EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 20, 2000 (hereinafter
referred to as the "AGREEMENT"), among NETGAIN DEVELOPMENT, INC., a Colorado
corporation (hereinafter referred to as the "PARENT"), NETGAIN ACQUISITION,
INC., a Delaware corporation and a wholly owned subsidiary of Parent
(hereinafter referred to as the "MERGER SUB"), and COOLAUDIO.COM, INC., a
Delaware corporation (hereinafter referred to as the "COMPANY").
W I T N E S S E T H :
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company
have each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent and Merger Sub have each approved the merger of Merger Sub with and into
the Company (the "MERGER") in accordance with the applicable provisions of the
Delaware General Corporation Law (the "DGCL") and the Board of Directors and
Stockholders of the Company have approved the Merger in accordance with the
applicable provisions of the DGCL, and upon the terms and subject to the
conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(A) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the regulations promulgated thereunder;
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling" transaction; and
WHEREAS, pursuant to the Merger, each outstanding share (hereinafter
referred to as a "SHARE") of the Company's common stock, $0.001 par value,
(hereinafter referred to as the "COMMON STOCK"), shall be converted into the
right to receive the Merger Consideration as defined in Section 1.6(a), each
Company stock option shall be treated as set forth in Section 1.6(d) and each
Company warrant shall be treated as set forth in Section 1.6(e), upon the terms
and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Merger Sub and the Company hereby agree as follows:
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ARTICLE I: THE MERGER
SECTION 1.1: The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement and the DGCL,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation. The Company as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "SURVIVING CORPORATION."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, the consummation of the Merger will take place as promptly as practicable
(and in any event within five business days) after satisfaction or waiver of the
conditions set forth in Article VI, at the offices of Parent unless another
date, time or place is agreed to in writing by the parties hereto.
SECTION 1.2: Effective Time.
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in Article VI, the parties hereto shall cause the Merger to
be consummated by filing a certificate of merger as contemplated by the DGCL
(the "CERTIFICATE OF MERGER"), together with any required related certificates,
with the Secretary of State of the State of Delaware, in such form as required
by, and executed in accordance with the relevant provisions of, the DGCL (the
time of such filing being the "EFFECTIVE TIME").
SECTION 1.3: Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as provided in
this Agreement, the Certificate of Merger and the applicable provisions of the
DGCL. Without limiting the generality of the foregoing and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4: Certificate of Incorporation, By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with the DGCL and such Certificate of
Incorporation, except that the name of the Corporation shall be that of the
Company.
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(b) By-Laws. Unless otherwise determined by Parent prior to the
Effective Time, the By-Laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the DGCL, the Certificate of Incorporation
of the Surviving Corporation and such By-Laws except that the name of the
Corporation shall be that of the Company. Nothing in this Section 1.4(b) shall
impair the provisions of Section 5.9.
SECTION 1.5: Directors and Officers.
The directors of the Surviving Corporation immediately after the
Effective Time shall be Andreas Typaldos, Rajiv Bhatia and such additional
nominees as they shall mutually agree upon, each to hold office in accordance
with the Certificate of Incorporation and By-Laws of the Surviving Corporation.
The officers of the Surviving Corporation immediately after the Effective Time
shall be Rajiv Bhatia, Brian Gurley, and Steve Laplante, to have such titles as
shall be determined by the directors of the Surviving Corporation, except that
Brian Gurley shall serve as chief financial officer of the Surviving
Corporation,in each case until their respective successors are duly elected or
appointed and qualified in accordance with the Certificate of Incorporation and
By-Laws of the Surviving Corporation.
SECTION 1.6: Effect on Capital Stock.
At the Effective Time, by virtue of the Merger and without any action
on the part of the Parent, Merger Sub, the Company or the holders of any of the
following securities:
(a) Conversion of Shares. Each share of Common Stock issued and
outstanding immediately prior to the Effective Time, (excluding any Shares to be
canceled pursuant to Section 1.6(b)) shall be converted, subject to Section
1.6(c) and Section 1.6(h), into the right to receive 0.08 (the "EXCHANGE RATIO")
shares of the Common Stock, $.001 par value, of Parent ("PARENT COMMON STOCK")
(the shares of Parent Common Stock to be issued pursuant to this Section 1.6(a)
are hereinafter referred to as the "PARENT SHARES" and the right of each holder
of Company Shares to receive such Parent Shares and cash in respect of
fractional Shares as provided in Section 1.6(h) being referred to as the "MERGER
CONSIDERATION").
(b) Cancellation. Each Share held in the treasury of the Company and
each Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Parent immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Shares of Dissenting Holders. Notwithstanding anything to the
contrary contained in this Agreement, any holder of Company Common Stock with
respect to which dissenters' rights, if any, are granted by reason of the Merger
under the DGCL and who does not vote in favor of the Merger and who otherwise
complies with Section 262 of the DGCL ("COMPANY DISSENTING SHARES") shall not be
entitled to receive Parent Shares pursuant to Section 1.6(a) and cash in lieu of
fractional Shares pursuant to Section 1.6(h) hereof, and shall only be entitled
to receive for such Company Common Stock the payment provided for by Section 262
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of the DGCL, unless such holder fails to perfect, effectively withdraws or loses
his right to dissent from the Merger under the DGCL. If any such holder so fails
to perfect, effectively withdraws or loses his or her dissenters' rights under
the DGCL, his or her Company Dissenting Shares shall thereupon be deemed to have
been converted, as of the Effective Time, into the right to receive the number
of Parent Shares determined in accordance with Section 1.6(a) and, if
applicable, cash in lieu of fractional shares as provided in Section 1.6(h).
(d) Stock Options.
(1) At the Effective Time, each outstanding option to purchase
Company Common Stock (a "STOCK OPTION") granted under the Company's 1999 Equity
Compensation Plan (the "COMPANY STOCK OPTION PLAN"), whether vested or unvested,
shall be, together with the Company Stock Option Plan, deemed assumed by Parent
and deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such Stock Option prior to the Effective Time, the
number (rounded down to the nearest whole number) of Parent Shares which the
holder of such Stock Option would have been entitled to receive determined by
multiplying (i) the number of shares of Company Common Stock otherwise
purchasable pursuant to such Stock Option by a fraction the numerator of which
is 200,000 and the denominator of which is the aggregate Company Common Stock
subject to Stock Options immediately prior to the Effective Time (rounding to
the next lowest whole number). The option exercise price for Parent Shares shall
be $2.50 per share. The number of shares subject to Company Stock Options and
the number of Parent Shares into which such Company Stock Options are
exchangeable are set forth on Exhibit 1.6 (d).
(2) As soon as practicable after the Effective Time, Parent
shall deliver to each holder of an outstanding Stock Option an appropriate
notice setting forth such holder's rights pursuant thereto. The rights of such
Company stock option holder shall be determined by the Company stock option
agreement with such holder except the number of shares subject to such option
and the exercise price shall be determined in accordance with Section 1.6 (d)(1)
of this Agreement. Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of Parent Shares for delivery pursuant to the
terms set forth in this Section 1.6(d).
(3) With respect to the shares of Parent Common Stock issuable
upon exercise of the Parent Stock Options, Parent shall file a registration
statement on Form S-8 under the Securities Act of 1933, as amended, and the
rules and regulations thereunder (the "SECURITIES ACT") as provided in Section
5.5 hereof.
(e) Warrants. Parent will not issue new warrants in exchange for the
exercisable Warrants (as defined in Section 2.3) of the Company . With respect
to the Company warrants which are not exercised prior to the Effective Time,
Parent shall set aside a proportionate number of Parent Shares so that each
exercisable Company Warrant, prior to its expiration, shall be deemed to
constitute a warrant to acquire, on the same terms and conditions as are
applicable under such Warrant prior to the Effective Time, the number of Parent
Shares (rounded down to the nearest whole number) that the holder would have
been entitled to receive pursuant to the Merger had he exercised such warrant in
full immediately prior to the Effective Time, determined by (1) multiplying (i)
the number of shares subject to such Warrants which are
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exercisable immediately prior to the Effective Time by (ii) the Exchange Ratio;
and (2) the exercise price per share for Parent Common Stock after the Effective
Time shall be (i) an amount (rounded down to the nearest cent) equal to the
exercise price for Company Common Stock immediately prior to the Effective Time
divided by (ii) the Exchange Ratio.
(f) Capital Stock of Merger Sub. Each share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and non-assessable share of common stock, $.01 par value, of the Surviving
Corporation.
(g) Adjustments to Exchange Ratio. The Exchange Ratio shall be
equitably adjusted to reflect fully the effect of any reclassification, stock
split, reverse split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock), reorganization, combination,
recapitalization or other like change with respect to Parent Common Stock
occurring after the date hereof and prior to the Effective Time.
(h) Fractional Shares. No certificates or scrip representing less than
one Parent Share shall be issued upon the surrender for exchange of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "CERTIFICATES"). All fractional shares of
Parent Common Stock that a holder of shares of Company Common Stock would
otherwise be entitled to receive as a result of the Merger shall be aggregated
and if a fractional share results from such aggregation, such holder shall be
entitled to receive, in lieu thereof, an amount in cash determined by
multiplying the closing sale price (or the mean between the closing bid and
asked price, as the case may be) of the Parent Common Stock on the NASDAQ OTC
Bulletin Board on the trading day immediately preceding the Effective Time by
the fraction of a share of Parent Common Stock to which such holder would
otherwise have been entitled.
SECTION 1.7: Exchange of Certificates.
(a) Exchange Agent. Parent shall supply, or shall cause to be supplied,
to or for the account of Corporate Stock Transfer, Inc. or such other bank or
trust company as shall be designated by Parent (the "EXCHANGE AGENT"), in trust
for the benefit of the holders of Company Common Stock, for exchange in
accordance with this Section 1.7, through the Exchange Agent, certificates
evidencing the Parent Shares issuable pursuant to Section 1.6 and any cash in
lieu of fractional shares payable pursuant to Section 1.6, in exchange for the
outstanding Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates a letter of explanation describing the Merger,
dissenters rights and exchange procedures (which letter shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify), and instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing Parent Shares and cash in lieu of
fractional shares. Upon surrender of a Certificate for cancellation to the
Exchange Agent
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together with such letter of transmittal, duly executed, and such other
customary documents as may be required pursuant to such instructions, the holder
of such Certificate shall be entitled to receive in exchange therefor (A)
certificates evidencing that number of whole Parent Shares which such holder has
the right to receive in accordance with the Exchange Ratio in respect of the
Shares formerly evidenced by such Certificate, (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.7(c), and
(C) cash in respect of fractional shares as provided in Section 1.6(h), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the transfer records
of the Company as of the Effective Time, the Merger Consideration and any
dividends or other distributions to which the holder is entitled pursuant to
Section 1.7(c) may be issued and paid in accordance with this Article I to a
transferee if the Certificate evidencing such Shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer pursuant to this Section 1.7(b) and by evidence that any
applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented Shares of
Company Common Stock will be deemed from and after the Effective Time, for all
corporate purposes, subject to Sections 1.6(f) and 1.7(c), to evidence the right
to receive such Merger Consideration, as applicable. Parent Shares issued in the
Merger shall be issued as of and deemed to be outstanding as of the Effective
Time. Parent shall cause all such Parent Shares to be duly authorized, validly
issued, fully paid and non-assessable, and not subject to any preemptive rights.
(c) Distributions With Respect to Unexchanged Parent Shares. No
dividends or other distributions declared or made after the Effective Time with
respect to Parent Shares with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the Parent
Shares they are entitled to receive until the holder of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole Parent Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole Parent Shares and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time and a payment date after such surrender.
(d) No Liability. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(e) Withholding Rights. Parent or the Exchange Agent shall be entitled
to deduct and withhold from the Merger Consideration otherwise payable pursuant
to this Agreement to any holder of Company Common Stock such amounts as Parent
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by Parent or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by Parent or the Exchange Agent.
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SECTION 1.8: Stock Transfer Books.
At the Effective Time, the stock transfer books of the Company shall be
closed, and there shall be no further registration of transfers of Company
Common Stock thereafter on the records of the Company.
SECTION 1.9: No Further Ownership Rights in Company Common Stock.
The Merger Consideration delivered upon the surrender for exchange of
Shares in accordance with the terms hereof shall be deemed to have been issued
in full satisfaction of all rights pertaining to such Shares, and there shall be
no further registration of transfers on the records of the Surviving Corporation
of Shares which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
SECTION 1.10: Lost, Stolen or Destroyed Certificates.
In the event any Certificates shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof and complying with such other requirements as Parent or the
Exchange Agent may reasonably require, such Merger Consideration as may be
required pursuant to Section 1.6.
SECTION 1.11: Tax and Accounting Consequences.
For federal income tax purposes, it is intended by the parties hereto
that the transaction effected through the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code. The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
For accounting purposes, it is intended by the parties hereto that the Merger
shall be accounted for as a "pooling."
SECTION 1.12: Taking of Necessary Action; Further Action.
Each of Parent, Merger Sub and the Company will take all such
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and Merger
Sub, the officers and directors of the Company and Merger Sub immediately prior
to the Effective Time are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
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ARTICLE II: REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub
that, except as set forth in the written disclosure schedule delivered on or
prior to the date hereof by the Company to Parent (the "COMPANY DISCLOSURE
SCHEDULE"):
SECTION 2.1: Organization and Qualification.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and has the requisite
corporate power and authority and is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, approvals
and orders ("APPROVALS") necessary to own, lease and operate the properties it
purports to own, operate or lease and to carry on its business as it is now
being conducted. Except as set forth in Section 2.1 of the Company Disclosure
Schedule, the Company is duly qualified or licensed as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary. The Company has no
subsidiaries. Except as set forth in Section 2.1 of the Company Disclosure
Schedule, the Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity, with respect to which interest
the Company has invested or is required to invest $20,000 or more, excluding
securities in any publicly traded company held for investment by the Company and
comprising less than five percent of the outstanding stock of such company.
SECTION 2.2: Certificate of Incorporation and By-Laws.
The Company has heretofore furnished to Parent a complete and correct
copy of its Certificate of Incorporation and By-Laws as amended and restated to
date. Such Certificate of Incorporation and By-Laws, as amended and restated,
are in full force and effect. The Company is not in material violation of any of
the provisions of its Certificate of Incorporation or By-Laws.
SECTION 2.3: Capitalization.
The authorized capital stock of the Company consists of 25,000,000
shares of which 5,000,000 shares are Preferred Stock, par value $.0001 per
share, (the "Preferred Stock") and 20,000,000 shares are Common Stock, par value
$.0001 per share (the"Common Stock"). As of the date hereof:
(1) no shares of Preferred Stock are issued or outstanding and
none are held as treasury shares,
(2) 11,569,998 shares of Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, and
no shares were held in treasury,
(3) 1,548,245 shares of Common Stock were reserved for future
issuance pursuant to outstanding stock options granted under the Company Stock
Option Plan,
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(4) up to 2,592,052 shares of Common Stock were reserved for
future issuance under warrants granted to the persons listed on Disclosure
Schedule 2.3 (the "$.01 WARRANTS"),
(5) up to 683,000 shares of Common Stock were reserved for
future issuance under the warrants granted to the persons listed on Disclosure
Schedule 2.3 (the "$.75 WARRANTS"), and
(6) up to 1,000 shares of Common Stock were reserved for
future issuance under warrants granted to the persons listed on Disclosure
Schedule 2.3 (the "$2.00 WARRANTS").
Except as set forth in Section 2.3 of the Company Disclosure Schedule,
no material change in such capitalization has occurred between January 1, 2000
and the date hereof. Except as set forth in this Section 2.3 or in Sections 2.3
or 2.11 of the Company Disclosure Schedule, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character to which
the Company is a party relating to the issued or unissued capital stock of the
Company or obligating the Company to issue or sell any shares of capital stock
of, or other equity interests in, the Company and no such shares have preemptive
or similar rights and no holders of such shares have registration rights except
as set forth on Schedule 2.3. All shares of Company Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable.
Except as disclosed in Section 2.3 of the Company Disclosure Schedule,
there are no obligations, contingent or otherwise, of the Company to repurchase,
redeem or otherwise acquire any shares of Company Common Stock or to provide
funds to or make any investment (in the form of a loan, capital contribution,
guaranty or otherwise) in any other entity.
SECTION 2.4: Authority Relative to this Agreement.
The Company has all necessary corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than the adoption of this Agreement and the
Merger by the holders of at least a majority of the outstanding voting power of
Company Common Stock entitled to vote in accordance with the DGCL and the
Company's Certificate of Incorporation and By-Laws). The Board of Directors of
the Company has determined that it is advisable and in the best interest of the
Company's stockholders for the Company to enter into a business combination with
Parent upon the terms and subject to the conditions of this Agreement, and has
recommended that the Company's stockholders approve and adopt this Agreement and
the Merger. This Agreement has been duly and validly executed and delivered by
the Company and,
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assuming the due authorization, execution and delivery by Parent and Merger Sub,
as applicable, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except insofar as
such enforceability may be limited by applicable bankruptcy, insolvency and
other laws affecting the enforcement of creditors rights generally and by
general principles of equity applicable to similar agreements.
SECTION 2.5: No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list
of (i) all loan agreements, indentures, mortgages, pledges, conditional sale or
title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which the Company is a party or by which it is bound; (ii) all
contracts, agreements, commitments or other understandings or arrangements to
which the Company is a party or by which it or any of its respective properties
or assets are bound or affected, but excluding contracts, agreements,
commitments or other understandings or arrangements entered into in the ordinary
course of business and involving, in each case, payments or receipts by the
Company of less than $ 50,000 in any single instance but not more than $ 200,000
in the aggregate.
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (i) the Company has not breached, is not in default under, and has not
received written notice of any breach of or default under, any of the
agreements, contracts or other instruments referred to in clauses (i) or (ii) of
Section 2.5(a), (ii) to the knowledge of the Company, no other party to any of
the agreements, contracts or other instruments referred to in clauses (i) or
(ii) of Section 2.5(a) has breached or is in default of any of its obligations
thereunder, and (iii) each of the agreements, contracts and other instruments
referred to in clauses (i) and (ii) of Section 2.5(a) is in full force and
effect and will not be terminable by either party as a result of this Agreement.
(c) Except as set forth in Section 2.5(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Certificate of Incorporation or By-Laws of the Company, (ii) conflict with or
violate any federal, foreign, state or provincial law, rule, regulation, order,
judgment or decree (collectively, "LAWS") applicable to the Company or by which
its properties are bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default under), or impair the Company's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration (other than the acceleration of the right
to exercise stock options previously granted under the Company's Stock Option
Plan), or cancellation of, or result in the creation of any security interests,
liens, claims, pledges, agreements, limitations on the Company's voting rights,
charges or other encumbrances of any nature whatsoever (collectively, "LIENS")
on any of the properties or assets of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company is a party or by which the
Company or any of its properties is bound or affected.
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(d) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, foreign, state or provincial governmental or regulatory
authority except (i) for applicable requirements, if any, of the Securities Act,
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), state
securities laws ("BLUE SKY LAWS") and recordation of appropriate merger or
similar documents as required by the DGCL, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or materially delay consummation of the Merger,
or otherwise prevent or materially delay the Company from performing its
obligations under this Agreement.
SECTION 2.6: Compliance, Permits.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, the Company is not in conflict with, or in default or violation of,
(i) any Law applicable to the Company or by which any of its properties is bound
or affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or any of its properties is bound or
affected where such conflict, default or violation would have a material adverse
effect on the business or operations of the Company.
(b) Except as disclosed in Section 2.6(b) of the Company Disclosure
Schedule, the Company holds all permits, licenses, easements, variances,
exemptions, consents, certificates, orders and approvals from governmental
authorities which are material to the operation of the business of the Company
as it is now being conducted (collectively, the "COMPANY PERMITS") and the
Company is in compliance with the terms of the Company Permits.
SECTION 2.7: Financial Statements.
(a) Section 2.7(a) of the Company Disclosure Schedule includes the
unaudited financial statements of the Company for the fiscal year ended February
28, 1999, the three months ended November 30,1999 and the unaudited financial
statements of the Company for the ten months ended December 31, 1999 (the
"FINANCIAL STATEMENTS").
(b) Except as disclosed in Section 2.7 of the Company Disclosure
Schedule, the Financial Statements do 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 therein, in the light of the
circumstances under which they were made, not misleading. Each of the financial
statements (including, in each case, any related notes and schedules thereto)
was prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly presents in all material
respects the books and records of the Company and the financial position of the
Company as at the respective dates thereof and the results of its operations and
cash flows and stockholder equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount. Except as disclosed or reserved against on the balance
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sheet included among the Financial Statements, or as set forth in the Disclosure
Schedule, the Company does not have debts, liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise, whether due or to
become due, that individually or in the aggregate have not had and will not have
a material adverse effect on the Company. With respect to any such debts,
liabilities or obligations incurred since December 31, 1999, the same have been
incurred in the ordinary course of business consistent with past practice and
are not expected to have a material adverse effect upon the business or
operations of the Company.
SECTION 2.8: Accounts Receivable; Inventory.
(a) Except as set forth in Section 2.8 of the Company Disclosure
Schedule, the accounts receivable of the Company as reflected in the Financial
Statements, to the extent uncollected on the date hereof and the accounts
receivable reflected on the books of the Company are valid and existing and
represent monies due, and the Company has made reserves reasonably considered
adequate for receivables not collectible in the ordinary course of business, and
(subject to the aforesaid reserves) are subject to no refunds or other
adjustments and to no defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions enforceable by third parties on or affecting any
thereof, except for such refunds, adjustments, defenses, rights of setoff,
assignments, restrictions, encumbrances or conditions as would not reasonably be
expected to have a material adverse effect upon the business or operations of
the Company.
(b) Except as set forth in Section 2.8 of the Company Disclosure
Schedule, the inventory of the Company consists of raw materials and supplies,
manufactured and purchased parts, goods in process, and finished goods, all of
which is merchantable and fit or suitable and usable for the production or
completion of merchantable products for sale in the ordinary course of business,
and none of which is slow-moving, obsolete, below standard quality, damaged, or
defective, subject only to the reserve for inventory writedown set forth in the
Financial Statements and as adjusted for the passage of time through the
Effective Date in accordance with GAAP and the past custom and practice of the
Company. The inventory, taken as a whole, reflected in the most recent Balance
Sheet and books and records of the Company is reflected on the basis of a
complete physical count and is valued at the lower of cost (on an identifiable
unit basis) or market in accordance with GAAP, consistently applied. Since
December 31, 1999, no inventory has been sold or disposed of except through
sales in the ordinary course of business.
SECTION 2.9: Absence of Certain Changes or Events.
Except as set forth in the Company Disclosure Schedule, since January
1, 2000, the Company has conducted its business in the ordinary course and there
has not occurred: (a) any material adverse effect to the business or operations
of the Company such as the loss of a material customer or vendor; (b) any
amendments or changes in the Certificate of Incorporation or By-laws of the
Company; (c) any damage to, destruction or loss of any asset of the Company
(whether or not covered by insurance) that would reasonably be expected to have
a material adverse effect on the business or operations of the Company; (d) any
material change by the Company in its accounting methods, principles or
practices; (e) any material revaluation by the Company of any of its assets,
including, without limitation, writing down the value of inventory or writing
off notes or accounts receivable other than in the ordinary course of business;
(f) any
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change in a material agreement listed in Disclosure Schedule 2.5 or any
allegation by or against the Company of a breach of any such agreement; (g) any
other action or event that would have required the consent of Parent pursuant to
Section 4.1 had such action or event occurred after the date of this Agreement;
or (h) any sale of a material amount of property or assets of the Company,
except in the ordinary course of business.
SECTION 2.10: Absence of Litigation.
(a) Schedule 2.10 contains a list of all litigation, arbitration or
similar proceedings in which the Company is involved as plaintiff or defendant
before any tribunal.
(b) Except as set forth in Section 2.10 of the Company Disclosure
Schedule, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company, or
any properties or rights of the Company, before any federal, foreign, state or
provincial court, arbitrator or administrative, governmental or regulatory
authority or body that would reasonably be expected to have a material adverse
effect on the business or operations of the Company.
SECTION 2.11: Employee Benefit Plans, Employment Agreements.
(a) Section 2.11 of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all employee welfare plans (as
defined in Section 3(1) of ERISA), and all other material bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements, and any material employment, executive compensation, consulting or
severance agreements, written or otherwise, for the benefit of, or relating to,
any employee of or consultant to the Company. The Company is not a member of a
controlled group including the Company or which is under common control with the
Company within the meaning of Section 414 of the Code. Also included in Schedule
2.11 is each plan with respect to which the Company could incur liability under
Section 4069 (if such plan has been or were terminated) or Section 4212(c) of
ERISA (all such plans, practices and programs are referred to as the "COMPANY
EMPLOYEE PLANS"). There have been made available to Parent copies of (i) each
such written Company Employee Plan (other than those referred to in Section
4(b)(4) of ERISA), (ii) the most recent annual report on Form 5500 series, with
accompanying schedules and attachments, filed with respect to each Company
Employee Plan required to make such a filing, and (iii) the most recent
actuarial valuation for each Company Employee Plan subject to Title IV of ERISA.
(b) (1) Except in each case as set forth in Section 2.11 of the
Company Disclosure Schedule, none of the Company Employee Plans promises or
provides retiree medical or other retiree welfare benefits to any person, and
none of the Company Employee Plans is a "multiemployer plan" as such term is
defined in Section 3(37) of ERISA;
(2) there has been no "prohibited transaction," as such term
is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Company Employee Plan, which could result in any material liability of the
Company;
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(3) all Company Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all Laws
(including ERISA and the Code), currently in effect with respect thereto
(including all applicable requirements for notification to participants or the
Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"), Internal
Revenue Service (the "IRS") or Secretary of the Treasury), and the Company has
performed all material obligations required to be performed by it under, is not
in any material respect in default under or violation of, and has no knowledge
of any default or violation by any other party to, any of the Company Employee
Plans;
(4) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code is the subject of a favorable determination letter from the
IRS, and nothing has occurred which may reasonably be expected to impair such
determination;
(5) all contributions required to be made to any Company
Employee Plan pursuant to Section 412 of the Code, or the terms of the Company
Employee Plan or any collective bargaining agreement, have been made on or
before their due dates;
(6) with respect to each Company Employee Plan, no "reportable
event" within the meaning of Section 4043 of ERISA (excluding any such event for
which the 30 day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; and
(7) the Company has not incurred, nor reasonably expects to
incur, any liability under Title IV of ERISA (other than liability for premium
payments to the PBGC arising in the ordinary course).
(c) Section 2.11 of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company who holds:
(1) any option to purchase Company Common Stock as of the date
hereof, together with the number of shares of Company Common Stock subject to
such option, the option price of such option (to the extent determined as of the
date hereof), whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), and the
expiration date of such option;
(2) any other right, directly or indirectly, to acquire
Company Common Stock together with the number of shares of Company Common Stock
subject to such right.
(d) Section 2.11 of the Company Disclosure Schedule sets forth a true
and complete list of:
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(1) all employment agreements with officers of the Company;
(2) all agreements with consultants who are individuals
obligating the Company to make annual cash payments in an amount exceeding $
10,000;
(3) all employees of, or consultants to, the Company who have
executed a non-competition agreement with the Company;
(4) all severance agreements, programs and policies of the
Company with or relating to its employees, in each case with outstanding
commitments exceeding $ 75,000 (excluding programs and policies required to be
maintained by law); and
(5) all plans, programs, agreements and other arrangements of
the Company with or relating to its employees which contain change in control
provisions.
SECTION 2.12: Labor Matters.
Except as set forth in Section 2.12 of the Company Disclosure Schedule:
(1) there are no controversies pending or, to the knowledge of
the Company, threatened, between the Company and its employees, which
controversies have or would reasonably be expected to have a material adverse
effect on the business or operations of the Company;
(2) the Company is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company, nor does the Company know of any activities or proceedings of any labor
union to organize any such employees; and
(3) the Company has no knowledge of any strikes, slowdowns,
work stoppages, lockouts, or threats thereof, by or with respect to any
employees of the Company.
SECTION 2.13: Insurance.
All material fire and casualty, general liability, business
interruption, product liability, professional liability and sprinkler and water
damage insurance policies maintained by the Company are in full force and effect
and the Company has not received any notice from any of its insurance carriers
that the perils or hazards covered by such insurance or any claim with respect
thereto currently pending is not covered as contemplated by such insurance
contracts, except as would not reasonably be expected to have a material adverse
effect on the business or operations of the Company. All premiums currently due
and payable on such policies have been paid or accrued. To the Company's
knowledge, the Company is not in default with respect to any of the provisions
contained in any such insurance policy.
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SECTION 2.14: Restrictions on Business Activities.
Except for this Agreement or as set forth in Section 2.14 of the
Company Disclosure Schedule, there is no agreement, judgement, injunction, order
or decree binding upon the Company which has or would reasonably be expected to
have the effect of prohibiting or impairing any business practice of the Company
or the conduct of business by the Company as currently conducted or as proposed
to be conducted by the Company.
SECTION 2.15: Title to Property.
Except as set forth in Section 2.15 of the Company Disclosure Schedule,
the Company has good and defensible title to all of its properties and assets,
free and clear of all liens, charges and encumbrances, except liens for taxes
not yet due and payable and such liens or other imperfections of title, if any,
as do not materially detract from the value of or interfere with the present use
of the property affected thereby; and, to the knowledge of the Company, all
leases pursuant to which the Company leases from others material amounts of real
or personal property, are in good standing, valid and effective in accordance
with their respective terms, and there is not, to the knowledge of the Company,
under any of such leases, any existing material default or event of default (or
event which with notice or lapse of time, or both, would constitute a material
default).
SECTION 2.16: Taxes.
(a) For purposes of this Agreement, "TAX" or "TAXES" shall mean taxes,
fees, levies, duties, tariffs, and governmental impositions or charges of any
kind in the nature of (or similar to) taxes, payable to any federal, state,
local or foreign taxing authority, whether disputed or not, including (without
limitation) (i) income, franchise, profits, gross receipts, ad valorem, net
worth, value added, sales, use, service, real or personal property, special
assessments, capital stock, license, payroll, withholding, employment, social
security (or similar), workers' compensation, unemployment compensation,
environmental (including taxes under Code section 59A), utility, severance,
production, excise, stamp, occupation, premiums, windfall profits, transfer and
gains taxes, and (ii) interest, penalties, and additions to tax imposed with
respect thereto; and "TAX RETURNS" shall mean returns, reports, declarations,
forms, and information statements with respect to Taxes required to be filed
with the IRS or any other federal, foreign, state or provincial taxing
authority, including, without limitation, consolidated, combined and unitary tax
returns, including any amendments thereto.
(b) Other than as disclosed in Section 2.16 of the Company Disclosure
Schedule:
(1) the Company has timely filed all United States federal
income Tax Returns and other material Tax Returns required to be filed by it and
all such Tax Returns are true, correct and complete in all material respects;
(2) the Company has paid and discharged all Taxes due and has
withheld and paid to the appropriate authorities all Taxes required to be
withheld with respect to employees, except such as are being contested in good
faith by appropriate proceedings (to the extent that any such proceedings are
required) which are disclosed in Section 2.16(b) of the Company Disclosure
Schedule, and with respect to which the Company is maintaining adequate
reserves;
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(3) there are no other Taxes that would be due if asserted by
a taxing authority, except with respect to which the Company is maintaining
reserves to the extent currently required;
(4) there are no Tax Liens on any assets of the Company;
(5) the Company has not granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any Tax;
(6) the Company has not received any written notice of any Tax
deficiency outstanding, proposed or assessed against the Company, or of any
audit or other examination, proposed or currently in progress of any Tax Return
of the Company;
(7) no written claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that the Company is or
may be subject to Tax by that jurisdiction;
(8) the Company is not a party to or bound by any tax
indemnity, tax sharing or tax allocation agreements;
(9) the Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company; and
(10) the Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code and the
Company is not liable for the Taxes of any person under Treasury Regulation
1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract or otherwise. The accruals and reserves for
Taxes (including deferred taxes) reflected in the most recent Company Balance
Sheet are in all material respects adequate to cover all Taxes required to be
accrued through the date thereof (including interest and penalties, if any,
thereon and Taxes being contested) in accordance with generally accepted
accounting principles. Schedule 2.16 of the Company Disclosure Schedule lists
the amount of any net operating loss carryforwards and net capital loss
carryforwards of the Company.
SECTION 2.17: Environmental Matters.
Except as set forth in Section 2.17 of the Company Disclosure Schedule,
the Company:
(a) has obtained all Approvals which are required to be obtained under
all applicable federal, state, foreign or local laws or any regulation, code,
plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water, or land or otherwise
relating to the manufacture,
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processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by the Company or its agents ("ENVIRONMENTAL LAWS");
(b) is in compliance with all terms and conditions of such required
Approvals, and also is in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in applicable Environmental Laws;
(c) as of the date hereof, is not aware of nor has received notice of
any past or present violations of Environmental Laws or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding, against the Company based on or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste; and
(d) has taken all actions necessary under applicable Environmental Laws
to register any products or materials required to be registered by the Company
(or any of its respective agents) thereunder.
SECTION 2.18: Intellectual Property.
Except as set forth in Section 2.18 of the Disclosure Schedule:
(a) The Company, directly or indirectly, owns, or is licensed or
otherwise possesses legally enforceable rights to use, all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor, domain
names/url's, net lists, schematics, technology, know-how, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material (excluding Commercial
Software as defined in paragraph (e) below) that are material to the business of
the Company as currently conducted or as proposed to be conducted by the Company
(the "COMPANY INTELLECTUAL PROPERTY RIGHTS").
(b) Section 2.18 of the Company Disclosure Schedule sets forth a
complete list of all patents, trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners.
(c) Section 2.18 of the Company Disclosure Schedule sets forth a
complete list of all material licenses, sublicenses and other agreements as to
which the Company is a party and pursuant to which the Company or any other
person is authorized to use any Company Intellectual Property Right that permit
use of software products without a right to modify,
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distribute or sublicense the same ("END-USER LICENSES") or other trade secret
material to the Company, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty and
the term thereof. The Company is not in violation of any license, sublicense or
agreement described on such list except such violations as do not materially
impair the Company's rights under such license, sublicense or agreement. The
execution and delivery of this Agreement by the Company, and the consummation of
the transactions contemplated hereby, will neither cause the Company to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement.
(d) The Company is the sole and exclusive owner or licensee of, with
all right, title and interest in and to (free and clear of any liens or
encumbrances), the Company Intellectual Property Rights, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which the
Company Intellectual Property Rights are being used or are proposed to be used,
except for any adverse interests which do not materially impair the Company's
rights thereunder or materially impact the Company's ability to produce the
products. No claims have been asserted or, to the knowledge of the Company, are
threatened by any person nor are there any valid grounds, to the knowledge of
the Company, for any bona fide claims, (i) to the effect that the manufacture,
sale, licensing or use of any of the products of the Company as now
manufactured, sold or licensed or used or proposed for manufacture, use, sale or
licensing by the Company infringes on any copyright, patent, trade mark, service
mark or trade secret, (ii) against the use by the Company of any trademarks,
service marks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the business of
the Company as currently conducted or as proposed to be conducted, or (iii)
challenging the ownership by the Company, validity or effectiveness of any of
the Company Intellectual Property Rights. All registered trademarks, service
marks and copyrights held by the Company are valid and subsisting. To the
knowledge of the Company, there is no unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property Rights by any third
party, including any employee or former employee of the Company. No Company
Intellectual Property Right or product of the Company is subject to any
outstanding decree, order, judgment, or stipulation restricting in any manner
the licensing thereof by the Company. The Company has not entered into any
agreement under which the Company is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
(e) "COMMERCIAL SOFTWARE" means packaged commercially available
software programs generally available to the public through retail dealers in
computer software which have been licensed to the Company (or, in the case of
Section 3.17, to Parent) pursuant to end-user licenses and which are used in the
Company's business (or in Parent's business in the case of Section 3.17) but are
in no way a component of or incorporated in or specifically required to develop
or support any of the Company's (or of Parent's in the case of Section 3.17)
products and related trademarks, technology and know-how.
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SECTION 2.19: Interested Party Transactions.
Except as set forth in Section 2.19 of the Company Disclosure Schedule,
neither the Company nor any officer, director or employee of the Company has a
direct or indirect material interest in any vendor, customer or competitor of
the Company.
SECTION 2.20: Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or its subsidiaries or affiliates except Baird Patrick & Co., Inc.
Parent is responsible for such expenses pursuant to arrangements described in
Section 3.18 of the Parent Disclosure Schedule.
SECTION 2.21: Full Disclosure.
No representation or warranty made by the Company contained in this
Agreement and no statement contained in any certificate or schedule furnished or
to be furnished by the Company to Parent or Merger Sub in, or pursuant to the
provisions of, this Agreement, including without limitation the Company
Disclosure Schedule, contains or shall contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in the
light of the circumstances under which it was made, in order to make statements
herein or therein not misleading.
ARTICLE III: REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and
warrant to the Company that, except as set forth in the written disclosure
schedule delivered on or prior to the date hereof by Parent to the Company (the
"PARENT DISCLOSURE SCHEDULE"):
SECTION 3.1: Organization and Qualification; Subsidiaries.
Each of Parent and its majority-owned subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority and is in possession of all Approvals necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted. Each of Parent and each of its
majority-owned subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary.
SECTION 3.2: Charter and By-Laws.
Parent has heretofore furnished to the Company a complete and correct
copy of its and
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Merger Sub's Certificate of Incorporation and By-Laws, amended to date. Such
Certificate of Incorporation and By-Laws are in full force and effect. Neither
Parent nor Merger Sub is in violation of any of the provisions of its
Certificate of Incorporation or By-Laws.
SECTION 3.3: Capitalization.
As of February 17, 2000, the authorized capital stock of Parent
consisted of (i) 100,000,000 shares of Parent Common Stock of which 17,504,331
shares were issued and outstanding, all of which are validly issued, fully paid
and non-assessable, no shares were held in treasury (ii) 10,000,000 shares of
preferred stock, $.0001 par value per share, of which 5000 shares have been
designated Series A Convertible Preferred Stock and 2,807.228 shares are issued
and outstanding and none of which was held in treasury. The Certificate
designating the rights and preferences of such series of Preferred Stock is
included in the Parent Disclosure Schedule. No material change in such
capitalization has occurred between February 17, 2000 and the date hereof.
Except as set forth in this Section or in Section 3.3 of the Parent Disclosure
Schedule, as of the date hereof there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of Parent or any of its majority-owned subsidiaries or
obligating Parent or any of its majority-owned subsidiaries to issue or sell any
shares of capital stock of, or other equity interests in, Parent or any of its
majority-owned subsidiaries and no such shares have preemptive or similar rights
and no holders of such shares have demand registration rights except as set
forth on Schedule 3.3. Except as set forth in Section 3.3 or Section 3.11 of the
Parent Disclosure Schedule as of the date hereof, there are no obligations,
contingent or otherwise, of Parent or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of Parent Common Stock or the capital
stock of any majority-owned subsidiary or to provide funds to or make any
investment (in the form of a loan, capital contribution or otherwise) in any
such majority-owned subsidiary. Except as set forth in Section 3.1 or 3.3 of the
Parent Disclosure Schedule, all of the outstanding shares of capital stock of
each of Parent's majority-owned subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and all such shares are owned by Parent or another
subsidiary of Parent free and clear of all security interests, liens, claims,
pledges, agreements, limitations in Parent's voting rights, charges or other
encumbrances of any nature whatsoever.
SECTION 3.4: Authority Relative to this Agreement.
Each of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate the transactions
contemplated thereby. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of Parent and Merger Sub enforceable against each of them in
accordance with its terms except insofar as such enforceability may be
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limited by applicable bankruptcy, insolvency and other laws affecting the
enforcement of creditors rights generally and by general principles of equity
applicable to similar agreements.
SECTION 3.5: No Conflict, Required Filings and Consents.
(a) Except as disclosed in Section 3.5(a) of the Parent Disclosure
Schedule:
(1) neither Parent nor any of its subsidiaries has breached,
or is in default under or has received written notice of any breach of or
default under, any loan agreements, indentures, mortgages, pledges, conditional
sale or title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases, leases or lease
purchase agreements, acquisition agreements, investment agreements or employment
or consulting agreements to which Parent or any of its subsidiaries is a party
or by which any of them is bound, but excluding contracts, agreements,
commitments or other understandings or arrangements entered into in the ordinary
course of business and involving, in each case, payments or receipts by Parent
of less than $50,000 in any single instance but not more than $200,000 in the
aggregate (such agreements other than the excluded agreements are collectively,
the "MATERIAL AGREEMENTS");
(2) neither the Parent nor any of its subsidiaries has
breached or is in default under or has received written notice of any breach of
or default under, any of its obligations under the Material Agreements; and
(3) each of the Material Agreements is in full force and
effect.
(b) Except as set forth in Section 3.5 of the Parent Disclosure
Schedule, the execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub will not:
(1) conflict with or violate the Certificate of Incorporation
or By-Laws of Parent or Merger Sub;
(2) conflict with or violate any Law applicable to Parent or
any of its subsidiaries or by which its or their respective properties are bound
or affected; or
(3) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or impair Parent's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
are bound or affected.
(c) The execution and delivery of this Agreement by Parent and Merger
Sub does not, and the performance of this Agreement by Parent and Merger Sub
will not, require any consent,
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approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except:
(1) for applicable requirements, if any, of the Securities
Act, the Exchange Act, the Blue Sky Laws, and the filing and recordation of
appropriate merger or other documents as required by the DGCL; and
(2) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent Parent or
Merger Sub from performing their respective obligations under this Agreement.
SECTION 3.6: Compliance; Permits.
(a) Except as disclosed in Section 3.6 of the Parent Disclosure Schedule,
neither Parent nor any of its subsidiaries is in conflict with, or in
default or violation of:
(1) any Law applicable to Parent or any of its subsidiaries or by
which its or any of their respective properties is bound or
affected or
(2) any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to
which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected.
(b) Except as disclosed in Section 3.6 of the Parent Disclosure Schedule,
Parent and its subsidiaries hold all permits, licenses, easements,
variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of
the business of the Parent and its subsidiaries taken as a whole as it
is now being conducted (collectively, the "PARENT PERMITS"). Parent
and its subsidiaries are in compliance with the terms of the Parent
Permits.
SECTION 3.7: SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC and has heretofore delivered to the Company, in the form
filed with the SEC:
(1) its Annual Reports on Form 10-KSB for the fiscal year ended
December 31, 1998,
(2) reports on Form 10-QSB for the quarterly periods ended September
30, 1999, June 30, 1999, and March 31, 1999,
(3) all proxy statements relating to Parent's meetings of
stockholders (whether annual or special) since January 1, 1999,
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(4) all other reports or registration statements filed by Parent with
the SEC since January 1, 1999, and
(5) all amendments and supplements to all such reports and registration
statements filed by Parent with the SEC (collectively, the "SEC REPORTS"). Since
June 1, 1999 (the date current management assumed their positions with Parent),
the SEC Reports (i) were prepared in all material respects in accordance with
the requirements of the Securities Act or the Exchange Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
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
therein, in the light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the SEC Reports has been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
SECTION 3.8: Absence of Certain Changes or Events.
Except as set forth in Section 3.8 of the Parent Disclosure Schedule or
in the SEC Reports, since January 1, 2000, Parent has conducted its business in
the ordinary course and there has not occurred:
(1) any material adverse effect to the business or operations
of the Company such as the loss of a material customer or vendor;
(2) any amendments or changes in the Certificate of
Incorporation or By-Laws of Parent;
(3) any damage to, destruction or loss of any assets of the
Parent (whether or not covered by insurance);
(4) any material change by Parent in its accounting methods,
principles practices;
(5) any material revaluation by Parent of any of its assets,
including without limitation, writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of business;
(6) any other action or event that would have required the
consent of the Company pursuant to Section 4.3 had such action or event occurred
after the date of this Agreement; or
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(7) any sale of a material amount of assets of Parent or any
of its subsidiaries except in the ordinary course of business.
SECTION 3.9: No Undisclosed Liabilities.
Except as is disclosed in Section 3.9 of the Parent Disclosure Schedule
or in the SEC Reports, neither Parent nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise), except liabilities:
(1) adequately provided for in Parent's balance sheet
(including any related notes thereto) as of September 30, 1999 included in the
Parent's Quarterly Report on Form 10-QSB (the " BALANCE SHEET"),
(2) incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected on the
Balance Sheet,
(3) incurred since September 30, 1999 in the ordinary course
of business and consistent with past practice,
(4) incurred in connection with this Agreement, or
(5) which would not reasonably be expected to have a material
adverse effect on the business or operations of Parent.
SECTION 3.10: Absence of Litigation.
Except as set forth in Section 3.10 of the Parent Disclosure Schedule,
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of the Parent, threatened against the Parent or any of its
subsidiaries, or any properties or rights of the Parent or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign that would reasonably be
expected to have a material adverse effect on the business or operations of the.
SECTION 3.11: Employee Benefit Plans; Employment Agreements.
Except as set forth in Section 3.11 of the Parent Disclosure Schedule,
none of the employee pension plans (as defined in Section 3(2) of ERISA),
employee welfare plans, (as defined in Section 3(1) of ERISA) and other bonus,
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements, or any employment, executive compensation or severance
agreements, written or otherwise, for the benefit of, or relating to, any
employee of or consultant to Parent, any trade or business (whether or not
incorporated) which is a member of a controlled group including Parent or which
is under common control with Parent (an "ERISA AFFILIATE") within the meaning of
Section 414 of the Code, or any subsidiary of Parent, as
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well as each plan with respect to which Parent or an ERISA Affiliate could incur
liability under Section 4069 (if such plan has been or were terminated) or
Section 4212(c) of ERISA (all such plans, practices, and programs are referred
to herein as the "PARENT EMPLOYEE PLANS") promises or provides retiree welfare
benefits to any person, and none of the Parent Employee Plans is a
"multiemployer plan" as such term is defined in Section 3(37) of ERISA; (ii)
there has been no "prohibited transaction," as such term is defined in Section
406 of ERISA and Section 4975 of the Code, with respect to any Parent Employee
Plan, which could result in any material liability of Parent or any of its
subsidiaries; (iii) all Parent Employee Plans are in compliance in all material
respects with the requirements prescribed by any and all statutes (including
ERISA and the Code), orders, or governmental rules and regulations currently in
effect with respect thereto (including all applicable requirements for
notification to participants or the Department of Labor, IRS, PBGC or Secretary
of the Treasury), and Parent and each of its subsidiaries have performed all
material obligations required to be performed by them under, are not in any
material respect in default under or violation of, and have no knowledge of any
default or violation by any other party to, any of the Parent Employee Plans;
(iv) each Parent Employee Plan intended to qualify under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code is the
subject of a favorable determination letter from the IRS, and nothing has
occurred which may reasonably be expected to impair such determination; (v) all
contributions required to be made to any Parent Employee Plan pursuant to
Section 412 of the Code, or the terms of the Parent Employee Plan or any
collective bargaining agreement, have been made on or before their due dates;
(vi) with respect to each Parent Employee Plan, no "reportable event" within the
meaning of Section 4043 of ERISA (excluding any such event for which the 30 day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA has
occurred; and (vii) neither Parent nor any ERISA Affiliate has incurred, nor
reasonably expects to incur, any liability under Title IV of ERISA (other than
liability for premium payments to the PBGC arising in the ordinary course).
SECTION 3.12: Labor Matters.
Except as set forth in Section 3.12 of the Parent Disclosure Schedule:
(1) there are no controversies pending or, to the knowledge of
Parent or any of its subsidiaries, threatened, between Parent or any of its
subsidiaries and any of their respective employees, which controversies have or
could reasonably be expected to have a Material Adverse Effect;
(2) neither Parent nor any of its subsidiaries is a party to
any collective bargaining agreement or other labor union contract applicable to
persons employed by Parent or its subsidiaries, nor does Parent or any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and
(3) neither Parent nor any of its subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of Parent or any of its
subsidiaries which would reasonably be expected to have a material adverse
effect upon the business or operations of Parent or its subsidiaries.
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SECTION 3.13: Intentionally Omitted.
SECTION 3.14: Restrictions on Business Activities.
Except for this Agreement or as set forth in Section 3.14 of the Parent
Disclosure Schedule, to Parent's knowledge, there is no agreement, judgment,
injunction, order or decree binding upon Parent or any of its subsidiaries which
has or would reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of Parent or any of its subsidiaries,
any acquisition of property by Parent or any of its subsidiaries or the conduct
of business by Parent or any of its subsidiaries as currently conducted or as
proposed to be conducted by Parent,
SECTION 3.15: Title to Property.
Except as disclosed in Section 3.15 of the Parent Disclosure Schedule,
Parent and each of its majority-owned subsidiaries have good and defensible
title to all of their properties and assets, free and clear of all liens,
charges and encumbrances, except liens for taxes not yet due and payable and
such liens or other imperfections of title, if any, as do not materially detract
from the value of or interfere with the present use of the property affected
thereby; and, to Parent's knowledge, all leases pursuant to which Parent or any
of its subsidiaries lease from others material amounts of real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of Parent, under any of
such leases, any existing material default or event of default (or event which
with notice or lapse of time, or both, would constitute a material default).
SECTION 3.16: Intellectual Property.
Except as disclosed in Section 3.16 of the Parent Disclosure Schedule,
the Parent and its subsidiaries own, are licensed to use or otherwise possess,
legally enforceable rights to use the patents, patent rights, inventions,
licenses, copyrights, and any applications therefor, domain names/url's, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form) know-how (including
trade secrets and other unpatented/unpatentable proprietary or confidential
information, systems or procedures), trademarks, servicemarks and tradenames
(referred to as "PARENT INTELLECTUAL PROPERTY") presently employed by them in
connection with the business of the Parent as presently conducted, and neither
the Parent nor any of its subsidiaries has knowledge of any infringement of or
conflict with asserted rights of others with respect to any of the Parent
Intellectual Property.
SECTION 3.17: Interested Party Transactions.
Except as set forth in the SEC Reports or Section 3.17 of the Parent
Disclosure Schedule, no event has occurred that would be required to be reported
as a Certain Relationship or Related Party Transaction, pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
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SECTION 3.18: Brokers.
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement except for Baird Patrick & Co., Inc. A copy of
such agreement has been provided to the Company. Parent is responsible for the
remuneration due such investment banker pursuant to this Agreement.
SECTION 3.19: Ownership of Merger Sub; No Prior Activities
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
and will not have incurred, directly or indirectly, any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
SECTION 3.20: Full Disclosure.
No representation or warranty made by Parent contained in this
Agreement and no statement contained in any certificate or schedule furnished or
to be furnished by Parent to the Company in, or pursuant to the provisions of,
this Agreement, including without limitation the Parent Disclosure Schedule,
contains or shall contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make statements herein or
therein not misleading.
ARTICLE IV: CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1: Conduct of Business by the Company Pending the Merger.
The Company covenants and agrees that, during the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, unless Parent shall otherwise agree in writing,
the Company shall conduct its business only in, and shall not take any action
except in, the ordinary course of business and in a manner consistent with past
practice, other than actions taken by the Company as contemplated by this
Agreement; and the Company shall use all reasonable commercial efforts to
preserve substantially intact the business organization of the Company, to keep
available the services of the present officers, employees and consultants of the
Company and to preserve the present relationships of the Company with customers,
suppliers and other persons with which the Company has significant business
relations. By way of example and not limitation, except as contemplated by this
Agreement, the Company shall not, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
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(a) amend or otherwise change the Certificate of Incorporation or
By-Laws of the Company as amended and restated to date;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in the
Company or any of its affiliates (except for the issuance of shares of Company
Common Stock issuable pursuant to Stock Options which are outstanding on the
date hereof or pursuant to the exercise of outstanding Warrants).
(c) sell, pledge, dispose of or encumber any assets of the Company
(except for (i) sales of assets in the ordinary course of business and in a
manner consistent with past practice, (ii) dispositions of obsolete or worthless
assets, (iii) the transfer of inventory in satisfaction of pre-existing
obligations of the Company or sales of immaterial assets not in excess of $5,000
in the aggregate);
(d) (1) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock,
(2) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or
(3) purchase, redeem or otherwise acquire any of its
outstanding securities, including, without limitation, shares of Company Common
Stock or any option, warrant or right, directly or indirectly, to acquire shares
of Company Common Stock, except in connection with the exercise of outstanding
options or warrants in accordance with their terms;
(e) (1) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership or other business organization or
division thereof (including the creation of any subsidiary);
(2) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person or, except in the ordinary
course of business consistent with past practice, make any loans or advances;
(3) enter into or amend any material contract or agreement
which changes the current relationship with a vendor or supplier ;
(4) authorize any capital expenditures or purchase of fixed
assets which are, in the aggregate, in excess of $ 20,000; or
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(5) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this Section 4.1(e);
(f) increase the compensation payable or to become payable to its
officers or employees, or grant any severance or termination pay to, or enter
into any employment or severance agreement with any director, officer or other
employee of the Company, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the financial statements contained in the Company Financial Statements or
incurred in the ordinary course of business and consistent with past practice;
(j) have operating expenses other than non cash charges in excess of
$100,000 per month excluding the costs related to the transactions contemplated
by this Agreement; or
(k) take, or agree to take, any action which would make any of the
representations or warranties of the Company contained in this Agreement untrue
or incorrect or prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
SECTION 4.2: Conduct of Business by Parent Pending the Merger.
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, Parent
covenants and agrees that, unless the Company shall otherwise agree in writing,
Parent shall conduct its business, and cause the businesses of its subsidiaries
to be conducted, in the ordinary course, other than actions taken by Parent or
its subsidiaries in contemplation of the Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation or
By-Laws;
(b) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a subsidiary of
Parent may declare and pay a dividend to its parent; or
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(c) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in
this Agreement untrue or incorrect or prevent Parent from performing
or cause Parent not to perform its covenants hereunder.
ARTICLE V: ADDITIONAL AGREEMENTS
SECTION 5.1: Stockholders Meeting.
The Company shall call and hold a meeting of its Stockholders as
promptly as practicable or shall cause the Stockholders to provide their consent
without the holding of such meeting in accordance with applicable laws for the
purpose of voting upon the approval of the Merger. The Company shall use all
reasonable efforts to solicit from its stockholders votes or proxies in favor of
adoption of this Agreement and approval of the transactions contemplated hereby
and shall take all other action reasonably necessary or advisable to secure the
vote or consent of stockholders to obtain such approvals.
SECTION 5.2: Restricted Stock.
Parent and the Company agree that the Parent Common Stock deliverable
pursuant to the Merger is being issued pursuant to an exemption from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and applicable state securities laws. The Company agrees to cause
its stockholders to execute investment representations to the effect that they
will not sell, hypothecate or otherwise transfer any or all of the Parent Common
Stock other than in accordance with the following provisions:
(a) pursuant to a registration statement under the Securities
Act which has become effective, and a prospectus related thereto which is
current, with respect to the securities to be disposed of and, if required, a
registration statement under applicable state securities laws; or
(b) pursuant to a specific exemption from registration under
the Securities Act and applicable state securities laws, but only upon the such
stockholder first having delivered to Parent a favorable written opinion of
counsel for such stockholder reasonably satisfactory in form and substance to
counsel for Parent to the effect that the proposed sale or transfer is exempt
from registration under the Securities Act and any applicable state securities
laws.
Such investment representations will provide that:
(1) the Company stockholders understand that the Parent Common
Stock is not registered under the Securities Act or applicable state securities
laws and such securities must be held indefinitely, unless the subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or an exemption from such registration is available;
(2) the Company stockholders are acquiring the Parent Common
Stock solely for their own account, for investment purposes only and not with a
view to, or for, resale, distribution, or fractionalization thereof;
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(3) the Company stockholders understand the restrictions on
the transferability of the Parent Common Stock and are able to bear the
substantial economic risk of such investment; and the Company stockholders
acknowledge that the certificate or certificates evidencing the Parent Common
Stock and any substitutions or replacements thereof, shall bear a legend in
substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION, UNLESS AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS
THEN AVAILABLE"
SECTION 5.3: Intentionally Omitted
SECTION 5.4: Incidental Registration.
If Parent at any time (other than pursuant to Section 5.3 hereof)
proposes to register any of its Common Stock under the Securities Act for sale
to the public, whether for its own account or for the account of other security
holders or both (except with respect to registration statements on Form S-4 or
S-8 or another form not available for registering the Restricted Stock for sale
to the public), it will give written notice at such time to all holders of
Parent Common Stock of its intention to do so. Upon the written request of any
such holder "Selling Stockholder"), given within 30 days after receipt of any
such notice from Parent, to register any of its Restricted Stock, Parent will
use its best efforts to cause the Restricted Stock as to which registration
shall have been so requested to be included in the securities to be covered by
the registration statement proposed to be filed by Parent to the extent
requisite to permit the sale or other disposition by the Selling Stockholder (in
accordance with its written request) of such Restricted Stock so registered. In
the event that any registration pursuant to this Section 5.4 shall be, in whole
or in part, an underwritten public offering of Common Stock, any request by a
Selling Stockholder pursuant to this Section 5.4 to register Restricted Stock
shall specify that either (i) such Restricted Stock is to be included in the
underwriting on the same terms and conditions as the shares of Common Stock
otherwise being sold through underwriters under such registration or (ii)
subject to the approval of the underwriters, such Restricted Stock is to be sold
in the open market without any underwriting, on terms and conditions comparable
to those normally applicable to offerings of common stock in reasonably similar
circumstances. The number of shares of Restricted Stock to be included in such
an underwriting may be reduced (pro rata among the requesting holders based upon
the number of shares so requested to be registered other than Parent unless any
such requesting holder cannot be proportionately reduced, then including Parent)
if and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by Parent therein.
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SECTION 5.5: Registration of Option Shares.
As promptly as practicable after the Effective Time, but no later than
May 15, 2000 or earlier, if Parent files a registration statement pursuant to
Section 5.4, hereof, Parent shall file a registration statement pursuant to the
Securities Act on Form S-8, or such other applicable form, covering the Company
Stock Option Plan and/or such successor plan as shall have been adopted by
Parent covering the options and shares exercisable pursuant thereto granted to
or held by employees of the Successor Corporation and shall use all reasonable
efforts to keep such registration statement effective so long as options or
shares of Parent Common Stock pursuant to such plan are outstanding.
SECTION 5.6: Registration Procedures and Expenses.
If and whenever Parent is required by the provisions of Section 5.4
hereof to use its best efforts to effect the registration of any of the
Restricted Stock under the Securities Act, Parent will, as expeditiously as
possible:
(a) prepare and file with the SEC a registration statement with respect
to such securities and use its best efforts to cause such registration statement
to become and remain effective for the period of the distribution contemplated
thereby which in a firm commitment underwritten public offering shall be deemed
to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Restricted Stock
in any other registration shall be deemed to extend until the earlier of the
sale of all Restricted Stock covered thereby or 90 days after the effective date
thereof provided, however, each Selling Stockholder, if so requested by Parent
or any managing underwriter in any underwritten registration statement of Common
Stock by Parent, shall not effect any public sale or distribution of equity
securities of Parent (including sales pursuant to Rule 144 promulgated by the
Securities and Exchange Commission under the Securities Act), or any securities
convertible into or exchangeable or exercisable for such securities, during such
period as Parent and the managing underwriter(s) of such registration shall
reasonably request beginning on the effective date of the Registration Statement
for each such public offering; provided such time period shall be no more than
90 days and provided further that Parent's executive officers, directors and
significant stockholders shall entered into arrangements with Parent and/or the
underwriter(s) on substantially similar terms;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such registration statement in accordance with the
intended method of disposition set forth in such registration statement for such
period, provided, however, Parent may defer the filing of a registration
statement or an amendment to the registration statement until a date not later
than 30 days after the required filing date if (i) at any time prior to the
required filing date, Parent is engaged in confidential negotiations or other
confidential business activities, disclosure of which (in the reasonable opinion
of outside counsel to Parent) would be required in such registration statement
and would not be required if such registration statement were not filed, and the
Board of Directors of Parent determines in good faith that such disclosure would
be materially detrimental to Parent and its stockholders or would
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have a material adverse effect on any such confidential negotiations or other
confidential business activities, or (ii) prior to receiving a demand request,
Parent is actively engaged in discussions with underwriters with respect to a
registered underwritten public offering of Parent's securities for Parent's
account and is proceeding with reasonable diligence to effect such offering,
provided, that Parent shall not utilize this right more than once in any
12-month period;
(c) furnish to each seller and to each underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons may reasonably request
in order to facilitate the public sale or other disposition of the Restricted
Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as the sellers of Restricted Stock (limited to three states
in the case of the sellers), or, in the case of an underwritten public offering,
the managing underwriter, shall reasonably request; provided, that in no event
shall Parent be required for any such purpose to qualify generally to transact
business in any foreign jurisdiction;
(e) immediately notify each seller under such registration statement
and each underwriter at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(f) use its best efforts (if the offering is underwritten) to furnish,
at the request of any seller, on the date that Restricted Stock is delivered to
the underwriters for sale pursuant to such registration: (i) an opinion of
counsel representing Parent for the purposes of such registration, addressed to
the underwriters and to such seller, stating that such registration statement
has become effective under the Securities Act and to such other effects as may
reasonably be requested by counsel for the underwriters or by such seller or its
counsel which counsel to Parent reasonably concludes is required by the
Securities Act, and (ii) a letter dated such date from the independent public
accountants retained by Parent, addressed to the underwriters and to such
seller, regarding the financial statements included in such registration
statement, addressing such matters as shall be reasonably requested by such
underwriters or seller;
Parent will pay all Registration Expenses in connection with each
registration statement filed pursuant to Sections 5.3, 5.4 or 5.5 hereof, except
that all underwriting discounts and selling commissions in connection with any
registration statement filed pursuant to Sections 5.3 or 5.4 hereof shall be
borne by the participating sellers in proportion to the number of shares sold by
each.
To the extent permitted by law, Parent will indemnify and hold harmless
each seller of such Restricted Stock thereunder and each underwriter of
Restricted Stock thereunder and each other person, if any, who controls such
seller or underwriter within the meaning of the Securities
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Act against any losses, claims, damages or liabilities, joint or several, to
which such seller or underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such Restricted Stock was registered
under the Securities Act, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each such seller, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that Parent will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by such seller, such
underwriter or such controlling person in writing specifically for use in such
registration statement or prospectus.
SECTION 5.7: Access to Information; Confidentiality.
Upon reasonable notice, the Company and Parent shall each (and shall
cause each of their subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of the other, reasonable access,
during normal business hours during the period to the Effective Time, to all its
properties, books, contracts, commitments and records and the Company and Parent
each shall (and Parent shall cause its subsidiaries to) furnish promptly to the
other all information concerning its business, properties and personnel as such
other party may reasonably request, and each shall make available to the other
the appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request. Each party shall keep
such information confidential and disclose the same only to persons in their
respective organizations or consultants and professionals retained by them who
are directly involved in the Merger.
SECTION 5.8: Consents; Approvals.
The Company and Parent shall each use their reasonable commercial
efforts to obtain all consents, waivers, approvals, authorizations or orders
(including, without limitation, all United States and foreign governmental and
regulatory rulings and approvals), and the Company and Parent shall make all
filings (including, without limitation, all filings with United States and
foreign governmental or regulatory agencies) required in connection with the
authorization, execution and delivery of this Agreement by the Company and
Parent and the consummation by them of the transactions contemplated hereby, in
each case as promptly as practicable.
SECTION 5.9: Indemnification and Insurance.
(a) The By-Laws of the Surviving Corporation shall honor, and Parent
shall cause the Surviving Corporation to honor, the provisions with respect to
indemnification set forth in the By-Laws of the Company immediately prior to the
Effective Time, which provisions shall not be
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amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who at the Effective Time were directors, officers, employees or
agents of the Company, unless such modification is required by law.
(b) Without limiting the scope of Section 5.9(a), the Company shall, to
the fullest extent permitted under applicable law or under the Company's
Certificate of Incorporation or By-Laws or any applicable indemnification
agreement and regardless of whether the Merger becomes effective, indemnify,
defend and hold harmless, and, after the Effective Time, Parent shall and shall
cause the Surviving Corporation to, to the fullest extent permitted under
applicable law or under the Surviving Corporation's Certificate of Incorporation
or By-Laws or any applicable indemnification agreement, indemnify, defend and
hold harmless, each present and former director, officer or employee of the
Company (collectively, the "INDEMNIFIED PARTIES") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, (i) arising out of or pertaining to the transactions contemplated
by this Agreement or (ii) otherwise with respect to any acts or omissions
occurring at or prior to the Effective Time; provided, however, that in
connection with criminal acts the indemnification provided by this Section 5.9
shall only apply provided the Indemnified Party had no reasonable cause to
believe that his/her conduct was criminal.
(c) Parent shall and shall cause the Surviving Corporation to honor and
fulfill in all respects the obligations of the Company pursuant to
indemnification agreements with the Company's directors, officers and employees
existing at or before the Effective Time and to the extent such Indemnified
Parties are insured pursuant to the terms of a directors and officers liability
policy at or immediately prior to the effective time, Parent and Surviving
Corporation shall keep such policy in force for a period of not less than six
years or purchase a "tail" which provides coverage for such period.
(d) This Section shall survive the consummation of the Merger, is
intended to benefit the Company, the Surviving Corporation and the Indemnified
Parties, shall be binding on all successors and assigns of Parent and the
Surviving Corporation and shall be enforceable by the Indemnified Parties.
SECTION 5.10: Notification of Certain Matters.
The Company shall give prompt notice to Parent, and Parent shall give
prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to become materially
untrue or inaccurate, or (ii) any failure of the Company, Parent or Merger Sub,
as the case may be, materially to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 5.10 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice; and provided further that failure to give such notice
shall not be treated as a breach of covenant for the purposes of Sections 6.2(b)
or 6.3(b) unless the failure to give such notice results in material prejudice
to the other party.
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SECTION 5.11: Further Action.
Upon the terms and subject to the conditions hereof each of the parties
hereto shall use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, to obtain in a timely manner all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and otherwise to satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement.
SECTION 5.12: Public Announcements.
Parent and the Company shall consult with each other before issuing any
press release with respect to the Merger or this Agreement and shall not issue
any such press release or make any such public statement without the prior
consent of the other party, which shall not be unreasonably delayed or withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may upon the
advice of counsel be required by law or the rules and regulations of the Nasdaq
Stock Market ("NASDAQ"), in which case it shall use all reasonable efforts to
consult with the other party prior thereto.
SECTION 5.13: Conveyance Taxes.
Parent and the Company shall cooperate in the preparation, execution
and filing of all returns, questionnaires, applications, or other documents
regarding any real property transfer or gains, sales, use, transfer, value
added, stock transfer and stamp taxes, any transfer, recording, registration and
other fees, and any similar taxes which become payable in connection with the
transactions contemplated hereby that are required or permitted to be filed at
or before the Effective Time.
SECTION 5.14: Benefit Plans.
Parent shall use all commercially reasonable efforts to cause the
eligibility of the each employee of the Company (and his or her spouse and
dependents) to participate in the welfare plans (as defined in ERISA section
3(1) of Parent or the Surviving Corporation after the Effective Time to be
determined without regard to any preexisting condition, waiting period, or
similar exclusion or condition except for any such condition or exclusion to
which the employee is subject under the applicable welfare plan of the Company
as of the Effective Time. Employees of the Company shall receive credit under
the welfare plans of the Parent or the Surviving Corporation in which they
participate after the Effective Time toward coinsurance and deductibles for any
payments made by them during the calendar year in which the Effective Time
occurs under the applicable welfare plans of the Company. In addition, employees
of the Surviving Corporation shall receive credit, for purposes of its
retirement, welfare, vacation and similar plans or policies, for service with
the Company prior to the Effective Time.
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ARTICLE VI: CONDITIONS TO THE MERGER
SECTION 6.1: Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company;
and
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
and there shall not be any action taken, or any statute, rule, regulation or
order enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal.
SECTION 6.2: Additional Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
respects at and as of the Effective Time as if made at and as of such time,
except for (i) changes contemplated by this Agreement and (ii) those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date, with the same
force and effect as if made at and as of the Effective Time, and Parent and
Merger Sub shall have received a certificate to such effect signed by the
Chairman and Chief Executive Officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by the Chairman and the Chief Executive Officer of the
Company;
(c) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by the
Company for the due authorization, execution and delivery of this Agreement and
the consummation by it of the transactions contemplated hereby shall have been
obtained and made by the Company;
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(d) Employment Condition. The Surviving Corporation shall have entered
into Consulting Agreements with Rajiv Bhatia, Ted Karkus and Eric Schwartzman
and non-qualified stock option grants with Brian Gurley, Richard Owen and Steve
Laplante upon such terms and conditions as are mutually acceptable and delivered
to each such individual non-qualified stock options to purchase shares of Parent
Common Stock in accordance with such individual's employment terms; and
(e) Private Placement. The Company shall have amended its Certificate
of Incorporation to increase its authorized capital stock to 50,000,000 shares,
of which 5,000,000 shares shall be shares of Preferred Stock and 45,000,000
shares shall be shares of Common Stock and the Private Placement referred to in
Disclosure Schedule 2.3 shall have been closed; provided however, it shall not
be a precondition of Closing that such Private Placement shall have achieved any
particular threshold of additional capital.
SECTION 6.3: Additional Conditions to Obligation of the Company.
The obligation of the Company to effect the Merger is also subject to
the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and correct
in all respects on and as of the Effective Time, except for (i) changes
contemplated by this Agreement and (ii) those representations and warranties
which address matters only as of a particular date (which shall have been true
and correct as of such date, with the same force and effect as if made on and as
of the Effective Time, and the Company shall have received a certificate to such
effect signed by the President of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by the Chairman and the Chief Financial Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by Parent and Merger Sub for the authorization, execution and delivery of
this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by Parent and Merger Sub;
(d) Employment Condition. The Surviving Corporation shall have entered
into Consulting Agreements with Rajiv Bhatia, Ted Karkus and Eric Schwartzman
and non-qualified stock option grants with Brian Gurley, Richard Owen and Steve
Laplante upon such terms and conditions as are mutually acceptable and delivered
to each such individual non-qualified stock options to purchase shares of Parent
Common Stock in accordance with such individual's employment terms; and
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ARTICLE VII: TERMINATION
SECTION 7.1: Termination.
This Agreement may be terminated at any time prior to the Effective
Time, notwithstanding approval thereof by the stockholders of the Company or the
Board of Directors of the Company and Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by June 1, 2000 (provided that the right to terminate this Agreement
under this Section 7.1(b) 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 the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a non-appealable final order, decree or ruling or taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger (provided that the right to terminate this
Agreement under this Section 7.1(c) shall not be available to any party who has
not complied with its obligations under Section 5.11 and such noncompliance
materially contributed to the issuance of any such order, decree or ruling or
the taking of such action); or
(d) by Parent or the Company, if the Merger shall have been submitted
to a vote of the stockholders of the Company and the requisite vote of the
stockholders approving the Merger shall not have been obtained; or
(e) by Parent or the Company, (i) if any representation or warranty of
the Company or Parent, respectively, set forth in this Agreement shall be untrue
when made, or (ii) upon a breach of any covenant or agreement on the part of the
Company or Parent, respectively, set forth in this Agreement, such that the
conditions set forth in Section 6.2 or Section 6.3, as the case may be, would
not be satisfied (either (i) or (ii) above being a "TERMINATING BREACH"),
provided, that, if such Terminating Breach is curable prior to June 30, 2000 by
the Company or Parent, as the case may be, through the exercise of its
reasonable best efforts and for so long as the Company or Parent, as the case
may be, continues to exercise such reasonable best efforts, neither Parent nor
the Company, respectively, may terminate this Agreement under this Section
7.1(f); or
(f) by Parent, if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 6.2(a) would not
be satisfied, or by the Company, if any representation or warranty of Parent
shall have become untrue such that the condition set forth in Section 6.3(a)
would not be satisfied, in either case other than by reason of a Terminating
Breach.
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SECTION 7.2: Effect of Termination.
In the event of the termination of this Agreement pursuant to Section
7.1, this Agreement shall forthwith become void and there shall be no liability
on the part of any party hereto or any of its affiliates, directors, officers or
stockholders except (i) as set forth in Section 7.3 and Section 8.1 hereof, and
(ii) nothing herein shall relieve any party from liability for any breach
hereof.
ARTICLE VIII: GENERAL PROVISIONS
SECTION 8.1: Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc.
Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the agreements set
forth in this Section 8.1 shall survive independently and Article I and Sections
5.2 through 5.6, 5.9, 5.15 and 7.3 shall survive the Effective Time.
SECTION 8.2: Notices.
All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made if and
when delivered personally or by overnight courier to the parties at the
following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
NetGain Development, Inc.
152 West 57th Street, 40th Floor
New York, NY 10019
Telecopier No.: (212) 765-2924
Telephone No.: (212) 765-2914
Attention: Andreas Typaldos, CEO
With a copy to: Broad and Cassel
201 South Biscayne Boulevard
Suite 3000
Miami, Florida 33131
Telecopier No.: (305) 373-9443
Telephone No.: (305) 373-9400
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(b) If to the Company:
CoolAudio.com, Inc.
60 Madison Avenue
New York, NY 10010
Telecopier No.: (212)582-8240
Telephone No.: (212) 582-8206
Attention: Rajiv Bhatia, CEO
With a copy to:
Kenneth Sirlin PC
225 Broad Hollow Road
Melville, New York 11747-4807
Telecopier No.: (212) 752-0668
Telephone No.: (212) 752-0685
SECTION 8.3: Certain Definitions For purposes of this Agreement, the term:
(a) "affiliates" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation, any
partnership or joint venture in which the first mentioned person (either alone,
or through or together with any other subsidiary) has, directly or indirectly,
an interest of 5% or more;
(b) "beneficial owner" with respect to any shares of Company Common
Stock means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates(as such term
is defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding (other than a
revocable proxy or consent), or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its affiliates
or associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares;
(c) "business day" means any day other than a day on which banks in The
State of New York are required or authorized to be closed;
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(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "material adverse effect" means any change or circumstance that,
individually or when taken together with all other such changes or circumstances
that have occurred prior to the date of determination of an occurrence, (a) is
or is reasonably likely to be materially adverse to the business, assets
(including intangible assets), prospects, financial condition or results of
operations of the Company or Parent and its subsidiaries, as the case may be, in
each case taken as a whole, or (b) is or is reasonably likely to materially
delay or prevent the consummation of the transactions contemplated hereby;
provided, however, such change or circumstance shall not include a general
economic or business condition unless such change shall affect the Company or
Parent and its subsidiaries in a disproportionate manner.
(f) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other person, as
the case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, more than 50% of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
SECTION 8.4: Amendment.
This Agreement may be amended by the parties hereto by action taken by
or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of the Company, no amendment may be made which by law requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 8.5: Waiver.
At any time prior to the Effective Time, any party hereto may with
respect to any other party hereto (a) extend the time for the performance of any
of the obligations or other acts, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
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SECTION 8.6: Headings.
The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION 8.7: Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
SECTION 8.8: Entire Agreement.
This Agreement constitutes the entire agreement and supersedes all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof.
SECTION 8.9: Assignment; Guarantee of Merger Sub Obligations.
This Agreement shall not be assigned by operation of law or otherwise.
Parent guarantees the full and punctual performance by Merger Sub and Surviving
Corporation of :
(1) all the obligations hereunder of Merger Sub and Surviving
Corporation or any such assignees, and
(2) after the Effective Time, all the contractual obligations
of the Company previously disclosed to Parent at or prior to the Effective Time
to its current and former directors, officers and employees.
This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company and such directors, officers
and employees, shall be binding upon all successors and assigns of Parent and
the Surviving Corporation and shall be enforceable by such directors, officers
and employees.
SECTION 8.10: Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, including,
without limitation, by way of subrogation, other than Section 5.9 (which is
intended to be for the benefit of the Indemnified Parties and may be enforced by
any of such
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Indemnified Parties, and Section 8.9 (which is intended to be for the benefit of
the Company's current and former directors, officers and employees).
SECTION 8.11: Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any party hereto in the exercise of
any right hereunder shall impair such right or be construed to be a waiver of,
or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 8.12: Governing Law; Jurisdiction
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of Delaware applicable to contracts executed and
fully performed within the State of Delaware. The parties hereto hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
located in the State of New York with respect to any action or proceeding
arising out of this Agreement or in any way relating hereto.
SECTION 8.13: Counterparts.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
NetGain Development, Inc.
By: /s/ Andreas Typaldos
---------------------------------
Attest: /s/ Linda C. Frazier Name: Andreas Typaldos
------------------------ Title: Chairman and Chief Executive
Officer
NetGain Acquisition, Inc.
By: /s/ Andreas Typaldos
---------------------------------
Attest: /s/ Linda C. Frazier Name: Andreas Typaldos
------------------------ Title: President
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Coolaudio.com, Inc.
By: /s/ Rajiv Bhatia
---------------------------------
Attest: /s/ Brian Gurley Name: Rajiv Bhatia
------------------------- Title: Chairman and Chief Executive
Officer
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On March 20, 2000 before me, the undersigned, personally appeared
Rajiv Bhatia
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual or the person upon behalf of which
the individual acted, executed the instrument.
/s/ Lawrence M. Pohly
---------------------------------
Notary Public
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On March 20, 2000 before me, the undersigned, personally appeared
Andreas Typaldos
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual or the person upon behalf of which
the individual acted, executed the instrument.
/s/ Lawrence M. Pohly
---------------------------------
Notary Public
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On March 20, 2000 before me, the undersigned, personally appeared
Andreas Typaldos
personally known to me or proved to me on the basis of satisfactory
evidence to be the individual whose name is subscribed to the within instrument
and acknowledged to me that he executed the same in his capacity, and that by
his signature on the instrument, the individual or the person upon behalf of
which the individual acted, executed the instrument.
/s/ Lawrence M. Pohly
---------------------------------
Notary Public
48
