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
October 5, 1998
(Date of earliest event reported)
ZITEL CORPORATION
(Exact name of Registrant as specified in its charter)
California 0-12194 94-2566313
(State of (Commission File No.) (IRS Employer
incorporation or Identification No.)
organization)
47211 Bayside Parkway
Fremont, California
(Address of principal executive offices)
94538
(zip code)
(510) 440-9600
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS.
On October 5, 1998, Zitel Corporation, a California corporation
(the "Company"), entered into an Agreement and Plan of Reorganization and
Merger, dated as of October 5, 1998 (the "Merger Agreement"), by and among
the Company, Millennium Holding Corp., a Delaware corporation and a wholly
owned subsidiary of the Company ("Holdco"), Zenith Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Holdco ("Zenith
Acquisition"), Millennium Acquisition I Corp., a Delaware corporation and a
wholly owned subsidiary of Holdco ("Millennium Acquisition"), and MatriDigm
Corporation, a California corporation ("MatriDigm"), pursuant to which (i)
Zenith Acquisition will merge with and into the Company (the "Zitel
Merger"), with the Company remaining as the surviving corporation in the
Zitel Merger (the "Zitel Surviving Corporation"), and (ii) Millennium
Acquisition will merge with and into MatriDigm (the "MatriDigm Merger", and
together with the Zitel Merger, the "Mergers"), with MatriDigm remaining as
the surviving corporation in the MatriDigm Merger (the "MatriDigm Surviving
Corporation").
Upon the consummation of the transactions contemplated by the
Merger Agreement, (i) (a) each outstanding share of common stock, par value
$0.01 per share, of the Company (the "Company Common Stock") will be
converted into the right to receive one fully paid and nonassessable share
of common stock, par value $0.01 per share, of Holdco (the "Holdco Common
Stock"), and (b) each outstanding option to purchase Company Common Stock
under the Company's employee stock option plans will be assumed by Holdco,
and (ii) (a) each outstanding share of common stock, no par value, of
MatriDigm (the "MatriDigm Common Stock") (excluding any MatriDigm Common
Stock held directly or indirectly by the Company, each of which will be
converted into the right to receive one fully paid and nonassessable share
of common stock of the MatriDigm Surviving Corporation) will be converted
into the right to receive approximately .65 of a fully paid and
nonassessable share of Holdco Common Stock, and (b) each outstanding option
to purchase MatriDigm Common Stock under the MatriDigm's employee stock
option plans will be assumed by Holdco at the conversion rate of
approximately .65 of a fully paid and nonassessable share of Holdco Common
Stock.
Consummation of the Mergers remains subject to certain
conditions, including (a) the approval of the Zitel Merger, the MatriDigm
Merger, the Merger Agreement and the transactions contemplated thereby by
a majority of the outstanding shares of Zitel and MatriDigm, respectively.
It is also a condition to the Company's obligation to consummate the
transactions contemplated by the Merger Agreement that all outstanding
shares of preferred stock of MatriDigm, as well as all warrants to
purchase shares of common stock or preferred stock of MatriDigm, shall
have been converted into that number of shares of MatriDigm Common Stock
equal to the net number of shares of MatriDigm Common Stock into which
each such warrant or share of preferred stock would have been convertible
immediately prior to the effectiveness of the Millennium Merger. The
Company currently owns approximately 31.3% of the outstanding MatriDigm
Common Stock on an as converted basis. A copy of the Merger Agreement is
filed herewith as Exhibit 2.1 and incorporated by reference herein. The
description of the Merger Agreement set forth herein does not purport to
be complete and is qualified in its entirety by the provisions of the
Merger Agreement.
On October 5, 1998 and in connection with the execution
and delivery of the Merger Agreement, the Company entered into Shareholder
Agreements with certain specified shareholders of MatriDigm. Pursuant to
each of these Shareholder Agreements, the shareholder party thereto agreed
to vote for the Millennium Merger and related transactions, as well as to
convert shares of preferred stock of MatriDigm or warrants to purchase
capital stock of MatriDigm held by such shareholder to shares of common
stock of MatriDigm immediately prior to the effectiveness of the Millennium
Merger. A copy of the Form of Shareholder Agreement is filed herewith as
Exhibit 10.1 and incorporated by reference herein. The description of the
Form of Shareholder Agreement set forth herein does not purport to be
complete and is qualified in its entirety by the provisions of the
Shareholder Agreement filed as an exhibit hereto.
On October 5, 1998 and in connection with the execution and
delivery of the Merger Agreement, the Company entered into Lock-Up
Agreements with certain specified shareholders of MatriDigm. Pursuant to
each of these Lock-Up Agreements, during the period commencing on October
5, 1998 and ending (A) if the Mergers are consummated prior to January 29,
1999, on the second trading day following the public announcement of the
consolidated results of operations of the Company and MatriDigm for the
fiscal quarter ended March 31, 1999, and (B) if the Mergers are
consummated after January 29, 1999, on the second trading day following
the public announcement of the consolidated results of operations of the
Company and MatriDigm for the fiscal quarter ended June 30, 1999, certain
shareholders of MatriDigm have agreed not to (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Holdco Common Stock or any
securities convertible into or exercisable or exchangeable for Holdco
Common Stock (including, without limitation, shares of Holdco Common Stock
or securities convertible into or exercisable or exchangeable for Holdco
Common Stock which may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the Securities
and Exchange Commission), or (2) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated
with the ownership of any Holdco Common Stock (regardless of whether any
of the transactions described in this or the immediately preceding
paragraph is to be settled by the delivery of Holdco Common Stock, or such
other securities, in cash or otherwise), without the prior written consent
of Holdco; provided, that (a) during such period such shareholders may
make gifts of shares of Holdco Common Stock or securities convertible into
Holdco Common Stock upon the condition that the donees agree to be bound
by the foregoing restriction in the same manner as it applies to such
shareholders, and (b) with respect to securities convertible into or
exercisable or exchangeable for Holdco Common Stock, such shareholders may
distribute such securities to their partners or members, as the case may
be, so long as the recipients of such securities agree to be bound by the
foregoing restriction in the same manner as it applies to the shareholder
in question. A copy of the Form of Lock-Up Agreement is filed herewith as
Exhibit 10.2 and incorporated by reference herein. The description of the
Form of Lock-Up Agreement set forth herein does not purport to be complete
and is qualified in its entirety by the provisions of the Lock-Up
Agreement filed as an exhibit hereto.
Selected Summary Financial Data, in addition to the foregoing
specified exhibits filed herewith, for the period ended June 30, 1998 is
filed herewith as Exhibit 27.1.
The transactions are expected to close either before the end of
this year or early in the first quarter of 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
2.1 Agreement and Plan of Reorganization and Merger, dated as of
October 5, 1998, by and among Zitel Corporation, Millennium
Holding Corp., Zenith Acquisition Corp., Millennium Acquisition
I Corp., and MatriDigm Corporation.
10.1 Form of Shareholder Agreement, dated as of October 5, 1998, by
and between, in each case, Zitel Corporation and a certain
specified shareholder of MatriDigm Corporation.
10.2 Form of Lock-Up Letter, dated as of October 5, 1998, addressed,
in each case, to Millennium Holding Corp. from a certain
specified shareholder of MatriDigm Corporation.
27.1 Selected Summary Financial Data for the period ended June 30, 1998.
99.1 Joint Press Release of Zitel Corporation and MatriDigm
Corporation, dated October 5, 1998.
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, thereto duly authorized.
ZITEL CORPORATION
By: /s/ Jack H. King
---------------------------
Name: Jack H. King
Title: Chief Executive Officer
Date: October 5, 1998
EXHIBIT INDEX
Exhibit Description Page
2.1 Agreement and Plan of Reorganization and Merger, 6
dated as of October 5, 1998, by and among Zitel
Corporation, Millennium Holding Corp., Zenith
Acquisition Corp., Millennium Acquisition I Corp.,
and MatriDigm Corporation.
10.1 Form of Shareholder Agreement, dated as of October 83
5, 1998, by and between, in each case, Zitel
Corporation and a certain specified shareholder of
MatriDigm Corporation.
10.2 Form of Lock-Up Letter, dated as of October 5, 97
1998, addressed, in each case, to Millennium
Holding Corp. from a certain specified shareholder
of MatriDigm Corporation.
27.1 Selected Summary Financial Data for the period 98
ended June 30, 1998.
99.1 Joint Press Release of Zitel Corporation and
MatriDigm Corporation, dated October 5, 1998. 99
EXHIBIT 2.1
AGREEMENT AND
PLAN OF REORGANIZATION AND MERGER
by and among
ZITEL CORPORATION,
MILLENNIUM HOLDING CORP.,
ZENITH ACQUISITION CORP.,
MILLENNIUM ACQUISITION I CORP.,
and
MATRIDIGM CORPORATION
dated as of
October 5, 1998
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (hereinafter
defined as this "Agreement"), dated October 5, 1998, by and among Zitel
Corporation, a California corporation ("Parent"), Millennium Holding Corp.,
a Delaware corporation and a direct wholly-owned subsidiary of Parent
("Holdco"), Zenith Acquisition Corp., a Delaware corporation and a direct
wholly-owned subsidiary of Holdco ("Zenith Acquisition"), Millennium
Acquisition I Corp., a Delaware corporation and a direct wholly-owned
subsidiary of Holdco ("Millennium Acquisition"), and MatriDigm Corporation,
a California corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Holdco and
Zenith Acquisition have approved the merger (the "Zenith Merger") of Zenith
Acquisition with and into Parent, upon the terms and subject to the
conditions set forth in this Agreement, and have approved this Agreement;
WHEREAS, the respective Boards of Directors of Holdco, Millennium
Acquisition and the Company have approved the merger (the "Millennium
Merger", and together with the Zenith Merger, the "Mergers") of Millennium
Acquisition with and into the Company, upon the terms and subject to the
conditions set forth in this Agreement, and have approved this Agreement;
WHEREAS, Parent and the Company desire to make certain represen-
tations, warranties, covenants and agreements in connection with the
Mergers, and to prescribe various conditions to the Mergers;
WHEREAS, for Federal income tax purposes, it is intended that the
Mergers qualify as nonrecognition transfers under the Internal Revenue Code
of 1986, as amended (the "Code");
WHEREAS, concurrently with the execution of this Agreement and as
a condition and inducement to the willingness of Parent to enter into this
Agreement, certain shareholders of the Company have entered into Share-
holder Agreements in the form of Exhibit A-1 hereto (each a "Shareholder
Agreement") with Parent pursuant to which each such shareholder has agreed
to: (i) vote such shareholder's shares of Company Common Stock (as herein-
after defined) in favor of the Millennium Merger and the approval and
adoption of this Agreement and to execute a written consent in furtherance
thereof, and (ii) convert any shares of Company Preferred Stock (as
hereinafter defined) held by such shareholder into shares of Company Common
Stock; and
WHEREAS, concurrently with the execution of this Agreement and as
a condition and inducement to the willingness of Parent to enter into this
Agreement, certain shareholders of the Company have entered into Lock-Up
Agreements in the form of Exhibit A-2 hereto, pursuant to which each such
shareholder has agreed not to sell or transfer any of the shares of Holdco
Common Stock (as defined below) acquired by such shareholder in connection
with the Millennium Merger for a specified period of time following the
Closing hereunder as set forth therein;
NOW, THEREFORE, in consideration of the foregoing premises and
the respective representations, warranties, covenants and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGERS
Section 1.1 The Mergers. (a) Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with sections
1110 et seq. of the California General Corporation Law (the "CGCL"), Zenith
Acquisition shall be merged with and into Parent at the Effective Time of
the Mergers (as defined in Section 1.3 hereof). Following the Zenith
Merger, the separate corporate existence of Zenith Acquisition shall cease
and Parent shall continue as the surviving corporation (the "Zenith
Surviving Corporation") and shall succeed to and assume all the rights,
properties, liabilities and obligations of Zenith Acquisition in accordance
with the CGCL.
(b) Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with sections 1100 et seq. of
the CGCL, Millennium Acquisition shall be merged with and into the Company
at the Effective Time of the Mergers. Following the Millennium Merger, the
separate corporate existence of Millennium Acquisition shall cease and the
Company shall continue as the surviving corporation (the "Millennium
Surviving Corporation") and shall succeed to and assume all the rights,
properties, liabilities and obligations of Millennium Acquisition in
accordance with the CGCL.
Section 1.2 Closing. The closing of the Mergers (the "Clos-
ing") shall take place at 10:00 a.m., San Francisco time, on a date to be
specified by the parties, which shall be no later than the second business
day after satisfaction or waiver of all of the conditions set forth in
Article VI (the "Closing Date"), at the offices of Skadden, Arps, Slate,
Meagher & Flom LLP, 525 University Avenue, Suite 220, Palo Alto, California
94301, unless another time, date or place is agreed to in writing by the
parties hereto.
Section 1.3 Effective Time. Upon the terms and subject to the
conditions set forth in Article VI of this Agreement and the Agreement of
Merger among Holdco, Parent and Zenith Acquisition together with the
related officers' certificates required by section 1103 of the CGCL, in the
form attached to this Agreement as Exhibit B-1 (the "Zenith Merger Agree-
ment") and the Agreement of Merger among Holdco, the Company and Millennium
Acquisition together with the related officers' certificates required by
section 1103 of the CGCL, in the form attached to this Agreement as Exhibit
B-2 (the "Millennium Merger Agreement" and together with the Zenith Merger
Agreement, the "Merger Agreements"), the parties hereto shall file the
Zenith Merger Agreement and the Millennium Merger Agreement with the
Secretary of State of the State of California, whereupon Zenith Acquisition
shall be merged with and into Parent, and Millennium Acquisition shall be
merged with and into the Company, each such Merger pursuant to sections
1100 et seq. of the CGCL. Concurrently with the filing of the Merger
Agreements with the Secretary of State of the State of California and upon
the terms and subject to the conditions set forth in Article VI of this
Agreement, the parties hereto shall file Certificates of Merger with the
Secretary of State of Delaware in accordance with the relevant provisions
of the Delaware General Corporation Law (the "DGCL"). The parties hereto
shall make all other filings, recordings or publications required by the
CGCL and the DGCL in connection with the Mergers. Each Merger shall become
effective at the time specified in the Merger Agreement or Certificates of
Merger, as the case may be, which specified time shall be the same in each
of the Merger Agreements and Certificates of Merger (the time the Mergers
become effective being the "Effective Time" of the Mergers).
Section 1.4 Effects of the Merger. The Zenith Merger and the
Millennium Merger shall have the effects set forth in section 1107 of the
CGCL and section 259 of the DGCL.
Section 1.5 Charter and By-Laws. (a) As of the Effective Time
of the Mergers, the articles of incorporation of the Zenith Surviving
Corporation shall be as set forth in Exhibit C-1 to this Agreement, and
such articles of incorporation shall be the articles of incorporation of
Zenith Surviving Corporation until thereafter amended as provided by law
and such articles of incorporation of the Zenith Surviving Corporation.
(b) As of the Effective Time of the Mergers, the by-
laws of the Zenith Surviving Corporation shall be as set forth in Exhibit
C-2 to this Agreement, and such by-laws shall be the by-laws of Zenith
Surviving Corporation until thereafter amended as provided by law and such
by-laws of Zenith Surviving Corporation.
(c) As of the Effective Time of the Mergers, the
articles of incorporation of the Millennium Surviving Corporation shall be
as set forth in Exhibit D-1 to this Agreement, and such articles of
incorporation shall be the articles of incorporation of Millennium Surviv-
ing Corporation until thereafter amended as provided by law and such
articles of incorporation of Millennium Surviving Corporation.
(d) As of the Effective Time of the Mergers, the by-
laws of the Millennium Surviving Corporation shall be as set forth in
Exhibit D-2 to this Agreement, and such by-laws shall be the by-laws of
Millennium Surviving Corporation until thereafter amended as provided by
law and such by-laws of Millennium Surviving Corporation.
Section 1.6 Directors. The directors of Parent and the Company
at the Effective Time of the Mergers shall be the directors of Zenith
Surviving Corporation and Millennium Surviving Corporation, respectively,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be. The
directors of Holdco at the Effective Time shall be seven members consisting
of three members elected or appointed from designees of the Company, three
members elected or appointed from designees of Parent, and one member to be
mutually agreed upon by the parties hereto, which person shall be unaffili-
ated with the Company or Parent (such director being an "Independent
Director").
Section 1.7 Officers. Except as provided in this Section 1.7,
the officers of Parent and the Company at the Effective Time of the Mergers
shall be the officers of Zenith Surviving Corporation and Millennium
Surviving Corporation, respectively, until the earlier of their resignation
or removal or until their respective successors are duly elected and
qualified, as the case may be. Immediately after the Effective Time of the
Mergers, Jack H. King will assume the position of president of Zenith
Surviving Corporation, and Richard Ormond will assume the position of
president and chief executive officer of Holdco. Holdco shall take all
action necessary to elect additional members of management and executive
officers of Holdco.
Section 1.8 Shareholders' Meeting. In order to consummate the
Zenith Merger, Parent, acting through its board of directors, shall, in
accordance with applicable law, duly call, give notice of, convene and hold
a special meeting of its shareholders (the "Special Meeting"), as soon as
practicable after the Registration Statement (as defined in Section 1.10
hereof) is declared effective, for the purpose of considering and taking
action upon this Agreement. Subject to the fiduciary duties of Parent's
board of directors under applicable law, Parent shall include in the Proxy
Statement/Prospectus/Consent Solicitation (as defined in Section 1.10
hereof) the recommendation of the Board of Directors of Parent that
shareholders of Parent vote in favor of the Zenith Merger, the issuance of
shares of Holdco Common Stock (as defined in Section 2.1(b)) pursuant to
this Agreement and the consummation of the transactions contemplated
hereby. Nothing contained in the preceding sentence shall prohibit Parent
from taking and disclosing to its shareholders a position contemplated by
Rule 14e-2 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Section 1.9 Consent Solicitation. As soon as practicable after
the Registration Statement is declared effective, in order to consummate
the Millennium Merger, the Company shall commence a solicitation of
consents (the "Consents") from the holders of all outstanding shares of the
capital stock of the Company (the "Consent Solicitation") to approve the
Millennium Merger and the transactions contemplated thereunder. The
Consent Solicitation shall be included in the Proxy State-
ment/Prospectus/Consent Solicitation (as hereinafter defined). The
effectiveness of such approval will be conditioned upon obtaining valid
affirmative consents from holders of not less than a majority of the
outstanding shares of Company Common Stock and the outstanding shares of
Company Preferred Stock. Subject to the fiduciary duties of the Company's
board of directors under applicable law, and to Section 7.1(c)(iii) hereof,
the Company shall include in the Consent Solicitation, the recommendation
of its board of directors that the shareholders vote in favor of the
Millennium Merger and the related transactions. Except as may be required
by the Company's Board of Directors acting in compliance with their
fiduciary duties, the Company shall use its best efforts in the making of
the Consent Solicitation and in causing the approval of the Millennium
Merger and the related transactions to become effective as soon as practi-
cable after the Registration Statement is declared effective, including but
not limited to, fixing a record date for the purpose of determining the
holders of capital stock entitled to consent to the approval of the
Millennium Merger and the related transactions and distributing the
consents to the holders of capital stock of the Company. The Company shall
deliver to Parent, promptly after receipt, but in no case, more than 2
business days after receipt, notice of receipt of all consents received
pursuant to the Consent Solicitation and filing of such consents with the
Secretary of the Company. The Company shall promptly file with the
Secretary of the Company after receipt, but in no case, more than one (1)
business day after receipt, all consents received pursuant to the Consent
Solicitation. The Company shall ensure that the Consent Solicitation is
conducted in accordance with all applicable laws.
Section 1.10 Proxy Statement/Prospectus/Consent Solicitation;
Registration Statement. In connection with the solicitation of approval of
this Agreement, the issuance of Holdco Common Stock pursuant to this
Agreement and the Zenith Merger by Parent's shareholders, Parent shall
prepare and file with the Securities and Exchange Commission (the "SEC") a
preliminary proxy statement relating to the Zenith Merger and this Agree-
ment and use its best efforts to obtain and furnish the information
required to be included by the SEC in the Proxy State-
ment/Prospectus/Consent Solicitation and, after consultation with the
Company, to respond promptly to any comments made by the SEC with respect
to the preliminary proxy statement and cause a definitive proxy statement
to be mailed to its shareholders. Subject to Section 7.1(d)(iii) hereof,
Parent shall include in the Proxy Statement/Prospectus/Consent Solicitation
the recommendation of the board of directors of Parent that the sharehold-
ers of Parent vote in favor of the Zenith Merger, the issuance of Holdco
Common Stock in connection with the Mergers and the transactions contem-
plated by this Agreement. Such definitive proxy statement shall also
constitute (i) a prospectus of Parent with respect to the Holdco Common
Stock (as defined in Section 2.1(b)) to be issued in the Mergers and to be
filed by Parent with the SEC as part of a registration statement on Form S-
4 (the "Registration Statement") filed by Parent with the SEC for the
purpose of registering such shares of Holdco Common Stock (as defined in
Section 2.1(b)) under the Securities Act of 1933, as amended (the "Securi-
ties Act"), (ii) the Consent Solicitation of the Company (such proxy
statement, prospectus and Consent Solicitation being hereinafter referred
to as the "Proxy Statement/Prospectus/Consent Solicitation"), and (iii) the
definitive proxy statement to be distributed to Parent's shareholders
relating to the approval of the Zenith Merger, the issuance of Holdco
Common Stock (as defined in Section 2.1(b)) in the Mergers, and the
transactions contemplated by this Agreement. The Company and Parent shall
cooperate to promptly file the Registration Statement and shall use their
reasonable efforts to have the Registration Statement declared effective by
the SEC.
ARTICLE II
EFFECTS OF THE MERGERS ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Parent Capital Stock. In accordance with
the Zenith Merger Agreement, as of the Effective Time of the Mergers, by
virtue of the Zenith Merger and without any action on the part of the
holders of any shares of Parent Common Stock or any shares of common stock
of Zenith Acquisition:
(a) Capital Stock of Zenith Acquisition. Each issued
and outstanding share of common stock, par value $0.01 per share, of Zenith
Acquisition shall be converted into one fully paid and nonassessable share
of common stock, par value $0.01 per share, of the Zenith Surviving
Corporation.
(b) Conversion of Parent Common Stock. Subject to
Section 2.1(c) and Section 2.3(e) hereof, each issued and outstanding share
of common stock, par value $0.01 per share ("Parent Common Stock"), of
Parent shall be converted into the right to receive one fully paid and
nonassessable share of common stock, par value $0.01 per share, of Holdco
(the "Holdco Common Stock") (the "Zenith Exchange Ratio"). As of the
Effective Time of the Mergers, all such shares shall no longer be outstand-
ing and shall automatically be cancelled and retired and shall cease to
exist. As of the Effective Time of the Mergers, each certificate
theretofor representing shares of Parent Common Stock, without any action
on the part of Holdco, Parent or the holder thereof, shall be deemed to
represent that number of shares of Holdco Common Stock determined by
multiplying the shares of Parent Common Stock represented thereby by the
Zenith Exchange Ratio. Each holder of a certificate representing any
shares of Parent Common Stock shall cease to have any rights with respect
thereto, except the right to receive, upon the surrender of any such
certificates, certificates representing the shares of Holdco Common Stock
and any cash in lieu of fractional shares of Holdco Common Stock to be
issued or paid in consideration therefor upon surrender of such certificate
in accordance with Section 2.3 hereof, without interest.
(c) Appraisal Rights. Holders of all shares of the
outstanding capital stock of Parent for which dissenters' rights, if any,
shall have been perfected under section 1300 et seq. of the CGCL (the
"Zenith Dissenting Shares") shall have those rights, but only those rights,
of holders of "dissenting shares" under section 1300 et seq. of the CGCL.
Parent shall give the Company prompt notice of any demand, purported demand
or other communication received by Parent with respect to any Zenith
Dissenting Shares or shares claimed to be Zenith Dissenting Shares, and the
Company shall have the right to participate in all negotiations and
proceedings with respect to such shares.
(d) Assumption and Conversion of Parent Options. (i)
As of the Effective Time of the Mergers, each outstanding option or warrant
to purchase Parent Common Stock (a "Parent Option") issued under each stock
option or warrant plan, program, agreement or arrangement of Parent (each a
"Parent Stock Plan") shall thereafter entitle the holder thereof to
receive, upon the exercise thereof, that number of shares of Holdco Common
Stock equal to the number of shares of Parent Common Stock subject to such
Parent Option immediately prior to the Effective Time of the Mergers, at an
exercise price for each full share of Holdco Common Stock subject to such
Parent Option equal to the exercise price per share of Parent Common Stock
subject to such Parent Option. The number of shares of Holdco Common Stock
that may be purchased by a holder upon the exercise of any Parent Option
shall not include any fractional share of Holdco Common Stock but shall be
rounded, in the case of any Parent Option other than an "incentive stock
option" (within the meaning of section 422 of the Code), up and, in the
case of any incentive stock option, down to the nearest whole share, if
necessary.
(ii) As of the Effective Time of the Mergers,
Holdco shall assume in full each Parent Option and all of the other rights
and obligations of Parent under the Parent Stock Plans as provided herein.
Section 4.2 of the Parent Disclosure Schedule sets forth a list summarizing
all Parent Options under all of the Parent Stock Plans, including the term
and the exercise price of each Parent Option. The assumption of a Parent
Option by Holdco shall not terminate or modify (except as required hereun-
der) any right of first refusal, right of repurchase, vesting schedule or
other restriction on transferability relating to a Parent Option. Continu-
ous employment with Parent shall be credited to an optionee for purposes of
determining the number of shares subject to exercise, vesting or repurchase
after the Effective Time of the Mergers, and the provisions in the Parent
Stock Plans and/or in any stock option agreement evidencing the terms and
conditions of any Parent Option relating to the exercisability of any
Parent Option upon termination of an optionee's employment or service as a
director shall not be deemed triggered until such time as such optionee
shall be neither an employee or officer nor serving as a director of Holdco
or any subsidiary. After such assumption, Holdco shall issue, upon any
partial or total exercise of any Parent Option, in lieu of shares of Parent
Common Stock, the number of shares of Holdco Common Stock to which the
holder of the Parent Option is entitled pursuant to this Agreement. The
assumption by Holdco of Parent Options shall not give holders of such
Parent Options any additional benefits which they did not have immediately
prior to the Effective Time of the Mergers. Nothing contained in this
Section 2.1(d) shall require Holdco to offer or sell shares of Holdco
Common Stock upon the exercise of Parent Options assumed by Holdco if, in
the reasonable judgment of Holdco or its counsel, such offer or sale would
not be in accordance with the applicable federal or state securities laws
or would require registration thereunder other than as contemplated in the
following sentence. Holdco shall file with the SEC within two (2) days
following the Effective Time of the Mergers a registration statement on
Form S-8 under the Securities Act covering, to the extent applicable, the
shares of Holdco Common Stock to be issued upon the exercise of Parent
Options assumed by Holdco. Holdco shall use its reasonable efforts to
qualify as soon as practicable after the Effective Time of the Mergers
under the applicable state securities laws the issuance of the shares of
Holdco Common Stock to be issued upon exercise of such Parent Options.
Prior to the Effective Time of the Mergers, Parent shall make such amend-
ments, if any, to the Parent Stock Plans as shall be necessary to permit
such assumption in accordance with this Section 2.1(d).
(iii) It is the intention of the parties that, to
the extent that any Parent Option constitutes an incentive stock option
immediately prior to the Effective Time of the Mergers, such Parent Option
shall continue to qualify as an incentive stock option to the maximum
extent permitted by section 422 of the Code, and that the assumption of
Parent Options provided by this Section 2.1(d) shall satisfy the conditions
of section 424(a) of the Code.
Section 2.2 Effect on Company Common Stock. In accordance with
the Millennium Merger Agreement, as of the Effective Time of the Mergers,
by virtue of the Millennium Merger and without any action on the part of
the holder of any shares of Company Common Stock or any shares of common
stock of Millennium Acquisition:
(a) Capital Stock of Millennium Acquisition. Each
issued and outstanding share of common stock, par value $0.01 per share, of
Millennium Acquisition shall be converted into that number of fully paid
and nonassessable shares of common stock, par value $0.01 per share, of
Millennium Surviving Corporation equal to the Millennium Exchange Ratio
multiplied by one.
(b) Conversion of Company Capital Stock. The parties
hereto intend that the Millennium Exchange Ratio (as defined below) shall
be calculated with the purpose of ensuring that the value of the Millennium
Exchange Ratio shall result in a valuation that gives the shareholders of
Parent immediately prior to the Effective Time of the Mergers an equity
interest in Holdco that equals 55.5% after taking into consideration the
conversion of convertible debt and any options exercised by optionholders
of Parent and the Company. Subject to Sections 2.2(c), 2.2(d) and 2.3(e)
hereof, (i) each issued and outstanding share of the common stock, no par
value, of the Company (the "Company Common Stock"), shall be converted into
the right to receive .6504 of a fully paid and nonassessable share
of Holdco Common Stock (the "Millennium Exchange Ratio"), subject to
adjustment for any Company Options exercised from the date hereof through
the date of mailing of the Proxy Statement/Prospectus/Consent Solicitation
to the shareholders of Parent, and (ii) each issued and outstanding share
of preferred stock of the Company, no par value, (the "Company Preferred
Stock", and together with the Company Common Stock, the "Company Capital
Stock") shall be converted into the right to receive that number of fully
paid and nonassessable shares of Holdco Common Stock that the holder of
such shares of Company Preferred Stock would have been entitled to receive
had such Company Preferred Stock been converted to Company Common Stock, in
accordance with its terms, immediately prior to the Effective Time. As of
the Effective Time of the Mergers, all such shares of Company Capital Stock
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist. As of the Effective Time of the Mergers,
each certificate theretofor representing shares of Company Common Stock,
without any action on the part of Holdco, the Company or the holder
thereof, shall be deemed to represent that number of shares of Holdco
Common Stock determined by multiplying the shares of Company Capital Stock
by the Millennium Exchange Ratio. Each holder of a certificate representing
any shares of Company Capital Stock shall cease to have any rights with
respect thereto, except the right to receive, upon the surrender of any
such certificates, certificates representing the shares of Holdco Common
Stock and any cash in lieu of fractional shares of Holdco Common Stock to
be issued or paid in consideration therefor upon surrender of such certifi-
cate in accordance with Section 2.3 hereof, without interest.
(c) Appraisal Rights. Holders of all shares of the
outstanding capital stock of the Company for which dissenters' rights shall
have been perfected under section 1300 et seq. of the CGCL (the "Millennium
Dissenting Shares") shall have those rights, but only those rights, of
holders of "dissenting shares" under section 1300 et seq. of the CGCL. The
Company shall give Parent prompt notice of any demand, purported demand or
other communication received by the Company with respect to any Millennium
Dissenting Shares or shares claimed to be Millennium Dissenting Shares, and
Parent shall have the right to participate in all negotiations and proceed-
ings with respect to such shares. The Company agrees that, without the
prior written consent of Parent, it shall not voluntarily make any payment
with respect to, or settle or offer to settle, any demand or purported
demand respecting such shares.
(d) Assumption and Conversion of Company Options. (i)
As of the Effective Time of the Mergers, each outstanding option to
purchase Company Common Stock (a "Company Option") issued under each stock
option plan, program, agreement or arrangement of the Company (each a
"Company Stock Plan") shall thereafter entitle the holder thereof to
receive, upon the exercise thereof that number of shares of Holdco Common
Stock determined by multiplying the number of shares of Company Common
Stock subject to such Company Option immediately prior to the Effective
Time of the Mergers by the Millennium Exchange Ratio, at an exercise price
for each full share of Holdco Common Stock subject to such Company Option
equal to the quotient obtained by dividing the exercise price per share of
Company Common Stock subject to such Company Option by the Millennium
Exchange Ratio, which exercise price per share shall be rounded up to the
nearest two-place decimal. The number of shares of Holdco Common Stock
that may be purchased by a holder upon the exercise of any Company Option
shall not include any fractional share of Holdco Common Stock but shall be
rounded, in the case of any Company Option other than an incentive stock
option, up and, in the case of any incentive stock option, down to the
nearest whole share, if necessary.
(ii) As of the Effective Time of the Mergers, any
securities convertible into shares of Company Common Stock immediately
prior to the Effective Time of the Mergers, including without limitation
that certain $5,000,000 Convertible Promissory Note and Agreement, dated
June 11, 1997, as amended and supplemented, from time to time, other than
warrants to purchase Company Capital Stock ("Company Convertible Securi-
ties") shall thereafter entitle the holder thereof to receive, upon the
exercise thereof that number of shares of Holdco Common Stock determined by
multiplying the number of shares of Company Common Stock subject to such
Company Convertible Security immediately prior to the Effective Time of the
Mergers by the Millennium Exchange Ratio, at an exercise price for each
full share of Holdco Common Stock subject to such Company Convertible
Security equal to the quotient obtained by dividing the exercise price per
share of Company Common Stock subject to such Company Convertible Security
by the Millennium Exchange Ratio, which exercise price per share shall be
rounded up to the nearest two-place decimal.
(iii) As of the Effective Time of the Mergers,
Holdco shall assume in full each Company Option and all of the other rights
and obligations of the Company under the Company Stock Plans as provided
herein. Section 3.2 of the Company Disclosure Schedule sets forth a list
summarizing all Company Options under all of the Company Stock Plans,
including the term and the exercise price of each Company Option. The
assumption of a Company Option by Holdco shall not terminate or modify
(except as required hereunder or under the terms of any Company Stock Plan
or any stock option agreement in effect as of the date hereof evidencing
any Company Option) any right of first refusal, right of repurchase,
vesting schedule or other restriction on transferability relating to a
Company Option. Continuous employment with the Company shall be credited
to an optionee for purposes of determining the number of shares subject to
exercise, vesting or repurchase after the Effective Time of the Mergers,
and the provisions in the Company Stock Plans and/or in any stock option
agreement evidencing the terms and conditions of any Company Option
relating to the exercisability of any Company Option upon termination of an
optionee's employment or service as a director shall not be deemed trig-
gered until such time as such optionee shall be neither an employee or
officer nor serving as a director of Holdco or any subsidiary. After such
assumption, Holdco shall issue, upon any partial or total exercise of any
Company Option, in lieu of shares of Company Common Stock, the number of
shares of Holdco Common Stock to which the holder of the Company Option is
entitled pursuant to this Agreement. The assumption by Holdco of Company
Options shall not give holders of such Company Options any additional
benefits which they did not have immediately prior to the Effective Time of
the Mergers. Nothing contained in this Section 2.2(d) shall require Holdco
to offer or sell shares of Holdco Common Stock upon the exercise of Company
Options assumed by Holdco if, in the reasonable judgment of Holdco or its
counsel, such offer or sale would not be in accordance with the applicable
federal or state securities laws or would require registration thereunder
other than as contemplated in the following sentence. Holdco shall file
with the SEC within two (2) days following the Effective Time of the
Mergers a registration statement on Form S-8 under the Securities Act
covering, to the extent applicable, the shares of Holdco Common Stock to be
issued upon the exercise of Company Options assumed by Holdco. Holdco
shall use its reasonable efforts to qualify as soon as practicable after
the Effective Time of the Mergers under the applicable state securities
laws the issuance of the shares of Holdco Common Stock to be issued upon
exercise of such Company Options. Prior to the Effective Time of the
Mergers, the Company shall make such amendments, if any, to the Company
Stock Plans as shall be necessary to permit such assumption in accordance
with this Section 2.2(d).
(iv) It is the intention of the parties that, to
the extent that any Company Option constitutes an incentive stock option
immediately prior to the Effective Time of the Mergers, such Company Option
shall continue to qualify as an incentive stock option to the maximum
extent permitted by section 422 of the Code, and that the assumption of
Company Options provided by this Section 2.2(d) shall satisfy the condi-
tions of section 424(a) of the Code.
(e) Treatment of Company Common Stock Held By Parent.
Notwithstanding anything in this Agreement to the contrary, each issued and
outstanding share of Company Common Stock held by Parent, Holdco or any of
their respective subsidiaries (including any such shares acquired by Holdco
simultaneously with the Effective Time of the Mergers and any such shares
held by corporations (other than the Company) that become subsidiaries of
Holdco simultaneously with the Effective Time of the Mergers (but excluding
any shares acquired pursuant to Section 2.2(a) hereof)) shall be converted
into .6504 of a fully paid and nonassessable share of common stock
of the Millennium Surviving Corporation.
Section 2.3 Exchange of Shares and Certificates. (a) Exchange
Agent. As of the Effective Time of the Mergers, Holdco shall deposit with
American Stock Transfer & Trust Company or such other bank or trust company
as may be designated by Holdco (the "Exchange Agent"), for the benefit of
the holders of shares of Parent Common Stock and Company Common Stock, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates representing the shares of Holdco Common Stock (such shares of
Holdco Common Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time of the Mergers,
being hereinafter referred to as the "Exchange Fund") issuable pursuant to
Sections 2.1 and 2.2 hereof in exchange for outstanding shares of Parent
Common Stock and Company Common Stock.
(b) Exchange Procedures. As soon as reasonably practi-
cable after the Effective Time of the Mergers, the Exchange Agent shall
mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time of the Mergers represented out-
standing shares of Parent Common Stock or Company Common Stock (the
"Certificates") whose shares were converted into the right to receive
shares of Holdco Common Stock pursuant to Section 2.1 or 2.2 hereof, (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 Holdco may reasonably specify), and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Holdco 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 Holdco, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Exchange Agent, the holder of such Certifi-
cate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Holdco Common Stock which such
holder has the right to receive pursuant to the provisions of this Article
II, and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of Parent Common Stock or Company Common
Stock which is not registered in the transfer records of Parent or the
Company, as applicable, a certificate representing the proper number of
shares of Holdco Common Stock may be issued to a person other than the
person in whose name the Certificate so surrendered is registered, if such
Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such payment shall pay any transfer or
other taxes required by reason of the issuance of shares of Holdco Common
Stock to a person other than the registered holder of such Certificate or
establish to the satisfaction of Holdco that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.3,
each Certificate shall be deemed at any time after the Effective Time of
the Mergers to represent only the right to receive upon such surrender the
certificate representing shares of Holdco Common Stock and cash in lieu of
any fractional shares of Holdco Common Stock as contemplated by this
Section 2.3. No interest shall be paid or accrue on any cash payable in
lieu of any fractional shares of Holdco Common Stock.
(c) Distributions with Respect to Unexchanged Shares.
No dividends or other distributions with respect to Holdco Common Stock
with a record date after the Effective Time of the Mergers shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of
Holdco Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section
2.3(e) hereof, until the surrender of such Certificate in accordance with
this Article II. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the holder of the
certificate representing whole shares of Holdco 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 Holdco Common
Stock to which such holder is entitled pursuant to Section 2.3(e) and the
amount of dividends or other distributions with a record date after the
Effective Time of the Mergers theretofor paid with respect to such whole
shares of Holdco Common Stock, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time of the Mergers but prior to such surrender and a payment
date subsequent to such surrender payable with respect to such whole shares
of Holdco Common Stock.
(d) No Further Ownership Rights in Parent Common Stock
and Company Capital Stock. All shares of Holdco Common Stock issued upon
the surrender for exchange of Certificates in accordance with the terms of
this Article II (including any cash paid pursuant to Section 2.3(c) or
2.3(e) hereof) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Parent Common Stock
or Company Capital Stock theretofor represented by such Certificates,
subject, however, to the obligation of the Zenith Surviving Corporation or
the Millennium Surviving Corporation, as applicable, to pay any dividends
or make any other distributions with a record date prior to the Effective
Time of the Mergers which may have been declared or made by Parent or the
Company, as applicable, on such shares of Parent Common Stock and Company
Capital Stock in accordance with the terms of this Agreement and which
remain unpaid at the Effective Time of the Mergers, and there shall be no
further registration of transfers on the stock transfer books of the Zenith
Surviving Corporation or the Millennium Surviving Corporation, as applica-
ble, of the shares of Parent Common Stock or Company Capital Stock which
were outstanding immediately prior to the Effective Time of the Mergers.
If, after the Effective Time of the Mergers, Certificates are presented to
the Zenith Surviving Corporation or the Millennium Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by law.
(e) Fractional Shares. (i) No certificates represent-
ing fractional shares of Holdco Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests
shall not entitle the owner thereof to vote or to any other rights of a
stockholder of Holdco.
(ii) Notwithstanding any other provision of this
Agreement, each holder of shares of Parent Common Stock or Company Capital
Stock converted pursuant to the Mergers who would otherwise have been
entitled to receive a fraction of a share of Holdco Common Stock (after
taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to (i)
such fraction multiplied by (ii) the average of the closing price of a
share of Parent Common Stock for the ten most recent trading days that
Parent Common Stock has traded ending on the trading day immediately prior
to the Effective Time of the Mergers, as reported on the Nasdaq National
Market.
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of the Certifi-
cates for six months after the Effective Time of the Mergers shall be
delivered to Holdco, upon demand, and any holders of the Certificates who
have not theretofore complied with this Article II shall thereafter look
only to Holdco for payment of their claim for Holdco Common Stock, any cash
in lieu of fractional shares of Holdco Common Stock and any dividends or
distributions with respect to Holdco Common Stock.
(g) No Liability. None of Parent, Holdco, Zenith
Acquisition, Millennium Acquisition, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Holdco Common
Stock (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. If any Certificates shall not
have been surrendered prior to seven years after the Effective Time of the
Mergers, or immediately prior to such earlier date on which any shares of
Holdco Common Stock, any cash in lieu of fractional shares of Holdco Common
Stock or any dividends or distributions with respect to Holdco Common Stock
in respect of such Certificate would otherwise escheat to or become the
property of any Governmental Entity, any such shares, cash, dividends or
distributions in respect of such Certificate shall, to the extent permitted
by applicable law, become the property of the Zenith Surviving Corporation
or the Millennium Surviving Corporation, as applicable, free and clear of
all claims or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as directed by Holdco,
on a daily basis. Any interest and other income resulting from such
investments shall be paid to Holdco.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the schedule delivered to Parent prior to
the execution of this Agreement setting forth specific exceptions to the
Company's representations and warranties set forth herein (the "Company
Disclosure Schedule"), the Company represents and warrants to Parent,
Holdco, Zenith Acquisition, and Millennium Acquisition as set forth below.
Each exception set forth in the Company Disclosure Schedule is identified
by reference to, or has been grouped under a heading referring to, a
specific individual section of this Agreement and, except as otherwise
specifically stated with respect to such exception, relates only to such
section.
Section 3.1 Organization. The Company is a corporation, duly
organized, validly existing, duly qualified or licensed to do business and
in good standing under the laws of the State of California and in each
jurisdiction in which the nature of the business conducted by it makes such
qualification or licensing necessary, and has all requisite corporate or
other power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority, and governmental approvals
would not have a Company Material Adverse Effect. Except as disclosed in
Section 3.1 of the Company Disclosure Schedule, the Company does not
presently own or control, directly or indirectly, and has no stock or other
interest as owner or principal in, any other corporation or partnership,
joint venture, association or other business venture or entity. As used in
this Agreement, "Company Material Adverse Effect" means any event, change
in or effect, individually or in the aggregate with such other events,
changes or effects, on the business of the Company, that is or could
reasonably be expected to be materially adverse to (i) the business,
operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets, liabilities,
regulatory status or prospects of the Company, or (ii) the ability of the
Company to consummate any of the transactions or to perform its obligations
under this Agreement or any other agreements executed in connection
herewith, it being understood that none of the following shall be deemed by
itself or by themselves, either alone or in combination, to constitute a
Company Material Adverse Effect: (a) conditions affecting the computer
industry or companies providing services similar to those provided by the
Company, as a whole,(b) any matter identified in Section 3.5 of the Company
Disclosure Schedule, or (c) any requirement by the Company for working
capital contemplated to be provided by Parent pursuant to Section 5.13
hereof.
Section 3.2 Capitalization. (a) The authorized capital stock
of the Company consists of 100,000,000 shares of Company Common Stock and
30,000,000 shares of Company Preferred Stock. As of the date hereof, (i)
21,335,602 shares of Company Common Stock are issued and outstanding, (ii)
9,600,000 shares of Series A Company Preferred Stock are issued and
outstanding, (iii) 2,000,000 shares of Series B Company Preferred Stock are
issued and outstanding, (iv) no shares of Series C Company Preferred Stock
are issued and outstanding, (v) 2,000,000 shares of Series D Company
Preferred Stock are issued and outstanding, (vi) no shares of Series E
Company Preferred Stock are issued and outstanding, (vii) no shares of
Series F Company Preferred Stock are issued and outstanding, and (viii)
5,827,973 shares of Company Common Stock are reserved for issuance pursuant
to the Company Stock Plans and all other employee benefit plans of the
Company, including (A) 3,732,518 shares reserved for issuance pursuant to
outstanding awards and 2,057,474 shares reserved for issuance pursuant to
future awards under the Millennium 1996 and 1998 Stock Option Plans, and
(B) no shares reserved for issuance pursuant to outstanding awards and
37,981 shares reserved for issuance pursuant to future awards under the
Millennium 1997 Employee Stock Purchase Plan. As of the Effective Time of
the Mergers, no shares of the Company Preferred Stock will be issued and
outstanding. All of the issued and outstanding shares of Company Common
Stock are validly issued, fully paid and nonassessable.
(b) Except as disclosed in Section 3.2(b) of the
Company Disclosure Schedule, (i) there is no outstanding right, subscrip-
tion, warrant, call, option or other agreement or arrangement of any kind
(collectively, "Rights") to purchase or otherwise to receive from the
Company any of the outstanding authorized but unissued or treasury shares
of the capital stock or any other security of the Company, (ii) there is no
outstanding security of any kind convertible into or exchangeable for such
capital stock, and (iii) there is no voting trust or other agreement or
understanding to which the Company is a party or is bound with respect to
the voting of the capital stock of the Company.
Section 3.3 Corporate Authorization; Validity of Agreement;
Company Action. (a) The Company has full corporate power and authority to
execute and deliver this Agreement and any other agreements executed in
connection herewith to which it is a party and, subject to obtaining any
necessary approval of its shareholders as contemplated by Section 1.9
hereof with respect to the Millennium Merger, to consummate the transac-
tions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement and any other agreements
executed in connection herewith to which it is a party, and the consumma-
tion by it of the transactions contemplated hereby and thereby, have been
duly and validly authorized by the Company's board of directors, and
subject only to approval of the Millennium Merger by the Company's share-
holders and the filing and recordation of the Millennium Merger Agreement
pursuant to the CGCL, no other corporate action on the part of the Company
is necessary to authorize the execution and delivery by the Company of this
Agreement and any other agreements executed in connection herewith and the
consummation by it of the transactions contemplated hereby and thereby.
Each of this Agreement and any other agreements executed in connection
herewith to which it is a party have been duly executed and delivered by
the Company and, assuming each of this Agreement and such other agreements
constitutes a valid and binding obligation of the other parties hereto and
thereto, constitutes a valid and binding obligation of the Company enforce-
able against the Company in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(b) The board of directors of the Company has duly and
validly approved and taken all corporate action required to be taken by
such board of directors for the consummation of the transactions contem-
plated by this Agreement and the other agreements executed in connection
herewith to which it is a party. The affirmative votes of the holders of a
majority of the outstanding shares of Company Common Stock and the out-
standing shares of Company Preferred Stock are the only votes of the
holders of any class or series of Company capital stock necessary to
approve the Millennium Merger. To the best of the Company's knowledge, no
other state takeover statute or similar statute or regulation applies or
purports to apply to the Millennium Merger, this Agreement, any other
agreements executed in connection herewith or any of the transactions
contemplated by this Agreement or in any such other agreements.
Section 3.4 Consents and Approvals; No Violations. Except as
disclosed in Section 3.4 of the Company Disclosure Schedule and for
filings, permits, authorizations, consents and approvals as may be required
under the Exchange Act, the approval of this Agreement and the Millennium
Merger by the Company's shareholders and the filing and recordation of the
Certificate of Merger as required by the DGCL and the Millennium Merger
Agreement as required by the CGCL, none of the execution, delivery or
performance of this Agreement or any other agreement executed in connection
herewith by the Company nor the consummation by the Company of the transac-
tions contemplated hereby or thereby nor compliance by the Company with any
of the provisions hereof or thereof, will (i) conflict with or result in
any breach of any provision of the articles of incorporation of the
Company, (ii) require any filing with, or permit, authorization, consent or
approval of, any court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or agency (a
"Governmental Entity"), (iii) except as set forth in Section 3.4 of the
Company Disclosure Schedule, 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) under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, guarantee, other evidence of indebtedness,
lease, license, contract, agreement or other instrument or obligation to
which the Company is a party or by which it or any of its properties or
assets may be bound (collectively, the "Company Agreements"), or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, or any of its properties or assets, except in
the case of clause (ii), (iii) or (iv) where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings, or
where such violations, breaches or defaults would not have a Company
Material Adverse Effect.
Section 3.5 Absence of Certain Changes. Except to the extent
disclosed in Section 3.5 of the Company Disclosure Schedule, since Septem-
ber 30, 1997, the Company has conducted its business and operations
consistent with past practice only in the ordinary and usual course.
Except to the extent disclosed in Section 3.5 of the Company Disclosure
Schedule, from September 30, 1997 through the date of this Agreement, there
has not occurred (i) any event, change, or effect (including the incurrence
of any liabilities of any nature, whether or not accrued, contingent or
otherwise) having a Company Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to the equity interests of the
Company, or (iii) any change by the Company in accounting principles or
methods, except insofar as may be required by a change in United States
generally accepted accounting principles ("GAAP"). Since September 30,
1997, other than those corporate actions approved by the Company's Board of
Directors and specified in the minutes of the meetings of the Company's
Board of Directors, the Company has not taken any of the actions prohibited
by Section 5.1 hereof.
Section 3.6 No Undisclosed Liabilities. Except for liabilities
and obligations incurred in the ordinary course of business and consistent
with past practice, since September 30, 1997 and except as set forth in
Section 3.6 of the Company Disclosure Schedule, the Company has not
incurred any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that would be required to be reflected or
reserved against on a balance sheet of the Company (including the notes
thereto) prepared in accordance with GAAP as applied in preparing the
balance sheets of the Company as of September 30, 1997, December 31, 1997,
March 31, 1998 and June 30, 1998. Section 3.6 of the Company Disclosure
Schedule sets forth the amount of principal and unpaid interest outstanding
under each instrument evidencing indebtedness of the Company which will
accelerate or become due or result in a right of redemption or repurchase
on the part of the holder of such indebtedness (with or without due notice
or lapse of time) as a result of this Agreement, any of the other agree-
ments executed in connection herewith, the Millennium Merger or the other
transactions contemplated hereby or thereby.
Section 3.7 Information in Consents and Registration Statement.
The Proxy Statement/Prospectus/Consent Solicitation will not, at the date
mailed to the shareholders of the Company and at the time of the effective-
ness of the Registration Statement, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not misleading, except that
no representation is made by the Company with respect to statements made
therein based on information supplied by Parent, Holdco, Zenith Acquisition
or Millennium Acquisition in writing expressly for inclusion in the Proxy
Statement/Prospectus/Consent Solicitation. None of the information
supplied in writing by the Company expressly for inclusion or incorporation
by reference in the Registration Statement will, at the date it becomes
effective and at the time of the Special Meeting, 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. The
Company agrees to correct promptly any such information provided by it that
shall have become false or misleading in any material respect and to take
all steps necessary to file with the SEC and have declared effective or
cleared by the SEC any amendment or supplement to the Registration State-
ment or the Proxy Statement/Prospectus/Consent Solicitation so as to
correct the same and to cause the Proxy Statement/Prospectus/Consent
Solicitation as so corrected to be disseminated to Parent's shareholders
and the Company's shareholders to the extent required by applicable law.
The Registration Statement and the Proxy Statement/Prospectus/Consent
Solicitation shall comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and other applicable
laws.
Section 3.8 Employee Benefit Plans; ERISA. (a) Section 3.8 of
the Company Disclosure Schedule contains a true and complete list of each
employment, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, stock appreciation right or other stock-based
incentive, severance, change-in-control, or termination pay, hospitaliza-
tion or other medical, disability, life or other insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan,
program, agreement or arrangement and each other employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to
or required to be contributed to by the Company or by any trade or busi-
ness, whether or not incorporated (an "ERISA Affiliate"), that together
with the Company would be deemed a "single employer" within the meaning of
section 4001(b)(1) of ERISA, for the benefit of any current or former
employee or director of the Company, or any ERISA Affiliate (the "Company
Plans"). Section 3.8(a) of the Company Disclosure Schedule identifies each
of the Company Plans that is an "employee welfare benefit plan," or
"employee pension benefit plan" as such terms are defined in sections 3(1)
and 3(2) of ERISA (such plans being hereinafter referred to collectively as
the "ERISA Plans"). Neither the Company nor any ERISA Affiliate has any
formal plan or commitment, whether legally binding or not, to create any
additional Company Plan or modify or change any existing Company Plan that
would affect any current or former employee or director of the Company, or
any ERISA Affiliate.
(b) With respect to each of the Company Plans, the
Company has heretofore delivered to the Parent true and complete copies of
each of the following documents, as applicable:
(i) a copy of the Company Plan documents (includ-
ing all amendments thereto) for each written Company Plan or a written
description of any Company Plan that is not otherwise in writing;
(ii) a copy of the annual report or Internal
Revenue Service Form 5500 Series, if required under ERISA, with respect to
each ERISA Plan for the last three plan years ending prior to the date of
this Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each ERISA Plan for the last three plan years
ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material Modification
issued with respect to such SPD, if required under ERISA, with respect to
each ERISA Plan, and all other material employee communications relating to
each ERISA Plan;
(v) if the Company Plan is funded through a trust
or any other funding vehicle, a copy of the trust or other funding agree-
ment (including all amendments thereto) and the latest financial statements
thereof, if any;
(vi) all contracts relating to the Company Plans
with respect to which the Company or any ERISA Affiliate may have any
liability, including insurance contracts, investment management agreements,
subscription and participation agreements and record keeping agreements;
and
(vii) the most recent determination letter received
from the IRS with respect to each Company Plan that is intended to be
qualified under section 401(a) of the Code.
(c) None of the Company Plans is subject to Title IV of
ERISA, and neither the Company nor any ERISA Affiliate has at any time
sponsored, maintained, contributed to or been required to make contribu-
tions to any employee pension benefit plan (as defined in section 3(2) of
ERISA) subject to Title IV of ERISA (including without limitation any
"multiemployer plan" as defined in Section 3(37) or Section 4001(a)(3) of
ERISA). No liability under Title IV of ERISA has been incurred by the
Company, or any ERISA Affiliate since the effective date of ERISA that has
not been satisfied in full, and no condition exists that presents a
material risk to the Company or any ERISA Affiliate of incurring any
liability under such Title.
(d) None of the Company, any ERISA Affiliate, any of
the ERISA Plans, any trust created thereunder, nor to the Company's
knowledge, any trustee or administrator thereof has engaged in a transac-
tion or has taken or failed to take any action in connection with which the
Company or any ERISA Affiliate could be subject to any material liability
for either a civil penalty assessed pursuant to section 409 or 502(i) of
ERISA or a tax imposed pursuant to section 4975(a) or (b), 4976 or 4980B of
the Code.
(e) All contributions and premiums which the Company or
any ERISA Affiliate is required to pay under the terms of each of the ERISA
Plans have, to the extent due, been paid in full or properly recorded on
the financial statements or records of the Company.
(f) Each of the Company Plans has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to ERISA and the Code.
(g) Each of the ERISA Plans that is intended to be
"qualified" within the meaning of section 401(a) of the Code is so quali-
fied. The Company has applied for and received a currently effective
determination letter from the IRS stating that it is so qualified, and no
event has occurred which would affect such qualified status.
(h) Any fund established under an ERISA Plan that is
intended to satisfy the requirements of section 501(c)(9) of the Code has
so satisfied such requirements.
(i) No amounts payable under any of the Company Plans
or any other contract, agreement or arrangement with respect to which the
Company may have any liability could fail to be deductible for Federal
income tax purposes by virtue of section 162(m) or section 280G of the
Code.
(j) No Company Plan provides benefits, including
without limitation death or medical benefits (whether or not insured), with
respect to current or former employees of the Company or any ERISA Affili-
ate after retirement or other termination of service (other than
(i) coverage mandated by applicable laws, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in
section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or an ERISA Affiliate, or
(iv) benefits, the full direct cost of which is borne by the current or
former employee (or beneficiary thereof)).
(k) The consummation of the transactions contemplated
by this Agreement will not, either alone or in combination with any other
event, (i) entitle any current or former employee, officer or director of
the Company or any ERISA Affiliate to severance pay, unemployment compensa-
tion or any other similar termination payment, or (ii) accelerate the time
of payment or vesting, or increase the amount of or otherwise enhance any
benefit due any such employee, officer or director.
(l) There are no pending or, to the Company's knowl-
edge, threatened or anticipated claims by or on behalf of any Company Plan,
by any employee or beneficiary under any such Company Plan or otherwise
involving any such Company Plan (other than routine claims for benefits).
Section 3.9 Labor Matters. (a) Except as set forth in Section
3.9 of the Company Disclosure Schedule, (i) there is no labor strike,
dispute, slowdown, stoppage or lockout actually pending, or to the
knowledge of the Company, threatened against or affecting the Company and
since inception there has not been any such action; (ii) to the knowledge
of the Company, no union claims to represent the employees of the Company;
(iii) the Company is not a party to or bound by any collective bargaining
or similar agreement with any labor organization, or work rules or
practices agreed to with any labor organization or employee association
applicable to employees of the Company; (iv) none of the employees of the
Company are represented by any labor organization and the Company has no
knowledge of any current union organizing activities among the employees of
the Company, nor does any question concerning representation exist
concerning such employees; (v) there are no written personnel policies,
rules or procedures applicable to employees of the Company, other than
those set forth in Section 3.9 of the Company Disclosure Schedule, true,
correct and complete copies of which have heretofore been delivered to
Parent; (vi) the Company is, and has at all times been, in material
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages, hours of work,
immigration, equal employment opportunity, and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or
regulation; (vii) there is no unfair labor practice charge or complaint
against the Company pending or, to the knowledge of the Company, threatened
before the National Labor Relations Board or any similar state agency;
(viii) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure relating to
the Company; (ix) to the knowledge of the Company, no charges with respect
to or relating to the Company are pending before the Equal Employment
Opportunity Commission or any other agency responsible for the prevention
of unlawful employment practices; (x) to the knowledge of the Company, no
federal, state, or local agency responsible for the enforcement of labor or
employment laws intends to conduct an investigation with respect to or
relating to the Company and no such investigation is in progress; and
(xi) there are no complaints, controversies, lawsuits or other proceedings
pending or, to the knowledge of the Company, threatened to be brought by
any applicant for employment or current or former employees, or classes of
the foregoing, alleging breach of any express or implied contract for
employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection
with the employment relationship. Except as set forth in Section 3.9 of
the Company Disclosure Schedule, there are no employment contracts,
severance agreements, or confidentiality agreements with any employees of
the Company. The execution of this Agreement and the consummation of the
transactions contemplated hereby shall not result in a breach or other
violation of any collective bargaining agreement or any other employment
contract or agreement to which the Company is a party.
(b) Since the enactment of Worker Adjustment and
Retraining Notification Act of 1988 (the "WARN Act"), the Company has not
effectuated (i) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within
any site of employment or facility of the Company, or (ii) a "mass layoff"
(as defined in the WARN Act) affecting any site of employment or facility
of the Company; nor has the Company been affected by any transaction or
engaged in layoffs or employment terminations sufficient in number to
trigger application of any similar state or local law. Except as set forth
in Section 3.9 of the Company Disclosure Schedule, none of the employees of
the Company has suffered an "employment loss" (as defined in the WARN Act)
during the ninety day period prior to the execution of this Agreement.
Section 3.10 Litigation; Compliance with Law. (a) Except to the
extent disclosed in Section 3.10 of the Company Disclosure Schedule, there
is no suit, claim, action, proceeding or investigation pending or, to the
best knowledge of the Company, threatened against or affecting, the Company
which would have a Company Material Adverse Effect.
(b) The Company has complied in a timely manner and in
all material respects, with all laws, statutes, regulations, rules,
ordinances, and judgments, decrees, orders, writs and injunctions, of any
court or governmental entity relating to any of the property owned, leased
or used by them, or applicable to their business, including, but not
limited to, laws relating to equal employment opportunity, discrimination,
occupational safety and health, environmental, interstate commerce and
antitrust.
Section 3.11 No Default. The business of the Company is not
being conducted in default or violation of any term, condition or provision
of (i) its respective articles of incorporation and by-laws, (ii) any
Company Agreement, or (iii) any United States federal, state, local or
foreign law, statute, regulation, rule, ordinance, judgment, decree, order,
writ, injunction, concession, grant, franchise, permit or license or other
governmental authorization or approval applicable to the Company, excluding
from the foregoing clauses (ii) and (iii), defaults or violations that
would not have a Company Material Adverse Effect. As of the date of this
Agreement, no investigation or review by any Governmental Entity or other
entity with respect to the Company is pending or, to the best knowledge of
the Company, threatened, nor has any Governmental Entity or other entity
indicated an intention to conduct the same, other than, in each case, those
the outcome of which, as far as reasonably can be foreseen, in the future
will not have a Company Material Adverse Effect.
Section 3.12 Taxes.
(a) Except as set forth in Section 3.12 of the Company
Disclosure Schedule:
(i) the Company has timely filed (or has had
timely filed on its behalf) with the appropriate Tax Authorities (as
hereinafter defined) all Tax Returns (as hereinafter defined) required to
be filed by the Company and such Tax Returns are true, correct, and
complete in all respects;
(ii) the Company has paid, or where payment is not
yet due, has established (or has had established on its behalf and for its
sole benefit and recourse) an adequate accrual in accordance with GAAP for
the payment of, all Taxes (as hereinafter defined) for all periods ending
through the date hereof;
(iii) there are no liens for Taxes upon any
property or assets of the Company, except for liens for Taxes not yet due
and for which adequate reserves have been established in accordance with
GAAP;
(iv) no Federal, state, local or foreign Audits
(as hereinafter defined) are presently pending with regard to any Taxes or
Tax Returns of the Company and to the best knowledge of the Company no
Audit is threatened;
(v) the Tax Returns of the Company have been
examined by the applicable Tax Authority (or the applicable statutes of
limitation for the assessment of Taxes for such periods have expired), and
for any year that a Tax Return was examined, no material adjustments were
asserted as a result of such examination which have not been resolved and
fully paid, and no issue has been raised by any Tax Authority in any Audit
of the Company that, if raised with respect to any other period not so
audited, could be expected to result in a proposed deficiency for any such
period not so audited;
(vi) there are no outstanding requests,
agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies
against the Company, and no power of attorney granted by the Company with
respect to any Taxes is currently in force;
(vii) the Company is not a party to any agreement
providing for the allocation, indemnification, or sharing of Taxes; and
(viii) the Company has not been a member of any
"affiliated group" (as defined in section 1504(a) of the Code) and is not
subject to Treas. Reg. 1.1502-6 for any period.
(b) "Audit" means any audit, assessment, or other
examination relating to Taxes by any Tax Authority or any judicial or
administrative proceedings relating to Taxes. "Tax" or "Taxes" means all
Federal, state, local, and foreign taxes, and other assessments of a
similar nature (whether imposed directly or through withholding), including
any interest, additions to tax, or penalties applicable thereto, imposed by
any Tax Authority. "Tax Authority" means the Internal Revenue Service and
any other domestic or foreign governmental authority responsible for the
administration of any Taxes. "Tax Returns" mean all Federal, state, local,
and foreign tax returns, declarations, statements, reports, schedules,
forms, and information returns and any amendments thereto.
Section 3.13 Material Contracts. Each Company Agreement is
valid, binding and enforceable and in full force and effect, except where
failure to be valid, binding and enforceable and in full force and effect
would not have a Company Material Adverse Effect and there are no defaults
thereunder, except those defaults that would not have a Company Material
Adverse Effect. Section 3.13 of the Company Disclosure Schedule sets forth
a true and complete list of (i) all material Company Agreements entered
into by the Company since its inception that remain in full force and
effect and all amendments to any such Company Agreements, and all non-
competition agreements imposing restrictions on the ability of the Company
to conduct business in any jurisdiction or territory.
Section 3.14 Assets. The Company has all assets, properties,
rights and contracts necessary to permit the Company to conduct its
business as it is currently being conducted, except where the failure to
have such assets, properties, rights and contracts would not have a Company
Material Adverse Effect.
Section 3.15 Environmental Matters. Except as set forth in
Section 3.15 of the Company Disclosure Schedule and except as would not,
individually or in the aggregate, have a Company Material Adverse Effect:
(a) the Company is not in violation of any federal, state,
local and foreign laws and regulations relating to pollution or protection
of human health or the environment, including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of toxic or hazardous substances, materials or wastes, or
petroleum and petroleum products ("Materials of Environmental Concern"), or
otherwise relating to the generation, storage, disposal, transport or
handling of materials of Environmental Concern (collectively,
"Environmental Laws"), and including, but not limited to, noncompliance
with any permits or other governmental authorizations or the terms and
conditions thereof.
(b) the Company has not received any communication or
notice (written or oral), whether from a Governmental Entity or otherwise,
alleging any violation of or noncompliance with any Environmental Laws;
there is no pending or threatened claim, action, investigation or notice
(written or oral) by any person or entity alleging potential liability for
investigatory, cleanup or governmental response costs, or natural resources
or property damages, or personal injuries, attorney's fees or penalties
relating to (i) the presence, or release into the environment, of any
Materials of Environmental Concern at any location owned or operated by the
Company, now or in the past, or (ii) any violation, or alleged violation,
of any Environmental Law (collectively, "Environmental Claims"); and there
are no past or present circumstances, conditions, or incidents that could
reasonably form the basis of any Environmental Claim against the Company or
against any person or entity whose liability for any Environmental Claim
the Seller has retained or assumed either contractually or by operation of
law.
Section 3.16 Transactions with Affiliates. Except as set forth
in Section 3.16 of the Company Disclosure Schedule, no contracts,
agreements or other arrangements (oral or written) are in effect as of the
date hereof between (i) on the one hand, the Company and (ii) on the other
hand, any of its directors or their respective affiliates. For purposes of
this Section 3.16 an "affiliate" of any Person shall mean any other person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person. For purposes of this definition,
"control", when used with respect to such Person means the power to direct
the management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have the meanings that correspond
to the foregoing. For purposes of this Agreement, "Person" shall mean any
individual, partnership, corporation, unincorporated association, joint
venture or other entity (including without limitation, any government or
political subdivision of agency, department or instrumentality thereof).
Section 3.17 Opinion of Financial Advisor. The Company has
received the written opinion of Robert E. LaBlanc Associates Inc., to the
effect that the consideration to be received in the Merger by the Company's
shareholders is fair to the Company's shareholders from a financial point
of view (the "Company Opinion"), a copy of which opinion has been delivered
to Parent and will be included in the Proxy Statement/Prospectus/Consent
Solicitation delivered to the Company's shareholders. Robert E. LaBlanc
Associates Inc. shall redeliver the Company Opinion, dated as of the date
of mailing of the Proxy Statement/Prospectus/Consent Solicitation on the
date of mailing, and consent to the inclusion of the Company Opinion in the
Proxy Statement/Prospectus/Consent Solicitation.
Section 3.18 Intellectual Property. (a) Section 3.18(a) of the
Company Disclosure Schedule is a true and complete list of all (i) patents
and patent applications, (ii) trademark registrations and applications,
(iii) service mark registrations and applications, (iv) Computer Software
(as hereinafter defined), (v) copyright registrations and applications,
(vi) material unregistered trademarks, service marks, and copyrights, and
(vii) Internet domain names used or held for use in connection with the
business of the Company, together with all licenses related to the
foregoing (whether the Company is the licensee or licensor thereunder).
Other than as listed in Section 3.18 of the Company Disclosure Schedule, no
agreement licensing the Intellectual Property (as hereinafter defined) of
the Company to any licensee creates an option for such licensee to purchase
any of the Intellectual Property owned by the Company or its affiliates, or
would in any other way require the transfer of the Intellectual Property
owned by the Company or any affiliate of the Company to such licensee. The
Company currently is listed in the records of the appropriate United
States, state or foreign agency as the sole owner of record for each
application and registration listed in Section 3.18 of the Company
Disclosure Schedule.
(b) The term "Computer Software" shall mean other than
off-the-shelf applications, (i) any and all material computer programs and
applications consisting of sets of statements and instructions to be used
directly or indirectly in computer software or firmware whether in source
code or object code form, (ii) material databases and compilations,
including without limitation any and all data and collections of data,
whether machine readable or otherwise, (iii) all versions of the foregoing
including, without limitation, all screen displays and designs thereof, and
all component modules of source code or object code or natural language
code therefor, and whether recorded on papers, magnetic media or other
electronic or non-electronic device, (iv) all descriptions, flow-charts and
other work product used to design, plan, organize and develop any of the
foregoing, (v) all documentation, including without limitation all
technical and user manuals and training materials, relating to the
foregoing, and (vi) all Internet domain names and content contained on all
World Wide Web sites of the Company, in any such case utilized by the
Company in connection with the conduct of its business as presently
conducted or currently contemplated to be conducted, and can correctly
process date data for all dates including those before, on or after 1999
without any loss of functionality or performance.
(c) Except as set forth on Section 3.18(c) of the
Company Disclosure Schedule, the Company owns or has the right to use all
patents, patent applications, patent rights, copyrights, trademarks,
trademark rights, trade names, trade name rights, service marks and service
mark rights, and all goodwill of the business associated therewith, trade
secrets, technology and know-how, Computer Software, Internet domain names,
registrations for and applications for registration of trademarks, service
marks and copyrights, and other confidential or proprietary rights and
information and all technical and user manuals and documentation made or
used in connection with any of the foregoing, used or held for use anywhere
in the world in connection with the business of the Company as currently
conducted (collectively, the "Intellectual Property"), free and clear of
all liens or other encumbrances of any nature, except where the failure to
so own or use such Intellectual Property would not have a Company Material
Adverse Effect.
(d) All patents, registrations and applications for
Intellectual Property that are used in and are material to the conduct of
the business of the Company as currently conducted (i) are valid,
subsisting, in proper form and enforceable, and have been duly maintained,
including the submission of all necessary filings and fees in accordance
with the legal and administrative requirements of the appropriate
jurisdictions, and (ii) have not lapsed, expired or been abandoned, and no
patent, registration or application of Intellectual Property therefor is
the subject of any opposition, interference, cancellation proceeding or
other legal or governmental proceeding before any governmental,
registration or other authority in any jurisdiction.
(e) To the knowledge of the Company, the conduct of the
business of the Company as currently conducted does not conflict with or
infringe in any way on any proprietary right of any third party, which
conflict or infringement would have a Company Material Adverse Effect.
Other than as set forth in Section 3.18(d) of the Company Disclosure
Schedule, there is no claim, suit, action or proceeding pending or, to the
knowledge of the Company, threatened against the Company (i) alleging any
such conflict or infringement with any third party's proprietary rights, or
(ii) challenging the ownership, use, validity or enforceability of the
Intellectual Property. To the knowledge of the Company, no third party is
infringing the Intellectual Property.
(f) The Computer Software used by the Company in the
conduct of its business was either: (i) developed by employees of the
Company within the scope of their employment; (ii) developed on behalf of
the Company by a third party, and all ownership rights therein have been
assigned or otherwise transferred to or vested in the Company pursuant to
written agreements; or (iii) licensed or acquired from a third party
pursuant to a written license, assignment, or other contract which is in
full force and effect, does not contain any change of control or other
provision that would prevent Millennium Surviving Corporation from using
such Computer Software and of which the Company is not in material breach
except where the failure to have Computer Software so developed, licensed
or acquired would not have a Company Material Adverse Effect. Except as
set forth on Section 3.18(f) of the Company Disclosure Schedule, (x) no
third party has had access to any of the source code for any of the
Computer Software described in clause (i) or (ii) hereof and (y) no act has
been done or omitted to be done by the Company to impair or dedicate to the
public or entitle any Governmental Entity to hold abandoned any of such
Computer Software.
(g) Except as set forth on Section 3.18(g) of the
Company Disclosure Schedule, all consents, filings, and authorizations by
or with governmental authorities or third parties necessary with respect to
the consummation of the transactions contemplated hereby as they may affect
the Intellectual Property have been obtained, except where the failure to
obtain or make such consents, filings and authorizations will not prohibit
the consummation of the Millennium Merger or have a Company Material
Adverse Effect.
(h) The Company has not entered into any material
consent, indemnification, forbearance to sue, settlement agreement or
cross-licensing arrangement with any person relating to the Intellectual
Property or the intellectual property of any third party other than as may
be contained in the license agreements listed in Section 3.18(h) of the
Company Disclosure Schedule.
(i) Except as set forth on Section 3.18(i) of the
Company Disclosure Schedule, the Company is not, nor will it be as a result
of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Intellectual Property.
(j) No former or present employees, officers or
directors of the Company hold any right, title or interest directly or
indirectly, in whole or in part, in or to any Intellectual Property.
(k) No material trade secret or confidential know-how
or other material confidential information relating to the Company has been
disclosed or authorized to be disclosed to any third party, other than
pursuant to a non-disclosure agreement that protects the Company's
interests in and to such confidential information.
Section 3.19 Insurance. The Company has policies of insurance
and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of the Company.
Except as disclosed in Section 3.19 of the Company Disclosure, there is no
material claim pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such
policies and bonds have been paid and the Company is otherwise in
compliance in all material respects with the terms of such policies and
bonds. Except as disclosed in Section 3.19 of the Company Disclosure, the
Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
Section 3.20 Accounts Receivable. Except as disclosed in
Section 3.20 of the Company Disclosure Schedule, subject to any reserves
set forth in the balance sheets of the Company at September 30, 1997,
December 31, 1997, March 31, 1998, and June 30, 1998 (the "Company Balance
Sheets"), the accounts receivable shown in the Company Balance Sheets arose
in the ordinary course of business, were not, as of the respective dates of
the Company Balance Sheets, subject to any material discount, contingency,
claim of offset or recoupment or counterclaim, and represented, as of the
respective dates of the Company Balance Sheets, bona fide claims against
debtors for sales, leases, licenses and other charges. All accounts
receivable of the Company arising after June 30, 1998 through the date of
the Agreement arose in the ordinary course of business and, as of the date
of this Agreement, are not subject to any material discount, contingency,
claim of offset or recoupment or counterclaim, except for normal reserves
consistent with past practice. The amount carried for doubtful accounts
and allowances disclosed in the Company Balance Sheet dated June 30, 1998
is believed by the Company as of the date of the Agreement to be sufficient
to provide for any losses which may be sustained or realization of the
accounts receivable shown in the Company Balance Sheet dated June 30, 1998.
Section 3.21 Financial Statements. Set forth in Section 3.21 of
the Company Disclosure Schedule are (i) the Company Balance Sheets
(including the related notes, if any), together with the related statements
of operations and cash flows (including the related notes) for the
respective periods then ended, and (ii) monthly financial statements for
each month from the date of the most recent Company Balance Sheet to the
date hereof. Each of the financial statements included in Section 3.21 of
the Company Disclosure Schedule (including the notes thereto) fairly
presents the financial position of the Company as of the respective dates
thereof and the results of operations and cash flows for the respective
periods therein, subject to adjustments made thereto with respect to
subsequent periods; provided, however, that the most recent Company Balance
Sheet and each monthly financial statement provided to Parent pursuant to
clauses (i) and (ii) above contain no material misstatement and fairly
present the financial position of the Company as of June 30, 1998 and each
such month end, respectively, in light of the circumstances then prevailing
at the time of preparation of such financial statements. Each of the
financial statements included in Section 3.21 of the Company Disclosure
Schedule has been prepared in accordance with GAAP on a consistent basis
during the periods involved, subject in the case of the December 31, 1997,
March 31, 1998 and June 30, 1998 Company Balance Sheets and related states
of operations and cash flows, to normal year-end audit adjustments in the
ordinary course (none of which, individually or in the aggregate, would be
material). Reserves are reflected on the September 30, 1997 Company
Balance Sheet against all liabilities in amounts that have been established
on a basis consistent with past practice and in accordance with GAAP, and
such reserves are adequate, reasonable and appropriate. Except as set
forth in Section 3.21 of the Company Disclosure Schedule, there have been
no changes in reserves of the Company since the June 30, 1998 Company
Balance Sheet.
Section 3.22 Full Disclosure. The Company has not knowingly
failed to disclose to Parent any facts material to the Company's business,
results of operations, assets, liabilities, financial condition or
prospects. No representation or warranty by the Company in this Agreement
and no statement by the Company in any document referred to herein
(including the schedules and exhibits hereto), contains any untrue
statements of a material fact or omits to state any material fact
necessary, in order to make the statement made herein or therein, in light
of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT, HOLDCO, ZENITH ACQUISITION AND
MILLENNIUM ACQUISITION
Except as set forth in the schedule delivered to the Company
prior to the execution of this Agreement setting forth specific exceptions
to Parent's representations and warranties set forth herein (the "Parent
Disclosure Schedule"), Parent represents and warrants to the Company as set
forth below. Each exception set forth in the Parent Disclosure Schedule is
identified by reference to, or has been grouped under a heading referring
to, a specific individual section of this Agreement and, except as
otherwise specifically stated with respect to such exception, relates only
to such section.
Section 4.1 Organization. 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 or other power and authority and all necessary
governmental approvals to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power,
authority, and governmental approvals would not have a Parent Material
Adverse Effect. Each of Parent and its Subsidiaries is duly qualified or
licensed to do business and in good standing 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
where the failure to be so duly qualified or licensed and in good standing
would not have a Parent Material Adverse Effect. Section 4.1 of the Parent
Disclosure Schedule sets forth a true, correct and complete list of the
Subsidiaries of Parent. The term "Subsidiary", for purposes of this
Agreement, shall mean, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
party or any other Subsidiary of such party is a general partner (excluding
such partnerships where such party and its subsidiaries, taken together, of
such party are not the majority holder of voting interests therein), or
(ii) at least a majority of the securities or other interests having by
their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by
such party and one or more of its Subsidiaries. As used in this Agreement,
"Parent Material Adverse Effect" means any event, change in or effect,
individually or in the aggregate with such other events, changes or
effects, on the business of Parent or its Subsidiaries, taken as a whole,
that is or could reasonably be expected to be materially adverse to (i) the
business, operations, properties (including intangible properties),
condition (financial or otherwise), results of operations, assets,
liabilities, or regulatory status of Parent or its Subsidiaries, taken as a
whole, or (ii) the ability of Parent, Holdco, Zenith Acquisition or
Millennium Acquisition to consummate any of the transactions or to perform
its obligations under this Agreement or any other agreements executed in
connection herewith, it being understood that none of the following shall
be deemed by itself or by themselves, either alone or in combination, to
constitute a Parent Material Adverse Effect: (a) a change in the market
price or trading volume of Parent Common Stock, (b) a failure by Parent to
meet the revenue or earnings predictions of equity analysts as reflected in
the First Call consensus estimate, or any other revenue or earnings
estimate, or any other revenue or earnings predictions or expectations, for
any period ending (or for which earnings are released) on or after the date
of this Agreement and prior to the Closing Date, (c) conditions affecting
the computer industry as a whole or the U.S. economy as a whole, (d) any
effect arising out of or resulting from actions contemplated by the parties
in connection with, or which is attributable to, the announcement of this
Agreement and the transactions contemplated hereby, or (e) any matter
identified in Section 4.7 of the Parent Disclosure Schedule.
Section 4.2 Capitalization. (a) The authorized capital stock
of Parent consists of: (i) 40,000,000 shares of Parent Common Stock, and
(ii) 1,000 shares of Preferred Stock, no par value of Parent (the "Parent
Preferred Stock"). As of the date hereof, (i) 20,511,772 shares of Parent
Common Stock are issued and outstanding, (ii) no shares of the Parent
Preferred Stock are issued and outstanding and (iii) 3,606,423 shares of
Parent Common Stock are reserved for issuance pursuant to the Parent Stock
Plans including (A) 1,989,090 shares reserved for issuance pursuant to
outstanding awards and 438,333 shares reserved for issuance pursuant to
future awards under the Zenith 1990 Stock Option Plan, (B) 81,000 shares
reserved for issuance pursuant to outstanding awards and 98,000 shares
reserved for issuance pursuant to future awards under the Zenith 1995 Non-
Employee Directors' Stock Option Plan, and (C) 111,211 shares reserved for
issuance pursuant to future awards under the Zenith Employee Stock Purchase
Plan. The authorized capital Stock of Holdco consists of 60,000,000 shares
of Holdco Common Stock and 5,000,000 shares of Holdco preferred stock, par
value $.001 per share. As of the date hereof, 1,000 shares of Holdco
Common Stock are issued and outstanding. All of the issued and outstanding
shares of Parent Common Stock and Holdco Common Stock are validly issued,
fully paid and nonassessable and all shares of Holdco Common Stock are held
by Parent. The authorized capital stock of Zenith Acquisition consists of
1,000 shares of common stock, par value $0.01 per share. As of the date
hereof, 100 shares of Zenith Acquisition common stock are issued and
outstanding, all of which are held by Holdco. The authorized capital stock
of Millennium Acquisition consists of 1,000 shares of common stock, par
value $0.01 per share. As of the date hereof, 100 shares of Millennium
Acquisition common stock are issued and outstanding, all of which are held
by Holdco.
(b) Except as disclosed in Section 4.2(b) of the Parent
Disclosure Schedule, (i) there is no outstanding right to purchase or
otherwise to receive from Parent or any of its Subsidiaries, including
Holdco, any of the outstanding authorized but unissued shares of the
capital stock of Parent or any of its Subsidiaries, (ii) there is no
outstanding security of any kind convertible into or exchangeable for such
capital stock and (iii) there is no voting trust or other agreement or
understanding to which Parent or any of its Subsidiaries, is a party or is
bound with respect to the voting of the capital Stock of Parent or any of
its Subsidiaries.
Section 4.3 Authorization; Validity of Agreement; Necessary
Action. Each of Parent, Holdco, Zenith Acquisition and Millennium
Acquisition has full corporate power and authority to execute and deliver
this Agreement and the other agreements executed in connection herewith to
which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement and
the other agreements executed in connection herewith and the consummation
of the Zenith Merger and of the other transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the
part of Parent, Holdco, Zenith Acquisition or Millennium Acquisition and,
subject to obtaining the approval of Parent's shareholders as contemplated
by Section 2.1 hereof, no other corporate proceedings on the part of
Parent, Holdco, Zenith Acquisition or Millennium Acquisition are necessary
to authorize this Agreement or any other agreements executed in connection
herewith or to consummate the transactions so contemplated. Each of this
Agreement and the other agreements executed in connection herewith to which
Parent, Holdco, Zenith Acquisition or Millennium Acquisition is a party has
been duly executed and delivered by Parent, Holdco, Zenith Acquisition or
Millennium Acquisition and, assuming each of this Agreement and such other
agreements constitute a valid and binding obligation of the other parties
hereto and thereto, constitutes a valid and binding obligation of each of
Parent, Holdco, Zenith Acquisition or Millennium Acquisition enforceable
against them in accordance with its respective terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought. The shares of Holdco Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights.
Section 4.4 Consents and Approvals; No Violations. Except for
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the
Securities Act, the Merger Agreement as required by the CGCL, state blue
sky laws and any applicable state takeover laws, and the approval by
Parent's shareholders of the formation of Holdco and the issuance of Holdco
Common Stock in the Merger, none of the execution, delivery or performance
of this Agreement or any other agreement executed in connection herewith by
Parent, Holdco, Zenith Acquisition and Millennium Acquisition nor the
consummation by any of them of the transactions contemplated hereby or
thereby, nor compliance by any of them with any of the provisions hereof or
thereof will (i) conflict with or result in any breach of any provision of
the respective articles or certificates of incorporation or by-laws of
Parent or any of its Subsidiaries, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, (iii)
except as set forth in Section 4.4 of Parent Disclosure Schedule, result in
a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, license, lease,
contract, agreement or other instrument or obligation to which Parent or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any
of its Subsidiaries or any of their properties or assets, except in the
case of clauses (ii), (iii) and (iv) where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings, or
where such violations, breaches or defaults would not have a Parent
Material Adverse Effect.
Section 4.5 Information in Proxy Statement/Prospectus. The
Registration Statement (or any amendment thereof or supplement thereto)
will not, at the date it becomes effective and at the time of the Special
Meeting, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which
they are made, not misleading, except that no representation is made by
Parent, Holdco, Zenith Acquisition or Millennium Acquisition with respect
to statements made therein based on information supplied by the Company in
writing expressly for inclusion in the Registration Statement. The
Registration Statement will comply in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder.
Each of Parent, Holdco, Zenith Acquisition, and Millennium Acquisition
agrees to correct promptly any such information provided by it that shall
have become false or misleading in any material respect and to take all
steps necessary to file with the SEC and have declared effective or cleared
by the SEC any amendment or supplement to the Registration Statement or the
Proxy Statement/Prospectus/Consent Solicitation so as to correct the same
and to cause the Proxy Statement/Prospectus/Consent Solicitation as so
corrected to be disseminated to Parent's shareholders and the Company's
shareholders to the extent required by applicable law. The Registration
Statement and the Proxy Statement/Prospectus/Consent Solicitation shall
comply as to form in all material respects with the provisions of the
Securities Act, the Exchange Act and other applicable laws.
Section 4.6 SEC Reports and Financial Statements. Parent has
filed with the SEC, and has heretofore made available to the Company true
and complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it and its Subsidiaries since October 1,
1995 under the Exchange Act or the Securities Act (as such documents have
been amended since the time of their filing, collectively, the "Parent SEC
Documents"). As of their respective dates or, if amended, as of the date
of the last such amendment, the Parent SEC Documents, including, without
limitation, any financial statements or schedules included therein (a) did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading, and (b) complied in all material respects with
the applicable requirements of the Exchange Act and the Securities Act, as
the case may be, and the applicable rules and regulations of the SEC
thereunder. Each of the consolidated financial statements included in the
Parent SEC Documents have been prepared from, and are in accordance with,
the books and records of Parent and its Subsidiaries, comply in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position and the consolidated
results of operations and cash flows of the Parent and its consolidated
Subsidiaries as at the dates thereof or for the periods presented therein.
Section 4.7 Absence of Certain Changes. Except to the extent
disclosed in the Parent SEC Documents filed prior to the date of this
Agreement, since December 31, 1997 through the date of this Agreement,
Parent and its Subsidiaries have conducted their respective businesses and
operations in all material respects consistent with past practice only in
the ordinary and usual course. From December 31, 1997 through the date of
this Agreement, there has not occurred (i) any event, change, or effect
(including the incurrence of any liabilities of any nature, whether or not
accrued, contingent or otherwise) having or, which would have a Parent
Material Adverse Effect, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property)
with respect to the equity interests of Parent or of any of its
Subsidiaries other than regular quarterly cash dividends or dividends paid
by wholly owned Subsidiaries, or (iii) any change by Parent or any of its
Subsidiaries in accounting principles or methods, except insofar as may be
required by a change in GAAP.
Section 4.8 Rights Agreement. Parent has taken all action that
may be necessary under that certain Rights Agreement, dated as of June __,
1996, between Parent and American Stock Transfer & Trust Company (the
"Rights Agreement") so that (i) the execution of this Agreement and the
other agreements executed in connection with the Zenith Merger, and any
amendments hereto and thereto by the parties hereto and the consummation of
the transactions contemplated hereby shall not cause (A) the Company to
become an "Acquiring Person" (as defined in the Rights Agreement), or (B) a
Distribution Date or a Shares Acquisition Date (as such terms are defined
in the Rights Agreement) to occur, irrespective of the consummation of the
transactions contemplated hereby and (ii) the Rights Agreement is otherwise
inapplicable to this Agreement and the transactions contemplated hereby.
Parent has furnished to the Company true and complete copies of all
amendments to the Rights Agreement that satisfy the requirements of this
Section 4.8 and such amendments are in full force and effect.
Section 4.9 Activities of Zenith Acquisition and Millennium
Acquisition. Each of Holdco, Zenith Acquisition and Millennium Acquisition
was formed for the purpose of participating in the Zenith Merger and
Millennium Merger, as applicable, as contemplated in this Agreement. None
of Holdco, Zenith Acquisition or Millennium Acquisition has carried on any
business.
Section 4.10 Opinion of Financial Advisor. The Board of
Directors of Parent has received the opinion of Salomon Smith Barney Inc.,
dated the date of this Agreement, to the effect that, as of such date, the
Zenith Exchange Ratio is fair to holders of the Parent Common Stock from a
financial point of view (the "Parent Opinion"), a copy of the written
opinion of which will be delivered to the Company promptly after receipt
thereof by Parent.
Section 4.11 No Default. The businesses of Parent and its
Subsidiaries are not being conducted in default or violation of any term,
condition or provision of (i) its respective articles of incorporation and
by-laws, (ii) any note, bond, mortgage, indenture, guarantee, other
instrument or obligation to which Parent is a party or by which it or any
of its properties or assets may be bound, or (iii) any United States
federal, state, local or foreign law, statute, regulation, rule, ordinance,
judgment, decree, order, writ, injunction, concession, grant, franchise,
permit or license or other governmental authorization or approval
applicable to Parent, excluding from the foregoing clauses (ii) and (iii),
defaults or violations that would not have a Parent Material Adverse
Effect. As of the date of this Agreement, no investigation or review by
any Governmental Entity or other entity with respect to Parent or any of
its Subsidiaries is pending or, to the best knowledge of Parent,
threatened, nor has any Governmental Entity or other entity indicated an
intention to conduct the same, other than, in each case, those the outcome
of which, as far as reasonably can be foreseen, in the future will not have
a Parent Material Adverse Effect.
Section 4.12 Full Disclosure. Parent has not knowingly failed
to disclose to the Company any facts material to the business, results of
operations, assets, liabilities or financial condition of Parent and its
subsidiaries taken as a whole. No representation or warranty by Parent in
this Agreement and no statement by Parent in any document referred to
herein (including the schedules and exhibits hereto), contains any untrue
statements of a material fact or omits to state any material fact
necessary, in order to make the statements made herein or therein, in light
of the circumstances under which they were made, not misleading.
Section 4.13 Litigation. As of the date hereof, except as set
forth in Section 4.13 of the Parent Disclosure Schedule or as disclosed in
the Parent SEC Documents, there is no action, suit, proceeding or, to the
best knowledge of Parent, investigation pending or, to the best knowledge
of Parent, threatened, involving Parent or any of its Subsidiaries, by or
before any court, governmental or regulatory authority or by any third
party that would have a Parent Material Adverse Effect.
Section 4.14 Taxes. Except as set forth in Section 4.14 of the
Parent Disclosure Schedule:
(a) Parent and each of its Subsidiaries has timely
filed (or has had timely filed on its behalf) with the appropriate Tax
Authorities all Tax Returns required to be filed by, Parent and each of its
Subsidiaries, and such Tax Returns are true, correct, and complete in all
material respects;
(b) Parent and each of its Subsidiaries has paid, or
where payment is not yet due, has established (or has had established on
its behalf and for its sole benefit and recourse) an adequate accrual in
accordance with GAAP for the payment of, all Taxes for all periods ending
through the date hereof;
(c) there are no liens for Taxes upon any property or
assets of Parent or any of its Subsidiaries, except for liens for Taxes not
yet due and for which adequate reserves have been established in accordance
with GAAP;
(d) no Federal, state, local or foreign Audits are
presently pending with regard to any Taxes or Tax Returns of Parent and its
Subsidiaries and to the best knowledge of Parent, no such Audit is
threatened;
(e) the Tax Returns of Parent and each of its
Subsidiaries have been examined by the applicable Tax Authority (or the
applicable statutes of limitation for the assessment of Taxes for such
periods have expired), and for any year that a Tax Return was examined, no
material adjustments were asserted as a result of such examination which
have not been resolved and fully paid, and no issue has been raised by any
Tax Authority in any Audit of Parent or any of its Subsidiaries that, if
raised with respect to any other period not so audited, could be expected
to result in a proposed deficiency for any such period not so audited;
(f) there are no outstanding requests, agreements,
consents or waivers to extend the statutory period of limitations
applicable to the assessment of any Taxes or deficiencies against Parent or
any of its Subsidiaries, and no power of attorney granted by Parent or any
of its Subsidiaries with respect to any Taxes is currently in force;
(g) neither Parent nor any of its Subsidiaries is a
party to any agreement providing for the allocation, indemnification, or
sharing of Taxes; and
(h) neither Parent nor any of its Subsidiaries has been
a member of any "affiliated group" (as defined in section 1504(a) of the
Code) and is not subject to Treas. Reg. 1.1502-6 for any period.
Section 4.15 Employee Benefit Plans; ERISA. Except as set forth
in Section 4.15 of the Zenith Disclosure Schedule:
(a) The Parent SEC Documents contain a list of each
material employee benefit plan, program, policy or arrangement and each
material employment, consulting, severance, change in control or similar
agreement under which Zenith or any Subsidiary has any liability (the
"Zenith Plans").
(b) None of the Zenith Plans is subject to Title IV of
ERISA, and neither Zenith nor any ERISA Affiliate has at any time
sponsored, maintained, contributed to or been required to make
contributions to any employee pension benefit plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA. No liability under Title IV
of ERISA has been incurred by Zenith, any of its Subsidiaries or any ERISA
Affiliate since the effective date of ERISA that has not been satisfied in
full, and no condition exists that presents a material risk to Zenith or
any of its Subsidiaries or any ERISA Affiliate of incurring any liability
under such Title.
(c) Each of the Zenith Plans has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to ERISA and the Code.
(d) No amounts payable under any of the Zenith Plans or
any other contract, agreement or arrangement with respect to which Zenith
or any of its Subsidiaries may have any liability could fail to be
deductible for federal income tax purposes by virtue of section 162(m) or
section 280G of the Code.
(e) No Zenith Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect
to current or former employees of Zenith, its Subsidiaries or any ERISA
Affiliate after retirement or other termination of service (other than
(i) coverage mandated by applicable laws, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in
Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Zenith, any of its Subsidiaries or an ERISA
Affiliate, or (iv) benefits, the full direct cost of which is borne by the
current or former employee (or beneficiary thereof)).
(f) The consummation of the transactions contemplated
by this Agreement will not, either alone or in combination with any other
event, (i) entitle any current or former employee, officer or director of
Zenith, any of its Subsidiaries or any ERISA Affiliate to severance pay,
unemployment compensation or any other similar termination payment, or (ii)
accelerate the time of payment or vesting, or increase the amount of or
otherwise enhance any benefit due any such employee, officer or director.
Section 4.16 No Undisclosed Liabilities. Except for liabilities
and obligations incurred in the ordinary course of business and consistent
with past practice, since December 31, 1997 through the date of this
Agreement and except as set forth in Section 4.16 of the Parent Disclosure
Schedule, Parent has not incurred any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that have a Parent
Material Adverse Effect or would be required to be reflected or reserved
against on a balance sheet of Parent (including the notes thereto) prepared
in accordance with GAAP as applied in preparing the balance sheet of Parent
as of December 31, 1997. Section 4.16 of the Parent Disclosure Schedule
sets forth the amount of principal and unpaid interest outstanding under
each instrument evidencing indebtedness of Parent which will accelerate or
become due or result in a right of redemption or repurchase on the part of
the holder of such indebtedness (with or without due notice or lapse of
time) as a result of this Agreement, any of the other agreements executed
in connection herewith, the Zenith Merger or the other transactions
contemplated hereby or thereby.
Section 4.17 Transactions with Affiliates. Except as set forth
in Section 4.17 of the Parent Disclosure Schedule, or in the Parent SEC
Documents filed prior to the date hereof, since December 31, 1997 there
have been no transactions, agreements, arrangements or understandings
between Parent or its Subsidiaries, on the one hand, and their respective
affiliates, on the other hand, that would be required to be disclosed under
Item 404 of Regulation S-K under the Securities Act.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company
covenants and agrees that, except (i) as expressly provided in this
Agreement, or (ii) with the prior written consent of Parent, after the date
hereof and prior to the Effective Time:
(a) the business of the Company shall be conducted only
in the ordinary and customary course consistent with past practice, and the
Company shall use its best efforts to preserve its business organization
intact and maintain its existing relations with customers, suppliers,
employees, creditors and business partners;
(b) the Company will not, directly or indirectly,
split, combine or reclassify the outstanding Company Common Stock or
Company Preferred Stock;
(c) the Company shall not: (i) amend its articles of
incorporation or by-laws,(ii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to its
capital stock, (iii) issue, sell, transfer, pledge, dispose of or encumber
any additional shares of, or securities convertible into or exchangeable
for, or options (except options issued to newly hired employees consistent
with past practice), warrants, calls, commitments or rights of any kind to
acquire, any shares of capital stock of any class of the Company, other
than issuances pursuant to the exercise of Company Options outstanding on
the date hereof, (iv) transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any material assets other than in the ordinary and
usual course of business and consistent with past practice, or (v) redeem,
purchase or otherwise acquire directly or indirectly any of its capital
stock;
(d) the Company shall not modify, amend or terminate
any of the Company Agreements or waive, release or assign any material
rights or claims, except in the ordinary course of business and consistent
with past practice;
(e) the Company shall not permit any material insurance
policy naming it as a beneficiary or a loss payable payee to be canceled or
terminated without notice to Parent, except in the ordinary course of
business and consistent with past practice;
(f) the Company shall not: (i) incur or assume any
long-term debt, except for amounts not in excess of $50,000 in the
aggregate, or except in the ordinary course of business consistent with
past practice, incur or assume any short-term indebtedness in amounts not
consistent with past practice, (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 and consistent with past practice, (iii) make any loans, advances
or capital contributions to, or investments in, any other Person (other
than customary loans or advances to employees in accordance with past
practice), or (iv) except as specifically contemplated herein, enter into
any material commitment or transaction (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets) and
other than capital expenditures pursuant to the Company's capital
expenditures budget previously delivered to Parent and other capital
expenditures that do not exceed $25,000 in the aggregate since June 30,
1998;
(g) the Company shall not: (i) change any of the
accounting principles used by it unless required by GAAP, or (ii) take or
knowingly allow to be taken any action which would jeopardize qualification
of the Millennium Merger as a nonrecognition transfer under the Code;
(h) the Company shall not pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of any such claims, liabilities or obligations (x) in the
ordinary course of business and consistent with past practice, or claims,
liabilities or obligations reflected or reserved against in, or
contemplated by, the financial statements (or the notes thereto) of the
Company, or (y) which are legally required to be paid, discharged or
satisfied (provided that if such claims, liabilities or obligations
referred to in this clause (y) are legally required to be paid and are also
not otherwise payable in accordance with clause (x) above, the Company will
notify Parent in writing if such claims, liabilities or obligations exceed,
individually or in the aggregate, $50,000 in value, reasonably in advance
of their payment);
(i) the Company shall not adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of the Company (other than the
Millennium Merger);
(j) the Company shall not take, or agree to commit to
take, any action that would make any representation or warranty of the
Company contained herein inaccurate in any respect at, or as of any time
prior to, the Effective Time;
(k) the Company shall not voluntarily make or agree to
make any changes in Tax accounting methods or any material Tax election,
waive or consent to the extension of any statute of limitations with
respect to Taxes, or consent to any assessment of Taxes, or settle or
compromise any Audit; and
(l) the Company shall not (i) make any change in the
compensation payable or to become payable to any of its officers,
directors, employees, agents or consultants (other than general increases
in wages to employees who are not officers or directors or affiliates in
the ordinary course consistent with past practice, as disclosed in Section
3.8 of the Company Disclosure Schedule), or to persons providing management
services; (ii) enter into or amend any employment, severance, consulting,
termination or other agreement or employee benefit plan; or (iii) make any
loans to any of its officers, directors, employees, affiliates, agents or
consultants or make any change in its existing borrowing or lending
arrangements for or on behalf of any of such persons, whether pursuant to
an employee benefit plan or otherwise;
(m) except as specifically described on Schedule 5.1(m)
of the Company Disclosure Schedule, the Company shall not (i) pay or agree
to pay or make any accrual or arrangement for payment of any severance,
pension, retirement allowance or other employee benefit pursuant to any
existing plan, agreement or arrangement to any officer, director, employee
or affiliate except in the ordinary course of business consistent with past
practice; (ii) pay or agree to pay or make any accrual or arrangement for
payment to any officers, directors, employees or affiliates of the Company
of any amount relating to unused vacation days, except payments and
accruals made in the ordinary course consistent with past practice; (iii)
adopt or pay, grant, issue, accelerate or accrue salary or other payments
or benefits pursuant to any pension, profit-sharing, bonus, extra
compensation, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay,
retirement or other employee benefit plan, agreement or arrangement, or any
employment or consulting agreement with or for the benefit of any director,
officer, employee, agent or consultant, whether past or present; or (iv)
amend in any material respect any such existing plan, agreement or
arrangement in a manner inconsistent with the foregoing;
(n) From and after the date hereof, the Company shall
not effectuate (i) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within
any site of employment of the Company, or (ii) a "mass layoff" (as defined
in the WARN Act) affecting any site of employment of the Company, without
complying fully with any and all notice obligations (and/or pay and
benefits in lieu of notice) under the WARN Act or any similar obligation
under applicable state or local law requiring notice (and/or pay and
benefits in lieu of notice) to employees in the event of a plant closing or
layoff. For purposes of the WARN Act and this Agreement, the Effective
Time of the Mergers is and shall be the same as the "effective date" within
the meaning of the WARN Act; and
(o) the Company shall not enter into an agreement,
contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Interim Operations of Parent and Holdco. Parent
covenants and agrees that, except (i) as expressly provided in this
Agreement, (ii) with respect to the amendment of the Zenith 1995 Non-
Employee Directors' Stock Option Plan pursuant to a proposal as set forth
in Section 5.2 of the Parent Disclosure Schedule, or (iii) with the prior
written consent of the Company, after the date hereof and prior to the
Effective Time:
(a) Parent will not, directly or indirectly, split,
combine or reclassify the outstanding Parent Common Stock or Holdco Common
Stock;
(b) Neither Parent nor Holdco shall: (i) amend its
articles or certificate of incorporation or by-laws, or (ii) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to its capital Stock other than regular quarterly
cash dividends consistent with past practice;
(c) neither Parent nor Holdco shall: (i) change any of
the accounting principles used by it unless required by GAAP, or (ii) take
or knowingly allow to be taken any action which would jeopardize
qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code;
(d) neither Parent, Holdco, nor any of their respective
Subsidiaries will take, or agree to commit to take, any action that would
make any representation or warranty of Parent, Holdco, Zenith Acquisition
and Millennium Acquisition contained herein inaccurate in any respect at,
or as of any time prior to, the Effective Time; and
(e) neither Parent, Holdco, nor any of their respective
Subsidiaries will enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize, recommend, propose
or announce an intention to do any of the foregoing.
Section 5.3 Access to Information. Each of the Company and
Parent shall afford to the officers, employees, accountants, counsel,
financing sources and other representatives of Parent or the Company, as
applicable, access, during normal business hours, during the period prior
to the Effective Time of the Mergers, to all of its properties, books,
contracts, commitments and records and, during such period, each of the
Company and Parent shall furnish promptly to Parent or the Company, as
applicable, all information concerning its business, properties and
personnel as such other party may reasonably request. Unless otherwise
required by law, until the Effective Time, each such party will hold any
such information which is nonpublic in confidence in accordance with the
provisions of that certain Confidentiality Agreement between the Company
and Parent, dated as of November 21, 1997 (the "Confidentiality
Agreement"), subject to the requirements of applicable law. For purposes
of this Section 5.3 only, Parent shall be deemed to include each of
Parent's Subsidiaries.
Section 5.4 Consents and Approvals. Each of the Company,
Parent, Holdco, Zenith Acquisition and Millennium Acquisition will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby (which actions shall include, without
limitation, furnishing all information in connection with approvals of or
filings with any Governmental Entity) and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their Subsidiaries in connection with
this Agreement, the other agreements executed in connection herewith and
the transactions contemplated hereby and thereby. Each of the Company,
Parent, Holdco, Zenith Acquisition and Millennium Acquisition will, and
will cause its respective Subsidiaries, if any, to, take all reasonable
actions necessary to obtain any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity or other public or private
third party required to be obtained or made by Parent, Holdco, Zenith
Acquisition, Millennium Acquisition, the Company or any of their respective
Subsidiaries, if any, in connection with the Mergers or the taking of any
action contemplated thereby or by this Agreement or any other agreement
executed in connection herewith.
Section 5.5 Additional Agreements. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable, whether under
applicable laws and regulations or otherwise, or to remove any injunctions
or other impediments or delays, legal or otherwise, to consummate and make
effective the Mergers and the other transactions contemplated by this
Agreement and any other agreement executed in connection herewith. In case
at any time after the Effective Time of the Mergers any further action is
necessary or desirable to carry out the purposes of this Agreement or any
other agreement executed in connection herewith, the proper officers and
directors of the Company and Parent shall use all reasonable efforts to
take, or cause to be taken, all such necessary actions.
Section 5.6 Publicity. So long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall
issue or cause the publication of any press release or other announcement
with respect to the Mergers, this Agreement, any other agreement executed
in connection herewith, or the other transactions contemplated hereby or
thereby without the prior consultation of the other party, except as may be
required by law or by any listing agreement with the Nasdaq Stock Market.
Section 5.7 Notification of Certain Matters. The Company shall
give prompt notice to Parent and Parent shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time of the Mergers, and (ii)
any material failure of the Company or Parent, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder or under any other agreement executed in
connection herewith; provided, however, that the delivery of any notice
pursuant to this Section 5.7 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 5.8 Directors' and Officers' Insurance and
Indemnification. Holdco agrees that at all times after the Effective Time,
it shall indemnify, or shall cause the Millennium Surviving Corporation to
indemnify, each person who is now, or has been at any time prior to the
date hereof, a director or officer of Parent, the Company, any of their
respective subsidiaries or affiliates, or of any of their respective
successors and assigns (individually an "Indemnified Party" and
collectively the "Indemnified Parties"), to the same extent and in the same
manner as is now provided in the charter or by-laws of Parent or the
Company, as the case may be, or otherwise in effect on the date hereof
(pursuant to an indemnification agreement or otherwise), with respect to
any claim, liability, loss, damage, cost or expense (whenever asserted or
claimed) ("Indemnified Liability") based in whole or in part on, or arising
in whole or in part out of, any matter existing or occurring at or prior to
the Effective Time. Holdco shall, or shall cause the Millennium Surviving
Corporation to, maintain in effect for not less than six years after the
Effective Time the current policies of directors' and officers' liability
insurance maintained by Parent or the Company, as the case may be, on the
date hereof (provided that Parent or the Company, as the case may be, may
substitute therefor policies having at least the same coverage and
containing terms and conditions which are no less advantageous to the
persons currently covered by such policies as insured) with respect to
matters existing or occurring at or prior to the Effective Time. Without
limiting the foregoing, in the event any Indemnified Party becomes involved
in any capacity in any action, proceeding or investigation based in whole
or in part on, or arising in whole or in part out of, any matter, including
the transactions contemplated hereby, existing or occurring at or prior to
the Effective Time, then to the extent permitted by law Holdco shall, or
shall cause the Millennium Surviving Corporation or the Zenith Surviving
Corporation to, periodically advance to such Indemnified Party its legal
and other expenses (including the cost of any investigation and preparation
incurred in connection therewith), subject to the provision by such
Indemnified Party of an undertaking to reimburse the amounts so advanced in
the event of a final determination by a court of competent jurisdiction
that such Indemnified Party is not entitled thereto. Promptly after
receipt by an Indemnified Party of notice of the assertion (an "Assertion")
of any claim or the commencement of any action against him or her in
respect to which indemnity or reimbursement may be sought against Parent,
the Company, the Millennium Surviving Corporation, the Zenith Surviving
Corporation, or a Subsidiary of the Company or the Zenith Surviving
Corporation ("Indemnitors") hereunder, such Indemnified Party shall notify
any Indemnitor in writing of the Assertion, but the failure to so notify
any Indemnitor shall not relieve any Indemnitor of any liability it may
have to such Indemnified Party hereunder except where such failure shall
have materially prejudiced Indemnitor in defending against such Assertion.
Indemnitors shall be entitled to participate in and, to the extent
Indemnitors elect by written notice to such Indemnified Party within 30
days after receipt by any Indemnitor of notice of such Assertion, to
assume, the defense of such Assertion, at their own expense, with counsel
chosen by Indemnitors and reasonably satisfactory to such Indemnified
Party. Notwithstanding that Indemnitors shall have elected by such written
notice to assume the defense of any Assertion, such Indemnified Party shall
have the right to participate in the investigation and defense thereof,
with separate counsel chosen by such Indemnified Party, but in such event
the fees and expenses of such counsel shall be paid by such Indemnified
Party, unless, in the opinion of such separate counsel, (i) such
Indemnified Party has available to him one or more defenses to such
Assertion that may not be available to the Indemnitors, (ii) there is
otherwise a conflict of interest between the Indemnified Party, on the one
hand, and the Indemnitors, on the other hand, or (iii) the Indemnitors fail
to vigorously pursue the defense of the asserted claim. No Indemnified
Party shall settle any Assertion without the prior written consent of
Parent, nor shall Parent settle any Assertion without either (i) the
written consent of all Indemnified Parties against whom such Assertion was
made, or (ii) obtaining a general release from the party making the
Assertion for all Indemnified Parties as a condition of such settlement.
The provisions of this Section 5.8 are intended for the benefit of, and
shall be enforceable by, the respective Indemnified Parties. The
provisions of this Section 5.8 are not intended to constitute insurance.
To the extent that any policy of insurance shall provide all or any part of
the indemnity owed to the Indemnified Parties, or any of them, hereunder,
the Indemnitors shall be relieved of their obligation with regard thereto.
No acceptance by an Indemnified Party of any defense from any third party
with respect to an Assertion shall be deemed to constitute a waiver by such
Indemnified Party of its rights under this Section 5.8 or to receive the
full measure of the indemnity provided for hereby.
Section 5.9 Cooperation. Parent and the Company shall
together, or pursuant to an allocation of responsibility to be agreed upon
between them, coordinate and cooperate (i) in determining whether any
action by or in respect of, or filing with, any Governmental Entity is
required, or any actions, consents approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement and any
other agreement executed in connection herewith, and (ii) in seeking any
such actions, consents, approvals or waivers or making any such filings,
furnishing information required in connection therewith and timely seeking
to obtain any such actions, consents approvals or waivers. Subject to the
terms and conditions of this Agreement, Parent and the Company will each
use its reasonable best efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after the
Registration Statement is filed, and Parent and the Company shall, subject
to applicable law, confer on a regular and frequent basis with one or more
representatives of one another to report operational matters of
significance to the Mergers and the general status of ongoing operations
insofar as relevant to the Merger, provided that the parties will not
confer on any matter to the extent inconsistent with law.
Section 5.10 Nasdaq Listing Application. Prior to the Effective
Time of the Mergers, Parent will file, or will cause Holdco to file, with
the Nasdaq National Market a notification for listing of shares covering
the shares of Holdco Common Stock issuable in the Mergers or as a result of
Holdco's assumption of the Company Options and the Parent Options described
in Sections 2.1(d) and 2.2(d) hereof.
Section 5.11 Affiliate Agreements. (a) The Company has,
concurrently with the execution of this Agreement, delivered to Parent a
list setting forth the names of all persons who are expected to be, at the
effective time of the consents pursuant to the Consent Solicitation, in the
Company's reasonable judgment, "affiliates" of the Company for purposes of
Rule 145 under the Securities Act. The Company shall use its reasonable
best efforts to cause each person who is identified as an "affiliate" in
the list furnished pursuant to this Section 5.11 to execute a written
agreement as soon as practicable after the date hereof, in substantially in
the form of Exhibit E hereto.
(b) Parent shall, within five business days of the date
hereof, deliver to the Company a list setting forth the names of all
persons who are expected to be, at the time of the Special Meeting, in
Parent's reasonable judgment, "affiliates" of Parent for purposes of Rule
145 under the Securities Act. Parent shall use its reasonable best efforts
to cause each person who is identified as an "affiliate" in the list
furnished pursuant to this Section 5.11 to execute a written agreement as
soon as practicable after the date hereof, in substantially in the form of
Exhibit F hereto.
Section 5.12 Letters of Accountants. The Company will use
reasonable best efforts to cause to be delivered to Parent a letter and
consents from its independent auditors, dated the date on which the
Registration Statement shall become effective, in form reasonably
satisfactory to Parent and customary in scope and substance for letters and
consents delivered by independent public accountants in connection with
registration statements on Form S-4 under the Securities Act.
Section 5.13 Working Capital Funds. Parent hereby agrees to
fund the working capital requirements of the Company between the date of
execution of this Agreement and the Closing Date. In connection therewith,
to the extent the Company wishes to request a working capital advance at
any time during the period specified above, it shall submit a Request for
Working Capital Funds in the form of Exhibit G hereto.
Section 5.14 Financial Statements. The Company hereby agrees to
deliver to Parent copies of monthly financial statements with respect to
each month ended from the date of this Agreement through the Closing Date
no later than fifteen business days following the end of each such month.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of Each Party. The
obligations of the Company, on the one hand, and Parent, Holdco, Zenith
Acquisition and Millennium Acquisition, on the other hand, to consummate
the Mergers are subject to the satisfaction (or, if permissible, waiver by
the party for whose benefit such conditions exist) at or before the Closing
of the following conditions:
(a) this Agreement shall have been adopted and the
Millennium Merger and the transactions related thereto shall have been
approved pursuant to the Consent Solicitation by the shareholders of the
Company in accordance with the CGCL;
(b) this Agreement shall have been adopted and the
Zenith Merger, the issuance of Holdco Common Stock in the Mergers and
transactions related thereto shall have been approved by the shareholders
of Parent in accordance with the rules of the Nasdaq National Market and
the CGCL and the shares of Holdco Common Stock to be so issued shall have
been authorized for listing on the Nasdaq National Market, upon official
notice of issuance;
(c) no court, arbitrator or governmental body, agency
or official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining or prohibiting the consummation of
the Mergers or the effective operation of the business of Zenith Surviving
Corporation or Millennium Surviving Corporation after the Effective Time of
the Mergers;
(d) all actions by or in respect of or filings with any
governmental body, agency official, or authority required to permit the
consummation of the Mergers shall have been obtained but excluding any
consent, approval, clearance or confirmation the failure to obtain which
would not have a Parent Material Adverse Effect or, after the Effective
Time, a material adverse effect on Millennium Surviving Corporation or the
Zenith Surviving Corporation; and
(e) the Registration Statement shall have become
effective under the Securities Act and no stop order suspending
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
SEC.
Section 6.2 Conditions to the Obligations of Parent, Holdco,
Zenith Acquisition and Millennium Acquisition. The obligations of Parent,
Holdco, Zenith Acquisition and Millennium Acquisition to consummate the
Mergers are subject to the satisfaction (or waiver by Parent) at or before
the Closing of the following further conditions:
(a) the representations and warranties of the Company
shall have been true and correct in all material respects (without giving
effect to any limitation as to "materiality" or "material adverse effect"
set forth therein) both when made and (except for those representations and
warranties that address matters only as of a particular date which need
only be true and accurate as of such date) as of the Effective Time as if
made at and as of such time;
(b) the Company shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Effective Time;
(c) Parent shall have received a certificate executed
by the President or a Vice President of the Company, dated as of the
Closing Date, to the effect that the conditions set forth in paragraphs (a)
and (b) of this Section 6.2 have occurred;
(d) the Company shall have obtained, and there shall be
in full force and effect, the consents described in Section 6.2 of the
Company Disclosure Schedule;
(e) since the date of this Agreement, there shall not
have occurred any event, change or effect having, or which could have a
Company Material Adverse Effect;
(f) all of the issued and outstanding Company Preferred
Stock shall have been converted to Company Common Stock and there shall be
no class or series of any capital stock of the Company outstanding other
than Company Common Stock;
(g) the Company shall have caused all warrants to
purchase Company Common Stock and Company Preferred Stock including,
without limitation, the warrants granted in accordance with the Agreement
to Guarantee, dated April 6, 1998, by and among the Company, BRC Holdings,
Inc., Parent and JBJ Partners, Inc., and the Warrant to Purchase Series C
Preferred Stock, dated as of May 17, 1996, held by JBJ Partners, Ltd., to
be converted into that number of shares of Company Common Stock equal to
the net number of shares of Company Common Stock into which each such
warrant would have been convertible pursuant to a cashless exercise
procedure immediately prior to the Effective Time of the Millennium Merger;
(h) any default under the terms and provisions of the
Promissory Note and related loan documentation, each dated as of April 2,
1998, between the Company and Wells Fargo Bank (Texas), National
Association, shall have been cured or waived prior to the Effective Time of
the Mergers;
(i) the respective shareholders of Parent and the
Company shall not have asserted in accordance with the CGCL appraisal
rights for their shares of Company Capital Stock and Parent Common Stock,
respectively, for a material amount;
(j) the persons identified on Exhibit H to this
Agreement shall have entered into Employment Agreements with the Company,
in form and substance satisfactory to Parent, and as of the Effective Time,
at least 80% of the remaining persons employed by the Company as of the
date of this Agreement shall have consented to assume comparable positions
in the Millennium Surviving Corporation upon consummation of the Millennium
Merger, such consents to be in form and substance satisfactory to Parent;
and
(k) Parent shall have received an opinion of Skadden,
Arps, Slate, Meagher & Flom LLP, in form and substance reasonably
satisfactory to Parent, dated the Effective Time of the Mergers,
substantially to the effect that, on the basis of facts, representations
and assumptions set forth in such opinion, for Federal income tax purposes,
the Zenith Merger will be treated as a nonrecognition transfer of Parent
Common Stock by those holders thereof to Holdco for shares of Holdco Common
Stock.
In rendering such opinion, Skadden, Arps, Slate, Meagher & Flom
LLP may receive and rely upon representations contained in certificates of
Parent, Holdco, Zenith Acquisition, Millennium Acquisition, the Company,
and others, and the parties agree to provide Skadden, Arps, Slate, Meagher
& Flom LLP with such certificates as Skadden, Arps, Slate, Meagher & Flom
LLP may reasonably request in connection with rendering its opinion.
Section 6.3 Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Millennium Merger are subject
to the satisfaction (or waiver by the Company) at or prior to the Closing
of the following further conditions:
(a) the representations and warranties of Parent,
Holdco, Zenith Acquisition and Millennium Acquisition shall have been true
and correct in all material respects (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein) both when made and (except for those representations and
warranties that address matters only as of a particular date which need
only be true and accurate as of such date) as of the Effective Time as if
made at and as of such time;
(b) each of Parent, Holdco, Zenith Acquisition and
Millennium Acquisition shall have performed in all material respects all of
the respective obligations hereunder required to be performed by Parent,
Holdco, Zenith Acquisition or Millennium Acquisition, as the case may be,
at or prior to the Effective Time of the Mergers;
(c) the Company shall have received a certificate
executed by the President or a Vice President of Parent, dated as of the
Closing Date, to the effect that the conditions set forth in paragraphs (a)
and (b) of this Section 6.3 have occurred;
(d) since the date of this Agreement, there shall not
have occurred any event, change or effect having, or which would be
reasonably likely to have a Parent Material Adverse Effect; and
(e) the Company shall have received an opinion of Arter
& Hadden, in form and substance reasonably satisfactory to the Company,
dated the Effective Time, substantially to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion, for
Federal income tax purposes, the Millennium Merger will be treated as a
nonrecognition transfer of Company Common Stock by those holders thereof
(other than Parent) to Holdco for shares of Holdco Common Stock.
In rendering such opinion, Arter & Hadden may receive and rely
upon representations contained in certificates of the Company and others,
and the parties agree to provide Arter & Hadden with such certificates as
Arter & Hadden may reasonably request in connection with rendering its
opinion.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and the Mergers
contemplated herein may be abandoned at any time prior to the Effective
Time of the Mergers, whether before or after shareholder approval thereof:
(a) By the mutual consent of the Board of Directors of
Parent and the Board of Directors of the Company.
(b) By either of the Board of Directors of the Company
or the Board of Directors of Parent:
(i) if the Merger shall not have occurred on or
prior to March 31, 1999; provided, however, that the right to terminate
this Agreement under this Section 7.1(b)(i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Mergers to occur on or
prior to such date; or
(ii) if any Governmental Entity shall have issued
an order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use their reasonable
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and non-
appealable.
(c) By the Board of Directors of the Company:
(i) if Parent, Holdco, Zenith Acquisition or
Millennium Acquisition breaches or fails in any material respect to perform
or comply with any of its material covenants and agreements contained
herein or breaches its representations and warranties in any material
respect and, in each case, such breach or failure cannot be or has not been
cured within 30 days after giving written notice to the breaching party of
such breach or failure;
(ii) if the approval of the shareholders of Parent
contemplated by this Agreement shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of
shareholders or any adjournment thereof; or
(iii) if the Board of Directors of the Company
determines in its good faith judgment, after consultation with its legal
and financial advisors, that failure to terminate this Agreement could
result in the violation of the fiduciary duties of the members of the Board
of Directors of the Company under applicable law.
(d) By the Board of Directors of Parent:
(i) if the Company breaches or fails in any
material respect to perform or comply with any of its material covenants
and agreements contained herein or breaches its representations and
warranties in any material respect and, in each case, such breach or
failure cannot be or has not been cured within 30 days after giving written
notice to the breaching party of such breach or failure;
(ii) if the approval of the shareholders of the
Company contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote in the Consent
Solicitation; or
(iii) if the Board of Directors of Parent
determines, in its good faith judgment, after consultation with its legal
and financial advisors, that failure to terminate this Agreement could
result in the violation of the fiduciary duties of the members of the Board
of Directors of Parent under applicable law.
Section 7.2 Effect of Termination. In the event of the
termination of this Agreement as provided in Section 7.1 hereof, written
notice thereof shall forthwith be given to the other party or parties
specifying the provision hereof pursuant to which such termination is made,
and this Agreement shall forthwith become null and void, and there shall be
no liability on the part of the Parent, Holdco, Zenith Acquisition,
Millennium Acquisition or the Company except (A) for fraud or for willful
breach of this Agreement, and (B) as set forth in Sections 8.1 and 8.2
hereof.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. Each of the parties hereto
shall bear all costs and expenses incurred by it in connection with this
Agreement and the consummation of the transactions contemplated hereby.
Notwithstanding the foregoing, (a) the non-cash portion of any fees of
Salomon Smith Barney Inc. as set forth in that certain engagement letter,
dated December 15, 1997 (the "Engagement Letter"), between Parent and
Salomon Smith Barney Inc. shall be borne by Holdco, and (b) in the event
that Parent or the Company shall have terminated this Agreement pursuant to
Section 7.1 hereof other than Sections 7.1(c)(i) and 7.1(d)(i), all costs
and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be borne equally
by Parent and the Company, including, but not limited to, the cash portion
of the fees of Salomon Smith Barney Inc. as set forth in the Engagement
Letter.
Section 8.2 Finders' Fees. (a) Except for Robert E. LaBlanc
Associates, Inc. and EFO Holdings, Inc., a copy of whose respective
engagement agreements have been provided to Parent and whose fees will be
paid by the Company, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf
of the Company who might be entitled to any fee or commission from the
Company upon consummation of the transactions contemplated by this
Agreement.
(b) Except for Salomon Smith Barney Inc., whose fees
will be paid in accordance with the Engagement Letter and Section 8.1
hereof, there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of Parent or
its Subsidiaries who might be entitled to any fee or commission from any
such party upon consummation of the transactions contemplated by this
Agreement.
Section 8.3 Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified and supplemented in any and
all respects, whether before or after any vote or written consent of the
shareholders of the Company or Parent contemplated hereby, by written
agreement of the parties hereto, by action taken by their respective Boards
of Directors, at any time prior to the Closing Date with respect to any of
the terms contained herein.
Section 8.4 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
schedule, instrument or other document delivered pursuant to this Agreement
shall survive the Effective Time.
Section 8.5 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or sent by an overnight courier
service, such as FedEx, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent, Holdco, Zenith Acquisition or
Millennium Acquisition, to:
Zitel Corporation
47211 Bayside Parkway
Fremont, California 94538
Attention: Jack H. King
Telephone: (510) 440-9600
Facsimile: (510) 440-8526
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue
Palo Alto, California 94301
Attention: Kenton J. King, Esq.
Telephone: (650) 470-4500
Facsimile: (650) 470-4570
and
(b) if to the Company, to:
MatriDigm Corporation
4777 Hellyer Avenue
San Jose, California 95138
Attention: Richard Ormond
Telephone: (408) 360-3200
Facsimile: (408) 225-0215
with a copy to:
Arter & Hadden LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
Attention: Jeffrey M. Sone, Esq.
Telephone: (214) 761-2100
Facsimile: (214) 741-7139
Section 8.6 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. Whenever the words "include",
"includes" or "including" are used in this Agreement they shall be deemed
to be followed by the words "without limitation". The phrase "made
available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information
is to be made available. The phrases "the date of this Agreement", "the
date hereof", and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to October 5, 1998. As used in
this Agreement, the term "affiliate(s)" shall have the meaning set forth in
Rule l2b-2 of the Exchange Act.
Section 8.7 Counterparts. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have
been signed by each of the parties and delivered to the other parties, it
being understood that all parties need not sign the same counterpart.
Section 8.8 Entire Agreement; No Third Party Beneficiaries;
Rights of Ownership. This Agreement (together with any other agreement
executed in connection herewith), the Confidentiality Agreement (including
the documents and the instruments referred to herein and therein): (a)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof, and (b) except as provided in Section 5.8
hereof, are not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
Section 8.9 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
or other authority to be invalid, void, unenforceable or against its
regulatory policy, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
Section 8.10 Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of California
without giving effect to the principles of conflicts of law thereof.
Section 8.11 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Holdco, Zenith
Acquisition or Millennium Acquisition may assign, in its sole discretion,
any or all of its rights, interests and obligations hereunder to Parent or
to any direct or indirect wholly owned Subsidiary of Parent. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their duly authorized officers as of the date and year
first above written.
ZITEL CORPORATION
By: /s/ Jack H. King
-----------------
Jack H. King
Chief Executive Officer
MILLENNIUM HOLDING CORP.
By: /s/ Jack H. King
-----------------
Jack H. King
President
ZENITH ACQUISITION CORP.
By: /s/ Jack H. King
-----------------
Jack H. King
President
MILLENNIUM ACQUISITION I CORP.
By: /s/ Jack H. King
-----------------
Jack H. King
President
MATRIDIGM CORPORATION
By: /s/ Richard W. Ormond
----------------------
Richard W. Ormond
Chief Executive Officer
TABLE OF CONTENTS
ARTICLE I
THE MERGERS
Section 1.1 The Mergers . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.4 Effects of the Merger . . . . . . . . . . . . . . . . . . 4
Section 1.5 Charter and By-Laws . . . . . . . . . . . . . . . . . . . 4
Section 1.6 Directors . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.7 Officers . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.8 Shareholders' Meeting . . . . . . . . . . . . . . . . . . 5
Section 1.9 Consent Solicitation . . . . . . . . . . . . . . . . . . . 5
Section 1.10 Proxy Statement/Prospectus/Consent
Solicitation; Registration Statement . . . . . . . . . . . 6
ARTICLE II
EFFECTS OF THE MERGERS ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
Section 2.1 Effect on Parent Capital Stock . . . . . . . . . . . . . . 7
Section 2.2 Effect on Company Common Stock . . . . . . . . . . . . . 10
Section 2.3 Exchange of Shares and Certificates . . . . . . . . . . 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . 19
Section 3.3 Corporate Authorization; Validity of
Agreement; Company Action . . . . . . . . . . . . . . . 20
Section 3.4 Consents and Approvals; No Violations . . . . . . . . . 21
Section 3.5 Absence of Certain Changes . . . . . . . . . . . . . . . 22
Section 3.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . 23
Section 3.7 Information in Consents and
Registration Statement . . . . . . . . . . . . . . . . . 23
Section 3.8 Employee Benefit Plans; ERISA . . . . . . . . . . . . . 24
Section 3.9 Labor Matters . . . . . . . . . . . . . . . . . . . . . 27
Section 3.10 Litigation; Compliance with Law . . . . . . . . . . . . 29
Section 3.11 No Default . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 3.13 Material Contracts . . . . . . . . . . . . . . . . . . . 31
Section 3.14 Assets . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.15 Environmental Matters . . . . . . . . . . . . . . . . . 32
Section 3.16 Transactions with Affiliates . . . . . . . . . . . . . . 32
Section 3.17 Opinion of Financial Advisor . . . . . . . . . . . . . . 33
Section 3.18 Intellectual Property . . . . . . . . . . . . . . . . . 33
Section 3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.20 Accounts Receivable . . . . . . . . . . . . . . . . . . 37
Section 3.21 Financial Statements. . . . . . . . . . . . . . . . . . 37
Section 3.22 Full Disclosure . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT, HOLDCO, ZENITH ACQUISITION AND
MILLENNIUM ACQUISITION
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . 39
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . 40
Section 4.3 Authorization; Validity of Agreement;
Necessary Action . . . . . . . . . . . . . . . . . . . 41
Section 4.4 Consents and Approvals; No Violations . . . . . . . . . 42
Section 4.5 Information in Proxy Statement/Prospectus . . . . . . . 43
Section 4.6 SEC Reports and Financial Statements . . . . . . . . . . 43
Section 4.7 Absence of Certain Changes . . . . . . . . . . . . . . . 44
Section 4.8 Rights Agreement . . . . . . . . . . . . . . . . . . . . 44
Section 4.9 Activities of Zenith Acquisition and
Millennium Acquisition . . . . . . . . . . . . . . . . . 45
Section 4.10 Opinion of Financial Advisor . . . . . . . . . . . . . . 45
Section 4.11 No Default . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.12 Full Disclosure . . . . . . . . . . . . . . . . . . . . 46
Section 4.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.15 Employee Benefit Plans; ERISA . . . . . . . . . . . . . 47
Section 4.16 No Undisclosed Liabilities . . . . . . . . . . . . . . . 49
Section 4.17 Transactions with Affiliates . . . . . . . . . . . . . . 49
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company . . . . . . . . . . . 50
Section 5.2 Interim Operations of Parent and
Holdco . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.3 Access to Information . . . . . . . . . . . . . . . . . 54
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . . . . 55
Section 5.5 Additional Agreements . . . . . . . . . . . . . . . . . 55
Section 5.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.7 Notification of Certain Matters . . . . . . . . . . . . 56
Section 5.8 Directors' and Officers' Insurance
and Indemnification . . . . . . . . . . . . . . . . . . 56
Section 5.9 Cooperation . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.10 Nasdaq Listing Application . . . . . . . . . . . . . . . 59
Section 5.11 Affiliate Agreements . . . . . . . . . . . . . . . . . . 59
Section 5.12 Letters of Accountants . . . . . . . . . . . . . . . . . 59
Section 5.13 Working Capital Funds . . . . . . . . . . . . . . . . . 60
Section 5.14 Financial Statements . . . . . . . . . . . . . . . . . . 60
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to the Obligations of
Each Party . . . . . . . . . . . . . . . . . . . . . . . 60
Section 6.2 Conditions to the Obligations of
Parent, Holdco, Zenith Acquisition
and Millennium Acquisition . . . . . . . . . . . . . . . 61
Section 6.3 Conditions to the Obligations of
the Company . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE VII
TERMINATION
Section 7.1 Termination . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.2 Effect of Termination . . . . . . . . . . . . . . . . . 66
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . 67
Section 8.2 Finders' Fees . . . . . . . . . . . . . . . . . . . . . 67
Section 8.3 Amendment and Modification . . . . . . . . . . . . . . . 68
Section 8.4 Nonsurvival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . . . . . 68
Section 8.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 8.6 Interpretation . . . . . . . . . . . . . . . . . . . . . 69
Section 8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . 69
Section 8.8 Entire Agreement; No Third Party
Beneficiaries; Rights of Ownership . . . . . . . . . . . 70
Section 8.9 Severability . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.10 Governing Law . . . . . . . . . . . . . . . . . . . . . 70
Section 8.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . 70
EXHIBIT A Form of Shareholder Agreement . . . . . . . . . . . . A-1
EXHIBIT B-1 Agreement of Merger, dated as of the Closing
Date, among Holdco, Parent and Zenith
Acquisition . . . . . . . . . . . . . . . . . . . . B-1-1
EXHIBIT B-2 Agreement of Merger, dated as of the Closing
Date, among Holdco, the Company and
Millennium Acquisition . . . . . . . . . . . . . . . B-2-1
EXHIBIT C-1 Certificate of Incorporation of Zenith
Acquisition with attached Amendment No. 1 to
the same . . . . . . . . . . . . . . . . . . . . . . C-1-1
EXHIBIT C-2 Bylaws of Zenith Acquisition with attached
Amendment No. 1 to the same . . . . . . . . . . . . C-2-1
EXHIBIT D-1 Certificate of Incorporation of Millennium
Acquisition with attached Amendment No. 1 to
the same . . . . . . . . . . . . . . . . . . . . . . D-1-1
EXHIBIT D-2 Bylaws of Millennium Acquisition with
attached Amendment No. 1 to the same . . . . . . . . D-2-1
EXHIBIT E Form of Affiliates Agreement for Affiliates
of the Company . . . . . . . . . . . . . . . . . . . . E-1
EXHIBIT F Form of Affiliates Agreement for Affiliates
of Parent . . . . . . . . . . . . . . . . . . . . . . F-1
EXHIBIT G Request for Working Capital Funds . . . . . . . . . . G-1
EXHIBIT H Millennium Key Employees . . . . . . . . . . . . . . . H-1
LIST OF DEFINED TERMS
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Assertion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12(b)
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3(b)
CGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1(a)
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Company Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Company Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . 3.20
Company Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
Company Common Stock . . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
Company Convertible Securities . . . . . . . . . . . . . . . . . . 2.2(d)
Company Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . 3.0
Company Material Adverse Effect . . . . . . . . . . . . . . . . . . . 3.1
Company Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.17
Company Option . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2(d)
Company Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8
Company Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 2.2(b)
Company Stock Plan . . . . . . . . . . . . . . . . . . . . . . . . 2.2(d)
Computer Software . . . . . . . . . . . . . . . . . . . . . . . . 3.18(b)
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . 5.3
Consent Solicitation . . . . . . . . . . . . . . . . . . . . . . . . 1.9
Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
Engagement Letter . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1
Environmental Claims . . . . . . . . . . . . . . . . . . . . . . 3.15(b)
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . 3.15(a)
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8
ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5
Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Holdco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Holdco Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
Indemnified Liability . . . . . . . . . . . . . . . . . . . . . . . . 5.8
Indemnified Parties . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
Indemnitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8
Independent Director . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . 3.18(c)
Materials of Environmental Concern . . . . . . . . . . . . . . . 3.15(a)
Merger Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3
Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Millennium Acquisition . . . . . . . . . . . . . . . . . . . . . Preamble
Millennium Dissenting Shares . . . . . . . . . . . . . . . . . . . 2.2(c)
Millennium Exchange Ratio . . . . . . . . . . . . . . . . . . . . . 2.2(b)
Millennium Merger . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Millennium Merger Agreement . . . . . . . . . . . . . . . . . . . . . 1.3
Millennium Surviving Corporation . . . . . . . . . . . . . . . . . 1.1(b)
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Parent Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
Parent Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . 4.0
Parent Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10
Parent Material Adverse Effect . . . . . . . . . . . . . . . . . . . 4.1
Parent Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(d)
Parent Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 4.2
Parent SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . 4.6
Parent Stock Plan . . . . . . . . . . . . . . . . . . . . . . . . . 2.1(d)
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.16
Proxy Statement/Prospectus/Consent Solicitation . . . . . . . . . . . 1.10
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . 1.10
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2(b)
Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10
Shareholder Agreement . . . . . . . . . . . . . . . . . . . . . . Recitals
SPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8(b)
Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12(b)
Tax Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12(b)
Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12(b)
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12(b)
WARN Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9(b)
Zenith Acquisition . . . . . . . . . . . . . . . . . . . . . . . Preamble
Zenith Dissenting Shares . . . . . . . . . . . . . . . . . . . . . 2.1(c)
Zenith Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . 2.1(b)
Zenith Merger . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Zenith Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . 1.3
Zenith Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 4.15(a)
Zenith Surviving Corporation . . . . . . . . . . . . . . . . . . . 1.1(a)
EXHIBIT 10.1
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT (this "Agreement"), dated as of October
[__], 1998, by and between Zitel Corporation, a California corporation
("Parent") and [___________] ("Shareholder").
WITNESSETH:
WHEREAS, concurrently with the execution of this Agreement, Parent,
Millennium Holding Corp. ("Holdco"), Millennium Acquisition I Corp., a
Delaware corporation and a wholly-owned subsidiary of Holdco ("Millennium
Acquisition"), Zenith Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Holdco, and MatriDigm Corporation, a California
corporation (the "Company") have entered into an Agreement and Plan of
Reorganization and Merger, dated of even date herewith (the "Merger
Agreement"), pursuant to which the parties thereto have agreed, among other
things, to merge Millennium Acquisition with and into the Company upon the
terms and subject to the conditions set forth therein (the "Millennium
Merger"); and
WHEREAS, as of the date hereof, Shareholder is the record and
Beneficial Owner (as defined hereinafter) of (i) [_________] shares of the
Common Stock, no par value, of the Company (the "Common Stock"), and (ii)
[_________] shares of the Preferred Stock, no par value, of the Company
(the "Preferred Stock"); and
WHEREAS, as inducement and a condition to entering into the Merger
Agreement, Parent has required Shareholder to agree, and Shareholder has
agreed, to enter into this Agreement; and
WHEREAS, upon the terms and subject to the conditions set forth
herein, Shareholder desires to (i) vote all such Shareholder's shares of
Common Stock and Preferred Stock in favor of the Millennium Merger and the
approval and adoption of the Merger Agreement and to execute a written
consent in furtherance thereof, and (ii) as promptly as practicable
hereafter, convert any shares of Preferred Stock held by such Shareholder
into shares of Common Stock.
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained
herein, the parties hereto, intending to be legally bound hereby, agree as
follows:
Section 1. CERTAIN DEFINITIONS. In addition to the terms
defined elsewhere herein, capitalized terms used and not defined herein
have the respective meanings ascribed to them in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with
respect to any securities means having or sharing, directly or indirectly,
through any contract, arrangement, understanding, relationship or
otherwise, voting power, including the power to vote, or to direct the
voting of, such securities, and/or investment power, including the power to
dispose, or to direct the disposition, of such securities. Without
duplicative counting of the same securities by the same holder, securities
Beneficially Owned by a person include securities Beneficially Owned by all
other persons with whom such person acts in a partnership, limited
partnership, syndicate or other group for the purpose of acquiring,
holding, or disposing of securities of the same issuer.
(b) "Existing Shares" means shares of Common Stock and
Preferred Stock Beneficially Owned by Shareholder as of the date hereof.
(c) "Securities" means the Existing Shares together with
any shares of Common Stock, Preferred Stock or other securities of the
Company acquired by Shareholder in any capacity after the date hereof and
prior to the termination of this Agreement, whether upon the exercise of
options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities, or by means of purchase, dividend, distribution,
split-up, recapitalization, combination, exchange of shares or the like,
gift, bequest, inheritance or as a successor in interest in any capacity or
otherwise.
Section 2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER.
Shareholder represents and warrants to Parent as follows:
(a) Ownership of Shares. Except as set forth in Schedule
2(a), Shareholder is the sole record and Beneficial Owner of the number of
shares of Common Stock and Preferred Stock set forth opposite such
Shareholder's name on Schedule A hereto. Shareholder has sole voting power
and sole power to issue instructions with respect to the matters set forth
in Sections 5, 7 and 8 hereof, sole power of disposition, sole power of
conversion, sole power to demand 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 Existing Shares with no limitations, qualifications
or restrictions on such rights, subject to the terms of this Agreement.
Shareholder does not own any securities of the Company on the date hereof
other than the shares of Common Stock and Preferred Stock set forth on
Schedule A and the options to purchase share of Common Stock, if any,
specified in Schedule 2(a).
(b) Power; Binding Agreement. Shareholder has the legal
capacity, power and authority to enter into and perform all of
Shareholder's obligations under this Agreement. This Agreement has been
duly and validly executed and delivered by Shareholder and constitutes a
valid and binding agreement of Shareholder, enforceable against Shareholder
in accordance with its terms except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(c) No Conflicts. Except as disclosed in the Merger
Agreement, no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority ("Governmental
Entity") is necessary for the execution of this Agreement by Shareholder
and the consummation by Shareholder of the transactions contemplated
hereby, none of the execution and delivery of this Agreement by
Shareholder, the consummation by Shareholder of the transactions
contemplated hereby or compliance by Shareholder with any of the provisions
hereof shall (i) conflict with or result in any breach of any
organizational documents applicable to Shareholder, (ii) 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, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which Shareholder is a party or by which Shareholder or any of its
properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable
to Shareholder or any of Shareholder's properties or assets.
(d) No Encumbrance. Except as permitted by this Agreement,
the Existing Shares are now and, at all times during the term hereof, and
the Securities will be, held by Shareholder or by a nominee or custodian
for the benefit of Shareholder, free and clear of all mortgages, claims,
charges, liens, security interests, pledges or options, proxies, voting
trusts or agreements, understandings or arrangements or any other rights
whatsoever (collectively, "Encumbrances"), except for any such Encumbrances
arising hereunder.
(e) No Finder's Fees. No broker, investment banker,
financial advisor 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 hereby based upon arrangements made by or on
behalf of Shareholder.
(f) Reliance by Parent. Shareholder understands and
acknowledges that Parent is entering into the Merger Agreement in reliance
upon Shareholder's execution and delivery of this Agreement.
Section 3. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent
hereby represents and warrants to Shareholder as follows:
(a) Power; Binding Agreement. Parent has the corporate
power and authority to enter into and perform all of its obligations under
this Agreement. This Agreement has been duly and validly executed and
delivered by Parent and constitutes a valid and binding agreement of
Parent, enforceable against Parent in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(b) No Conflicts. Except as disclosed in the Merger
Agreement, no filing with, and no permit, authorization, consent or
approval of, any Governmental Entity is necessary for the execution of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby, and none of the execution and delivery of this
Agreement by each of Parent, the consummation by each of Parent of the
transactions contemplated hereby or compliance by each of Parent with any
of the provisions hereof shall (i) conflict with or result in any breach of
any organizational documents applicable to Parent, (ii) 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, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which Parent is a party or by which Parent or any of its properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to Parent or any of
its properties or assets.
Section 4. DISCLOSURE. Shareholder hereby agrees to permit
Parent to publish and disclose in the Proxy Statement/Prospectus and any
press release or other disclosure document which Parent, in its sole
discretion, determines to be necessary or desirable in connection with the
Millennium Merger and any transactions related thereto, Shareholder's
identity and ownership of Common Stock and Preferred Stock, and the nature
of Shareholder's commitments, arrangements and understandings under this
Agreement.
Section 5. CERTAIN PROHIBITED TRANSFERS. Prior to the
termination of this Agreement, Shareholder agrees not to, directly or
indirectly:
(a) except pursuant to the terms of the Merger Agreement or
for distributions to the partners or members, as applicable, of
Shareholder, 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 the Securities or any interest therein
[including, without limitation, any sale, transfer or other disposition
pursuant to the Founders Agreement (as defined in Section 8 hereof)];(1)
- --------------------------
(1) Include in the Shareholder Agreement of each of the
Founders only.
(b) grant any proxy, power of attorney, deposit any of the
Securities into a voting trust or enter into a voting agreement or
arrangement with respect to the Securities except as provided in this
Agreement; or
(c) take any other action that would make any
representation or warranty of Shareholder contained herein untrue or
incorrect or have the effect of preventing or disabling Shareholder from
performing its obligations under this Agreement.
Section 6. CONVERSION OF PREFERRED SHARES. As promptly as
practicable on or following the date hereof, Shareholder shall deliver or
cause to be delivered to the Company all shares of Preferred Stock
Beneficially Owned by such Shareholder, together with written instructions
directing the Company to cause such shares to be converted into shares of
Common Stock in accordance with the applicable provisions of the Company's
Articles of Incorporation and in full satisfaction of all rights pertaining
to such shares of Preferred Stock, such conversion to be effective no later
than the business day immediately preceding the Effective Time of the
Millennium Merger.
Section 7. VOTING OF SECURITIES. Shareholder hereby agrees
that, during the period commencing on the date hereof and continuing until
the first to occur of (a) the Effective Time, or (b) termination of this
Agreement in accordance with its terms, in connection with the Consent
Solicitation, Shareholder will vote or consent (or cause to be voted or
consented) the Securities:
(A) in favor of the adoption of the Merger
Agreement and the approval of the Millennium Merger and the other
transactions contemplated by the Merger Agreement and this
Agreement and any actions required in furtherance thereof and
hereof;
(B) against any action or agreement that
would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement
of the Company under the Merger Agreement or this Agreement; and
(C) except as otherwise agreed to in writing
in advance by Parent in its sole discretion, against the
following actions (other than the Millennium Merger and the
transactions contemplated by this Agreement and the Merger
Agreement): (1) any change in a majority of the persons who
constitute the board of directors of the Company; (2) any
material change in the present capitalization of the Company,
including without limitation any proposal to sell a substantial
equity interest in the Company; (3) any amendment of the
Company's Articles of Incorporation or By-laws; (4) any other
change in the Company's corporate structure or business; or (5)
any other action which, in the case of each of the matters
referred to in clauses (1), (2), (3) or (4), is intended, or
could reasonably be expected, to impede, interfere with, delay,
postpone or materially adversely affect the Millennium Merger and
the transactions contemplated by this Agreement and the Merger
Agreement. Shareholder may not enter into any agreement or
understanding with any person the effect of which would be
inconsistent with or violative of any provision contained in this
Section 7.
Section 8. CONSENT SOLICITATION; FILING WITH SECRETARY.
Promptly following receipt thereof, Shareholder shall promptly execute and
file such Shareholder's written consent to the Millennium Merger with the
Secretary of the Company in accordance with the terms of the Consent
Solicitation.
Section 9. AFFILIATES AGREEMENT. Promptly following the
execution of this Agreement and no later than 10 days from the date hereof,
Shareholder agrees to execute and deliver to Parent an Affiliates
Agreement, substantially in the form attached as Exhibit E to the Merger
Agreement.
[Section [ ] WARRANT TO PURCHASE SERIES C COMPANY PREFERRED
STOCK. Shareholder agrees to execute all documents and to take all actions
necessary to convert the Warrant to Purchase Series C Preferred Stock,
dated as of May 17, 1996, held by Shareholder into that number of shares of
Company Common Stock equal to the net number of shares of Company Common
Stock into which such warrant would have been convertible pursuant to a
cashless exercise procedure immediately prior to the Effective Time of the
[Millennium Merger] (2)
[Section [ ] WARRANT TO PURCHASE COMPANY COMMON STOCK.
Shareholder agrees to execute all documents and to take all actions
necessary to convert the warrants granted in accordance with the Agreement
to Guarantee, dated April 6, 1998, by and among the Company, Parent,
Shareholder, BRC Holdings, Inc. and JBJ Partners, Inc., held by Shareholder
into that number of shares of Company Common Stock equal to the net number
of shares of Company Common Stock into which such warrant would have been
convertible pursuant to a cashless exercise procedure immediately prior to
the Effective Time of the Millennium Merger] (3)
- -------------------------
(2) Include in JBJ Shareholder Agreement only.
(3) Include in BRC Shareholder Agreement and JBJ Partners
Shareholder Agreement.
Section 10. PROXY.
(a) Shareholder hereby irrevocably grants to, and appoints,
Parent and Jack H. King and Henry C. Harris or any of them in their
respective capacities as officers of Parent and any individual who shall
hereafter succeed to any such office of Parent and each of them
individually, such Shareholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of
Shareholder, to grant a consent or approval in respect of the Securities in
connection with the Consent Solicitation.
(b) Shareholder understands and acknowledges that Parent is
entering into the Merger Agreement in reliance upon such Shareholder's
execution and delivery of this Agreement. Shareholder hereby affirms that
the irrevocable proxy set forth in this Section 10 is given in connection
with the execution of the Merger Agreement, and that such irrevocable proxy
is given to secure the performance of the duties of Shareholder under this
Agreement. Shareholder hereby further affirms that the irrevocable proxy
is coupled with an interest and may under no circumstances be revoked.
Shareholder hereby ratifies and confirms all that such irrevocable proxy
may lawfully do or cause to be done by virtue hereof. Such irrevocable
proxy is executed and intended to be irrevocable in accordance with the
provisions of Section 705 of the General Corporation Law of the State of
California.
Section 11. STOP TRANSFER; LEGEND.
(a) Shareholder agrees with, and covenants to, Parent that
Shareholder will not request that the Company register the transfer of any
certificate or uncertificated interest representing any of the Securities,
unless such transfer is made in compliance with this Agreement.
(b) In the event of a stock dividend or distribution, or
any change in the Common Stock or Preferred Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of share or the
like other than pursuant to the Millennium Merger, the term "Existing
Shares" will be deemed to refer to and include the shares of Common Stock
and Preferred Stock as well as all such stock dividends and distributions
and any shares into which or for which any or all of the Securities may be
changed or exchanged and appropriate adjustments shall be made to the terms
and provisions of this Agreement.
(c) Shareholder will promptly after the date hereof
surrender to the Company all certificates representing the Securities, and
the Company will place the following legend on such certificates in
addition to any other legend required to be placed thereon:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER SET FORTH IN THE SHAREHOLDER AGREEMENT, DATED AS OF OCTOBER
[__], 1998, BY AND AMONG ZITEL CORPORATION AND [____________]."
Section 12. BEST REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use its
best reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and the Merger Agreement. Each
party shall promptly consult with the other and provide any necessary
information and material with respect to all filings made by such party
with any Governmental Entity in connection with this Agreement and the
Merger Agreement and the transactions contemplated hereby and thereby.
Section 13. TERMINATION. This Agreement shall terminate on the
earliest of (a) termination of the Merger Agreement pursuant to its terms,
(b) the agreement of the parties hereto to terminate this Agreement, or (c)
the consummation of the Millennium Merger.
Section 14. MISCELLANEOUS.
(a) Entire Agreement. This Agreement (including the
documents and instruments referred to herein) constitutes the entire
agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to
the subject matter hereof.
(b) Successors and Assigns. This Agreement shall not be
assigned by operation of law or otherwise without the prior written consent
of the other parties hereto. This Agreement and the obligations set forth
herein shall be binding upon each party's respective heirs, beneficiaries,
executors, representatives and permitted assigns.
(c) Amendment and Modification. This Agreement may not be
amended, altered, supplemented or otherwise modified or terminated except
upon the execution and delivery of a written agreement executed by the
parties hereto.
(d) Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon (i)
transmitter's confirmation of a receipt of a facsimile transmission, (ii)
confirmed delivery by a standard overnight carrier or when delivered by
hand or (iii) the expiration of five business days after the day when
mailed by certified or registered mail, postage prepaid, addressed at the
following addresses (or at such other address for a party as shall be
specified by like notice):
If to Parent, to:
Zitel Corporation
47211 Bayside Parkway
Fremont, California 94538
Attention: Jack H. King
Facsimile: (510) 440-8526
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
525 University Avenue, Suite 220
Palo Alto, California 94301
Attention: Kenton J. King, Esq.
Facsimile: 650-470-4570
If to Shareholder, to:
________________________
________________________
________________________
________________________
with a copy to:
________________________
________________________
________________________
________________________
(e) Severability. Any term or provision of this Agreement
which is held to be invalid, illegal or unenforceable in any respect in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions
of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
(f) Specific Performance. Each of the parties hereto
recognizes and acknowledges 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 in the event of any such breach the aggrieved party shall be
entitled to the remedy of specified 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.
(g) 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,
will 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.
(h) No Third Party Beneficiaries. This Agreement is not
intended to confer upon any person other than the parties hereto any rights
or remedies hereunder.
(i) Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of California, without
giving effect to the principles of conflict of law thereof.
(j) Descriptive Heading. The descriptive headings used
herein are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
(k) Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses.
(l) Further Assurances. From time to time, at any other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further
lawful action as may be necessary or desirable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.
(m) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Parent and Shareholder have caused this
Agreement to be duly executed as of the day and year first written above.
ZITEL CORPORATION
By: ____________________________
Name:
Title:
By: ____________________________
[Shareholder] (4)
- -------------------------
(4) In the event this Agreement covers shares held
jointly or held individually by related parties who will
sign this together, each joint or related party shall
sign.
EXHIBIT 10.2
FORM OF LOCK-UP LETTER
October 5, 1998
[MATRIDIGM SHAREHOLDER]
Millennium Holding Corp.
c/o Zitel Corporation
47211 Bayside Parkway
Fremont, California 94538
Dear Sirs:
The undersigned understands that Zitel Corporation, a California
corporation ("Zitel") and Millennium Holding Corp., a Delaware corporation,
on the date hereof entered into that certain Agreement and Plan of
Reorganization and Merger by and among Zitel, Millennium Holding Corp.,
Zenith Acquisition Corp., Millennium Acquisition I Corp. and MatriDigm (the
"Merger Agreement") pursuant to which Zitel will acquire MatriDigm
Corporation, a California corporation. Under the Merger Agreement, the
undersigned will receive shares of Holdco Common Stock in exchange for
shares of Company Common Stock held by the undersigned immediately prior to
the Effective Time. Capitalized terms used but not otherwise defined
herein shall have the respective meanings set forth in the Merger
Agreement.
To induce Zitel to enter into the Merger Agreement, during the
period commencing on the date hereof and ending (i) if the Merger is
consummated prior to January 29, 1999, on the second trading day following
the public announcement of the consolidated results of operations of Zitel
and MatriDigm for the fiscal quarter ended March 31, 1999, and (ii) if the
Merger is consummated after January 29, 1999, on the second trading day
following the public announcement of the consolidated results of operations
of Zitel and MatriDigm for the fiscal quarter ended June 30, 1999, the
undersigned agrees not to (x) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Holdco Common Stock or any securities convertible into or
exercisable or exchangeable for Holdco Common Stock (including, without
limitation, shares of Holdco Common Stock or securities convertible into or
exercisable or exchangeable for Holdco Common Stock which may be deemed to
be beneficially owned by the undersigned in accordance with the rules and
regulations of the Securities and Exchange Commission) or (y) enter into
any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Holdco Common
Stock (regardless of whether any of the transactions described in clause
(x) or (y) is to be settled by the delivery of Holdco Common Stock, or such
other securities, in cash or otherwise), without the prior written consent
of Salomon Smith Barney; provided, that during such period the undersigned
may make gifts of shares of Holdco Common Stock or securities convertible
into Holdco Common Stock upon the condition that the donees agree to be
bound by the foregoing restriction in the same manner as it applies to the
undersigned; and provided, further, that with respect to securities
convertible into or exercisable or exchangeable for Holdco Common Stock,
the undersigned may distribute such securities to its partners or members,
as the case may be, so long as the recipients of such securities agree to
be bound by the foregoing restriction in the same manner as it applies to
the undersigned[; and provided, further, that during such period, the
undersigned shall be entitled to sell only that number of shares of Holdco
Common Stock required to extinguish the mortgage loan existing as of the
date hereof on the undersigned's primary residence, it being understood
that such proceeds are to be used solely to extinguish such mortgage loan
and not for any other purpose whatsoever(1)].
The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into the agreement set
forth herein, and that, upon request, the undersigned will execute any
additional documents necessary or desirable in connection with the
enforcement hereof. All authority herein conferred or agreed to be
conferred shall survive the death or incapacity of the undersigned and any
obligations of the undersigned shall be binding upon the heirs, personal
representatives, successors, and assigns of the undersigned.
Very truly yours,
__________________________
(Name - Please Type)
(Address)
(Social Security or Taxpayer
Identification No.)
- -------------------
(1) Franklin Chiang letter only.
SCHEDULE I
Number of shares of capital stock of MatriDigm owned: ________
Certificate Numbers: __________
__________
__________
Number of shares of Holdco Common Stock issuable upon
exchange of such securities: ________
EXHIBIT 27.1
MatriDigm Corporation
Selected Financial Data
for the Nine Months Ended
June 30, 1998
(In Millions; Unaudited)
Revenues $ 3.8
Net Loss $(10.8)
EXHIBIT 99.1
CONTACTS: Larry B. Schlenoff
Chief Financial Officer
Zitel Corporation
510-440-9600
Robert J. Luth
Chief Financial Officer
MatriDigm Corporation
408-360-3210
Marianne O'Connor
Sterling Communications, Inc.
408-441-4100
[email protected]
ZITEL CORPORATION SIGNS DEFINITIVE MERGER AGREEMENT
WITH MATRIDIGM CORPORATION
--NEW COMPANY TO BE NAMED MATRIDIGM CORPORATION--
FREMONT and SAN JOSE, CALIFORNIA, October 6, 1998 -- Zitel Corporation
(Nasadq:ZITL) ("Zitel") and MatriDigm Corporation ("MatriDigm") jointly
announced today that they have signed a definitive merger agreement
providing for a combination of the two companies. Zitel currently owns
approximately one-third of MatriDigm, a privately held company that
provides Year 2000 solutions software and services.
The resulting combination of Zitel and MatriDigm will be a
leading provider of software and services for information systems
optimization. Its primary businesses will include MatriDigm, a provider of
highly automated factory solutions for the Year 2000 IBM COBOL code
problem, and Datametrics, a provider of automated performance analysis and
correlation software designed to solve computer performance problems.
The merger will be effected by combining the ownership of Zitel
and MatriDigm into a new publicly traded Delaware corporation. Following
the consummation of the transaction, the current shareholders of Zitel and
MatriDigm will own approximately 55.5% and 44.5%, respectively, of the new
Company. The merger will include a tax-free exchange of stock whereby
existing Zitel shareholders will receive one share of the new Company for
each share of Zitel common stock they currently own, and existing MatriDigm
shareholders will receive approximately 0.65 share of the new Company for
each MatriDigm share they currently own. The name of the new Company will
be MatriDigm Corporation. For accounting purposes, the transaction will be
treated as a purchase.
The merger is subject to, among other things, Zitel and MatriDigm
obtaining shareholders' approval of the transaction, as well as regulatory
approval. The financial advisers to Zitel and MatriDigm are Salomon Smith
Barney Inc. and Robert E. LaBlanc Associates, Inc., respectively. The
transaction is expected to be completed early in calendar 1999.
Jack H. King, who is currently President and Chief Executive
Officer of Zitel, will continue as President of Zitel, which will consist
of the Datametrics business unit, and serve as a member of the new
MatriDigm Corporation Board of Directors. Richard W. Ormond, currently
Chairman, President and Chief Executive Officer of MatriDigm, will serve as
President, Chief Executive Officer and a Member of the Board of Directors
of the new MatriDigm. The Chairman of the Board will be nominated and
elected following the closing of the transaction.
Mr. King said, "The new MatriDigm will be well-positioned in two
promising segments of the technology marketplace: Y2K solutions and
performance analysis and correlation software. Our two companies are
technologically and strategically an excellent fit. In addition, Zitel
shareholders will benefit from direct ownership and greater visibility of
the MatriDigm business."
Mr. Ormond commented, "Zitel had the vision and foresight to
invest in the formation of MatriDigm in 1996, and has supported our company
as we evolved to provide a unique solution to the Y2K problem. We believe
the Y2K market is reaching a critical point and that this is the most
appropriate time to bring these two companies together to capitalize on
this opportunity. As we look toward the future, our technological
synergies will have important applications beyond the year 2000."
The agreement was unanimously approved by the Board of Directors
of each company who were eligible to vote. In connection with the
execution of the merger agreement, certain shareholders of MatriDigm have
entered into shareholder agreements with Zitel. The shareholder agreements
provide for, among other things, such shareholders' commitment to vote in
favor of the MatriDigm merger and the approval and adoption of the merger
agreement.
Zitel Corporation is an information technology company. Its
Datametrics subsidiary specializes in automated performance analysis and
correlation software and its Year 2000 services include consulting, project
management, planning, analysis, code conversion, code audit and testing.
Zitel is headquartered in Fremont, California. For additional information
about Zitel, including instructions on how to receive press releases via e-
mail, visit the Company's web site at http://www.zitel.com.
MatriDigm Corporation is a software technology company
specializing in the development of technologies and services that improve
the understanding, maintenance, migration, modification, and testing of
software applications. MatriDigm currently offers products and services
addressing the year 2000 problem for IBM COBOL code. MatriDigm has
received ITAA *2000 certification of its products and services. For the
nine months ended June 30, 1998, the company recorded revenues of $3.8
million and an net loss of $10.8 million (unaudited). For more information
about MatriDigm's business, please visit the company's web site at
www.matridigmusa.com or call the Company's Response Center toll free at 1-
888-YRS-2001.
Investors are invited to participate in a teleconference call on
Tuesday, October 6 with the management of Zitel and MatriDigm to discuss
the transaction. The call is scheduled to begin at 10:30 a.m. Eastern
Daylight Time and can be accessed by dialing 1-888-790-1771. The password
is "Zitel." Investors may listen to the conference call over the Internet
through Vcall at http://www.vcall.com. To listen to the live call, please
go to the website at least 15 minutes early to register, download and
install any necessary audio software. A replay will also be available.
This press release contains projections and other forward-looking
statements regarding future events or the future financial performance of
the Zitel Corporation and MatriDigm Corporation. These statements are only
predictions and actual events or results may differ materially. Refer to
the documents Zitel Corporation files from time to time with the Securities
and Exchange Commission. These documents contain and identify important
factors that could cause the actual results to differ materially from those
contained in the projections or forward-looking statements in this press
release.
# # #
