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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
Date of Report (Date of earliest event reported) June 14, 1999
-------------
USA TALKS.COM, INC.
-------------------
(Exact name of registrant as specified in charter)
Nevada 33-2474-LA 93-0915593
- ---------------------------- ------------------------ ----------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
4180 La Jolla Village Drive,
Suite 570, La Jolla, CA 92037
- ------------------------------ -----
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (619) 546-0550
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Not applicable
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(Former name or former address, if changed since last report)
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ITEM 2. Acquisition Or Disposition Of Assets
On June 14, 1999, USA Talks.com, Inc., a Nevada corporation ("USAT"),
through its subsidiaries, acquired all of the outstanding capital stock of
TriServe Communications, Inc. ("TriServe") from its sole shareholder, Steven
Roberts, pursuant to the terms of an Agreement and Plan of Merger and
Reorganization (the "Agreement"). In exchange for the stock of TriServe, USAT
(through its subsidiaries) issued an aggregate of 2,223,144 shares of common
stock, par value $0.001 per share, of USAT ("USAT Common Stock"), with 222,314
of such shares being deposited into an escrow in accordance with the terms of
the Agreement. The options issued under TriServe's stock option plan to purchase
common stock of TriServe were substituted with options to purchase stock of
USAT.
The number of shares of USAT Common Stock issued in exchange for the stock
of TriServe was based on an arm's length negotiation between the parties after
considering the perceived value of TriServe, the liabilities of TriServe, and
the market value of shares of USAT Common Stock.
Steven Roberts, the founder, president and chief executive officer of
TriServe, has been elected to the USAT Board of Directors and appointed senior
vice president of network operations for USAT.
ITEM 7. Financial Statements And Exhibits
(a) Financial statements of business acquired.
To be filed by amendment within 60 days of this report.
(b) Pro forma financial information.
To be filed by amendment within 60 days of this report.
(c) Exhibits.
Exhibit Description
- ------- -----------
Exhibit 2 Agreement and Plan of Merger and Reorganization made
and entered into as of May 31, 1999 by and among USA
TALKS.com, Inc., TSI Sub, Inc., TriServe
Communications, Inc. and Steven A. Roberts. Schedules,
exhibits and similar attachments to this Exhibit have
not been filed; upon request, USAT will furnish
supplementally to the Commission a copy of any omitted
schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
USA TALKS.com, Inc.
Date: June 29, 1999 By: /s/ Jack C. Alexander
-----------------------------------
Jack C. Alexander
Chief Financial Officer
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INDEX OF EXHIBITS
Exhibit Description
- ------- -----------
Exhibit 2 Agreement and Plan of Merger and Reorganization made
and entered into as of May 31, 1999 by and among
USATALKS.com, , Inc., TSI Sub, Inc., TriServe
Communications, Inc. and Steven A. Roberts. Schedules,
exhibits and similar attachments to this Exhibit have
not been filed; upon request, USAT will furnish
supplementally to the Commission a copy of any omitted
schedule.
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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
USA TALKS.COM, INC.,
a Nevada corporation,
TSI SUB, INC.,
a Delaware corporation,
TRISERVE COMMUNICATIONS, INC.,
a California corporation,
and
STEVEN A. ROBERTS
the sole shareholder of TriServe Communications, Inc.
Dated as of May 31, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................... 2
1.1 The Merger..................................................... 2
1.2 Closing; Effective Time........................................ 2
1.3 Articles of Incorporation and Bylaws........................... 2
1.4 Directors and Officers......................................... 3
1.5 Tax and Accounting Consequences................................ 3
ARTICLE II CONVERSION OF SECURITIES....................................... 3
2.1 Effect on Capital Stock........................................ 3
2.2 Dissenting Shares.............................................. 4
2.3 Exchange of Certificates....................................... 4
2.4 Treatment of Fractional Shares................................. 5
2.5 Further Action................................................. 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 5
3.1 Organization, Standing and Power............................... 5
3.2 Corporate Records.............................................. 5
3.3 Capital Stock.................................................. 6
3.4 Subsidiaries................................................... 6
3.5 Corporate Authority............................................ 6
3.6 Non-Contravention; Consents.................................... 7
3.7 Financial Statements........................................... 7
3.8 Operations Since Incorporation Date............................ 8
3.9 Title to Assets................................................ 8
3.10 No Undisclosed Liabilities..................................... 8
3.11 Equipment; Real Property Interests............................. 9
3.12 Real Property Leases........................................... 9
3.13 Intellectual Property.......................................... 9
3.14 Contracts...................................................... 11
3.15 Compliance With Legal Requirements............................. 12
3.16 Governmental Authorizations.................................... 12
3.17 Tax Matters.................................................... 12
3.18 Employee and Labor Matters; Benefit Plans...................... 14
3.19 Environmental Matters.......................................... 16
3.20 Bank Accounts.................................................. 17
3.21 Insurance...................................................... 17
3.22 Related Party Transactions..................................... 17
3.23 Legal Proceedings; Orders...................................... 17
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(Continued)
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3.24 Full Disclosure................................................ 18
3.25 No Finder...................................................... 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.............. 18
4.1 Capacity....................................................... 18
4.2 Binding Agreement.............................................. 18
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGERCO....................................................... 18
5.1 Organization, Standing and Power............................... 18
5.2 Authority; Binding Nature of Agreement......................... 19
5.3 No Finder...................................................... 19
5.4 Absence of Proceedings......................................... 19
5.5 Capitalization................................................. 19
5.6 SEC Filings; Financial Statements.............................. 20
5.7 Governmental Consents.......................................... 21
5.8 No Undisclosed Liabilities..................................... 21
5.9 Compliance with Laws........................................... 21
5.10 Full Disclosure................................................ 21
ARTICLE VI ADDITIONAL COVENANTS........................................... 21
6.1 Access and Investigation....................................... 21
6.2 Certain Agreements............................................. 22
6.3 Operation of the Company's Business............................ 22
6.4 Public Announcements........................................... 24
6.5 Filings and Consents........................................... 24
6.6 Regulatory Approvals........................................... 25
6.7 Treatment of Employee Plans and Benefits....................... 25
6.8 Notification; Updates to Schedules............................. 25
6.9 No Negotiation................................................. 27
6.10 Liability Coverage............................................. 27
6.11 Substitution of Company Options................................ 27
6.12 Form S-8....................................................... 28
6.13 Rule 144....................................................... 28
6.14 Non-Competition Agreement...................................... 28
6.15 Employment Agreement........................................... 28
6.16 Registration Statement......................................... 28
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(Continued)
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ARTICLE VII CONDITIONS TO THE MERGER....................................... 28
7.1 Conditions to Obligations of Each Party to Effect the Merger... 28
7.2 Additional Conditions to Obligations of Parent................. 29
7.3 Additional Conditions to Obligations of the Company............ 30
ARTICLE VIII TERMINATION.................................................... 32
8.1 Termination Events............................................. 32
8.2 Termination Procedures......................................... 32
8.3 Effect of Termination.......................................... 32
ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION PROVISIONS..................................... 33
9.1 Survival of Representations and Warranties..................... 33
9.2 Indemnification by the Shareholder............................. 33
9.3 Limits on Indemnification and Liability........................ 34
9.4 Interest....................................................... 34
9.5 Defense of Third Party Claims.................................. 34
9.6 Indemnity Escrow Fund.......................................... 35
ARTICLE X MISCELLANEOUS PROVISIONS....................................... 35
10.1 Fees and Expenses.............................................. 35
10.2 Attorneys' Fees................................................ 36
10.3 Notices........................................................ 36
10.4 Headings....................................................... 37
10.5 Schedules and Exhibits......................................... 37
10.6 Counterparts................................................... 37
10.7 Governing Law.................................................. 37
10.8 Assignment; Successors and Assigns............................. 37
10.9 Specific Performance........................................... 38
10.10 Waiver......................................................... 38
10.11 Amendments..................................................... 38
10.12 Severability................................................... 38
10.13 Entire Agreement............................................... 39
10.14 Construction................................................... 39
10.15 Shareholder's Damages.......................................... 39
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List of Exhibits:
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EXHIBIT A -- CERTAIN DEFINITIONS
EXHIBIT B -- AGREEMENT OF MERGER
EXHIBIT C -- CERTIFICATE OF MERGER
EXHIBIT D -- FORM OF EXECUTIVE NON-COMPETITION AND NON-INTERFERENCE AGREEMENT
EXHIBIT E -- FORM OF ESCROW AGREEMENT
EXHIBIT F -- FORM OF REGISTRATION RIGHTS AGREEMENT
List of Schedules:
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Schedule 3.3 -- Optionees, Rights to Acquire Securities, Etc.
Schedule 3.6 -- Non-Contravention
Schedule 3.7 -- Financial Statements
Schedule 3.8 -- Exceptions to Specified Actions
Schedule 3.12 -- Real Property Leases
Schedule 3.13(a) -- Patents (and applications), Trademarks(and applications),
Service Marks(and applications), and Copyrights (and
applications)
Schedule 3.13(b) -- All other Intellectual Property
Schedule 3.13(c) -- Intellectual Property Licenses
Schedule 3.13(k) -- Employees without Confidentiality and Assignment Agreements
Schedule 3.14 -- Contracts
Schedule 3.16 -- Governmental Authorizations
Schedule 3.18(a) -- Compensation Plans
Schedule 3.18(c) -- Welfare Plans
Schedule 3.18(g) -- Plans providing Benefits for Terminated Employees
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Schedule 3.18(k) -- Payments to Employees
Schedule 3.18(m) -- Disabled Employees, Employees on Leave
Schedule 3.19 -- Environmental Law Authorizations
Schedule 3.21 -- Insurance Policies
Schedule 3.22 -- Related Party Transactions
<PAGE>
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered
into as of May 31, 1999, by and among TRISERVE COMMUNICATIONS, INC., a
California corporation ("the Company"), USA TALKS.COM, INC., a Nevada
corporation ("Parent"), TSI SUB, INC., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Mergerco"), and STEVEN A. ROBERTS, the sole shareholder
of the Company (the "Shareholder"). Certain other capitalized terms used in
this Agreement are defined in Exhibit A attached hereto.
---------
RECITALS
A. MergerCo is a recently formed Delaware corporation organized for the
purpose of effecting the transactions contemplated by this Agreement;
B. Parent is the owner of all of the issued and outstanding shares of the
capital stock of MergerCo;
C. The Shareholder owns all of the issued and outstanding shares of the
capital stock of the Company;
D. The parties hereto desire to adopt a plan of reorganization as
contemplated by IRC Section 368(a);
E. The respective Boards of Directors of MergerCo and the Company deem it
advisable and in the best interests of MergerCo and the Company, respectively,
and their respective shareholders, that MergerCo merge with and into the Company
(the "Merger") pursuant to this Agreement, an Agreement of Merger substantially
in the form of Exhibit B hereto to be filed with the California Secretary of
---------
State (the "Agreement of Merger"), and a Certificate of Merger substantially in
the form of Exhibit C hereto to be filed with the Delaware Secretary of State
---------
(the "Certificate of Merger"), with the result that the Company will become a
wholly-owned subsidiary of Parent and the shares of capital stock of the Company
issued and outstanding immediately prior to the Effective Time will be converted
into the right to receive common stock issued by Parent;
F. The Shareholder has duly approved of this Agreement and has authorized
the consummation of the Merger and the various other transactions contemplated
herein;
G. For accounting purposes, it is intended that the Merger shall be
accounted for as a purchase transaction;
H. In a letter agreement dated November 19, 1998, the parties hereto
agreed that Parent would issue three million two hundred thousand (3,200,000)
shares of its common stock, after adjustment for subsequent stock splits, to be
used as the consideration for the acquisition of
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the business. This Agreement is intended to complete the acquisition as
contemplated in the November 19, 1998 letter.
I. The Company, Parent, MergerCo and the Shareholder desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and to prescribe various conditions to the Merger;
AGREEMENT
NOW THEREFORE, in reliance on the foregoing and in and for the
consideration and the mutual covenants set forth herein, the sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
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1.1 The Merger. At the Closing and subject to the terms and conditions of
----------
this Agreement, the Agreement of Merger, the Certificate of Merger and the
applicable provisions of the CGCL and DGCL, (i) the Agreement of Merger shall be
duly executed and acknowledged by the Company and MergerCo and delivered to the
California Secretary of State for filing in the manner provided in the CGCL, and
(ii) the Certificate of Merger shall be duly executed and acknowledged by
MergerCo and delivered to the Delaware Secretary of State for filing in the
manner provided in the DGCL. The Merger shall become effective upon the filing
of the Agreement of Merger with the California Secretary of State (the
"Effective Time"). At the Effective Time: (i) MergerCo shall be merged with and
into the Company; (ii) the separate existence of MergerCo shall cease; (iii) all
of the issued and outstanding shares of capital stock of the Company shall be
exchanged for and converted into that number of shares of Parent Common Stock as
hereinafter provided; and (iv) all the property, rights, privileges, powers and
franchises of the Company and MergerCo shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and MergerCo shall become
the debts, liabilities and duties of the Surviving Corporation, all in
accordance with the CGCL and DGCL.
1.2 Closing; Effective Time. The consummation of the transactions
-----------------------
contemplated by this Agreement (the "Closing") shall take place at the offices
of Gray Cary Ware & Freidenrich LLP, 4365 Executive Drive, Suite 1600, San
Diego, California 92121, at 9:00 a.m. (local time) on June 1, 1999, or at such
other time and date as the Parties agree, but in no event later than the second
business day after the date that all of the conditions set forth in Article VI
have been satisfied or waived (the "Closing Date").
1.3 Articles of Incorporation and Bylaws. As set forth in the Agreement
------------------------------------
of Merger and the Certificate of Merger, at the Effective Time, and without any
further action on the part of the Company or MergerCo, (i) the Articles of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter altered, amended or repealed as provided therein and in
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accordance with applicable law, and (ii) the Bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation, until thereafter altered, amended or repealed as provided therein
and in accordance with applicable law.
1.4 Directors and Officers. The directors and officers of MergerCo
----------------------
immediately prior to the Effective Time shall become, from and after the
Effective Time, the directors and officers of the Surviving Corporation until
their respective successors are duly elected or appointed and shall qualify or
their earlier resignation or removal.
1.5 Tax and Accounting Consequences.
-------------------------------
(a) It is intended by the parties hereto that the Merger shall
constitute a "reorganization" within the meaning of IRC Section 368. The parties
hereto adopt this agreement as a "plan of reorganization" within the meaning of
Treasury Regulations Sections 1.368-2(g) and 1.368-3(a).
(b) It is intended by the parties hereto that the Merger shall
qualify for accounting treatment as a purchase transaction.
ARTICLE II
CONVERSION OF SECURITIES
------------------------
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of the Company, Parent, MergerCo or
the Shareholder:
(a) Capital Stock of MergerCo. Each share of common stock of
-------------------------
MergerCo, par value $.01 per share, issued and outstanding immediately prior to
the Effective Time, shall be converted into and become one fully paid and
nonassessable common share of the Surviving Corporation. Each stock certificate
of MergerCo evidencing ownership of any such shares of common stock of MergerCo
immediately prior to the Effective Time shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation after the Effective
Time.
(b) Conversion of Company Common Stock. Subject to Sections 2.2
----------------------------------
through 2.4 below, each share of Company Common Stock (other than Dissenting
Shares) issued and outstanding immediately prior to the Effective Time shall
cease to be outstanding and shall be converted into and represent the right to
receive: (i) the number of shares of Parent Common Stock rounded to the nearest
ten-thousandth of a share equal to the quotient obtained by dividing (x) Three
Million Two Hundred Thousand (3,200,000) shares of Parent Common Stock by (y)
the number of "Company Common Stock Equivalents" (as defined below) outstanding
at the Effective Time (the "Exchange Ratio"); provided, however, that an
aggregate of ten percent (10%) of the shares of Parent Common Stock otherwise
issuable to Shareholder upon conversion of Shareholder's shares of Company
Common Stock shall be placed in an escrow (the "Escrow Shares") with Chicago
Title Company as Escrow Agent pursuant to the terms of an Escrow Agreement (as
more fully discussed in Section 9.6). "Company Common Stock Equivalents" shall
mean the sum of (i) the number of shares of Company Common Stock issued and
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outstanding immediately prior to the Effective Time plus (ii) the number of
shares of Company Common Stock required to be reserved for issuance upon the
exercise of any Company options, warrants or other convertible instruments
outstanding at the Effective Time (regardless of the degree to which such
options, warrants and other convertible instruments may then be vested or
exercisable). All shares of Company Common Stock, when so converted upon the
Merger, shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such Company Common Stock
shall cease to have any rights with respect thereto, except the right to receive
the shares of Parent Common Stock upon the surrender of such certificate in
accordance with Section 2.3, without interest.
(c) Substitution of Company Options. At the Effective Time, all
-------------------------------
Company Options (as defined in Section 3.3 below) shall be substituted for in
accordance with Section 6.13.
(d) Certain Adjustments to Exchange Ratio. The Exchange Ratio shall
-------------------------------------
be adjusted to reflect fully the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock or Company Common Stock), reorganization,
recapitalization or other like change with respect to Parent Common Stock or
Company Common Stock occurring on or after the date hereof and prior to the
Effective Time.
(e) Limitation on Shares Issuable. Subject to adjustment pursuant
-----------------------------
to Section 2.1(d), in no event shall the number of shares of Parent Common Stock
which Parent is obligated to issue pursuant to this Agreement (including
pursuant to any Company Options substituted for pursuant to Section 6.13) exceed
Three Million Two Hundred Thousand (3,200,000) shares.
2.2 Dissenting Shares. Shares of Company Common Stock which constitute
-----------------
"dissenting shares" under Section 1300(b) of the CGCL (the "Dissenting Shares")
shall have only such rights as are afforded to the holder thereof by the
provisions of Chapter 13 of the CGCL.
2.3 Exchange of Certificates. Subject to the provisions regarding the
------------------------
treatment of fractional shares herein and in Section 2.4 below, Parent shall, as
promptly as reasonably practicable after the Effective Time, make available
stock certificates representing the shares of Parent Common Stock issued in the
Merger to the person or persons legally entitled thereto upon surrender of
certificates which, immediately prior to the Effective Time, represented shares
of Company Common Stock. After the Effective Time there shall be no transfers
on the stock transfer books of the Surviving Corporation of shares of Company
Common Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificates representing shares of Company Common
Stock outstanding immediately prior to the Effective Time are presented to the
Surviving Corporation for transfer or for any other reason, they shall be
canceled and exchanged for Parent Common Stock and cash in lieu of any
fractional share as provided in this Article II, except as otherwise provided by
law and as adjusted for any dividends paid or other distributions made on or
after the Effective Time with respect to Parent Common
4
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Stock, if the record date set for such dividends or distributions is a date
occurring after the Effective Time.
2.4 Treatment of Fractional Shares. No fractional share of Parent
------------------------------
Common Stock nor scrip certificate for such fractional share shall be issued in
the Merger. In lieu thereof, any holder of Company Common Stock otherwise
entitled to receive a fractional share of Parent Common Stock shall be paid an
amount in cash equal to the value of such fractional share interest based on a
value per whole share of Parent Common Stock equal to the average closing price
of the Parent Common Stock during the ten (10) days during which the Parent
Common Stock was traded preceding the second business day prior to the Closing
Date. If more than one certificate representing Company Common Stock shall be
surrendered at one time for the account of the same shareholder, the number of
full shares of Parent Company Stock for which such certificates shall be
delivered shall be computed on the basis of the aggregate number of shares of
Company Common Stock represented by such certificates so surrendered.
2.5 Further Action. If, at any time after the Effective Time, any further
--------------
action is reasonably determined by Parent to be necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation or
Parent with full right, title and possession of and to all rights and property
of MergerCo and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of MergerCo, in
the name of the Company and otherwise) to take such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As an inducement to Parent and MergerCo to enter into this Agreement and to
consummate the transactions contemplated hereby, the Company represents and
warrants to Parent and MergerCo that the statements contained in this Article
III are true and correct.
3.1 Organization, Standing and Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
California. The Company has all requisite power to own, lease and operate its
assets as now owned, leased and operated and to carry on its business as now
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the nature of its operations requires
such qualification, except where the failure to so qualify has not and will not
have a Material Adverse Effect on the Company. The Company has delivered to
Parent complete and correct copies of its Articles of Incorporation and Bylaws,
each as in effect on the date hereof. Prior to the date hereof, the Company has
not been a subsidiary of any other corporation or Entity.
3.2 Corporate Records. Company has furnished to Parent, or its
-----------------
Representatives, for its or their examination (i) copies of all Company records
required to be set forth of all proceedings, consents, actions, and meetings of
its sole shareholder and Board of Directors, and (ii) to the extent requested by
Parent, all permits, orders, and consents issued by any Governmental Body with
respect to the Company. The corporate records of the Company are complete and
accurate in all material respects, and the signatures of all officers and
directors and
5
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other persons appearing on all documents contained therein are the true
signatures of the persons purporting to have signed the same.
3.3 Capital Stock. As of the date hereof, the authorized capital stock of
-------------
the Company consists of One Million (1,000,000) shares of Company Common Stock.
As of the date hereof, Six Hundred Sixty Thousand (660,000) shares of Company
Common Stock are issued and outstanding and are all owned by the Shareholder,
and no other person or entity has been issued shares of Company Common Stock
prior to the date hereof. Except as set forth in Schedule 3.3, no options to
------------
purchase Company Common Stock (the "Company Options") are currently outstanding.
None of the issued and outstanding shares of capital stock of the Company has
been issued in violation of, or is subject to, any preemptive or any
subscription rights. Except as provided in this Agreement and the transactions
contemplated hereby, and except as set forth in Schedule 3.3, there are no
------------
agreements, arrangements, warrants, options, puts, calls, rights, options or
other employee benefit plans or other commitments or understandings of any
character to which the Company or, to the Company's Knowledge, the Shareholder
is a party relating to the issuance, sale, purchase, redemption, conversion,
exchange, registration, voting or transfer of any shares of Company Common Stock
or other securities of the Company. The names of the record holders of all such
warrants, options, puts, calls and rights, and the names of the parties to all
such agreements, arrangements, plans, commitments or understandings, are set
forth in Schedule 3.3. All of the outstanding shares of Company Common Stock
------------
are duly authorized and validly issued and fully paid and nonassessable, free of
any preemptive or subscription rights, free and clear of all Encumbrances and
were issued in compliance with all applicable securities laws. The Company is
not in active discussions, formal or informal, with any person or entity
regarding the issuance of any form of additional Company equity that has not
been issued or committed to prior to the date of this Agreement. Except as
provided in this Agreement and other transaction documents or any transaction
contemplated hereby or thereby, there are no voting trusts, proxies or other
agreements or understandings with respect to the voting of shares of the
Company's Common Stock.
3.4 Subsidiaries. The Company does not own, directly or indirectly, more
------------
than ten percent (10%) of the outstanding voting securities or other equity
interests of any other Entity.
3.5 Corporate Authority. The Company has the requisite power and
-------------------
authority to execute and deliver this Agreement and all of the other instruments
contemplated hereby to be executed by it and, subject to the conditions set
forth herein, consummate the transactions contemplated hereby and comply with
the terms, conditions and provisions hereof. The execution, delivery and
performance of this Agreement by the Company have been duly authorized by all
requisite corporate action, and the Merger has been duly approved by the
Company's Board of Directors and the Shareholder (in his capacity as the
Company's sole shareholder). This Agreement has been duly executed and delivered
by the Company and constitutes, and each other instrument contemplated hereby or
thereby, when executed and delivered by the Company, will constitute, the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except (i) as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other
6
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similar laws now or hereafter in effect relating to creditors' rights, and (ii)
as 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.
3.6 Non-Contravention; Consents. Except as set forth in Schedule 3.6,
--------------------------- ------------
neither the execution, delivery or performance of this Agreement or any of the
other instruments contemplated hereby, nor the consummation by the Company of
the Merger or any of the other transactions contemplated by this Agreement or
the fulfillment thereby of the terms, conditions and provisions hereof, will
directly or indirectly (with or without notice or lapse of time):
(a) violate any provision of: (i) the Company's Articles of
Incorporation or Bylaws; or (ii) any resolution adopted by the Company's sole
shareholder or Board of Directors;
(b) result in the acceleration of, or entitle any party to accelerate
(whether after the giving of notice or lapse of time or both), any debt
obligation of the Company;
(c) violate, or result with giving of notice or lapse of time or both
in any violation of, or result in the imposition or creation of, any lien or
other Encumbrance upon or with respect to any asset owned or used by the Company
pursuant to any provision of any mortgage, lien, lease, agreement, Governmental
Authorization, item of Intellectual Property, indenture, license, instrument,
law, regulation, order, arbitration award, judgment or decree to which the
Company is a party or by which the Company or any of its properties is bound,
the effect of all of which violations, creations and impositions would result in
liability to the Company in excess of $10,000 in the aggregate;
(d) constitute an event permitting modification, amendment or
termination of a mortgage, lien, lease, agreement, Governmental Authorization,
item of Intellectual Property, indenture, license, instrument, law, regulation,
order, arbitration award, judgment or decree to which the Company is a party or
by which the Company or any of its properties is bound, the effect of all of
which modification(s), amendment(s) or termination(s) would result in liability
to the Company in excess of $10,000 in the aggregate; or
(e) except for the filings contemplated in Section 1.1, require the
approval, Consent, authorization or act of, or the making by the Company or any
other Person, of any declaration, filing or registration with any third person
or any Governmental Body, except to the extent that the failure to obtain any of
the foregoing does not result in a Material Adverse Effect.
3.7 Financial statements. Schedule 3.7 contains a true and complete copy
-------------------- ------------
of the balance sheet of the Company as of March 31, 1999 (the "Company Balance
Sheet") and the related statements of income and shareholder's equity and cash
flows for the year then ended. The financial statements referred to in the
preceding sentence are herein referred to collectively as the "Company Financial
Statements"). The Company Financial Statements are true and correct in all
material respects and present fairly the financial condition and results of
operations of the Company as of such date and for such period.
7
<PAGE>
3.8 Operations since Incorporation Date. Except as set forth in the
-----------------------------------
Company Financial Statements or in Schedule 3.8 hereto, since the Incorporation
------------
Date, the Company has not: (a) suffered any development or combination of
developments that has had or would reasonably be expected to have a Material
Adverse Effect on the Company; (b) suffered any damage, destruction or loss,
whether or not covered by insurance, that has had or would reasonably be
expected to have a Material Adverse Effect on the Company; (c) adopted or
amended any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation or other plan, agreement, trust fund or
arrangement or other plan for the benefit of its employees; (d) declared, set
aside or paid any dividend or distribution on or in respect of its capital
stock; (e) redeemed, repurchased, retired or otherwise acquired any of its
capital stock or securities convertible into or exchangeable or exercisable for
its capital stock or any other securities of the Company, and has not entered
into any agreement, arrangement or other commitment to do so; (f) made any
change in the accounting methods or practices it follows, whether for general
financial or tax purposes, or any change in depreciation or amortization
policies or rates; (g) sold, leased, abandoned or otherwise disposed of any real
property, machinery, equipment or other operating property previously owned by
the Company; (h) sold, assigned, transferred, licensed or otherwise disposed of
any patent, patent right, trademark, trade name, brand name, copyright (or
pending application for any patent, trademark or copyright), invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other material intangible asset except for end-user license transactions entered
into in the ordinary course of its business pursuant to the Company's standard
forms of license agreement; (i) entered into any material commitment or
transaction (including without limitation any borrowing) other than commitments
or transactions that are not reasonably likely to have a Material Adverse Effect
on the Company; (j) permitted or allowed any of its property or assets to be
subjected to any new mortgage, deed of trust, pledge, lien, security interest or
other encumbrance of any kind, except for liens for current taxes not yet due
and purchase money security interests; (k) made any capital expenditure or
commitment for additions to property, plant or equipment individually in excess
of $10,000, or, in the aggregate, in excess of $25,000; (l) paid, loaned or
advanced any amount to, or sold, transferred or leased any properties or assets
to, or entered into any agreement or arrangement with, any of its employees or
shareholders or any affiliate of any of the foregoing, other than employee
compensation and benefits and reimbursement of employment related business
expenses; (m) incurred any indebtedness for money borrowed; or (n) agreed to
take any action described in this Section 3.8 or which would constitute a breach
of any of the representations or warranties of the Company contained in this
Agreement.
3.9 Title to Assets. Company owns and has good and valid title to all
---------------
assets purported to be owned by it, including: (i) all assets reflected on the
Company Balance Sheet; and (ii) all other assets reflected in its books and
records as being owned by the Company. All of said assets are owned by the
Company free and clear of any liens or other Encumbrances, except for any lien
for current taxes not yet due and payable.
3.10 No Undisclosed Liabilities. Except as is expressly set forth in any
--------------------------
Schedule hereto, the Company is not subject to any obligation or liability of
any nature (whether accrued, contingent, inchoate or otherwise, including,
without limitation, unasserted claims), which would
8
<PAGE>
individually or in the aggregate be required by generally accepted accounting
principles to be reflected on a balance sheet of the Company but is not
reflected on the Company Balance Sheet or the notes thereto, other than (i)
obligations pursuant to or in connection with this Agreement or the transactions
contemplated hereby, (ii) liabilities and obligations incurred in the ordinary
course of business after March 31, 1999, and (iii) liabilities which do not have
a Material Adverse Effect.
3.11 Equipment; Real Property Interests.
----------------------------------
(a) All items of equipment and other tangible assets owned by or
leased to the Company are adequate for the uses to which they are being put, are
in good condition and repair (ordinary wear and tear excepted) and are adequate
for the conduct of the Company's businesses, in the manner in which such
businesses are currently being conducted.
(b) The Company is not the record or beneficial owner of any real
property or any interest in real property, except for the leasehold created
under the real property leases identified in Schedule 3.12.
-------------
3.12 Real Property Leases. The leases, subleases and other agreements and
--------------------
documents with respect to real property which are identified in Schedule 3.12
-------------
constitute (a) the lease of the Company's headquarters in San Juan Capistrano,
California and (b) the lease of all other facilities material to the Company
(hereinafter referred to as the "Material Leases"). Correct and complete copies
of the Material Leases have been delivered to the Parent. The Company holds good
and valid leasehold title to each of the properties which are the subject of the
Material Leases, in each case free of all Encumbrances, except for liens for (x)
Taxes not yet due and payable or which are being contested in good faith, (y)
Encumbrances which neither materially interfere with the intended use of the
property which is the subject of the material Lease nor have a material adverse
effect upon the use by the Company of such property or the business currently
conducted thereon or proposed to be conducted thereon, and (z) Permitted
Encumbrances. To the Company's Knowledge, there are no existing defaults under
any Material Lease, and no event has occurred which with notice of lapse of
time, or both, could constitute an event of default under any Material Lease,
which default would result in a Material Adverse Effect. The transactions
contemplated by this Agreement will not result in a default under any Material
Lease (which default would have a Material Adverse Effect).
3.13 INTELLECTUAL PROPERTY.
---------------------
(a) Schedule 3.13(a) contains a complete and correct list of all
----------------
United States and foreign patents, patent applications, registered trademarks,
trademark applications, registered service marks, service mark applications,
trade names and registered copyrights which are owned by the Company and are
material to the business of the Company, including, if applicable, (i) a brief
description of such Intellectual Property, (ii) the date of issuance or
registration, (iii) the serial, patent or registration number, (iv) the date of
application, (v) the expiration date and (vi) the country of registration of
such items of Intellectual Property and any material licenses thereunder.
9
<PAGE>
(b) Schedule 3.13(b) identifies all other material Company
----------------
Intellectual Property owned by the Company.
(c) Schedule 3.13(c) identifies each material item of Intellectual
----------------
Property that is licensed to the Company by any Person (except for any item of
Intellectual Property that is licensed to the Company under any third party
software license generally available to the public at a cost of less than
$5,000), and identifies the license agreement under which such item of
Intellectual Property is being licensed to the Company.
(d) The Company has good, valid and marketable title to all of the
Intellectual Property identified in Schedule 3.13(a) and Schedule 3.13(b), free
---------------- ----------------
and clear of all liens and other Encumbrances, and has a valid right
(contractual or otherwise) to use all Intellectual Property identified in
Schedule 3.13(c).
- ----------------
(e) Except as set forth in Schedule 3.13(c), the Company is not
----------------
obligated to make any payment to any Person for the use of any Company
Intellectual Property. The Company has not developed jointly with any other
Person any Company Intellectual Property with respect to which such other Person
has any rights.
(f) The Company has taken all reasonably necessary measures and
precautions to protect and maintain the confidentiality and secrecy of all
Company Intellectual Property (except Company Intellectual Property whose value
would be unimpaired by public disclosure) and otherwise to maintain and protect
the value of all Company Intellectual Property.
(g) To the Company's Knowledge, no Company Intellectual Property
infringes or conflicts with any Intellectual Property owned or used by any other
Person. To the Company's Knowledge, the Company is not currently infringing,
misappropriating or making any unlawful use of, and the Company has not at any
time infringed, misappropriated or made any unlawful use of, or received any
notice or other communication (in writing or otherwise) of any actual, alleged,
possible or potential infringement, misappropriation or unlawful use of, any
Intellectual Property owned or used by any other Person. To the Company's
Knowledge, no other Person is infringing, misappropriating or making any
unlawful use of, and no Intellectual Property owned or used by any other Person
infringes or conflicts with, any Company Intellectual Property.
(h) Each item of Company Intellectual Property conforms in all
material respects with any specification, documentation and performance standard
provided with respect thereto by or on behalf of the Company, and the Company
has not received notice of any material claim by any customer or other Person
alleging that any Company Intellectual Property does not conform in all material
respects with any specification, documentation or performance standard made or
provided by or on behalf of the Company, and, to the Company's Knowledge, there
is no basis for any such claim.
(i) Each item of software included within the Company Intellectual
Property that is material to the business of the Company will: (A) record,
store, process, calculate and present calendar dates falling on and after (and,
if applicable, spans of time including) January 1,
10
<PAGE>
2000, (B) calculate any information dependent on or relating to such dates in
the same manner, and with the same functionality, data integrity and
performance, as such software records, stores, processes, calculates and
presents calendar dates on or before December 31, 1999, or calculates any
information dependent on or relating to such dates, and (C) lose no
functionality with respect to the introduction of records containing dates
falling on or after January 1, 2000.
(j) The Company Intellectual Property constitutes all of the
Intellectual Property reasonably necessary to enable the Company to conduct its
business in the manner in which such business has been and is being conducted.
The Company has not licensed any Company Intellectual Property to any Person on
an exclusive basis, and the Company has not entered into any covenant not to
compete or Contract materially limiting the ability to exploit any Intellectual
Property or to transact business in any market or geographical area or with any
Person.
(k) Except as set forth in Schedule 3.13(k), all current and former
----------------
employees of the Company have executed and delivered to the Company an agreement
that is substantially identical to the standard form of Confidential Information
and Invention Assignment Agreement or similar agreement used by the Company and
previously delivered to Parent, and all current and former consultants to the
Company have executed and delivered to the Company an agreement that is
substantially identical to the standard form of Consultant Confidential
Information and Invention Assignment Agreement or similar agreement used by the
Company and previously delivered to Parent.
3.14 Contracts.
---------
(a) Except as set forth in Schedule 3.14, the Company is not a party
-------------
to, nor bound by, nor is any of its properties subject to, any written or oral
agreement described as follows:
(i) any contract (except purchase orders that involve the
purchase or sale of goods) with a value, or involving payments to the Company,
of more than $10,000 and which is not cancelable within six months after the
date of notice of cancellation without liability upon such notice given at or
after the Effective Time;
(ii) any contract for the employment of any officer or employee
(other than, with respect to any employee, contracts which are terminable
without liability upon notice of thirty (30) days or less and do not provide for
any further payments following such termination) or with a former officer or
employee pursuant to which payments by the Company may be required to be made at
any time following the date hereof;
(iii) any mortgage or other form of secured indebtedness, or any
other indebtedness for money borrowed;
(iv) any unsecured debentures, notes or installment obligations
or other instruments for or relating to any unsecured borrowing of money by the
Company, or any letter
11
<PAGE>
of credit issued to secure any obligation of a third party other than borrowings
less than $10,000 in the aggregate; or
(v) any agreement containing any covenant not to compete.
(b) Complete and correct copies of all contracts, agreements and
other instruments referred to in Schedule 3.14 have heretofore been provided by
-------------
the Company to Parent.
(c) Except as disclosed in Schedule 3.14, the Company, or, to the
-------------
Company's Knowledge, any third party, is not in default under, and no event has
occurred which with notice or lapse of time, or both, could reasonably be
expected to result in a material default under, or violation of, any contract,
agreement or instrument identified in subsection (a) above, which defaults and
violations in the aggregate would have a Material Adverse Effect.
3.15 Compliance With Legal Requirements. The Company is, and at all times
----------------------------------
since the Incorporation Date has been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Since
the Incorporation Date the Company has not received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and will not have
a Material Adverse Effect on the Company.
3.16 Governmental Authorizations. Schedule 3.16 identifies each material
--------------------------- -------------
Governmental Authorization held by the Company. Each Governmental Authorization
identified in Schedule 3.16 is valid and in full force and effect, and such
-------------
Governmental Authorizations collectively constitute all Governmental
Authorizations necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted except where any
failure to have such Governmental Authorizations has not had and will not have a
Material Adverse Effect on the Company. The Company is, and at all times since
the Incorporation Date has been, in substantial compliance with the terms and
requirements of the respective Governmental Authorizations identified in
Schedule 3.16. Since the Incorporation Date, the Company has not received any
- -------------
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
3.17 Tax Matters.
-----------
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Company Returns") (i) have been or will be
filed on or before the applicable due date (including any extensions of such due
date), and (ii) have been, or will be when filed, prepared in all material
respects in compliance with all applicable Legal Requirements. All amounts shown
12
<PAGE>
on Company Returns to be due on or before the Closing Date have been or will be
paid on or before the Closing Date. The Company has delivered or made available
to Parent accurate and complete copies of all Company Returns which have been
requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles.
(c) There have been no examinations or audits of any Company Return.
No extension or waiver of the limitation period applicable to any of Company
Returns has been granted and no such extension or waiver has been requested from
the Company.
(d) Since the Incorporation Date, no claim, investigation, or Legal
Proceeding is pending or to the Company's Knowledge has been threatened against
or with respect to the Company in respect of any Tax. There are no unsatisfied
liabilities for Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to IRC Section 341(f).
(e) The Company has not agreed and is not required to make any
adjustments pursuant to IRC Section 481(a) or any similar provision of state or
local law by reason of a change in accounting method initiated by it or any
other relevant party, and to Company's Knowledge the Internal Revenue Service
has not proposed any such adjustment or change in accounting method, and the
Company does not have any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to the
business or assets of the Company.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to IRC Section 280G or Section 162. The
Company is not, and has never been, a party to or bound by any tax indemnity
agreement, tax sharing agreement, tax allocation agreement or similar Contract.
(g) The Company has (i) withheld all amounts required to be withheld
from the wages of its employees, with respect to tax withholding and taxes due
from such employees under the Federal Insurance Contributions Act or any other
foreign, federal, state or local unemployment tax laws for payroll periods
ending before the close of business on the day before the Effective Time, and
(ii) filed all Tax Returns that were required to be filed on or before the day
before the Effective Time (taking into account applicable extension periods)
with respect to such withholding for such periods.
13
<PAGE>
(h) The Company is not a United States Real Property Holding
Corporation within the meaning of IRC Section 897 and was not a United States
Real Property Holding Corporation on any "determination date" (as defined in
Treasury Regulation Section 1.897-2(c)) that occurred prior to the Effective
Time.
3.18 Employee and Labor Matters; Benefit Plans.
-----------------------------------------
(a) Schedule 3.18(a) identifies each salary, bonus, deferred
----------------
compensation, incentive compensation, stock purchase, stock option, severance
pay, or termination pay plan (collectively, the "COMPENSATION PLANS"), and each
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension or retirement plan, program or agreement
(collectively, the "PLANS") sponsored, maintained, contributed to or required to
be contributed to by the Company for the benefit of any employee of the Company
("EMPLOYEE"), except for Plans which would not require the Company to make
payments or provide benefits having a value in excess of $10,000 in the
aggregate.
(b) Except as set forth in Schedule 3.18(a), the Company does not
----------------
maintain, sponsor or contribute to, and, to the Company's Knowledge, has not at
any time in the past maintained, sponsored or contributed to, any employee
pension benefit plan (as defined in Section 3(2) of ERISA, whether or not
excluded from coverage under specific Titles or Subtitles of ERISA) for the
benefit of Employees or former Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Subtitles of ERISA) for the
benefit of Employees or former Employees which are described in Schedule 3.18(c)
----------------
(the "Welfare Plans"), none of which is a multi-employer plan (within the
meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary
plan description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete copies
the most recent financial statements thereof;
14
<PAGE>
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and record keeping agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan (if such Plan is intended to be qualified under IRC Section 401(a)).
(e) The Company is not required to be, and, to the Company's
Knowledge, has never been required to be, treated as a single employer with any
other Person under Section 4001(b)(1) of ERISA or IRC Section 414(b), (c), (m)
or (o). To the Company's Knowledge, the Company has never been a member of an
"affiliated service group" within the meaning of IRC Section 414(m). To the
Company's Knowledge, the Company has never made a complete or partial withdrawal
from a multi-employer plan, as such term is defined in Section 3(37) of ERISA,
resulting in "withdrawal liability," as such term is defined in Section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would materially affect any Employee.
(g) Except as set forth in Schedule 3.18(g), no Welfare Plan
----------------
provides death, medical or health benefits (whether or not insured) with respect
to any current or former Employee after any such Employee's termination of
service (other than (i) benefit coverage mandated by applicable law, including
coverage provided pursuant to IRC Section 4980B, (ii) deferred compensation
benefits accrued as liabilities on the Company Financial Statements, and (iii)
benefits the full cost of which are borne by current or former Employees (or the
Employees' beneficiaries)).
(h) To the Company's Knowledge, with respect to each of the Welfare
Plans constituting a group health plan within the meaning of IRC Section
4980B(g)(2), the provisions of IRC Section 4980B have been complied with in all
material respects.
(i) To the Company's Knowledge, each of the Compensation Plans and
the Plans has been operated and administered in all material respects in
accordance with applicable Legal Requirements, including but not limited to
ERISA and the IRC.
(j) Each of the Compensation Plans and the Plans intended to be
qualified under IRC Section 401(a) has received a favorable determination from
the Internal Revenue Service or has applied for such determination within the
applicable remedial amendment period under IRC Section 401(b), and the Company
is not aware of any reason why any such determination letter should be revoked.
15
<PAGE>
(k) Except as set forth in Schedule 3.18(k), neither the execution,
delivery or performance of this Agreement, nor the consummation of the Merger or
any of the other transactions contemplated by this Agreement, will result in any
payment (including any bonus, golden parachute or severance payment) to any
current or former Employee or director of the Company (whether or not under any
Plan), or materially increase the benefits payable under any Compensation Plan
or Plan, or result in any acceleration of the time of payment or vesting of any
such benefits.
(l) The Company has provided to Parent documentation showing all
salaried employees of the Company, and correctly reflecting, in all material
respects, their salaries, any other compensation payable to them (including
compensation payable pursuant to bonus, deferred compensation or commission
arrangements), their dates of employment and their positions. The Company is not
a party to any collective bargaining contract or other Contract with a labor
union involving any of its Employees. All of the Company's employees are "at
will" employees.
(m) Schedule 3.18(m) identifies each Employee who is not fully
----------------
available to perform work because of disability or other leave and sets forth
the basis of such leave and the anticipated date of return to full service.
(n) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) The Company has no reason to believe that (i) the consummation
of the Merger or any of the other transactions contemplated by this Agreement
will have a material adverse effect on the Company's labor relations, or (ii)
the Company's employee(s) intend(s) to terminate his or her employment with the
Company. There are no pending labor grievances or unfair labor practice claims
or charges against the Company. To the Company's Knowledge, there are no
organizing efforts by any union or other group seeking to represent any
employees of the Company.
3.19 Environmental Matters. The Company is in compliance in all material
---------------------
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and the Company is in compliance
in all material respects with the terms and conditions thereof. The Company has
not received any notice or other communication (in writing or otherwise),
whether from a Governmental Body or citizens group, that alleges that the
Company is not in compliance with any Environmental Law, and, to the Company's
Knowledge, there are no circumstances that will likely prevent or interfere with
the Company's compliance with any Environmental Law in the future. To the
Company's Knowledge, no current or prior owner of any property leased or
controlled by the Company has received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that such current or prior owner or the
Company is not in
16
<PAGE>
compliance with any Environmental Law. All Governmental Authorizations currently
held by the Company pursuant to Environmental Laws are identified in Schedule
--------
3.19.
- ----
3.20 Bank Accounts. The Company has provided to Parent accurate records
-------------
for each account (including account numbers) maintained by or for the benefit of
the Company at any financial institution and the persons authorized to draw on
such accounts.
3.21 Insurance. Schedule 3.21 identifies all insurance policies
--------- -------------
maintained by, at the expense of or for the benefit of the Company and
identifies any material claims made thereunder, and the Company has delivered or
made available to Parent accurate and complete copies of the insurance policies
identified on Schedule 3.21. Each of the insurance policies identified in
-------------
Schedule 3.21 is in full force and effect. Since the Incorporation Date, the
- -------------
Company has not received any notice or other communication regarding any actual
or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any claim under any insurance policy, or
(c) material adjustment in the amount of the premiums payable with respect to
any insurance policy.
3.22 Related Party Transactions. Except as set forth in Schedule 3.22, no
-------------------------- -------------
Related Party has at any time since the Incorporation Date had, any direct or
indirect interest in any material asset used in or otherwise relating to the
business of the Company; (b) no Related Party is, or has at any time since the
Incorporation Date been, indebted to the Company; (c) since the Incorporation
Date, no Related Party has entered into, or has had any direct or indirect
financial interest in, any contract, transaction or business dealing involving
the Company; (d) no Related Party is competing, or has at any time since the
Incorporation Date competed, directly or indirectly, with the Company; and (e)
no Related Party has any claim or right against the Company (other than rights
to receive compensation for services performed as an employee of the Company).
3.23 Legal Proceedings; Orders.
-------------------------
(a) There is no Legal Proceeding pending or, to the Company's
Knowledge, threatened (nor does the Company have any reasonable basis for
believing there exists a basis for any such Legal Proceeding) against the
Company or any of its properties or any of its officers or directors (in their
capacities as such) that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Company.
(b) No material Legal Proceeding has been commenced by the Company
since the Incorporation Date.
(c) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the Company's Knowledge, no employee of the Company is subject to any order,
writ, injunction, judgment or decree that prohibits such employee from engaging
in or continuing any conduct, activity or practice relating to the Company's
business.
17
<PAGE>
3.24 Full Disclosure. This Agreement does not (i) contain any
---------------
representation, warranty or information provided by the Company or the
Shareholder that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
(in the light of the circumstances under which such representations, warranties
and information were or will be made or provided) not false or misleading.
3.25 No Finder. Neither the Company nor any party acting on its behalf
---------
has paid or become obligated to pay any fee or commission to any broker, finder
or intermediary for or on account of the transactions contemplated by this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder represents and warrants to Parent as follows.
4.1 CAPACITY. The Shareholder has the requisite capacity and authority
--------
to enter into and perform his obligations under this Agreement.
4.2 Binding Agreement. This Agreement constitutes the valid and legal
-----------------
binding obligation of the Shareholder. The execution and delivery of this
Agreement by the Shareholder does not, and the performance by the Shareholder of
his obligations under this Agreement and the consummation by the Shareholder of
the transactions contemplated by this Agreement will not in any material
respect, violate or conflict with or constitute a material default under any
agreement, instrument, contract or other obligation, any order, arbitration
award, judgment or decree to which the Shareholder is a party or by which the
Shareholder is bound, or any statute, rule or regulation to which the
Shareholder or any of his property is subject.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO
As an inducement to the Company and the Shareholder to enter into this
Agreement and to consummate the transactions contemplated hereby, Parent and
MergerCo each jointly and severally represents and warrants to the Company and
the Shareholder that the statements contained in this Article IV are true and
correct:
5.1 ORGANIZATION, STANDING AND POWER. Each of Parent and MergerCo is a
--------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation and has all requisite power to own, lease
and operate its assets and to carry on its business as now conducted. Parent is
duly qualified to transact business and is in good standing in each jurisdiction
in which the nature of its operations require such qualification, except where
the failure to so qualify has not and will not have a Material Adverse Effect on
Parent. Parent has delivered to the Company complete and correct copies of its
Articles of Incorporation and Bylaws, each as in effect on the date hereof.
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<PAGE>
5.2 AUTHORITY; BINDING NATURE OF AGREEMENT.
--------------------------------------
(a) Each of Parent and MergerCo has the requisite power and authority
to execute and deliver this Agreement and all of the other instruments
contemplated hereby to be executed by it and, subject to the conditions set
forth herein, consummate the transactions contemplated hereby and comply with
the terms, conditions and provisions hereof. The execution, delivery and
performance of this Agreement by Parent and MergerCo have been duly authorized
by all requisite corporate action. This Agreement has been duly executed and
delivered by each of Parent and MergerCo and constitutes, and each other
instrument contemplated hereby or thereby, when executed and delivered by Parent
and MergerCo, will constitute, the legal, valid and binding obligation of Parent
and MergerCo, enforceable against Parent and MergerCo in accordance with its
terms, except (i) as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights, and (ii) as 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 execution and delivery by each of Parent and MergerCo of this
Agreement or any of the other instruments contemplated hereby, the consummation
by each of Parent and MergerCo of the transactions contemplated hereby and the
compliance by each of Parent and MergerCo with, or fulfillment by each of them
of the terms, conditions and provisions hereof, will not:
(i) conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of rights
under its charter or bylaws or any note, instrument, agreement, mortgage, lease,
license, franchise, Governmental Authorization or judgment, order, aware or
decree to which it is a party, to which any of its properties are subject, or by
which it is bound; or
(ii) require the approval, consent, authorization or act of, or
the making by it of any declaration, filing or registration with, any third
Person or any Governmental Body.
5.3 No Finder. Neither Parent nor any party acting on its behalf has paid
---------
or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
5.4 Absence Of Proceedings. There is no Legal Proceeding pending, or to
----------------------
Parent's Knowledge, threatened, against Parent or MergerCo which might adversely
affect or restrict Parent's or MergerCo's ability to consummate the transactions
contemplated by this Agreement.
5.5 Capitalization.
--------------
(a) The authorized capital stock of Parent consists of: (i)
400,000,000 shares of Parent Common Stock, 76,632,219 shares of which were
issued and outstanding at March 26, 1999; (ii) 1,000 shares of Class A Preferred
Stock, par value $.001 per share, none of which is
19
<PAGE>
outstanding; (iii) 1,000 shares of Class B Preferred Stock, par value $.001 per
share, none of which is outstanding; and (iv) 1,000 shares of Class C Preferred
Stock, par value $.001 per share, none of which is outstanding. At December 31,
1998, there were no outstanding options, warrants or other rights to subscribe
for or purchase from Parent any capital stock of Parent or securities
convertible into or exchangeable for Parent Common Stock except options,
warrants or other rights to purchase or acquire not more than 41,974,012 shares
of Parent Common Stock under outstanding warrants or stock option, stock
purchase and stock bonus plans.
(b) The authorized capital stock of MergerCo consists of 1,000 shares
of Common Stock, $.01 par value per share, of which 100 shares are issued and
outstanding.
(c) The outstanding Parent Common Stock is, and the Parent Common
Stock to be issued in the Merger will be, duly and validly authorized and
issued, fully paid and non-assessable and will be free of any liens or
encumbrances created by or resulting from the actions of Parent or MergerCo.
5.6 SEC Filings; Financial Statements.
---------------------------------
(a) Except for Parent's failure to timely file an amendment to its
Form 8-K that should have been filed with the SEC in October 1998, since August
1, 1998, Parent has timely filed with the SEC all reports that would have been
required to be filed by it under the Exchange Act if Parent had a class of
securities registered under the Exchange Act. In this regard, all such reports
required to have been filed since December 31, 1997 have been filed in a manner
that would satisfy in all material respects the requirements of Rule 144(c)(1)
promulgated under the Securities Act if Parent had a class of securities
registered under Section 12 of the Exchange Act. Parent has delivered or made
available to the Company accurate and complete copies (excluding copies of
exhibits) of each publicly available report, registration statement (on a form
other than Form S-8) and definitive proxy statement filed by Parent with the SEC
between January 1, 1998 and the date of this Agreement (the "Parent SEC
Documents"). As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing): (i) each of the Parent SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act (as the case may be); and (ii) none of the Parent SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The financial statements contained in the Parent SEC Documents:
(i) complied as to form in all material respects with the published rules and
regulations of the SEC applicable thereto; (ii) were prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods covered, except as may be indicated in the notes to such
financial statements and (in the case of unaudited statements) as permitted by
Form 10-QSB of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to year end audit adjustments; and (iii)
fairly present the
20
<PAGE>
financial position of Parent as of the respective dates thereof and the
consolidated results of operations of Parent for the periods covered thereby.
5.7 Governmental Consents. No consent, approval or authorization of, or
---------------------
declaration, filing or registration with, any governmental or regulatory
authority is required to be made or obtained by Parent or MergerCo in connection
with the execution of this Agreement.
5.8 No Undisclosed Liabilities. Parent is not subject to any obligation
--------------------------
or liability of any nature (whether accrued, contingent, inchoate or otherwise,
including, without limitation, unasserted claims), which would individually or
in the aggregate be required by generally accepted accounting principles to be
reflected on a balance sheet of Parent but is not reflected in the balance sheet
included in the Form 10-KSB for the Parent's fiscal year ended December 31, 1998
or the notes thereto, other than: (i) obligations pursuant to or in connection
with this Agreement or the transactions contemplated hereby, (ii) liabilities
and obligations incurred in the ordinary course of business after December 31,
1998, and (iii) liabilities which do not have a Material Adverse Effect on the
Parent.
5.9 Compliance with Laws. Each of Parent and MergerCo has complied in the
--------------------
conduct of its business with all applicable Legal Requirements, except where the
failure to comply with such Legal Requirements has not had and will not have a
Material Adverse Effect on Parent or MergerCo. Except for the notification from
the SEC regarding the suspension of trading of Parent's Common Stock, and the
subsequent investigation conducted by the SEC, since January 1, 1998, Parent has
not received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirements, except where the failure to comply with such Legal
Requirements has not had and will not have a Material Adverse Effect on Parent.
5.10 Full Disclosure. This Agreement when read together with all other
---------------
documents previously filed by Parent with the SEC (subject to any applicable
amendments and updates for such filed documents) does not (i) contain any
representation, warranty or information provided by Parent or MergerCo that is
false or misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make the representations, warranties and
information contained and to be contained herein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
ARTICLE VI
ADDITIONAL COVENANTS
The respective parties hereto covenant and agree to take, or cause the
Company to take, the following actions between the date hereof and the Effective
Time (or at such other time as may be expressly stated herein):
6.1 Access and Investigation. The Company shall afford to Parent's
------------------------
Representatives reasonable access during normal business hours to the offices,
properties, employees and business and financial records (including computer
files, retrieval programs and similar
21
<PAGE>
documentation) of the Company to the extent Parent shall reasonably deem
necessary or desirable and shall furnish to Parent's Representatives such
additional information concerning the Company and its properties, assets,
businesses and operations as shall be reasonably requested, including all such
information as shall be necessary to enable Parent's Representatives to verify
the accuracy of the representations and warranties contained in Article III, to
verify that the covenants of the Company in Section 6.3 have been complied with
and, to determine whether the conditions set forth in Article VII have been
satisfied. Parent covenants that such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operations of the Company. No
investigation by Parent or its Representatives hereunder shall affect the
representations and warranties of the Company.
6.2 Certain Agreements. Each of the parties hereto shall use all
------------------
commercially reasonable efforts to consummate the transactions contemplated by
this Agreement. Each party shall promptly notify the others of any action, suit
or proceeding that may be instituted or threatened against such party to
restrain, prohibit or otherwise challenge the legality of any transaction
contemplated by this Agreement. The Company shall promptly notify Parent of any
lawsuit, claim, proceeding or investigation that may be threatened, brought,
asserted or commenced after the date hereof against the Company that would have
been required to be included on Schedule 3.23, and, in the case of any of the
foregoing pending on the date hereof, of any material development with respect
thereto. The Company on the one hand, and Parent on the other, shall give prompt
written notice to the other party of (a) any notice or other communication
received by any such party from any Governmental Body or third Person alleging
that the consent of such Governmental Body or third Person is or may be required
in connection with the transactions contemplated by this Agreement, and (b) the
occurrence of any event or circumstance which could have a Material Adverse
Effect, and of which such party has knowledge.
6.3 Operation of the Company's Business. Except as contemplated in this
-----------------------------------
Agreement, without the express prior written consent of Parent, the Company
(and, to the extent expressly stated, the Shareholder) shall (from the date
hereof through the earlier of the Closing Date or termination of this
Agreement):
(a) conduct its business and operations in the ordinary course and in
substantially the same manner as such business and operations have been
conducted prior to the date of this Agreement;
(b) in each case, in all material respects use reasonable efforts to
(i) preserve intact its current business organization, (ii) maintain its assets
and properties in normal operating condition and repair, (iii) keep available
the services of its current officers and employees, and (iv) maintain its
relations and goodwill with all suppliers, customers, landlords, creditors,
employees and other Persons having business relationships with it;
(c) use all commercially reasonable efforts to keep in full force all
insurance policies identified in Schedule 3.21;
-------------
22
<PAGE>
(d) not amend or permit the adoption of any amendment to the
Company's Articles of Incorporation or Bylaws (which covenant shall apply to the
Shareholder);
(e) except for the exercise of outstanding Company Options set forth
on Schedule 3.3, not sell, issue, agree to issue or authorize the issuance of
------------
any capital stock of the Company (by the issuance or granting of options,
warrants or rights to purchase any capital stock issued thereby), any securities
or other instruments exchangeable or exercisable for or convertible into such
capital stock, or other securities;
(f) not split, combine or reclassify any shares of Company capital
stock or declare, accrue, set aside or pay any dividend or make any other
distribution in respect of any of the Company's securities;
(g) except as set forth on Schedule 3.3, issue, transfer, sell or
------------
deliver any shares of its capital stock (including options, warrants and any
other securities convertible into or exchangeable or exercisable for, with or
without additional consideration, the Company's capital stock) or any other
interest therein (which covenant shall apply to the Shareholder);
(h) not repurchase, redeem or otherwise reacquire any of the
Company's securities (or any interest therein) for any consideration; not lend
money to any Person;
(j) not incur or guarantee any indebtedness for borrowed money, or
amend, supplement or otherwise modify any of the terms of any instrument or
agreement evidencing indebtedness for borrowed money;
(k) not make any acquisition or disposition of stock or assets of any
entity;
(l) not incur capital expenditures not otherwise provided for in
applicable budgets which expenditures are in excess of $20,000;
(m) not merge or consolidate with any corporation or other entity
(which covenant shall apply to the Shareholder);
(n) not form any subsidiary or acquire any equity interest or other
interest in any other Entity;
(o) not enter into any employment or similar contract with, or
materially increase the compensation payable to, any officer or employee;
(p) not (i) establish, adopt or amend any employee benefit plan, (ii)
pay any bonus or make any profit-sharing payment, cash incentive payment or
similar payment to, or increase the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, except pursuant to agreements in effect on the
date hereof, or in accordance with the Company's past practices, or
23
<PAGE>
(iii) hire any new employee whose aggregate annual compensation from the Company
is expected to exceed $50,000;
(q) not amend, supplement or modify any contract set forth on
Schedule 3.14 or relinquish any material right or privilege of the Company,
- -------------
except, in the case of any contract set forth on Schedule 3.14, for any such
-------------
amendments, supplements or modifications which are not materially adverse to the
Company;
(r) except in compliance with the limits of subsection (q) above, not
(i) acquire, lease or license any right or other asset from any other Person,
(ii) sell or otherwise dispose of, or lease or license, any right or other asset
to any other Person, or (iii) waive or relinquish any right, except for assets
acquired, leased, licensed or disposed of by the Company in the ordinary course
of business;
(s) not change any of its methods of accounting or accounting
practices in any material respect, and not alter in any respect its practices
and policies relating to the payment and collection, as the case may be, of
accounts payable and accounts receivable;
(t) not create, assume or suffer to be incurred any Encumbrance of
any kind on any of its properties or assets other than Encumbrances in the
ordinary course of business consistent with past practices, so long as the
creation, assumption or sufferance thereof does not interfere with, hinder or
delay the transactions contemplated hereby.
(u) not make any Tax election;
(v) not commence or settle any material Legal Proceeding; and
(w) not agree, commit or resolve to do or authorize any of the
actions described in clauses "(d)" through "(v)" above.
6.4 Public Announcements. No party hereto shall make any press release or
--------------------
other public announcement concerning the transactions contemplated by this
Agreement without the prior written approval of the other party (such approval
not to be unreasonably withheld), except as and to the extent that such party
shall be so obligated by law, in which event the other party shall be advised,
and Parent and the Company shall use their commercially reasonable efforts to
cause a mutually agreeable release or announcement to be issued. The initial
press release relating to this Agreement shall be a joint press release which
shall be reasonably acceptable to Parent and the Company.
6.5 Filings and Consents. As promptly as practicable after the execution
--------------------
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement. The Company
shall (upon request)
24
<PAGE>
promptly deliver to Parent a copy of each such filing made, each such notice
given and each such Consent obtained by the Company prior to the Effective Time.
6.6 Regulatory approvals. In addition to the obligations of the parties
--------------------
set forth in the preceding section, the Company and Parent shall use all
reasonable efforts to file, as soon as practicable after the date of this
Agreement, all notices, reports and other documents required to be filed with
any Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional
information requested by any such Governmental Body. Without limiting the
generality of the foregoing, the Company and Parent shall, promptly after the
date of this Agreement, prepare and file the notifications, if any, required
under the HSR Act in connection with the Merger. The Company and Parent shall
respond as promptly as practicable to (i) any inquiries or requests received
from the Federal Trade Commission or the Department of Justice for additional
information or documentation and (ii) any inquiries or requests received from
any state attorney general or other Governmental Body in connection with
antitrust or related matters. Each of the Company and Parent shall (i) give the
other party prompt notice of the commencement of any Legal Proceeding by or
before any Governmental Body with respect to the Merger or any of the other
transactions contemplated by this Agreement, (ii) keep the other party informed
as to the status of any Legal Proceeding, and (iii) promptly inform the other
party of any communication to or from the Federal Trade Commission, the
Department of Justice or any other Governmental Body regarding the Merger. The
Company and Parent will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any
analysis, appearance, presentation, memorandum, brief, argument, opinion or
proposal made or submitted in connection with any Legal Proceeding under or
relating to the HSR Act or any other federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental Body or by any
Legal Requirement, in connection with any Legal Proceeding under or relating to
the HSR Act or any other federal or state antitrust or fair trade law or any
other similar Legal Proceeding, each of the Company and Parent agrees to permit
authorized Representatives of the other party to be present at each meeting or
conference relating to any such Legal Proceeding and to have access to and be
consulted in connection with any document, opinion or proposal made or submitted
to any Governmental Body in connection with any such Legal Proceeding.
6.7 Treatment of Employee Plans and Benefits. From and after the
----------------------------------------
Effective Time, Parent and the Company shall perform all obligations pursuant to
employee benefit plans and policies that have accrued or otherwise become due on
or before the Effective Time. Following the Closing, the Company's employee
benefits will be reviewed in consonance with Parent's employee benefit plans and
arrangements, applicable law and marketplace factors.
6.8 Notification; Updates to Schedules.
----------------------------------
(a) The Company shall promptly notify Parent in writing of:
(i) the discovery by the Company of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or
25
<PAGE>
constitutes an inaccuracy in or breach of any representation or warranty made by
the Company or Shareholder in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
the Company or Shareholder in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement;
(iii) any breach of any covenant or obligation of the Company
(and the Shareholder shall promptly notify Parent in writing of any breach of
any covenant or obligation of the Shareholder set forth herein); and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Article VII
impossible or unlikely.
(b) Parent shall promptly notify the Company in writing of:
(i) the discovery by Parent of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes an inaccuracy in or breach of any representation
or warranty made by Parent or MergerCo in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty made by
Parent or MergerCo in this Agreement if (A) such representation or warranty had
been made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such event, condition, fact or
circumstance had occurred, arisen or existed on or prior to the date of this
Agreement.
(iii) any breach of any covenant or obligation of Parent (and
MergerCo shall promptly notify the Company in writing of any breach of any
covenant or obligation of MergerCo set forth herein); and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Article VII
impossible or unlikely.
(c) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 6.8(a) or (b) requires any change in any
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming that such Schedule hereto was dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent or Parent shall
promptly deliver to the Company, as the case may be, an update to such Schedule
specifying such change. No such update shall be deemed to supplement or amend
any Schedule
26
<PAGE>
for the purpose of (i) determining the accuracy of any of the representations
and warranties made by the parties hereto in this Agreement, or (ii) determining
whether any of the conditions set forth in Article VII has been satisfied;
provided, however, that if Closing occurs, such Schedule shall be deemed to be
modified at such time by such update.
6.9 No Negotiation. Neither the Company nor the Shareholder shall,
--------------
directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible Acquisition
Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any nonpublic information or afford access to the
properties, books or records of the Company to any Person (other than Parent)
relating to or in connection with a possible Acquisition Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
The parties acknowledge that any breach of the foregoing provisions by any
officer, director or agent (including any employee of the Company acting as
agent) of the Company shall be deemed a breach by the Company.
The Company shall promptly notify Parent in writing of any inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company or the Shareholder prior to the Closing.
6.10 Liability Coverage. Parent shall obtain for its directors and
------------------
officers errors and omissions insurance, to be effective on or prior to the
Closing Date, of a type and with a coverage as may be determined by Parent in
its good faith discretion and which is reasonably acceptable to the Company and
the Shareholder.
6.11 Substitution of Company Options. As of the Effective Time, each
-------------------------------
Company Option, whether vested or unvested, without any action on the part of
the holder, shall be substituted with an option to acquire a number of shares of
Parent Common Stock (rounded down to the nearest whole share) equal to the
number of shares of Company Common Stock that could have been purchased
immediately prior to the Effective Time under such Company Option multiplied by
the Exchange Ratio, at an exercise price per share of Company Common Stock that
could have been purchased pursuant to such Company Option immediately prior to
the Effective Time divided by the Exchange Ratio (rounded up to the nearest
whole cent), and with the same vesting schedule as the Company Option that was
so substituted. Except as set forth in the preceding sentence, each Company
Option so substituted shall be subject to the terms and conditions of the
Parent's 1999 Stock Option Plan. Parent shall use its best efforts to obtain
shareholder approval for its 1999 Stock Option Plan within twelve months of
obtaining Board approval for the Plan. At or prior to the Effective Time, Parent
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon substitution of
Company Options.
27
<PAGE>
6.12 Form S-8. Within thirty (30) days after it is eligible to do so,
--------
Parent shall cause a Form S-8 ("Form S-8"), or other appropriate form, to be
filed with the SEC, which registration statement shall register the shares of
the Parent Common Stock underlying the converted Company Options, and Parent
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such converted
Company Options remain outstanding. The Company shall cooperate with and assist
the Parent in the preparation of such Form S-8.
6.13 Rule 144. At all times following the Closing, Parent shall ensure
--------
that adequate current public information is available that would satisfy the
condition set forth in subsection (c) of Rule 144 promulgated under the
Securities Act. Following the effectiveness of the registration statement
referenced in Section 6.16, Parent will file with the SEC in a timely manner all
reports and other documents required by the Parent to be filed under the
Exchange Act and the Securities Act.
6.14 Non-competition Agreement. At or prior to the Closing, each party
-------------------------
hereto shall execute an Executive Non-Competition and Non-Interference Agreement
in the form set forth at Exhibit D hereto (the "Non-competition Agreement").
---------
6.15 Employment Agreement. At or prior to the Closing, Parent and the
--------------------
Shareholder shall execute an Employment Agreement in the form previously agreed
by the parties thereto.
6.16 Registration Statement. Parent shall make reasonable good faith
----------------------
efforts to cause a registration statement to register under the Exchange Act the
common stock of the Company on Form 10 or Form 8-A to be filed with the SEC no
later than June 31, 1999. Parent agrees to use reasonable good faith efforts to
cause such registration statement to be declared effective as soon as
practicable following its filing with the SEC.
ARTICLE VII
CONDITIONS TO THE MERGER
The obligations of the parties to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, by agreement of all the parties hereto:
(a) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or prohibiting or limiting
the Company's conduct of its business following the Merger shall be in
28
<PAGE>
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Body, domestic or foreign, seeking the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use all
commercially reasonably efforts to have such injunction or other order lifted.
(b) Governmental Approval. The Company, Parent and MergerCo shall
---------------------
have timely obtained from each Governmental Body all approvals, waivers and
consents, if any, necessary for consummation of or in connection with the Merger
and the several transactions contemplated hereby, including such approvals,
waivers and consents as may be required under the Securities Act and under
applicable state securities laws.
(c) HSR Act. The waiting period applicable to the consummation of
-------
the Merger under the HSR Act (if applicable) shall have expired or been
terminated.
7.2 Additional Conditions to Obligations of Parent. The obligations of
----------------------------------------------
Parent to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions, any of which may be waived, in writing, by Parent:
(a) Accuracy of Representations. Each of the representations and
---------------------------
warranties made by the Company contained or referred to in this Agreement and in
each of the other agreements and instruments delivered to Parent in connection
herewith, shall be true and correct at the Closing as though made at the
Closing, except for (a) representations and warranties that speak as of a
specific date or time other than the Closing (which need only be true and
correct as of such date or time), (b) representations and warranties which are
not qualified by Material Adverse Effect or otherwise by material adversity
(which need be true and correct except for such inaccuracies as in the aggregate
(together with the inaccuracies referred to in the following clause (c)) would
not have a Material Adverse Effect) and (c) representations and warranties which
are qualified by Material Adverse Effect or otherwise by material adversity
shall also be true and correct without regard to such qualification except for
such inaccuracies as in the aggregate (together with the inaccuracies referred
to in the preceding clause (b)) would not have a Material Adverse Effect.
(b) Performance of Covenants. All of the covenants and obligations
------------------------
that the Company and Shareholder are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all material
respects.
(c) Documents. Parent shall have received the following documents:
---------
(i) a certificate executed by the Company's Chief Executive
Officer or other senior executive officer of the Company representing: (i) that
the representations and warranties of the Company contained or referred to in
this Agreement and in each of the other agreements and instruments delivered to
the Parent in connection herewith are true and correct as of the Closing
(subject to the exceptions set forth in Section 7.2(a)), and (ii) that the
Company
29
<PAGE>
has complied with and performed in all material respects all of the covenants
and obligations that the Company is required to comply with or to perform at or
prior to the Closing;
(ii) a legal opinion of Gray Cary Ware & Freidenrich LLP,
dated as of the Closing Date, to the effect that the merger will constitute a
reorganization within the meaning of IRC Section 368.
(iii) to the extent reasonably requested by Parent,
confidential invention and assignment agreements, reasonably satisfactory in
form and content to Parent, executed by all employees of the Company and by all
consultants and independent contractors to the Company who have not already
signed such agreements;
(iv) All material Consents required to be obtained in
connection with the Merger and the other transactions contemplated by this
Agreement (including the Consents identified in Schedule 3.6) shall have been
------------
obtained and shall be in full force and effect.;
(v) a certification of non-foreign status executed by the
Shareholder in accordance with the requirements of Treasury Regulations Section
1.1445-2(b)(2)(C)(iii); and
(vi) the Escrow Agreement (the "Escrow Agreement") in
substantially the form attached hereto as Exhibit E duly executed by the
---------
Shareholder.
(d) Dissenting Shares. The Shareholder shall not have demanded
-----------------
that the Company purchase any shares of Company capital stock in accordance with
Chapter 13 of the CGCL.
(e) Company's Key Employees. Parent shall be reasonably satisfied
-----------------------
that certain key Company employees (as identified by Parent) will continue their
employment with the Surviving Corporation.
(f) No Material Adverse Change. Since the date of this Agreement,
--------------------------
there shall have been no material adverse change in the operations, earnings,
assets, properties, business or condition (financial or otherwise) of the
Company; nor shall there exist any condition that, to the Company's Knowledge,
could reasonably be expected to result in such a material adverse change, and
Parent shall have received a certificate signed on behalf of the Company by the
President or the Chief Financial Officer of the Company to such effect.
7.3 Additional Conditions to Obligations of the Company. The
---------------------------------------------------
obligations of the Company and the Shareholder to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
of which may be waived, in writing, by the Company:
(a) Accuracy of Representations. Each of the representations and
---------------------------
warranties made by Parent and MergerCo contained or referred to in this
Agreement and in each of the other agreements and instruments delivered to the
Company in connection herewith, shall be true and correct at the Closing as
though made at the Closing, except for (a) representations and
30
<PAGE>
warranties that speak as of a specific date or time other than the Closing
(which need only be true and correct as of such date or time), (b)
representations and warranties which are not qualified by Material Adverse
Effect or otherwise by material adversity (which need be true and correct except
for such inaccuracies as in the aggregate (together with the inaccuracies
referred to in the following clause (c)) would not have a Material Adverse
Effect) and (c) representations and warranties which are qualified by Material
Adverse Effect or otherwise by material adversity shall also be true and correct
without regard to such qualification except for such inaccuracies as in the
aggregate (together with the inaccuracies referred to in the preceding clause
(b)) would not have a Material Adverse Effect.
(b) Performance of Covenants. All of the covenants and obligations
------------------------
that Parent and MergerCo are required to comply with or to perform at or prior
to the Closing shall have been complied with and performed in all material
respects.
(c) Stock Option Plan. The Board of Directors of Parent shall have
-----------------
adopted Parent's 1999 Stock Option Plan for the purpose of substituting Company
Options with options to purchase shares of Parent Common Stock, subject to the
provisions of Section 6.11 above.
(d) Documents. The Company and the Shareholder shall have received
---------
the following documents:
(i) a certificate executed by Parent's Chief Executive
Officer or other senior executive officer of the Parent representing: (i) that
the representations and warranties of Parent and MergerCo contained or referred
to in this Agreement and in each of the other agreements and instruments
delivered to the Company in connection herewith are true and correct as of the
Closing (subject to the exceptions set forth in Section 7.3(a)), and (ii) that
Parent and MergerCo have each complied with and performed in all material
respects all of the covenants and obligations that Parent and MergerCo are
required to comply with or to perform at or prior to the Closing; and
(ii) a legal opinion of Gibson Dunn & Crutcher LLP, dated as
of the Closing Date, to the effect that the merger will constitute a
reorganization within the meaning of IRC Section 368.
(iii) the Escrow Agreement duly executed by Parent.
(e) Registration Rights Agreement. The Shareholder shall have
-----------------------------
received a Registration Rights Agreement substantially in the form set forth at
Exhibit F hereto duly executed by Parent.
- ---------
(f) No Material Adverse Change. Since the date of this Agreement,
--------------------------
there shall have been no material adverse change in the operations, earnings,
assets, properties, business or condition (financial or otherwise) of the
Parent; nor shall there exist any condition that, to the Parent's Knowledge,
could reasonably be expected to result in such a material adverse change, and
the Company and Shareholder shall have received a certificate signed on behalf
of the Parent by the President or the Chief Financial Officer of the Parent to
such effect.
31
<PAGE>
ARTICLE VIII
TERMINATION
8.1 Termination Events. Anything contained in this Agreement to the
------------------
contrary notwithstanding, this Agreement may be terminated at any time prior to
the Closing:
(a) by Parent, if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 7.1 or Section 7.2 has become
impossible (other than as a result of any failure on the part of Parent or
MergerCo to comply with or perform any covenant or obligation of Parent or
MergerCo set forth in this Agreement);
(b) by the Company, if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 7.1 or Section 7.3 has
become impossible (other than as a result of any failure on the part of the
Company or the Shareholder to comply with or perform any covenant or obligation
set forth in this Agreement or in any other agreement or instrument delivered to
Parent);
(c) by Parent, if the Closing has not taken place on or before April
30, 1999 (or, if Parent and the Company shall have agreed to a later date
pursuant to Section 1.2, on or before any such later date) other than as a
result of any willful or material breach by Parent or MergerCo of any covenant
or obligation set forth in this Agreement;
(d) by the Company, if the Closing has not taken place on or before
April 30, 1999 (or, if Parent and the Company shall have agreed to a later date
pursuant to Section 1.2, on or before any such later date) other than as a
result of any willful or material breach by the Company or any Shareholder of
any covenant or obligation set forth in this Agreement or in any other agreement
or instrument delivered to Parent); or
(e) by the mutual consent of Parent and the Company.
8.2 Termination Procedures. If Parent wishes to terminate this Agreement
----------------------
pursuant to Section 8.1(a) or Section 8.1(c), Parent shall deliver to the
Company prompt written notice stating that Parent is terminating this Agreement
and setting forth a brief description of the basis on which Parent is
terminating this Agreement. If the Company wishes to terminate this Agreement
pursuant to Section 8.1(b) or Section 8.1(d), the Company shall deliver to
Parent prompt written notice stating that the Company is terminating this
Agreement and setting forth a brief description of the basis on which the
Company is terminating this Agreement.
8.3 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
-------- -------
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Article X; and (c) the Company shall, in all events, remain bound by and
continue to be subject to Section 6.4.
32
<PAGE>
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
AND INDEMNIFICATION PROVISIONS
9.1 Survival of Representations and Warranties.
------------------------------------------
(a) The representations and warranties of each of the parties
contained herein shall survive the Merger and shall expire on the first
anniversary of the Effective Time (the "Claim Deadline") and any liability of
the parties with respect to such representations and warranties shall thereupon
cease except as follows: (i) fraudulent, intentional or reckless
misrepresentations shall survive indefinitely and claims related thereto may be
brought at any time following the Merger; and (ii) if, at any time prior to the
Claim Deadline, any Person entitled to indemnification hereunder (acting in good
faith) delivers to the Escrow Agent a written notice asserting a claim for
recovery under Section 9.2, then the claim asserted in such notice shall survive
the Claim Deadline with respect to each indemnifying party who was provided a
written notice prior to the Claim Deadline until such time as such claim is
fully and finally resolved.
(b) The representations, warranties, covenants and obligations of the
parties hereto, and the rights and remedies that may be exercised pursuant
hereto, shall not be limited or otherwise affected by or as a result of any
information furnished to or any investigation made by any of the parties or any
of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in a Schedule pertaining to a party's representations and
warranties shall be deemed to be a representation and warranty made by that
party in this Agreement.
9.2 Indemnification by the Shareholder.
----------------------------------
(a) In view of the fact that upon the Effective Time the Company will
become a wholly-owned subsidiary of Parent and in order to provide protection
for Parent from and after the Closing, the Shareholder will indemnify and hold
Parent harmless in respect of, and shall compensate and reimburse Parent, any
Damages (as defined in Exhibit A) which are directly or indirectly suffered or
incurred by Parent or the Company or to which Parent or the Company may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a result of, or are directly
or indirectly connected with: (i) any misrepresentation or breach of any
representation, warranty, covenant or agreement made by the Company or the
Shareholder in this Agreement or in any certificate, instrument, schedule or
document given by the Company in connection with this Agreement, or (ii) any
Legal Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)" above (including any Legal Proceeding commenced by Parent or the
Company for the purpose of enforcing any of its rights under this Section 9.2).
(b) The parties acknowledge and agree that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation of the
33
<PAGE>
Company set forth herein, then, without limiting any of the indemnification
rights of the Surviving Corporation, Parent shall also be deemed, by virtue of
its ownership of the Surviving Corporation, to have incurred Damages as a result
of and in connection with such inaccuracy or breach.
9.3 Limits on Indemnification and Liability. The liability of the
---------------------------------------
Shareholder under Sections 9.2, 9.4 and 9.5 (except for any Shareholder
liability arising out of fraudulent, intentional or reckless misrepresentations
by the Company which shall not be limited in the manner set forth in this
Section 9.3) shall be limited to the value of the Escrow Shares (calculated as
of the time of the Merger). The value of the Escrow Shares at the time of the
Merger will be calculated by multiplying the number of Escrow Shares by the
average bid closing prices of the Parent Common Stock during the ten (10) days
during which the Parent Common Stock was traded preceding the second business
day prior to the Closing Date (such average, the "Per Share Value of the Escrow
Shares"). Any liability of the Shareholder under Section 9.2, 9.4 or 9.5 will be
satisfied, pursuant to the process described in the Escrow Agreement, by
delivery to Parent of that number of Escrow Shares equal to the dollar amount of
Shareholder's indemnification liability divided by the Per Share Value of the
Escrow Shares (calculated as of the time of the Merger) equal to the dollar
amount of Shareholder's indemnification liability. Notwithstanding any provision
of this Agreement to the contrary, the Shareholder shall not have any obligation
to indemnify the Parent under this Article IX unless the Parent has suffered
Damages in an aggregate amount in excess of $50,000 (the "Indemnification
Threshold"), whereupon the Parent will be entitled to indemnification for all
Damages, subject to the limitations set forth in this Section 9.3, in excess of
the Indemnification Threshold.
9.4 Interest. Any Person provided indemnification pursuant to this
--------
Article IX with respect to any Damages shall also be entitled to receive
interest on the amount of such Damages (for the period commencing as of the date
of a claim for recovery by such indemnified Person and ending on the date on
which the liability to such indemnified Person is fully satisfied pursuant
hereto) at a floating rate equal to the rate of interest publicly announced by
Bank of America, N.T. & S.A. from time to time as its prime, base or reference
rate.
9.5 Defense of Third Party Claims. In the event of the assertion or
-----------------------------
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which any indemnified Person may be entitled to payment pursuant to this
Article IX, Parent shall have the right, at its election, to proceed with the
defense of such claim or Legal Proceeding on its own. If Parent so proceeds
with the defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively by the Shareholder;
(b) the parties shall use reasonable efforts to make available to
Parent any documents and materials in their possession or control that may be
necessary to the defense of such claim or Legal Proceeding; and
34
<PAGE>
(c) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the written consent of the Shareholder, which
consent will not be unreasonably withheld; provided, however, that Parent may
-------- -------
nevertheless settle or compromise any such claim or Legal Proceeding without the
Shareholder's prior written consent if the failure to so settle or compromise
such claim or Legal Proceeding in a timely manner will, in the reasonable
judgment of Parent, materially and adversely affect parent or Company (but such
settlement or compromise shall not prejudice the rights of any party to maintain
that such settlement or compromise should not result in a claim for
indemnification in the amount of the settlement or at all).
9.6 Indemnity Escrow Fund. At Closing, Parent shall deliver a stock
---------------------
certificate representing the Escrow Shares to Chicago Title Company as escrow
agent (the "Indemnity Escrow Agent"), such deposit to constitute the "Indemnity
Escrow Fund" which shall be governed by the terms set forth herein and in the
form Escrow Agreement. The Indemnity Escrow Fund will serve as collateral for
the indemnification obligations of, and the payment of Damages by, the
Shareholder as set forth in this Article IX. Withdrawal of such Escrow Shares
shall be subject to restrictions consistent with this Article IX and the terms
of the Escrow Agreement. All Escrow Shares that are not then subject to claims
regarding Damages shall be released to the Shareholder one year after the
Closing Date; provided, however, that any Escrow Shares which are subject to
unresolved claims upon the first anniversary of the Closing shall be released to
the Shareholder only upon the resolution of such claims.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Fees and Expenses. Each party to this Agreement shall bear and pay
-----------------
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its Representatives with
respect to the Company's business (and the furnishing of information to Parent
and its Representatives in connection with such investigation and review), (b)
the negotiation, preparation and review of this Agreement and all agreements,
certificates, opinions and other instruments and documents delivered or to be
delivered in connection with the transactions contemplated by this Agreement,
(c) the preparation and submission of any filing or notice required to be made
or given in connection with any of the transactions contemplated by this
Agreement, and the obtaining of any Consent required to be obtained in
connection with any of such transactions, and (d) the consummation of the
Merger. All such fees payable by the Company shall be paid or provided for prior
to Closing.
Notwithstanding the foregoing, in the event that this Agreement is
terminated by the Company pursuant to Section 8.1(b) of this Agreement based on
the reasonable determination that the representations and warranties of Parent
in Article V are not true and correct in any material respect, Parent shall bear
and pay all fees, costs and expenses referred to in this Section 10.1 that have
been incurred by the Company and the Shareholder. Similarly, in the
35
<PAGE>
event that this Agreement is terminated by the Parent pursuant to Section 8.1(a)
of this Agreement based on the reasonable determination that the representations
and warranties of the Company in Article III are not true and correct in any
material respect, the Company shall bear and pay all fees, costs and expenses
referred to in this Section 9.1 that have been incurred by the Parent.
10.2 Attorneys' Fees. If any action or proceeding relating to this
---------------
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party (as determined by the applicable
trier of fact) shall be entitled to recover reasonable attorneys' fees, costs
and disbursements (in addition to any other relief to which the prevailing party
may be entitled).
10.3 Notices. All notices and other communications given or made
-------
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given or made (a) five business days after being sent by registered or
certified mail, return receipt requested, (b) upon delivery, if hand delivered,
(c) one business day after being sent by prepaid overnight carrier with
guaranteed delivery, with a record of receipt, or (d) upon transmission with
confirmed delivery if sent by telecopy, to the parties at the following
addresses (or at such other addresses as may be specified by the parties by like
notice):
(a) if to Parent:
USATalks.Com, Inc.
Attn.: Chief Financial Officer
4350 La Jolla Village Drive, Suite 220
San Diego, CA 92122
Telephone: (619) 546-0550
Facsimile: (619) 552-8904
with a copy to:
Gray Cary Ware & Freidenrich LLP
Attn.: Douglas J. Rein, Esq.
4365 Executive Drive, Suite 1600
San Diego, CA 92121-2189
Telephone: (619) 677-1400
Facsimile: (619) 677-1477
(b) if to the Company:
TriServe Communications Inc.
Attn: Steven A. Roberts, President
32244 Paseo Adelanto, Suite A
San Juan Capistrano, CA 92675
Telephone: (949) 248-2600
Facsimile: (949) 248-1008
36
<PAGE>
with a copy to:
Gibson Dunn & Crutcher, LLP
Attn: Mark W. Shurtleff, Esq.
Jamboree Center
4 Park Plaza, 17th Floor
Irvine, CA 92614-8557
Telephone: (714) 451-3802
Facsimile: (714) 451-4220
(c) if to the Shareholder:
Steven A. Roberts
26 North LaSenda
Laguna Beach, CA 92651
10.4 Headings. The underlined headings contained in this Agreement are
--------
inserted for the convenience of reference only, and are not intended to be a
part of or to affect the construction or interpretation of this Agreement.
10.5 Schedules and Exhibits. The schedules and exhibits referred to in
----------------------
this Agreement shall be construed with an as an integral part of this Agreement
to the same extent as if the same had been set forth herein.
10.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be considered an original instrument,
but all of which shall be considered one and the same agreement, and shall
become binding when one or more counterparts have been signed by each of the
parties and delivered to each of Parent and the Company.
10.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, without regard to its
principles of conflicts of laws.
10.8 Assignment; Successors and Assigns. Neither this Agreement nor any
----------------------------------
of the rights, interests or obligations hereunder may be assigned by any of the
parties hereto without the prior written consent of all other parties hereto.
Subject to the foregoing, this Agreement shall be binding upon: the Company and
its successors and assigns (if any); the Shareholder and his personal
representatives, executors, administrators, estates, heirs, successors and
assigns (if any); Parent and its successors and assigns (if any); and MergerCo
and its successors and assigns (if any). This Agreement shall inure to the
benefit of: the Company; the Shareholder; Parent; MergerCo; and the respective
successors and assigns (if any) of the foregoing. Nothing in this Agreement,
express or implied, is intended or shall be construed to confer upon any Person
(other than the owners of the issued and outstanding Company Options, the
parties hereto and the successors and assigns permitted by this Section) any
right, remedy or claim under or by reason of this Agreement.
37
<PAGE>
10.9 Specific Performance. The parties acknowledge that irreparable
--------------------
damage would result if this Agreement was not specifically enforced, and they
therefore consent that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction. Such a remedy shall, however, not be exclusive, and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise.
10.10 Waiver.
------
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) Any term or provision of this Agreement may be waived, or the
time for its performance may be extended, by the party or parties entitled to
the benefit thereof; provided, however, that no party shall be deemed to have
-------- -------
waived any claim arising out of this Agreement, or any power, right, privilege
or remedy under this Agreement, unless the waiver of such claim, power, right,
privilege or remedy is expressly set forth in a written instrument duly executed
and delivered on behalf of such party; and provided further, that any such
-------- -------
waiver shall not be applicable or have any effect except in the specific
instance in which it is given.
10.11 Amendments. This Agreement may not be amended, modified, altered or
----------
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.12 Severability. Wherever possible, each provision hereof shall be
------------
interpreted in such manner as to be effective and valid under applicable law,
but in the case that any provision contained herein shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision or provisions had never been contained herein unless the
deletion of such provision or provisions would result in such a material change
as to cause completion of the transactions contemplated hereby to be
unreasonable.
10.13 Entire Agreement. This Agreement including the schedules and
----------------
exhibits hereto contains the entire understanding of the parties hereto with
regard to the subject matter contained herein; provided, however, that any
-------- -------
agreement with respect to confidentiality or proprietary information executed on
behalf of Parent and the Company prior to the date hereof shall not be
superseded by this Agreement and shall remain in effect in accordance with its
terms and until the earlier of (A) the Effective Time, or (B) the date on which
such agreement is terminated in accordance with its terms.
38
<PAGE>
10.14 Construction.
------------
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
Except as otherwise indicated, all references in this Agreement to
"Sections," "Exhibits" and "Schedules" are intended to refer to Sections of this
Agreement and Exhibits and Schedules to this Agreement.
10.15 Shareholder's Damages. Nothing in this Agreement is intended to
---------------------
limit Shareholder's right to monetary damages for Parent's or MergerCo's breach
of contract in connection with the terms and conditions of this Agreement.
39
<PAGE>
The parties hereto have caused this Agreement to be executed and delivered
as of May 31, 1999.
USA TALKS.COM, INC.,
a Nevada Corporation
By: ___________________________________
Its: __________________________________
TSI SUB, Inc.,
a Delaware corporation
By: ___________________________________
Its: __________________________________
TRISERVE COMMUNICATIONS, INC.,
a California corporation
By: ___________________________________
Its: __________________________________
SHAREHOLDER:
_______________________________________
Steven A. Roberts
40
<PAGE>
EXHIBIT A
---------
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
---------
"Acquisition Transaction" means any transaction involving:
-----------------------
(a) the sale, license, disposition or acquisition of all or a material
portion of the Company's business or assets;
(b) the issuance, disposition or acquisition of (i) any equity
security of the Company, (ii) any option, call, warrant or right (whether or not
immediately exercisable) to acquire any equity security of the Company, or (iii)
any security, instrument or obligation that is or may become convertible into or
exchangeable for any equity security of the Company; or
(c) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company.
"Agreement" means the Agreement and Plan of Merger and Reorganization to
---------
which this Exhibit A is attached (including the Schedules thereto), as it may be
---------
amended from time to time.
"Agreement of Merger" has the meaning specified in Recital E.
-------------------
"California Secretary of State" means the Secretary of State of the State
-----------------------------
of California.
"Certificate of Merger" has the meaning specified in Recital E.
---------------------
"CGCL" means the California General Corporation Law.
----
"Claim Deadline" has the meaning specified in Section 9.1(a).
--------------
"Closing" has the meaning specified in Section 1.2.
-------
"Closing Date" has the meaning specified in Section 1.2.
------------
"Company" has the meaning specified in the introductory paragraph to the
-------
Agreement.
"Company Balance Sheet" has the meaning specified in Section 3.7.
---------------------
"Company Common Stock" means the common stock of the Company, no par value,
--------------------
as authorized on the date of the Agreement.
"Company Common Stock Equivalents" has the meaning specified in Section
--------------------------------
2.1(b).
"Company Contract" shall mean any material Contract: (a) to which the
----------------
Company is a party; (b) by which the Company or any assets of any of the Company
is or may become bound
1
<PAGE>
or under which the Company has, or may become subject to, any obligation; or (c)
under which the Company has or may acquire any right or interest.
"Company Financial Statements" has the meaning specified in Section 3.7.
----------------------------
"Company Intellectual Property" shall mean any Intellectual Property owned
-----------------------------
by or licensed to the Company or otherwise used by the Company.
"Company Options" has the meaning specified in Section 3.3.
---------------
"Company Returns" has the meaning specified in Section 3.17(a).
---------------
"Company's Knowledge" means the knowledge after due inquiry of any officer
-------------------
or director of the Company.
"Compensation Plans" has the meaning specified in Section 3.18(a).
------------------
"Consent" shall mean any approval, consent, ratification, permission,
-------
waiver or authorization (including any Governmental Authorization).
"Contract" shall mean any written, oral or other agreement, contract,
--------
subcontract, lease, understanding, instrument, note, warranty, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature.
"Damages" shall include any loss, damage, injury, decline in value, lost
-------
opportunity, liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature, including without
limitation legal and other out-of-pocket expenses for investigating or defending
any actions or threatened actions.
"Delaware Secretary of State" means the Secretary of State of the State of
---------------------------
Delaware.
"DGCL" means the Delaware General Corporation Law.
----
"Dissenting Shares" has the meaning specified in Section 2.2.
-----------------
"Effective Time" has the meaning specified in Section 1.1.
--------------
"Employee" has the meaning specified in Section 3.18(a).
--------
"Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage,
-----------
security interest, encumbrance, claim, infringement, interference, option, right
of first refusal, preemptive right, community property interest or restriction
of any nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived from any asset, any restriction on the use of
any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).
2
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"Entity" shall mean any corporation (including any nonprofit corporation),
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general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
"Environmental Law" means any federal, state, local or foreign Legal
-----------------
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"Exchange Ratio" has the meaning set forth in Section 2.1(b).
--------------
"Form S-8" has the meaning specified in Section 6.14.
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"Governmental Authorization" shall mean any: (A) permit, license,
--------------------------
certificate, franchise, permission, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or (B)
right under any Contract with any Governmental Body.
"Governmental Body" shall mean any: (A) nation, state, commonwealth,
-----------------
province, territory, county, municipality, district or other jurisdiction of any
nature; (B) federal, state, local, municipal, foreign or other government; or
(c) governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or entity and any court or other tribunal).
"Government Contract" shall mean any prime contract, subcontract, letter
-------------------
contract, purchase order or delivery order executed or submitted to or on behalf
of any Governmental Body or any prime contractor or higher-tier subcontractor,
or under which any Governmental Body or any such prime contractor or
subcontractor otherwise has or may acquire any right or interest; and shall
constitute a Contract as determined herein.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
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1976, as amended.
"Incorporation Date" shall mean June 5, 1998, the date on which the Company
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was formed.
"Indemnification Threshold" has the meaning specified in Section 9.3.
-------------------------
"Intellectual Property" shall mean any: (a) patent, patent application,
---------------------
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service
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mark (whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork,
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
"IRC" shall mean the Internal Revenue Code of 1986, as amended.
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"Legal Proceeding" shall mean any action, suit, litigation, arbitration,
----------------
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
court or other Governmental Body or any arbitrator or arbitration panel.
"Legal Requirement" shall mean any federal, state, local, municipal,
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foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
"Material Adverse Effect" means a dollar loss, expense, damage or other
-----------------------
detriment in the sum of at least $10,000 for a single item or event, or in the
sum of at least $25,000 for a series of similar items or events.
"Material Leases" has the meaning set forth in Section 3.12.
---------------
"Materials of Environmental Concern" mean chemicals, pollutants,
----------------------------------
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other substance that is now or hereafter regulated by any Environmental Law or
that is otherwise a danger to health, reproduction or the environment.
"Merger" has the meaning specified in Recital E.
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"MergerCo" has the meaning specified in the introductory paragraph to the
--------
Agreement.
"Parent" has the meaning specified in the introductory paragraph to the
------
Agreement.
"Parent Common Stock" means the common stock of Parent, $.001 par value per
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share.
"Parent's Knowledge" means the knowledge after due inquiry of any officer
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or director of the Parent.
"Parent SEC Documents" has the meaning specified in Section 5.6(a).
--------------------
"Pension Plan" has the meaning specified in Section 3.18(b).
------------
"Permitted Encumbrances" means only with respect to real estate and
----------------------
interests therein, easements, covenants, conditions, restrictions and other
matters of record, and incidental
4
<PAGE>
mechanics' and other similar liens, none of which, individually or in the
aggregate, materially affect the value of, or marketability of title to, the
property subject thereto or the use to which such property is presently put.
"Person" means any individual, Entity or Governmental Body.
------
"Plans" has the meaning specified in Section 3.18(a).
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"Representatives" shall mean officers, directors, employees, agents,
---------------
attorneys, accountants, advisors and representatives of the applicable party.
"Related Party" shall mean (i) the Shareholder; (ii) each individual who
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is, or who has at any time been, an officer of the Company; (iii) each member of
the immediate family of each of the individuals referred to in clauses "(i)" and
"(ii)" above; and (iv) any trust or other Entity (other than the Company) in
which any one of the individuals referred to in clauses "(i)", "(ii)" and
"(iii)" above holds (or in which more than one of such individuals collectively
hold), beneficially or otherwise, a material voting, proprietary or equity
interest.
"SEC" shall mean the United States Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Shareholder" shall have the meaning set forth in the introductory
-----------
paragraph to the Agreement.
"Surviving Corporation" means the Company as restructured upon and after
---------------------
the Merger.
"Tax" shall mean any tax (including any income tax, franchise tax, capital
---
gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem
tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty (including any
customs duty), deficiency or fee, and any related charge or amount (including
any fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
"Tax Return" shall mean any return (including any information return),
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report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
"Treasury Regulations" means the regulations promulgated by the United
--------------------
States Treasury Department pursuant to the IRC.
"Welfare Plans" has the meaning specified in Section 3.18(c).
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5
