thereof) is the only vote (or consent) of the holders of any Company
Capital Stock necessary to approve this Agreement and the transactions
contemplated hereby.
3.23 Board Approval. The Board of Directors of the
Company has (i) approved and declared the advisability of this Agreement and
the Merger, (ii) determined that the Merger is in the best interests of the
Company and its stockholders and is on terms that are fair to such
stockholders and (iii) recommended that the stockholders of the Company
approve this Agreement and the Merger.
3.24 Accounts Receivable. Subject to any reserves set
forth in the Financial Statements, the accounts receivable shown on the
Financial Statements represent and will represent on the Effective Date bona
fide claims against debtors for sales and other charges, and are not subject
to discount except for normal cash and immaterial trade discounts. The
amount carried for doubtful accounts and allowances disclosed in the
Financial Statements was calculated in accordance with U.S. GAAP and in a
manner consistent with prior periods.
3.25 Customers and Suppliers. Except as provided in
Schedule 3.25, no customer which individually accounted for more than 5% of
the Company's consolidated gross revenues during the three month period
preceding the date hereof, and no supplier of the Company or any subsidiary
during the three month period preceding the date hereof has canceled or
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otherwise terminated, or made any written threat to the Company or any
subsidiary to cancel or otherwise terminate its relationship with the Company
or any subsidiary, or has decreased materially its services or supplies to
the Company or any subsidiary in the case of any such supplier, or its usage
of the services or products of the Company or any subsidiary in the case of
such customer, and to the Company's knowledge, no such supplier or customer
intends or has threatened to cancel or otherwise terminate its relationship
with the Company or any subsidiary or to decrease materially its services or
supplies to the Company or any subsidiary or its usage of the services or
products of the Company or any subsidiary, as the case may be. Neither the
Company nor any subsidiary has knowingly breached, so as to provide a benefit
to the Company or any subsidiary that was not intended by the parties
thereto, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of the Company or any of its
subsidiaries.
3.26 Material Contracts. Except for the contracts
described in Schedule 3.26, (collectively, the "Material Contracts"), the
Company and its subsidiaries are not a party to or bound by any material
contract, including without limitation:
(a) any distributor (other than the standard
form), sales, advertising, franchise, agency or manufacturer's
representative agreement involving payments or receipts of more than
$5,000 per month;
(b) any continuing contract for the purchase of
materials, supplies, equipment or services involving payments or
receipts of more than $5,000 per month;
(c) any trust indenture, mortgage, promissory
note, loan agreement or other contract for the borrowing of money,
any currency exchange, commodities or other hedging arrangement or
any leasing transaction of the type required to be capitalized in
accordance with U.S. GAAP, except for capital leases of equipment as
set forth in the Financial Statements;
(d) any contract for capital expenditure in
excess of $50,000 in the aggregate;
(e) any contract limiting the ability of the
Company or any of its subsidiaries to engage in any line of business
or to compete with any other person or entity or within any
geographical area or pursuant to which the Company or any of its
subsidiaries is restricted from selling, licensing or otherwise
distributing any of its products to, or providing services to,
customers, potential customers or any class of customers;
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(f) any confidentiality, secrecy or non-
disclosure contract, other than non-disclosure agreements entered
into in the normal course of business or in connection with efforts
to obtain financing;
(g) any contract with any person with whom the
Company or any of its subsidiaries does not deal at arm's length;
(h) any material agreement of guarantee,
support, indemnification, assumption or endorsement of, or any
similar commitment with respect to, the obligations, liabilities
(whether accrued, absolute, contingent or otherwise) or indebtedness
of any other person or entity;
(i) any contract for the employment of any
officer, individual employee or other person on a full-time, part-
time, consulting or other basis providing annual compensation in
excess of $50,000 or contract relating to loans to officers,
directors or Affiliates;
(j) any contract providing for the advance to
any other Person amounts in the aggregate exceeding $25,000;
(k) any lease or agreement under which the
Company or any of its subsidiaries is lessee of or holds or operates
any property, real or personal, owned by any other party, except for
any lease of real or personal property under which the aggregate
monthly rental payments do not exceed $5,000;
(l) any lease or agreement under which the
Company or any subsidiary is lessor of or permits any third party to
hold or operate any property, real or personal, owned or controlled
by the Company or any of its subsidiaries, under which the aggregate
monthly payments do not exceed $5,000 or $60,000 per year;
(m) any contract or group of related contracts
with the same party or group of affiliated parties the performance of
which involves consideration in excess of $5,000 per month or $60,000
per year;
(n) except as set forth in Schedule 3.11, any
assignment, license, indemnification or agreement with respect to any
intangible property (including, without limitation, any Intellectual
Property);
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(o) any warranty agreement (other than on the
standard form) with respect to its services rendered or its products
sold or leased;
(p) any agreement under which it has granted
any person any registration rights (including, without limitation,
demand and piggyback registration rights);
(q) any material agreement with a term of more
than eighteen months which is not terminable by the Company or any
subsidiary upon less than 30 days notice without penalty;
(r) any agreement under which the Company or
any of its subsidiaries receives or provides Internet access,
telecommunications services or technical or other support services,
involving consideration in excess of $5,000 per month or $60,000
annually; or
(s) any other agreement which is material to
its operations and business prospects or involves a consideration in
excess of $5,000 per month or $60,000 annually.
True, correct and complete copies of all Material Contracts have been made
available to Parent.
3.27 No Breach of Material Contracts. The Company and
its subsidiaries have performed in all material respects all of the
obligations required to be performed by it and is entitled to all benefits
under, and is not alleged to be in default in respect of any Material
Contract. Except as provided in Schedule 3.27, each of the Material
Contracts is in full force and effect, unamended, and there exists no default
or event of default or event, occurrence, condition or act, with respect to
the Company or to the Company's knowledge with respect to the other
contracting party, which, with the giving of notice, the lapse of time or the
happening of any other event or conditions, would become a default or event
of default under any Material Contract.
3.28 Third Party Consents. Schedule 3.28 sets forth
every contract of the Company and its subsidiary which, if no consent to the
transactions contemplated by this Agreement were obtained, would have a
Material Adverse Effect on Parent's ability to operate the business of the
Company and its subsidiary in the same manner as such business was operated
prior to the Effective Time.
3.29 Year 2000. Except as set forth on Schedule 3.29,
there have been no Year 2000 Compliance problems with any of computer
hardware, software, databases, automated systems and other computer and
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telecommunications equipment owned or used by the Company ("Systems") or any
products or services designed, manufactured, distributed or sold by the
Company ("Products or Services") that would result in a Material Adverse
Effect to the Company. "Year 2000 Compliance" means, with respect to the
Systems, Products or Services or other equipment or materials in question,
that they can be used before, during and after the calendar year 2000 A.D.,
and will operate during each such time period, either on a stand-alone basis
or by interacting or interoperating with third-party software (provided that
such third-party software is Year 2000 Compliant), without error relating to
the processing, calculating, comparing, sequencing or other use of date-
related data.
3.30 Affiliates. Schedule 3.30 to the Company Disclosure
Statement sets forth those persons who are, in the Company's reasonable
judgment, "affiliates" of the Company within the meaning of Rule 144 of the
Securities Act.
3.31 Outstanding Stock Options. Schedule 3.31 sets forth
a true and complete list as of the date hereof of all holders of outstanding
Company Options under all Company Stock Plans, including the number of shares
of Company Capital Stock subject to each such Company Option, the exercise or
vesting schedule, the exercise price per share and the term of each such
Company Option.
3.32 Prospectus and Proxy Statement and S-4. The
information with respect to the Company, its officers, directors and
affiliates in the proxy statement or consent solicitation to be furnished to
the stockholders of the Company that will form part of the S-4 (the
"Prospectus and Proxy Statement") or in the S-4 will not, (i) in the case of
the Prospectus and Proxy Statement, on the date the Prospectus and Proxy
Statement is first mailed to the stockholders of the Company or on the date
of the stockholders' meeting or effective date of the stockholders' consent
in lieu thereof, or (ii) in the case of the S-4, at the time the S-4 becomes
effective and at the Effective Time, or as the Prospectus and Proxy Statement
and S-4 are then amended and supplemented, contain any untrue statement of
material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein (in light of the
circumstances under which they were made) not misleading.
3.33 Representations Complete. None of the
representations or warranties made by the Company herein or in any Schedule
hereto, or in any certificate furnished by the Company pursuant to this
Agreement, when all such documents are read together in their entirety, or
with respect to the Company in the Company's Amendment No.2 to Form S-1
Registration Statement provided to Parent (taken as of the date of that
Amendment, and except as to the extent that the statements in that Amendment
have been superseded by disclosures contained in Schedules to this
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Agreement), contains any untrue statement of a material fact, or omits to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent and Merger Sub represent and warrant to the Company
as follows:
4.1 Organization, Standing and Power. Parent and Merger
Sub are corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of Parent and Merger Sub has
the corporate power to own its properties 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 in each jurisdiction in which the failure to
be so qualified and in good standing would have a Material Adverse Effect on
Parent. Parent has delivered or made available to the Company true and
complete copies of the Certificate of Incorporation and By-laws of each of
Parent and Merger Sub. Neither Parent nor Merger Sub is in violation of any
of the provisions of its Certificate of Incorporation or By-laws.
4.2 Capital Structure. The authorized capital stock of
Parent consists of 190,000,000 shares of Common Stock ("Parent Common
Stock"), $0.001 par value per share, 10,000,000 shares of Class B Common
Stock, $0.001 par value per share, and 5,000,000 shares of Preferred Stock,
$0.001 par value per share, of which there were issued and outstanding as of
the close of business on March 31, 2000, 148,028,308 shares of Parent Common
Stock, 1,594,794 shares of Class B Common Stock and no shares of Preferred
Stock. As of March 24, 2000, 17, 744, 288 Shares of Parent Common Stock were
subject to outstanding options under the Company's 1997 Stock Plan. As of
March 24, 2000, Parent had also reserved 1,500,000 Shares of Parent Common
Stock for issuance under its 1998 Stock Purchase Plan. The shares of Parent
Common Stock to be issued in the Merger in exchange for Company Capital Stock
and upon the exercise of assumed Company Options and Company Warrants
(including the Additional Shares) will be duly authorized, validly issued,
fully paid, and non-assessable, free of any liens, charges, claims, security
interests or encumbrances and free of preemptive rights or rights of first
refusal created by Parent's Certificate of Incorporation or Bylaws or any
agreement to which Parent is a party or by which it is bound, other than
Parent's right of repurchase with respect to unvested options and
restrictions under applicable state and federal securities laws or as
contemplated by this Agreement and its exhibits. The authorized capital
stock of Merger Sub consists of 1,000 shares of Common Stock, $0.01 par
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value, and 1,000 shares of common stock are issued and outstanding and held
by Parent.
4.3 Authority. Each of Parent and Merger Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby, and the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Parent and Merger Sub, other than the approval by
Parent's stockholders of an amendment to Parent's Certificate of
Incorporation to provide for any increase in its authorized capital stock
made necessary or desirable by this Agreement. This Agreement has been duly
executed and delivered by Parent and Merger Sub and constitutes the valid and
binding obligation of each of Parent and Merger Sub, enforceable against each
of Parent and Merger Sub in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of,
or default under (with or without notice or lapse of time, or both), or give
rise to a right of termination, cancellation or acceleration of any
obligation or loss of a benefit under (i) any provision of the Certificate of
Incorporation or By-laws of Parent or Merger Sub or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or Merger Sub or
their properties or assets. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, is
required by or with respect to Parent or Merger Sub in connection with the
execution and delivery of this Agreement by Parent and Merger Sub or the
consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for: (i) the filing of the Certificate of Merger as provided
in Section 1.2; (ii) the filing of the S-4 pursuant to Section 2.4, above;
(iii) the filing of a Form 8-K with the SEC and National Association of
Securities dealers ("NASD") within fifteen (15) days after the Closing Date;
(iv) any consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the HSR Act and applicable
federal and state securities laws and the securities laws of any foreign
country; and (v) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made by Parent or Merger Sub, would
not have a Material Adverse Effect on Parent or Merger Sub and would not
prevent, materially alter or delay any of the transactions contemplated by
this Agreement.
4.4 SEC Documents; Financial Statements. Parent has
made available to the Company each statement, report, registration statement
(with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act), definitive proxy statement, and other filing filed with the
SEC by Parent since December 31, 1998 (collectively, the "Parent SEC
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Documents"). In addition, Parent has made available to the Company all
exhibits to the Parent SEC Documents filed prior to the date hereof, and will
promptly make available to the Company all exhibits to any additional Parent
SEC Documents filed prior to the Effective Time. As of their respective
filing dates, the Parent SEC Documents were filed on a timely basis and
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities
Act, and none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Parent SEC Document. Parent has timely
filed with the SEC all required statements, reports and documents required to
be filed by it with the SEC on or since December 31, 1998, all of which
complied as to form when filed in all material respects with the applicable
provisions of the Securities Act or the Exchange Act, as the case may be.
The financial statements (including the notes thereto) contained in the
Parent SEC Documents, have been prepared in accordance with U.S. GAAP applied
on a basis consistent throughout the periods indicated. The Parent Financial
Statements fairly present the consolidated financial condition and operating
results of Parent at the dates and for the periods indicated therein
(subject, in the case of any unaudited statements, to normal, recurring year-
end adjustments). Except as disclosed in the Parent SEC Documents and any
press releases by Parent issued up to and including the date hereof, there
has not occurred any event, change or effect that would reasonably be
expected to result in a Material Adverse Effect to Parent.
4.5 Broker's and Finders' Fees. Except as listed on
Schedule 4.5, Parent and Merger Sub have not incurred, nor will they incur,
directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
4.6 No Prior Activities. Except for the obligations
incurred in connection with its incorporation or organization or the
negotiation and consummation of this Agreement and the transactions
contemplated hereby, Merger Sub has neither incurred any obligation or
liability nor engaged in any business activity of any type or kind whatsoever
or entered into any agreement or arrangement with any person.
4.7 Prospectus and Proxy Statement and S-4. The
information with respect to Parent, its officers, directors and affiliates
contained in the Prospectus and Proxy Statement and S-4 will not, (i) in the
case of the Prospectus and Proxy Statement, on the date the Prospectus and
Proxy Statement is first mailed to the stockholders of the Company or on the
date of the stockholders' meeting or effective date of the stockholders'
consent in lieu thereof, or (ii) in the case of the S-4, at the time the S-4
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becomes effective and at the Effective Time, or as the Prospectus and Proxy
Statement and S-4 are then amended and supplemented, contain any untrue
statement of material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein (in light
of the circumstances under which they were made) not misleading.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business of the Company. During the
period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, the Company agrees
(except to the extent expressly contemplated by this Agreement or as
consented to in writing by Parent), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted. Subject to the limitations set forth in Section 5.2, the Company
further agrees to pay debts when commercially reasonable and pay Taxes when
due subject (i) to good faith disputes over such debts or Taxes and (ii) to
Parent's consent to the filing of material Tax Returns, if applicable, to pay
or perform other obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organizations, and use commercially reasonable efforts to keep
available the services of its present officers and key employees and preserve
its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the end that its
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
The Company agrees promptly to notify Parent of any event or occurrence not
in the ordinary course of its business, and of any event that could have a
Material Adverse Effect on the Company.
5.2 Restricted Conduct of the Company. During the
period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, except as expressly
contemplated by this Agreement, the Company shall not do, cause or permit any
of the following, or allow, cause or permit any of its subsidiaries to do,
cause or permit any of the following, without the prior written consent of
Parent:
(a) Charter Documents. Cause or permit any
amendments to its Certificate of Incorporation or By-laws or other
equivalent organizational documents;
(b) Dividends; Changes in Capital Stock.
Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
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stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock
(other than any issuance of Company Common Stock upon exercise of
outstanding Company Options or Company Warrants) or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital
stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in
connection with any termination of service to it;
(c) Stock Option Plans, Etc. Grant any options
or similar rights (including grants of Restricted Stock) under its
Company Stock Plans or accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under
its Company Stock Plans, or lower the exercise price of such options
or authorize cash payments in exchange for any options or other
rights granted under any of such plans; provided, however, that, so
long as the conditions set forth in Section 7.3(o) are met, the
Company shall be permitted to complete the grants of the Company
Options that have been committed to be granted between January 1,
2000 and the date hereof but which, as of the date hereof, have not
yet been issued (each such Company Option (including the date of
grant, the name of the holder, the exercise price, vesting schedule
and term of such Option) being set forth on Schedule 5.2(c)
(collectively, the "Unissued Options"));
(d) Material Contracts. Enter into any
Material Contract or commitment which would violate, amend or
otherwise modify or waive any of the terms of any of its material
contracts, without the reasonable consent of Parent;
(e) Issuance of Securities. Issue, deliver or
sell or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any
such shares or other convertible securities, other than the issuance
of shares of Company Common Stock pursuant to the exercise of stock
options therefor outstanding as of the date of this Agreement or
pursuant to the exercise of warrants outstanding as of the date of
this Agreement and the issuance of options to purchase shares of the
Company Common Stock to employees hired after the date hereof or for
additional issuances to existing employees with exercise prices not
less than the fair market value for Company Common Stock on the date
of the option grant; provided, however, that Company shall be
permitted to secure a financing commitment or similar arrangement
(but not borrow thereunder) in such amount as Company shall deem
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appropriate for financing to be provided to Company in the event of
termination of this Agreement, so long as the costs of securing such
financing commitment or similar agreement are borne by the
stockholders of the Company in the event that the Merger is
consummated.
(f) Intellectual Property. Transfer to any
person or entity any rights to the Company Intellectual Property
other than pursuant to non-exclusive non-source code licenses in the
ordinary course of business consistent with past practice;
(g) Exclusive Rights. Enter into or amend any
agreements pursuant to which any other party is granted exclusive
marketing or other exclusive rights of any type or scope with respect
to any of its products, services or technologies;
(h) Dispositions. Sell, lease, license or
otherwise dispose of or encumber any of its properties or assets
which are material, individually or in the aggregate, to its
business, taken as a whole, except for (i) sales, leases or licenses
of products in the ordinary course of business consistent with past
practice and (ii) sales of obsolete or unused equipment;
(i) Indebtedness. Subject to Section 5.4,
incur any indebtedness for borrowed money in excess of $60,000 or
guarantee any such indebtedness or issue or sell any debt securities
or guarantee any debt securities of others, other than indebtedness
to Parent; provided, however, that Company shall be permitted to
secure a financing commitment or similar arrangement (but not borrow
thereunder) in such amount as Company shall deem appropriate for
financing to be provided to Company in the event of termination of
this Agreement so long as the costs of securing such financing
commitment or similar agreement are borne by the stockholders of the
Company in the event that the Merger is consummated.
(j) Leases. Enter into any operating lease
involving payments in excess of $60,000 annually or $5,000 monthly;
(k) Payment of Obligations. Pay, discharge or
satisfy in an amount in excess of $20,000 in any one case or $60,000
in the aggregate, any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, except for the
payment, discharge or satisfaction of liabilities reflected or
reserved against in the Company Financial Statements;
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(l) Capital Expenditures. Make any capital
expenditures, capital additions or capital improvements, except in
the ordinary course of business and consistent with past practice;
(m) Insurance. Materially reduce the amount of
any material insurance coverage provided by existing insurance
policies;
(n) Termination or Waiver. Terminate or waive
any right or rights which individually or in the aggregate would
reasonably be expected to be material in value to the Company, other
than in the ordinary course of business;
(o) Employee Benefit Plans; Pay Increases.
Increase or accelerate the compensation, or fringe benefits of any
current or former director or employee of the Company or its
subsidiaries (expect for increases in salary or wages in the ordinary
course of business consistent with past practices, or adopt or amend
any employee benefit or stock purchase or option plan (except as
expressly contemplated by this Agreement) or pay any special bonus or
special remuneration to any employee or director;
(p) Severance Arrangements. Grant, pay or
agree to any provisions regarding severance or termination pay to any
director, officer or other employee except as provided on
Schedule 5.2;
(q) Lawsuits. Commence a lawsuit or take any
action in connection with any existing or threatened lawsuit,
administrative proceeding, mediation, arbitration or other similar
proceeding other than (i) for the routine collection of bills, (ii)
in such cases where it in good faith determines that failure to
commence suit or take such action would result in the material
impairment of a valuable aspect of its business, the waiver of any
right or claim, and/or the violation or lapse of any statute of
limitations, statutory or judicial deadline, provided that it
consults with Parent prior to the filing of such a suit or taking of
such action, or (iii) for breach of this Agreement or any other
agreement between Parent and the Company;
(r) Acquisitions. Acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization
or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to its
business;
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(s) Taxes. Other than in the ordinary course
of business, make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes,
file any material Tax Return or any amendment to a material Tax
Return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in
respect of Taxes;
(t) Revaluation. Revalue any of its assets,
including without limitation writing down the value of inventory or
writing off notes or accounts receivable other than in the ordinary
course of business;
(u) Notices. Fail to give all notices and
other information required to be given to the employees of the
Company, any collective bargaining unit representing any group of
employees of the Company, and any applicable government authority
under the WARN Act, the National Labor Relations Act, the Internal
Revenue Code, the Consolidated Omnibus Budget Reconciliation Act, and
other applicable law in connection with the transactions provided for
in this Agreement;
(v) Payables. Delay or otherwise change the
manner of payment of accounts payable or other liabilities; or
(w) Other. Take or agree in writing or
otherwise to take, any of the actions described in Sections 5.2(a)
through (v) above, or any action which would make any of its
representations or warranties contained in this Agreement untrue or
incorrect or prevent it from performing or cause it not to perform
its covenants hereunder.
5.3 No Solicitation. The Company will not permit its
officers, directors, employees or other agents to, directly or indirectly,
(i) take any action to solicit, initiate or encourage any Takeover Proposal
(as defined herein) or (ii) engage in negotiations with, or disclose any
nonpublic information relating to the Company, or afford access to the
properties, books or records of the Company, to any person that has advised
the Company that it may be considering making, or that has made, a Takeover
Proposal. The Company shall not, and shall not permit any of its officers,
directors, employees or other representatives to agree to or endorse any
Takeover Proposal. The Company will promptly notify Parent after receipt of
any Takeover Proposal or any notice that any person is considering making a
Takeover Proposal or any request for nonpublic information relating to the
Company or for access to the properties, books or records of the Company by
any person that has advised the Company that it may be considering making, or
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that has made, a Takeover Proposal and will keep Parent fully informed of the
status and details of any such Takeover Proposal notice, request or any
correspondence or communications related thereto and shall provide Parent
with a true and complete copy of such Takeover Proposal notice or request or
correspondence or communications related thereto, if it is in writing, or a
written summary thereof, if it is not in writing. As used herein, "Takeover
Proposal" shall mean any offer or proposal for, or any indication of interest
in, (i) a merger or other business combination involving the Company (other
than the Merger), (ii) the acquisition of outstanding shares of the capital
stock of the Company, or (iii) the acquisition of a substantial portion of
the assets of the Company (other than the sale or disposition of inventory in
the ordinary course of the Company's business).
5.4 Additional Bridge Financing. The Company may seek
to obtain additional financing for the Company's operations that would become
available in the event that the financing referred to in Section 6.18 became
no longer available or became fully utilized prior to the Merger or termination
of this Agreement; provided that without the prior consent of Parent the Company
may not enter into any agreement with respect to such financing unless (i) no
costs or expenses related thereto are incurred by Parent, Merger Sub or the
Company and (ii) the Company incurs no financial or other material obligations
prior to the termination of this Agreement. The Company shall keep Parent fully
informed regarding any discussions or negotiations relating to such additional
financing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Prospectus and Proxy Statement. The Company shall
mail the Prospectus and Proxy Statement to all holders of Company Capital
Stock as soon as practicable after the S-4 shall be declared effective by the
SEC. Whenever any event occurs with respect to the Company that is required
to be set forth in an amendment or supplement to the Prospectus and Proxy
Statement, the Company shall promptly inform Parent of such occurrence and
cooperate in mailing to stockholders of the Company such amendment or
supplement. The Prospectus and Proxy Statement shall include the
recommendation of the Board of Directors of the Company in favor of this
Agreement and the Merger and the conclusion of the Board of Directors that
the terms and conditions of the Merger are fair and reasonable to the
stockholders of the Company. Anything to the contrary contained herein
notwithstanding, the Company shall not include in the Prospectus and Proxy
Statement any information with respect to Parent or its affiliates or
associates, the form and content of which information shall not have been
approved by Parent prior to such inclusion (such approval not to be
unreasonably withheld or delayed).
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6.2 Meeting of Stockholders. The Company shall take all
action necessary under the Delaware Law and its Certificate of Incorporation
and By-laws to convene a meeting of the stockholders of the Company for the
purpose of approving this Agreement and the transactions contemplated hereby
or to secure the written consent of its stockholders thereto (referred to as
the "Company Stockholders Meeting") as soon as practicable after the mailing
of the Prospectus and Proxy Statement. The Company shall consult with Parent
regarding the date of the Company Stockholders Meeting and shall not postpone
or adjourn the Company Stockholders Meeting without the consent of Parent.
The Company shall use its best efforts to solicit from stockholders of the
Company proxies in favor of the Merger and shall take all other action
necessary or advisable to secure the vote or consent of stockholders required
to effect the Merger.
6.3 Access to Information.
(a) The Company shall provide Parent and its
accountants, counsel and other representatives reasonable access during
normal business hours during the period prior to the Effective Time to (i)
all of the Company's properties, books, contracts, commitments and records,
and (ii) all other information concerning the business, properties, personnel
of the Company as Parent may reasonably request. The Company shall continue
to generate internal financial statements in accordance with past practice
and shall provide to Parent and its accountants, counsel and other
representatives copies of such statements promptly upon request.
(b) Subject to compliance with applicable law,
from the date hereof until the Effective Time, each of Parent and the Company
shall confer on a regular and frequent basis with one or more representatives
of the other party to report operational matters of materiality and the
general status of the Company's ongoing operations.
(c) No information or knowledge obtained in any
investigation pursuant to this Section 6.3 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
(d) The Company shall provide Parent and its
accountants, counsel and other representatives reasonable access, during
normal business hours, during the period prior to the Effective Time, to all
of the Company's Tax Returns and other records and work papers relating to
Taxes and shall provide to Parent and its representatives, promptly upon
request, the (i) the types of Tax Returns being filed by the Company in each
taxing jurisdiction, (ii) the year of the commencement of the filing of each
such type of Tax Return, (iii) all closed years with respect to each such
type of Tax Return filed in each jurisdiction, (iv) all material Tax
elections filed in each jurisdiction, (v) any deferred intercompany gain with
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respect to transactions to which the Company has been a party, and (vi)
receipts for any Taxes paid to foreign Tax authorities.
6.4 Public Disclosure. Unless otherwise permitted by
this Agreement, each party shall consult with the other party before issuing
any press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure (whether or not in response to
an inquiry) regarding the terms of this Agreement and the transactions
contemplated hereby. The Company shall not issue any such press release or
make any such statement or disclosure without the prior approval of Parent.
6.5 Consents; Cooperation.
(a) Each of Parent and the Company shall
promptly apply for or otherwise seek, and use its best efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of
the Merger. The Company shall use all commercially reasonable efforts to
obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the Merger for the assignment thereof
or otherwise. 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 federal or state
antitrust or fair trade law.
(b) Each of Parent and the Company shall use
all commercially reasonable efforts to resolve such objections, if any, as
may be asserted by any Governmental Entity with respect to the transactions
contemplated by this Agreement 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 statutes, rules,
regulations, orders or decrees that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint
of trade (collectively, "Antitrust Laws"). In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened
to be instituted) challenging any transaction contemplated by this Agreement
as violative of any Antitrust Law, each of Parent and the Company shall
cooperate and use all commercially reasonable efforts vigorously to contest
and resist any such action or proceeding and to have vacated, lifted,
reversed, or overturned any Order that is in effect and that prohibits,
prevents, or restricts consummation of the Merger or any such other
transactions, unless by mutual agreement Parent and the Company decide that
litigation is not in their respective best interests. Notwithstanding the
provisions of the immediately preceding sentence, neither party shall have
any obligation to litigate or contest any administrative or judicial action
or proceeding or any Order beyond the earlier of (i) sixty (60) days after
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the date of this Agreement or (ii) the date of a ruling preliminarily
enjoining the Merger issued by a court of competent jurisdiction. Each of
Parent and the Company shall use all commercially reasonable efforts to take
such action as may be required to cause the expiration of the notice periods
under the HSR Act or other Antitrust Laws with respect to such transactions
as promptly as possible after the execution of this Agreement.
(c) Notwithstanding anything to the contrary in
Section 6.6(a) or (b), (i) Parent shall not be required to divest any of its
or its subsidiaries' businesses, product lines 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 Parent or of the Surviving
Corporation after the Effective Time and (ii) the Company may not agree to
divest any of its businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation without the consent of the
Parent.
6.6 Company Affiliate Agreements. The Company shall
cause to be delivered prior to the Effective Time to Parent a Company
Affiliate Agreement (the "Company Affiliate Agreements") in the form attached
hereto as Exhibit I from all affiliates of the Company listed on Schedule 3.30
and any person who to the knowledge of the Company, may be deemed to have
become an affiliate of the Company after the date of this Agreement and prior
to the Effective Time. The foregoing notwithstanding, Parent shall be entitled
to place legends as specified in the Company Affiliate Agreement on the
certificates evidencing any of the Parent Common Stock to be received by
(i) any affiliate of the Company or (ii) any person Parent reasonably
identifies (by written notice to the Company) as being a person who may be
deemed an "affiliate" within the meaning of Rule 145 promulgated under the
Securities Act, and to issue appropriate stop transfer instructions to the
transfer agent for such Parent Common Stock, consistent with the terms of the
Company Affiliate Agreement, regardless of whether such person has executed a
Company Affiliate Agreement and regardless of whether such person's name and
address appear on Schedule 3.30 to the Company Disclosure Statement.
6.7 Stock Restriction Agreement. The Company shall use
its commercially reasonable efforts to deliver or cause to be delivered to
Parent at or prior to the Closing from each of the stockholders of the
Company an executed Stock Restriction Agreement (the "Stock Restriction
Agreement") in the form attached hereto as Exhibit D.
6.8 Legal Requirements. Each of Parent and the Company
shall, and Parent and the Company shall cause their respective subsidiaries
to, (i) take all reasonable actions necessary to comply promptly with all
legal requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement, (ii)
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promptly cooperate with and furnish information to any party hereto necessary
in connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement, and (iii) take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of, or any registration, declaration or
filing with, any Governmental Entity or other person, required to be obtained
or made in connection with the taking of any action contemplated by this
Agreement.
6.9 Blue Sky Laws. Parent shall take such steps as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions that are applicable to the issuance of the Parent Common Stock
in connection with the Merger and the assumption and exercise of the Company
Options and Company Warrants. The Company shall use its best efforts to
assist Parent as may be necessary to comply with the securities and blue sky
laws of all jurisdictions that are applicable in connection with the issuance
of Parent Common Stock in the Merger.
6.10 Escrow Agreement. On or before the Effective Time,
the Escrow Agent, the Stockholder' Agent (as defined in Section 9.8 hereto),
the Company and Parent shall execute the Escrow Agreement contemplated by
Article IX in substantially the form attached hereto as Exhibit E ("Escrow
Agreement").
6.11 Form S-8. Parent agrees to file, no later than
thirty (30) business days after the Closing, a registration statement on Form
S-8 covering the shares of Parent Common Stock issuable pursuant to
outstanding Company Options under the Company Stock Plan assumed by Parent,
provided that such Company Options qualify for registration on such Form S-8.
The Company agrees that it shall cause to be delivered to Parent prior to the
Closing all option documentation relating to the outstanding Company Options,
and, in the event such delivery is delayed, Parent's obligation to file the
registration statement on Form S-8 shall be commensurately delayed.
6.12 Listing of Additional Shares. Prior to the
Effective Time, Parent shall file with the NASDAQ Market a Notification Form
for Listing of Additional Shares with respect to the shares of Parent Common
Stock to be issued as provided in this Agreement.
6.13 Confidentiality. Each of Parent and the Company
will hold and will cause its officers, employees, auditors and other agents
to hold in confidence, unless compelled to disclose by judicial or
administrative process or, in the written opinion of its legal counsel, by
other requirements of law, all documents and information concerning the
providing party or its subsidiaries and furnished to the receiving party in
connection with the transactions contemplated in this Agreement. In
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addition, all such confidential documents and information shall promptly be
redelivered to the providing party (whether in the possession of Parent, the
Company or any other person permitted by this Agreement to receive such
documents and information) and any copies, extracts or other reproductions,
in whole or in part, of the same will not be retained.
6.14 Expenses. (a) Whether or not the Merger is
consummated, all costs and expenses incurred by the Parent or the Company in
connection with this Agreement and the Merger and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expense; provided that if the Merger is consummated the merger consideration
shall be reduced by the amount of any investment banking, legal and other
related merger fees and expenses incurred by the Company ("Transaction
Fees").
(b) On the Closing Date, the Company's Chief
Financial Officer shall certify to Parent the amount of Transaction Fees that
have been incurred by the Company or become payable by the Company in respect
of the consummation of the Merger (including further investment banking fees
that have become payable) (the "Closing Transaction Fees"). The "Closing Fee
Shares" shall be calculated by dividing the Closing Transaction Fees by the
closing price of one share of Parent Common Stock on the National Nasdaq
Market on the third business day prior to the Closing Date, and deducted from
the merger consideration in accordance with Section 2.1 hereof.
(c) On the Earn-Out Distribution Date, Parent's
Chief Financial Officer shall certify to the Stockholders' Agent the amount
of Transaction Fees (together with appropriate invoices) that were incurred
by the Company prior to the Closing or have become payable by the Company
since the Closing Date or are payable in respect of the distribution of the
Earn-Out Shares (if any) (the "Earn-Out Transaction Fees"). The "Earn-Out
Transaction Fee Shares" shall be calculated by dividing the Earn-Out
Transaction Fees by the closing price of one share of Parent Common Stock on
the National Nasdaq Market on the third business day prior to the Earn-Out
Distribution Date, and deducted from the merger consideration in accordance
with Section 2.7 hereof.
6.15 Further Assurances. Subject to the terms and
conditions of this Agreement, each of the parties to this Agreement shall use
its best efforts to effectuate the transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to closing under this
Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform
such other acts and things as may be necessary or desirable for effecting
completely the consummation of this Agreement and the transactions
contemplated hereby.
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6.16 Indemnification of Directors, Officers, etc.
(a) Parent and the Surviving Corporation shall indemnify, defend and hold
harmless the present and former directors and officers of the Company and
Parent shall cause the Surviving Corporation to indemnify, defend and hold
harmless the present and former employees and agents of the Company
(collectively, the "Indemnified Parties"), in each case, against all losses,
claims, damages, expenses or liabilities arising out of actions or omissions
or alleged actions or omissions occurring at or prior to the Effective Time
to the same extent and on the same terms and conditions (including with
respect to advancement of expenses) permitted or required under applicable
law and the Company's Articles of Incorporation and By-Laws in effect at the
date hereof. Parent or the Surviving Corporation shall pay all reasonable
expenses, including attorneys' fees, that may be incurred by any Indemnified
Party in enforcing the indemnity and other obligations provided for in this
Section.
(b) For a period of six years after the
Effective Time, Parent shall cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions which are no
less advantageous); provided, however, that if the premiums with respect to
such insurance exceed 200% of the annual premiums paid as of the date hereof
by the Company for such insurance, Parent shall be obligated to purchase
directors' and officers' liability insurance with the maximum coverage as can
be obtained at an annual premium equal to 200% of the annual premiums paid by
the Company as of the date hereof.
6.17 Reorganization for Federal Income Tax Purposes.
From and after the date of this Agreement, each party hereto shall use its
best efforts to cause the Merger to qualify, and shall not knowingly take
actions or cause actions to be taken which could reasonably be expected to
prevent the Merger from qualifying, as a "reorganization" within the meaning
of Section 368(a) of the Code.
6.18 Funding To Be Arranged By Parent. Parent agrees
until the earlier of: (i) the Effective Time or (ii) the termination of this
Agreement, to arrange for loans to be made to the Company on the terms set
forth in Exhibit F hereto. A number of shares (the "Interim Funding Shares")
shall be deducted from the merger consideration pursuant to Section 2.1,
equal to the sum of (i) any principal outstanding under such loans as at the
Effective Time, (ii) any interest paid or payable for the period from the
time the loans were incurred until the Effective Time, (iii) any fees or
expenses paid or payable by the Company in relation to such loans, divided by
the closing price of one share of Parent Common Stock on the National Nasdaq
Market on the third business day prior to the Closing Date.
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6.19 Non-solicitation of Employees. Each of the Company
and Parent agrees that neither it nor its subsidiaries will, directly or
indirectly, at any time from the date this Agreement is terminated until the
date six (6) months from such termination, solicit for employment any
employee of the other party (other than as contemplated by this Agreement).
6.20 Loan Acceleration. The Company may enter into an
agreement, on terms acceptable to Parent, regarding the waiver of rights to
accelerate payment of loans made by the Company to employees of the Company
in respect of, and secured by, stock of the Company, payable to the Company
upon a change of control of the Company resulting from the Merger.
6.21 Employee Benefits. On and after the Closing Date,
the employees of the Company who continue their employment with the Surviving
Corporation or with Parent shall be entitled to participate in the employee
benefit plans and share purchase or other equity programs maintained by the
Surviving Corporation or Parent after the Closing Date on a basis, in the
aggregate, no less favorable for similarly situated employees at Parent or
other subsidiaries owned by Parent, and for the purposes thereof shall be
entitled to credit for length of service with the Company.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect
the Merger. The respective obligations of each party to this Agreement to
consummate and effect the Merger and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived only in writing
signed by all the parties hereto:
(a) Stockholder Approval. This Agreement and
the Merger shall have been approved and adopted by the requisite vote
of the Company stockholders under the Delaware Law.
(b) No Injunctions or Restraints; Illegality.
No temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
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consummation of the Merger illegal under applicable law. In the
event an injunction or other order shall have been issued, each party
agrees to use its commercially reasonable efforts to have such
injunction or other order lifted.
(c) Governmental Approval. Parent and the
Company and their respective subsidiaries shall have timely obtained
from each Governmental Entity all approvals, waivers and consents
(including the satisfaction of any applicable waiting period), if
any, necessary for consummation of or in connection with the Merger
and the transactions contemplated hereby, including such approvals,
waivers, consents and waiting periods as may be required under the
Securities Act, under state Blue Sky laws, and under the HSR Act.
(d) S-4. the S-4 shall have been declared
effective by the SEC under the Securities Act and no stop order
suspending the effectiveness of the S-4 shall have been issued by the
SEC and no proceeding for that purpose shall have been initiated by
the SEC and not concluded or withdrawn.
7.2 Additional Conditions to Obligations of the Company.
The obligations of the Company to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Closing Date of each of the following conditions, any of
which may be waived only in writing signed by the Company:
(a) Representations, Warranties and Covenants.
(i) The representations and warranties of Parent in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a
reference to materiality which representations and warranties as so
qualified shall be true in all respects) on and as of the Closing
Date as though such representations and warranties were made on and
as of such date, except to the extent that any representations and
warranties expressly relate to an earlier date in which case such
representations and warranties shall be as of such date, and
(ii) Parent shall have performed and complied in all material
respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the
Closing Date.
(b) Certificate of Parent. The Company shall
have been provided with a certificate executed on behalf of Parent by
its Executive Vice-President and its Chief Financial Officer to the
effect set forth in Section 7.2(a).
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(c) No Material Adverse Effects. There shall
not have occurred any Material Adverse Effect on Parent; provided,
however, that fluctuations in the market value of the Parent Common
Stock shall not be deemed to constitute a Material Adverse Effect on
Parent except to the extent accompanied by other demonstrable
material adverse effects occurring with respect to Parent's and its
subsidiaries' businesses, taken as a whole.
(d) Tax Opinion. The Company shall have
received the opinion of Brobeck, Phleger & Harrison, LLP counsel to
the Company to the effect that the Merger will be treated for Federal
income tax purposes as a tax-free reorganization within the meaning
of Section 368(a) of the Code; provided that if Brobeck, Phleger &
Harrison, LLP does not render such opinion, this condition shall
nonetheless be deemed satisfied if Simpson Thacher & Bartlett renders
such opinion to the Company (it being agreed that Parent and the
Company shall each provide reasonable cooperation to Brobeck, Phleger
& Harrison, LLP or Simpson Thacher & Bartlett as the case may be, to
enable them to render such opinion).
7.3 Additional Conditions to the Obligations of Parent
and Merger Sub. The obligations of Parent and Merger Sub to consummate and
effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, by Parent:
(a) Company Stockholder Approval. This
Agreement and the Merger shall have been approved and adopted
(including by written consent) by the holders of at least 90% of the
outstanding shares of Company Capital Stock, and holders of no more
than 10% of the outstanding shares of Company Capital Stock shall
have voted against the Merger or demanded appraisal rights under the
Delaware Law (it being understood that the period in which
stockholders may demand appraisal rights may not have expired prior
to the Closing Date), provided, however, that Parent may not waive
this requirement to the extent that it would cause the Merger to fail
to qualify as a reorganization under Section 368(a) of the Code.
(b) Parent Stockholder Approval. Parent shall
have obtained the approval of its stockholders of the increase of its
authorized capital stock as provided for in its Proxy Statement for
the Annual Meeting to be held on June 30, 2000.
(c) Representations, Warranties and Covenants.
(i) The representations and warranties of the Company in this
Agreement shall be true and correct in all material respects (except
for such representations and warranties that are (x) qualified by
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their terms by a reference to materiality which representations and
warranties as so qualified shall be true in all respects or (y) not
then true and correct solely as a result of the taking of actions
permitted by this Agreement, which representations and warranties
shall be true and correct (but for the taking of permitted actions)
on and as of the Closing Date as though such representations and
warranties were made on and as of such time, except to the extent
that any representations and warranties expressly relate to an
earlier date in which case such representations and warranties shall
be as of such date, and (ii) the Company shall have performed and
complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied
with by it as of the Closing Date.
(d) Certificate of the Company. Parent shall
have been provided with a certificate executed on behalf of the
Company by its Chief Executive officer and its Chief Financial
Officer to the effect set forth in Section 7.3(c).
(e) Third Party Consents. Parent shall have
been furnished with evidence satisfactory to it of the consent or
approval of those persons whose consent or approval shall be required
in connection with the Merger as set forth on Schedule 3.28, which
consent shall in the case of Lucent Technologies include a waiver of
any past defaults (other than defaults in payment).
(f) Injunctions or Restraints on Conduct of
Business. No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent
jurisdiction or other Governmental Entity limiting or restricting
Parent's conduct or operation of the business of the Company
following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be
pending.
(g) No Material Adverse Changes. After the
date hereof, there shall not have occurred any event which has a
Material Adverse Effect with respect to the Company, other than any
Material Adverse Effect resulting from Parent's failure to comply
with Section 6.20.
(h) FIRPTA Certificate. The Company shall,
prior to the Closing Date, provide Parent with a properly executed
FIRPTA Notification Letter, substantially in the form of Exhibit G
attached hereto, which states that shares of capital stock of the
Company do not constitute "United States real property interests"
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under Section 897(c) of the Code, for purposes of satisfying Parent's
obligations under Treasury Regulation Section 1.1445-2(c)(3); and
simultaneously with delivery of such Notification Letter, the Company
shall have provided to Parent, as agent for the Company, a form of
notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) and
substantially in the form of Exhibit H attached hereto along with
written authorization for Parent to deliver such notice form to the
Internal Revenue Service on behalf of the Company upon the Closing of
the Merger.
(i) Resignation of Directors and Officers. The
directors and officers of the Company in office immediately prior to
the Effective Time shall have resigned as directors and officers, as
applicable, of the Company effective as of the Effective Time, unless
otherwise provided in separate employment agreements between such
individual and Parent.
(j) Escrow Agreement. The Escrow Agreement
substantially in the form of Exhibit E attached hereto shall have
been executed and delivered by all parties other than Parent.
(k) Certificates of Good Standing. The Company
shall, prior to the Closing Date, provide Parent a certificate from
the Secretary of State of Delaware, and from each other jurisdiction
in which the Company or any subsidiary is qualified to do business,
as to the Company's or any subsidiary's good standing and payment of
all applicable taxes.
(l) Termination of Stockholder Agreements. All
provisions of all agreements among the Company and any of its
securityholders or optionholders, or among any Company
securityholders or optionholders, providing for registration rights,
rights of first refusal, rights of co-sale, relating to the voting of
Company securities, requiring the Company to obtain the consent or
approval of any such securityholders or optionholders prior to taking
or failing to take any action (other than the Stockholder Agreements
executed pursuant to this Agreement and the Company's Certificate of
Incorporation), shall have been terminated effective immediately
prior to the Effective Time.
(m) Affiliates. Each person who is an
"affiliate" of the Company shall have executed and delivered to
Parent an Affiliate Agreement in accordance with Section 6.6 hereof.
(n) Tax Opinion. Parent shall have received
the opinion of Simpson Thacher & Bartlett, counsel to Parent, to the
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effect that the Merger will be treated for Federal income tax
purposes as a tax-free reorganization within the meaning of Section
368(a) of the Code; provided that if Simpson Thacher & Bartlett does
not render such opinion, this condition shall nonetheless be deemed
satisfied if Brobeck, Phleger & Harrison LLP renders such opinion to
Parent (it being agreed that the Company and Parent shall each
provide reasonable cooperation to Brobeck, Phleger & Harrison LLP or
Simpson Thacher & Bartlett as the case may be, to enable them to
render such opinion).
(o) Agreements Restricting Disposition of
Parent Common Stock. Stock Restriction Agreements shall have been
executed and delivered by (i) eighty-five percent (85%) of the
persons listed on Schedule 7.3(o), (ii) eighty percent (80%) of the
employees of the Company who hold vested stock options at the Closing
Date who are listed on Schedule 3.31, other than persons listed on
Schedule 7.3(o), and (iii) holders of ninety percent (90%) of all the
Company Capital Stock held by persons who are not included in either
(i) or (ii), above.
(p) Completion of Grant of 2000 Stock Options.
The Company shall have obtained executed copies of stock option
agreements documenting the Unissued Options from each holder set
forth on Schedule 5.2(c), which stock option agreements shall be in a
form reasonably acceptable to Parent.
(q) Certification of Transaction Fees and
Expenses. The Chief Financial Officer of the Company shall have
certified the amount of Closing Transaction Fees in accordance with
Section 6.14.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. At any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of the Company, this Agreement may be
terminated:
(a) by mutual consent duly authorized by the
board of directors of Parent and the Company;
(b) by either Parent or the Company, if the
Closing shall not have occurred on or before December 31, 2000 (the "Drop-
Dead Date"); provided that the right to terminate this Agreement under this
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Section 8.1(b) shall not be available to a party whose action or failure to
act has been the cause or resulted in the failure of the Merger to occur on
or before such date and such action or failure to act constitutes a breach of
this Agreement;
(c) by Parent, if: (i) the Company shall breach
in any material respect any representation, warranty, obligation or agreement
hereunder and such breach shall not have been cured within five (5) business
days of receipt by the Company of written notice of such breach (provided
that the right to terminate this Agreement by Parent under this Section
8.1(c) shall not be available to Parent if Parent is at that time in breach
of this Agreement in any material respect); or (ii) the Board of Directors of
the Company shall have withdrawn or modified its recommendation of this
Agreement or the Merger in a manner adverse to Parent or shall have resolved
to do so;
(d) by the Company, if Parent shall breach in
any material respect any representation, warranty, obligation or agreement
hereunder and such breach shall not have been cured within five (5) business
days following receipt by Parent of written notice of such breach (provided
that the right to terminate this Agreement by the Company under this Section
8.1(d) shall not be available to the Company if the Company is at that time
in breach of this Agreement in any material respect);
(e) by Parent if any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable; or
(f) by the Company if any permanent injunction
or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable.
8.2 Effect of Termination. In the event of termination
of this Agreement as provided in Section 8.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of
Parent or the Company or their respective officers, directors, stockholders
or affiliates, except to the extent such termination results from the breach
by a party hereto of any of its representations, warranties, covenants or
other agreements set forth in this Agreement; provided, however, that the
provisions of Section 6.4 (Public Disclosure), Section 6.13
(Confidentiality), this Section 8.2 and Article X shall remain in full force
and effect and survive any termination of this Agreement.
8.3 Amendment. The boards of directors of the parties
hereto may cause this Agreement to be amended at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto;
provided that an amendment made subsequent to adoption of the Agreement by
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the stockholders of the Company shall not (i) alter or change the amount or
kind of consideration to be received on conversion of the Company Capital
Stock, or (ii) alter or change any of the terms and conditions of this
Agreement if such alteration or change would materially adversely effect the
holders of Company Capital Stock.
8.4 Extension; Waiver. At any time prior to the
Effective Time any party hereto may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX
ESCROW AND INDEMNIFICATION
9.1 Escrow Fund. As soon as practicable after the
Effective Time, the Escrow Shares shall be registered in the name of, and be
deposited with, an institution selected by Parent with the reasonable consent
of the Company, as escrow agent in connection with this Agreement (the
"Escrow Agent"), such deposit (together with interest and other income
thereon) to constitute the Escrow Fund and to be governed by the terms set
forth herein and in the Escrow Agreement substantially in the form attached
hereto as Exhibit E. The Escrow Fund shall be available to compensate Parent
solely pursuant to the indemnification obligations of the stockholders of the
Company.
9.2 Indemnification. (a) Subject to the limitations
set forth in this Article IX, subsequent to the Closing, the stockholders of
the Company will indemnify and hold harmless Parent and its officers,
directors, agents and employees, and each person, if any, who controls or may
control Parent within the meaning of the Securities Act (hereinafter referred
to individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all losses, costs, damages, liabilities
and expenses arising from claims, demands, actions or causes of action,
including, without limitation, reasonable legal fees, net of any recoveries
by Parent under existing insurance policies or indemnities from third parties
(collectively, "Damages"), arising out of (i) any misrepresentation or breach
of or default in connection with any of the representations, warranties,
covenants and agreements given or made by the Company in this Agreement, the
Company Disclosure Schedules or any exhibit or schedule to this Agreement,
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(ii) any litigation claim described on Schedule 3.7 to the extent such
Damages exceed the amount recorded for that litigation as an accrued expense
or liability in the Company Balance Sheet as at March 31, 2000, or (iii) any
costs or expenses associated with the Company's proposed initial public
offering or preparation for such proposed initial public offering, to the
extent such costs or expenses exceed the amount recorded as an accrued
expense or liability in respect of that item in the Company Balance Sheet as
at March 31, 2000. The Escrow Fund shall be security for this indemnity
obligation subject to the limitations in this Agreement. If the Merger is
consummated, recovery from the Escrow Fund in accordance with this Article IX
shall be the exclusive remedy under this Agreement for any breach or default
in connection with any of the representations, warranties, covenants or
agreements set forth in this Agreement or any exhibit or schedule hereto,
except in the event of fraud or intentional misrepresentation or in the event
of a breach of any of the representations and warranties set forth in Section
3.1 (Organization, Standing and Power), Section 3.2 (Capital Structure) or
Section 3.13 (Taxes), provided that Parent shall first proceed against the
Escrow Fund unless or until the Escrow Fund is subject to pending claims in
excess of the value of the remaining Escrow Fund, and further that no
stockholder of the Company shall be liable to Parent hereunder in an amount
in excess of the consideration received by such stockholder pursuant to this
Agreement.
(b) Nothing in this Agreement shall limit the liability (i)
of the Company for any breach of any representation, warranty or covenant if
the Merger does not close, or (ii) of any Company stockholder in connection
with any breach by such stockholder of the Voting Agreement.
9.3 Damage Threshold. Notwithstanding the foregoing,
Parent may not receive any shares from the Escrow Fund unless and until one
or more Officer's Certificates (as defined in Section 9.5 below) identifying
Damages the aggregate amount of which exceeds $100,000 has been delivered to
the Escrow Agent as provided in Section 9.5 below and such amount is
determined pursuant to this Article IX to be payable, in which case Parent
shall receive shares equal in value to the full amount of Damages; provided,
however, (i) that Damages resulting from any inaccuracy, breach or default
under the representations and warranties contained in Sections 3.1, 3.2 or
3.13 shall not be subject to the recovery threshold set forth in this
sentence, and (ii) that in no event shall Parent receive more than the number
of shares of Parent Common Stock originally placed in the Escrow Fund, as
adjusted to reflect fully the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities
convertible or exchangeable into Parent Common Stock), reorganization,
recapitalization or other like change with respect to Parent Common Stock
occurring after the date hereof. In determining the amount of any Damages
resulting from any misrepresentation, breach or default subject to indemnity
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under this Article IX, any materiality standard contained in the applicable
representation, warranty, covenant or agreement shall be disregarded.
9.4 Escrow Period. The Escrow Period shall terminate at
the one (1) year anniversary of the Effective Time; provided, however, that
such portion of the Escrow Shares necessary to satisfy any unsatisfied claims
specified in any Officer's Certificate or Certificates theretofore delivered
to the Escrow Agent prior to the termination of the Escrow Period, with
respect to facts and circumstances existing prior to expiration of the Escrow
Period, shall remain in the Escrow Fund until such claims have been resolved.
Parent shall deliver to the Escrow Agent a certificate specifying the
Effective Time. Any portion of the Escrow Fund for which there is no claim
pursuant to this Article IX (net of one half of expenses) shall be
distributed promptly by the Escrow Agent to the stockholders of the Company
in accordance with each stockholder's percentage of the Escrow Fund as set
forth in the Escrow Agreement.
9.5 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the last
day of the Escrow Period of a certificate signed by any officer of Parent (an
"Officer's Certificate")
(i) stating that, Damages exist in an aggregate
amount greater than $100,000; and
(ii) specifying in reasonable detail the individual
items of such Damages included in the amount so stated, the date each
such item was paid, or properly accrued or arose, and the nature of
the misrepresentation, breach of warranty or claim to which such item
is related,
the Escrow Agent shall, subject to the provisions of Section 9.6 and 9.7
below, deliver to Parent out of the Escrow Fund, as promptly as practicable,
Parent Common Stock or other assets held in the Escrow Fund having a value
equal to such Damages.
(b) For the purpose of compensating Parent for its Damages
pursuant to this Agreement, the Parent Common Stock in the Escrow Fund shall
be valued based on the average closing price for Parent Common Stock for the
20 trading days immediately prior to the date that an indemnification claim
is made.
9.6 Objections to Claims. At the time of delivery of
any Officer's Certificate to the Escrow Agent, a duplicate copy of such
Officer's Certificate shall be delivered to the Stockholders' Agent (defined
in Section 9.8 below), and, for a period of thirty (30) days after such
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delivery to the Escrow Agent of such Officer's Certificate, the Escrow Agent
shall make no delivery of Parent Common Stock or other property pursuant to
Section 9.5 hereof unless the Escrow Agent shall have received written
authorization from the Stockholders' Agent to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the Parent Common Stock or other property in the Escrow Fund in
accordance with Section 9.5 hereof, provided that no such payment or delivery
may be made if the Stockholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate and such statement shall have
been delivered to the Escrow Agent and to Parent prior to the expiration of
such thirty (30) day period.
9.7 Resolution of Conflicts; Arbitration.
(a) In case the Stockholders' Agent shall so object in
writing to any claim or claims by Parent made in any Officer's Certificate,
Parent shall have twenty (20) days after receipt by the Escrow Agent of an
objection by the Stockholders' Agent to respond in a written statement to the
objection of the Stockholders' Agent. If after such twenty (20) day period
there remains a dispute as to any claims, the Stockholders' Agent and Parent
shall attempt in good faith for thirty (30) days to agree upon the rights of
the respective parties with respect to each of such claims. If the
Stockholders' Agent and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and shall distribute the Parent Common Stock or other
property from the Escrow Fund in accordance with the terms of such
memorandum.
(b) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the
damage or loss is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three (3) arbitrators. Within fifteen
(15) days after such written notice is sent, Parent and the Stockholders'
Agent shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator. The decision of the arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and,
notwithstanding anything in Section 9.6 hereof, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold
payments out of the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may
be entered in any court having jurisdiction. Any such arbitration shall be
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held in San Francisco, California under the commercial rules then in effect
of the American Arbitration Association. Each party shall bear its own
expenses (including attorneys' fees and expenses) incurred in connection with
any such arbitration, and the fees and expenses of each arbitrator and the
administrative fee of the American Arbitration Association shall be allocated
by the arbitrator or arbitrators, as the case may be (or, if not so
allocated, shall be borne equally by Parent, on the one hand, and the Company
stockholders, on the other hand.
9.8 Stockholders' Agent.
(a) Prior to the approval and adoption of this Agreement
and the Merger by the requisite vote of the Company stockholders, the Company
shall nominate a person to be constituted and appointed as agent
("Stockholders' Agent") for and on behalf of the Company stockholders to give
and receive notices and communications, to authorize delivery to Parent of
the Parent Common Stock or other property from the Escrow Fund in
satisfaction of claims by Parent, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to
such claims, and to take all actions necessary or appropriate in the judgment
of the Stockholders' Agent for the accomplishment of the foregoing. Such
agency may be changed by the holders of a majority in interest of the Escrow
Fund from time to time upon not less than ten (10) days' prior written notice
to Parent. No bond shall be required of the Stockholders' Agent, and the
Stockholders' Agent shall receive no compensation for services rendered.
Notices or communications to or from the Stockholders' Agent shall constitute
notice to or from each of the Company stockholders.
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' except to the extent it has acted
with gross negligence or willful misconduct, and any act done or omitted
pursuant to the advice of counsel shall be conclusive evidence that it did
not act with gross negligence or willful misconduct. The Company
stockholders shall severally indemnify the Stockholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Stockholders' Agent and arising
out of or in connection with the acceptance or administration of the duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for purposes of performing its duties and exercising
its rights hereunder, provided that the Stockholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about the
Company to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially).
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(d) The Stockholders' Agent shall be a third party
beneficiary of the terms of this Section 9.8.
9.9 Actions of the Stockholders' Agent. (a) A
decision, act, consent or instruction of the Stockholders' Agent shall
constitute a decision of all Company stockholders for whom shares of Parent
Common Stock otherwise issuable to them are deposited in the Escrow Fund and
shall be final, binding and conclusive upon each such Company stockholder,
and the Escrow Agent and Parent may rely upon any decision, act, consent or
instruction of the Stockholders' Agent as being the decision, act, consent or
instruction of each and every such Company stockholder. The Escrow Agent and
Parent are hereby relieved from any liability to any person for any acts done
by them in accordance with such decision, act, consent or instruction of the
Stockholders' Agent.
(b) After the Effective Time, Parent shall make
available to the Stockholders' Agent those senior executives of the Company
that continue as employees of the Company or Parent to assist the
Stockholders' Agent in analyzing and defending against any claims made under
this Article IX. Parent shall cause the Company to waive any conflict of
interest claim related to the involvement in such analysis or defense by the
general counsel or any other lawyer employed at the Company prior to the
Effective Time.
9.10 Third-Party Claims. In the event Parent becomes
aware of a third-party claim which Parent believes may result in a demand
against the Escrow Fund, Parent shall promptly notify the Stockholders' Agent
of such claim, and the Stockholders' Agent and the Company stockholders for
whom shares of Parent Common Stock otherwise issuable to them are deposited
in the Escrow Fund shall be entitled, at their expense, to participate in any
defense of such claim. Parent shall have the right to settle any such claim;
provided, however, that Parent may not effect the settlement of any such
claim without the consent of the Stockholders' Agent, which consent shall not
be unreasonably withheld. In the event that the Stockholders' Agent has
consented to any such settlement, the Stockholders' Agent shall have no power
or authority to object under Section 9.6 or any other provision of this
Article IX to the amount of any claim by Parent against the Escrow Fund for
indemnity with respect to such settlement.
9.11 Earn-Out Fund. On the deposit of Earn-Out Shares in
the Escrow Fund pursuant to section 2.7(c), the Escrow Agent shall administer
the Escrow Fund in relation to such shares according to this Article IX as
though the Earn-Out Shares deposited to escrow were deemed to be available
for the satisfaction of claims against the Escrow Fund from the Effective
Time, provided that the Escrow Fund in relation to such shares shall
terminate in accordance with Section 2.7 upon the final satisfaction or
resolution of all pending claims.
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ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements of each party
hereto shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers or directors, whether
prior to or after the execution of this Agreement. The representations,
warranties and agreements of each party hereto shall survive the execution
and delivery of this Agreement until the expiration of the Escrow Period,
provided, however, that any agreement or covenant set forth in the Agreement
which is to be performed after the Closing Date shall survive until fully
performed in accordance with this Agreement;
10.2 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally or by commercial delivery service, or mailed by registered or
certified mail (return receipt requested) or sent via facsimile (with
confirmation of receipt) to the parties at the following address (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Covad Communications Group, Inc.
4520 Burton Drive
Santa Clara, CA 95054
Attention: General Counsel
Facsimile: (408) 987-1111
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: John W. Carr, Esq.
Facsimile: (212) 455-2502
(b) if to the Company prior to the Closing, to:
BlueStar Communications Group, Inc.
41 Union Street, Suite 900
Nashville, TN 37219
Attention: Robert E. Dupuis
Facsimile: (615) 346-3875
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if to the Stockholders' Agent, until
otherwise advised:
c/ BlueStar Communications Group, Inc.
41 Union Street, Suite 900
Nashville, TN 37219
Attention: Robert E. Dupuis
Facsimile: (615) 346-3875
in each case, with a copy to:
Brobeck, Phleger & Harrison LLP
301 Congress Avenue, Suite 1200
Austin, Texas 78701
Attention: Carmelo M. Gordian, Esq.
Facsimile: (512) 477-5813
By its inclusion herein as a recipient of copies of notices,
the parties acknowledge and agree that notwithstanding the fact that Brobeck,
Phleger & Harrison LLP represented the Company in connection with the
transactions provided for in this Agreement, Brobeck, Phleger & Harrison LLP
shall be permitted to represent the holders of Company Capital Stock,
including the Stockholders' Agent on their behalf, and their respective
heirs, executors, administrators, affiliates, successors and assigns, in
connection with any and all matters which may arise out of in connection with
this Agreement, the Escrow Agreement or any of the other related agreements.
10.3 Interpretation. When a reference is made in this
Agreement to Exhibits, such reference shall be to an Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by
the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available
or in the case of the Parent SEC Documents, that such documents were
furnished or available on the SEC's website. The phrases "the date of this
Agreement," "the date hereof," and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to the date first
written above. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.4 Counterparts. This Agreement may be executed in one
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
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10.5 Entire Agreement; Nonassignability; Parties in
Interest. This Agreement and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits and the Schedules, including the Company Disclosure
Statement: (a) constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) are not intended to confer upon any other person
any rights or remedies hereunder except for the stockholders of the Company
and as set forth in sections 2.2(a) (Effect on Capital Stock; Conversion of
Securities), 2.3(a)-(c) and (e)-(f) and (h)-(i) (Exchange of Certificates),
2.4 (Form S-4), 2.7(a)-(e) (Rights to Receive Additional Shares of Parent
Common Stock), 6.16 (Indemnification of Directors, Officers Etc.) and 9.8
(Stockholders Agent); and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
10.6 Severability. In the event that any provision of
this Agreement, or the application thereof, becomes or is declared by a court
of competent jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the application
of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
10.7 Remedies Cumulative. 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.
10.8 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
reference to such state's principles of conflicts of law. Each of the
parties hereto irrevocably consents to the exclusive jurisdiction of any
court located within the State of California, in connection with any matter
based upon or arising out of this Agreement or the matters contemplated
herein (other than as provided by Section 9.7), agrees that process may be
served upon them in any manner authorized by the laws of the State of
California for such persons and waives and covenants not to assert or plead
any objection which they might otherwise have to such jurisdiction and such
process.
10.9 Rules of Construction. The parties hereto agree
that they have been represented by counsel during the negotiation,
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preparation and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of construction providing
that ambiguities in an agreement or other document will be construed against
the party drafting such agreement or document.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement and Plan of Merger and Reorganization to be executed
and delivered by their respective officers thereunto duly authorized, all as
of the date first written above.
COVAD COMMUNICATIONS GROUP, INC.
By: /s/ Robert E. Knowling, Jr.
----------------------------------------
Robert E. Knowling, Jr.
President and Chief Executive Officer
COVAD ACQUISITION CORPORATION
By: /s/ Robert E. Knowling, Jr.
----------------------------------------
Robert E. Knowling, Jr.
President and Chief Executive Officer
BLUESTAR COMMUNICATIONS GROUP, INC.
By: /s/ Robert E. Dupuis
----------------------------------------
Robert E. Dupuis
Chief Executive Officer
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Exhibit 99.1
Covad Communications Acquires Bluestar Communications
Contact: Allyson Willoughby
Senior Public Relations Specialist
(408) 855-7299 office
(408) 221-7822 cell
[email protected]
Christian Pinkston
Alexander Ogilvy Public Relations
Mobile: (202) 423-6611
[email protected]
Acquisition Will Accelerate Covad's National Network
Expansion Beyond Major Metropolitan Areas; Will Expand Covad's Reach to More
than 40% of all U.S. Homes and 44% of all U.S. Businesses
Santa Clara, Calif. (June 16, 2000) - Covad Communications
(Nasdaq: COVD), the leading national broadband services provider utilizing
DSL (Digital Subscriber Line) technology, today announced a definitive
agreement to acquire privately held Nashville, Tenn. based BlueStar
Communications Inc., a provider of broadband and Internet services for small
and medium-sized businesses throughout the Southeastern United States.
The transaction will expand Covad's national reach beyond
major metropolitan areas into smaller, under-served cities and rural areas,
allowing more end users to experience high-speed "always on" broadband
Internet connections. On a combined basis, Covad will be able to provide
broadband services out of more than 1,800 central offices (COs) throughout
the country reaching more than 40 percent of all U.S. homes and 44 percent of
all U.S. businesses.
"Today, we have installed well over 100,000 broadband lines
and the key to scaling our business and installing millions of lines is to
rapidly expand our network footprint and the way we deliver broadband
services," said Robert E. Knowling Jr., president, chairman and CEO of Covad.
"Acquiring BlueStar will allow us to accelerate our
nationwide deployment, increase our distribution methods, and deliver
enhanced broadband solutions to small businesses."
"Being acquired by Covad will enable BlueStar to align
itself with the nation's leading broadband DSL company with a recognizable
brand and will provide us with access to the nation's largest, most reputable
broadband network," said Robert E. Dupuis, chairman of the board and CEO of
BlueStar. "We are looking forward to integrating our businesses so that we
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can quickly and more efficiently bring turnkey broadband solutions to small
and medium-sized businesses in smaller, under-served areas."
Covad will purchase privately held BlueStar Communications
in an all stock transaction for eight million shares of Covad common stock
plus assumption of BlueStar's existing debt. Up to five million additional
Covad shares may be issued to the BlueStar stockholders if certain
performance targets are met by BlueStar over the 2001 fiscal year. Both
company's Boards of Directors have approved the transaction. Based on the
eight million shares, the acquisition is valued at approximately $202 million
as of yesterday's closing price of Covad common stock.
The companies anticipate closing the transaction within 60
to 120 days subject to regulatory approvals and other customary closing
conditions. BlueStar will operate as a wholly-owned subsidiary and Robert E.
Dupuis, chairman of the board and CEO of BlueStar, will continue to head the
business unit and report to Robert E. Knowling, Jr., Covad's chairman,
president and CEO.
Acquiring BlueStar will enable Covad to provide homes and
small businesses in numerous secondary and tertiary cities throughout the
Southeastern U.S. with turnkey broadband access solutions that meet their
Internet connectivity, networking and data needs. In addition to broadband
Internet access, Covad and its channel partners will be able to directly
offer small businesses value-added services such as remote access
capabilities and application services within a secure private network. Covad
will continue to strongly support all of its existing channel partners in
selling broadband services to home and business users throughout the nation
to bring broadband to the masses.
"Our goal is to provide homes and businesses with more
choice in how they get broadband service," continued Knowling. "By taking
advantage of BlueStar's sales approach, we will be able to better serve the
needs of small businesses in secondary and tertiary markets in the Southeast.
This direct sales model will increase total revenues by adding higher revenue
lines to the business mix, but will lower our 2000 line growth to roughly
330% and reduce 2001 line growth to roughly 150%. We expect this tradeoff
will generate higher company revenues and higher returns on installed lines
for our shareholders."
Covad will be hosting a conference call to discuss the
specifics of this acquisition. The conference call will be held on Friday
June 16th at 8:30am EST. To access the conference call, please dial
212-896-6116 (no password is required). The replay number for the call is
(800) 633-8284, passcode #15571044. The replay will be available through
Friday, June 23rd.
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With over 250 COs in service today, BlueStar currently
serves 35 areas throughout the Southeastern U.S., including Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina,
and Tennessee. For more information on BlueStar, visit www.bluestar.net.
In conjunction with the acquisition announcement, BlueStar
intends to withdraw its registration with the Securities and Exchange
Commission (SEC) for an initial public offering. In addition, Bear Stearns
advised Covad in this transaction and provided a fairness opinion with
respect to this transaction.
About Covad
Covad is the leading national broadband services provider of
high-speed Internet and network access utilizing Digital Subscriber Line
(DSL) technology. It offers DSL, IP and dial-up services through Internet
Service Providers, telecommunications carriers, enterprises, affinity groups,
PC OEMs and ASPs to small and medium-sized businesses and home users. Covad
services are currently available across the United States in 79 of the top
Metropolitan Statistical Areas (MSAs) and after the BlueStar acquisition is
complete will be available in 100 MSAs. Covad services are expected to be
available in 165 MSAs by the end of 2000. At that time, Covad's network will
reach more than 45 percent of all US homes and 50 percent of all US
businesses. Corporate headquarters is located at 2330 Central Expressway,
Santa Clara, CA 95050.
Telephone: 1-888-GO-COVAD. Web Site: www.covad.com.
Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995
The statements contained in this release which are not
historical facts may be deemed to contain forward-looking statements,
including but not limited to statements regarding the intention to deploy our
network in new and existing MSAs, the timing and breadth of coverage in each
MSA, our ability to reduce our prices, increase distribution methods, scale
our business, deliver enhanced broadband solutions, and our ability to
provide multimedia content. Actual results may differ materially from those
anticipated in any forward-looking statements as a result of certain risks
and uncertainties, including, without limitation, the company's dependence on
incumbent local exchange carriers for collocation, unbundled network
elements, transport and other facilities, development of necessary
technologies and operations, ability to manage growth of our operations, and
the need to raise additional capital. For other risks and uncertainties
applicable to our business refer to the Company's Securities and Exchange
Commission filings.
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