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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 19, 1996
SIERRA ON-LINE, INC.
(Exact name of each registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-17154
(Commission File Number)
77-0164293
(IRS Employer Identification No.)
3380 - 146th Place S.E., Suite 300, Bellevue, Washington 98007
(Address of principal executive offices) (Zip Code)
(206) 649-9800
(Registrant's telephone number, including area code)
None
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
Agreement and Plan of Merger.
The following summary does not purport to be complete and is qualified in
its entirety by reference to the exhibits filed with this Current Report, which
are incorporated herein by reference.
On February 19, 1996, Sierra On-Line, Inc., a Delaware corporation
("Sierra"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") with CUC International Inc., a Delaware corporation ("CUC"), and
Larry Acquisition Corp., a Delaware corporation and direct wholly-owned
subsidiary of CUC ("Merger Sub"), under which Merger Sub will be merged with and
into Sierra, and Sierra will become a direct wholly-owned subsidiary of CUC (the
"Merger"). Under the terms of the Merger Agreement, each share of Sierra common
stock outstanding immediately prior to the effective time of the Merger (the
"Effective Time") will be converted into 1.225 (the "Exchange Ratio") shares of
common stock of CUC. Each option to purchase Sierra common stock will be
replaced with an option to purchase a number of shares of CUC common stock, on
substantially the same terms, equal to the Exchange Ratio multiplied by the
number of shares of Sierra common stock otherwise issuable under the Sierra
option. Sierra's 6-1/2% Convertible Subordinated Notes Due 2001 will remain
outstanding but will be convertible into a number of shares of CUC common stock
equal to the Exchange Ratio multiplied by the number of shares of Sierra common
stock otherwise issuable upon conversion of such Notes. CUC's common stock is
traded on the New York Stock Exchange. The parties intend for the Merger to be
accounted for as a pooling of interests and to qualify as a tax-free
reorganization under Section 368 of the Internal Revenue Code.
CUC agreed to elect Kenneth A. Williams, Sierra's Chairman of the Board and
Chief Executive Officer, to the Board of Directors of CUC upon the closing of
the Merger. CUC and members of Sierra's senior management, including Mr.
Williams, will enter into Employment Agreements upon the closing of the Merger,
and Roberta L. Williams, a director and independent product developer for
Sierra, has entered into a Personal Services Agreement with CUC in which she
agreed to continue providing product development and design services to Sierra
after the Merger on substantially the same basis as she has in the past. Mr. and
Mrs. Williams also will enter into Noncompetition Agreements with CUC at the
closing in which they will agree not to compete with Sierra for a specified
period after the Merger.
Sierra may terminate the Merger Agreement under certain circumstances,
including the average closing price of CUC's common stock on the New York Stock
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Exchange being less than $29 per share over the 15 trading days ending with the
first trading day that is at least 10 calendar days prior to the scheduled date
of Sierra's stockholders' meeting.
The Merger is subject to customary conditions, including the approval of
the Merger by Sierra's stockholders, expiration of applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act") and the
effectiveness of a registration statement filed with the Securities and Exchange
Commission for the CUC common stock to be issued in the Merger.
In connection with the Merger Agreement, Kenneth A. Williams and Roberta L.
Williams entered into a Shareholders Agreement with CUC and Sierra dated
February 19, 1996 in which they agreed, so long as the Merger Agreement has not
been terminated, to vote all of the approximately 1,676,698 shares of Sierra
common stock held by them in favor of the Merger and against any competing
merger proposals, and to take and refrain from taking other specified actions.
The foregoing summary of the Merger Agreement and the agreements and
transactions contemplated thereby is qualified in its entirety by reference to
the Merger Agreement and the Shareholders Agreement which are filed as exhibits
to this Current Report and are incorporated herein by reference.
CUC Agreement to Acquire Davidson & Associates, Inc.
Simultaneously with entering into the Merger Agreement, CUC also entered
into and Agreement and Plan of Merger with Davidson & Associates, Inc.
("Davidson") under which CUC will acquire 100% of Davidson in exchange for .85
share of CUC common stock for each outstanding share of Davidson common stock
(the "Davidson Merger"). Neither the Davidson Merger nor the Merger is
contingent on the closing of the other transaction. The Davidson Merger will be
accounted for as a pooling of interests. Certain affiliates of Davidson holding
an aggregate of approximately 75% of Davidson's outstanding common stock have
agreed to vote their shares in favor of the Davidson Merger, except under
certain conditions.
Class Action Lawsuit.
A purported class action lawsuit has been filed in the Court of Chancery in
the State of Delaware in and for New Castle County captioned Meridian Capital
Funding, Inc. et al. v. Sierra On-Line, Inc. et al. alleging breaches of
fiduciary duty by Sierra's Board of Directors, Sierra and CUC in connection with
the Merger Agreement. The plaintiffs allege, among other things, that the
defendants breached fiduciary duties in agreeing to an allegedly inadequate
value for Sierra's stock in the Merger Agreement
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and in employing an allegedly inadequate process in determining to enter into
the Merger Agreement. Sierra believes the lawsuit is without merit and intends
to vigorously defend the lawsuit.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following exhibits are filed with this report:
Exhibit Number Description
99.1 Agreement and Plan of Merger by and among Sierra On-Line,
Inc., CUC International Inc. and Larry Acquisition Corp.
dated February 19, 1996.
99.2 Shareholders Agreement by and among Kenneth A. Williams,
Roberta L. Williams, CUC International Inc. and Sierra
On-Line, Inc. dated February 19, 1996.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SIERRA ON-LINE, INC.
By: /s/ Michael A. Brochu
------------------------------------
Name: Michael A. Brochu
Title: President and Chief Operating
Officer
Dated: February 29, 1996
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EXHIBIT INDEX
Number Description
99.1 Agreement and Plan of Merger by and among Sierra On-Line, Inc., CUC
International Inc. and Larry Acquisition Corp. dated February 19, 1996.
99.2 Shareholders Agreement by and among Kenneth A. Williams, Roberta L.
Williams, CUC International Inc. and Sierra On-Line, Inc. dated February
19, 1996.
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EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 19, 1996
AMONG
SIERRA ON-LINE, INC.
CUC INTERNATIONAL INC.
AND
LARRY ACQUISITION CORP.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. THE MERGER ...................................................... 2
1.1 The Merger ............................................. 2
1.2 Effective Time ......................................... 2
1.3 Closing of the Merger .................................. 2
1.4 Effects of the Merger .................................. 2
1.5 Certificate of Incorporation and Bylaws ................ 2
1.6 Directors .............................................. 3
1.7 Officers ............................................... 3
1.8 Conversion of Shares ................................... 3
1.9 Exchange of Certificates ............................... 3
1.10 Stock Options .......................................... 6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................... 7
2.1 Organization and Qualification; Subsidiaries ........... 7
2.2 Capitalization of the Company and its Subsidiaries ..... 8
2.3 Authority Relative to this Agreement; Consents
and Approvals .......................................... 9
2.4 SEC Reports; Financial Statements ...................... 10
2.5 Information Supplied ................................... 11
2.6 Consents and Approvals; No Violations .................. 12
2.7 No Default ............................................. 12
2.8 No Undisclosed Liabilities; Absence of Changes ......... 13
2.9 Litigation ............................................. 13
2.10 Compliance with Applicable Law ......................... 13
2.11 Employee Plans ......................................... 14
2.12 Environmental Laws and Regulations ..................... 14
2.13 Tax Matters ............................................ 15
2.14 Intangible Property .................................... 15
2.15 Opinion of Financial Advisor ........................... 16
2.16 Brokers ................................................ 16
2.17 Accounting Matters ..................................... 16
2.18 Material Contracts ..................................... 16
2.19 Disclosure ............................................. 17
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION ........ 17
3.1 Organization ........................................... 17
3.2 Capitalization of Parent and its Subsidiaries .......... 18
3.3 Authority Relative to this Agreement ................... 19
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
3.4 SEC Reports; Financial Statements ...................... 20
3.5 Information Supplied ................................... 21
3.6 Consents and Approvals; No Violations .................. 21
3.7 No Default ............................................. 22
3.8 No Undisclosed Liabilities; Absence of Changes ......... 22
3.9 Litigation ............................................. 22
3.10 Compliance with Applicable Law ......................... 23
3.11 Employee Plans ......................................... 23
3.12 Environmental Laws and Regulations ..................... 23
3.13 Tax Matters ............................................ 24
3.14 No Prior Activities .................................... 24
3.15 Brokers ................................................ 24
3.16 Accounting Matters ..................................... 24
3.17 Disclosure ............................................. 25
4. COVENANTS ....................................................... 25
4.1 Conduct of Business of the Company ..................... 25
4.2 Conduct of Business of Parent .......................... 28
4.3 Preparation of S-4 and the Proxy Statement ............. 29
4.4 Other Potential Acquirors .............................. 29
4.5 Letter of the Company's Accountants .................... 31
4.6 Meetings ............................................... 31
4.7 Stock Exchange Listing ................................. 31
4.8 Access to Information .................................. 31
4.9 Additional Agreements; Reasonable Best
Efforts ................................................ 32
4.10 Consents ............................................... 33
4.11 Public Announcements ................................... 33
4.12 Indemnification; Directors' and Officers'
Insurance .............................................. 33
4.13 Notification of Certain Matters ........................ 35
4.14 Pooling ................................................ 35
4.15 Tax-Free Reorganization Treatment ...................... 36
4.16 Taxes .................................................. 36
4.17 Employment and Other Agreements ........................ 36
4.18 Employee Matters ....................................... 37
4.19 Company Affiliates ..................................... 37
4.20 Election to Parent Board ............................... 38
4.21 SEC Filings ............................................ 38
4.22 Guarantee of Performance ............................... 38
4.23 Acquisition ............................................ 38
5. CONDITIONS TO CONSUMMATION OF THE MERGER ........................ 39
5.1 Conditions to Each Party's Obligations to Effect
the Merger ............................................. 39
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
5.2 Conditions to the Obligations of the Company ........... 39
5.3 Conditions to the Obligations of Parent and
Acquisition ............................................ 40
6. TERMINATION; AMENDMENT; WAIVER .................................. 41
6.1 Termination ............................................ 41
6.2 Effect of Termination .................................. 43
6.3 Fees and Expenses ...................................... 43
6.5 Amendment .............................................. 45
6.6 Extension; Waiver ...................................... 45
7. MISCELLANEOUS ................................................... 45
7.1 Nonsurvival of Representations and Warranties .......... 45
7.2 Entire Agreement; Assignment ........................... 45
7.3 Validity ............................................... 46
7.4 Notices ................................................ 46
7.5 Governing Law .......................................... 47
7.6 Descriptive Headings ................................... 47
7.7 Parties in Interest .................................... 47
7.8 Arbitration ............................................ 47
7.9 Severability ........................................... 48
7.10 Specific Performance ................................... 48
7.11 Recapitalization ....................................... 48
7.12 Subsidiaries ........................................... 48
7.13 Brokers ................................................ 49
7.14 Counterparts ........................................... 49
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 19, 1996, is
among SIERRA ON-LINE, INC., a Delaware corporation (the "Company"), CUC
INTERNATIONAL INC., a Delaware corporation ("Parent"), and LARRY ACQUISITION
CORP., a Delaware corporation and a direct wholly owned subsidiary of Parent
("Acquisition").
WHEREAS, the Boards of Directors of the Company, Parent and Acquisition
each have, in light of and subject to the terms and conditions set forth herein,
(i) determined that the Merger (as defined in Section 1.1) is fair to their
respective shareholders and in the best interests of such shareholders and (ii)
approved the Merger in accordance with this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, concurrently with the execution hereof, certain holders of
Shares (as defined in Section 1.8(a)) are entering into the Shareholders
Agreement, a copy of which is attached hereto as Exhibit A (the "Shareholders
Agreement");
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a "pooling-of-interests"; and
WHEREAS, the Company has delivered to Parent a letter identifying all
persons (each, a "Company Affiliate") who are, at the date hereof, "affiliates"
of the Company for purposes of Rule 145 under the Securities Act of 1933, as
amended (the "Securities Act"), and each Company Affiliate has delivered to
Parent a letter (each, an "Affiliate Letter") relating to (i) the transfer,
prior to the Effective Time (as defined in Section 1.8(a)), of the Shares
beneficially owned by such Company Affiliate on the date hereof and (ii) the
transfer of the shares of Parent Common Stock (as defined in Section 1.8(a)) to
be received by such Company Affiliate in the Merger.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
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1. THE MERGER
1.1 THE MERGER
At the Effective Time and upon the terms and subject to the conditions
of this Agreement and in accordance with the Delaware General Corporation Law
(the "DGCL"), Acquisition shall be merged with and into the Company (the
"Merger"). Following the Merger, the Company shall continue as the surviving
corporation (the "Surviving Corporation") and the separate corporate existence
of Acquisition shall cease.
1.2 EFFECTIVE TIME
Subject to the provisions of this Agreement, Parent, Acquisition and
the Company shall cause the Merger to be consummated by filing an appropriate
Certificate of Merger or other appropriate documents (the "Certificate of
Merger") 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, as soon as practicable on or after the Closing Date (as defined in Section
1.3). The Merger shall become effective upon such filing or at such time
thereafter as is provided in the Certificate of Merger (the "Effective Time").
1.3 CLOSING OF THE MERGER
The closing of the Merger (the "Closing") will take place at a time and
on a date to be specified by the parties, which shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article 5 (the "Closing Date"), at the offices of Weil, Gotshal & Manges LLP,
767 Fifth Avenue, New York, New York 10153, unless another time, date or place
is agreed to in writing by the parties hereto.
1.4 EFFECTS OF THE MERGER
The Merger shall have the effects set forth in the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the properties, rights, privileges, powers and franchises of the
Company and Acquisition shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Acquisition shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 CERTIFICATE OF INCORPORATION AND BYLAWS
The Restated Certificate of Incorporation of the Company in effect at
the Effective Time shall be the articles of incorporation of the Surviving
Corporation until amended in accordance with applicable law. The Bylaws of the
Company in effect at the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable law.
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1.6 DIRECTORS
The directors of the Company at the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of the Surviving Corporation until such
director's successor is duly elected or appointed and qualified.
1.7 OFFICERS
The officers of the Company at the Effective Time shall be the initial
officers of the Surviving Corporation, each to hold office in accordance with
the Articles of Incorporation and Bylaws of the Surviving Corporation until such
officer's successor is duly elected or appointed and qualified.
1.8 CONVERSION OF SHARES
(a) At the Effective Time, each share of common stock, par value
$0.01 per share, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time (individually a "Share" and
collectively, the Shares") (other than (i) Shares held by any subsidiary of the
Company and (ii) Shares held by Parent, Acquisition or any other subsidiary of
Parent) shall, by virtue of the Merger and without any action on the part of
Acquisition, the Company or the holder thereof, be converted into and shall
become 1.225 fully paid and nonassessable shares of common stock, par value
$0.01 per share, of Parent ("Parent Common Stock") (the "Merger Consideration").
(b) At the Effective Time, each outstanding share of the common
stock, par value $0.01 per share, of Acquisition shall be converted into one
share of common stock, par value $0.01 per share, of the Surviving Corporation.
(c) At the Effective Time, each Share held by Parent, Acquisition
or any subsidiary of Parent, Acquisition or the Company immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of Acquisition, the Company or the holder thereof, be canceled, retired and
cease to exist and no payment shall be made with respect thereto.
1.9 EXCHANGE OF CERTIFICATES
(a) As of the Effective Time, Parent shall make available to The
Bank of Boston or another bank or trust company designated by Parent and
reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of
the holders of Shares, for exchange in accordance with this Article I, through
the Exchange Agent: (i) certificates representing the appropriate number of
shares of Parent Common Stock and (ii) cash to be paid in lieu of fractional
shares of Parent Common Stock (such shares of Parent
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Common Stock and such cash are hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 1.8 in exchange for outstanding Shares.
(b) As soon as reasonably practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") whose Shares were converted into the
right to receive shares of Parent Common Stock pursuant to Section 1.8: (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent and Acquisition, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of Parent Common Stock and, if applicable, a check representing the cash
consideration to which such holder may be entitled on account of a fractional
share of Parent Common Stock, which such holder has the right to receive
pursuant to the provisions of this Article I, 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, a certificate
representing the proper number of shares of Parent Common Stock may be issued to
a transferee if the Certificate representing such Shares is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 1.9, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of Parent
Common Stock and cash in lieu of any fractional shares of Parent Common Stock as
contemplated by this Section 1.9.
(c) No dividends or other distributions declared or made after
the Effective Time with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby and no
cash payment in lieu of fractional shares shall be paid to any such holder
pursuant to Section 1.9(f) until the holder of record of such Certificate shall
surrender such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Parent Common Stock
to which such holder is entitled pursuant to Section 1.9(f) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to
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such whole shares of Parent Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Parent Common Stock.
(d) In the event that any Certificate for Shares shall have been
lost, stolen or destroyed, the Exchange Agent shall issue in exchange therefor,
upon the making of an affidavit of that fact by the holder thereof such shares
of Parent Common Stock and cash in lieu of fractional shares, if any, as may be
required pursuant to this Agreement; provided, however, that Parent may, in its
discretion, require the delivery of a suitable bond or indemnity.
(e) All shares of Parent Common Stock issued upon the surrender
for exchange of Shares in accordance with the terms hereof (including any cash
paid pursuant to Section 1.9(c) or 1.9(f)) 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 stock transfer books of the
Surviving Corporation of the 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.
(f) No fractions of a share of Parent Common Stock shall be
issued in the Merger, but in lieu thereof each holder of Shares otherwise
entitled to a fraction of a share of Parent Common Stock shall, upon surrender
of his or her Certificate or Certificates, be entitled to receive an amount of
cash (without interest) determined by multiplying the closing price for Parent
Common Stock as reported on the New York Stock Exchange (the "NYSE") Composite
Transactions on the business day two days prior to the Effective Date by the
fractional share interest to which such holder would otherwise be entitled. The
parties acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting problems which would otherwise be caused by the issuance of
fractional shares.
(g) Any portion of the Exchange Fund which remains undistributed
to the shareholders of the Company for six months after the Effective Time shall
be delivered to Parent, upon demand, and any shareholders of the Company who
have not theretofore complied with this Article I shall thereafter look only to
Parent for payment of their claim for Parent Common Stock, as the case may be,
any cash in lieu of fractional shares of Parent Common Stock and any dividends
or distributions with respect to Parent Common Stock.
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(h) Neither Parent nor the Company shall be liable to any holder
of Shares, or Parent Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
1.10 STOCK OPTIONS
(a) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (a "Company Stock Option" or collectively,
"Company Stock Options") issued pursuant to the (i) 1987 Stock Option Plan of
the Company and the 1995 Stock Option and Award Plan (the "1995 Plan") of the
Company and the Papyrus Design Group, Inc. 1992 Stock Option Plan (collectively,
the "Company Plans") and (ii) the Sierra On-Line, Inc. 1993 Stock Option Grant
Agreement with Kenneth A. Williams and the Sierra On-Line, Inc., 1994 Stock
Option Grant Agreement with Walter A. Forbes (collectively, the "Non-Plan Option
Agreements"), whether vested or unvested, shall be cancelled and, in lieu
thereof, Parent shall issue to each holder of a Company Stock Option an option
(each, a "Parent Option"), to acquire, on substantially the same terms and
subject to substantially the same conditions as were applicable under such
Company Stock Option, including, without limitation term, exercisability,
vesting schedule, status as an "incentive stock option" under section 422 of the
Code (except as hereinafter provided), acceleration and termination provisions,
the same number of shares of Parent Common Stock as the holder of such Company
Stock Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time, at
a price per share equal to (y) the aggregate exercise price for the shares of
Company Common Stock otherwise purchasable pursuant to such Company Stock Option
divided by (z) the number of full shares of Parent Common Stock deemed
purchasable pursuant to such Company Stock Option; provided, however, that the
number of shares of Parent Common Stock that may be purchased upon exercise of
any such Parent Option shall not include any fractional share and, upon exercise
of the Parent Option, a cash payment shall be made for any fractional share
based upon the Closing Price (as hereinafter defined) of a share of Parent
Common Stock on the trading day immediately preceding the date of exercise.
"Closing Price" shall mean, on any day, the last reported sale price of one
share of Parent Common Stock on the NYSE. Notwithstanding the foregoing, Parent
has advised the Company that Parent may need to obtain the approval of its
shareholders in order for the Company Stock Options that qualify under section
422 of the Code to be converted to Parent Options having the same status and
Parent agrees to use all reasonable efforts to obtain such approval (if
required). If such approval is sought and not obtained, any such Company Stock
Options that are so converted shall not qualify under section 422 of the Code.
Employment with the Company shall be credited to the optionees for purposes of
determining the number of vested shares of Parent Common Stock subject to
exercise under converted Company Options after the Effective Time. Parent agrees
that the Parent Options issued to a holder of Company Stock Options under the
1995 Plan shall become 100% vested and fully
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exercisable in the event that, within two years after the Effective Time the
holder's employment or services are terminated by Parent or any of its
affiliates without Cause or the holder voluntarily terminates his or her
employment or services with Good Reason. "Cause" and "Good Reason" shall have
the meanings set forth in the 1995 Plan. None of the Company Stock Options that
are unvested at the Effective Time shall become vested as a result of the
execution and delivery of this Agreement or the consummation of the Merger.
(a) As soon as practicable after the Effective Time, but no later
than 30 days thereafter, Parent shall deliver to the holders of Company Stock
Options appropriate notices setting forth such holders' rights pursuant to the
respective Company Plans and stating that the holders will receive Parent
Options exercisable for shares of Parent Common Stock on substantially the same
terms and conditions as their Company Stock Options (subject to the adjustments
required by this Section 1.10 after giving effect to the Merger).
(b) Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
upon exercise of Parent Options in accordance with this Section 1.10. As soon as
practicable after the Effective Time, but no later than 30 days thereafter,
Parent shall file a registration statement on Form S-3 or Form S-8, as the case
may be (or any successor or other appropriate forms), or another appropriate
form with respect to the shares of Parent Common Stock subject to the Parent
Options and shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as the
Parent Options remain outstanding.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Acquisition as follows:
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES
(a) The Company and each of its subsidiaries (as defined in
Section 7.12), is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its businesses as now being conducted, except where the failure
to be so organized, existing and in good standing or to have such power and
authority would not have a Material Adverse Effect (as defined below) on the
Company. When used in connection with the Company or its subsidiaries, the term
"Material Adverse Effect" means any change or effect (i) that is or is
reasonably likely to be materially adverse to the properties, business, results
of operations or condition (financial or otherwise) of the Company and its
subsidiaries,
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taken as whole, other than any change or effect arising out of general economic
conditions or conditions generally affecting the consumer software market or the
entertainment, education or personal productivity sectors of that market or (ii)
that may impair the ability of the Company to consummate the transactions
contemplated hereby.
(b) Except as set forth in Section 2.1(b) of the Disclosure
Schedule previously delivered by the Company to Parent (the "Company Disclosure
Schedule"), the Company has no subsidiaries and does not own, directly or
indirectly, beneficially or of record, any shares of capital stock or other
security of any other entity or any other investment in any other entity.
(c) Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have a Material Adverse Effect on the Company.
(d) The Company has heretofore delivered to Parent accurate and
complete copies of the certificate or articles of incorporation and by-laws, as
currently in effect, of each of the Company and each of its subsidiaries.
2.2 CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES
(a) The authorized capital stock of the Company consists of:
40,000,000 Shares, of which, as of February 12, 1996, approximately 20,014,182
shares were issued and outstanding, and 1,000,000 shares of preferred stock, par
value $0.01 per share, no shares of which are outstanding. All of the issued and
outstanding shares of Company Common Stock have been validly issued, and are
fully paid, nonassessable and free of preemptive rights. As of February 12,
1996, approximately 2,832,238 shares of Company Common Stock were reserved for
issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding Company Stock Options issued pursuant to the Company
Plans and the Non-Plan Option Agreements, 191,981 shares of Company Common Stock
were reserved for issuance under the Company's 1995 Employee Stock Purchase Plan
(the "ESPP") and 1,668,571 shares of Company Common Stock were reserved for
issuance pursuant to the conversion of the Company's 6-1/2% Convertible
Subordinated Notes due 2001 (the "Convertible Notes"). The final purchase by
participants under the ESPP will occur no later than the business day
immediately preceding the Effective Time. The ESPP will terminate at the
Effective Time. Except as described in the Company SEC Reports (as defined in
Section 2.4(a)) or in Section 2.2(a) of the Company Disclosure Schedule, as of
the date hereof, since February 12, 1996, no shares of the Company's capital
stock have been issued other than pursuant to Company Stock Options already in
existence on such date, and, since February 12, 1996, no stock
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options have been granted. Except as set forth above, as of the date hereof,
there are outstanding (i) no shares of capital stock or other voting securities
of the Company, (ii) no securities of the Company or its subsidiaries
convertible into or exchangeable for shares of capital stock or voting
securities of the Company, (iii) no options or other rights to acquire from the
Company or its subsidiaries, and no obligations of the Company or its
subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company, and (iv) no equity equivalents, interests in the ownership or earnings
of the Company or its subsidiaries or other similar rights (including stock
appreciation rights) (collectively, "Company Securities"). There are no
outstanding obligations of the Company or its subsidiaries to repurchase, redeem
or otherwise acquire any Company Securities. Except as set forth in Section
2.2(a) of the Company Disclosure Schedule, there are no stockholder agreements
(other than the Shareholders Agreement), voting trusts or other agreements or
understandings to which the Company is a party or to which it is bound relating
to the voting of any shares of capital stock of the Company.
(b) All of the outstanding capital stock of the Company's
subsidiaries is owned by the Company, directly or indirectly, free and clear of
any Lien (as defined below) or any other limitation or restriction (including
any restriction on the right to vote or sell the same, except as may be provided
as a matter of law). There are no securities of the Company or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire from
the Company or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the issuance
or sale, directly or indirectly, of any capital stock or other ownership
interests in, or any other securities of, any subsidiary of the Company. There
are no outstanding contractual obligations of the Company or its subsidiaries to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any subsidiary of the Company. For purposes of
this Agreement, "Lien" means, with respect to any asset (including, without
limitation, any security) any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
(c) The Company Common Stock constitutes the only class of
securities of the Company or its subsidiaries registered or required to be
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
2.3 AUTHORITY RELATIVE TO THIS AGREEMENT; CONSENTS AND APPROVALS
(a) The Company has all necessary corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company (the "Company Board") and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the
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transactions contemplated hereby (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of a majority of the then
outstanding shares of Company Common Stock). This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid, legal and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
(b) The Company Board has, by unanimous vote of those present,
duly and validly approved, and taken all corporate actions required to be taken
by the Company Board for the consummation of, the transactions, including the
Merger, contemplated hereby and resolved to recommend that the shareholders of
the Company approve and adopt this Agreement; provided, however, that such
approval and recommendation may be withdrawn, modified or amended in the event
that the Company Board by majority vote determines in its good faith judgment,
after consultation with and based upon the advice of independent legal counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law. No state takeover statute or similar statute
or regulation applies or purports to apply to the Merger, this Agreement or any
of the transactions contemplated hereby.
2.4 SEC REPORTS; FINANCIAL STATEMENTS
(a) The Company has filed all required forms, reports and
documents with the Securities and Exchange Commission (the "SEC") since January
1, 1993, each of which has complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in effect on
the dates such forms, reports and documents were filed. The Company has
heretofore delivered to Parent, in the form filed with the SEC (including any
amendments thereto), (i) its Annual Reports on Form 10-K for each of the fiscal
years ended March 31, 1993, 1994 and 1995, (ii) all definitive proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held since April 1, 1993 and (iii) all other reports or registration statements
filed by the Company with the SEC since April 1, 1993 (the "Company SEC
Reports"). None of such forms, reports or documents, including, without
limitation, any financial statements or schedules included or incorporated by
reference therein, contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included in the Company SEC
Reports complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with generally accepted accounting
principles applied on a consistent basis ("GAAP") (except as may be indicated in
the notes thereto), the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial
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<PAGE> 15
statements, to normal year-end adjustments and except that, in the case of
financial statements included therein which were later restated to account for
one or more business combinations accounted for as poolings-of-interests, such
original financial statements do not reflect such restatements). Since March 31,
1995, except as set forth in the Company SEC Reports, there has not been any
change, or any application or request for any change, by the Company or any of
its subsidiaries in accounting principles, methods or policies for financial
accounting or tax purposes (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
(b) The Company has heretofore made available to Parent a
complete and correct copy of any material amendments or modifications, which
have not yet been filed with the SEC, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Exchange Act.
2.5 INFORMATION SUPPLIED
None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by Parent in connection with the issuance of
shares of Parent Common Stock in the Merger (the "S-4") will, at the time the
S-4 is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the proxy statement relating to the
meeting of the Company's shareholders, and, if required, a meeting of Parent's
shareholders, to be held in connection with the Merger (the "Proxy Statement")
will, at the date mailed to shareholders and at the times of the meeting or
meetings of shareholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to the Company, its
officers and directors or any of its subsidiaries should occur which is required
to be described in an amendment of, or a supplement to, the S-4 or the Proxy
Statement, the Company shall promptly so advise Parent and such event shall be
so described, and such amendment or supplement (which Parent shall have a
reasonable opportunity to review) shall be promptly filed with the SEC and, as
required by law, disseminated to the shareholders of the Company. The Proxy
Statement, insofar as it relates to the meeting of the Company's shareholders to
vote on the Merger, will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
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<PAGE> 16
2.6 CONSENTS AND APPROVALS; NO VIOLATIONS
Except for filings, permits, authorizations, consents and approvals as
may be required under, and other applicable requirements of, the Securities Act,
the Exchange Act, state securities or blue sky laws, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the filing
and recordation of the Certificate of Merger as required by the DGCL, no filing
with or notice to, and no permit, authorization, consent or approval of, any
court or tribunal or administrative, governmental or regulatory body, agency or
authority (a "Governmental Entity") is necessary for the execution and delivery
by the Company of this Agreement or the consummation by the Company of the
transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on the Company. Except as
set forth in Section 2.6 to the Company Disclosure Schedule, neither the
execution, delivery and performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
certificate or articles of incorporation or bylaws (or similar governing
documents) of the Company or any of its subsidiaries, (ii) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, except in the case
of (ii) or (iii) for violations, breaches or defaults which would not have a
Material Adverse Effect on the Company.
2.7 NO DEFAULT
None of the Company or its subsidiaries is in default or violation (and
no event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (i)
its certificate or articles of incorporation or bylaws (or similar governing
documents), (ii) any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which the Company or either of
its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to the Company,
its subsidiaries or any of their respective properties or assets, except in the
case of (ii) or (iii) for violations, breaches or defaults that would not have a
Material Adverse Effect on the Company.
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<PAGE> 17
2.8 NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES
Except as and to the extent publicly disclosed by the Company in the
Company SEC Reports, as of December 31, 1995, none of the Company or its
subsidiaries had any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, and whether due or to become due or asserted
or unasserted, which would be required by GAAP to be reflected in, reserved
against or otherwise described in the consolidated balance sheet of the Company
(including the notes thereto) as of such date or which could reasonably be
expected to have a Material Adverse Effect on the Company. Except as publicly
disclosed by the Company in the Company SEC Reports, since December 31, 1995,
the business of the Company and its subsidiaries has been carried on only in the
ordinary and usual course, none of the Company or its subsidiaries has incurred
any liabilities of any nature, whether or not accrued, contingent or otherwise,
which could reasonably be expected to have, and there have been no events,
changes or effects with respect to the Company or its subsidiaries having or
which could reasonably be expected to have, a Material Adverse Effect on the
Company.
2.9 LITIGATION
Except as publicly disclosed by the Company in the Company SEC Reports
or disclosed in Section 2.9 of the Company Disclosure Schedule, there is no
suit, claim, action, proceeding or investigation pending or, to the knowledge of
the Company, threatened against the Company or any of its subsidiaries or any of
their respective properties or assets which (a) could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the Company
or (b) as of the date hereof, questions the validity of this Agreement or any
action to be taken by the Company in connection with the consummation of the
transactions contemplated hereby or could otherwise prevent or delay the
consummation of the transactions contemplated by this Agreement. Except as
publicly disclosed by the Company, none of the Company or its subsidiaries is
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen, could reasonably be expected to have a Material
Adverse Effect on the Company or would prevent or delay the consummation of the
transactions contemplated hereby.
2.10 COMPLIANCE WITH APPLICABLE LAW
Except as publicly disclosed by the Company in the Company SEC Reports,
the Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Entities necessary for the
lawful conduct of their respective businesses (the "Company Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which could not reasonably be expected to have a Material Adverse
Effect on the Company. Except as publicly disclosed by the Company in the
Company SEC Reports, the Company and its
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subsidiaries are in compliance with the terms of the Company Permits, except
where the failure so to comply could not reasonably be expected to have a
Material Adverse Effect on the Company. Except as publicly disclosed by the
Company in the Company SEC Reports, the businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity except that no representation or warranty
is made in this Section 2.10 with respect to Environmental Laws (as defined in
Section 2.12(a)) and except for violations or possible violations which do not,
and, insofar as reasonably can be foreseen, will not, have a Material Adverse
Effect on the Company. Except as publicly disclosed by the Company in the
Company SEC Reports or as disclosed in Section 2.10 of the Company Disclosure
Schedule, to the best knowledge of the Company no investigation or review by any
Governmental Entity with respect to the Company or its subsidiaries is pending
or threatened, nor, to the best knowledge of the Company, has any Governmental
Entity indicated an intention to conduct the same, other than, in each case,
those which the Company reasonably believes will not have a Material Adverse
Effect on the Company.
2.11 EMPLOYEE PLANS
Except as disclosed in Section 2.11 of the Company Disclosure Schedule,
there are no "employee benefit plans" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), maintained or
contributed to by the Company or its subsidiaries ("Company ERISA Plans"). A
complete and correct copy of each Company ERISA Plan has been provided or made
available to Parent. The Company ERISA Plans are in compliance with the
applicable provisions of ERISA, the Code and other applicable law, except for
instances of non-compliance that could not reasonably be expected to have a
Material Adverse Effect on the Company.
2.12 ENVIRONMENTAL LAWS AND REGULATIONS
(a) Except as publicly disclosed by the Company in the Company
SEC Reports, (i) each of the Company and its subsidiaries is in compliance with
all applicable federal, state and local laws and regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) (collectively, "Environmental Laws"), except for non-compliance that
could not reasonably be expected to have a Material Adverse Effect on the
Company, which compliance includes, but is not limited to, the possession by the
Company and its subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof; (ii) none of the Company or its subsidiaries
has received written notice of, or, to the best knowledge of the Company, is the
subject of, any action, cause of action, claim, investigation, demand or notice
by any person or entity alleging liability under or non-compliance with any
Environmental Law (an "Environmental Claim") that could reasonably be expected
to have a Material
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<PAGE> 19
Adverse Effect on the Company; and (iii) to the best knowledge of the Company,
there are no circumstances that are reasonably likely to prevent or interfere
with such material compliance in the future.
(b) Except as publicly disclosed by the Company in the Company
SEC Reports, there are no Environmental Claims which could reasonably be
expected to have a Material Adverse Effect on the Company that are pending or,
to the best knowledge of the Company, threatened against the Company or its
subsidiaries or, to the best knowledge of the Company, against any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has or may have retained or assumed either contractually or by
operation of law.
2.13 TAX MATTERS
The Company and its subsidiaries have accurately prepared in all
material respects and duly filed with the appropriate federal, state, local and
foreign taxing authorities all tax returns, information returns and reports that
are, individually and in the aggregate, material and are required to be filed
with respect to the Company and its subsidiaries and have paid in full or made
adequate provision for the payment of all material Taxes (as defined below).
Neither the Company nor any of its subsidiaries is delinquent in the payment of
any material Taxes. As used herein, the term "Taxes" means all federal, state,
local and foreign taxes, including, without limitation, income, profits,
franchise, employment, transfer, withholding, property, excise, sales and use
taxes (including interest penalties thereon and additions thereto).
2.14 INTANGIBLE PROPERTY
The Company and its subsidiaries own or possess adequate licenses or
other valid rights to use all material patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, know-how and
other proprietary rights and information used or held for use in connection with
the business of the Company and its subsidiaries as currently conducted or as
contemplated to be conducted, and the Company is unaware of any assertion or
claim challenging the validity of any of the foregoing which, individually or in
the aggregate, would have a Material Adverse Effect on the Company. To the best
knowledge of the Company, the conduct of the business of the Company and its
subsidiaries as heretofore and currently conducted has not and does not conflict
in any way with any patent, patent right, license, trademark, trademark right,
trade name, trade name right, service mark or copyright of any third party that,
individually or in the aggregate, would have a Material Adverse Effect on the
Company. To the best knowledge of the Company, there are no infringements of any
proprietary rights owned by or licensed by or to the Company or any subsidiary
which, individually or in the aggregate, would have a Material Adverse Effect on
the Company.
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<PAGE> 20
2.15 OPINION OF FINANCIAL ADVISOR
Robertson, Stephens & Company LLC (the "Financial Advisor") has
delivered to the Company Board its opinion, dated the date of this Agreement, to
the effect that, as of such date, the Merger Consideration is fair to the
holders of Shares from a financial point of view, and such opinion has not been
withdrawn or modified.
2.16 BROKERS
No broker, finder or investment banker (other than the Financial
Advisor, a true and correct copy of whose engagement agreement has been provided
to Acquisition or Parent) is entitled to any brokerage, finder's or other fee or
commission or expense reimbursement in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
the Company or any of its affiliates (including the Company Affiliates). The
Company shall be responsible for all such fees and expenses, except as otherwise
provided in Section 6.3.
2.17 ACCOUNTING MATTERS
Neither the Company nor, to the best of its knowledge, any of its
affiliates or shareholders (including the Company Affiliates), has taken or
agreed to take any action that would prevent Parent from accounting for the
business combination to be effected by the Merger as a "pooling-of-interests."
The Company has not failed to bring to the attention of Parent any actions, or
agreements or understandings, whether written or oral, to act that would be
reasonably likely to prevent Parent from accounting for the Merger as a
"pooling-of-interests."
2.18 MATERIAL CONTRACTS
(a) The Company has delivered or otherwise made available to
Parent true, correct and complete copies of all contracts and agreements (and
all amendments, modifications and supplements thereto and all side letters to
which the Company is a party affecting the obligations of any party thereunder)
to which the Company or any of its subsidiaries is a party or by which any of
its properties or assets are bound that are, material to the business,
properties or assets of the Company and its subsidiaries taken as a whole,
including, without limitation, to the extent any of the following are,
individually or in the aggregate, material to the business, properties or assets
of the Company and its subsidiaries taken as a whole, all: (i) employment,
product design or development, personal services, consulting, non-competition,
severance, golden parachute or indemnification contracts (including, without
limitation, any contract to which the Company is a party involving employees of
the Company); (ii) licensing, publishing, merchandising or distribution
agreements; (iii) contracts granting a right of first refusal or first
negotiation; (iv) partnership or joint venture agreements; (v) agreements for
the acquisition, sale or lease of material properties or assets of the Company
(by merger,
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<PAGE> 21
purchase or sale of assets or stock or otherwise) entered into since January 1,
1993; (vi) contracts or agreements with any Governmental Entity; and (vii) all
commitments and agreements to enter into any of the foregoing (collectively,
together with any such contracts entered into in accordance with Section 4.1
hereof, the "Contracts"). Neither the Company nor any of its subsidiaries is a
party to or bound by any severance, golden parachute or other agreement with any
employee or consultant pursuant to which such person would be entitled to
receive any additional compensation or an accelerated payment of compensation as
a result of the consummation of the transactions contemplated hereby.
(b) Each of the Contracts is valid and enforceable in accordance
with its terms, and there is no default under any Contract so listed either by
the Company or, to the knowledge of the Company, by any other party thereto, and
no event has occurred that with the lapse of time or the giving of notice or
both would constitute a default thereunder by the Company or, to the knowledge
of the Company, any other party, in any such case in which such default or event
could reasonably be expected to have a Material Adverse Effect on the Company.
(c) No party to any such Contract has given notice to the Company
of or made a claim against the Company with respect to any breach or default
thereunder, in any such case in which such breach or default could reasonably be
expected to have a Material Adverse Effect on the Company.
2.19 DISCLOSURE
No representation or warranty by the Company contained in this
Agreement and no statement contained in any certificate delivered by the Company
to Acquisition or Parent pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading when taken together in
light of the circumstances in which they were made.
3. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
3.1 ORGANIZATION
(a) Each of Parent and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power
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<PAGE> 22
and authority would not have a Material Adverse Effect (as defined below) on
Parent. When used in connection with Parent or Acquisition, the term "Material
Adverse Effect" means any change or effect that is (i) materially adverse to the
properties, business, results of operations or condition (financial or
otherwise) of Parent and its subsidiaries, taken as a whole, other than any
change or effect arising out of general economic conditions unrelated to any
businesses in which Parent and its subsidiaries are engaged or (ii) that may
impair the ability of Parent and/or Acquisition to consummate the transactions
contemplated hereby.
(b) Parent has heretofore delivered to the Company accurate and
complete copies of the certificate of incorporation and bylaws, as currently in
effect, of Parent and Acquisition. Each of Parent and its subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a Material Adverse Effect on Parent.
(c) Each of Parent and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not have a Material Adverse Effect on Parent.
(d) Parent has heretofore delivered to the Company accurate and
complete copies of the certificate of incorporation and by-laws of Parent as
currently in effect.
3.2 CAPITALIZATION OF PARENT AND ITS SUBSIDIARIES
(a) The authorized capital stock of Parent consists of (i)
400,000,000 shares of Parent Common Stock, of which, as of January 31, 1996,
approximately 189,000,000 shares of Parent Common Stock were issued and
outstanding, and 3,000,000 shares of Parent Common Stock were held in treasury
and (ii) 1,000,000 shares of preferred stock, $.01 par value per share, none of
which is issued or outstanding. All of the shares of Parent Common Stock have
been validly issued, and are fully paid, nonassessable and free of preemptive
rights. As of January 31, 1996, approximately 29.7 million shares of Parent
Common Stock were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding options. Except as
described in the Parent SEC Reports (as defined in Section 3.4(a)) and except as
set forth in Section 3.2 of the Disclosure Schedule previously delivered by
Parent to the Company (the "Parent Disclosure Schedule"), as of the date hereof,
since January 31, 1996, no shares of Parent's capital stock have been issued
other than pursuant to stock options
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<PAGE> 23
already in existence on January 31, 1996, and no stock options have been
granted. Except (i) as described in the Parent SEC Reports, and (ii) as set
forth above, as of the date hereof, there are outstanding (A) no shares of
capital stock or other voting securities of Parent, (B) no securities of Parent
or its subsidiaries convertible into or exchangeable for shares of capital stock
or voting securities of Parent, (C) except as provided in the Davidson Agreement
(as defined in Section 4.23), no options or other rights to acquire from Parent
or its subsidiaries, and no obligations of Parent or its subsidiaries to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Parent, and (D) no equity
equivalents, interests in the ownership or earnings of Parent or its
subsidiaries or other similar rights (including stock appreciation rights)
(collectively, "Parent Securities"). There are no outstanding obligations of
Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire any
Parent Securities. Except as set forth in the Parent SEC Reports, there are no
stockholder agreements, voting trusts or other agreements or understandings to
which Parent is a party or to which it is bound relating to the voting of any
shares of capital stock of Parent.
(b) All of the outstanding capital stock of Parent's subsidiaries
(including Acquisition) is owned by Parent, directly or indirectly, free and
clear of any Lien or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of law). There are no securities of Parent or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire from
Parent or its subsidiaries, and no other contract, understanding, arrangement or
obligation (whether or not contingent) providing for the issuance or sale,
directly or indirectly, of any capital stock or other ownership interests in, or
any other securities of, any subsidiary of Parent. There are no outstanding
contractual obligations of Parent or its subsidiaries to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of Parent.
(c) The Parent Common Stock constitutes the only class of equity
securities of Parent or its subsidiaries registered or required to be registered
under the Exchange Act.
3.3 AUTHORITY RELATIVE TO THIS AGREEMENT
Each of Parent and Acquisition has all necessary corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the boards of directors of Parent and Acquisition and by
Parent as the sole shareholder of Acquisition, and no other corporate
proceedings on the part of Parent or Acquisition are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by each of Parent and
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Acquisition and constitutes a valid, legal and binding agreement of each of
Parent and Acquisition, enforceable against each of Parent and Acquisition in
accordance with its terms.
3.4 SEC REPORTS; FINANCIAL STATEMENTS
(a) Parent has filed all required forms, reports and documents
with the SEC since February 1, 1993, each of which has complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, each as in effect on the dates such forms, reports and documents were
filed. Parent has heretofore delivered to the Company, in the form filed with
the SEC (including any amendments thereto), (i) its Annual Reports on Form 10-K
for each of the fiscal years ended January 31, 1993, 1994 and 1995, (ii) all
definitive proxy statements relating to Parent's meetings of shareholders
(whether annual or special) held since February 1, 1993 and (iii) all other
reports or registration statements filed by Parent with the SEC since February
1, 1993 (the "Parent SEC Reports"). None of such forms, reports or documents,
including, without limitation, any financial statements or schedules included or
incorporated by reference therein, contained, when filed, any untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Parent included in the
Parent SEC Reports complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto and fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and changes in financial position for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end adjustments and except that, in the case of financial statements
included therein which were later restated to account for one or more business
combinations accounted for as poolings-of-interests, such original financial
statements do not reflect such restatements). Since January 31, 1995, there has
not been any change, or any application or request for any change, by Parent or
any of its subsidiaries in accounting principles, methods or policies for
financial accounting or tax purposes.
(b) Parent has heretofore made available to the Company a
complete and correct copy of any material amendments or modifications, which
have not yet been filed with the SEC, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Exchange Act.
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3.5 INFORMATION SUPPLIED
None of the information supplied or to be supplied by Parent or
Acquisition for inclusion or incorporation by reference in (i) the S-4 will, at
the time the S-4 is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and (ii) the Proxy Statement will, at
the date mailed to shareholders and at the times of the meeting of shareholders
of the Company to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to Parent, its officers and
directors or any of its subsidiaries should occur which is required to be
described in an amendment of, or a supplement to, the S-4 or the Proxy
Statement, Parent shall promptly so advise the Company and such event shall be
so described, and such amendment or supplement (which the Company shall have a
reasonable opportunity to review) shall be promptly filed with the SEC. The S-4
will comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder.
3.6 CONSENTS AND APPROVALS; NO VIOLATIONS
Except for filings, permits, authorizations, consents and approvals as
may be required under, and other applicable requirements of, the Securities Act,
the Exchange Act, state securities or blue sky laws, the HSR Act, and the filing
and recordation of the Certificate of Merger as required by the DGCL, no filing
with or notice to, and no permit, authorization, consent or approval of, any
Governmental Entity is necessary for the execution and delivery by Parent or
Acquisition of this Agreement or the consummation by Parent or Acquisition of
the transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on Parent. Except as set
forth in Section 3.6 of the Parent Disclosure Schedule, neither the execution,
delivery and performance of this Agreement by Parent or Acquisition nor the
consummation by Parent or Acquisition of the transactions contemplated hereby
will (i) conflict with or result in any breach of any provision of the
respective certificate of incorporation or bylaws (or similar governing
documents) of Parent or Acquisition or any of Parent's subsidiaries, (ii) result
in a violation or breach of, or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or Lien) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Parent or Acquisition or
any of Parent's subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, law,
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statute, rule or regulation applicable to Parent or Acquisition or any of
Parent's subsidiaries or any of their respective properties or assets, except in
the case of (ii) or (iii) for violations, breaches or defaults which would not
have a Material Adverse Effect on Parent.
3.7 NO DEFAULT
None of Parent or any of its subsidiaries is in default or violation
(and no event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (i)
its Articles of Incorporation or Bylaws (or similar governing documents), (ii)
any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Parent or any of its subsidiaries is now
a party or by which any of them or any of their respective properties or assets
may be bound or (iii) any order, writ, injunction, decree, law, statute, rule or
regulation applicable to Parent, its subsidiaries or any of their respective
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults that would not have a Material Adverse Effect on Parent.
3.8 NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES
Except as and to the extent publicly disclosed by Parent, as of October
31, 1995, none of Parent or its subsidiaries had any liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, and whether due
or to become due or asserted or unasserted, which would be required by GAAP to
be reflected in, reserved against or otherwise described in the consolidated
balance sheet of Parent and its consolidated subsidiaries (including the notes
thereto) as of such date or which could reasonably be expected to have a
Material Adverse Effect on Parent. Except as publicly disclosed by Parent in the
Parent SEC Reports, since October 31, 1995, the business of Parent and its
subsidiaries has been carried on only in the ordinary and usual course, none of
Parent or its subsidiaries has incurred any liabilities of any nature, whether
or not accrued, contingent or otherwise, and whether due or to become due or
asserted or unasserted, which could reasonably be expected to have, and there
have been no events, changes or effects with respect to Parent or its
subsidiaries having or which could reasonably be expected to have, a Material
Adverse Effect on Parent.
3.9 LITIGATION
Except as publicly disclosed by Parent in the Parent SEC Reports, there
is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of Parent, threatened against Parent or any of its subsidiaries or any
of their respective properties or assets which (a) if adversely determined,
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent or (b) as of the date hereof, questions the
validity of this Agreement or any action to be taken by Parent in connection
with the consummation of the transactions contemplated hereby or could
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otherwise prevent or delay the consummation of the transactions contemplated by
this Agreement. Except as publicly disclosed by Parent in the Parent SEC
Reports, none of Parent or its subsidiaries is subject to any outstanding order,
writ, injunction or decree which, insofar as can be reasonably foreseen, could
reasonably be expected to have a Material Adverse Effect on Parent or would
prevent or delay the consummation of the transactions contemplated hereby.
3.10 COMPLIANCE WITH APPLICABLE LAW
Except as publicly disclosed by Parent in the Parent SEC Reports,
Parent and its subsidiaries hold all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "Parent Permits"), except for
failures to hold such permits, licenses, variances, exemptions, orders and
approvals which could not reasonably be expected to have a Material Adverse
Effect on Parent. Except as publicly disclosed by Parent in the Parent SEC
Reports, Parent and its subsidiaries are in compliance with the terms of the
Parent Permits, except where the failure so to comply could not reasonably be
expected to have a Material Adverse Effect on Parent. Except as publicly
disclosed by Parent in the Parent SEC Reports, the businesses of Parent and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity except that no representation or warranty
is made in this Section 3.10 with respect to Environmental Laws and except for
violations or possible violations which do not, and, insofar as reasonably can
be foreseen, will not, have a Material Adverse Effect on Parent. Except as
publicly disclosed by Parent in the Parent SEC Reports, to the best knowledge of
Parent, no investigation or review by any Governmental Entity with respect to
Parent or its subsidiaries is pending or threatened, nor, to the best knowledge
of Parent, has any Governmental Entity indicated an intention to conduct the
same, other than, in each case, those which Parent reasonably believes will not
have a Material Adverse Effect on Parent.
3.11 EMPLOYEE PLANS
All "employee benefit plans" as defined in Section 3(3) of ERISA,
maintained or contributed to by Parent and its subsidiaries are in compliance
with the applicable provisions of ERISA, the Code and other applicable law,
except for instances of non-compliance that could not reasonably be expected to
have a Material Adverse Effect on Parent.
3.12 ENVIRONMENTAL LAWS AND REGULATIONS
(a) Except as publicly disclosed by Parent in the Parent SEC
Reports, (i) each of Parent and its subsidiaries is in compliance with all
Environmental Laws, except for non-compliance that could not reasonably be
expected to have a Material Adverse Effect on Parent, which compliance includes,
but is not limited to, the
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possession by Parent and its subsidiaries of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (ii) none of Parent or its
subsidiaries has received written notice of, or, to the best knowledge of
Parent, is the subject of, any Environmental Claim that could reasonably be
expected to have a Material Adverse Effect on Parent; and (iii) to the best
knowledge of Parent, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future.
(b) Except as publicly disclosed by Parent in the Parent SEC
Reports, there are no Environmental Claims which could reasonably be expected to
have a Material Adverse Effect on Parent that are pending or, to the best
knowledge of Parent, threatened against Parent or any of its subsidiaries or, to
the best knowledge of Parent, against any person or entity whose liability for
any Environmental Claim Parent or its subsidiaries has or may have retained or
assumed either contractually or by operation of law.
3.13 TAX MATTERS
Parent and its subsidiaries have accurately prepared in all material
respects and duly filed with the appropriate federal, state, local and foreign
taxing authorities all tax returns, information returns and reports that are,
individually or in the aggregate, material and are required to be filed with
respect to Parent and its subsidiaries and have paid in full or made adequate
provision for the payment of all material Taxes. Neither Parent nor any of its
subsidiaries is delinquent in the payment of any material Taxes.
3.14 NO PRIOR ACTIVITIES
Except for obligations incurred in connection with its incorporation or
organization or the negotiation and consummation of this Agreement and the
transactions contemplated hereby, Acquisition has neither incurred any
obligation or liability nor engaged in any business or activity of any type or
kind whatsoever or entered into any agreement or arrangement with any person or
entity.
3.15 BROKERS
No broker, finder or investment banker (other than Goldman, Sachs &
Co.) 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 and on behalf of Parent or Acquisition or any of their
affiliates.
3.16 ACCOUNTING MATTERS
Neither Parent nor, to the best of its knowledge, any of its
affiliates, has taken or agreed to take any action that would prevent Parent
from accounting for the business
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combination to be effected by the Merger as a "pooling-of-interests." Parent has
not failed to bring to the attention of the Company any actions, or agreements
or understandings, whether written or oral, to act that would be reasonably
likely to prevent Parent from accounting for the Merger as a
"pooling-of-interests."
3.17 DISCLOSURE
No representation or warranty by Parent contained in this Agreement and
no statement contained in any certificate delivered by Acquisition or Parent to
the Company pursuant to this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading when taken together in light of the
circumstances in which they were made.
4. COVENANTS
4.1 CONDUCT OF BUSINESS OF THE COMPANY
Except as contemplated by this Agreement, during the period from the
date hereof to the Effective Time, the Company will, and will cause each of its
subsidiaries to, conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, seek to
keep available the service of its current officers and employees and seek to
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, neither the Company nor any of its subsidiaries will,
without the prior written consent of Parent, which consent shall not be
unreasonably withheld:
(a) amend its certificate or articles of incorporation or bylaws
(or other similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities or equity equivalents (including,
without limitation, any stock options or stock appreciation rights), except for
the grant of options to purchase up to 500,000 shares of Company Common Stock to
employees under the Company Plans, the sale of up to 191,981 shares of Company
Common Stock to employees under the ESPP, the issuance of up to 1,668,571 shares
of Company Common Stock pursuant to the conversion of the Convertible Notes in
accordance with the terms thereof and the issuance or sale of shares of Company
Common Stock pursuant to options granted under
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the Company Plans or the Non-Plan Option Agreements (in each case, in the
ordinary course of business and consistent with past practice);
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
make any other actual, constructive or deemed distribution in respect of any
shares of its capital stock or otherwise make any payments to stockholders in
their capacity as such, or redeem or otherwise acquire any of its securities or
any securities of any of its subsidiaries;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any of its subsidiaries (other than the Merger);
(e) alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
any subsidiary;
(f) (i) incur or assume any long-term or short-term debt or issue
any debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to the Company and its
subsidiaries taken as a whole; (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and its
subsidiaries, taken as a whole, and except for obligations of the wholly owned
subsidiaries of the Company; (iii) make any loans, advances or capital
contributions to, or investments in, any other person (other than to the wholly
owned subsidiaries of the Company or customary loans or advances to employees in
the ordinary course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (iv) pledge or otherwise
encumber shares of capital stock of the Company or its subsidiaries; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or create
or suffer to exist any material Lien thereupon;
(g) except as may be required by law or as contemplated by this
Agreement, enter into, adopt or amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option (except for normal grants to
newly hired or current employees, consistent with past practice), stock
appreciation right, restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreement, trust, plan, fund, award or other
arrangement for the benefit or welfare of any director, officer or employee in
any manner, or (except as set forth in Section 4.1(g) of the Company Disclosure
Schedule and except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the Company, and as
required under
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existing agreements or in the ordinary course of business generally consistent
with past practice) increase in any manner the compensation or fringe benefits
of any director, officer or employee or pay any benefit not required by any plan
and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock appreciation rights or performance units);
(h) acquire, sell, lease or dispose of any assets outside the
ordinary course of business or any assets which in the aggregate are material to
the Company and its subsidiaries taken as a whole, enter into any commitment or
transaction outside the ordinary course of business or grant any exclusive
distribution rights;
(i) except as may be required as a result of a change in law or
in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(j) revalue in any material respect 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 or as required
by generally accepted accounting principles;
(k) (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement, other than in the ordinary course of business or amend in any
material respect any of the Contracts or the agreements referred to in Section
2.18; (iii) authorize any new capital expenditure or expenditures which,
individually, is in excess of $500,000 or, in the aggregate, are in excess of $5
million; provided, that none of the foregoing shall limit any capital
expenditure already included in the Company's fiscal 1997 capital expenditure
budget provided to Parent prior to the date hereof; or (iv) enter into or amend
any contract, agreement, commitment or arrangement providing for the taking of
any action that would be prohibited hereunder;
(l) make or revoke any tax election or settle or compromise any
tax liability material to the Company and its subsidiaries taken as a whole or
change (or make a request to any taxing authority to change) any material aspect
of its method of accounting for tax purposes;
(m) pay, discharge or satisfy any material 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 of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes thereto) of
the Company and its subsidiaries or incurred in the ordinary course of business
consistent with past practice;
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(n) settle or compromise any pending or threatened suit, action
or claim relating to the transactions contemplated hereby; or
(o) take (other than to Parent in seeking its consent to the
taking of any such action), propose to take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(a) through 4.1(n) or any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect in any material respect.
4.2 CONDUCT OF BUSINESS OF PARENT
Except as contemplated by this Agreement, during the period from the
date hereof to the Effective Time, Parent will, and will cause each of its
subsidiaries to, conduct its operations in the ordinary course of business
consistent with past practice and, to the extent consistent therewith, with no
less diligence and effort than would be applied in the absence of this
Agreement, seek to preserve intact its current business organizations, seek to
keep available the service of its current officers and employees and seek to
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, Parent will not, without the prior written consent of the
Company, which consent shall not be unreasonably withheld:
(a) amend its certificate of incorporation (other than to
increase the number of authorized shares of Parent Common Stock) or bylaws;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
make any other actual, constructive or deemed distribution in respect of any
shares of its capital stock or otherwise make any payments to stockholders in
their capacity as such; or redeem or otherwise acquire any of its securities;
(c) adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of Parent;
(d) grant options to purchase, or make restricted stock grants
with respect to, in excess of 1,000,000 shares of Parent Common Stock under
Parent's employee stock option plans or stock purchase plans, except in
connection with any acquisition (by merger, consolidation, or acquisition of
stock or assets) of any corporation, partnership or other business organization
or division thereof or any equity interest therein (including, without
limitation, in connection with the transactions contemplated by the Davidson
Agreement);
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(e) except as set forth in Section 4.2(e) of the Parent
Disclosure Schedule, incur or assume any long-term or short-term debt or issue
any debt securities except for borrowings under existing lines of credit in the
ordinary course of business and in amounts not material to Parent and its
subsidiaries taken as a whole and except for other indebtedness not exceeding
$100,000,000 in the aggregate; or
(f) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through 4.2(e).
4.3 PREPARATION OF S-4 AND THE PROXY STATEMENT
Parent will, as promptly as practicable, prepare, following receipt of
notification from the SEC that it has no further comments on the Proxy
Statement, and file with the SEC the S-4, containing a proxy
statement/prospectus and a form of proxy, in connection with the registration
under the Securities Act of the shares of Parent Common Stock issuable upon
conversion of the Shares and the other transactions contemplated hereby. The
Company will, as promptly as practicable, prepare and file with the SEC the
Proxy Statement that will be the same proxy statement/prospectus contained in
the S-4 and a form of proxy, in connection with the vote of the Company's
stockholders with respect to the Merger. Parent and the Company will, and will
cause their accountants and lawyers to, use all reasonable best efforts to have
or cause the S-4 declared effective as promptly as practicable, including,
without limitation, causing their accountants to deliver necessary or required
instruments such as opinions, consents and certificates, and will take any other
action required or necessary to be taken under federal or state securities laws
or otherwise in connection with the registration process. The Company will use
all reasonable best efforts to cause the Proxy Statement to be mailed to its
shareholders at the earliest practicable date.
4.4 OTHER POTENTIAL ACQUIRORS
The Company, its affiliates and their respective officers, directors,
employees, representatives and agents shall immediately cease any existing
discussions or negotiations, if any, with any parties conducted heretofore with
respect to any acquisition of all or any material portion of the assets of, or
any equity interest in, the Company or its subsidiaries or any business
combination with the Company or its subsidiaries. The Company may, directly or
indirectly, furnish information and access, in each case only in response to
unsolicited requests therefor, to any corporation, partnership, person or other
entity or group pursuant to confidentiality agreements, and may participate in
discussions and negotiate with such entity or group concerning any merger, sale
of assets, sale of shares of capital stock or similar transaction involving the
Company or any subsidiary or division of the Company, if such entity or group
has submitted a proposal to the Company (whether or not in writing) relating to
any such transaction and the Company Board by a majority vote determines in its
good faith judgment, after consultation with
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and based upon the advice of independent legal counsel, that it is necessary to
do so to comply with its fiduciary duties to shareholders under applicable law.
The Company Board shall provide a copy of any such written proposal and a
summary of any oral proposal to Parent or Acquisition within 24 hours after
receipt thereof and thereafter keep Parent and Acquisition promptly advised of
any material development with respect thereto. Except as set forth above,
neither the Company nor any of its affiliates shall, nor shall the Company
authorize or permit any of its or their respective officers, directors,
employees, representatives or agents to directly or indirectly, encourage,
solicit, participate in or initiate discussions or negotiations with, or provide
any information to, any corporation, partnership, person or other entity or
group (other than Parent and Acquisition, any affiliate or associate of Parent
and Acquisition or any designees of Parent and Acquisition) concerning any
merger, sale of assets, sale of shares of capital stock or similar transaction
involving the Company or any subsidiary or division of the Company; provided,
however, that nothing herein shall prevent the Company Board from taking, and
disclosing to the Company's shareholders, a position contemplated by Rules 14d-9
and 14e-2 promulgated under the Exchange Act with regard to any tender offer;
provided, further, that nothing herein shall prevent the Company Board from
making such disclosure to the Company's shareholders as, in the good faith
judgment of the Company Board, after consultation with and based upon the advice
of independent legal counsel, is necessary to comply with its fiduciary duties
to shareholders under applicable law.
(a) Except as set forth in this Section 4.4, the Company Board
shall not approve or recommend, or cause the Company to enter into any agreement
with respect to, any Third Party Acquisition (as defined below). Notwithstanding
the foregoing, if the Board of Directors of the Company, after consultation with
and based upon the advice of independent legal counsel, determines in good faith
that it is necessary to do so in order to comply with its fiduciary duties to
shareholders under applicable law, the Company Board may approve or recommend a
Superior Proposal (as defined below) or cause the Company to enter into an
agreement with respect to a Superior Proposal, but in each case only (i) after
providing reasonable written notice to Parent (a "Notice of Superior Proposal")
advising Parent that the Company Board has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
identifying the person making such Superior Proposal and (ii) if Parent does not
make within five days of Parent's receipt of the Notice of Superior Proposal, an
offer which the Company Board, after consultation with its financial advisors,
determines is superior to such Superior Proposal. For purposes of this
Agreement, a "Superior Proposal" means any bona fide proposal to acquire,
directly or indirectly, for consideration consisting of cash and/or securities,
more than 50% of the shares of Company Common Stock then outstanding or all or
substantially all the assets of the Company and otherwise on terms which the
Company Board determines in its good faith judgment (based on the advice of a
financial advisor of nationally recognized reputation) to be more favorable to
the Company's shareholders than the Merger.
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4.5 LETTER OF THE COMPANY'S ACCOUNTANTS
The Company shall use all reasonable best efforts to cause to be
delivered to Parent a letter of Deloitte & Touche LLP, the Company's independent
auditors, dated a date within two business days before the date on which the S-4
shall become effective and addressed to Parent, in form and substance reasonably
satisfactory to Parent and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4.
4.6 MEETINGS
The Company shall call a meeting of its shareholders to be held as
promptly as practicable for the purpose of voting upon this Agreement and
related matters. The Company and Acquisition will, through their respective
Boards of Directors recommend to their respective shareholders approval of such
matters; provided, however, that the Company Board may withdraw its
recommendation if the Company Board by a majority vote determines in its good
faith judgment, after consultation with and based upon the advice of independent
legal counsel, that it is necessary to do so to comply with its fiduciary duties
to shareholders under applicable law. Notwithstanding the foregoing (but without
limiting the provisions of Section 6.1(c)(vi)), the Company Board may not
withdraw its recommendation because of the trading price of Parent Common Stock
between the date hereof and the date of the Company's shareholder's meeting. The
Company and Parent shall coordinate and cooperate with respect to the timing of
such meeting and, subject to Section 4.23(c), the Company shall use its best
efforts to hold such meeting as soon as practicable after the date hereof;
provided, however, that the Company may postpone a previously-scheduled meeting
of Company shareholders in the event that the Company Board by majority vote
determines in its good faith judgment, after consultation with and based upon
the advice of independent legal counsel, that it is necessary to do so in order
to comply with its fiduciary duties to shareholders under applicable law and, at
the time of such determination, the Company has received a bona fide proposal to
effect a Third Party Acquisition that is a Superior Proposal and that has not
been withdrawn.
4.7 STOCK EXCHANGE LISTING
Parent shall use all reasonable efforts to cause the shares of Parent
Common Stock to be issued in the Merger and the shares of Parent Common Stock to
be reserved for issuance upon exercise of Company Stock Options to be approved
for listing on the NYSE, subject to official notice of issuance, prior to the
Effective Time.
4.8 ACCESS TO INFORMATION
(a) Between the date hereof and the Effective Time, the Company
will give Parent and Acquisition and their authorized representatives reasonable
access to all
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employees, plants, offices, warehouses and other facilities and to all books and
records of the Company and its subsidiaries, will permit Parent and Acquisition
to make such inspections as Parent and Acquisition may reasonably require and
will cause the Company's officers and those of its subsidiaries to furnish
Parent and Acquisition with such financial and operating data and other
information with respect to the business, properties and personnel of the
Company and its subsidiaries as Parent or Acquisition may from time to time
reasonably request, provided that no investigation pursuant to this Section
4.8(a) shall affect or be deemed to modify any of the representations or
warranties made by the Company.
(b) Between the date hereof and the Effective Time, the Company
shall furnish to Parent and Acquisition (i) within five business days after the
delivery thereof to management, such monthly financial statements and data as
are regularly prepared for distribution to Company management and (ii) at the
earliest time they are available, such quarterly and annual financial statements
as are prepared for the Company's SEC filings, which (in the case of this clause
(ii)), shall be in accordance with the books and records of the Company.
(c) Each of Parent and Acquisition will hold and will cause its
consultants and advisors to hold in confidence all documents and information
concerning the Company and its subsidiaries furnished to Parent or Acquisition
in connection with the transactions contemplated by this Agreement pursuant to
the terms of that certain Confidentiality Agreement entered into between the
Company and Parent dated February 17, 1996.
4.9 ADDITIONAL AGREEMENTS; REASONABLE BEST EFFORTS
Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including, without limitation, (i) cooperation in the preparation and filing of
the Proxy Statement and the S-4, any filings that may be required under the HSR
Act, and any amendments to any thereof; (ii) the taking of all action reasonably
necessary, proper or advisable to secure any necessary consents under existing
debt obligations of the Company and its subsidiaries or amend the notes,
indentures or agreements relating thereto to the extent required by such notes,
indentures or agreements or redeem or repurchase such debt obligations; (iii)
contesting any legal proceeding relating to the Merger; and (iv) the execution
of any additional instruments, including the Certificate of Merger, necessary to
consummate the transactions contemplated hereby; provided, however, that the
Company may postpone a previously-scheduled meeting of Company shareholders in
the event that the Company Board by majority vote determines in its good faith
judgment, after consultation with and based upon the advice of independent legal
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counsel, that it is necessary to do so in order to comply with its fiduciary
duties to shareholders under applicable law and, at the time of such
determination, the Company has received a bona fide proposal to effect a Third
Party Acquisition that is a Superior Proposal and that has not been withdrawn.
Subject to the terms and conditions of this Agreement, Parent and Acquisition
agree to use all reasonable efforts to cause the Effective Time to occur as soon
as practicable after the shareholder vote with respect to the Merger. In case at
any time after the Effective Time any further action is necessary to carry out
the purposes of this Agreement, the proper officers and directors of each party
hereto shall take all such necessary action.
4.10 CONSENTS
Parent, Acquisition and the Company each will use all reasonable
efforts to obtain consents of all third parties and Governmental Entities
necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement.
4.11 PUBLIC ANNOUNCEMENTS
Each of Parent, Acquisition and the Company will consult with one
another before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement,
including, without limitation, the Merger, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or by obligations pursuant to any listing
agreement with the NYSE or the Nasdaq Stock Market, as determined by Parent,
Acquisition or the Company, as the case may be.
4.12 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
(a) Indemnification. To the extent, if any, not provided by an
existing right under one of the parties' directors and officers liability
insurance policies, from and after the Effective Time, Parent shall, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director, officer or employee of the
parties hereto or any subsidiary thereof (each an "Indemnified Party" and,
collectively, the "Indemnified Parties") against all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages or liabilities or,
subject to the proviso of the next succeeding sentence, amounts paid in
settlement, arising out of actions or omissions occurring at or prior to the
Effective Time and whether asserted or claimed prior to, at or after the
Effective Time) that are in whole or in part (i) based on, or arising out of the
fact that such person is or was a director, officer or employee of such party or
a subsidiary of such party or (ii) based on, arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such loss,
expense, claim, damage or liability (whether or not arising before the Effective
Time), (i) Parent shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties,
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which counsel shall be reasonably satisfactory to Parent, promptly after
statements therefor are received and otherwise advance to such Indemnified Party
upon request reimbursement of documented expenses reasonably incurred, in either
case to the extent not prohibited by the DGCL and upon receipt of any
affirmation and undertaking required by the DGCL, (ii) Parent will cooperate in
the defense of any such matter and (iii) any determination required to be made
with respect to whether an Indemnified Party's conduct complies with the
standards set forth under the DGCL and Parent's certificate of incorporation or
bylaws shall be made by independent counsel mutually acceptable to Parent and
the Indemnified Party; provided, however, that Parent shall not be liable for
any settlement effected without its written consent (which consent shall not be
reasonably withheld). The Indemnified Parties as a group may retain only one law
firm with respect to each related matter except to the extent there is, in the
opinion of counsel to an Indemnified Party, under applicable standards of
professional conduct, a conflict on any significant issue between positions of
any two or more Indemnified Parties.
(b) Insurance. For a period of three years after the Effective
Time, Parent shall cause to be maintained in effect the policies of directors'
and officers' liability insurance maintained by the Company for the benefit of
those persons who are covered by such policies at the Effective Time (or Parent
may substitute therefor policies of at least the same coverage with respect to
matters occurring prior to the Effective Time), to the extent that such
liability insurance can be maintained annually at a cost to Parent not greater
than 150 percent of the premium for the current Company directors' and officers'
liability insurance; provided that if such insurance cannot be so maintained or
obtained at such costs, Parent shall maintain or obtain as much of such
insurance as can be so maintained or obtained at a cost equal to 150 percent of
the current annual premiums of the Company for such insurance.
(c) Successors. In the event Parent or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity or such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in either such case, proper provision shall be made so
that the successors and assigns of Parent shall assume the obligations set for
in this Section 4.12.
(d) Survival of Indemnification. To the fullest extent permitted by
law, from and after the Effective Time, all rights to indemnification now
existing in favor of the employees, agents, directors or officers of the Company
and its subsidiaries with respect to their activities as such prior to the
Effective Time, as provided in the Company's certificate of incorporation or
bylaws, in effect on the date thereof or otherwise in effect on the date hereof,
shall survive the Merger and shall continue in full force and effect for a
period of not less than six years from the Effective Time.
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(e) Benefit. The provisions of this Section 4.12 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her representatives.
4.13 NOTIFICATION OF CERTAIN MATTERS
The Company shall give prompt notice to Parent and Acquisition, and
Parent and Acquisition 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 be untrue or inaccurate in any material respect at or prior to the
Effective Time, (ii) any material failure of the Company, Parent or Acquisition,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, (iii) any notice of,
or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any contract or agreement material to the financial condition,
properties, businesses or results of operations of it and its subsidiaries taken
as a whole to which it or any of its subsidiaries is a party or is subject, (iv)
any notice or other communication from any third party alleging that the consent
of such third party is or may be required in connection with the transactions
contemplated by this Agreement, or (v) any material adverse change in their
respective financial condition, properties, businesses, results of operations or
prospects, taken as a whole, other than changes resulting from general economic
conditions; provided, however, that the delivery of any notice pursuant to this
Section 4.13 shall not cure such breach or non-compliance or limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
4.14 POOLING
The Company and Parent each agrees that it will not take any action
which could prevent the Merger from being accounted for as a
"pooling-of-interests" for accounting purposes and the Company will bring to the
attention of Parent, and Parent will bring to the attention of the Company, any
actions, or agreements or understandings, whether written or oral, that could be
reasonably likely to prevent Parent from accounting for the Merger as a
"pooling-of-interests." Parent shall use commercially reasonable efforts to
cause Ernst & Young LLP ("E&Y") to deliver to Parent a letter to the effect that
pooling-of-interests accounting is appropriate for the Merger if it is closed
and consummated in accordance with the terms of this Agreement, and the Company
shall use commercially reasonable efforts to cause Deloitte & Touche LLP to
cooperate fully with E&Y (including, without limitation, sharing information,
analysis and work product, engaging in active discussions and delivering to the
Company a letter substantially similar to E&Y's letter to Parent) in connection
with E&Y's delivery of such letter. The Company will cause Deloitte & Touche LLP
to inform all Company Affiliates and other relevant
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employees as to those actions that should or should not be taken by such persons
so that the Merger will be accounted for as a "pooling-of-interests" and will
use its best efforts to cause such Company Affiliates and employees to take or
not take such actions as Parent may be informed by any Governmental Entity are
necessary to be taken or not to be taken so that the Merger will be accounted
for as a "pooling-of-interests."
4.15 TAX-FREE REORGANIZATION TREATMENT
The Company, Parent and Acquisition shall execute and deliver to
Perkins Coie, counsel to the Company, a certificate substantially in the form
agreed to by the parties on or prior to the date hereof (with such changes as
reasonably requested by such law firm) at such time or times as reasonably
requested by such law firm in connection with its delivery of an opinion with
respect to the transactions contemplated hereby, and shall provide a copy
thereof to Parent and the Company. Prior to the Effective Time, none of the
Company, Parent or Acquisition shall take or cause to be taken any action which
would cause to be untrue (or fail to take or cause not to be taken any action
which would cause to be untrue) any of the representations in such
previously-agreed certificate.
4.16 TAXES
In respect of income tax returns of the Company or any subsidiary not
required to be filed prior to the date hereof, the Company shall, to the extent
permitted by law without any penalty, extend (and cause its subsidiaries to
extend) the filing of any such Tax returns until after the Effective Time;
provided, however, that the Company shall notify Parent of its intention to file
an extension (or cause any subsidiary to file an extension) any such filing and
shall not file an extension for a Tax return if Parent and the Company agree
that so extending the filing of such Tax return is not in the best interests of
either the Company or Parent. If any income Tax return that has not yet been
filed is required to be filed on or prior to the Effective Time, the Company or
its subsidiaries, as the case may be, shall prepare and timely file such Tax
return in a manner consistent with prior years and all applicable laws and
regulations; provided, however, that Parent shall be notified and given an
opportunity to review and to comment, prior to the filing thereof, on any such
Tax return (a) which relates to a Tax which is based upon or measured by income,
(b) which is not regularly filed by the Company or a subsidiary thereof in
connection with the conduct of its business in the ordinary course, or (c) for
which Parent requests such opportunity, although neither Parent's approval nor
consent shall be required prior to the filing of any such Tax return.
4.17 EMPLOYMENT AND OTHER AGREEMENTS
Parent shall, as of or prior to the Effective Time, enter into an
employment agreement (the "Employment Agreement") with Kenneth A. Williams and
non-competition agreements (the "Non-Competition Agreements") with each of
Kenneth A. Williams and Roberta L. Williams, in each case in the form agreed to
by the parties
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thereto on or prior to the date hereof. On the date hereof, Roberta L. Williams
is entering into a personal services agreement with Parent.
4.18 EMPLOYEE MATTERS
(a) Employees of the Company and its subsidiaries shall be treated
after the Merger no less favorably under the compensation and benefits programs
of Parent than other similarly situated employees of Parent and its
subsidiaries.
(b) For a period of one year following the Merger, Parent shall and
shall cause its subsidiaries to maintain with respect to their employees who had
been employed by the Company or any of its subsidiaries (i) base salary or
regular hourly wage rates for each such employee at not less than the rate
applicable immediately prior to the Merger to such employee, and (ii) employee
benefits (as defined for purposes of Section 3(3) of ERISA), other than employee
benefits as to which the employees' interests are based upon the Shares) which
are substantially comparable in the aggregate to such employee benefits provided
by the Company and its subsidiaries immediately prior to the Merger.
(c) Parent and its subsidiaries shall credit employees of the
Company and its subsidiaries with their service prior to the Merger with Company
and its subsidiaries to the same extent such service was counted under the
Company ERISA Plans for purposes of determining eligibility to participate or
vesting under similar benefit plans provided by Parent after the Merger.
(d) Nothing contained herein shall be construed as requiring Parent
or the Surviving Corporation to continue any specific plans or to continue the
employment of any specific person.
4.19 COMPANY AFFILIATES
The Company has identified to Parent each Company Affiliate and each
Company Affiliate has delivered to Parent on or prior to the date hereof, a
written agreement (i) that such Company Affiliate will not sell, pledge,
transfer or otherwise dispose of any shares of Parent Common Stock issued to
such Company Affiliate pursuant to the Merger, except in compliance with Rule
145 promulgated under the Securities Act or an exemption from the registration
requirements of the Securities Act and (ii) that on or prior to the earlier of
(x) the mailing of the Proxy Statement/Prospectus or (y) the thirtieth day prior
to the Effective Time such Company Affiliate will not thereafter sell or in any
other way reduce such Company Affiliate's risk relative to any shares of Parent
Common Stock received in the Merger (within the meaning of the SEC's Financial
Reporting Release No. 1, "Codification of Financing Reporting Policies," ss.
201.01 47 F.R. 21028 (April 15, 1982)), until such time as financial results
(including combined sales and net income) covering at least 30 days of
post-merger operations have been published, except as permitted by Staff
Accounting Bulletin No. 76 issued by the SEC.
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4.20 ELECTION TO PARENT BOARD
Effective as of the Closing Date, Parent shall increase the size of its
Board of Directors (the "Parent Board") by one director and shall cause Kenneth
A. Williams to be appointed to the Parent Board to fill the vacancy created for
an initial term expiring on the third anniversary of the date of Parent's first
annual meeting of shareholders held following the date hereof.
4.21 SEC FILINGS
Each of Parent and the Company shall promptly provide the other party
(or its counsel) with copies of all filings made by the other party or any of
its subsidiaries with the SEC or any other state or federal Governmental Entity
in connection with this Agreement and the transactions contemplated hereby.
4.22 GUARANTEE OF PERFORMANCE
Parent hereby guarantees the performance by Acquisition of its
obligations under this Agreement.
4.23 ACQUISITION
The Company hereby acknowledges that it has been advised by Parent that
Parent is, substantially simultaneously with the execution and delivery of this
Agreement, entering into an Agreement and Plan of Merger (the "Davidson
Agreement"), dated as of the date hereof, among Parent, Stealth Acquisition II
Corp. ("Merger Sub") and Davidson & Associates, Inc. ("Davidson") pursuant to
which Merger Sub will merge with and into Davidson and Davidson will become a
wholly-owned subsidiary of Parent (the "Davidson Merger") and the shareholders
and stock option holders of Davidson will receive, respectively, shares of
Parent Common Stock and options to purchase shares of Parent Common Stock in the
Davidson Merger.
(a) The parties hereto expressly acknowledge and agree that it
shall not be a condition to the respective obligations of any party hereto to
effect the Merger that the transactions contemplated by the Davidson Agreement
shall have been approved by the shareholders of Parent or Davidson or that such
transactions shall have been consummated.
(b) Notwithstanding anything to the contrary contained herein
(including, without limitation, in Sections 4.3, 4.6 and 4.9 hereof), the
Company will cooperate with all reasonable requests of Parent to coordinate the
timing of the shareholders meetings with respect to the transactions
contemplated by this Agreement and the Davidson Agreement; provided, however,
that the Company may postpone a previously-scheduled meeting of Company
shareholders in the event that the Company
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Board by majority vote determines in its good faith judgment, after consultation
with and based upon the advice of independent legal counsel, that it is
necessary to do so in order to comply with its fiduciary duties to shareholders
under applicable law and, at the time of such determination, the Company has
received a bona fide proposal to effect a Third Party Acquisition that is a
Superior Proposal and that has not been withdrawn. In addition, the Company will
provide Parent with all financial and other data regarding the Company as may be
requested by Parent in connection with the preparation of the proxy statement
and Form S-4 relating to the Davidson Merger.
5. CONDITIONS TO CONSUMMATION OF THE MERGER
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of each party hereto to effect the Merger
are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the shareholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired, and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received;
(d) the S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order and Parent shall have received all state securities laws or "blue sky"
permits and authorizations necessary to issue shares of Parent Common Stock in
exchange for the Shares in the Merger; and
(e) Parent shall have received a letter from E&Y stating that the
Merger will be accounted for under GAAP as a "pooling-of-interests," and such
opinion shall not have been withdrawn or modified in any material respect.
5.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
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(a) the representations of Parent and Acquisition contained in this
Agreement or in any other document delivered pursuant hereto shall be true and
correct in all material respects at and as of the Effective Time with the same
effect as if made at and as of the Effective Time, and at the Closing Parent and
Acquisition shall have delivered to the Company a certificate to that effect;
(b) each of the obligations of Parent and Acquisition to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and at the Closing Parent and Acquisition shall have
delivered to the Company a certificate to that effect;
(c) the shares of Parent Common Stock issuable to the Company
shareholders pursuant to this Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been authorized
for listing on the NYSE upon official notice of issuance;
(d) the opinion of Perkins Coie, counsel to the Company, addressed
to the Company and its shareholders to the effect that (i) the Merger will be
treated for Federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code; (ii) each of Parent, Acquisition, the Company
will be a party to the reorganization within the meaning of Section 368(b) of
the Code; and (iii) no gain or loss will be recognized by a shareholder of the
Company as a result of the Merger with respect to Shares converted into shares
of Parent Common Stock (other than with respect to cash received in lieu of
fractional shares of Parent Common Stock), dated the Closing Date and, if
required in connection with the Proxy Statement, dated on or about the date that
is two business days prior to the date the Proxy Statement is first mailed to
shareholders of the Company shall have been delivered and such opinion shall not
have been withdrawn or modified in any material respect;
(e) Parent shall have obtained the consent or approval of each
person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease or other agreement or instrument, except those for
which failure to obtain such consents and approvals would not, individually or
in the aggregate, have a Material Adverse Effect on Parent; and
(f) there shall have been no events, changes or effects with
respect to Parent or its subsidiaries having or which could reasonably be
expected to have a Material Adverse Effect on Parent.
5.3 CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITION
The respective obligations of Parent and Acquisition to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
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(a) the representations of the Company contained in this Agreement
or in any other document delivered pursuant hereto shall be true and correct in
all material respects at and as of the Effective Time with the same effect as if
made at and as of the Effective Time, and at the Closing the Company shall have
delivered to Parent and Acquisition a certificate to that effect;
(b) each of the obligations of the Company to be performed at or
before the Effective Time pursuant to the terms of this Agreement shall have
been duly performed in all material respects at or before the Effective Time and
at the Closing the Company shall have delivered to Parent and Acquisition a
certificate to that effect;
(c) each Company Affiliate and each shareholder which is a party to
the Shareholders Agreement shall have performed his or its respective
obligations under the applicable Affiliate Letter and/or the Shareholders
Agreement (if applicable), and Parent shall have received a certificate signed
by each of them to such effect;
(d) the Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in order to permit the
succession by the Surviving Corporation pursuant to the Merger to any
obligation, right or interest of the Company or any subsidiary of the Company
under any loan or credit agreement, note, mortgage, indenture, lease or other
agreement or instrument, except for those for which failure to obtain such
consents and approvals would not, individually or in the aggregate, have a
Material Adverse Effect on the Company;
(e) there shall have been no events, changes or effects with
respect to the Company or its subsidiaries having or which could reasonably be
expected to have, a Material Adverse Effect on the Company;
(f) the Employment Agreement and the Services Agreement each shall
be in full force and effect; and
(g) the Non-Competition Agreements shall be in full force and
effect.
6. TERMINATION; AMENDMENT; WAIVER
6.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time, but prior to the Effective Time:
(a) by mutual written consent of Parent, Acquisition and the
Company;
(b) by Parent and Acquisition or the Company if (i) any court of
competent jurisdiction in the United States or other United States governmental
authority shall have issued a final order, decree or ruling or taken any other
final action restraining,
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enjoining or otherwise prohibiting the Merger and such order, decree, ruling or
other action is or shall have become nonappealable or (ii) the Merger has not
been consummated by September 30, 1996; provided that no party may terminate
this Agreement pursuant to this clause (ii) if such party's failure to fulfill
any of its obligations under this Agreement shall have been the reason that the
Effective Time shall not have occurred on or before said date;
(c) by the Company if (i) there shall have been a breach of any
representation or warranty on the part of Parent or Acquisition set forth in
this Agreement, or if any representation or warranty of Parent or Acquisition
shall have become untrue, in either case such that the conditions set forth in
Section 5.2(a) would be incapable of being satisfied by September 30, 1996 (or
as otherwise extended), (ii) there shall have been a breach by Parent or
Acquisition of any of their respective covenants or agreements hereunder having
a Material Adverse Effect on the Parent or materially adversely affecting (or
materially delaying) the consummation of the Merger, and Parent or Acquisition,
as the case may be, has not cured such breach within twenty business days after
notice by the Company thereof, (iii) the Company enters into a definitive
agreement relating to a Superior Proposal in accordance with Section 4.4(b)
(provided that such termination shall not be effective until payment of the
amount required under Section 6.3(a)), (iv) the Company shall have convened a
meeting of its shareholders to vote upon the Merger and shall have failed to
obtain the requisite vote of its shareholders, (v) the Company Board by a
majority vote determines in its good faith judgment, after consultation with and
based upon the advice of independent legal counsel, that it is necessary to do
so to comply with its fiduciary duties to shareholders, provided that such
termination under this clause (v) shall not effective unless at the time of such
determination the Company has received a bona fide proposal to effect a Third
Party Acquisition that is a Superior Proposal and that has not been withdrawn as
of the time of such termination (provided that such termination shall not be
effective until payment of the amount required under Section 6.3(a)), or (vi)
prior to the meeting of shareholders the Company, the Average Stock Price (as
defined below) is less than $29.00. The term "Average Stock Price" means a
fraction, the numerator of which is the sum of the Closing Price (as hereinafter
defined) for each trading day during the 15 consecutive trading days ending on
the first trading day that is at least 10 calendar days prior to the scheduled
date of such meeting of shareholders of the Company and the denominator of which
is 15. For purposes hereof, with respect to any trading day, the Closing Price
shall be equal to the per share closing price on the NYSE of Parent Common Stock
on such day, as reported in the New York Stock Exchange Composite Transactions;
or
(d) by Parent and Acquisition if (i) there shall have been a breach
of any representation or warranty on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 5.3(a)
would be incapable of being satisfied by September 30, 1996 (or as otherwise
extended), (ii) there shall have been a breach by
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the Company of its covenants or agreements hereunder having a Material Adverse
Effect on the Company or materially adversely affecting (or materially delaying)
the consummation of the Merger, and the Company has not cured such breach within
twenty business days after notice by Parent or Acquisition thereof, (iii) the
Company Board shall have withdrawn, modified or changed its approval or
recommendation of this Agreement or the Merger, shall have recommended to the
Company's shareholders a Third Party Acquisition or shall have failed to call,
give notice of, convene or hold a shareholders' meeting to vote upon the Merger,
or shall have adopted any resolution to effect any of the foregoing, or (iv) the
Company shall have convened a meeting of its shareholders to vote upon the
Merger and shall have failed to obtain the requisite vote of its shareholders.
"Third Party Acquisition" means the occurrence of any of the following
events (i) the acquisition of the Company by merger or otherwise by any person
(which includes a "person" as such term is defined in Section 13(d)(3) of the
Exchange Act) or entity other than Parent, Acquisition or any affiliate thereof
(a "Third Party"); (ii) the acquisition by a Third Party of more than 30% of the
total assets of the Company and its subsidiaries, taken as a whole; or (iii) the
acquisition by a Third Party of 30% or more of the outstanding shares of Company
Common Stock.
6.2 EFFECT OF TERMINATION
In the event of the termination and abandonment of this Agreement
pursuant to Section 6.1, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party hereto or its affiliates,
directors, officers or shareholders, other than the provisions of this Section
6.2 and Sections 4.8(c), 6.3, 7.5, 7.8, 7.10 and 7.13 hereof. Nothing contained
in this Section 6.2 shall relieve any party from liability for any breach of
this Agreement.
6.3 FEES AND EXPENSES
(a) In the event that this Agreement shall be terminated pursuant
to:
(i) Section 6.1(d)(i) (in the case of a willful breach of
representation or warranty) or (ii) and, within twelve months thereafter, the
Company enters into an agreement with respect to a Third Party Acquisition
(which is consummated within twelve months after such termination), or a Third
Party Acquisition occurs, involving any party (or any affiliate thereof) (x)
with whom the Company (or its agents) had negotiations with a view to a Third
Party Acquisition, (y) to whom the Company (or its agents) furnished information
with a view to a Third Party Acquisition or (z) who had submitted a proposal or
expressed an interest in a Third Party Acquisition, in the case of each of
clauses (x), (y) and (z) after the date hereof and prior to such termination; or
(ii) Section 6.1(c)(iii) or (v) or 6.1(d)(iii);
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<PAGE> 48
Parent and Acquisition would suffer direct and substantial damages,
which damages cannot be determined with reasonable certainty. To compensate
Parent and Acquisition for such damages, the Company shall pay to Parent the
amount of $25 million as liquidated damages, as follows: (i) in the case of a
termination under Section 6.1(d)(i) or (ii), $12.5 million shall be paid on the
date the Company enters into an agreement with respect to a Third Party
Acquisition and $12.5 million shall be paid on the date of consummation of a
Third Party Acquisition under the circumstances described in Section 6.3(a)(i)
above and (ii) in the case of a termination under Section 6.1(c)(iii) or (v) or
Section 6.1(d)(iii), $12.5 million shall be paid on the date of such termination
(except, in the case of a termination under Section 6.1(d)(iii), in which case
such $12.5 million shall be paid within 20 days following such termination) and
$12.5 million shall be paid upon consummation of a Third Party Acquisition
involving any party (or any affiliate thereof) (x) with whom the Company (or its
agents) had negotiations with a view to a Third Party Acquisition, (y) to whom
the Company (or its agents) furnished information with a view to a Third Party
Acquisition or (z) who had submitted a proposal or expressed an interest in a
Third Party Acquisition, in the case of each of clauses (x), (y) and (z) after
the date hereof and prior to such termination. It is specifically agreed that
the amount to be paid pursuant to this Section 6.3(a) represents liquidated
damages and not a penalty.
(b) Upon the termination of this Agreement pursuant to Sections
6.1(c)(iii) or (v) or 6.1(d)(i), (ii) or (iii), the Company shall reimburse
Parent, Acquisition and their affiliates (not later than ten business days after
submission of statements therefor) for all actual documented out-of-pocket fees
and expenses, not to exceed $3,000,000, actually and reasonably incurred by any
of them or on their behalf in connection with the Merger and the consummation of
all transactions contemplated by this Agreement (including, without limitation,
fees payable to investment bankers, counsel to any of the foregoing, and
accountants). If Parent or Acquisition shall submit a request for reimbursement
hereunder, Parent or Acquisition will provide the Company in due course with
invoices or other reasonable evidence of such expenses upon request. The Company
shall in any event pay the amount requested (not to exceed $3,000,000) within
ten business days of such request, subject to the Company's right to demand a
return of any portion as to which invoices are not received in due course.
(c) Upon the termination of this Agreement pursuant to Sections
6.1(c)(i) or (ii), Parent shall reimburse the Company and their affiliates (not
later than ten business days after submission of statements therefor) for all
actual documented out-of-pocket fees and expenses, not to exceed $3,000,000,
actually and reasonably incurred by any of them or on their behalf in connection
with the Merger and the consummation of all transactions contemplated by this
Agreement (including, without limitation, fees payable to investment bankers,
counsel to any of the foregoing, and accountants). If the Company shall submit a
request for reimbursement hereunder, the Company will provide Parent in due
course with invoices or other reasonable evidence of
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<PAGE> 49
such expenses upon request. Parent shall in any event pay the amount requested
(not to exceed $3,000,000) within ten business days of such request, subject to
Parent's right to demand a return of any portion as to which invoices are not
received in due course.
(d) Except as specifically provided in this Section 6.3, each party
shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby. The cost of printing the S-4 and the Proxy
Statement shall be borne equally by the Company and Parent.
6.5 AMENDMENT
This Agreement may be amended by action taken by the Company, Parent
and Acquisition at any time before or after approval of the Merger by the
shareholders of the Company (if required by applicable law) but, after any such
approval, no amendment shall be made which requires the approval of such
shareholders under applicable law without such approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of the parties
hereto.
6.6 EXTENSION; WAIVER
At any time prior to the Effective Time, each party hereto (for these
purposes, Parent and Acquisition shall together be deemed one party and the
Company shall be deemed the other party) may (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document, certificate or writing delivered pursuant
hereto or (iii) waive compliance by the other party with any of the agreements
or conditions contained herein. Any agreement on the part of either party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The failure of either
party hereto to assert any of its rights hereunder shall not constitute a waiver
of such rights.
7. MISCELLANEOUS
7.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties made herein shall not survive beyond
the Effective Time or a termination of this Agreement.
7.2 ENTIRE AGREEMENT; ASSIGNMENT
This Agreement (a) constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise; provided,
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however, that Acquisition may assign any or all of its rights and obligations
under this Agreement to any subsidiary of Parent, but no such assignment shall
relieve Acquisition of its obligations hereunder if such assignee does not
perform such obligations.
7.3 VALIDITY
If any provision of this Agreement, or the application thereof to any
person or circumstance, is held invalid or unenforceable, the remainder of this
Agreement, and the application of such provision to other persons or
circumstances, shall not be affected thereby, and to such end, the provisions of
this Agreement are agreed to be severable.
7.4 NOTICES
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram,
facsimile or telex, or by registered or certified mail (postage prepaid, return
receipt requested), to the other party as follows:
if to Parent or Acquisition:CUC International Inc.
707 Summer Street
Stamford, CT 06901
Attention: Amy N. Lipton, Esq.
Facsimile: (203) 348-1982
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Howard Chatzinoff, Esq.
Facsimile: (212) 310-8007
if to the Company to:
Sierra On-Line, Inc.
3380 146th Place S.E., Ste. 300
Bellevue, WA 98007
Attention: Richard K. Thumann, Esq.
Facsimile: (206) 644-7397
with a copy to:
Perkins Coie
1201 Third Avenue
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<PAGE> 51
40th Floor
Seattle, WA 98101-3099
Attention: Stephen A. McKeon, Esq.
Facsimile: (206) 583-8500
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
7.5 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the principles of conflicts
of law thereof.
7.6 DESCRIPTIVE HEADINGS
The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
7.7 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto and its successors and permitted assigns, and except as
provided in Sections 4.12 and 7.2 and except that Kenneth A. Williams shall be a
third party beneficiary of the provisions of Section 4.20, nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
7.8 ARBITRATION
Any controversy, dispute or claim arising out of or relating to this
Agreement or the breach hereof which cannot be settled by mutual agreement
(except for actions by Parent or the Company seeking equitable, injunctive or
other relief under Section 7.10) shall be finally settled by arbitration as
follows: Any party who is aggrieved shall deliver a notice to other party
setting forth the specific points in dispute. Any points remaining in dispute
twenty (20) days after the giving of such notice shall be submitted to
arbitration in New York, New York, to Endispute, before a single arbitrator
appointed in accordance with Endispute's Arbitration Rules, modified only as
herein expressly provided. The arbitrator may enter a default decision against
any party who fails to participate in the arbitration proceedings. The decision
of the arbitrator on the points in dispute will be final, unappealable and
binding and judgment on the award may be entered in any court having
jurisdiction thereof. The arbitrator will be authorized to apportion its fees
and expenses and the reasonable attorney's fees and expenses of Parent and the
Company as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expense of the arbitrator will be borne equally by
each party,
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<PAGE> 52
and each party will bear the fees and expenses of its own attorney. The parties
agree that this clause has been included to rapidly and inexpensively resolve
any disputes between them with respect to this Agreement, and that this clause
shall be grounds for dismissal of any court action commenced by either party
with respect to this Agreement, other than post-arbitration actions seeking to
enforce an arbitration award. The parties shall keep confidential, and shall not
disclose to any person, except as may be required by law, the existence of any
controversy hereunder, the referral of any such controversy to arbitration or
the status or resolution thereof.
7.9 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
unenforceable, all other provisions of this Agreement shall 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 materially adverse to any
party.
7.10 SPECIFIC PERFORMANCE
The parties hereto acknowledge that irreparable damage would result if
this Agreement were not specifically enforced, and they therefore consent that
the rights and obligations of the parties under this Agreement may be enforced
by a decree of specific performance issued by a court of competent jurisdiction.
Such remedy shall, however, not be exclusive and, subject to Section 7.8, shall
be in addition to any other remedies, including arbitration, which any party may
have under this Agreement or otherwise.
7.11 RECAPITALIZATION
Whenever (a) the number of outstanding shares of Parent Common Stock is
changed by reason of a subdivision or combination of shares, whether effected by
a recapitalization, reclassification of shares or otherwise or (b) Parent pays a
cash or stock dividend or makes a similar distribution, each specified number of
shares referred to in this Agreement (including the Merger Consideration) and
each specified per share amount (other than par values) shall be adjusted
accordingly.
7.12 SUBSIDIARIES
The term "subsidiary" shall mean, when used with reference to any
entity, any entity more than fifty percent (50%) of the outstanding voting
securities or interests (including membership interests) of which are owned
directly or indirectly by such former entity.
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<PAGE> 53
7.13 BROKERS
Except as otherwise provided in Section 6.3, the Company agrees to
indemnify and hold harmless Parent and Acquisition, and Parent and Acquisition
agree to indemnify and hold harmless the Company, from and against any and all
liability to which Parent and Acquisition, on the one hand, or the Company, on
the other hand, may be subjected by reason of any brokers, finders or similar
fees or expenses with respect to the transactions contemplated by this Agreement
to the extent such similar fees and expenses are attributable to any action
undertaken by or on behalf of the Company, or Parent or Acquisition, as the case
may be.
7.14 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
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<PAGE> 54
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
SIERRA ON-LINE, INC.
By: /s/ Kenneth A. Williams
-----------------------------------
Name: Kenneth A. Williams
Title: Chairman and Chief Executive
Officer
CUC INTERNATIONAL INC.
By: /s/ E. Kirk Shelton
-----------------------------------
Name: E. Kirk Shelton
Title: President
LARRY ACQUISITION CORP.
By: /s/ E. Kirk Shelton
-----------------------------------
Name: E. Kirk Shelton
Title: President
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<PAGE> 1
Exhibit 99.2
SHAREHOLDERS AGREEMENT
AGREEMENT, dated February 19, 1996 (this "Agreement"), by and among CUC
INTERNATIONAL INC., a Delaware corporation ("Parent"), and each of the other
parties signatory hereto (each, a "Shareholder" and, collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Parent, LARRY ACQUISITION CORP., a
Delaware corporation and a direct wholly-owned subsidiary of Parent ("Merger
Sub"), and SIERRA ON-LINE, INC., a Delaware corporation (the "Company"), are
entering into an Agreement and Plan of Merger (as such agreement may hereafter
be amended from time to time, the "Merger Agreement;" capitalized terms used and
not defined herein have the respective meanings ascribed to them in the Merger
Agreement) pursuant to which Merger Sub will be merged with and into the Company
(the "Merger");
WHEREAS, each of the Shareholders owns the number of shares, par value
$.01 per share, of common stock of the Company (the "Shares" or "Company Common
Stock") set forth opposite such Shareholder's name on Schedule I hereto;
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Parent has required that the Shareholders agree, and the Shareholders
have agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, the parties hereto hereby agree as follows:
1. PROVISIONS CONCERNING COMPANY COMMON STOCK
Each Shareholder hereby agrees that during the period commencing on the
date hereof and continuing until the first to occur of the Effective Time and
termination of the Merger Agreement in accordance with its terms, at any meeting
of the holders of Company Common Stock, however called, or in connection with
any written consent of the holders of Company Common Stock, such Shareholder
shall vote (or cause to be voted) the Shares held of record or Beneficially
Owned (as defined below) by such Shareholder, whether heretofore owned or
hereafter acquired, (i) in favor of approval of the Merger Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any respect of any
<PAGE> 2
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement (after giving effect to any materiality or
similar qualifications contained therein); and (iii) except as otherwise agreed
to in writing in advance by Parent, against the following actions (other than
the Merger and the transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company; (B) a sale, lease or transfer of a
material amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company; (C) (1) any change in a majority of
the persons who constitute the board of directors of the Company; (2) any change
in the present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or By-Laws; (3) any other material change in the
Company's corporate structure or business; or (4) any other action which, in the
case of each of the matters referred to in clauses C (1), (2), (3) or (4), is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, or materially adversely affect the Merger and the transactions
contemplated by this Agreement and the Merger Agreement. Such Shareholder shall
not enter into any agreement or understanding with any Person (as defined below)
the effect of which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 hereof. For purposes of this Agreement,
"Beneficially Own" or "Beneficial Ownership" with respect to any securities
shall mean having "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" as within the meanings of Section 13(d)(3) of
the Exchange Act. For purposes of this Agreement, "Person" shall mean an
individual, corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
2. OTHER COVENANTS, REPRESENTATIONS AND WARRANTIES
Each Shareholder hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. Such Shareholder is the record and
Beneficial Owner of the number of Shares set forth opposite such Shareholder's
name on Schedule I hereto. On the date hereof, the Shares set forth opposite
such Shareholder's name on Schedule I hereto constitute all of the Shares owned
of record or Beneficially Owned by such Shareholder. Such Shareholder has sole
voting power and sole power to issue instructions with respect to the matters
set forth in Section 1 hereof, sole power of disposition, sole power of
conversion, sole power to demand
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<PAGE> 3
appraisal rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the Shares set forth opposite
such Shareholder's name on Schedule I hereto, with no limitations,
qualifications or restrictions on such rights.
(b) Power; Binding Agreement. Such Shareholder has the legal
capacity, power and authority to enter into and perform all of such
Shareholder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by such Shareholder will not violate any other
agreement to which such Shareholder is a party including, without limitation,
any voting agreement, shareholder agreement or voting trust. This Agreement has
been duly and validly executed and delivered by such Shareholder and constitutes
a valid and binding agreement of such Shareholder, enforceable against such
Shareholder in accordance with its terms. There is no beneficiary or holder of a
voting trust certificate or other interest of any trust of which such
Shareholder is Trustee whose consent is required for the execution and delivery
of this Agreement or the consummation by such Shareholder of the transactions
contemplated hereby. If such Shareholder is married and such Shareholder's
Shares constitute community property, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding agreement of,
such Shareholder's spouse, enforceable against such person in accordance with
its terms.
(c) No Conflicts. (A) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by such Shareholder and the
consummation by such Shareholder of the transactions contemplated hereby and (B)
none of the execution and delivery of this Agreement by such Shareholder, the
consummation by such Shareholder of the transactions contemplated hereby or
compliance by such Shareholder with any of the provisions hereof shall (1)
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which such Shareholder is a party or by
which such Shareholder or any of such Shareholder's properties or assets may be
bound, or (2) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to such Shareholder or any of such
Shareholder's properties or assets.
(d) No Finder's Fees. Other than existing financial advisory and
investment banking arrangements and agreements between the Company and
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<PAGE> 4
Robertson, Stephens & Company LLC, no broker, investment banker, financial
adviser or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the transactions
contemplated by the Merger Agreement based upon arrangements made by or on
behalf of such Shareholder or any of its affiliates or, to such shareholder's
knowledge, the Company or any of its affiliates.
(e) Restriction on Transfer, Proxies and Non-Interference. Such
Shareholder shall not, directly or indirectly: (i) except as contemplated by the
Merger Agreement, offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of such Shareholder's Shares or any interest therein; (ii) grant any
proxies or powers of attorney, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares; or (iii) take any action
that would make any representation or warranty of such Shareholder contained
herein untrue or incorrect or have the effect of preventing or disabling such
Shareholder from performing such Shareholder's obligations under this Agreement.
(f) Reliance by Parent. Such Shareholder understands and
acknowledges that Parent is entering into, and causing Merger Sub to enter into,
the Merger Agreement in reliance upon such Shareholder's execution and delivery
of this Agreement.
3. STOP TRANSFER; RESTRICTIVE LEGEND
(a) Each Shareholder agrees with, and covenants to, Parent that
such Shareholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Shareholder's Shares, unless such transfer is made in
compliance with this Agreement. In the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
(b) All certificates representing any of such Shareholder's Shares
shall contain the following legend:
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<PAGE> 5
"The securities represented by this certificate, including certain
voting and transfer rights with respect thereto, are subject to the
terms of a Shareholders Agreement, dated February 19, 1996, among
CUC International Inc., the Issuer and the parties listed on the
signature pages thereto, a copy of which is on file in the principal
office of the Issuer."
4. TERMINATION
Except as otherwise provided herein, this Agreement shall terminate
upon the earlier of (a) termination of the Merger Agreement in accordance with
its terms and (b) the Effective Time.
5. SHAREHOLDER CAPACITY
No person executing this Agreement who is or becomes during the term
hereof a director of the Company makes any agreement or understanding herein in
his or her capacity as such director. Each Shareholder signs solely in his or
her capacity as the record and beneficial owner of such Shareholder's Shares.
Notwithstanding any other provision of this Agreement, no Shareholder shall have
any obligation under this Agreement to act or refrain from acting in any manner
inconsistent with such Shareholder's fiduciary duties as a director of the
Company.
6. CONFIDENTIALITY
The Shareholders recognize that successful consummation of the
transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each Shareholder hereby agrees
not to disclose or discuss such matters with anyone not a party to this
Agreement (other than such Shareholder's counsel and advisors, if any) without
the prior written consent of Parent, except for disclosures such Shareholder's
counsel advises are necessary in order to fulfill such Shareholder's obligations
imposed by law, in which event such Shareholder shall give notice of such
disclosure to Parent as promptly as practicable so as to enable Parent to seek a
protective order from a court of competent jurisdiction with respect thereto.
7. MISCELLANEOUS
(a) Entire Agreement. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
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<PAGE> 6
(b) Certain Events. Each Shareholder agrees that this Agreement and
the obligations hereunder shall attach to such Shareholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, such Shareholder's heirs, guardians, administrators or successors.
Notwithstanding any transfer of Shares, the transferor shall remain liable for
the performance of all obligations under this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided
that Parent may assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary of Parent, but no
such assignment shall relieve Parent of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, with respect
to any one or more Shareholders, except upon the execution and delivery of a
written agreement executed by the relevant parties hereto; provided that
Schedule I hereto may be supplemented by Parent by adding the name and other
relevant information concerning any Shareholder of the Company who agrees to be
bound by the terms of this Agreement without the agreement of any other party
hereto, and thereafter such added shareholder shall be treated as a
"Shareholder" for all purposes of this Agreement.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to any Shareholder:
At the addresses set forth on Schedule I hereto
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<PAGE> 7
with a copy to:
Perkins Coie
1201 Third Avenue
40th Floor
Seattle, Washington 98101-3099
Telephone: (206) 583-8534
Facsimile: (206) 583-8500
Attention: Stephen A. McKeon, Esq.
If to Parent
or Merger Sub:
CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 977-8501
Attention: Amy N. Lipton, Esq.
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
Attention: Howard Chatzinoff, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
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<PAGE> 8
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise available in
respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to
be for the benefit of, and shall not be enforceable by, any person or entity who
or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
(l) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ANY RIGHT
TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH ACTION, SUIT OR PROCEEDING.
(m) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which, taken
together, shall constitute one and the same Agreement.
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<PAGE> 9
IN WITNESS WHEREOF, Parent and each Shareholder have caused this
Agreement to be duly executed as of the day and year first above written.
CUC INTERNATIONAL INC.
By: /s/ E. Kirk Shelton
---------------------------
Name: E. Kirk Shelton
Title: President
/s/ Kenneth A. Williams
--------------------------
Kenneth A. Williams
/s/ Roberta L. Williams
--------------------------
Roberta L. Williams
AGREED TO AND ACKNOWLEDGED
(with respect to Section 4):
SIERRA ON-LINE, INC.
By:
--------------------------
Name:
Title:
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<PAGE> 10
SCHEDULE I TO
SHAREHOLDERS AGREEMENT
NAME AND ADDRESS NUMBER OF SHARES OWNED
Kenneth A. Williams and 1,676,698
Roberta L. Williams
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