<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): JANUARY 11, 1999
SHOPPING.COM
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 000-29518 33-0733679
(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
2101 EAST COAST HIGHWAY, GARDEN LEVEL
CORONA DEL MAR, CALIFORNIA 92625
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (949) 640-4393
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 5. OTHER EVENTS.
On January 11, 1999, Shopping.com, a California corporation (the "Company"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Compaq Computer Corporation, a Delaware corporation ("Compaq"). Under the
terms of the Merger Agreement, Compaq will commence a cash tender offer (the
"Tender Offer") for all of the outstanding shares of common stock of the
Company for $19.00 net per share in cash, representing in the aggregate
approximately $220 million. As soon as practicable following the completion of
the Tender Offer, the parties to the Merger Agreement will consummate a short-
form merger in which a subsidiary of Compaq will be merged with and into the
Company. The Board of Directors and management of the Company have unanimously
approved the acquisition and will recommend shareholder acceptance. Completion
of the transaction is subject to certain conditions, including clearance under
the Hart-Scott-Rodino Antitrust Improvements Act. Following the successful
completion of the offer, all of the remaining shares will be acquired pursuant
to the merger. The news release is attached as Exhibit 99.1, and the Agreement
and Plan of Merger is attached as Exhibit 99.2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c)Exhibits.
<TABLE>
<CAPTION>
Exhibit Name of Exhibit
- ------- ---------------
<S> <C>
99.1 Press Release dated January 11, 1999.
99.2 Agreement and Plan of Merger, dated as of January 11, 1999, between Compaq Computer
Corporation and Shopping.com.
</TABLE>
2
<PAGE>
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 hereunto duly authorized.
SHOPPING.COM
Date: January 11, 1999 By: /s/ Frank Denny
-----------------------------------
Frank Denny,
President and Chief Executive Officer
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NAME OF EXHIBIT
- ------- ---------------
<S> <C>
99.1 Press Release dated January 11, 1999.
99.2 Agreement and Plan of Merger, dated as of January 11, 1999, between Compaq Computer
Corporation and Shopping.com.
</TABLE>
4
<PAGE>
FOR FURTHER INFORMATION:
Contact: Mr. Frank Denny, CEO & President
SHOPPING.COM
2101 E. Coast Highway
Garden Level
Corona del Mar, CA 92625
(949) 640-4374
www.shopping.com
- ----------------
FOR IMMEDIATE RELEASE
SHOPPING.COM ENTERS MERGER AGREEMENT WITH COMPAQ COMPUTER CORPORATION
Corona del Mar, CA, January 11, 1999 -- Frank W. Denny, CEO and President of
Shopping.com (OTCBB: IBUY) today announced that the company's Board of Directors
has approved a tender offer for $19.00 per share to be accepted and approved by
its shareholders in a merger agreement with Compaq Computer Corporation (NYSE;
CPQ).
"In my opinion the value that has been created at Shopping.com for the benefit
of its shareholders after only roughly one year of becoming a public company
made the offer by Compaq attractive to the Company," Denny said.
The anticipated traffic from Alta Vista and Compaq Internet PCS will enable
Shopping.com to grow faster and more efficiently than stand alone e-commerce
companies. In turn, the increased knowledge gained from users' online
purchasing interests will allow Alta Vista to better organize content and
information for its users.
ABOUT SHOPPING.COM
Shopping.com was founded with the mission to be the dominant low-price leader on
the Internet, selling brand-name consumer products every day. Shopping.com is
an online retailer offering more than 2 million item selections of top brand-
name consumer products organized by category. Shopping.com targets both the
consumer and commercial markets utilizing state-of-the-art proprietary systems
technology. Shopping.com competes with other Internet retailers such a CDnow
CDNW, at cdnow.com, for music; Amazon AMZN, at amazon.com, Barnes and Noble BKS,
- ---- ---- ---
at barnesandnoble.com and Books-A-Million, Inc. BAMM, at booksamillion.com, for
----
books; Cyberian Outpost, Inc. COOL, at outpost.com and CompUSA, Inc. CPU, at
---- ---
compusa.com, for computers; and Staples, Inc. SPLS, at staples.com, for office
----
products; along with the AOL and Yahoo shopping sites.
Shopping.com offers millions of brand-name products to the Internet shopper,
ranging from computers, books, office products, CDS, pet supplies, housewares
and more. Shopping.com provides everyday low prices and fast delivery using
direct vendor shipping, secure online payment protection and customer-friendly
check-out services to ensure a user-friendly Web shopping experience for the
Internet shopper. Visit Shopping.com's Web site at www.shopping.com or
www.IBUYstores.com.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this press
releases (as well as information included in oral statements or other written
statements made or to be made by Shopping.com contains statements that are
forward-looking, such as statements relating to consummation of the transaction,
anticipated future revenues of the companies and success of current product
offerings. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such result may differ materially from those expressed in any
forward-looking statements made by or on behalf of Shopping.com. For a
description of additional risks and uncertainties, please refer to
Shopping.com's filings with the Securities and Exchange Commission, including
Forms 10-K and 10-Q.
<PAGE>
EXHIBIT 99.2
AGREEMENT AND PLAN OF MERGER
by and between
COMPAQ COMPUTER CORPORATION
and
SHOPPING.COM
dated as of
January 11, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
THE OFFER AND MERGER
<S> <C> <C>
Section 1.1 The Offer....................................................... Page 2
---------
Section 1.2 Company Actions................................................. Page 4
---------------
Section 1.3 Directors....................................................... Page 5
---------
Section 1.4 The Merger...................................................... Page 7
----------
Section 1.5 Effective Time.................................................. Page 7
--------------
Section 1.6 Closing......................................................... Page 8
-------
Section 1.7 Directors and Officers of the Surviving Corporation............. Page 8
---------------------------------------------------
Section 1.8 Subsequent Actions.............................................. Page 8
------------------
Section 1.9 Shareholders' Meeting........................................... Page 8
---------------------
Section 1.10 Merger Without Meeting of Shareholders.......................... Page 9
--------------------------------------
</TABLE>
ARTICLE II
CONVERSION OF SECURITIES
<TABLE>
<CAPTION>
<S> <C> <C>
Section 2.1 Conversion of Capital Stock..................................... Page 10
---------------------------
Section 2.2 Exchange of Certificates........................................ Page 10
------------------------
Section 2.3 Dissenting Shares............................................... Page 12
-----------------
Section 2.4 Company Stock Option Plans...................................... Page 13
--------------------------
</TABLE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.1 Organization; Qualification.................................... Page 14
---------------------------
Section 3.2 Capitalization................................................. Page 14
--------------
Section 3.3 Authorization; Validity of Agreement;
-------------------------------------
Company Action................................................. Page 15
--------------
Section 3.4 Board Approvals Regarding Transactions......................... Page 16
--------------------------------------
Section 3.5 Vote Required.................................................. Page 16
-------------
Section 3.6 Consents and Approvals; No Violations.......................... Page 16
-------------------------------------
Section 3.7 SEC Reports and Financial Statements........................... Page 17
------------------------------------
Section 3.8 Books and Records.............................................. Page 17
-----------------
Section 3.9 No Undisclosed Liabilities..................................... Page 17
--------------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.10 Accounts Receivable............................................ Page 18
-------------------
Section 3.11 Inventory...................................................... Page 18
---------
Section 3.12 Interim Operations............................................. Page 18
------------------
Section 3.14 Litigation..................................................... Page 20
----------
Section 3.15 Employee Benefit Plans......................................... Page 21
----------------------
Section 3.16 Tax Matters; Government Benefits............................... Page 23
--------------------------------
Section 3.17 Title to Properties; Encumbrances.............................. Page 25
---------------------------------
Section 3.18 Plant and Equipment............................................ Page 25
-------------------
Section 3.19 Leases......................................................... Page 26
------
Section 3.20 Environmental Laws............................................ Page 26
------------------
Section 3.21 Bank Accounts................................................. Page 26
-------------
Section 3.22 Intellectual Property......................................... Page 27
---------------------
Section 3.23 Employment Matters............................................ Page 29
------------------
Section 3.24 Compliance with Laws.......................................... Page 29
--------------------
Section 3.25 Products Liability............................................ Page 29
------------------
Section 3.26 Contracts and Commitments..................................... Page 29
-------------------------
Section 3.27 Customers and Suppliers....................................... Page 31
-----------------------
Section 3.28 Orders, Commitments and Returns............................... Page 31
-------------------------------
Section 3.29 Insurance..................................................... Page 31
---------
Section 3.30 Labor Difficulties............................................ Page 32
------------------
Section 3.31 Consents...................................................... Page 32
--------
Section 3.32 Information in Schedule 14D-9................................. Page 32
-----------------------------
Section 3.33 Information in Proxy Statement................................ Page 32
------------------------------
Section 3.34 Opinion of Financial Advisor.................................. Page 33
----------------------------
Section 3.35 Absence of Questionable Payments.............................. Page 33
--------------------------------
Section 3.36 Personnel..................................................... Page 33
---------
Section 3.37 Insider Interests............................................. Page 33
-----------------
Section 3.38 Brokers or Finders............................................ Page 34
------------------
Section 3.39 Full Disclosure............................................... Page 34
---------------
</TABLE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND PURCHASER
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.1 Organization.................................................... Page 34
------------
Section 4.2 Authorization; Validity of Agreement;
-------------------------------------
Necessary Action................................................ Page 34
----------------
Section 4.3 Consents and Approvals; No Violations........................... Page 35
-------------------------------------
Section 4.4 Information in Offer Documents.................................. Page 35
------------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.5 Information in Proxy Statement................................. Page 36
------------------------------
Section 4.6 Share Ownership................................................ Page 36
---------------
Section 4.7 Purchaser's Operations......................................... Page 36
----------------------
Section 4.8 Brokers or Finders............................................. Page 36
------------------
</TABLE>
ARTICLE V
COVENANTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.1 Interim Operations of the Company.............................. Page 36
---------------------------------
Section 5.2 Access; Confidentiality........................................ Page 39
-----------------------
Section 5.3 Reasonable Best Efforts........................................ Page 40
-----------------------
Section 5.4 Employee Benefits.............................................. Page 41
-----------------
Section 5.5 No Solicitation of Competing Transaction....................... Page 42
----------------------------------------
Section 5.6 Publicity...................................................... Page 44
---------
Section 5.7 Notification of Certain Matters................................ Page 44
-------------------------------
Section 5.8 Directors' and Officers' Insurance and Indemnification......... Page 44
------------------------------------------------------
Section 5.9 State Takeover Laws............................................ Page 45
-------------------
Section 5.10 Purchaser Compliance........................................... Page 45
--------------------
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VI
CONDITIONS
<S> <C> <C>
Section 6.1 Conditions to Each Party's Obligation to
----------------------------------------
Effect the Merger.............................................. Page 45
-----------------
Section 6.2 Conditions to Parent's and Purchaser's Obligations
--------------------------------------------------
to Effect the Merger........................................... Page 46
--------------------
</TABLE>
ARTICLE VII
TERMINATION
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.1 Termination..................................................... Page 46
-----------
Section 7.2 Effect of Termination........................................... Page 48
---------------------
</TABLE>
ARTICLE VIII
DEFINITIONS AND INTERPRETATION
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.1 Definitions..................................................... Page 49
-----------
Section 8.2 Interpretation.................................................. Page 58
--------------
</TABLE>
iii
<PAGE>
ARTICLE IX
MISCELLANEOUS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.1 Fees and Expenses.............................................. Page 59
-----------------
Section 9.2 Amendment and Modification..................................... Page 60
--------------------------
Section 9.3 Non-Survival of Representations and Warranties................. Page 60
----------------------------------------------
Section 9.4 Notices........................................................ Page 60
-------
Section 9.5 Counterparts................................................... Page 61
------------
Section 9.6 Entire Agreement; No Third Party Beneficiaries................. Page 62
----------------------------------------------
Section 9.7 Severability................................................... Page 62
------------
Section 9.8 Governing Law.................................................. Page 62
-------------
Section 9.9 Enforcement.................................................... Page 62
-----------
Section 9.10 Time of Essence................................................ Page 62
---------------
Section 9.11 Extension; Waiver.............................................. Page 62
----------------
Section 9.12 Assignment..................................................... Page 63
----------
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 11, 1999, by and
among Compaq Computer Corporation, a Delaware Corporation ("Parent"), and
------
Shopping.com, a California corporation (the "Company"). Certain capitalized
-------
terms used in this Agreement have the meanings ascribed to them in Article VIII,
Section 8.1 hereof.
WHEREAS, the Board of Directors of each of Parent and the Company has
approved, and deems it advisable and in the best interests of its respective
shareholders to consummate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein;
WHEREAS, Parent intends promptly after the execution of this Agreement
to form Purchaser in the state of Delaware;
WHEREAS, in furtherance thereof, it is proposed that Purchaser make a
cash tender offer to acquire all of the issued and outstanding shares of common
stock, no par value, of the Company for $19.00 per share, net to the seller in
cash; and
WHEREAS, also in furtherance of such acquisition, the Board of
Directors of each of Parent and the Company have approved this Agreement and the
Merger following the Offer in accordance with the CGCL and upon the terms and
subject to the conditions set forth herein; and
WHEREAS, the Company Board of Directors has determined that the
consideration to be paid for each Share in the Offer and the Merger is fair to
the holders of such Shares and has resolved to recommend that the holders of
such Shares accept the Offer and approve this Agreement and each of the
Transactions upon the terms and subject to the conditions set forth herein; and
WHEREAS, the Company and Parent desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and Merger; and
WHEREAS, as a condition and inducement to Parent's entering into this
Agreement and incurring the obligations set forth herein, each of the Major
Sharehold-
Page 1
<PAGE>
ers, concurrently herewith, is entering into a Shareholder Agreement
dated as of the date hereof, with Parent, substantially in the form of Exhibit A
hereto, pursuant to which each of the Major Shareholders is agreeing, among
other things, to tender the Shares held by each of them in the Offer and to
grant Parent a proxy with respect to the voting of such Shares, all upon the
terms and subject to the conditions set forth in the Shareholder Agreements; and
WHEREAS, as a condition and inducement to Parent's entering into this
Agreement and incurring the obligations set forth herein, the Company,
concurrently herewith, is entering into a Stock Option Agreement, dated as of
the date hereof, with Parent, substantially in the form of Exhibit B hereto,
pursuant to which the Company is granting to Purchaser an option to purchase
Shares, all upon the terms and subject to the conditions set forth in the Stock
Option Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein,
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer.
---------
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 7.1 and none of the events set forth in Annex A shall
have occurred and be existing, as promptly as practicable (but in no event later
than five business days after the public announcement of the execution of this
Agreement), Purchaser shall commence (within the meaning of Rule 14d-2
promulgated under the Exchange Act) a cash tender offer to acquire all Shares at
the Offer Price. Subject to Section 1.1(d) and the satisfaction of the Minimum
Condition and the other conditions set forth in Annex A hereto, Purchaser shall
use reasonable efforts to consummate the Offer in accordance with its terms and
to accept for payment and pay for Shares tendered pursuant to the Offer as soon
as Purchaser is legally permitted to do so under applicable law. The Offer shall
be made by means of the Offer to Purchase and shall be subject to the Minimum
Condition and the other conditions set forth in Annex A hereto, and shall
reflect, as appropriate, the other terms set forth in this Agreement. Subject to
Section 1.1(d), Purchaser shall not
Page 2
<PAGE>
amend or waive the Minimum Condition, decrease the Offer Price or decrease the
number of Shares sought, or amend any other condition of the Offer in any manner
adverse to the holders of the Shares without the written consent of the Company.
If on the initial scheduled expiration date of the Offer, which shall be no
earlier than twenty business days after the date the Offer is commenced, all
conditions to the Offer will not have been satisfied or waived, Purchaser may,
from time to time, in its sole discretion, extend the expiration date. In
addition, Purchaser may increase the amount it offers to pay per Share in the
Offer, and the Offer may be extended to the extent required by law in connection
with such increase, in each case, without the consent of the Company.
(b) As soon as practicable on the date the Offer is commenced, Parent
and Purchaser shall file with the SEC a tender offer statement on Schedule 14D-1
with respect to the Offer. The Schedule 14D-1 will include, as exhibits, the
Offer to Purchase and a 1 form of letter of transmittal and summary
advertisement.
(c) Parent and Purchaser will take all steps necessary to cause the
Offer Documents to be filed with the SEC and to be disseminated to holders of
the Shares, in each case as and to the extent required by applicable federal
securities laws. Parent and Purchaser, on the one hand, and the Company, on
the other hand, will promptly correct any information provided by it for use in
the Offer Documents if and to the extent that it shall have become false or
misleading in any material respect, and Purchaser will take all steps necessary
to cause the Offer Documents as so corrected to be filed with the SEC and to be
disseminated to holders of the Shares, in each case as and to the extent
required by applicable federal securities laws. The Company and its counsel
shall be given the opportunity to review the initial Schedule 14D-1 before it is
filed with the SEC. Parent and Purchaser will provide the Company and its
counsel in writing with any comments or other communications, whether written
or oral, Parent, Purchaser or their counsel may receive from time to time from
the SEC or its staff with respect to the Offer Documents, promptly after the
receipt of such comments or other communications.
(d) In the event the Minimum Condition is not satisfied on any
scheduled expiration date of the Offer, Purchaser may either (i) extend the
Offer pursuant to Section 1.1(a), or (ii) amend the Offer to provide that, in
the event (A) the Minimum Condition is not satisfied at the next scheduled
expiration date of the Offer (without giving pro forma effect to the potential
issuance of any Shares issuable upon exercise of the Stock Option Agreement),
and (B) the number of
Page 3
<PAGE>
Shares tendered pursuant to the Offer and not withdrawn as of such next
scheduled expiration date is more than 50% of the then outstanding Shares,
Purchaser shall waive the Minimum Condition and amend the Offer to reduce the
number of Shares subject to the Offer to a number of Shares that when added to
the Shares then owned by Purchaser will equal the Revised Minimum Number, and,
if a greater number of Shares is tendered into the Offer and not withdrawn,
purchase, on a pro rata basis, the Revised Minimum Number of Shares (it being
understood that Purchaser may, but shall not in any event be required to accept
for payment, and pay for, any Shares if less than the Revised Minimum Number of
Shares are tendered pursuant to the Offer and not withdrawn at the applicable
expiration date). Notwithstanding any other provision of this Agreement, in the
event that Purchaser purchases a number of Shares equal to the Revised Minimum
Number, without the prior written consent of the Purchaser prior to the
termination of this Agreement, the Company shall take no action whatsoever to
increase the number of Shares owned by the Purchaser in excess of the Revised
Minimum Number.
Section 1.2 Company Actions.
---------------
(a) As soon as practicable on the date the Offer is commenced, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9, which shall, subject to the provisions of Section 5.5(b),
contain the recommendation referred to in clause (iii) of Section 3.5 hereof. At
the time the Offer Documents are first mailed to the shareholders of the
Company, the Company shall mail or cause to be mailed to the shareholders of the
Company such Schedule 14D-9 together with such Offer Documents. The Company
further agrees to take all steps necessary to cause the Schedule 14D-9 to be
disseminated to holders of the Shares, as and to the extent required by
applicable federal securities laws. Each of the Company, on the one hand, and
Parent and Purchaser, on the other hand, agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that it shall have become false and misleading in any material respect and the
Company further agrees to take all steps necessary to cause the Schedule 14D-9
as so corrected to be filed with the SEC and to be disseminated to holders of
the Shares, in each case as and to the extent required by applicable federal
securities laws. Parent and its counsel shall be given the opportunity to
review the Schedule 14D-9 before it is filed with the SEC. In addition, the
Company agrees to provide Parent, Purchaser and their counsel with any comments,
whether written or oral, that the Company or its counsel may receive from time
to time from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments or other communications.
Page 4
<PAGE>
(b) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to Purchaser mailing labels, security position listings
and any available listing, or computer file containing the names and addresses
of all recordholders of the Shares as of a recent date, and shall furnish
Purchaser with such additional information (including, but not limited to, lists
of holders of the Shares, updated daily, and their addresses, mailing labels and
lists of security positions) and assistance as Purchaser or its agents may
reasonably request in communicating the Offer to the record and beneficial
holders of the Shares. Except for such steps as are necessary to disseminate
the Offer Documents, Parent and Purchaser shall hold in confidence the
information contained in any of such labels and lists and the additional
information referred to in the preceding sentence, will use such information
only in connection with the Offer, and, if this Agreement is terminated, will
upon request of the Company deliver or cause to be delivered to the Company all
copies of such information then in its possession or the possession of its
agents or representatives.
Section 1.3 Directors.
---------
(a) Parent shall be entitled to designate such number of directors,
rounded up to the next whole number, of the Company as is equal to the product
of the total number of directors on such Board of Directors (giving effect to
the directors designated by Parent pursuant to this sentence) multiplied by the
Board Fraction. The Directors so designated by Parent shall take office
immediately after (i) the purchase of and payment for any Shares by Parent or
any of its Subsidiaries as a result of which Parent owns beneficially at least
that number of shares which satisfies the Minimum Condition or the Revised
Minimum Number, as applicable, and (ii) compliance with Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder, whichever shall occur later.
In furtherance thereof, the Company shall, upon request of the Parent, promptly
either increase the size of its Board of Directors or secure the resignations of
such number of its incumbent directors, or both, as is necessary to enable such
designees of Parent to be so elected or appointed to the Company Board of
Directors, and the Company shall take all actions available to the Company to
cause such designees of Parent to be so elected or appointed at such time. At
such time, the Company shall, if requested by Parent, also take all action
necessary to cause persons designated by Parent to constitute the same Board
Fraction of (i) each committee of the Company Board of Directors and (ii) each
committee (or similar body) of each such board.
Page 5
<PAGE>
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder in order
to fulfill its obligations under Section 1.3(a), including mailing to
shareholders, concurrently with mailing to shareholders the Schedule 14D-9, the
information required by such Section 14(f) and Rule 14f-1 as is necessary to
enable Parent's designees to be elected or appointed to the Company Board of
Directors immediately after the purchase of and payment for any Shares by Parent
or any of its Subsidiaries as a result of which Parent own beneficially at least
a majority of then outstanding Shares. Parent or Purchaser will supply the
Company all information with respect to either of them and their nominees,
officers, directors and Affiliates required to be disclosed by such Section
14(f) and Rule 14f-1. The provisions of this Section 1.3 are in addition to and
shall not limit any rights which Purchaser, Parent or any of their Affiliates
may have as a holder or beneficial owner of Shares as a matter of law with
respect to the election of directors or otherwise.
(c) In the event that Parent's designees are elected or appointed to
the Company Board of Directors, until the Effective Time, the Company Board of
Directors shall have at least two directors who are Independent Directors,
provided that, in such event, if the number of Independent Directors shall be
reduced below two for any reason whatsoever, any remaining Independent Directors
(or Independent Director, if there be only one remaining) shall be entitled to
designate persons to fill such vacancies who shall be deemed to be Independent
Directors for purposes of this Agreement or, if no Independent Director then
remains, the other directors shall designate two persons to fill such vacancies
who shall not be shareholders, Affiliates or Associates of Parent or
Purchaser, and such persons shall be deemed to be Independent Directors for
purposes of this Agreement. Notwithstanding anything in this Agreement to the
contrary, in the event that Parent's designees constitute a majority of the
directors on the Company Board of Directors, the affirmative vote of a majority
of the Independent Directors shall be required after the acceptance for payment
of Shares pursuant to the Offer and prior to the Effective Time, to (a) amend or
terminate this Agreement by the Company, (b) exercise or waive any of the
Company's rights, benefits or remedies hereunder if such exercise or waiver
materially and adversely affects holders of Shares other than Parent or
Purchaser, or (c) take any other action under or in connection with this
Agreement if such action materially and adversely affects holders of Shares
other than Parent or Purchaser; provided, that if there shall be no such
--------
directors, such actions may be effected by unanimous vote of the entire Company
Board of Directors.
Page 6
<PAGE>
Section 1.4 The Merger.
----------
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time, the Company and Purchaser shall consummate a merger pursuant to
which (a) Purchaser shall be merged with and into the Company and the separate
corporate existence of Purchaser shall thereupon cease, (b) the Company shall be
the successor or surviving corporation in the Merger and shall continue to be
governed by the laws of the State of California, and (c) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger, except as set forth in this
Section 1.4.
(b) As of the Effective Time of the Merger, the articles of
incorporation of the Surviving Corporation shall be as set forth in Exhibit D-1
to this Agreement, and such articles of incorporation shall be the articles of
incorporation of Surviving Corporation until thereafter amended as provided by
law and such articles of incorporation of the Surviving Corporation. As of the
Effective Time of the Merger, the by-laws of the Surviving Corporation shall as
set forth in Exhibit D-2 to this Agreement, and such by-laws shall be the by-
laws of the Surviving Corporation until thereafter amended as provided by law
and such by-laws of the Surviving Corporation.
Section 1.5 Effective Time. Upon the terms and subject to the
--------------
conditions set forth in Article VI of this Agreement and the California Merger
Agreement, the form of which is attached hereto as Exhibit C, the parties hereto
shall file the California Merger Agreement with the Secretary of State of the
State of California, whereupon Purchaser shall be merged with and into the
Company in accordance with the applicable provisions of this Agreement and the
CGCL. Concurrently with the filing of the California Merger Agreement with
the Secretary of State of the State of California and upon the terms and subject
to the conditions set forth in this Agreement, the parties hereto shall file a
Certificate of Merger with the Secretary of State of Delaware in accordance with
the relevant provisions of the DGCL. The parties hereto shall make all other
filings, recordings or publications required by the CGCL and the DGCL in
connection with the Merger. The Merger shall become effective at the time
specified in the California Merger Agreement or the Certificate of Merger, as
the case may be, which specified time shall be the same in each of the
California Merger Agreement and the Certificate of Merger.
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Section 1.6 Closing. The closing of the Merger shall take place at
-------
10:00 a.m. on a date to be agreed upon by the parties, and if such date is not
agreed upon by the parties, the Closing shall occur on the business day after
satisfaction or waiver of all of the conditions set forth in Article VI, at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, 525 University Avenue,
Suite 220, Palo Alto, California 94301.
Section 1.7 Directors and Officers of the Surviving Corporation.
---------------------------------------------------
The directors and officers of the Company at the Effective Time shall, from and
after the Effective Time, be the directors and officers of the Surviving
Corporation until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and the by-laws of the Surviving Corporation.
If, at the Effective Time, a vacancy shall exist on the Company Board of
Directors or in any office of the Surviving Corporation, such vacancy may
thereafter be filled in the manner provided by law.
Section 1.8 Subsequent Actions. If at any time after the Effective
------------------
Time the Surviving Corporation will 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 right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Purchaser 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 either the Company or Purchaser, all such deeds, bills of
sale, instruments of conveyance, assignments and assurances and to take and do,
in the name and on behalf of each of such corporations 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 in the Surviving Corporation or otherwise to carry out this
Agreement.
Section 1.9 Shareholders' Meeting.
---------------------
(a) If required by applicable law in order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
applicable law:
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(i) duly call, give notice of, convene and hold a Special Meeting of
its shareholders as promptly as practicable following the acceptance for
payment and purchase of Shares by Purchaser pursuant to the Offer for the
purpose of considering and taking action upon the approval of the Merger and the
adoption of this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use its best
efforts to obtain and furnish the information required to be included by the SEC
in the Proxy Statement (as hereinafter defined) and, after consultation with
Parent, to respond promptly to any comments made by the SEC with respect to the
preliminary proxy or information statement and cause a definitive proxy or
information statement, including any amendment or supplement thereto to be
mailed to its shareholders, provided that no amendment or supplement to such
Proxy or information statement will be made by the Company without consultation
with Parent and its counsel;
(iii) include in the Proxy Statement the recommendation of
the Board of Directors that shareholders of the Company vote in favor of the
approval of the Merger and the adoption of this Agreement;
(iv) use its best efforts to solicit from holders of Shares
proxies in favor of the Merger and shall take all other action necessary or, in
the reasonable opinion of Parent, advisable to secure any vote or consent of
shareholders required under California law to effect the Merger.
(b) Parent will provide the Company with the information concerning
Parent and Purchaser required to be included in the Proxy Statement. Parent
shall vote, or cause to be voted, all of the Shares then owned by it, Purchaser
or any of its other Subsidiaries or Affiliates controlled by Parent in favor of
the approval of the Merger and the approval and adoption of this Agreement.
Section 1.10 Merger Without Meeting of Shareholders.
--------------------------------------
Notwithstanding Section 1.9, in the event that Parent, Purchaser and any other
Subsidiaries of Parent shall acquire in the aggregate a number of the
outstanding shares of each class of capital stock of the Company, pursuant to
the Offer or otherwise, sufficient to enable Purchaser or the Company to cause
the Merger to become effective without a meeting of shareholders of the Company,
the parties hereto shall, at the request of Parent and subject to Article VI,
take all necessary and appropriate action to cause
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the Merger to become effective as soon as practicable after such acquisition,
without a meeting of shareholders of the Company, in accordance with Section
1110 of the CGCL.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time,
---------------------------
by virtue of the Merger and without any further action on the part of the
holders of any Shares or holders of Purchaser Common Stock:
(a) Purchaser Common Stock. Each issued and outstanding share of
----------------------
Purchaser Common Stock shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Parent-Owned Stock. All Shares that are owned by
----------------------------------
Parent, Purchaser or any other wholly-owned Subsidiary of Parent shall be
cancelled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Shares. Each issued and outstanding Share (other
--------------------
than Shares to be cancelled in accordance with Section 2.1(b) and other than any
Dissenting Shares) shall be converted into the right to receive the Offer Price,
payable to the holder thereof, without interest, upon surrender of the
certificate formerly representing such Share in the manner provided in Section
2.2. From and after the Effective Time, all such converted Shares shall no
longer be outstanding and shall be deemed to be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such Shares
shall cease to have any rights with respect to such shares except the right to
receive the Merger Consideration therefor, without interest, upon the surrender
of such certificate in accordance with Section 2.2.
Section 2.2 Exchange of Certificates.
------------------------
(a) Paying Agent. Parent shall designate a bank or trust company to
------------
act as agent for the holders of the Shares in connection with the Merger to
receive in trust the funds to which holders of the Shares shall become entitled
Page 10
<PAGE>
pursuant to Section 2.1(c). At the Effective Time, Parent or Purchaser shall
deposit, or cause to be deposited, with the Exchange Agent for the benefit of
holders of Shares the aggregate consideration to which such holders shall be
entitled at the Effective Time pursuant to Section 2.1(c). Such funds shall be
invested as directed by Parent or the Surviving Corporation pending payment
thereof by the Paying Agent to holders of the Shares. Earnings from such
investments shall be the sole and exclusive property of Purchaser and the
Surviving Corporation, and no part of such earnings shall accrue to the benefit
of holders of Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
-------------------
Effective Time, Parent shall cause the Paying Agent to mail to each holder of
record of a Certificate or Certificates, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Paying
Agent and shall be in such form and have such other provisions not inconsistent
with this Agreement as Parent may specify) and (ii) instructions for use in
effecting the surrender of Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor the Merger Consideration for
each Share formerly represented by such Certificate, and the Certificate so
surrendered shall forthwith be cancelled. If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or shall be otherwise
in proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration in cash as contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
---------------------------------------------------------
Effective Time, the stock transfer books of the Company shall be closed, and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior to
the
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<PAGE>
Effective Time shall cease to have any rights with respect to such Shares,
except as otherwise provided for herein or by applicable law.
(d) Termination of Fund; No Liability. At any time following six
---------------------------------
months after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any earnings
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look only to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) and only as
general creditors thereof with respect to the Merger Consideration payable upon
due surrender of their Certificates, without any interest thereon.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Section 2.3 Dissenting Shares.
-----------------
(a) Notwithstanding any provision of this Agreement to the contrary,
Dissenting Shares shall not be converted into or represent a right to receive
cash pursuant to Section 2.1, but the holder thereof shall be entitled to only
such rights as are granted by the CGCL.
(b) Notwithstanding the provisions of Section 2.3(a), if any holder of
Shares who demands appraisal of his Shares under the CGCL effectively withdraws
or loses (through failure to perfect or otherwise) his right to appraisal, then
as of the Effective Time or the occurrence of such event, whichever later
occurs, such holder's Shares shall automatically be converted into and represent
only the right to receive the Merger Consideration as provided in Section
2.1(c), without interest, upon surrender of the certificate or certificates
representing such Shares pursuant to Section 2.2.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal or payment of the fair value of any Shares, withdrawals of
such demands, and any other instruments served on the Company pursuant to the
CGCL received by the Company, and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
CGCL. Except with the prior written consent of Parent, the Company shall not
voluntarily
Page 12
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make any payment with respect to any demands for appraisal, settle
or offer to settle any such demands.
Section 2.4 Company Stock Option Plans.
--------------------------
(a) At the Effective Time, each Company Option, whether vested or
unvested, shall be assumed by Parent (and Parent shall take all action necessary
under applicable law, to cause such result or equivalent result without
disadvantage to the Company Option holders) and shall thereupon constitute an
option to acquire that number of shares of Parent Common Stock equal to (i) the
number of Shares subject to the Company Option immediately prior to the
Effective Time, multiplied by (ii) the Exchange Ratio, rounded down to the
nearest whole share, at a price per share of Parent Common Stock equal to (x)
the exercise price of the Company Option immediately prior to the Effective
Time, divided by (y) the Exchange Ratio, rounded up to the nearest whole cent.
Other than as described in the immediately preceding sentence, the Company
Options shall be subject to the same terms and conditions as applicable
immediately prior to the Effective Time. As soon as reasonably practicable
following the Effective Time, Parent shall deliver to each holder of a Company
Option an appropriate notice setting forth the terms of such assumption. With
respect to any Company Option that is an incentive stock option (within the
meaning of Section 422 of the Code) immediately prior to the Effective Time,
such assumption shall, to the extent reasonably practicable, conform to the
requirements of Section 424(a) of the Code. Parent shall take all action
necessary for the shares of Parent Common Stock to rank pari passu in all
---- -----
respects with all other shares of Parent Common Stock then in issue and to be
listed and issuable upon exercise of the Company Options so that such Company
Options shall be freely tradeable on the New York Stock Exchange.
(b) Except as may be otherwise agreed to by Parent or Purchaser and
the Company or as otherwise contemplated or required to effectuate this Section
2.4, the Plans shall terminate as of the Effective Time and the provisions in
any other plan, program or arrangement providing for the issuance or grant of
any other interest in respect of the capital stock of the Company shall be
deleted as of the Effective Time.
(c) The Company shall take all necessary actions to provide that as of
the Effective Time no holder of Company Options under the Plans will have any
right to receive shares of common stock of the Surviving Corporation upon
exercise of any such Company Option.
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(d) Notwithstanding anything in this Agreement to the contrary, a vote
of a majority of the Independent Directors shall be required to amend this
Section 2.4 in any manner adverse to the holders of Company Options described
herein.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule prepared and signed by
the Company and to be delivered to Parent no later than 5:00 p.m., Pacific
Standard Time on January 14, 1999, the Company represents and warrants to Parent
and Purchaser that all of the statements contained in this Article III are true
and correct as of the date of this Agreement (or, if made as of a specified
date, as of such date), and will be true and correct as of the Closing Date as
though made on the Closing Date. Each exception set forth in the Disclosure
Schedule and each other response to this Agreement set forth in the Disclosure
Schedule is identified by reference to, or has been grouped under a heading
referring to, a specific individual section of this Agreement and, except as
otherwise specifically stated with respect to such exception, relates only to
such section. The disclosures in each section of the Disclosure Schedule relate
only to the representations and warranties set forth in the Section of this
Agreement to which such section of the Disclosure Schedule expressly relates and
not to any other representation and warranty contained in this Agreement, except
to the extent that one section of the Disclosure Schedule specifically refers to
another section thereof. In the event of any inconsistency between statements
in the body of this Agreement and statements in the Disclosure Schedule
(excluding exceptions expressly set forth in the Disclosure Schedule with
respect to a specifically identified representation or warranty), the statements
in the body of this Agreement shall control.
Section 3.1 Organization; Qualification. The Company (i) is a
---------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California; (ii) has full corporate power and authority to carry
on its business as it is now being conducted and to own the properties and
assets it now owns; and (iii) is duly qualified or licensed to do business as a
foreign corporation in good standing in every jurisdiction in which the
ownership of its properties or the conduct of its business requires such
qualification.
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<PAGE>
Section 3.2 Capitalization. (a) The authorized capital stock of the
--------------
Company consists of 25,000,000 Shares. As of the date hereof, (i) 8,140,793
Shares are issued and outstanding, (ii) no shares of Company Preferred Stock are
issued and outstanding, (iii) pursuant to California law, no Shares are issued
and held in the treasury of the Company, (iv) 2,743,325 Shares are reserved for
issuance pursuant to outstanding Company Options, and (v) 4,212,238 Shares are
reserved for issuance pursuant to outstanding warrants of the Company. All the
outstanding shares of the Company's capital stock are, and all Shares which may
be issued pursuant to the exercise of outstanding Company Options will be, when
issued in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and non-assessable. There is no Voting Debt of the Company
issued and outstanding. Except as set forth above and except for the
Transactions, as of the date hereof, (i) there are no shares of capital stock of
the Company authorized, issued or outstanding; (ii) there are no existing
options, warrants, calls, pre-emptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character, relating to the issued
or unissued capital stock of the Company, obligating the Company to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or
securities convertible into or exchangeable for such shares or equity interests,
or obligating the Company to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement, arrangement or commitment
and (iii) there are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any Shares, or the capital stock of the
Company or Affiliate of the Company or to provide funds to make any investment
(in the form of a loan, capital contribution or otherwise) in any other entity.
(b) There are no voting trusts or other agreements or understandings
to which the Company is a party with respect to the voting of the capital stock
of the Company.
(c) Following the Effective Time, no holder of Company Options will
have any right to receive shares of common stock of the Surviving Corporation
upon exercise of Company Options.
(d) No Indebtedness of the Company contains any restriction upon (i)
the prepayment of any Indebtedness of the Company, (ii) the incurrence of
Indebtedness by the Company, or (iii) the ability of the Company to grant any
lien on the properties or assets of the Company.
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<PAGE>
Section 3.3 Authorization; Validity of Agreement; Company Action.
----------------------------------------------------
The Company has full corporate power and authority to execute and deliver this
Agreement and the Stock Option Agreement, and to consummate the Transactions.
The execution, delivery and performance by the Company of this Agreement and the
consummation by it of the Transactions, have been duly authorized by the Company
Board of Directors and, except for obtaining the approval of its shareholders as
contemplated by Section 1.9, no other corporate action on the part of the
Company is necessary to authorize the execution and delivery by the Company of
this Agreement or the Stock Option Agreement or the consummation by it of the
Transactions. This Agreement and the Stock Option Agreement have been duly
executed and delivered by the Company and, assuming due and valid authorization,
execution and delivery thereof by Parent, this Agreement and the Stock Option
Agreement are valid and binding obligations of the Company enforceable against
the Company in accordance with their terms.
Section 3.4 Board Approvals Regarding Transactions. The Company
--------------------------------------
Board of Directors, at a meeting duly called and held or by unanimous written
consent, has (i) unanimously determined that each of the Agreement, the Stock
Option Agreement, the Offer and the Merger are fair to and in the best interests
of the shareholders of the Company, (ii) approved the 1 Transactions, and (iii)
resolved to recommend that the shareholders of the Company accept the Offer,
tender their Shares to Purchaser pursuant to the Offer and approve and adopt
this Agreement and the Merger, and none of the aforesaid actions by the Company
Board of Directors has been amended, rescinded or modified. To the knowledge of
the Company, no state takeover statute is applicable to the Merger or the other
Transactions.
Section 3.5 Vote Required. The affirmative vote of the holders of
-------------
a bare majority of the outstanding Shares is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve the Merger.
No vote of any class or series of the Company's capital stock is necessary to
approve any of the Transactions other than the Merger.
Section 3.6 Consents and Approvals; No Violations. Except for the
-------------------------------------
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the HSR Act,
state securities or blue sky laws, and the CGCL, none of the execution, delivery
or performance of this Agreement by the Company, the consummation by the Company
of the Transactions or compliance by the Company with any of the provisions
hereof will (i) conflict with or result in any breach of any provision of the
articles of incorporation, the by-laws or
Page 16
<PAGE>
similar organizational documents of the Company, (ii) require any filing with,
or permit, authorization, consent or approval of, any Governmental Entity, (iii)
result in a violation or breach of, or constitute (with or without due notice or
the passage of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any Company Agreement, or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company
or any of their properties or assets, excluding from the foregoing clauses (ii),
(iii) and (iv) such violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on the Company.
There are no third party consents or approvals required to be obtained under the
Company Agreements prior to the consummation of the Transactions.
Section 3.7 SEC Reports and Financial Statements. The Company has
------------------------------------
filed with the SEC, and has heretofore made available to Parent, true and
complete copies of, the Company SEC Documents. As of their respective dates or,
if amended, as of the date of the last such amendment filed prior to the date
hereof, the Company SEC Documents, including, without limitation, any financial
statements or schedules included therein (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading and (b)
complied in all material respects with the applicable requirements of the
Exchange Act and the Securities Act, as the case may be, and the applicable
rules and regulations of the SEC thereunder. The Financial Statements have
been prepared from, and are in accordance with, the books and records of the
Company, comply in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto,
have been prepared in accordance with GAAP applied on a consistent basis during
the period involved (except as may be stated in the notes thereto) and fairly
present the consolidated financial position and the results of operations and
cash flows (and changes in financial position, if any) of the Company as of the
times and for the periods referred to therein.
Section 3.8 Books and Records. The books of account, minute books,
-----------------
stock record books and other records of the Company are complete and correct in
all material respects and have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act,
including the requirements relating to a system of internal accounting controls.
The minute books of the Company contain accurate and complete records of all
meetings held of, and corporate action taken by, the shareholders, the Company
Board of Directors and committees of the Company Board of Directors, and no
meeting of any of such shareholders, the
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Company Board of Directors or such committees has been held for which minutes
have not been prepared and are not contained in such minute books.
Section 3.9 No Undisclosed Liabilities. Except (a) as disclosed in
--------------------------
the Financial Statements, and (b) for liabilities and obligations (i) incurred
in the ordinary course of business and consistent with past practice since the
Balance Sheet Date pursuant to the terms of this Agreement, the Company has no
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that have, or would be reasonably likely to have, a material adverse
effect on the Company. The reserves reflected in the Financial Statements are
adequate, appropriate and reasonable and have been calculated in a consistent
manner.
Section 3.10 Accounts Receivable. All accounts receivable of the
-------------------
Company, whether reflected in the Balance Sheet or otherwise, represent sales
actually made in the ordinary course of business, and are current and
collectible net of any reserves shown on the Balance Sheet. Subject to such
reserve, each of the accounts receivable either has been collected in full or
will be collected in full, without any set-off, within 120 days after the day on
which it became due and payable.
Section 3.11 Inventory. All of the inventories of the Company,
---------
whether reflected in the Balance Sheet or otherwise, consist of a quality and
quantity usable and salable in the ordinary and usual course of business, except
for items of obsolete materials and materials of below-standard quality, all of
which have been written off or written down on the Balance Sheet to fair market
value or for which adequate reserves have been provided therein. All
inventories not written off have been priced at the lower of average cost or
market. The quantities of each type of inventory (whether raw materials, work-
in-process, or finished goods) are not excessive, but are reasonable and
warranted in the present circumstances of the Company. All work in process and
finished goods inventory is free of any defect or other deficiency.
Section 3.12 Interim Operations. Since the date of the Balance
------------------
Sheet, the business of the Company has been conducted only in the ordinary and
usual course consistent with past practice. Since the date of the Balance
Sheet, there have not been any material adverse changes in the financial
condition, assets or results of operations of the Company. Since the date of
the Balance Sheet, such assets have not been affected in any way as a result of
flood, fire, explosion or other casualty (whether or not covered by insurance).
The Company is not aware of any circumstances which may cause it to suffer any
material adverse change in its business, operations or prospects.
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Section 3.13 Absence of Certain Changes. Except as disclosed in
--------------------------
the Company SEC Documents filed prior to the date hereof, since the date of the
Balance Sheet, the Company has not:
(a) suffered any material adverse change in its working capital,
financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business, operations or prospects;
(b) incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise) except non-material items incurred in the ordinary
course of business and consistent with past practice, none of which exceeds
$100,000 (counting obligations or liabilities arising from one transaction or a
series of similar transactions, and all periodic installments or payments under
any lease or other agreement providing for periodic installments or payments, as
a single obligation or liability), or increased, or experienced any change in
any assumptions underlying or methods of calculating, any bad debt, contingency
or other reserves;
(c) paid, discharged or satisfied any claim, liability or obligation
(whether absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities and obligations reflected or reserved against in
the Balance Sheet or incurred in the ordinary course of business and consistent
with past practice since the date of the Balance Sheet;
(d) permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind, except for
liens for current taxes not yet due;
(e) written down the value of any inventory (including write-downs by
reason of shrinkage or mark-down) or written off as uncollectible any notes or
accounts receivable, except for immaterial write-downs and write-offs in the
ordinary course of business and consistent with past practice;
(f) cancelled any debts or waived any claims or rights of
substantial value;
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(g) sold, transferred, or otherwise disposed of any of its properties
or assets (real, personal or mixed, tangible or intangible), except in the
ordinary course of business and consistent with past practice;
(h) disposed of or permitted to lapse any rights to the use of any
Intellectual Property, or disposed of or disclosed (except as necessary in the
conduct of its business) to any person other than representatives of Parent any
trade secret, formula, process, know-how or other Intellectual Property not
theretofore a matter of public knowledge;
(i) granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension,
profitsharing or other plan or commitment) or any increase in the compensation
payable or to become payable to any officer or employee, and no such increase is
customary on a periodic basis or required by agreement or understanding;
(j) made any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant, equipment or intangible capital assets
or made aggregate capital expenditures and commitments in excess of $50,000 (on
a consolidated basis) for additions to property, plant, equipment or intangible
capital assets;
(k) declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of capital stock or other
securities of the Company;
(l) made any change in any method of accounting or accounting
practice;
(m) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any of its
officers or directors or any Affiliate or Associate of any of its officers or
directors except for directors' fees, and compensation to officers at rates not
exceeding the rates of compensation paid during the year ended January 31, 1998;
or
(n) agreed, whether in writing or otherwise, to take any action
described in this section.
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Section 3.14 Litigation. There is no action, suit, inquiry,
----------
proceeding or investigation by or before any court or governmental or other
regulatory or administrative agency or commission pending or threatened against
or involving the Company or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the Company pursuant to this
Agreement or in connection with the Transactions; nor is there any valid basis
for any such action, proceeding or investigation. The Company is not in default
under or in violation of, nor is there any valid basis for any claim of default
under or violation of, any contract, commitment or restriction to which it is a
party or by which it is bound. The Company is not subject to any judgment, order
or decree which may have an adverse effect on its business practices or on its
ability to acquire any property or conduct its business in any area.
Section 3.15 Employee Benefit Plans.
----------------------
(a) The Disclosure Schedule contains a true and complete list of
each deferred compensation and each incentive compensation, stock purchase,
stock option and other equity compensation plan, program, agreement or
arrangement; each severance or termination pay, medical, surgical,
hospitalization, life insurance and other "welfare" plan, fund or program
(within the meaning of Section 3(1) of ERISA); each profit-sharing, stock bonus
or other "pension" plan, fund or program (within the meaning of Section 3(2) of
ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed to
by the Company or by any ERISA Affiliate, or to which the Company or an ERISA
Affiliate is party, whether written or oral, for the benefit of any employee or
former employee of the Company. Neither the Company nor any ERISA Affiliate has
any commitment or formal plan, whether legally binding or not, to create any
additional employee benefit plan or modify or change any existing Plan that
would affect any employee or former employee of the Company.
(b) With respect to each of the Plans, the Company has
heretofore delivered to Parent true and complete copies of each of the following
documents, as applicable: (i) a copy of the Plan documents (including all
amendments thereto) for each written Plan or a written description of any Plan
that is not otherwise in writing; (ii) a copy of the annual report or Internal
Revenue Service Form 5500 Series, if required under ERISA, with respect to each
Plan for the last three Plan years ending prior to the date of this Agreement
for which such a report was filed; (iii) a copy of the actuarial report, if
required under ERISA, with respect to each Plan for the last three Plan years
ending prior to the date of this Agreement; (iv) a copy of the most
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recent Summary Plan Description ("SPD"), together with all Summaries of Material
---
Modification issued with respect to such SPD, if required under ERISA, with
respect to each Plan, and all other material employee communications relating to
each Plan; (v) if the Plan is funded through a trust or any other funding
vehicle, a copy of the trust or other funding agreement (including all
amendments thereto) and the latest financial statements thereof, if any; (vi)
all contracts relating to the Plans with respect to which the Company, and of
its Subsidiaries or any ERISA Affiliate may have any liability, including
insurance contracts, investment management agreements, subscription and
participation agreements and record keeping agreements; and (vii) the most
recent determination letter received from the IRS with respect to each Plan that
is intended to be qualified under Section 401(a) of the Code.
(c) No liability under Title IV or Section 302 of ERISA has been
incurred by the Company or any ERISA Affiliate that has not been satisfied in
full, and no condition exists that presents a material risk to the Company or
any ERISA Affiliate of incurring any such liability, other than liability for
premiums due the PBGC (which premiums have been paid when due). Insofar as the
representation made in this Section 3.16(c) applies to Sections 4064, 4069 or
4204 of Title IV of ERISA, it is made with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which the
Company or any ERISA Affiliate made, or was required to make, contributions
during the five year period ending on the last day of the most recent plan year
ended prior to the Closing Date.
(d) The PBGC has not instituted proceedings to terminate any
Title IV Plan and no condition exists that presents a material risk that such
proceedings will be instituted.
(e) With respect to each Title IV Plan, the present value of
accrued benefits under such plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan did not exceed, as of its latest valuation
date, then current value of the assets of such plan allocable to such accrued
benefits.
(f) No Title IV Plan or any trust established thereunder has
incurred any "accumulated funding deficiency" (as defined in Section 302 of
ERISA and Section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each Title IV Plan ended prior to the Closing
Date. All contributions required to be made with respect to any Plan on or prior
to the Closing Date have been timely made.
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(g) No Title IV Plan is a "multi-employer pension plan," as
defined in Section 3(37) of ERISA, nor is any Title IV Plan a plan described in
Section 4063(a) of ERISA. Neither the Company nor any ERISA Affiliate has made
or suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203 and 4205 of ERISA (or any liability
resulting therefrom has been satisfied in full).
(h) Neither the Company, any Plan, any trust created thereunder,
nor any trustee or administrator thereof has engaged in a transaction in
connection with which the Company, any Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust
could be subject to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code.
(i) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.
(j) Each Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code is so qualified, and the trusts maintained thereunder
are exempt from taxation under Section 501(a) of the Code. Each Plan intended to
satisfy the requirements of Section 501(c)(9) has satisfied such requirements.
(k) No Plan provides medical, surgical, hospitalization, death
or similar benefits (whether or not insured) for employees or former employees
of the Company for periods extending beyond their retirement or other
termination of service, other than (i) coverage mandated by applicable law, (ii)
death benefits under any "pension plan," or (iii) benefits the full cost of
which is borne by the current or former employee (or his beneficiary).
(l) No amounts payable under the Plans will fail to be
deductible for federal income tax purposes by virtue of Section 280G of the
Code.
(m) The consummation of the Transactions will not, either alone
or in combination with another event, (i) entitle any current or former employee
or officer of the Company or any ERISA Affiliate to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer.
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<PAGE>
(n) There are no pending, threatened or anticipated claims by or
on behalf of any Plan, by any employee or beneficiary covered under any such
Plan, or otherwise involving any such Plan (other than routine claims for
benefits).
Section 3.16 Tax Matters; Government Benefits.
--------------------------------
(a) The Company has duly and timely filed all Tax Returns that
are required to be filed by it, and has duly paid in full or made adequate
provision for the payment of all Taxes relating to all periods or portions
thereof ending through the date hereof. All such Tax Returns are correct and
complete in all material respects. Since the Balance Sheet Date, the Company has
not incurred liability for any Taxes other than in the ordinary course of
business. The Company has not received notice of any claim made by an authority
in a jurisdiction where the Company does not file a Tax Return, that the Company
is or may be subject to taxation by that jurisdiction.
(b) The Company has not waived any statute of limitations in any
jurisdiction in respect of Taxes or Tax Returns or agreed to any extension of
time with respect to a Tax assessment or deficiency. The Company has not
requested or been granted any extension of time within which to file any Tax
Returns that have not since been filed. There are no Tax liens upon any of the
assets of the Company except for liens for Taxes not yet due for which adequate
reserves have been established.
(c) No federal, state, local or foreign audits, examinations or
other administrative proceedings have been commenced, are pending or are
threatened with regard to any Taxes or Tax Returns of the Company. There is no
dispute or claim concerning any Tax liability of the Company either claimed or
raised by any taxing authority that has not been settled and fully paid.
(d) The Company is not a party to any agreement, plan, contract
or arrangement that could result, separately or in the aggregate, in a payment
of any "excess parachute payments" within the meaning of Section 280G of the
Code.
(e) The Company has not filed a consent pursuant to Section
341(f) of the Code (or any predecessor provision) concerning collapsible
corporations, or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a "subsection (f) asset" (as such term is defined in Section
341(f)(4) of the Code) owned by the Company. The Company has not agreed to make,
or is required to make, any adjustment under Section 481(a) of the Code (or
comparable provision under other laws) by reason of a change in accounting
method or otherwise.
Page 24
<PAGE>
(f) No taxing authority is asserting or threatening to assert a
claim against the Company under or as a result of Section 482 of the Code or any
similar provision of state, local or foreign law.
(g) The Company is not a party to any material tax sharing, tax
indemnity or other similar agreement or arrangement with any entity.
(h) The Company has not been a member of any affiliated group
within the meaning of Section 1504(a) of the Code, or any similar affiliated or
consolidated group for tax purposes under state, local or foreign law, or has
any liability for Taxes of any person (other than the Company) under Treasury
Regulation Section 1.1502-6 or any similar provision of state, local or foreign
law as a transferee or successor, by contract or otherwise.
(i) The Company has complied in all respects with all applicable
laws, rules and regulations relating to the payment and withholding of Taxes and
have, within the time prescribed by law, withheld and paid over to the proper
governmental authorities all amounts required to be withheld and paid over under
all applicable laws.
Section 3.17 Title to Properties; Encumbrances. The Company has
---------------------------------
good, valid and marketable title to all the properties and assets which it
purports to own (real, personal and mixed, tangible and intangible), including,
without limitation, all the properties and assets reflected in the Balance
Sheet, and all the properties and assets purchased by the Company since the date
of the Balance Sheet, which subsequently acquired properties and assets (other
than inventory) are listed in the Disclosure Schedule. All properties and assets
reflected in the Balance Sheet have a fair market or realizable value at least
equal to the value thereof as reflected therein, and all such properties and
assets are free and clear of all mortgages, title defects or objections, liens,
claims, charges, security interests or other encumbrances of any nature
whatsoever including, without limitation, leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title or interest
retention arrangements, and are not, in the case of real property, subject to
any rights of way, building use restrictions, exceptions, variances,
reservations or limitations of any nature whatsoever except, with respect to all
such properties and assets, (a) liens shown on the Balance Sheet as securing
specified liabilities or obligations and liens incurred in connection with the
purchase of property and/or assets, if such purchase was effected after the date
of the Balance Sheet, with respect to which no default exists; (b) minor
imperfections of title, if any, none of which are substantial in amount,
materially detract from the value
Page 25
<PAGE>
or impair the use of the property subject thereto, or impair the operations of
the Company and which have arisen only in the ordinary course of business and
consistent with past practice since the date of the Balance Sheet; and (c) liens
for current taxes not yet due. The rights, properties and other assets presently
owned, leased or licensed by the Company and described elsewhere in this
Agreement include all rights, properties and other assets necessary to permit
the Company to conduct its business in all material respects in the same manner
as its business has been conducted prior to the date hereof.
Section 3.18 Plant and Equipment. The plants, structures and
-------------------
equipment of the Company are structurally sound with no known defects and are in
good operating condition and repair and are adequate for the uses to which they
are being put. None of such plants, structures or equipment are in need of
maintenance or repairs except for ordinary, routine maintenance and repairs
which are not material in nature or cost. The Company has not received
notification that it is in violation of any applicable building, zoning, anti-
pollution, health or other law, ordinance or regulation in respect of its plants
or structures or their operations.
Section 3.19 Leases. The Disclosure Schedule contains an accurate and
------
complete description of the terms of all leases pursuant to which the Company
leases real or personal property. All such leases are valid, binding and
enforceable in accordance with their terms, and are in full force and effect;
there are no existing defaults by the Company thereunder; and no event of
default has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder. Executed counterpart copies of all consents referred to in the
preceding sentence will be delivered to Parent at the Closing.
Section 3.20 Environmental Laws. Except as disclosed in the Company
------------------
SEC Documents (a) the Company is in compliance in all material respects with all
Environmental Laws, including, but not limited to, compliance with any permits
or other governmental authorizations or the terms and conditions thereof; (b)
the Company has not received any communication or notice, whether from a
governmental authority or otherwise, alleging any violation of or noncompliance
with any Environmental Laws by the Company for which it is responsible, and
there is no pending or, to the Company's knowledge, threatened Environmental
Claim, except where such Environmental Claim would not have a material adverse
effect on the Company; and (c) to the Company's knowledge, there are no past or
present facts or circumstances that could form the basis of any Environmental
Claim against the Company or against any person or entity whose liability for
any Environmental Claim the Company has retained or assumed either contractually
or by operation of law, except where such Environmental Claim, if made,
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<PAGE>
would not have a material adverse effect on the Company. All permits and other
governmental authorizations currently held or required to be held by the Company
pursuant to any Environmental Laws are identified in the Disclosure Schedule.
The Company has provided to Parent all assessments, reports, data, results of
investigations or audits, and other information that is in the possession of or
reasonably available to the Company regarding environmental matters pertaining
to or the environmental condition of the business of the Company, or the
compliance (or noncompliance) by the Company with any Environmental Laws.
Section 3.21 Bank Accounts. The Disclosure Schedule sets forth the
-------------
names and locations of all banks, trust companies, savings and loan associations
and other financial institutions at which the Company maintains safe deposit
boxes or accounts of any nature, and the names of all persons authorized to draw
thereon, make withdrawals therefrom or have access thereto. At the Closing, the
Company will deliver to Parent copies of all records, including all signature or
authorization cards, pertaining to such bank accounts.
Section 3.22 Intellectual Property.
---------------------
(a) As used herein, the term "Intellectual Property" means all
trademarks, service marks, trade names, Internet domain names, designs, logos,
slogans and general intangibles of like nature, together with goodwill,
registrations and applications relating to the foregoing; registered and
unregistered patents, copyrights (including registrations and applications for
any of the foregoing); computer programs, including any and all software
implementations of algorithms, models and methodologies whether in source code
or object code form, databases and compilations, including any and all data and
collections of data, all documentation, including user manuals and training
materials, related to any of the foregoing and the content and information
contained on any Web site (collectively, "Software"); confidential information,
technology, know-how, inventions, processes, formulae, algorithms, models and
methodologies (such confidential items, collectively "Trade Secrets") held for
use or used in the business of the Company as conducted as of the Closing Date
or as presently contemplated to be conducted and any licenses to use any of the
foregoing.
(b) Section 3.22(b) of the Disclosure Schedule sets forth, for
all Intellectual Property owned by the Company, a complete and accurate list, of
all U.S. and foreign: (i) patents and patent applications; (ii) trademark and
service mark registrations (including Internet domain name registrations),
trademark and service mark
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<PAGE>
applications and material unregistered trademarks and service marks; and (iii)
copyright registrations, copyright applications and material unregistered
copyrights.
(c) Section 3.22(c) of the Disclosure Schedule lists all
contracts for material Software which is licensed, leased or otherwise used by
the Company and all Software which is owned by the Company ("Proprietary
Software"), and identifies which Software is owned, licensed, leased, or
otherwise used, as the case may be.
(d) Section 3.22(d) of the Disclosure Schedule sets forth a
complete and accurate list of all agreements granting or obtaining any right to
use or practice any rights under any Intellectual Property, to which the Company
is a party or otherwise bound, as licensee or licensor thereunder, including,
without limitation, license agreements, settlement agreements and covenants not
to sue (collectively, the "License Agreements").
(e) Except as would not have a material adverse effect on the
Company:
(i) the Company owns or has the right to use all
Intellectual Property, free and clear of all liens or other encumbrances;
(ii) any Intellectual Property owned or used by the
Company has been duly maintained, is valid and subsisting, in full force and
effect and has not been cancelled, expired or abandoned;
(iii) the Company has not received written notice from any
third party regarding any actual or potential infringement by the Company of any
intellectual property of such third party, and the Company has no knowledge of
any basis for such a claim against the Company;
(iv) the Company has not received written notice from any
third party regarding any assertion or claim challenging the validity of any
Intellectual Property owned or used by the Company and the Company has no
knowledge of any basis for such a claim;
(v) the Company has not licensed or sublicensed its
rights in any Intellectual Property, or received or been granted any such
rights, other than pursuant to the License Agreements;
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<PAGE>
(vi) no third party is misappropriating, infringing,
diluting or violating any Intellectual Property owned by the Company;
(vii) the License Agreements are valid and binding
obligations of the Company, enforceable in accordance with their terms, and
there exists no event or condition which will result in a violation or breach
of, or constitute a default by the Company or, to the knowledge of the Company,
the other party thereto, under any such License Agreement;
(viii) the Company takes reasonable measures to protect the
confidentiality of Trade Secrets (as defined hereinafter) including requiring
third parties having access thereto to execute written nondisclosure agreements.
No Trade Secret of the Company has been disclosed or authorized to be disclosed
to any third party other than pursuant to a written nondisclosure agreement that
adequately protects the Company's proprietary interests in and to such Trade
Secrets;
(ix) the consummation of the transactions contemplated
hereby will not result in the loss or impairment of the Company rights to own or
use any of the Intellectual Property, nor will such consummation require the
consent of any third party in respect of any Intellectual Property; and
(x) all Proprietary Software set forth in Section 3.22(c)
of the Disclosure Schedule, was either developed (a) by employees of the Company
within the scope of their employment; or (b) by independent contractors who have
assigned all of their rights to the Company pursuant to written agreement.
(f) Except as set forth in Section 3.23(f) of the Disclosure
Schedule, neither the Company:
(i) has granted to any third party any exclusive rights
of any kind (including, without limitation, exclusivity with regard to
categories of advertisers on any World Wide Web site, territorial exclusivity or
exclusivity with respect to particular versions, implementations or translations
of any of the Intellectual Property), nor has the Company granted any third
party any right to market any of the Intellectual Property under any private
label or "OEM" arrangements;
(ii) has any outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion orders,
slotting agreements or other agreements under which the Company has allowed
third parties to
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<PAGE>
advertise on or otherwise be included in a World Wide Web site) that the Company
currently expects to result in any loss to the Company upon completion or
performance thereof;
(iii) has any oral contracts or arrangements for the sale
of advertising or any other product or service; or
(iv) employs any employee, contractor or consultant who is
in violation of any term of any written employment contract, patent disclosure
agreement or any other written contract or agreement relating to the
relationship of any such employee, consultant or contractor with the Company or,
to the Company's knowledge, any other party because of the nature of the
business conducted by the Company.
(g) All Software and systems used by the Company are Year 2000
Compliant. As used herein, "Year 2000 Compliant" and "Year 2000 Compliance" mean
for all dates and times, including, without limitation dates and times after
December 31, 1999 and in the multi-century scenario, when used on a stand-alone
system or in combination with other software or systems: (i) the application
system functions and receives and processes dates and times correctly without
abnormal results; (ii) all date related calculations are correct (including,
without limitation, age calculations, duration calculations and scheduling
calculations); (iii) all manipulations and comparisons of date-related data
produce correct results for all valid date values within the scope of the
application; (iv) there is no century ambiguity; (v) all reports and displays
are sorted correctly; and (vi) leap years are accounted for and correctly
identified (including, without limitation, that 2000 is recognized as a leap
year). The Company has obtained written representations or assurances from each
entity that (x) provides data of any type that includes date information or
which is otherwise derived from, dependent on or related to date information
("Date Data") to the Company, (y) processes in any way Date Data for the Company
or (z) otherwise provides any material product or service to the Company that is
dependent on Year 2000 Compliance, that all of such entity's Date Data and
related software and systems that are used for, or on behalf of, the Company are
Year 2000 Compliant.
Section 3.23 Employment Matters. To the Company's knowledge, no key
------------------
employee or group of employees has any plans to terminate their employment with
the Company as a result of the Transactions or otherwise. The Company has not
experienced any strikes, collective labor grievances, other collective
bargaining disputes or Claims of unfair labor practices in the last five years.
To the Company's knowledge,
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<PAGE>
there is no organizational effort presently being made or threatened by or on
behalf of any labor union with respect to employees of the Company.
Section 3.24 Compliance with Laws. The Company is in compliance with,
--------------------
and have not violated any applicable law, rule or regulation of any United
States federal, state, local, or foreign government or agency thereof which
materially affects the business, properties or assets of the Company, and no
notice, charge, claim, action or assertion has been received by the Company or
has been filed, commenced or, to the Company's knowledge, threatened against the
Company alleging any such violation, except for any matter otherwise covered by
this sentence which does not have, individually or in the aggregate, a material
adverse effect on the Company. All licenses, permits and approvals required
under such laws, rules and regulations are in full force and effect except where
the failure to be in full force and effect would not have a material adverse
effect on the Company.
Section 3.25 Products Liability. As of the date of this Agreement,
------------------
there is no claim, action, suit or proceeding pending before any Governmental
Entity in which a Product is alleged to have a Defect; nor, to the knowledge of
the Company, as of the date of this Agreement, is any such claim, action, suit
or proceeding threatened or is there any valid basis for any such claim, action,
suit or inquiry, proceeding.
Section 3.26 Contracts and Commitments.
-------------------------
(a) The Company has no agreements, contracts, commitments or
restrictions which are material to its business, operations or prospects or
which require the making of any charitable contribution;
(b) No purchase contracts or commitments of the Company continue
for a period of more than 12 months or are in excess of the normal, ordinary and
usual requirements of business or at any excessive price;
(c) There are no outstanding sales contracts, commitments or
proposals of the Company which continue for a period of more than 12 months or
will result in any loss to the Company upon completion or performance thereof,
after allowance for direct distribution expenses, nor are there any outstanding
contracts, bids or sales or service proposals quoting prices which will not
result in a normal profit;
(d) The Company has no outstanding contracts with officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors
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<PAGE>
or dealers that are not cancellable by it on notice of not longer than 30 days
and without liability, penalty or premium, or any agreement or arrangement
providing for the payment of any bonus or commission based on sales or earnings;
(e) The Company has no employment agreements, or any other
agreements that contain any severance or termination pay liabilities or
obligations;
(f) The Company has no collective bargaining or union contracts
or agreements;
(g) The Company is not in default, nor is there any basis for
any valid claim of default, under any contract made or obligation owed by it;
(h) The Company has no employee to whom it is paying
compensation at the annual rate of more than $75,000 for services rendered;
(i) The Company is not restricted by agreement from carrying on
its business anywhere in the world;
(j) The Company is not under any liability or obligation with
respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers;
(k) The Company has no debt obligations for borrowed money,
including guarantees of or agreements to acquire any such debt obligation of
others;
(l) The Company has no outstanding loans to any person; and
(m) The Company has no powers of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in
respect of the obligation of any person, corporation, partnership, joint
venture, association, organization or other entity.
Section 3.27 Customers and Suppliers. There has not been any material
-----------------------
adverse change in the business relationship of the Company with any customer who
accounted for more than 5% of the Company's sales (on a consolidated basis)
during the period February 1, 1998 to October 31, 1998 or any supplier from whom
the Company
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<PAGE>
purchased more than 5% of the goods or services (on a consolidated basis) which
it purchased during the same period.
Section 3.28 Orders, Commitments and Returns. As of the date of this
-------------------------------
Agreement, the aggregate of all accepted and unfulfilled orders for the sale of
merchandise entered into by the Company does not exceed $200,000. As of the date
of this Agreement, there are no claims against the Company to return in excess
of an aggregate of $25,000 of merchandise by reason of alleged overshipments,
defective merchandise or otherwise, or of merchandise in the hands of customers
under an understanding that such merchandise would be returnable.
Section 3.29 Insurance. The Disclosure Schedule contains an accurate
---------
and complete description of all material policies of fire, liability, workmen's
compensation and other forms of insurance owned or held by the Company. All such
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the date of the Closing have been paid,
and no notice of cancellation or termination has been received with respect to
any such policy. Such policies are sufficient for compliance with all
requirements of law and of all agreements to which the Company is a party; are
valid, outstanding and enforceable policies; provide adequate insurance coverage
for the assets and operations of the Company, will remain in full force and
effect through the respective dates set forth in the Disclosure Schedule without
the payment of additional premiums; and will not in any way be affected by, or
terminate or lapse by reason of, the Transactions. The Disclosure Schedule
identifies all risks which the Company, its Board of Directors or officers have
designated as being self insured. The Company has not been refused any insurance
with respect to its assets or operations, nor has its coverage been limited, by
any insurance carrier to which it has applied for any such insurance or with
which it has carried insurance during the last two years.
Section 3.30 Labor Difficulties. (a) The Company is in compliance
------------------
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and are not engaged in any
unfair labor practice; (b) there is no unfair labor practice complaint against
the Company pending before the National Labor Relations Board; (c) there is no
labor strike, dispute, slowdown or stoppage actually pending or threatened
against or affecting the Company; (d) no representation question exists
respecting the employees of the Company; (e) no grievance nor any arbitration
proceeding arising out of or under collective bargaining agreements is pending
and no claim therefor exists; (f) no collective bargaining agreement which is
binding on the Company restricts it from relocating or closing any
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<PAGE>
of their operations; and (g) the Company has not experienced any work stoppage
or other labor difficulty since January 31, 1997.
Section 3.31 Consents. Except as set forth in Section 3.6 hereof, no
--------
consent of any person is necessary to the consummation of the Transactions,
including, without limitation, consents from parties to loans, contracts, leases
or other agreements, and consents from governmental agencies, whether federal,
state or local.
Section 3.32 Information in Schedule 14D-9. The information supplied
-----------------------------
by the Company expressly for inclusion in the Offer Documents and the Schedule
14D-9 will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The Schedule 14D-9 will comply in all material
respects with the provisions of applicable federal securities laws and, on the
date filed with the SEC and on the date first published or sent or given to the
Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to statements made therein
based on information furnished by Parent or Purchaser for inclusion in the
Schedule 14D-9.
Section 3.33 Information in Proxy Statement. The Proxy Statement, if
------------------------------
any, will not, at the date mailed to Company shareholders and at the time of the
Special Meeting to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to statements made
therein based on information furnished by Parent or Purchaser for inclusion in
the Proxy Statement. The Proxy Statement will comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
Section 3.34 Opinion of Financial Advisor. The Company has received
----------------------------
the opinion of Trautman Kramer & Company dated the date hereof, to the effect
that, as of such date, the consideration to be received in the Offer and the
Merger by the Company's shareholders is fair to the Company's shareholders from
a financial point of view, and the copy of such opinion included in the
Disclosure Schedule is manually signed, accurate and complete. The Company has
been authorized by Trautman Kramer
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& Company to permit the inclusion of such opinion in its entirety in the Offer
Documents and the Schedule 14D-9 and the Proxy Statement, so long as such
inclusion is in form and substance reasonably satisfactory to Trautman Kramer &
Company and its counsel.
Section 3.35 Absence of Questionable Payments. Neither the Company
--------------------------------
nor any director, officer, agent, employee or other person acting on behalf of
the Company, has used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or established or
maintained any unlawful or unrecorded funds in violation of Section 30A of the
Securities Exchange Act. Neither the Company nor any current director, officer,
agent, employee or other person acting on behalf of the Company, has accepted or
received any unlawful contributions, payments, gifts, or expenditures. The
Company is in compliance with the provisions of Section 13(b) of the Securities
Exchange Act.
Section 3.36 Personnel. The Disclosure Schedule sets forth a true and
---------
complete list of: the names and current salaries of all directors and elected
and appointed officers of each of the Company, the number of shares of the
Company Stock owned beneficially or of record, or both, by each such person and
the family relationships, if any, among such persons; the wage rates for non-
salaried and non-executive salaried employees of the Company by classification,
and all labor union contracts; and all group insurance programs in effect for
employees of each of the Company. The Company is not in default with respect to
any of its obligations referred to in the preceding sentence.
Section 3.37 Insider Interests. No officer or director of the Company
-----------------
has any material interest in any property, real or personal, tangible or
intangible, including without limitation, inventions, patents, trademarks or
trade names, used in or pertaining to the business of the Company.
Section 3.38 Brokers or Finders. No agent, broker, investment banker,
------------------
financial advisor or other firm or person is or will be entitled to any brokers'
or finder's fee or any other commission or similar fee in connection with any of
the Transactions except for Trautman Kramer & Company. True and correct copies
of all agreements between the Company and Trautman Kramer & Company, including,
without limitation, any fee arrangements are included in the Disclosure
Schedule.
Section 3.39 Full Disclosure. The Company has not failed to disclose
---------------
to Parent any facts material to the business, results of operations, assets,
liabilities,
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financial condition or prospects of the Company. No representation or warranty
by the Company in this Agreement and no statement contained in any document
(including, without limitation, financial statements and the Disclosure
Schedule), certificate, or other writing furnished or to be furnished by the
Company to Parent or any of its representatives pursuant to the provisions
hereof or in connection with the Transactions, contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT
Parent represents and warrants to the Company that:
Section 4.1 Organization. Parent is a corporation duly organized,
------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite corporate or other power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority,
and governmental approvals would not have, individually or in the aggregate, a
material adverse effect on Parent and its Subsidiaries, taken as a whole.
Section 4.2 Authorization; Validity of Agreement; Necessary Action.
------------------------------------------------------
Parent has full corporate power and authority to execute and deliver this
Agreement and to consummate the Transactions. The execution, delivery and
performance by Parent of this Agreement and the Stock Option Agreement and the
consummation of the Merger and the Transactions have been duly authorized by the
Board of Directors of Parent, and no other corporate action on the part of
Parent is necessary to authorize the execution and delivery by Parent of this
Agreement or the Stock Option Agreement, or the consummation of the
Transactions. Each of this Agreement and the Stock Option Agreement has been
duly executed and delivered by Parent, and assuming due and valid authorization,
execution and delivery hereof by the Company, is a valid and binding obligation
of Parent, enforceable against Parent in accordance with its terms.
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Section 4.3 Consents and Approvals; No Violations. Except for the
-------------------------------------
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the HSR Act,
state securities or blue sky laws, the New York Stock Exchange, and the CGCL,
none of the execution, delivery or performance of this Agreement by Parent, the
consummation by Parent of the Transactions or compliance by Parent with any of
the provisions hereof will (i) conflict with or result in any breach of any
provision of the respective articles of incorporation or by-laws or other
similar organizational documents of Parent, (ii) require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity, (iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Parent, or any of its Subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound, or (iv) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Parent, any of its Subsidiaries or any of their
properties or assets, excluding from the foregoing clauses (ii), (iii) and (iv)
such violations, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on Parent and its Subsidiaries, taken
as a whole.
Section 4.4 Information in Offer Documents. The Offer Documents will
------------------------------
comply in all material respects with the provisions of applicable federal
securities laws and, on the date filed with the SEC and on the date first
published or sent or given to the Company's shareholders, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading,
except that no representation is made by Parent with respect to information
furnished by the Company expressly for inclusion in the Offer Documents.
Section 4.5 Information in Proxy Statement. None of the information
------------------------------
furnished by Parent expressly for inclusion in the Proxy Statement will, at the
date mailed to shareholders, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading.
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Section 4.6 Share Ownership. None of Parent, or any of its
---------------
respective Affiliates or Associates beneficially owns any Shares.
Section 4.7 Purchaser's Operations. Purchaser shall be formed solely
----------------------
for the purpose of engaging in the Transactions and shall not engage in any
business activities or conducted any operations other than in connection with
the Transactions.
Section 4.8 Brokers or Finders. Neither Parent nor any of its
------------------
Subsidiaries or its Affiliates has entered into any agreement or arrangement
entitling any agent, broker, investment banker, financial advisor or other firm
or person to any brokers' or finders' fee or any other commission or similar fee
in connection with any of the Transactions, except Greenhill & Co., LLC whose
fees and expenses will be paid by Parent in accordance with Parent's agreement
with such firm.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants
---------------------------------
and agrees that prior to the Effective Time, except (i) as expressly
contemplated by this Agreement, (ii) as set forth in Section 5.1 of the
Disclosure Schedule, or (iii) as agreed in writing by Parent, after the date
hereof:
(a) the business of the Company shall be conducted only in the
usual, regular and ordinary course and substantially in the same manner as
heretofore conducted, and each of the Company shall use its best efforts to
preserve its business organization intact, keep available the services of its
current officers and employees and maintain its existing relations with
franchisees, customers, suppliers, creditors, business partners and others
having business dealings with it, to the end that the goodwill and ongoing
business of each of them shall be unimpaired at the Effective Time;
(b) the Company shall not: (i) amend its articles of
incorporation or by-laws or similar organizational documents, (ii) issue, sell,
transfer, pledge, dispose of or encumber any shares of any class or series of
its capital stock or Voting Debt, or securities convertible into or exchangeable
for, or options, warrants, calls, commitments or rights of any kind to acquire,
any shares of any class or series of its capital stock or any Voting Debt, other
than Shares reserved for issuance on the date hereof pursuant to the exercise of
Company Options outstanding on the date hereof, (iii)
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declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to any shares of any class or series of its
capital stock; (iv) split, combine or reclassify any shares of any class or
series of its stock; or (v) redeem, purchase or otherwise acquire directly or
indirectly any shares of any class or series of its capital stock, or any
instrument or security which consists of or includes a right to acquire such
shares;
(c) the Company shall not: (i) incur or modify any indebtedness
or other liability, other than in the ordinary and usual course of business and
consistent with past practice; or (ii) modify, amend or terminate any of its
material contracts or waive, release or assign any material rights or claims,
except in the ordinary course of business and consistent with past practice;
(d) the Company shall not: (i) incur or assume any long-term
debt, or except in the ordinary course of business, incur or assume any short-
term indebtedness in amounts not consistent with past practice; (ii) modify the
terms of any indebtedness or other liability; (iii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except as described in the
Disclosure Schedule as being in the ordinary course of business and consistent
with past practice; (iv) make any loans, advances or capital contributions to,
or investments in, any other; or (v) enter into any material commitment or
transaction (including, but not limited to, any capital expenditure or purchase,
sale or lease of assets or real estate);
(e) the Company shall not transfer, lease, license, sell,
mortgage, pledge, dispose of, or encumber any assets other than in the ordinary
and usual course of business and consistent with past practice; or
(f) except as otherwise specifically provided in this Agreement
or in the Schedule 14D-9, make any change in the compensation payable or to
become payable to any of its officers, directors, employees, agents or
consultants (other than normal recurring increases in wages to employees who are
not officers or directors or Affiliates in the ordinary course of business
consistent with past practice) or to Persons providing management services, or
enter into or amend any employment, severance, consulting, termination or other
agreement or employee benefit plan or make any loans to any of its officers,
directors, employees, Affiliates, agents or consultants or make any change in
its existing borrowing or lending arrangements for or on behalf of any of such
Persons pursuant to an employee benefit plan or otherwise;
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<PAGE>
(g) except as otherwise specifically contemplated by this
Agreement or by the Schedule 14D-9 or as specifically set forth in the
Disclosure Schedule, pay or make any accrual or arrangement for payment of any
pension, retirement allowance or other employee benefit pursuant to any existing
plan, agreement or arrangement to any officer, director, employee or Affiliate
or pay or agree to pay or make any accrual or arrangement for payment to any
officers, directors, employees or Affiliates of the Company of any amount
relating to unused vacation days, except payments and accruals made in the
ordinary course of business consistent with past practice; adopt or pay, grant,
issue, accelerate or accrue salary or other payments or benefits pursuant to any
pension, profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, agreement
or arrangement, or any employment or consulting agreement with or for the
benefit of any director, officer, employee, agent or consultant, whether past or
present; or amend in any material respect any such existing plan, agreement or
arrangement in a manner inconsistent with the foregoing;
(h) the Company shall not permit any insurance policy naming it
as a beneficiary or a loss payable payee to be cancelled or terminated without
notice to Parent;
(i) the Company shall not enter into any contract or transaction
relating to the purchase of assets other than in the ordinary course of business
consistent with prior practices;
(j) the Company shall not pay, repurchase, discharge or satisfy
any of its claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice, of claims, liabilities or obligations reflected or reserved against
in, or contemplated by, the consolidated financial statements (or the notes
thereto) of the Company;
(k) the Company will not adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization of the Company (other than the Merger);
(l) the Company will not (i) change any of the accounting
methods used by it unless required by GAAP or (ii) make any material election
relating to Taxes, change any material election relating to Taxes already made,
adopt any
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material accounting method relating to Taxes, change any material accounting
method relating to Taxes unless required by GAAP, enter into any closing
agreement relating to Taxes, settle any claim or assessment relating to Taxes or
consent to any claim or assessment relating to Taxes or any waiver of the
statute of limitations for any such claim or assessment;
(m) the Company will not take, or agree to commit to take, any
action that would or is reasonably likely to result in any of the conditions to
the Offer set forth in Annex A or any of the conditions to the Merger set forth
in Article VI not being satisfied, or would make any representation or warranty
of the Company contained herein inaccurate in any respect at, or as of any time
prior to, the Effective Time, or that would materially impair the ability of the
Company, Parent, Purchaser or the holders of Shares to consummate the Offer or
the Merger in accordance with the terms hereof or materially delay such
consummation; and
(n) the Company will not enter into an agreement, contract,
commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or announce an intention to do any of the foregoing.
Section 5.2 Access; Confidentiality. The Company shall (and shall
-----------------------
cause each of its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financing sources and other representatives of Parent,
full access during the period prior to the Appointment Date, to all its
properties, books, contracts, commitments and records and, during such period,
the Company shall (and shall cause each of its Subsidiaries to) furnish promptly
to the Parent (a) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of federal securities laws and (b) all other information concerning
its business, properties and personnel as Parent may reasonably request. Access
shall include the right to conduct such environmental studies as Parent, in its
discretion, shall deem appropriate. After the Appointment Date, the Company
shall provide Parent and such persons as Parent shall designate with all such
information, at any time as Parent shall request. Until the Appointment Date,
unless otherwise required by law or in order to comply with disclosure
requirements applicable to the Offer Documents or the Proxy Statement, Parent
will hold any such information which is nonpublic in confidence in accordance
with the provisions of the Confidentiality Agreement.
Section 5.3 Reasonable Best Efforts.
-----------------------
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<PAGE>
(a) Prior to the Closing, upon the terms and subject to the
conditions of this Agreement, Parent, Purchaser and the Company agree to use
their respective reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable (subject to any applicable laws) to consummate and make effective the
Merger and the other Transactions as promptly as practicable including, but not
limited to (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the Merger and the other Transactions
and the taking of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any third party or
Governmental Entity, and (ii) the satisfaction of the other parties' conditions
to Closing. In addition, no party hereto shall take any action after the date
hereof that would reasonably be expected to materially delay the obtaining of,
or result in not obtaining, any permission, approval or consent from any
Governmental Entity necessary to be obtained prior to Closing. Notwithstanding
the foregoing, or any other covenant herein contained, in connection with the
receipt of any necessary approvals under the HSR Act, the Company shall not be
entitled to divest or hold separate or otherwise take or commit to take any
action that limits Parent's or Purchaser's freedom of action with respect of, or
their ability to retain, the Company or any material portions thereof or any of
the businesses, product lines, properties or assets of the Company, without
Parent's prior written consent.
(b) Prior to the Closing, each party shall promptly consult with
the other parties hereto with respect to, provide any necessary information with
respect to, and provide the other parties (or their respective counsel) with
copies of, all filings made by such party with any Governmental Entity or any
other information supplied by such party to a Governmental Entity in connection
with this Agreement, the Merger and the other Transactions. Each party hereto
shall promptly inform the other of any communication from any Governmental
Entity regarding any of the Transactions. If any party hereto or Affiliate
thereof receives a request for additional information or documentary material
from any such Governmental Entity with respect to any of the Transactions, then
such party shall endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other parties, an
appropriate response in compliance with such request. To the extent that
transfers, amendments or modifications of permits (including environmental
permits) are required as a result of the execution of this Agreement or
consummation of any of the Transactions, the Company shall use its best efforts
to effect such transfers, amendments or modifications.
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(c) The Company and Parent shall file as soon as practicable
notifications under the HSR Act and respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Antitrust Division
of the Department of Justice for additional information or documentation and
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other Governmental Entity in connection with
antitrust matters. Concurrently with the filing of notifications under the HSR
Act or as soon thereafter as practicable, the Company and Parent shall each
request early termination of the HSR Act waiting period.
(d) Notwithstanding the foregoing, nothing in this Agreement shall be
deemed to require Parent or Purchaser to commence any litigation against any
entity in order to facilitate the consummation of any of the Transactions or to
defend against any litigation brought by any third party or Governmental Entity
seeking to prevent the consummation of any of the Transactions.
Section 5.4 [Intentionally Omitted.]
Section 5.5 No Solicitation of Competing Transaction. (a) Neither
----------------------------------------
the Company nor any Affiliate of the Company shall (and the Company shall cause
the officers, directors, employees, representatives and agents of the Company,
and each Affiliate of the Company, including, but not limited to, investment
bankers, attorneys and accountants, not to), directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any Person or group (other than Parent, any of its
Affiliates or representatives) concerning any Acquisition Proposal, except that
nothing contained in this Section 5.5 or any other provision hereof shall
prohibit the Company or the Company's Board from (i) taking and disclosing to
the Company's shareholders a position with respect to a tender or exchange offer
by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act, or (ii) making such disclosure to the Company's shareholders as,
in the good faith judgment of the Board, after receiving advice from outside
counsel, is required under applicable law, provided that the Company may not,
except as permitted by Section 5.5(b), withdraw or modify, or propose to
withdraw or modify, its position with respect to the Offer or the Merger or
approve or recommend, or propose to approve or recommend any Acquisition
Proposal, or enter into any agreement with respect to any Acquisition Proposal.
Upon execution of this Agreement, the Company will immediately cease any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Notwithstanding the
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foregoing, prior to the time of acceptance of Shares for payment pursuant to the
Offer, the Company may furnish information concerning its business, properties
or assets to any corporation, partnership, person or other entity or group
pursuant to appropriate confidentiality agreements, and may negotiate and
participate in discussions and negotiations with such entity or group concerning
an Acquisition Proposal if:
(x) such entity or group has on an unsolicited basis submitted a
bona fide written proposal to the Company Board of Directors relating to
any such transaction which the Board determines in good faith, represents a
superior transaction to the Offer and the Merger and which is not subject
to the receipt of any necessary financing; and
(y) in the opinion of the Company Board of Directors such action
is required to discharge the Board's fiduciary duties to the Company's
shareholders under applicable law, determined only after receipt of:
(i) a written opinion from the Company's investment banking firm
that the Acquisition Proposal is superior, from a financial point of view, to
the Offer and the Merger, and
(ii) a written opinion from independent legal counsel to the
Company that the failure to provide such information or access or to engage in
such discussions or negotiations would cause the Board of Directors to violate
its fiduciary duties to the Company's shareholders under applicable law.
The Company will immediately notify Parent of the existence of any proposal,
discussion, negotiation or inquiry received by the Company, and the Company will
immediately communicate to Parent the terms of any proposal, discussion,
negotiation or inquiry which it may receive (and will immediately provide to
Parent copies of any written materials received by the Company in connection
with such proposal, discussion, negotiation or inquiry) and the identity of the
party making such proposal or inquiry or engaging in such discussion or
negotiation. The Company will promptly provide to Parent any non-public
information concerning the Company provided to any other party which was not
previously provided to Parent.
(b) Except as set forth below in this subsection (b), neither the
Company Board of Directors nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation by such Board of Directors or any such
committee of
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the Offer, this Agreement or the Merger, (ii) approve or recommend or propose to
approve or recommend, any Acquisition Proposal or (iii) enter into any agreement
with respect to any Acquisition Proposal. Notwithstanding the foregoing, prior
to the time of acceptance for payment of Shares pursuant to the Offer, the
Company Board of Directors may withdraw or modify its approval or recommendation
of the Offer, this Agreement or the Merger, approve or recommend a Superior
Proposal, or enter into an agreement with respect to a Superior Proposal, in
each case at any time after the fifth business day following Parent's receipt of
written notice from the Company advising Parent that the Board of Directors has
received a Superior Proposal which it intends to accept, specifying the material
terms and conditions of such Superior Proposal, identifying the person making
such Superior Proposal, but only if the Company shall have caused its financial
and legal advisors to negotiate with Parent to make such adjustments in the
terms and conditions of this Agreement as would enable the Company to proceed
with the transactions contemplated herein on such adjusted terms.
Section 5.6 Publicity. The initial press release with respect to the
---------
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, until the Appointment Date, or the date the
Transactions are terminated or abandoned pursuant to Article VII, neither the
Company, Parent nor any of their respective Affiliates shall issue or cause the
publication of any press release or other announcement with respect to the
Merger, this Agreement or the other Transactions without prior consultation
with the other party, except as may be required by law or by any listing
agreement with a national securities exchange or trading market.
Section 5.7 Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to Parent, of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at or prior to the Effective Time, and (ii) any material failure of the
Company, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.8 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.8 Directors' and Officers' Insurance and Indemnification.
------------------------------------------------------
(a) For six years after the Effective Time, the Surviving Corporation (or any
successor to the Surviving Corporation) shall indemnify, defend and hold
harmless each Indemnified Party against all losses, claims, damages,
liabilities, costs, fees and expenses, including reasonable fees and
disbursements of counsel and judgments, fines,
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losses, claims, liabilities and amounts paid in settlement (provided that any
such settlement is effected with the written consent of the Parent or the
Surviving Corporation) arising out of actions or omissions occurring at or prior
to the Effective Time to the full extent required under applicable California
law, the terms of the Company's certificate of incorporation or the by-laws, as
in effect at the date hereof; provided that, in the event any claim or claims
are asserted or made within such six-year period, all rights to indemnification
in respect of any such claim or claims shall continue until disposition of any
and all such claims.
(b) Parent or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance for a period of not less
than three years after the Effective Time; provided, however, that the Parent
-------- -------
may substitute therefor policies of substantially equivalent coverage and
amounts containing terms no less favorable to such former directors or officers;
provided, further, that in no event shall the Company be required to pay
aggregate premiums for insurance under this Section 5.9(b) in excess of 150% of
the aggregate premiums paid by the Company in 1998 on an annualized basis for
such purpose; and provided, further, that if the Parent or the Surviving
-------- -------
Corporation is unable to obtain the amount of insurance required by this Section
5.9(b) for such aggregate premium, Parent or the Surviving Corporation shall
obtain as much insurance as can be obtained for an annual premium not in excess
of 150% of the aggregate premiums paid by the Company in 1998 on an annualized
basis for such purpose.
Section 5.9 State Takeover Laws. The Company shall, upon the request
-------------------
of the Purchaser, take all commercially reasonable steps to assist in any
challenge by the Purchaser to the validity or applicability to the transactions
contemplated by this Agreement and the Option Agreement, including the Offer and
the Merger, and the Shareholder Agreements, of any state takeover law.
Section 5.10 Purchaser Compliance. Parent shall cause Purchaser to
--------------------
comply with all of its obligations under or related to this Agreement.
Section 5.11 Cooperation. If Parent and Purchaser shall not have
-----------
consummated the Offer within 26 business days following the date hereof, Parent
shall cooperate with the Company to obtain financing for the Company's working
capital requirements.
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ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.
-----------------------------------------------------------
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, Parent or Purchaser, as the case may be, to the extent permitted by
applicable law:
(a) Shareholder Approval. The Merger and this Agreement shall have
--------------------
been approved and adopted by the requisite vote of the holders of the Shares, to
the extent required by the CGCL and the articles of incorporation of the
Company;
(b) Statutes; Court Orders. No statute, rule or regulation shall have
----------------------
been enacted or promulgated by any governmental authority which prohibits the
consummation of the Merger; and there shall be no order or injunction of a court
of competent jurisdiction in effect precluding consummation of the Merger;
(c) Purchase of Shares in Offer. Parent, Purchaser or their
---------------------------
Affiliates shall have purchased Shares pursuant to the Offer, except that this
condition shall not apply if Parent, Purchaser or their Affiliates shall have
failed to purchase Shares pursuant to the Offer in breach of their obligations
under this Agreement; and
(d) HSR Approval. The applicable waiting period under the HSR Act
------------
shall have expired or been terminated.
Section 6.2 Conditions to Parent's and Purchaser's Obligations to
-----------------------------------------------------
Effect the Merger. The obligations of Parent and Purchaser to consummate the
- -----------------
Merger shall be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions, any and all of which may be waived in whole or
in part by the Parent and Purchaser, to the extent permitted by applicable law.
(a) Compliance with Obligations. All actions contemplated by
---------------------------
Section 2.4 shall have been taken;
(b) Representations and Warranties. The representations and
------------------------------
warranties of the Company set forth in Article III shall be true in all material
respects on the date of this Agreement and as of the Effective Time; and
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(c) Covenants. The Company shall have complied in all material
---------
respects with its obligations under the terms of this Agreement.
ARTICLE VII
TERMINATION
Section 7.1 Termination. The Transactions may be terminated or
-----------
abandoned at any time prior to the Effective Time, whether before or after
shareholder approval thereof:
(a) Subject to Section 1.3(c), by the mutual written consent of
Parent and the Company;
(b) By either of the Company or Parent:
(i) if (x) the Offer shall have expired without any Shares being
purchased pursuant thereto, or (y) Purchaser shall not have accepted for payment
any Shares pursuant to the Offer by May 15, 1999; provided, however, that the
-------- -------
right to terminate this Agreement under this Section 7.1(b)(i) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of Purchaser to
purchase the Shares pursuant to the Offer on or prior to such date; or
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable efforts to lift), which
permanently restrains, enjoins or otherwise prohibits the acceptance for payment
of, or payment for, Shares pursuant to the Offer or the Merger and such order,
decree, ruling or other action shall have become final and non-appealable.
(c) By the Company:
(i) if Parent, Purchaser or any of their Affiliates shall have
failed to commence the Offer on or prior to five business days following the
date of the initial public announcement of the Offer; provided, that the Company
may not terminate this Agreement pursuant to this Section 7.1(c)(i) if the
Company is at such time in material breach of its obligations under this
Agreement;
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(ii) in connection with entering into a definitive agreement
as permitted by Section 5.5(b), provided the Company has complied with all
provisions thereof, including the notice provisions therein, and that the
Company makes simultaneous payment to Parent of funds as required by Section
9.1(b);
(iii) if Parent or Purchaser shall have breached in any
material respect any of their respective representations, warranties, covenants
or other agreements contained in this Agreement, which breach cannot be or has
not been cured within 30 days after the giving of written notice by the Company
to Parent or Purchaser, as applicable.
(d) By Parent:
(i) if, due to an occurrence, not involving a breach by Parent or
Purchaser of their obligations hereunder, which makes it impossible to satisfy
any of the conditions set forth in Annex A hereto, Parent, Purchaser, or any of
their Affiliates shall have failed to commence the Offer on or prior to the
fifth business day following the date of the initial public announcement of the
Offer;
(ii) if, prior to the purchase of Shares by Purchaser pursuant to the
Offer, the Company Board of Directors shall have (A) withdrawn, modified or
changed in a manner adverse to Parent or Purchaser its approval or
recommendation of the Offer, this Agreement or the Merger, (B) recommended an
Acquisition Proposal, (C) executed an agreement in principle or definitive
agreement relating to an Acquisition Proposal or similar business combination
with a person or entity other than Parent, Purchaser or their Affiliates, or (D)
exercised its rights pursuant to Section 5.5 with respect to an Acquisition
Proposal, and, directly or through its representatives, continued discussions
with any third party concerning an Acquisition Proposal for more than ten
business days after the date of receipt of such Acquisition Proposal;
(iii) if prior to the purchase of Shares pursuant to the Offer, the
Company shall have breached any representation, warranty, covenant or other
agreement contained in this Agreement which (x) would give rise to the failure
of a condition set forth in paragraph (f) or (g) of Annex A hereto, and (y)
cannot be or has not been cured within 30 days after the giving of written
notice to the Company; or
(iv) if the Disclosure Schedule as delivered to Parent pursuant to
Article III hereof shall reveal matters or information that are material and
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adverse to the Company and the Company shall not have disclosed such matters or
information to Parent on or prior to the date hereof.
Section 7.2 Effect of Termination. In the event of the termination or
---------------------
abandonment of the Transactions by any party hereto pursuant to the terms of
this Agreement, written notice thereof shall forthwith be given to the other
party or parties specifying the provision hereof pursuant to which such
termination or abandonment of the Transactions is made, and there shall be no
liability on the part of the Parent or the Company except (A) for fraud or for
breach of this Agreement prior to such termination or abandonment of the
Transactions and (B) as set forth in Sections 5.2 and 9.1.
ARTICLE VIII
DEFINITIONS AND INTERPRETATION
Section 8.1 Definitions. For all purposes of this Agreement, except
-----------
as otherwise expressly provided or unless the context clearly requires
otherwise:
"Acquisition Proposal" shall mean any proposal or offer to acquire all or a
substantial part of the business or properties of the Company or any capital
stock of the Company, whether by merger, tender offer, exchange offer, sale of
assets or similar transactions involving the Company, division or operating or
principal business unit of the Company.
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
"Agreement" or "this Agreement" shall mean this Agreement and Plan of
Merger, together with the Exhibits and Appendices hereto and the Disclosure
Schedule.
"Appointment Date" shall mean the time the persons designated by Purchaser
have been elected to, and shall constitute a majority of, the Company Board of
Directors pursuant to Section 1.3.
"Associate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
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"Balance Sheet" shall mean the most recent audited balance sheet of the
Company and its consolidated subsidiaries included in the Financial Statements.
"Balance Sheet Date" shall mean the date of the Balance Sheet.
"Board Fraction" shall mean a fraction, the numerator of which shall be the
number of Shares which Parent beneficially own at the time of calculation of the
Board Fraction, and the denominator of which shall be the total number of Shares
then outstanding.
"California Merger Agreement" shall mean the Agreement of Merger by and
among the Company, Purchaser and Parent, together with the related officers'
certificates required by section 1103 of the CGCL.
"Cash Amount" shall mean an amount of cash calculated in accordance with
Section 2.4(a).
"Certificate" shall mean a certificate which immediately prior to the
Effective Time represented Shares which were converted pursuant to Section 2.1
into the right to receive the Merger Consideration.
"CGCL" shall mean the California General Corporation Law.
"Certificate of Merger" shall mean the Certificate of Merger referred to in
Section 1.5 to be filed with the Secretary of State of the State of Delaware.
"Closing" shall mean the closing referred to in Section 1.6.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the preamble hereto.
"Company Agreement" shall mean any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company is a party or by which it or any of its properties or assets may be
bound.
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"Company Board of Directors" shall mean the board of directors of the
Company.
"Company Option" shall mean an option to purchase Shares which has been
granted by the Company under the Company's Stock Option Plan of 1997, as amended
and each option identified in Schedule 2.4, and in each case, which is
outstanding at the Effective Time.
"Company SEC Documents" shall mean each form, report, schedule, statement
and other documents required to be filed by the Company since November 25, 1997
under the Exchange Act or the Securities Act, including any amendment to such
document, whether or not such amendment is required to be so filed.
"Company's knowledge" or "best knowledge of the Company" shall mean the
knowledge that the directors and officers of the Company and the employees of
the Company having responsibility for the particular subject matter at issue
have or would possess after reasonable investigation and inquiry.
"Confidentiality Agreement" shall mean a letter agreement dated on or about
December 28, 1998 between the Company and Parent.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Defect" shall mean a defect or impurity of any kind, whether in design,
manufacture, processing, or otherwise, including, without limitation, any
dangerous propensity associated with any reasonably foreseeable use of a
Product, or the failure to warn of the existence of any defect, impurity, or
dangerous propensity.
"DGCL" shall mean the Delaware General Corporation Law.
"Disclosure Schedule" shall mean the disclosure schedule prepared and
signed by the Company and delivered to Purchaser no later than the time and date
set forth in Article III.
"Dissenting Shares" shall mean any Shares outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing, and who has demanded appraisal for such shares
in accordance with Section 1300 of the CGCL, if such Section 1300 provides for
appraisal rights for such Shares in the Merger.
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"Effective Time" shall mean the date and time at which the California
Merger Agreement and the Certificate of Merger referred to in Section 1.5 are
duly filed with the Secretary of State of the State of California and the
Secretary of State of the State of Delaware, respectively, or such other date
and time as are specified in the California Merger Agreement and the Certificate
of Merger as the date and time the Merger becomes effective.
"Environmental Claim" shall mean any claim, action, investigation or
notice by any person or entity alleging potential liability for investigatory,
cleanup or governmental response costs, or natural resources or property
damages, or personal injuries, attorney's fees or penalties relating to (i) the
presence, or release into the environment, of any Materials of Environmental
Concern at any location owned or operated by the Company, now or in the past, or
(ii) any violation, or alleged violation, of any Environmental Law.
"Environmental Law" shall mean each federal, state, local and foreign law
and regulation relating to pollution, protection or preservation of human health
or the environment including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata, and natural resources, and
including, without limitation, each law and regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the generation, storage, containment (whether
above ground or underground), disposal, transport or handling of Materials of
Environmental Concern, or the preservation of the environment or mitigation of
adverse effects thereon and each law and regulation with regard to record
keeping, notification, disclosure and reporting requirements respecting
Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Ratio" shall mean the quotient of (x) the Offer Price and (y) the
average per share closing price of the Parent Common Stock as reported on the
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New York Stock Exchange on each of the ten trading days immediately preceding
the Effective Time.
"Financial Statements" shall mean the financial statements of the Company
included in the Company SEC Documents.
"GAAP" shall mean United States generally accepted accounting principles.
"Governmental Entity" shall mean a court, arbitral tribunal, administrative
agency or commission or other governmental or other regulatory authority or
agency.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" shall mean (i) all indebtedness for borrowed money or for
the deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (ii) any other indebtedness that is
evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations under financing leases, (iv) all obligations in respect of
acceptances issued or created, (v) all liabilities secured by any lien on any
property and (vi) all guarantee obligations.
"Indemnified Party" shall mean each present and former officer and director
of the Company , and each person who become any of the foregoing prior to the
Effective Time.
"Independent Directors" shall mean directors of the Company who are
directors on the date hereof.
"Major Shareholder" shall mean each of the shareholders identified in Annex
I attached hereto.
"Materials of Environmental Concern" shall mean pollutants, contaminants,
toxic or hazardous substances, materials and wastes, petroleum and petroleum
products, asbestos and asbestos-containing materials, polychlorinated biphenyls,
radon and lead or lead-based paints and materials.
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"Merger" shall mean the merger of Purchaser into the Company referred to in
Section 1.4.
"Merger Consideration" shall mean an amount of cash equal to the Offer
Price, which amount shall not include interest, regardless of when paid.
"Minimum Condition" shall mean the condition that, pursuant to the Offer,
there shall have been validly tendered and not withdrawn prior to the expiration
of the Offer, not less than that number of Shares which, together with the
Shares owned by Parent and Purchaser on the date hereof, constitutes at least
90% of the Shares issued and outstanding.
"Offer" shall mean the cash tender offer to be made by Purchaser pursuant
to Section 1.1 to acquire all of the issued and outstanding shares of common
stock, no par value, of the Company at the Offer Price.
"Offer Documents" shall mean the Offer to Purchase and a form of letter of
transmittal and summary advertisement filed as exhibits to the Schedule 14D-1,
together with any amendments and supplements thereto.
"Offer Price" shall mean $19.00 per Share net to the seller in cash, or
such increased amount, if any, as Purchaser may offer to pay as contemplated by
Section 1.1(a).
"Offer to Purchase" shall mean the offer to purchase included in the
Schedule 14D-1 filed with the SEC pursuant to Section 1.1(b).
"Parent" shall have the meaning set forth in the preamble hereto.
"Parent Common Stock" shall mean shares of common stock of Parent.
"Paying Agent" shall mean the bank or trust company designated by Parent to
act as agent for the holders of the Shares pursuant to Section 2.2(a).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or organization.
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"Plan" shall mean a plan, program, agreement, arrangement or program
required to be included in the Disclosure Schedule pursuant to Section 3.15(a).
"Product" shall mean any product designed, manufactured, shipped, sold,
marketed, distributed and/or otherwise introduced into the stream of commerce by
or on behalf of the Company, including, without limitation, any product sold in
the United States by the Company as the distributor, agent, or pursuant to any
other contractual relationship with a non-U.S. manufacturer.
"Proxy Statement" shall mean the proxy statement to be filed by the Company
with the SEC pursuant to Section 1.9(a)(ii), together with all amendments and
supplements thereto and including the exhibits thereto.
"Purchaser" shall mean an indirect, wholly-owned subsidiary of Parent to be
formed as soon as practicable after the date hereof.
"Purchaser Common Stock" shall mean common stock, par value $0.01 per
share, of Purchaser.
"Revised Minimum Number" shall mean that number of Shares that when added
to the Shares then owned by the Purchaser would equal 49.9999% of the Shares
then outstanding.
"Schedule 14D-l" shall mean the Schedule 14D-1 filed by Purchaser with the
SEC pursuant to Section 1.1(b), together with all amendments and supplements
thereto and including the exhibits thereto.
"Schedule 14D-9" shall mean the Solicitation/Recommendation Statement on
Schedule 14D-9 filed by the Company with the SEC pursuant to Section 1.2(a),
together with all amendments and supplements thereto and including the exhibits
thereto.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean shares of common stock, no par value, issued by the
Company.
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"Shareholder Agreement" shall mean each agreement, dated as of the date
hereof, among the Major Shareholders and Parent, pursuant to which each Major
Shareholder has agreed, among other things, to tender the Shares held by such
Major Shareholder in the Offer and to grant Parent a proxy with respect to the
voting of such Shares upon the terms and subject to the conditions set forth
therein.
"Special Meeting" shall mean the special meeting of shareholders of the
Company referred to in Section 1.9(a)(i).
"Stock Option Agreement" shall mean a Stock Option Agreement, dated as of
the date hereof, among the Company and Parent pursuant to which the Company has
granted to Purchaser an option to purchase Shares.
"Subsidiary" shall mean, with respect to any party, any corporation or
other organization, whether incorporated or unincorporated, of which (a) at
least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries or (b) such party or any other Subsidiary of such party is a
general partner (excluding any such partnership where such party or any
Subsidiary of such party does not have a majority of the voting interest in such
partnership).
"Superior Proposal" shall mean an Acquisition Proposal which satisfies
both subsection (x) and subsection (y) of Section 5.5(a).
"Surviving Corporation" shall mean the successor or surviving corporation
in the Merger.
"Tax" or "Taxes" shall mean all taxes, charges, fees, duties, levies,
penalties or other assessments imposed by any federal, state, local or foreign
governmental authority, including, but not limited to, income, gross receipts,
excise, property, sales, gain, use, license, custom duty, unemployment, capital
stock, transfer, franchise, payroll, withholding, social security, minimum
estimated, and other taxes, and shall include interest, penalties or additions
attributable thereto; and
"Tax Return" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
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"Termination Fee" shall mean the sum of $9,000,000.
"Title IV Plan" shall mean a Plan that is subject to Section 302 or Title
IV of ERISA or Section 412 of the Code.
"Transactions" shall mean the transactions provided for or contemplated by
this Agreement, the Stock Option Agreement and the Shareholder Agreement,
including but not limited to the Offer and the Merger.
"Voting Debt" shall mean indebtedness having general voting rights and debt
convertible into securities having such rights.
Section 8.2 Interpretation.
--------------
(a) When a reference is made in this Agreement to a section or
article, such reference shall be to a section or article of this Agreement
unless otherwise clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used
in this Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof", "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.
(d) The plural of any defined term shall have a meaning correlative
to such defined term, and words denoting any gender shall include all genders.
Where a word or phrase is defined herein, each of its other grammatical forms
shall have a corresponding meaning.
(e) A reference to any party to this Agreement or any other agreement
or document shall include such party's successors and permitted assigns.
(f) A reference to any legislation or to any provision of any
legislation shall include any modification or re-enactment thereof, any
legislative
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provision substituted therefor and all regulations and statutory instruments
issued thereunder or pursuant thereto.
(g) As used in this Agreement, any reference to any event, change or
effect being material or having a material adverse effect on or with respect to
any entity (or group of entities taken as a whole) means such event, change or
effect is materially adverse to (i) the consolidated financial condition,
businesses, operations, properties (including intangible properties), results of
operations, assets or prospects of such entity as a whole (or, if used with
respect thereto, of such group of entities taken as a whole), or (ii) the
ability of such entity (or group) to consummate the Offer or the Merger, or to
perform its obligations under this Agreement or the Stock Option Agreement.
(h) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees and Expenses. (a) Except as specifically provided to
-----------------
the contrary in this Agreement, including Section 9.1(b), all costs and
expenses incurred in connection with this Agreement and the consummation of the
Transactions shall be paid by the party incurring such expenses; provided; that
--------
if any legal action is instituted to enforce or interpret the terms of this
Agreement, the prevailing party in such action shall be entitled, in addition to
any other relief to which the party is entitled, to reimbursement of its actual
attorneys fees.
(b) If:
(i) the Company shall enter into an agreement which accepts or
implements a Superior Proposal;
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(ii) either the Company or Parent terminates or abandons the
Transactions pursuant to Section 7.1(b)(i) and prior thereto there shall have
been publicly announced another Acquisition Proposal;
(iii) the Company shall terminate or abandon the Transactions
pursuant to Section 7.1(c)(ii); or
(iv) Parent shall terminate or abandon the Transactions pursuant
to Section 7.1(d)(ii) or (iii);
then the Company shall pay to Parent an amount equal to the Termination Fee plus
an amount equal to Parent's actual and reasonably documented out-of-pocket fees
and expenses incurred by Parent and Purchaser in connection with the Offer, the
Merger, this Agreement and the consummation of the Transactions. The Termination
Fee and Parent's good faith estimate of its expenses shall be paid in same day
funds concurrently with the execution of an agreement referred to in subsection
(i) above or any termination or abandonment referred to in subsections (ii),
(iii) or (iv) above, whichever shall first occur, together with delivery of a
written acknowledgment by the Company of its obligation to reimburse Parent for
its actual expenses in excess of such estimated expense payment.
Section 9.2 Amendment and Modification. Subject to applicable law and
--------------------------
Section 1.3, this Agreement may be amended, modified and supplemented in any
and all respects, whether before or after any vote of the shareholders of the
Company contemplated hereby, by written agreement of the parties hereto, by
action taken by their respective Boards of Directors (which in the case of the
Company shall include approvals as contemplated in Section 1.3(c)), at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the shareholders
- -------- -------
of the Company, no such amendment, modification or supplement shall reduce the
amount or change the form of the Merger Consideration.
Section 9.3 Non-Survival of Representations and Warranties. None of
----------------------------------------------
the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time. The foregoing sentence shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time.
Section 9.4 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally,
telecopied (which
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is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Purchaser, to:
Compaq Computer Corporation
20555 State Highway 249
Houston, Texas 77070
Attention: General Counsel
Telephone No.: (281) 370-0670
Telecopy No.: (281) 927-8835
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue, Suite 220
Palo Alto, California 94301
Attention: Kenton J. King, Esq.
Telephone: 650-470-4500
Telecopy: 650-470-4570
(b) if to the Company, to:
Shopping.com
2101 East Coast Highway
Garden Level
Corona Del Mar, California 92625
Telephone No.: (949) 640-4393
Telecopy No.: (949) 640-4374
with a copy to:
Mark V. Asdourian, Esq.
5 Park Plaza, Suite 1480
Irvine, California 92614
Telephone: (949) 862-0040
Telecopy: (949) 862-0039
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Section 9.5 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties.
Section 9.6 Entire Agreement; No Third Party Beneficiaries. This
----------------------------------------------
Agreement, the Stock Option Agreement, the Shareholder Agreements, and the
Confidentiality Agreement (including the documents and the instruments referred
to herein and therein): (a) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and thereof, and (b) except as
provided in Sections 2.4 and 5.9 are not intended to confer upon any person
other than the parties hereto and thereto any rights or remedies hereunder.
Section 9.7 Severability. Any term or provision of this Agreement
------------
that is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction or other authority declares that any term or
provision hereof is invalid, void or unenforceable, the parties agree that the
court making such determination shall have the power to reduce the scope,
duration, area or applicability of the term or provision, to delete specific
words or phrases, or to replace any invalid, void or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision.
Section 9.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California without giving
effect to the principles of conflicts of law thereof.
Section 9.9 Enforcement. The parties agree that irreparable damage
-----------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
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Section 9.10 Time of Essence. Each of the parties hereto hereby
---------------
agrees that, with regard to all dates and time periods set forth or referred to
in this Agreement, time is of the essence.
Section 9.11 Extension; Waiver. At any time prior to the Effective
-----------------
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement, or (c)
subject to the proviso of Section 9.2, waive compliance by the other parties
with any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
Section 9.12 Assignment. Neither this Agreement not any of the
----------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written content of the other parties, except that Purchaser may assign, in its
sole discretion, any or all of its rights, interests and obligations hereunder
to Parent or to any direct or indirect wholly or majority owned Subsidiary or
Affiliate of Parent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
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IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first written above.
COMPAQ COMPUTER CORPORATION
By: /s/ Earl L. Mason
___________________________________
Name: Earl L. Mason
Title: Senior Vice President and
Chief Financial Officer
SHOPPING.COM
By: /s/ Frank W. Denny
___________________________________
Name: Frank W. Denny
Title: President and Chief Executive Officer
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Annex A
Certain Conditions of the Offer. Notwithstanding any other provisions of
-------------------------------
the Offer, and in addition to (and not in limitation of) Purchaser's rights to
extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Agreement), Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate or amend the Offer as to any Shares not then paid for,
if (i) the Minimum Condition has not been satisfied, (ii) any applicable waiting
period under the HSR Act has not expired or terminated, or (iii) at any time on
or after the date of the Agreement and before the time of payment for any such
Shares, any of the following events shall occur or shall be determined by
Purchaser to have occurred:
(a) there shall be threatened or pending any suit, action or
proceeding by any Governmental Entity (i) seeking to prohibit or impose any
material limitations on Parent's or Purchaser's ownership or operation (or that
of any of their respective Subsidiaries or Affiliates) of all or a material
portion of their or the Company's businesses or assets, or to compel Parent or
Purchaser or their respective Subsidiaries and Affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or Parent
and their respective Subsidiaries, in each case taken as a whole, (ii)
challenging the acquisition by Parent or Purchaser of any Shares under the Offer
or pursuant to the Stock Option Agreement or the Shareholders Agreement, seeking
to restrain or prohibit the making or consummation of the Offer or the Merger or
the performance of any of the other transactions contemplated by this Agreement,
the Stock Option Agreement or the Shareholder Agreements, or seeking to obtain
from the Company, Parent or Purchaser any damages that are material in relation
to the Company taken as a whole, (iii) seeking to impose material limitations on
the ability of Purchaser, or rendering Purchaser unable, to accept for payment,
pay for or purchase some or all of the Shares pursuant to the Offer and the
Merger, (iv) seeking to impose material limitations on the ability of Purchaser
or Parent effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by it on
all matters properly presented to the Company's shareholders, or (v) which
otherwise is reasonably likely to have a material adverse affect on the
financial condition, businesses, operations, properties (including intangible
properties), results of operations, assets or prospects of the Company, or on
the ability of the
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Company to consummate the Offer or the Merger, or to perform any of their
obligations under this Agreement or the Stock Option Agreement; or
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to the
Offer or the Merger, or any other action shall be taken by any Governmental
Entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably likely to result, directly
or indirectly, in any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above; or
(c) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange, in
the Nasdaq National Market System, for a period in excess of three hours
(excluding suspensions or limitations resulting solely from physical damage or
interference with such exchanges not related to market conditions), (ii) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States (whether or not mandatory), (iii) a commencement of a
war, armed hostilities or other international or national calamity directly or
indirectly involving the United States, (iv) any limitation (whether or not
mandatory) by any United States governmental authority on the extension of
credit by banks or other financial institutions, (v) any decline in either the
Dow Jones Industrial Average or the Standard & Poor's Index of 500 Industrial
Companies by an amount in excess of 15% measured from the close of business on
the date of this Agreement, (vi) a change in general financial bank or capital
market conditions which materially or adversely affects the ability of financial
institutions in the United States to extend credit or syndicate loans, or (vii)
in the case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof; or
(d) there shall have occurred any material adverse change (or any
development that, insofar as reasonably can be foreseen, is reasonably likely to
result in any material adverse change) in the consolidated financial condition,
businesses, operations, properties (including intangible properties), results of
operations, assets or prospects of the Company, or in the ability of the Company
to consummate the Offer or the Merger, or to perform any of their obligations
under this Agreement or the Stock Option Agreement; or
(e) the Company Board of Directors or any committee thereof (i) shall
have withdrawn, modified or changed in a manner adverse to Parent or Purchaser
its approval or recommendation of the Offer, this Agreement or the Merger,
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(ii) shall have recommended the approval or acceptance of an Acquisition
Proposal from, or similar business combination with, a person or entity other
than Parent, Purchaser or their Affiliates, (iii) shall have executed an
agreement in principle or definitive agreement relating to an Acquisition
Proposal from, or similar business combination with, a person or entity other
than Parent, Purchaser or their Affiliates, or (iv) shall have exercised its
rights pursuant to Section 5.5 of this Agreement with respect to an Acquisition
Proposal, and, directly or through its representatives, continued discussions
with any third party concerning an Acquisition Proposal for more than ten
business days after the date of receipt of such Acquisition Proposal; or
(f) any of the representations and warranties of the Company set
forth in this Agreement that are qualified as to materiality shall not be true
and correct and any such representations and warranties that are not so
qualified shall not be true and correct in any material respect, in each case as
of the date of this Agreement and as of the scheduled expiration of the Offer;
or
(g) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any material
agreement or covenant of the Company to be performed or complied with by it
under this Agreement; or
(h) all consents necessary to the consummation of the Tender Offer or
the Merger including, without limitation, consents from parties to loans,
contracts, leases or other agreements, and consents from governmental agencies,
whether federal, state or local, shall not have been obtained, other than
consents the failure to obtain which would not have a material adverse effect on
the Company;
(i) this Agreement shall have been terminated in accordance
with its terms;
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser) giving rise to such condition makes it inadvisable to proceed with
the Offer and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and
Purchaser, may be waived by Parent or Purchaser, in whole or in part, at any
time and from time to time in the sole discretion of Parent or Purchaser. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any
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such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
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Annex I
Robert J. McNulty
Cyber Depot
Kipling Isle
Paul Hill
Ed Bradley
Mark Winkler
Kristine Webster
John Markley
Frank Denny
Pat Demicco
Randy Read
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