EXHIBIT 10.14
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MERGER AGREEMENT
DATED AS OF APRIL 10, 2000
BY AND AMONG
CREE, INC.,
CRYSTAL ACQUISITION, INC.
NITRES, INC.
AND
THOSE SHAREHOLDERS OF NITRES, INC.
LISTED ON THE SIGNATURE PAGES HERETO
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TABLE OF CONTENTS
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ARTICLE I - THE MERGER .........................................................................1
1.1 The Merger ..............................................................................1
1.2 Exchange Procedures .....................................................................4
1.3 Parties' Intent .........................................................................5
1.4 Issuances into Escrow ...................................................................5
1.5 Closing .................................................................................6
1.6 Transaction Documents ...................................................................6
1.7 Dissenters'Rights .......................................................................6
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS ......6
2.1 Ownership of Stock ......................................................................7
2.2 Existence and Good Standing .............................................................7
2.3 Capital Stock ...........................................................................7
2.4 Power and Authority .....................................................................7
2.5 Subsidiaries and Investments ............................................................8
2.6 Financial Statements; No Material Changes ...............................................8
2.7 Books and Records .......................................................................9
2.8 Title to Properties; Encumbrances ......................................................10
2.9 Tangible Assets ........................................................................10
2.10 Real Property .........................................................................10
2.11 Leases ................................................................................10
2.12 Contracts .............................................................................10
2.13 Government Contracts ..................................................................11
2.14 No Conflicts; Restrictive Documents; Consents .........................................14
2.15 Litigation ............................................................................14
2.16 Taxes .................................................................................14
2.17 Independent Contractor Status .........................................................15
2.18 Liabilities; Indebtedness .............................................................15
2.19 Insurance .............................................................................16
2.20 Intellectual Property .................................................................16
2.21 Licenses ..............................................................................18
2.22 Compliance with Laws ..................................................................19
2.23 Accounts Receivable ...................................................................19
2.24 Employee Relations ....................................................................19
2.25 Employee Benefit Plans ................................................................19
2.26 Environmental Matters .................................................................20
2.27 Interests in Clients, Suppliers, Etc ..................................................22
2.28 Bank Accounts, Powers of Attorney .....................................................22
2.29 No Changes Since Balance Sheet Date ...................................................22
2.30 Disclosure ............................................................................22
2.31 Broker's or Finder's Fees .............................................................23
2.32 Copies of Documents ...................................................................23
2.33 Matters Affecting Employees ...........................................................23
2.34 Pooling ...............................................................................23
2.35 Affiliate Letters .....................................................................23
2.36 Investment ............................................................................23
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ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB ..................24
3.1 Existence and Good Standing ............................................................24
3.2 Capital Stock ..........................................................................24
3.3 Purchaser Shares .......................................................................24
3.4 Power and Authority ....................................................................25
3.5 No Conflicts; Restrictive Documents; Consents ..........................................25
3.6 SEC Reports ............................................................................25
3.7 Broker's or Finder's Fees ..............................................................26
3.8 Litigation .............................................................................26
3.9 No Prior Activities ....................................................................26
ARTICLE IV - CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW ...................................26
4.1 Conduct of Business of the Company .....................................................26
4.2 Exclusive Dealing; Voting ..............................................................27
4.3 Review of the Company ..................................................................28
4.4 Best Efforts ...........................................................................28
ARTICLE V - CONDITIONS TO THE PURCHASER'S AND MERGER SUB'S OBLIGATIONS ........................28
5.1 Truth of Representations and Warranties ................................................29
5.2 Good Standing and Other Certificates ...................................................29
5.3 Performance of Agreements ..............................................................29
5.4 No Litigation ..........................................................................29
5.5 Pooling Letter .........................................................................29
5.6 Affiliate Letters ......................................................................29
5.7 Pooling Opinion ........................................................................29
5.8 Opinion of the Company's Counsel .......................................................30
5.9 No Material Adverse Change .............................................................30
5.10 Governmental and Other Approvals and Consents .........................................30
5.11 State Securities Permit ...............................................................30
5.12 Employment and Consulting Agreements ..................................................30
5.13 Certain Agreements ....................................................................30
5.14 Escrow Agreement ......................................................................30
5.15 Shareholder Approval ..................................................................31
5.16 Dissenters ............................................................................31
5.17 Plan of Merger ........................................................................31
5.18 Terms of Option Agreements and Restricted Shares ......................................31
5.19 Tax Matters ...........................................................................31
5.20 Resignations ..........................................................................31
5.21 Intra-Company Debt ...................................................................31
5.22 Current Employees .....................................................................31
5.23 Release of Security Interests .........................................................32
5.24 Holders of Unexercised Options ........................................................32
5.25 Restricted Shares .....................................................................32
ARTICLE VI - CONDITIONS TO THE COMPANY'S OBLIGATIONS ..........................................32
6.1 Truth of Representations and Warranties ................................................32
6.2 Good Standing and Other Certificates ...................................................32
6.3 Performance of Agreements ..............................................................33
6.4 Opinion of Purchaser's Counsel .........................................................33
6.5 State Securities Permit ................................................................33
6.6 Governmental and Other Approvals and Consents ..........................................33
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6.7 Shareholder Approval ...................................................................33
6.8 Plan of Merger .........................................................................34
6.9 Tax Opinion ............................................................................34
6.10 Bank Loan .............................................................................34
ARTICLE VII - CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES .................................34
7.1 Non-Competition; Non-Interference ......................................................34
7.2 Fairness Hearing Application ...........................................................36
7.3 Pooling Restrictions and Related Matters ...............................................36
7.4 Compliance with Employment and Consulting Agreements ...................................37
7.5 Supplemental Disclosure ................................................................37
7.6 Employees; Continued Operations ........................................................37
7.7 Form S-8 ...............................................................................38
7.8 Listing of Additional Shares ...........................................................38
7.9 401(k) Plan ............................................................................38
7.10 Dissenters ............................................................................38
7.11 Shareholder Meeting; Shareholder Approval; Information Statement ......................38
7.12 Director and Officer Indemnification ..................................................39
ARTICLE VIII - SURVIVAL OF REPRESENTATIONS; INDEMNITY; SET-OFF ................................39
8.1 Survival of Representations ............................................................39
8.2 Indemnification ........................................................................39
ARTICLE IX - TERMINATION ......................................................................41
9.1 Termination ............................................................................41
ARTICLE X - MISCELLANEOUS .....................................................................42
10.1 Definitions of Certain Terms ..........................................................42
10.2 Expenses ..............................................................................44
10.3 Remedies Not Exclusive ................................................................44
10.4 Governing Law .........................................................................44
10.5 Further Assurances ....................................................................44
10.6 Captions ..............................................................................44
10.7 Publicity .............................................................................44
10.8 Notices ...............................................................................44
10.9 Recovery of Litigation Costs ..........................................................46
10.10 Parties in Interest ..................................................................46
10.11 Counterparts .........................................................................46
10.12 Entire Agreement .....................................................................46
10.13 Construction of Certain Disclosures ..................................................47
10.14 Amendments ...........................................................................47
10.15 Severability .........................................................................47
10.16 Third Party Beneficiaries ............................................................47
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Schedules
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Schedule 2.1 Shareholders
Schedule 2.3 Company Capitalization
Schedule 2.5 Subsidiaries and Investments
Schedule 2.6 Financial Statements; Backlog
Schedule 2.8 Encumbrances
Schedule 2.9 Tangible Assets
Schedule 2.11 Leases
Schedule 2.12 Contracts
Schedule 2.13 Government Contracts
Schedule 2.14 Restrictive Documents and Consents
Schedule 2.16 Taxes
Schedule 2.17 Company Contractors
Schedule 2.18 Indebtedness
Schedule 2.19 Insurance
Schedule 2.20(b) Registered Proprietary Assets
Schedule 2.20(c) Other Proprietary Assets
Schedule 2.20(d) Licensed Proprietary Assets
Schedule 2.20(e) Encumbrances on Proprietary Assets
Schedule 2.20(f) Joint Development of Proprietary Assets
Schedule 2.20(g) Employees or Consultants Not Subject to Confidentiality Agreement
Schedule 2.20(i) Infringement
Schedule 2.20(j) Licenses or Other Limitations on Proprietary Assets
Schedule 2.20(k) Certain Technology Matters
Schedule 2.21 Licenses
Schedule 2.24 Employees
Schedule 2.25 Employee Benefit Plans
Schedule 2.26(b) Environmental Matters
Schedule 2.26(g) Storage Tanks
Schedule 2.27 Interests in Clients, Suppliers, etc.
Schedule 2.28 Bank Accounts, Powers of Attorney
Schedule 2.29 No Material Changes
Schedule 2.35 Rule 145 Affiliates
Schedule 4.1 Conduct of Business
Schedule 5.13 Certain Agreements
Schedule 5.22(a) Employees
Schedule 5.22(b) Other Employees
Schedule 7.6 Post-Closing Conduct of Business
Schedule 8.2 Indemnification Matters
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Exhibits
Exhibit A - Plan of Merger
Exhibit B - Escrow Agreement
Exhibit C-1, C-2 and C-3 - Nondisclosure and Confidentiality Agreement
Exhibit D - Affiliate Letter
Exhibit E - Opinion of Company's Counsel
Exhibit F - Consulting Agreement
Exhibit G-1, G-2, G-3, G-4 - Employment Agreements
Exhibit H - Opinion of Purchaser's Counsel
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MERGER AGREEMENT
THIS MERGER AGREEMENT (this "Agreement") is made and dated as of April 10, 2000,
by and among CREE, INC., a North Carolina corporation (the "Purchaser"), CRYSTAL
ACQUISITION, INC., a North Carolina corporation and wholly-owned subsidiary of
the Purchaser ("Merger Sub"), NITRES, INC., a California corporation (the
"Company"), and those shareholders of the Company as listed on the signature
page to this Agreement (the "Principal Shareholders"). Capitalized terms used in
this Agreement and not otherwise defined are defined in Section 10.1 below.
Except as otherwise specifically stated, references in this Agreement to
schedules and exhibits are references to the documents attached as schedules and
exhibits to this Agreement, all of which form a part hereof.
WITNESSETH:
WHEREAS, the parties to this Agreement desire for Merger Sub and the
Company to engage in, and the boards of directors of the Purchaser, Merger Sub
and the Company have approved, the merger of Merger Sub with and into the
Company (the "Merger") upon the terms and subject to the conditions set forth in
this Agreement and in the related Plan and Agreement of Merger attached as
Exhibit A (the "Plan of Merger");
WHEREAS, the Principal Shareholders are the owners of at least 95% of all
issued and outstanding shares of capital stock of the Company and the owners of
at least a majority of the issued and outstanding shares of each class of
capital stock of the Company, as set forth adjacent to their respective names on
Schedule 2.1; and
WHEREAS, the parties intend and desire for the Merger to constitute a
"pooling of interests" for the Purchaser's accounting purposes and a
reorganization within the meaning of Section 368(a) of the Code for United
States federal income tax purposes;
NOW, THEREFORE, in consideration of the premises, covenants and agreements
set forth in this Agreement and of other good and valuable consideration, the
receipt and legal sufficiency of which they hereby acknowledge, and intending to
be legally bound, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger
(a) Upon the performance of all covenants and obligations and the
fulfillment of all conditions to the obligations of the parties contained
herein (other than such covenants, obligations and conditions as shall have
been waived in accordance with the terms hereof), and in accordance with
the North Carolina Business Corporation Act, as amended (the "NCBCA"), and
the California Corporations Code, as amended (the "California Code"), at
the Effective Time (as defined in subsection (b) below), Merger Sub shall
be merged with and into the Company in accordance with the Plan of Merger;
the separate existence of Merger Sub shall cease; and the Company shall be
the surviving corporation (sometimes referred to herein as the "Surviving
Corporation") and shall continue its corporate existence under the laws of
the State of California. The name of the Surviving Corporation shall be
"Cree Lighting Company."
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(b) The Merger shall be effected by the filing of articles of merger
with the Secretary of State of North Carolina in accordance with the
provisions of Article 11 of the NCBCA and the filing of the Plan of Merger
with the Secretary of State of California in accordance with the provisions
of Section 1103 of the California Code. The Merger shall become effective
at the time set forth in such articles of merger and Plan of Merger, which
shall be filed contemporaneously with the closing conducted pursuant to
Section 1.5 below (the "Closing"). The time and date when the Merger shall
become effective is referred to in this Agreement as the "Effective Time."
(c) At the Effective Time, by virtue of the Merger and without any
action on the part of the holders of shares of common stock, $.001 par
value per share, or preferred stock, $.001 par value per share, of the
Company ("Company Common Stock" and "Company Preferred Stock",
respectively, and collectively the "Company Stock"), and subject to the
withholding into escrow described in Section 1.4 below:
(i) Each issued and outstanding share of Company Common Stock
(other than treasury shares and Dissenting Shares (as defined below))
shall be converted into the right to receive shares of Common Stock of
the Purchaser ("Purchaser Common Stock") such that each holder of
shares of Company Common Stock shall be entitled to receive the number
of shares of Purchaser Common Stock (less any fractional share, which
shall be eliminated) determined by multiplying (A) the number of
shares of Company Common Stock set forth opposite his or her name on
Schedule 2.1 by (B) the Exchange Ratio (as defined below);
(ii) Each issued and outstanding share of Company Preferred Stock
(other than treasury shares and Dissenting Shares) shall be converted
into the right to receive the number of shares of Purchaser Common
Stock equal to the sum of (A) the number of shares obtained by
multiplying the number of shares of Company Preferred Stock set forth
opposite his or her name on Schedule 2.1 by the Preference Exchange
Ratio (as defined below), plus (B) the number of shares of Purchaser
Common Stock that the holder of such shares would have received had
the Company Preferred Stock been converted into Company Common Stock
immediately prior to the Effective Time (less any fractional share,
which shall be eliminated).
(iii) Each outstanding option to purchase shares of Company
Common Stock (a "Stock Option") under the Company 1999 Stock
Option/Stock Issuance Plan (the "Company Plan"), whether vested or
unvested shall be assumed by Purchaser. Accordingly, each Stock Option
shall be deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Stock Option immediately
prior to the Effective Time (including without limitation any
repurchase rights), the number of shares of Purchaser Common Stock
determined by multiplying the number of shares of Company Common Stock
that were purchasable immediately prior to the Effective Time upon the
exercise of such Stock Option by the Exchange Ratio (less any
fractional share, which shall be eliminated) at a price per share
(rounded up to the nearest whole cent) equal to (A) the exercise price
per share of Company Common Stock immediately prior to the Effective
Time under such Stock Option divided by (B) the Exchange Ratio;
provided, however, that in the case of any Stock Option to which
Section 422 of the Code applies ("incentive stock options"), the
option price, the number of shares purchasable pursuant to such
option, and the terms and conditions of exercise of such option shall
be determined in order to comply with Section 424(a) of the Code. As
soon as practicable after the Effective Time, the Purchaser shall
deliver to each
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holder of Stock Options a notice confirming the foregoing assumption
and setting forth such holder's rights pursuant thereto, including the
number of shares of Purchaser Common Stock purchasable under the
assumed Stock Option and the corresponding exercise price thereunder;
(iv) Each share of Company Common Stock (a) acquired by a
Shareholder on the exercise of Stock Options granted by the Company
under the Company Plan or (b) otherwise issued by the Company to a
Shareholder, which in each case is subject to repurchase rights
(collectively, the "Repurchase Rights"), including without limitation
Company Common Stock issued pursuant to the Company Plan or pursuant
to certain Common Stock Issuance Agreements or certain Common Stock
Purchase Agreements between the Company and certain Shareholders
(collectively, the "Restricted Shares") shall be converted into the
right to receive shares of Purchaser Common Stock as described in
Section 1.1(c)(i) above and the Repurchase Rights and any agreement or
instrument evidencing the Repurchase Rights shall be deemed assigned
by the Company to Purchaser and shall be deemed assumed by the
Purchaser, thereby giving the Purchaser all the rights that the
Company would have had under the terms of the Repurchase Rights
including the right to repurchase the shares upon the happening of
certain events. As soon as practicable after the Effective Time, the
Purchaser shall deliver to each holder of Restricted Shares a notice
confirming the foregoing assignment and assumption and setting forth
such holder's rights pursuant thereto;
(v) Each outstanding warrant to purchase shares of Company
Preferred Stock (a "Warrant") shall be deemed to constitute a warrant
to acquire, on the same terms and conditions as were applicable under
such Warrant immediately prior to the Effective Time, the number of
shares of Purchaser Common Stock that would have been received by the
holder thereof had the warrant been exercised to purchase Company
Preferred Stock immediately prior to the Effective Time (less any
fractional share, which shall be eliminated) at a price per share
(rounded up to the nearest whole cent) equal to (A) the exercise price
per share of Company Preferred Stock immediately prior to the
Effective Time under such Warrant multiplied by a fraction the
numerator of which shall be the number of shares of Company Preferred
Stock for which the Warrant is exercisable and the denominator of
which shall be the number of shares of Purchaser Common Stock for
which the Warrant is exercisable after the Effective Time. As soon as
practicable after the Effective Time, the Purchaser shall deliver to
each holder of a Warrant a notice confirming the foregoing and setting
forth such holder's rights pursuant thereto, including the number of
shares of Purchaser Common Stock purchasable under the Warrant and the
corresponding exercise price thereunder; and
(vi) Each share of Company Stock that is owned by the Company, if
any, shall automatically be cancelled and retired and shall cease to
exist, and no Purchaser Common Stock shall be delivered in exchange
therefor.
(d) For purposes of this Article I:
(i) "Average Share Price" shall mean the average of the closing
price of Purchaser Common Stock over the 30-day period ending three
(3) days prior to the Closing, taking into account any stock splits,
stock dividends or similar recapitalization.
(ii) "Company Capitalization" shall mean the Company's
fully-diluted capitalization immediately prior to the Effective Time
(treating all then-outstanding Stock Acquisition Rights for securities
of the Company as fully exercised or converted into shares of
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Company Common Stock), comprised of 2,362,194 shares of Company Stock
on the date hereof, as set forth on Schedule 2.3.
(iii) "Exchange Ratio" shall mean the number (rounded to five
decimal places) determined by dividing (A) 2,000,000 (the total number
of Purchaser shares) less the Preference Shares by (B) the Company
Capitalization. In the event that between the date of this Agreement
and the Closing Date, the Purchaser shall change the number of shares
of Purchaser Common Stock that are issued and outstanding as a result
of any stock split, stock dividend or similar recapitalization, the
figures and calculations used to determine the Exchange Ratio each
shall be proportionately adjusted correspondingly. Subject to the
foregoing sentence, the Purchaser shall have no obligation to issue in
excess of 2,000,000 shares of Purchaser Common Stock pursuant to this
Agreement.
(iv) "Preference Exchange Ratio" shall mean $1.48 divided by the
Average Share Price.
(v) "Preference Shares" shall mean that number of shares of
Purchaser Common Stock equal to the sum of (A) the total number of
shares of Company Preferred Stock outstanding immediately prior to the
Effective Time and (B) the total number of shares of Company Preferred
Stock that would have been outstanding had all of the Warrants been
exercised immediately prior to the Effective Time, multiplied by the
Preference Exchange Ratio.
(e) Capital Stock of Merger Sub. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of shares of
common stock, $.01 par value per share, of Merger Sub ("Merger Sub Common
Stock"), each share of Merger Sub Common Stock issued and outstanding
immediately prior to the Effective Date shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of
common stock, par value $.001 per share of the Surviving Corporation. Each
stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
1.2 Exchange Procedures.
(a) Purchaser hereby designates its transfer agent to act as the
Exchange Agent hereunder (the "Exchange Agent"). Promptly after the
Effective Time, Purchaser shall make available to the Exchange Agent for
exchange in accordance with this Article I, through such reasonable
procedures as the Purchaser and the Exchange Agent may adopt, certificates
evidencing the shares of Purchaser Common Stock issuable pursuant to
Section 1.1(c)(i) and (ii) above in exchange for the shares of Company
Stock outstanding immediately prior to the Effective Time less the number
of shares of Purchaser Common Stock to be deposited into the Escrow Fund
(defined below) pursuant to Section 1.4 below. Upon surrender of a stock
certificate representing shares of Company Stock (a "Certificate") for
cancellation to the Exchange Agent in accordance with the Purchaser's and
Exchange Agent's procedures, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) the number of shares
represented by the surrendered Certificate, multiplied by (B) the
applicable number of shares pursuant to Section 1.1(c). The Certificate so
surrendered shall forthwith be cancelled. Until surrendered as contemplated
by this Section 1.2(a), each Certificate shall be deemed from and after the
Effective Time to represent only the right to receive upon such surrender
the merger consideration described above for each share represented by the
Certificate. In no
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event shall the holder of any such surrendered Certificate be entitled
to receive interest on any merger consideration to be received in
connection with the Merger. Neither the Exchange Agent nor the Purchaser
shall be liable to a holder of Company Stock for any merger consideration
paid to a public official pursuant to any applicable abandoned property,
escheat or similar law. Any payments under this Section 1.2 shall be
subject to applicable tax withholding requirements.
(b) If any Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the
Purchaser or its transfer agent, the posting by such person of a bond or
other indemnification, in such reasonable and customary amount as the
Purchaser or its transfer agent may direct, as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the merger consideration described above.
1.3 Parties' Intent. The parties to this Agreement intend for the
transactions contemplated by this Agreement to qualify for "pooling of
interests" treatment for the Purchaser's accounting purposes and as a
reorganization within the meaning of Section 368(a) of the Code for United
States federal income tax purposes.
1.4 Issuances into Escrow.
(a) When making the issuances required by Section 1.1 above, and
notwithstanding any provision in this Agreement to the contrary, the
Purchaser shall withhold from the shareholders of the Company (the
"Shareholders") (on a pro rata basis according to their respective
interests therein) and deliver to the Escrow Agent (as defined in the
Escrow Agreement referred to below) ten percent (10%) of the aggregate
number of shares of Purchaser Common Stock issuable pursuant to Section
1.1(c)(i) and (ii) above (the "Escrow Fund"), to be held and distributed by
the Escrow Agent pursuant to the terms of this Agreement and the Escrow
Agreement attached as Exhibit B (the "Escrow Agreement"). All such shares
shall be issued in the name of the Escrow Agent, as escrow agent under the
Escrow Agreement.
(b) Fred A. Blum shall, by virtue of the Merger and as of the
Effective Time, be irrevocably appointed attorney-in-fact and authorized to
act for and on behalf of any or all of the Shareholders (with full power of
substitution in the premises) with respect to all matters arising in
connection with the Escrow Agreement, including without limitation the
power and authority on behalf of each Shareholder to do or take any one or
more of the actions enumerated in Section 1.4 thereof (the above-named
representative, or any subsequent representative appointed under the Escrow
Agreement, the "Representative"). Such appointment may be changed as
provided in the Escrow Agreement. Each of the Purchaser and Merger Sub
shall be entitled to rely on such appointment and treat the Representative
as the duly appointed attorney-in-fact of each Shareholder for all such
purposes. Each Shareholder by receiving merger consideration acknowledges
and agrees that such appointment is irrevocable and coupled with an
interest.
(c) The Representative shall not be liable for any act done or omitted
hereunder as Representative while acting in good faith and in the exercise
of reasonable judgment, and any act done or omitted pursuant to the advice
of counsel shall be conclusive evidence of such good faith. Each
Shareholder shall jointly and severally indemnify the
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Representative and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder.
1.5 Closing. Consummation of the Merger and the other transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P. on the second
business day after all of the conditions set forth in Article V and Article VI
shall have been satisfied or waived, or at such other time and date as the
Purchaser and the Company shall designate in writing (such specified or other
time and date, the "Closing Date").
1.6 Transaction Documents. As used in this Agreement, the term "Transaction
Documents" shall mean, collectively, this Agreement, the Escrow Agreement, the
Employment and Consulting Agreements (as defined in Section 5.12), and all
agreements, instruments, certificates and other documents executed or delivered
in accordance with the terms of this Agreement or any Transaction Document.
1.7 Dissenters' Rights. Any shares of Company Stock which immediately prior
to the Effective Time are held by shareholders who have properly exercised and
perfected, and have not withdrawn or otherwise forfeited, dissenters' or
appraisal rights in accordance with California Code Section 1300 et seq.
("Dissenting Shares") shall not be converted into the right to receive shares of
Purchaser Common Stock at the Effective Time as provided in Sections 1.1(c)(i)
or (ii) above; rather, the holders of Dissenting Shares shall be entitled to
receive consideration determined pursuant to California Code Section 1300 et
seq.; provided, however, that if any such holder shall have failed to perfect or
shall withdraw or lose such holder's dissenter's rights, such holder's shares of
Company Stock thereupon shall be deemed to have been converted into the right to
receive shares of Purchaser Common Stock as provided in Sections 1.1(c)(i) or
(ii) above (subject to the withholding into escrow described in Section 1.4
above), and such shares shall no longer be Dissenting Shares. Company agrees
that, except with the prior written consent of Purchaser, or as required under
the California Code, the Company will not voluntarily make any payment with
respect to, or settle or offer to settle, any purchase demand by a holder of
Dissenting Shares. Each holder of Dissenting Shares who becomes entitled to
payment for such shares pursuant to California Code Section 1300 et seq. shall
receive payment therefor from the Surviving Corporation from funds provided by
Purchaser (but only after the amount of the payment required therefor shall have
been agreed upon or finally determined pursuant to the California Code).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS
The Company (and not any Principal Shareholders) represents and warrants to
the Purchaser and Merger Sub and agrees as set forth in this Article II, except
that each Principal Shareholder (and not the Company) represents and warrants
severally, and not jointly and severally, to the Purchaser and Merger Sub and
agrees as set forth in Sections 2.1(b), 2.4(b), and 2.36 as follows:
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2.1 Ownership of Stock.
(a) Each Shareholder is the record owner of the number of shares of
Company Stock listed opposite his or her name in Schedule 2.1, which are,
to the Company's knowledge, free and clear of all Encumbrances.
(b) Each Principal Shareholder is the lawful owner of the number of
shares of the Company Stock listed opposite of his or her name in Schedule
2.1, free and clear of all Encumbrances.
2.2 Existence and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the power to own its properties and to carry on its
business as now being conducted. The Company is not required to be qualified to
do business in any other jurisdictions under applicable Law.
2.3 Capital Stock. The Company has an authorized capitalization consisting
of the number and types of shares of capital stock set forth in Schedule 2.3,
with the par value per share stated therein. The Company has issued and
outstanding the number and types of shares of capital stock set forth in
Schedule 2.3; no other shares of capital stock are issued or outstanding; and
there are no outstanding Stock Acquisition Rights for securities of the Company,
other than as contemplated by this Agreement or set forth in Schedule 2.3. In
the case of Stock Options and Restricted Shares, Schedule 2.3 sets forth the
number of vested shares as of the date of this Agreement. Set forth on Schedule
2.3 are the following for each holder of capital stock and Stock Options of the
Company: (i) in the case of capital stock, whether such stock constitutes or has
constituted Restricted Shares at any time; (ii) in the case of Restricted Shares
or Stock Options, the date of issuance or grant, the vesting commencement date,
the date of exercise or purchase, and a brief description of the vesting
provisions. Except as set forth on Schedule 2.3, the Merger will not cause the
acceleration of vesting of any Stock Options or any Restricted Shares or the
termination or lapse of any Repurchase Rights. All of the issued and outstanding
shares of capital stock of the Company have been duly authorized and validly
issued, are fully paid and non-assessable, were issued in accordance with the
registration or qualification provisions of the Securities Act and any relevant
state securities laws or pursuant to valid exemptions therefrom, and none of
such shares have been issued in violation of the preemptive rights, rights of
first refusal or other similar rights of any Shareholder. With respect to each
Person that received at any time Restricted Shares, the Company delivered to
such Person at or prior to the time of receipt by such Person of such Restricted
Shares a memorandum or other instrument accurately describing the consequences
of the failure by such Person to file timely an election under Section 83(b) of
the Code. The requisite shareholders of the Company have executed and delivered
to the Company proper instruments such that the acceleration of the vesting (or
lapse of certain repurchase rights) under the Stock Options and Restricted
Shares do not constitute excess parachute payments under Section 280G of the
Code.
2.4 Power and Authority.
(a) The Company has all requisite power and authority to enter into
and deliver this Agreement and the other Transaction Documents to which it
is a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The Company's
execution, delivery and performance of this Agreement
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and the other Transaction Documents and the Company's consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all corporate action required by applicable Law or the
Company's Organizational Documents, other than shareholder approval as
contemplated by this Agreement. This Agreement and the other Transaction
Documents to which the Company is a party constitute the valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as enforcement may be
limited by general equitable principles (whether raised in a proceeding at
law or in equity), or by applicable bankruptcy, insolvency, moratorium or
similar laws of general application relating to or affecting creditors'
rights (including without limitation, the effect of statutory or other laws
regarding fraudulent conveyances or transfers and preferential transfers).
As of the Closing Date, the Company shall have complied with the
requirements of the California Code relating to dissenters' rights
applicable to the Merger or the other transactions contemplated hereby.
(b) Each Principal Shareholder has the full legal right, power and
authority to enter into and deliver this Agreement and the other
Transaction Documents to which such Principal Shareholder is a party,
perform such Principal Shareholder's obligations hereunder and thereunder
and consummate the transactions contemplated hereby and thereby. Each
Principal Shareholder's execution, delivery and performance of this
Agreement and the other Transaction Documents and such Principal
Shareholder's consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all action required of
such Principal Shareholder by applicable Law and, if applicable, its
Organizational Documents. This Agreement and the other Transaction
Documents to which each Principal Shareholder is a party constitute the
valid and legally binding obligations of such Principal Shareholder,
enforceable against such Principal Shareholder in accordance with their
respective terms, except as enforcement may be limited by general equitable
principles (whether raised in a proceeding at law or in equity), or by
applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights (including without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances or transfers and preferential transfers).
2.5 Subsidiaries and Investments. Except as set forth in Schedule 2.5, the
Company does not own, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any Person and is not a party to any
joint venture or partnership Contract.
2.6 Financial Statements; No Material Changes.
(a) The Company has furnished the Purchaser with true and complete
copies of the unaudited balance sheet of the Company as of December 31,
1999 (the "Balance Sheet") and the related statement of income for the year
then ended (collectively, the "Annual Financial Statements"). The Company
also has furnished the Purchaser with true and complete copies of the
unaudited balance sheet and statement of income for the Company for the
one-month period ending January 31, 2000 and the one-month period ending
February 29, 2000, each of which was prepared on a basis consistent with
the corresponding Annual Financial Statements; further, on or before the
tenth day of each calendar month after the date of this Agreement, the
Company will use its best efforts to provide the Purchaser with an
unaudited balance sheet and statement of income for the Company for each
such calendar month, each of which will be prepared on a basis consistent
with the corresponding Annual Financial Statements (the "Interim Financial
Statements," and together with the Annual Financial Statements, the
"Financial Statements"). The Financials Statements have been
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prepared in accordance with generally accepted accounting principles (GAAP)
consistently applied throughout the periods indicated (except that the
Financial Statements do not contain footnotes), and are correct, complete,
and consistent with the Company's books and records (which are correct and
complete), except that the Interim Financial Statements are subject to
normal, recurring adjustments (which will not be material, individually or
in the aggregate). The balance sheets furnished pursuant to this Section
2.6 fairly present the financial condition of the Company at the respective
dates thereof, and reflect all claims against and debts and liabilities of
the Company, fixed or contingent, as at the respective dates thereof
(including the Company management's reasonable estimate in accordance with
GAAP of any unliquidated liability required by GAAP to be reflected
thereon); and the related statements of income, shareholders' equity and
cash flows fairly present the results of the operations of the Company and
the changes in financial position for the periods indicated. There are no
transactions between the Company and any Shareholder (or any affiliate
thereof) which are not reflected in the Financial Statements or on Schedule
2.6 or Schedule 2.12.
(b) Since December 31, 1999 (the "Balance Sheet Date"), there has been
no event, fact, condition, circumstance or other development which has had
or may have, individually or in the aggregate, a Material Adverse Effect on
the Company, whether as a result of any Casualty, termination or impairment
of any material Contract or business relationship, the enactment of any new
Law, or otherwise; nor is the Company aware of any such event, fact,
condition, circumstance or other development which is reasonably likely to
occur in the foreseeable future.
(c) Schedule 2.6 sets forth a true and correct report describing the
Company's backlog (calculated based on fee payments anticipated to be
received under letters of intent and legally binding written agreements for
the provision of services to third parties) ("Backlog"). The Backlog as of
February 29, 2000 was at least $4,430,000, of which at least $646,000 is
attributable to the fiscal year ending December 31, 2000.
(d) Without limiting the foregoing, and for purposes of the
Purchaser's evaluation whether the Purchaser is required to file a
notification under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (together with all rules and regulations promulgated
thereunder, the "HSR Act"), (i) the Company is not "engaged in
manufacturing" (as defined in the HSR Act); (ii) the total assets of the
Company and any Person controlled by the Company, taken together and
calculated on the basis required by the HSR Act, are less than $10 million;
(iii) the annual net sales of the Company and any person controlled by the
Company, taken together and calculated on the basis required by the HSR
Act, are less than $100 million; and (iv) the Company does not have an
"ultimate parent entity" (as defined in the HSR Act).
2.7 Books and Records. The minute books of the Company, as previously made
available to the Purchaser and its representatives, contain accurate records of
all meetings of and action taken by the shareholders and board of directors
(including committees thereof) of the Company. The Company has none of its
records, systems, controls, data or information recorded, stored, maintained,
operated or otherwise wholly or partly dependent upon or held by any means
(including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of the Company.
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2.8 Title to Properties; Encumbrances. Except as set forth in Schedule 2.8
and except for properties and assets reflected in the Balance Sheet or acquired
since the Balance Sheet Date which in each case have been sold or otherwise
disposed of in the ordinary course of business, the Company has good, valid and
marketable title to (a) all of its properties and assets (real and personal,
tangible and intangible), including without limitation all of the properties and
assets reflected in the Balance Sheet, and (b) all of the properties and assets
purchased by the Company since the Balance Sheet Date; in each case subject to
no Encumbrance, except for Permitted Encumbrances.
2.9 Tangible Assets. Schedule 2.9 contains an accurate and complete list of
all tangible assets of the Company, whether owned or leased (as so indicated),
having a value (individually or in the aggregate with other like items) in
excess of $25,000, and not including any materials or similar items having a
useful life of less than one year. The tangible assets listed in Schedule 2.9
are in a state of good maintenance and repair, are adequate and suitable for the
purposes for which they are currently being used, and constitute all of the
tangible assets (having such value) used in or necessary to conduct the
Company's business as currently conducted.
2.10 Real Property. Except as described in Section 2.11 as to leased real
property, the Company does not currently own, and has not at any time owned, in
whole or in part, any interest (direct or indirect) in any real property.
2.11 Leases. Schedule 2.11 contains an accurate and complete list and
summary of the terms of each lease to which the Company is a party (as lessee or
lessor). Each lease set forth in Schedule 2.11 (or required to be set forth in
Schedule 2.11) is in full force and effect; all rents and additional rents due
to date on each such lease have been paid; in each case, the lessee has been in
peaceable possession since the commencement of the original term of such lease
and is not in default thereunder, and no waiver, indulgence or postponement of
the lessee's obligations thereunder has been granted by the lessor; and there
exists no event of default or event, occurrence, condition or act (including the
transactions contemplated by this Agreement) which, with the giving of notice,
the lapse of time or the happening of any further event or condition, would
become a default under such lease. To the Company's knowledge, all of the
covenants to be performed by any other party under any such lease have been
fully performed. The property leased by the Company is in a state of good
maintenance and repair and is adequate and suitable for the purposes for which
it is presently being used.
2.12 Contracts. Except as set forth in Schedule 2.12, the Company neither
has nor is bound by (a) any Contract relating to the performance by the Company
of services for or on behalf of any person or entity requiring the Company to
provide more than $25,000 in such services, or is not terminable by the Company
without penalty within 30 days, (b) any Contract relating to the engagement as
an independent contractor or employment of any person by the Company, or any
bonus, deferred compensation, pension, profit sharing, stock option, employee
stock award or purchase, retirement or other employee benefit plan, (c) any
Contract which contains restrictions with respect to the payment of dividends or
other distributions by the Company, (d) any Contract relating to capital
expenditures exceeding $25,000 individually or in the aggregate, and not
terminable by the Company without penalty within 30 days, (e) any loan or
advance to, or investment in, any Person or any Contract relating to the making
of any such loan, advance or investment, (f) any guarantee or other contingent
liability in respect of any indebtedness or obligation of any Person (other than
the endorsement of negotiable instruments for collection in the ordinary course
of business), (g) any management service,
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consulting or any other similar type Contract, (h) any Contract limiting the
freedom of the Company to engage in any line of business in any geographic area,
or to compete with any Person, (i) any other Contract which involves $25,000 or
more that is not immediately terminable by the Company without penalty, or (j)
any Contract which might reasonably be expected to have a potential adverse
impact on the business or operations of the Company. Each Contract set forth in
Schedule 2.12 (or required to be set forth in Schedule 2.12) is in full force
and effect and constitutes a valid and legally binding obligation of each party
thereto, enforceable thereagainst in accordance with its terms; and there exists
no, and the Company has not received any notice or other communication asserting
the actual or alleged existence of any, default or event of default or event,
occurrence, condition or act (including the consummation of the transactions
contemplated by this Agreement) which, with the giving of notice, the lapse of
time or the occurrence of any other event or condition would become a default or
event of default thereunder. The Company has not violated any of the terms or
conditions of any Contract which would at any time since the Company's inception
have been required to be set forth in a schedule listing the types of agreements
and instruments set forth in Schedule 2.12 in any material respect. The Company
is in good relations with each other party thereto, and all of the covenants to
be performed by any other party thereto have been fully performed. The Company
is in good relations with and has not experienced, and does not anticipate, any
dispute with any supplier, vendor, contractor, or customer with which the
Company has conducted business during the one year period ending with the date
of this Agreement.
2.13 Government Contracts.
(a) Capitalized terms used in this Section 2.13 which are not
otherwise defined in this Agreement shall have the respective meanings set
forth below:
"Affiliate" means with respect to a specified person, any subsidiary,
joint venture or partnership controlled by the specified person and any
predecessors to the foregoing which had a Government Contract (during the
period when the predecessor was under the control of the specified person)
which remains subject to possible government audit.
"Bid" means any bid, proposal or quotation made by the Company, or by
a contractor team or joint venture in which the Company is participating,
that, if accepted, would lead to a Government Prime Contract or a
Government Subcontract.
"Government Contract" means any Government Prime Contract, Government
Subcontract, Bid or Teaming Agreement.
"Government Prime Contract" means any prime contract, basic ordering
agreement, letter contract, purchase order, delivery order, change,
arrangement or other commitment of any kind, on which final payment has not
been made, between the Company and either the U.S. Government or a State
Government.
"Government Subcontract" means any subcontract, basic ordering
agreement, letter subcontract, purchase order, delivery order, change,
arrangement or other commitment of any kind, on which final payment has not
been made, between the Company and any prime contractor to either the U.S.
Government or a State Government or any subcontractor with respect to a
Government Prime Contract.
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"State Government" means any state, territory or possession of the
United States or any department or agency of any of the above with
statewide jurisdiction and responsibility.
"Teaming Agreement" has the same meaning as the term, "Contractor team
arrangement," as defined in Federal Acquisition Regulation ("FAR") 9.601.
"U.S. Government" means the United States Government or any
department, agency or instrumentality thereof.
(b) A list of each and every Government Contract to which the Company
or any of its subsidiaries is a party is set forth in Schedule 2.13
attached hereto. Except as set forth in Schedule 2.13:
(i) To the best of the Company's knowledge and except for normal
disallowances and exceptions raised in past or future DCAA or DCMC
audits that would not be material in amount (or exceed the Company's
reserves therefor), the Company has fully complied with all terms and
conditions of such Government Contract, including all clauses,
provisions and requirements incorporated expressly by reference or by
operation of law therein;
(ii) The Company has fully complied with all requirements of any
statute, rule, regulation, order or agreement pertaining to such
Government Contract;
(iii) All representations and certifications executed,
acknowledged or set forth by the Company in or pertaining to such
Government Contract were current, accurate and complete as of their
effective date, and the Company has fully complied with all such
representations and certifications;
(iv) Neither the U.S. Government, any State Government nor any
prime contractor, subcontractor or other person has notified the
Company in writing or orally, that the Company has breached or
violated any Government Contract, statute, rule, regulation,
certification, representation, clause, provision, requirement or
implied duty;
(v) No termination for convenience, termination for default, cure
notice, show cause notice, or notice of breach of contract has been
issued under or in connection with any Government Contract;
(vi) No cost incurred by the Company under or in connection with
any Government Contract has been questioned or disallowed in writing;
(vii) No money due to the Company under or in connection with any
Government Contract has been (or has attempted to be) withheld or set
off;
(viii) All amounts previously charged or at present carried as
chargeable by the Company to any Government Contract with an agency or
instrumentality of the U.S. Government or any State Government have
been or will be reasonable, allowable and allocable to each such
Government Contract, net of any applicable reserves established by the
Company;
(ix) No notice has been given of a cost accounting standard
non-compliance under or in connection with any Government Contract;
and
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(x) The Company's business as currently conducted is in all
respects adequate and suitable for the performance of existing
Government Contracts.
(c) Investigations and Audits. Except as set forth in Schedule 2.13:
(i) None of the Company, the Company's Affiliates nor any of the
Company's directors, officers, employees, agents or consultants is (or
for the last five (5) years has been) under administrative, civil or
criminal investigation, indictment or information, audit or internal
investigation with respect to any alleged irregularity, misstatement
or omission arising under or relating to any Government Contract;
(ii) Neither the Company nor any of the Company's Affiliates has
made a voluntary disclosure to the U.S. Government or any State
Government with respect to any alleged irregularity, misstatement or
omission arising under or relating to a Government Contract;
(iii) The Company has no knowledge of any irregularity,
misstatement or omission arising under or relating to any Government
Contract that has led or could lead, either before or after the
Closing Date, to any of the consequences set forth in (i) and (ii)
above or any other damage, penalty assessment, recoupment of payment
or disallowance of cost in excess of the reserves therefor established
by the Company; and
(iv) The Company has no reason to believe that any employee,
agent, consultant, representative or Affiliate of the Company is in
receipt or possession of any competitor or government proprietary or
procurement sensitive information under circumstances where there is
reason to believe that such receipt or possession is unlawful or
unauthorized.
(d) Financing Arrangements and Claims Except as set forth in Schedule
2.13, there exist:
(i) No receivables financing arrangements with respect to
performance of any Government Contract;
(ii) No notice of any outstanding claims against the Company,
either by the U.S. Government, any State Government or by any prime
contractor, subcontractor, vendor or other third party, arising under
or relating to any Government Contract, which has been received by the
Company;
(iii) No facts that are known by the Company upon which such a
claim may be based in the future arising under or relating to any
Government Contract;
(iv) No disputes between the Company and the U.S. Government, any
State Government or any prime contractor, subcontractor or vendor
arising under or relating to any Government Contract; and
(v) No facts that are known by the Company over which such a
dispute may arise in the future.
The Company has no interest in any pending or potential claim against the
U.S. Government, any State Government or any prime contractor,
subcontractor or vendor arising under or relating to any Government
Contract.
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(e) No Suspension or Debarment. Neither the Company, nor to the
Company's knowledge, any of its directors, officers of employees, nor any
of the Company's Affiliates is (or for the last five (5) years has been)
suspended or debarred from doing business with the U.S. Government or any
State Government, or has been declared nonresponsible or ineligible for
U.S. Government or State Government contracting. The Company knows of no
circumstances that would warrant the institution of suspension or debarment
proceedings or the finding of nonresponsibility or ineligibility on the
part of the Company in the future.
2.14 No Conflicts; Restrictive Documents; Consents . Except as set forth in
Schedule 2.14, the Company is not subject to, or a party to, any Organizational
Document, Law (including without limitation the Worker Adjustment and Retraining
Notification Act, as amended) or Contract, or any other restriction of any kind
or character, which adversely affects the business practices, operations or
condition of the Company or any of its assets or property, or which would be
violated by or conflict with, prevent or impair (whether by acceleration of any
liability, creation of any Encumbrance or otherwise) or require any declaration,
filing, registration, notice, approval or consent to, with or of any Person in
connection with, the consummation of the transactions contemplated by this
Agreement or any other Transaction Document, compliance by the Company with the
terms, conditions and provisions hereof or thereof, or the present or continued
operation of the Company's business after the date hereof or the Closing Date on
substantially the same basis as heretofore operated, or which would restrict the
ability of the Company to acquire any property or conduct business in any area.
2.15 Litigation. There is no action, suit, proceeding at law or in equity,
arbitration or administrative or other proceeding or investigation by or before
any governmental or other instrumentality or agency pending or, to the Company's
knowledge, threatened against or affecting the Company, or any of its properties
or rights which could affect the right or ability of the Company to carry on its
business as now conducted, or which could affect the condition, whether
financial or otherwise, or properties of the Company; and the Company is not
aware of any basis for any such action, proceeding or investigation. Neither the
Company nor any of its affiliates is subject to any judgment, order or decree
entered in any lawsuit or proceeding which may affect any of the Company's
operations or business practices, or the ability of the Company to acquire any
property or conduct business in any area.
2.16 Taxes. The Company has filed or caused to be filed, within the times
and manners prescribed by law, all federal, state, local and foreign tax
returns, elections and tax reports which are required to be filed by, or with
respect to, the Company. True and complete copies of all such returns have been
made available to the Purchaser. Except as set forth on Schedule 2.16, (i) such
returns and reports reflect accurately all liability for taxes of the Company
for the periods covered thereby, (ii) all federal, state, local and foreign
income, profits, franchise, sales, use, occupancy, excise and other taxes and
assessments (including interest and penalties) payable by or due from the
Company have been fully paid or adequately disclosed and fully provided for in
the books and financial statements of the Company, and (iii) no examination of
any tax return of the Company is currently in progress, and no basis for any
assessment exists. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return of the Company.
2.17 Independent Contractor Status. Schedule 2.17 sets forth a complete
list of the Persons engaged by the Company at any time to render consulting or
similar services to the Company on an independent contractor basis
(collectively, the "Company Contractors"). The
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Company has previously made available to the Purchaser true and complete copies
of each and every agreement between the Company and any Company Contractor.
Except as set forth on Schedule 2.17, each Company Contractor is and at all
times has been an independent contractor to, and not an employee of, the Company
for purposes of all applicable federal and state income tax withholding
requirements and otherwise.
2.18 Liabilities; Indebtedness.
(a) Except as set forth on Schedule 2.18, there are no liabilities,
obligations or indebtedness of or claims against the Company, whether known
or unknown, due or not yet due, asserted or unasserted (whether or not
probable of assertion), actual or potential, choate or inchoate, fixed,
contingent, or otherwise, arising from or in connection with, or based upon
acts, omissions, events, things, facts, conditions, matters or occurrences
existing, occurring or taking place on or before the Closing Date, whether
or not discovered, known, asserted, expected or contemplated by any party
or third party, or in any way choate on the Closing Date; and the Purchaser
shall not suffer or be subject to any Losses (as defined in Section 8.2(a)
below) arising from the foregoing, whether such Losses occur before or
after the Closing Date, except: (i) those liabilities set forth in the
Balance Sheet, (ii) liabilities that are not greater than $25,000 in the
aggregate, and (iii) liabilities actually incurred (not including
contingent liabilities (other than as permitted by Section 2.29) or acts or
omissions which may give rise to future liabilities) subsequent to the
Balance Sheet Date and incurred prior to the Effective Time in the ordinary
course of the Company's business and consistent with past practice;
provided that, without limitation, any other act or omission which may give
rise to liability in the future, including without limitation, any of the
following or any act or omission which results in any of the following, are
specifically deemed not to be in the ordinary course of business: (A) any
action, suit, proceeding at law or in equity, arbitration or other
proceeding or investigation by or before a governmental or other body, (B)
violation of Law, breach of contract, tort, violation of the rights of
others, acts or omissions causing injury to person or property, (C)
illegal, unlawful or criminal act or activity; or (D) any act in bad faith.
(b) Without limiting subsection (a) above, the Company has no
liabilities of any kind or character incurred in connection with or arising
from or in connection with the merger of Widegap Technology, LLC with and
into the Company, that are not reflected on the Balance Sheet or set forth
on Schedule 2.18.
(c) Schedule 2.18 is a complete and correct listing of all (i)
indebtedness for money borrowed by the Company, (ii) guarantees by or of
the Company, (iii) letters of credit and other credit enhancements extended
to the Company, and (iv) all capital lease obligations (all obligations
described by (i) through (iv) being referred to herein as "Indebtedness").
No default or event of default, or event or condition which with the giving
of notice, the lapse of time, a determination of materiality, the
satisfaction of any other condition or any combination of the foregoing
would constitute such a default or event of default exists with respect to
any such Indebtedness. As of the date of this Agreement, the sum of the
Indebtedness of the Company does not exceed $200,000 in principal amount
plus accrued interest at non-default rates.
2.19 Insurance. Set forth in Schedule 2.19 is a complete list of insurance
policies which the Company maintains with respect to its business, properties
and employees, together with a description of each claim made thereon in excess
of $25,000. All such policies are in full force and effect and are free from any
right of termination on the part of the applicable insurance carriers. Except as
set forth on Schedule 2.19, such policies, with respect to their
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amounts and types of coverage, are adequate to insure fully against risks to
which the Company and its property and assets are normally exposed in the
operation of its business, including professional liability, and do not require
the payment of any unusual premium, surcharge, or other increase above market
insurance rates as a result of the nature of the Company's business or the
manner in which such business has been conducted, including but not limited to
past loss or claim experience or risks of operations pertinent to insurability.
There are no outstanding unpaid premiums except in the ordinary course of
business, and the Company has not received any notice of cancellation or
non-renewal of any such policy. The Company is not aware of any extraordinary
risks, situations, occurrences or other matters which have been disclosed, or
should have been disclosed, to insurance carriers or brokers in connection with
any applications for insurance. There has never been any material adverse change
in the relationship of the Company with its insurers or in the premiums payable
pursuant to such policies. There exists no event of default or event,
occurrence, condition or act (including the transactions contemplated by this
Agreement) which, with the giving of notice, the lapse of time or the happening
of any further event or condition would become a default or occasion a material
premium increase (other than an increase anticipated as a result of the growth
and change in nature of the business) under any such policy or give rise to, and
the Company has no anticipation of, any termination or cancellation thereof or
premium increase therefor. Except as set forth on Schedule 2.19, the Company has
been covered by one or more policies of insurance of the types described in
Schedule 2.19 continuously since the commencement of its operations for all
services provided by the Company at any time.
2.20 Intellectual Property.
(a) As used in this Section 2.20, "Proprietary Asset" means any: (a)
patent, patent application, trademark (whether registered or unregistered),
trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork,
maskwork application, trade secret, know-how, customer list, computer
software, source code, algorithm, 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.
(b) Schedule 2.20(b) sets forth, with respect to each Proprietary
Asset owned by the Company that is registered with any Governmental
Authority or for which an application has been filed with any Governmental
Authority, (i) a brief description of such Proprietary Asset, and (ii) the
names of the jurisdictions covered by the applicable registration or
application.
(c) Schedule 2.20(c) identifies and provides a brief description of
all other Proprietary Assets owned by the Company that are material to the
business of the Company.
(d) Schedule 2.20(d) identifies and provides a brief description of
each Proprietary Asset that is licensed or otherwise made available to the
Company by any Person (other than commercially available business and
accounting software licensed to the Company under software licenses
generally available to the public), and identifies the Contract under which
such Proprietary Asset is being licensed or otherwise made available to the
Company.
(e) Except as set forth on Schedule 2.20(e), the Company has good and
valid title to all of the Proprietary Assets identified or required to be
identified in Schedules
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2.20(b) and 2.20(c) (the "Company Proprietary Assets"), free and clear of
all Encumbrances other than Permitted Encumbrances. The Company has a valid
right to use, license and otherwise exploit all Proprietary Assets
identified in Schedule 2.20(d).
(f) Except as set forth in Schedule 2.20(f), the Company has not
developed jointly with any other Person any Proprietary Asset that is
material to the business of the Company with respect to which such other
Person has any rights. Except as set forth in Schedule 2.20(f), there is no
Contract pursuant to which any Person has any right (whether or not
currently exercisable) to use, license or otherwise exploit any Company
Proprietary Asset.
(g) The Company has taken reasonable measures and precautions to
protect and maintain the confidentiality, secrecy and value of all Company
Proprietary Assets (except Proprietary Assets whose value would be
unimpaired by disclosure). Without limiting the generality of the
foregoing, except as set forth in Schedule 2.20(g), (i) all current and
former employees of the Company who are or were involved in, or who have
contributed to, the creation or development of any Company Proprietary
Asset have executed and delivered to the Company an agreement (containing
no exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of agreement attached hereto as Exhibit
C-1, C-2 or C-3 (as applicable), and (ii) all current and former
consultants and independent contractors to the Company who are or were
involved in, or who have contributed to, the creation or development of any
Company Proprietary Asset have executed and delivered to the Company an
agreement (containing no exceptions to or exclusions from the scope of its
coverage) that is substantially identical to the form of agreement attached
hereto as Exhibit C-1, C-2 or C-3 (as applicable). No current or former
employee, officer, director, stockholder, consultant or independent
contractor has any right, claim or interest in or with respect to any
Company Proprietary Asset. Each such agreement entered into by a present
employee, consultant or independent contractor of the Company is in full
force and effect and constitutes a valid and legally binding obligation of
each party thereto, enforceable thereagainst in accordance with its terms.
(h) With respect to the pending patent applications of the Company
listed in Schedule 2.20(b) (the "Patent Applications"):
(i) all prior art and other information material to the
patentability of the claims in the Patent Applications of which the
inventors are aware has been duly disclosed to the U.S. Patent and
Trademark Office;
(ii) the Company and the inventors did not sell or offer to sell
devices covered by any claims of any of the Patent Applications, or
manufactured using any process claimed in any of the Patent
Applications, or disclose the claimed invention to any third party
other than patent counsel for the Company, prior to the filing date of
such application;
(iii) each of the Patent Applications discloses the best mode of
operation of the claimed device or process as contemplated by the
named inventors at the time of filing such application;
(iv) the Persons named as inventors in each Patent Application
are the inventors of the invention described in such application; and
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(v) each inventor named in each Patent Application has executed a
binding assignment of his or her rights to such application in favor
of the Company, and each such assignment has been duly recorded in the
U.S. Patent and Trademark Office.
(i) Except as set forth in Schedule 2.20(i), insofar as the Company
has knowledge of the matters referred to:
(i) none of the Company Proprietary Assets, and no Proprietary
Asset that is currently being developed by the Company (either by
itself or with any other Person), infringes, misappropriates or makes
any unauthorized use of any Proprietary Asset owned or used by any
other Person;
(ii) none of the devices that have been designed, created,
developed, assembled or manufactured by the Company, nor any apparatus
or processes used by the Company in the manufacture or assembly
thereof, infringes, misappropriates or makes any unauthorized use of
any Proprietary Asset owned or used by any other Person, and none of
such devices, apparatus or processes, has at any time infringed,
misappropriated or made any unauthorized use of, and the Company has
received no notice or other communication (in writing or otherwise) of
any actual, alleged, possible or potential infringement,
misappropriation or unauthorized use of, any Proprietary Asset owned
or used by any other Person; and
(iii) to the knowledge of the Company, no Person is infringing,
misappropriating or making any unauthorized use of, any Company
Proprietary Asset.
(j) The Company Proprietary Assets constitute all of the Proprietary
Assets necessary to enable the Company to conduct its business in the
manner in which such business has been and is being conducted. Except as
set forth in Schedule 2.20(j), the Company has not (i) licensed any of the
Company Proprietary Assets to any Person or (ii) entered into any covenant
not to compete or Contract limiting its ability to exploit fully any
Company Proprietary Assets or to transact business in any market or
geographical area or with any Person.
(k) The Company further represents and warrants to the Purchaser and
Merger Sub as set forth on Schedule 2.20(k).
2.21 Licenses. Schedule 2.21 attached hereto contains an accurate and
complete list of all material licenses, franchises, permits, rights and other
authorizations (collectively, "Licenses") used, or anticipated to be used, in
the operation of the business of the Company or otherwise held by the Company.
The Company owns or otherwise lawfully uses each License necessary or required
by applicable law to conduct its business as conducted as of the date of this
Agreement, free and clear of all Encumbrances. All of the Licenses are in full
force and effect, not subject to any current default or right of cancellation,
termination or revocation.
2.22 Compliance with Laws. The Company is, and at all times has been, in
compliance with all applicable Laws in all material respects. There exists no
event, occurrence, condition or act which, with the giving of notice, the lapse
of time or the occurrence of any further event or condition would constitute a
violation of any applicable Law by the Company in any material respects. Neither
the Company nor any of its affiliates, nor any Person acting for or on behalf of
any thereof, has at any time made or participated in any bribe, kickback or
illegal payment.
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2.23 Accounts Receivable. Without duplication of the representations and
warranties set forth in Section 2.13, each of the Company's accounts receivable
arises from a bona fide transaction occurring in the ordinary course of business
and to the knowledge of the Company will be collectible net of reserves shown on
the Balance Sheet or taken in the ordinary course of business since the Balance
Sheet Date and there is no contest, claim or right of set-off contained in any
oral or written agreement with any account debtor relating to the amount or
validity of any account receivable. There has been no material adverse change
since the Balance Sheet Date in the amount of accounts receivable or other debts
due the Company or the allowances with respect thereto, or accounts payable of
the Company, from that reflected in the Balance Sheet.
2.24 Employee Relations. Schedule 2.24 contains an accurate list of all of
the Company's employees, showing for each his or her position, date of
employment, 1999 compensation, and current annualized salary. The Company is in
substantial compliance with all Laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and has not
and is not engaged in any unfair labor practice. No unfair labor practice
complaint against the Company is pending before the National Labor Relations
Board or any other governmental authority. There is no labor strike, dispute,
slowdown or stoppage actually pending or, to the Company's knowledge, threatened
against or involving the Company. No representation question exists respecting
the employees of the Company. No grievance which might have an adverse effect
upon the Company or the conduct of its business exists, no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending, and no claim therefor has been asserted. No collective bargaining
agreement is currently being negotiated by the Company. The Company has not
experienced any labor difficulty during the last three years. No current
employee has expressed or communicated to the Company any current grievance or
any intent to leave or contemplation of leaving the Company's employ. To the
Company's knowledge, there has not been and there will not be any adverse change
in relations with employees of the Company as a result of any announcement or
the consummation of the transactions contemplated by this Agreement.
2.25 Employee Benefit Plans.
(a) Set forth in Schedule 2.25 is an accurate and complete list of all
employee benefit plans of any variety whatsoever (the "Employee Benefit
Plans"), including without limitation any within the meaning of Section
3(3) of ERISA (whether or not any such Employee Benefit Plans are otherwise
exempt from the provisions of ERISA), as well as any bonus, stock option,
stock purchase, severance or incentive plan, arrangement or agreement,
established, maintained or contributed to by or with respect to the Company
at any time. The Company has provided the Purchaser with true and complete
copies of all documents governing or relating to each such Employee Benefit
Plan along with, to the extent applicable, the summary plan description,
IRS Form 5500 and IRS determination letter ("Determination Letter").
(b) Each Employee Benefit Plan has been administered in all respects
in accordance with its terms and is in compliance in all respects with the
applicable provisions, if any, of ERISA and the Code. All reports, returns
and similar documents with respect to the Employee Benefit Plans required
to be filed with any government agency or distributed to any Employee
Benefit Plan participant have been duly and timely filed or distributed.
There are no investigations by any government agency, and no termination
proceedings or other claims, suits
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or proceedings against or involving any Employee Benefit Plan or asserting
any rights or claims to benefits under any Employee Benefit Plan that could
give rise to any liability to the Company or such Employee Benefit Plan.
Except as set forth on Schedule 2.25, all of the Employee Benefit Plans
that are intended to be qualified under Section 401(a) of the Code have
received a Determination Letter and such plans and the trusts related
thereto are exempt from federal income taxes; no such Determination Letter
has been revoked and revocation has not been threatened; and no such
Employee Benefit Plan has been amended since the date of its most recent
Determination Letter or application therefor in any respect that would
adversely affect its qualification or increase its cost. No Employee
Benefit Plans have been terminated, except for such amendments made by the
sponsor of the prototype document for which the deadline for filing an
application for a Determination Letter has not yet expired. There have not
been any "reportable events" (as defined in Section 4043 of ERISA and the
regulations thereunder) with respect thereto; and no Employee Benefit Plan
has an "accumulated funding deficiency" within the meaning of Section
412(a) of the Code or any unfunded liability of any kind.
2.26 Environmental Matters.
(a) For purposes of this Section 2.26, "Hazardous Substance" means any
of the following: (i) a "hazardous substance" as defined in 42 U.S.C.
Section 9601(14), as amended from time to time, and all rules, regulations
and orders promulgated thereunder as in effect from time to time, (ii) a
"hazardous waste," as defined in 42 U.S.C. Section 6903(5), as amended from
time to time, and all rules, regulations and orders promulgated thereunder
as in effect from time to time, (iii) if not included in (i) or (ii) above,
"hazardous waste constituents" as defined in 40 C.F.R. Section 260.10,
including, without limitation, those listed in Appendix VII and VIII of
Subpart D of 40 C.F.R. Section 261, as amended from time to time, and all
rules, regulations and orders promulgated thereunder as in effect from time
to time, (iv) "source," "special nuclear" or "by-product material," as
defined in 42 U.S.C. Sections 3011, et seq., as amended from time to time,
and all rules, regulations and orders promulgated thereunder as in effect
from time to time, and (v) any other waste, substance or material, the
generation, transportation, treatment, storage, release, or disposal of
which is regulated under or by applicable Laws, including without
limitation petroleum and petroleum products, asbestos and
asbestos-containing materials, and low-level radioactive substances and
wastes.
(b) Except as set forth in Schedule 2.26(b), the Company and its
leased real property set forth in Schedule 2.11 (the "Leased Real
Property") are in compliance, and since the Company's acquisition of an
interest in its Leased Real Property have been in compliance, in all
material respects, and, to the knowledge of the Company, prior to such
acquisition were in compliance, in all material respects with all
applicable Laws relating to Hazardous Substances. Without limiting the
foregoing, (i) the operations of the Company do not violate, and since
commencement of operations of the Company have not violated, in any
material respect, any Law relating to the generation, storage, processing,
utilization, labeling, transportation, treatment, disposal, release,
discharge, emission or other disposition of Hazardous Substances, and (ii)
the Company or, to the knowledge of the Company, any current or former
owner, occupant or operator of any property at any time owned, leased or
operated by the Company, has not ever utilized any such property or any
portion thereof in material violation of any Law relating to the
generation, storage, processing, utilization, labeling, transportation,
disposal, treatment, emission, release, discharge, or other disposition of
Hazardous Substances. Schedule 2.26(b) hereto contains: (i) a true list and
description of all environmental audits and assessments in the possession
of, or available to, the Company relating to the Leased Real Property, and
(ii) any property at any time owned, leased or
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operated by the Company, including, with respect to any such assessment,
removal, remediation, closure or other type of such operation, the date of
commencement; the date of completion or closure or anticipated date of
completion or closure; and the estimated cost of any such operation.
(c) The Company has not and does not utilize, store, dispose of,
treat, generate, process, transport, release or own any Hazardous Substance
in material violation of any applicable Law.
(d) The Company has, in a timely manner, obtained all licenses,
permits, consents and approvals from any foreign, federal, state, local or
other governmental, administrative or regulatory authority, body, agency,
court, tribunal or similar entity ("Governmental Authority") and filed all
reports required to be filed under or pursuant to any applicable Law
related to any Hazardous Substance.
(e) The Company has not received any notice of any writ, injunction,
claim, decree, order or judgment outstanding or of any action instituted or
threatened under or pursuant to, or of any violation of, any environmental
Law applicable to any operations or property of the Company or any
predecessors thereof, including, without limitation, any notice from any
Governmental Authority or other Person advising the Company that it is or
is potentially responsible for response costs under the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section
9601 et seq.) (together with the regulations promulgated thereunder,
"CERCLA"), or any other Law with respect to a release or threatened release
of any Hazardous Substances.
(f) Except as set forth on Schedule 2.26(b), the Company has not
received any notice of any violation of any environmental, zoning, worker
safety or land use Law, including, without limitation, under CERCLA, the
Resource Conservation and Recovery Act, as amended (42 U.S.C. Section 6901,
et seq.), the Oil Pollution Act of 1990 (33 U.S.C. 2701, et seq.), the
Emergency Planning and Community Right-to-Know Act, as amended (42 U.S.C.
Section 11001, et seq.), the Clean Water Act, as amended (33 U.S.C. Section
3121, et seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401, et
seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Section
2601, et seq.), Occupational Safety and Health Act, as amended (29 U.S.C.
Section 651, et seq.), together with the regulations promulgated under each
respective law, and any state or local similar laws and regulations and any
so-called local, state or federal "superfund" or "superlien" law.
(g) Except as set forth on Schedule 2.26(g), to the Company's
knowledge, there are not now and never have been any under- or aboveground
storage tanks located on any Leased Real Property or any other property at
any time owned, leased or operated by the Company or any of its
predecessors or subsidiaries.
2.27 Interests in Clients, Suppliers, Etc. Except as described in Schedule
2.27, neither the Company, nor, to the knowledge of the Company, any Shareholder
possesses, directly or indirectly, any financial or other interest in any Person
which is a client, supplier, customer, lessor, lessee, or competitor or
potential competitor of the Company (other than ownership of a minority interest
in a publicly traded entity).
2.28 Bank Accounts, Powers of Attorney. Set forth in Schedule 2.28 is an
accurate and complete list showing (a) the name and address of each bank in
which the Company has
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an account or safe deposit box, the number of any such account or any such box
and the names of all persons authorized to draw thereon or to have access
thereto, and (b) the names of all persons, if any, holding powers of attorney
(including without limitation with respect to tax matters) from the Company and
a summary statement of the terms thereof.
2.29 No Changes Since Balance Sheet Date.
(a) Except as set forth on Schedule 2.29, since the Balance Sheet
Date, the Company has not (i) incurred any liability or obligation of any
nature (whether accrued, absolute, contingent, known or unknown or
otherwise) except in the ordinary course of business or in an amount less
than $25,000 in the aggregate (ii) permitted any of its assets to be
subjected to any Encumbrance (other than Permitted Encumbrances), (iii)
sold, transferred or otherwise disposed of any assets except in the
ordinary course of business or for an amount less than $25,000 in the
aggregate, (iv) made any capital expenditure or commitment therefor except
in the ordinary course of business or in an amount less than $25,000 in the
aggregate, (v) declared or paid any dividend or made any other
distribution, or redeemed, purchased or otherwise acquired any its
securities or Stock Acquisition Rights therefor, (vi) made any bonus or
profit sharing distribution or payment of any kind, (vii) increased its
indebtedness for borrowed money, except current borrowings from banks in
the ordinary course of business or in an amount less than $25,000 in the
aggregate, or made any loan to any Person; (viii) written off as
uncollectible any notes or accounts receivable except write-offs in the
ordinary course of business charged to applicable reserves, none of which
individually or in the aggregate exceeds $25,000, (ix) granted any increase
in the rate of wages, salaries, bonuses or other remuneration of any
executive employee or other employees, (x) cancelled or waived any claims
or rights, (xi) made any change in any method of accounting or auditing
practice, (xii) otherwise conducted its business or entered into any
transaction, except in the usual and ordinary manner and in the ordinary
course of business, or (xiii) agreed, whether or not in writing, to do any
of the foregoing.
(b) As of the date hereof, the aggregate amount outstanding under the
Bank Loan is $200,000 in principal amount plus accrued interest at
non-default rates.
2.30 Disclosure. None of this Agreement, the Financial Statements, or any
schedule, exhibit or certificate attached hereto or delivered in accordance with
the terms hereof or any document or statement in writing which has been supplied
by or on behalf of the Company in connection with the transactions contemplated
by this Agreement, contains any untrue statement of a material fact or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein not misleading. All information concerning the Company which
is material to the transactions contemplated hereby has been provided to the
Purchaser, including without limitation any and all appraisals, valuations,
estimates or other projections concerning the Company or its securities, except
that the Company has not provided to Purchaser certain information regarding its
Proprietary Assets, the effect of providing which would have, in the Company's
reasonable opinion, an adverse effect on the Company's business should the
transactions contemplated hereby not be consummated. There is no fact known to
the Company which materially adversely affects the business, prospects,
valuation or financial condition of the Company or its properties or assets
which has not been set forth in this Agreement, the Financial Statements, or any
schedule, exhibit or certificate attached hereto or delivered in accordance with
the terms hereof.
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2.31 Broker's or Finder's Fees. No agent, broker, person or firm acting on
behalf of the Company or any Shareholder is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any person or entity controlling, controlled by or under common control with any
of the parties hereto, in connection with any of the transactions contemplated
by this Agreement.
2.32 Copies of Documents. The Company has caused to be made available for
inspection and copying by the Purchaser and its advisers true, complete and
correct copies of all documents referred to in this Article II or in any
schedule attached to this Agreement, other than certain documents related to the
Company's Proprietary Assets as described in Section 2.30.
2.33 Matters Affecting Employees. To the knowledge of the Company, no
employee of the Company is subject to any Contract or Law which adversely
affects or which might adversely affect such employee's ability to act as an
employee of the Purchaser or the Surviving Corporation following consummation of
the transactions contemplated by this Agreement.
2.34 Pooling. The pooling letter referred to in Section 5.6 will be true
and accurate as of the date of its execution and delivery by the Company and as
of the Closing Date.
2.35 Affiliate Letters. Set forth on Schedule 2.35 is a list of each
"affiliate" of the Company (within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act, or applicable SEC accounting
releases with respect to pooling of interests accounting treatment) (a "Rule 145
Affiliate") as of the date of this Agreement. Each such Rule 145 Affiliate has
executed and delivered to the Purchaser and the Purchaser's accountants a
letter, dated and as of the date of this Agreement, in form and substance
satisfactory to the Purchaser and its accountants in the form attached as
Exhibit D.
2.36 Investment. Each Principal Shareholder represents and warrants that
such Principal Shareholder (i) is acquiring Purchaser Common Stock for such
Principal Shareholder's own account for investment and not with a view to, or
for resale in connection with, any distribution of Purchaser Common Stock within
the meaning of the Securities Act and does not intend to resell, assign or
otherwise dispose of all or any part of the Purchaser Common Stock being
acquired; (ii) understands that such Principal Shareholder may be required to
bear the economic risk of an investment in the Purchaser beyond the time that
such Principal Shareholder desires to liquidate such investment; (iii) is able
to bear the economic risk of investment in Purchaser Common Stock and has no
need for liquidity with respect to the Purchaser Common Stock; (iv) has received
all information that such Principal Shareholder considers necessary or advisable
to make a decision concerning an investment in Purchaser Common Stock and has
had adequate opportunity to ask questions and receive answers concerning the
terms and conditions of the Merger and to obtain any additional information
which the Company or Purchaser possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of the information
provided by the Company or Purchaser; (v) has sought such accounting, legal and
tax advice as such Principal Shareholder has considered necessary to make an
informed investment decision; (vi) such Principal Shareholder acknowledges that
the Purchaser is a reporting company under Section 12 of Exchange Act; and such
Principal Shareholder has had an opportunity to review the Purchaser's various
filings previously made pursuant to the Exchange Act which are publicly
available.
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The subject matter covered by any section, subsection or provision of this
Article II shall not be exclusive as to such subject matter to the extent
covered by another section, subsection or provision of this Article II, and the
specificity of any representation or warranty or other provision or part thereof
shall not affect or limit the generality of any other representation or warranty
or other provision or part thereof. The Company has used its best efforts to
identify correctly on each disclosure Schedule (including by cross-reference)
each item of disclosure applicable to such Schedule, but the failure to so
cross-reference shall not cause a representation to be untrue if the relevant
item is clearly disclosed on another Schedule and the applicability of such item
to another Schedule is clearly recognizable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND MERGER SUB
The Purchaser and Merger Sub jointly and severally represent and warrant to
the Company and agree as follows:
3.1 Existence and Good Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina. Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of North Carolina.
3.2 Capital Stock. Merger Sub has an authorized capitalization consisting
of 100,000 shares of common stock, $.01 par value per share, of which 1,000
shares are issued and outstanding and are held by the Purchaser. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and nonassessable.
3.3 Purchaser Shares. The shares of Purchaser Common Stock to be issued to
the Shareholders pursuant to Section 1.1 above have been duly authorized and,
when issued and delivered in accordance with the terms of this Agreement, will
be validly issued, fully paid and non-assessable. The shares of Purchaser Common
Stock to be issued upon the exercise of those Stock Options under the Company
Plan which are to be assumed by the Purchaser pursuant to Section 1.1(c)(iii)
have been duly authorized, and when issued will be validly issued, fully paid
and non-assessable. The shares of Purchaser Common Stock to be issued upon the
exercise of the Warrants which shall constitute warrants to acquire shares of
Purchaser Common Stock pursuant to Section 1.1(c)(v) have been duly authorized,
and when issued will be validly issued and fully paid and non-assessable.
3.4 Power and Authority.
(a) The Purchaser has all requisite power and authority to enter into
and deliver this Agreement and the other Transaction Documents to which it
is a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The
Purchaser's execution, delivery and performance of this Agreement and the
other Transaction Documents and the Purchaser's consummation of the
transactions contemplated hereby and thereby will have been duly and
validly authorized by all corporate action required of the Purchaser by
applicable Law or its Organizational Documents. This Agreement and the
other Transaction Documents to which the Purchaser is a party constitute
the valid and legally binding obligations of the Purchaser, enforceable
against the Purchaser in
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accordance with their respective terms, except as enforcement may be
limited by general equitable principles (whether raised in a proceeding at
law or in equity), or by applicable bankruptcy, insolvency, moratorium or
similar laws of general application relating to or affecting creditors'
rights (including without limitation, the effect of statutory or other laws
regarding fraudulent conveyances or transfers and preferential transfers).
(b) Merger Sub has all requisite power and authority to enter into and
deliver this Agreement and the other Transaction Documents to which it is a
party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. Merger Sub's
execution, delivery and performance of this Agreement and the other
Transaction Documents and Merger Sub's consummation of the transactions
contemplated hereby and thereby will have been duly and validly authorized
by all corporate action required of Merger Sub by applicable Law or its
Organizational Documents. This Agreement and the other Transaction
Documents to which Merger Sub is a party constitute the valid and legally
binding obligations of Merger Sub, enforceable against Merger Sub in
accordance with their respective terms, except as enforcement may be
limited by general equitable principles (whether raised in a proceeding at
law or in equity), or by applicable bankruptcy, insolvency, moratorium or
similar laws of general application relating to or affecting creditors'
rights (including without limitation, the effect of statutory or other laws
regarding fraudulent conveyances or transfers and preferential transfers).
3.5 No Conflicts; Restrictive Documents; Consents. Neither the Purchaser
nor Merger Sub is subject to, or a party to, any Organizational Document, Law or
Contract, or any other restriction of any kind or character, which would be
violated by or conflict with, prevent or impair (whether by acceleration of any
liability, creation of any Encumbrance or otherwise) or require any declaration,
filing, registration, notice, approval or consent to, with or of any Person in
connection with, the consummation of the transactions contemplated by this
Agreement or any other Transaction Document, or compliance by the Purchaser or
Merger Sub with the terms, conditions and provisions hereof or thereof.
3.6 SEC Reports. Since January 1, 1999, the Purchaser has filed with the
United States Securities and Exchange Commission (the "SEC") all forms,
financial statements, documents and reports (collectively, "SEC Reports")
required to be filed by the Purchaser pursuant to the Exchange Act. Such SEC
Reports were prepared in all material respects in accordance with the Exchange
Act and, when filed, did not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
3.7 Broker's or Finder's Fees. Other than CIBC World Markets Corp., no
agent, broker, person or firm acting on behalf of the Purchaser or Merger Sub
is, or will be, entitled to any commission or broker's or finder's fees from any
of the parties hereto, or from any person or entity controlling, controlled by
or under common control with any of the parties hereto, in connection with any
of the transactions contemplated herein.
3.8 Litigation. There is no action, suit, proceeding at law or in equity,
arbitration or administrative or other proceeding or investigation by or before
any governmental or other instrumentality or agency pending or, to the
Purchaser's knowledge, threatened against or affecting the Purchaser or Merger
Sub, or any of their respective properties or rights, which, if adversely
determined, would have a material adverse effect on the ability of the Purchaser
or Merger Sub to consummate the transactions contemplated by this Agreement or
to perform
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their respective obligations hereunder. Neither the Purchaser nor Merger Sub is
subject to any judgment, order or decree entered in any lawsuit or proceeding
which may have a material adverse effect on the ability of the Purchaser or
Merger Sub to consummate the transactions contemplated by this Agreement or to
perform their respective obligations hereunder.
3.9 No Prior Activities. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
ARTICLE IV
CONDUCT OF BUSINESS; EXCLUSIVE DEALING; REVIEW
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement to the Closing Date, the Company shall conduct its operations
only according to its ordinary and usual course of business and preserve intact
its business organization, keep available the services of its officers and
employees, maintain satisfactory relationships with licensors, suppliers,
distributors, clients and others having business relationships with the Company,
and perform in all material respects all of the Company's obligations under all
Contracts to which the Company is a party or by which it or any of its assets or
properties are bound. Without limiting the foregoing, prior to the Closing Date,
except as may be first approved in writing by the Purchaser, set forth in
Schedule 4.1 or otherwise permitted or required by this Agreement, the Company
shall not: (a) amend or modify the Company's Organizational Documents, (b) amend
or modify the compensation payable or to become payable by the Company to each
officer, employee or agent of the Company, (c) make any bonus, pension,
retirement or insurance payment or arrangement to or with any such persons
except those that may have already been accrued, (d) enter into any Contract,
except Contracts in the ordinary course of business having a value of less than
$25,000, (e) make any change affecting any bank, safe deposit or power of
attorney arrangements of the Company, (f) issue or sell, or issue any securities
of the Company or any Stock Acquisition Rights for, or subdivide or otherwise
change in any respect, any securities of the Company, (g) merge, combine or
consolidate with another entity, or acquire or purchase an equity interest in or
a substantial portion of the assets of another entity, (h) modify or amend or
waive any benefit of any non-competition agreement to which the Company or any
of its subsidiaries is a party, (i) permit any insurance policy naming the
Company or any of its subsidiaries as a beneficiary or loss payee to be
cancelled or terminated unless replaced at termination with similar policies,
(j) incur Indebtedness except under the Company's line of credit with Silicon
Valley Bank (the "Bank Loan") in the ordinary course of business consistent with
past practices in an aggregate amount not in excess of $300,000 including
principal and interest, or (k) take any of the actions referred to in Section
2.29 hereof. The Company shall not take or fail to take any action which would
cause the representations and warranties contained in Article II of this
Agreement to be or become untrue or incorrect. During the period from the date
of this Agreement to the Closing Date, the Company shall confer at Purchaser's
request on a regular and frequent basis with one or more designated
representatives of the Purchaser to report operational matters and to report the
general status of ongoing operations. The Company shall notify the Purchaser of
any unexpected emergency or other change in the normal course of the Company's
business or in the operation of its properties and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), adjudicatory proceedings, budget meetings or
submissions involving any property of the Company, and keep the Purchaser fully
informed of such events and permit its representatives prompt access to all
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materials prepared in connection therewith. Notwithstanding Section 4.1(f)
above, with the prior written consent of the Purchaser, the Company may grant
options, from the date of this Agreement to the Closing Date, exercisable to
purchase shares of Company Common Stock to employees employed by the Company,
but which shall in any event be on comparable terms as existing Stock Options
and consistent with past practices. Upon obtaining the Purchaser's written
consent, such options shall be deemed to be Stock Options for purposes of
Section 1.1(c)(iii) and shall be deemed listed in Schedule 2.3.
4.2 Exclusive Dealing; Voting.
(a) During the period from the date of this Agreement to the Closing
Date, the Company (and its officers, directors, employees, affiliates,
agents and representatives) and the Principal Shareholders shall refrain
from taking any action directly or indirectly to encourage, solicit,
initiate or engage in discussions or negotiations with, or provide any
information to, any person or entity other than the Purchaser concerning
any proposal for, or consummate, the sale of the capital stock in or
substantially all of the assets of, or other business combination
involving, the Company. The Company shall notify the Purchaser immediately
if any proposal concerning any such proposed transaction involving the
Company or any significant assets of the Company (any such proposal being
referred to herein as an "Acquisition Proposal") or any request for
confidential information regarding the Company is received, and shall
provide to the Purchaser such information regarding any such Acquisition
Proposal or request as the Purchaser shall request.
(b) At any meeting of the Shareholders called for the purpose of
voting on the Merger (or any written consent solicited in lieu of a
meeting), each Principal Shareholder agrees to vote his, her or its shares
in favor of the Merger and against any competing Acquisition Proposal, or
any other proposal that would result in a breach of any representation,
warranty, covenant or agreement of the Company hereunder.
4.3 Review of the Company. The Purchaser may, prior to the Closing Date,
directly and through its representatives, review the properties, books and
records of the Company and its financial and legal conditions as and to the
extent they deem necessary or advisable to familiarize themselves with such
properties and other matters; such review, and any information known to the
Purchaser, shall not, however, affect the binding nature of representations and
warranties made by the Company or the Principal Shareholders hereunder or the
remedies of the Purchaser for breaches of those representations and warranties.
With respect to Intellectual Property, notwithstanding anything to the contrary
in this paragraph, Purchaser's access to the Intellectual Property shall be
limited to review of summary documents regarding patents and trade secrets and
engineering documents that show the capability and performance of Company
technology, all as the Company may reasonably determine to provide to Purchaser.
In furtherance of the foregoing, and notwithstanding anything to the contrary in
this paragraph, Purchaser's access to the Company's facilities, equipment,
technical data, books, records and employees may be limited in the Company's
reasonable discretion. The Company shall permit the Purchaser and its
representatives to have, after the date of this Agreement, full access to the
premises, personnel, accountants and all books and records of the Company and
cause the officers of the Company to furnish the Purchaser with such financial
and operating data and other information with respect to the business and
properties of the Company as the Purchaser from time to time reasonably shall
request. In the event of termination of this Agreement without consummation of
the transactions contemplated hereby, the Purchaser shall keep confidential any
information obtained from the Company concerning
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the Company's properties, operations and business (unless readily ascertainable
from public or published information or trade sources) until the or becomes so
ascertainable and, at the request of the Company, shall return to the Company
all copies of any schedules, statements, documents or other written information
obtained in connection therewith. In the event that Purchaser in the course of
its investigation obtains actual knowledge of a matter and if Purchaser
recognizes that such matter constitutes a material breach of a representation or
warranty of the Company, Purchaser shall promptly notify the Company of such
breach. Within ten (10) days after the date of this Agreement, the Company shall
deliver to the Purchaser a complete and accurate list, certified by the
President of the Company, of each Person that at any time received Restricted
Shares which timely filed an election under Section 83(b) of the Code with
respect to such Restricted Shares, together with copies of such elections, and
any other related documents reasonably requested by and satisfactory to the
Purchaser.
4.4 Best Efforts. Each of the Company, the Principal Shareholders, the
Purchaser and Merger Sub shall use his, her or its respective best efforts in
good faith to satisfy the various conditions to Closing and consummate the
Merger as soon as practicable after the date hereof in accordance with
applicable laws.
ARTICLE V
CONDITIONS TO THE PURCHASER'S AND MERGER SUB'S OBLIGATIONS
The Purchaser's and Merger Sub's obligations to engage in the Merger are
conditioned upon satisfaction, on or prior to the Closing Date, of each of the
following conditions:
5.1 Truth of Representations and Warranties. The representations and
warranties of the Company and the Principal Shareholders contained in this
Agreement or in any schedule attached hereto that are qualified by reference to
materiality shall be true and correct, and the representations and warranties
that are not so qualified shall be true and correct in all material respects, on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of such date, and the Company shall have
delivered to the Purchaser a certificate, dated the Closing Date, to such effect
as to the Company.
5.2 Good Standing and Other Certificates. The Company shall have delivered
to the Purchaser (a) a copy of the Company's Articles of Incorporation,
including all amendments thereto, certified by the Secretary of State of
California as of the Closing Date or any of the five preceding business days,
(b) a certificate from the Secretary of State of California and the California
Franchise Tax Board to the effect that the Company is in good standing in
California, (c) a copy of the bylaws of the Company, certified by the Secretary
of the Company as being true and correct and in effect on the Closing Date, and
(d) a copy of resolutions, certified as of the Closing Date by the Secretary of
the Company, adopted by the Board of Directors and Shareholders of the Company
and authorizing the execution and delivery by the Company of this Agreement and
the other Transaction Documents to which the Company is a party, the performance
by the Company of its obligations hereunder and thereunder and the consummation
by the Company of the transactions contemplated hereby and thereby.
5.3 Performance of Agreements. All of the agreements of the Company and the
Shareholders to be performed on or before the Closing Date pursuant to the terms
of this Agreement shall have been duly performed in all material respects, and
the Company shall
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have delivered to the Purchaser a certificate, dated the Closing Date, to such
effect as to the Company.
5.4 No Litigation. No action or proceedings shall have been instituted or
threatened before a court or other government body or by any public authority,
and no claim shall have been asserted or threatened to be asserted, to restrain
or prohibit any of the transactions contemplated hereby, and the Company shall
have delivered to the Purchaser a certificate, dated the Closing Date, to such
effect.
5.5 Pooling Letter. The Company shall have executed and delivered to the
Purchaser and the Purchaser's accountants a representations letter, in form and
substance satisfactory to the Purchaser and its accountants, relating to
"pooling of interests" accounting.
5.6 Affiliate Letters. Each Rule 145 Affiliate shall have executed and
delivered to the Purchaser and the Purchaser's accountants a letter, in form and
substance satisfactory to the Purchaser and its accountants in the form attached
as Exhibit D.
5.7 Pooling Opinion. The Purchaser shall have received a letter, dated the
Closing Date, from Ernst & Young LLP, accountants for the Purchaser, in form and
substance satisfactory to the Purchaser, regarding the appropriateness of
pooling of interests accounting for the transactions contemplated by this
Agreement.
5.8 Opinion of the Company's Counsel. The Company shall have furnished the
Purchaser with an opinion, dated and as of the Closing Date, of Riordan &
McKinzie, a professional corporation, counsel to the Company, in the form
attached as Exhibit E.
5.9 No Material Adverse Change. Since the date of this Agreement, no event,
fact, change, condition, circumstance or other development shall have occurred
that has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, and the Company shall have
delivered to the Purchaser a certificate, dated the Closing Date, to such
effect.
5.10 Governmental and Other Approvals and Consents. All governmental and
other consents and approvals, if any, necessary to permit the consummation of
the transactions contemplated by this Agreement, the absence of which would have
a Material Adverse Effect on the Company, shall have been received.
5.11 State Securities Permit. Purchaser shall have received all necessary
states securities permits or other authorizations or confirmations as to the
availability of an exemption from registration of the Purchaser Common Stock
under the North Carolina Securities Act and Section 3(a)(10) of the Securities
Act, and no proceedings shall be pending, or to the knowledge of Purchaser,
threatened in writing by any securities administration to suspend the
effectiveness of such exemption for the issuance of the Purchaser Common Stock
in the Merger. Without limiting the foregoing, the North Carolina Secretary of
State or her delegate (the "Administrator") shall have issued an Order approving
the fairness of the terms and conditions of the Agreement and the issuance of
the Purchaser Common Stock in connection therewith after a hearing conducted in
accordance with Section 78A-30 of the General Statutes of North Carolina.
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5.12 Employment and Consulting Agreements. The person identified in the
Consulting Agreement in the form of Exhibit F attached hereto shall have
executed and delivered to the Purchaser such Consulting Agreement and each of
the persons identified in the Employment Agreements in the form of Exhibit G-1,
G-2, G-3 and G-4, respectively, attached hereto shall have executed and
delivered to the Purchaser such Employment Agreements (all such persons each
being referred to as a "Key Person", and such agreements being referred to
collectively as the "Employment and Consulting Agreements").
5.13 Certain Agreements. Each Shareholder and holder of Stock Options as
listed on Schedule 5.13 shall have either signed the Merger Agreement or
executed and delivered an agreement having terms identical to Section 7.1 of
this Agreement.
5.14 Escrow Agreement. The Shareholders and the Escrow Agent (as defined in
the Escrow Agreement) shall have executed and delivered to the Purchaser an
escrow agreement in the form of Exhibit B, with such modifications thereto as
are reasonably requested by the Escrow Agent prior to execution thereof (the
"Escrow Agreement," as defined in Section 1.4 above).
5.15 Shareholder Approval. The Merger, this Agreement and the Plan of
Merger shall have been approved by the vote required of the Shareholders of the
Company by applicable Law and the Company's Organizational Documents, and the
Company shall have delivered to the Purchaser a certificate, dated the Closing
Date, to such effect.
5.16 Dissenters. As of the Effective Time, the holders of not more than 5%
of the Company Stock (calculated on a fully-diluted basis) shall have demanded
or otherwise purported to exercise their respective dissenter's rights, if any,
pursuant to the California Code with respect to any shares of Company Stock.
5.17 Plan of Merger. The Company shall have executed and delivered the Plan
of Merger to the Purchaser.
5.18 Terms of Option Agreements and Restricted Shares. Each agreement
evidencing a Stock Option outstanding under the Company Plan and each agreement
evidencing a Repurchase Right regarding a Restricted Share shall provide for and
permit the assumption of each such Stock Option and the assignment and
assumption of each such Repurchase Right by the Purchaser as contemplated by
Section 1.1 above; no agreement or other action of the holder of any such Stock
Option or Restricted Share shall be necessary to effect the same (or the Company
shall have delivered to the Purchaser proof that each such agreement has been
made or action taken); and the Company shall have delivered to the Purchaser a
certificate, dated the Closing Date, to such effect.
5.19 Tax Matters. The Purchaser shall have received assurances reasonably
satisfactory to it that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code.
5.20 Resignations. The Purchaser shall have received a written resignation,
satisfactory in form and substance to the Purchaser, from each officer and
director of the Company requested by the Purchaser to resign on or prior to the
Closing Date.
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5.21 Intra-Company Debt. All indebtedness, other than travel and similar
advances outstanding in the ordinary course of business, of the employees of the
Company to the Company, shall have been repaid in full.
5.22 Current Employees.
(a) All of the employees listed in Schedule 5.22(a) hereto shall
continue to be employees of the Company, and none shall have expressed or
communicated to the Company any grievance or any intent to leave or
contemplation of leaving the Company's employ.
(b) At least ninety percent (90%) of the employees listed in Schedule
5.22(b) hereto shall continue to be employees of the Company, and such
ninety percent (90%) of such employees shall not have expressed or
communicated to the Company any grievance or intent to leave or
contemplation of leaving the Company's employ.
5.23 Release of Security Interests. The guarantors of the Bank Loan shall
have executed and delivered to the Purchaser a release of the related security
interests in form and substance reasonably satisfactory to the Purchaser, upon
payment of the Bank Loan in accordance with Section 6.10.
5.24 Holders of Unexercised Options. Each holder of outstanding,
unexercised Stock Options shall have executed and delivered to the Company an
instrument in the form agreed to by the Purchaser and the Company on the date of
this Agreement regarding the tax treatment of such Stock Options.
5.25 Restricted Shares. The Company shall have delivered to the Purchaser
(i) evidence reasonably satisfactory to the Purchaser that each Person that at
any time received Restricted Shares timely filed an election under Section 83(b)
of the Code with respect to such Restricted Shares or (ii) an instrument
executed and delivered by each such Person with respect to the consequences of
the failure by such Person to file timely such election, including, in form and
substance reasonably satisfactory to the Purchaser a release of the Company and
addressing payment of any tax obligations and such other matters required by
Purchaser.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATIONS
The Company's obligations to engage in the Merger are conditioned upon
satisfaction, on or prior to the Closing Date, of each of the following
conditions:
6.1 Truth of Representations and Warranties. The representations and
warranties of the Purchaser and Merger Sub contained in this Agreement that are
qualified by reference to materiality shall be true and correct, and the
representations and warranties that are not so qualified shall be true and
correct in all material respects, on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date, and the Purchaser shall have delivered to the Company a certificate,
dated the Closing Date, to such effect.
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6.2 Good Standing and Other Certificates.
(a) Purchaser. The Purchaser shall have delivered to the Company (i) a
copy of the Purchaser's Articles of Incorporation, including all amendments
thereto, certified by the Secretary of State of North Carolina as of the
Closing Date or any of the five preceding business days, (ii) a certificate
from the Secretary of State of North Carolina to the effect that the
Purchaser exists in North Carolina and listing all charter documents of the
Purchaser on file as of the Closing Date or any of the five preceding
business days, (iii) a copy of the bylaws of the Purchaser, certified by an
officer of the Purchaser as being true and correct and in effect on the
Closing Date, and (iv) a copy of resolutions, certified as of the Closing
Date by an officer of the Purchaser, adopted by the Board of Directors of
the Purchaser and authorizing the execution and delivery by the Purchaser
of this Agreement and the other Transaction Documents to which the
Purchaser is a party, the performance by the Purchaser of its obligations
hereunder and thereunder and the consummation by the Purchaser of the
transactions contemplated hereby and thereby.
(b) Merger Sub. Merger Sub shall have delivered to the Company (i) a
copy of Merger Sub's Articles of Incorporation, including all amendments
thereto, certified by the Secretary of State of North Carolina as of the
Closing Date or any of the five preceding business days, (ii) a certificate
from the Secretary of State of North Carolina to the effect that Merger Sub
exists in North Carolina and listing all charter documents of Merger Sub on
file as of the Closing Date or any of the five preceding business days,
(iii) a copy of the bylaws of Merger Sub, certified by an officer of Merger
Sub as being true and correct and in effect on the Closing Date, and (iv) a
copy of resolutions, certified as of the Closing Date by an officer of
Merger Sub, adopted by the Board of Directors and shareholder of Merger Sub
and authorizing the execution and delivery by Merger Sub of this Agreement
and the other Transaction Documents to which Merger Sub is a party, the
performance by Merger Sub of its obligations hereunder and thereunder and
the consummation by Merger Sub of the transactions contemplated hereby and
thereby.
6.3 Performance of Agreements. All of the agreements of the Purchaser and
Merger Sub to be performed on or before the Closing Date pursuant to the terms
hereof shall have been duly performed in all material respects, and the
Purchaser shall have delivered to the Company a certificate, dated the Closing
Date, to such effect.
6.4 Opinion of Purchaser's Counsel. The Purchaser shall have furnished the
Principal Shareholders with an opinion, dated and as of the Closing Date, of
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., in the form
attached as Exhibit H.
6.5 State Securities Permit. Purchaser shall have received all necessary
states securities permits or other authorizations or confirmations as to the
availability of an exemption from registration of the Purchaser Common Stock
under the North Carolina Securities Act and Section 3(a)(10) of the Securities
Act, and no proceedings shall be pending, or to the knowledge of Purchaser,
threatened in writing by any securities administration to suspend the
effectiveness of such exemption for the issuance of the Purchaser Common Stock
in the Merger. Without limiting the foregoing, the Administrator shall have
issued an Order approving the fairness of the terms and conditions of the
Agreement and the issuance of the Purchaser Common Stock in connection therewith
after a hearing conducted in accordance with Section 78A-30 of the General
Statutes of North Carolina.
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6.6 Governmental and Other Approvals and Consents. All governmental and
other consents and approvals concerning the Purchaser or Merger Sub, if any,
necessary to permit the consummation of the transactions contemplated by this
Agreement shall have been received, and all applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or otherwise been
terminated satisfactorily to the Company.
6.7 Shareholder Approval. The holders of a majority of the Company's
outstanding voting shares, and the holders of a majority of the shares of Series
A Preferred Stock, voting as a separate class, shall have approved the Merger in
accordance with the California Code.
6.8 Plan of Merger. The Purchaser and Merger Sub shall have executed and
delivered the Plan of Merger to the Company.
6.9 Tax Opinion. The Company shall have received a written opinion of the
Company's legal counsel, Riordan & McKinzie, dated as of the Closing Date, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, and such opinion shall not have been withdrawn.
In rendering such opinion, counsel shall be entitled to rely upon, among other
things, reasonable assumptions and representations by the parties; provided,
however, that if Riordan & McKinzie does not render such opinion, this condition
shall nonetheless be satisfied if Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, LLP, or other counsel reasonably satisfactory to the Company, renders
such opinion in form and substance reasonably satisfactory to the Company.
6.10 Bank Loan. Purchaser shall pay the Bank Loan at Closing (subject to
Section 4.1), and deliver, or caused to be delivered, to the Company evidence of
such payment.
ARTICLE VII
CERTAIN COVENANTS AND AGREEMENTS OF THE PARTIES
7.1 Non-Competition; Non-Interference. Each Principal Shareholder listed on
Schedule 5.13 agrees, in partial consideration for the performance by the
Purchaser and Merger Sub of the transactions contemplated by this Agreement and
in recognition of the fact that such transactions reflect the acquisition for
value by the Purchaser and Merger Sub of the Company and its rights, assets and
liabilities, that such Principal Shareholder shall not:
(a) from the Closing Date until the second (2nd) anniversary of the
Closing Date, directly or indirectly, as an officer, director, shareholder,
partner, associate, owner, employee, consultant, or otherwise, become or be
interested in or associated with, work for and/or assist (including without
limitation participating in academic or other research for the direct
benefit of, or pursuant to an arrangement under which rights in the
products of such research are held by) any other corporation, firm or
business engaged in the same or a competitive business with the Company's
or the Purchaser's business, as conducted as of the date of this Agreement
or at any time prior to the expiration of the second anniversary of the
Closing Date, including, without limitation, any Competing Activities
(defined below), in a capacity connected with such entities' competitive
activities in any county of any state of the United States, any of the
United States or any other nation in which the Company or the Purchaser has
an office or does business (directly or indirectly) or in any geographical
area in which the Company or the Purchaser is engaged in, soliciting or
doing business. For purposes of this subsection (a), direct or indirect
ownership of not more than one percent (1%) of the
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issued and outstanding stock of a corporation, the shares of which are
regularly traded on a national securities exchange or in the
over-the-counter market, shall not be deemed to be a violation of the
preceding sentence. For purposes of this subsection (a), "Competing
Activities" shall mean the development, manufacture, marketing,
distribution or sale of, or research directed to, Group III nitride
materials or devices fabricated on or from such materials;
(b) from the Closing Date until the second (2nd) anniversary of the
Closing Date, directly or indirectly, solicit, interfere with the Company's
or the Purchaser's relationships with, or entice away from the Company or
the Purchaser any customer, supplier, person, firm or corporation who or
which has, at any time during the eighteen (18) months immediately
preceding the date of this Agreement or at any time during which such
Shareholder was an employee of or consultant to the Purchaser, done
business with the Company or the Purchaser, or offer employment to or
procure employment for any person who has at any time during the eighteen
(18) months immediately preceding the date of this Agreement or at any time
during which such Shareholder was an employee of or consultant to the
Purchaser been employed or engaged by the Company or the Purchaser;
(c) use for any purpose or knowingly divulge, directly or indirectly,
to any entity or person, any material information concerning the Company or
the Purchaser's device designs, device structures, package design,
epitaxial equipment and processes and other "know-how", processes, methods,
research, development or marketing techniques, programs, standard operating
procedures and practices, materials or plans, customer or vendor list or
any other of the Company's or the Purchaser's trade secrets, confidential
information, price lists or pricing policies, except information which is
(i) in the public domain or (ii) becomes public knowledge through no fault
of such Principal Shareholder or (iii) is required to be disclosed by court
order or other government process or the disclosure of which is necessary
to enable such Principal Shareholder to comply with applicable law. In the
event that such Principal Shareholder shall be required to make disclosure
pursuant to the provisions of clause (iii) of the preceding sentence, such
Principal Shareholder promptly shall notify the Surviving Corporation and
the Purchaser and take, at the expense of the Surviving Corporation or the
Purchaser, all reasonably necessary steps requested by the Surviving
Corporation or the Purchaser to defend against the enforcement of such
court order or other government process, and permit the Surviving
Corporation and the Purchaser to participate with counsel of its choice in
any proceeding relating to the enforcement thereof; or
(d) take or engage in any form or manner, directly or indirectly, any
action which directly or indirectly is materially detrimental to the
goodwill, name, business relationships and prospects, or operation of the
Company or the Purchaser or is otherwise intended to be adverse to the
Company or the Purchaser.
It is the desire and intent of the parties to this Agreement that the
provisions of this Section 7.1 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. If any particular provisions or portion of this
Section 7.1 shall be adjudicated to be invalid or unenforceable, this Section
shall be deemed amended to delete therefrom such provision or portion
adjudicated to be invalid or unenforceable, such amendment to apply only with
respect to the operation of such Section in the particular jurisdiction in which
such adjudication is made.
The parties recognize that the performance of the obligations under this
Section 7.1 by each of the Principal Shareholders is special, unique and
extraordinary in character, and
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that in the event of the breach by any such Shareholder of the terms and
conditions of this Section 7.1 to be performed, the Purchaser shall be entitled,
if it so elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either in law or in equity, to obtain damages for any
breach of this Section 7.1, to enforce the specific performance thereof by such
Shareholder or to enjoin such Shareholder from performing services for any such
other person, firm or corporation.
For purposes of this Section 7.1 only, the term "Purchaser" shall include
the Purchaser and all affiliates of the Purchaser, including the Surviving
Corporation, and the term "Company" shall include the Company and all affiliates
of the Company.
7.2 Fairness Hearing Application. Each of the parties to this Agreement
shall, and shall cause their Affiliates to, use all reasonable efforts to cause
the issuance of the Purchaser Common Stock to be exempt from registration under
applicable federal and state securities Laws by filing as soon as practicable an
application with the Secretary of State of the State of North Carolina pursuant
to N.C. Gen. Stat. Section 78A-30 requesting a hearing upon the terms and
conditions of the Merger to be held as soon as practicable after the filing of
such application and taking all actions necessary or appropriate to comply with
the requirements set forth therein. The Company and the Shareholders shall
furnish to Purchaser the information to be included in such application. None of
the parties to this Agreement shall make at such hearing, or include in any
information supplied with such application or distributed at such hearing, any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
7.3 Pooling Restrictions and Related Matters.
(a) Pooling of Interests Accounting. Neither the Company nor any
Shareholder shall take, or fail to take, any action which would disqualify
the transactions contemplated by this Agreement from pooling of interests
accounting treatment by the Purchaser or to be treated as a reorganization
within the meaning of Section 368(a) of the Code. Without limiting the
foregoing, no Shareholder shall sell, transfer, pledge, or otherwise
dispose of such Shareholder's interests in or reduce such Shareholder's
risk relative to any of the shares of Purchaser Common Stock to be issued
to such Shareholder pursuant to Section 1.1 above commencing as required by
pooling of interests accounting and continuing until the Purchaser shall
have published financial results covering at least 30 days of combined
operations of the Purchaser and the Surviving Corporation after
consummation of the Merger.
(b) Stop Transfer Order. The Purchaser shall not be bound by any
attempted transfer, sale or other disposition in violation of any of the
restrictions set forth in this Section 7.3, and the Purchaser shall be
entitled to deliver to the Purchaser's transfer agent an appropriate stop
transfer order in connection therewith, pursuant to which such transfer
agent shall refrain from registering any such attempted transfer, sale or
disposition.
(c) Certificate Legends. The certificates representing any shares of
the Purchaser's Common Stock issued to a Rule 145 Affiliate set forth on
Schedule 2.35 pursuant to Section 1.1 above shall bear legends in
substantially the following form:
"The shares represented by this certificate were issued pursuant to a
business combination accounted for as a "pooling of interests" and may
not be sold, nor may the
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owner thereof reduce his risks relative thereto in any way, until such
time as Cree, Inc. ("Cree") has published financial results covering at
least 30 days of combined operations after the effective date of the
exchange through which the business combination was effected. In
addition, the shares represented by this certificate may not be sold,
transferred or otherwise disposed of except or unless (1) covered by an
effective registration statement under the Securities Act of 1933, as
amended, or an exemption therefrom, or (2) in accordance with Rule 145
(in the case of shares issued to an individual who is not an affiliate
of Cree).
The certificates issued representing any shares of Purchaser Common
Stock to a person who is not a Rule 145 Affiliate shall not bear any
restrictive legend so long as the exemption under Section 3(a)(10) of
the Securities Act with respect to the issuance of the Purchaser Common
Stock is available at the Effective Time.
7.4 Compliance with Employment and Consulting Agreements. Each of the Key
Persons shall comply in all respects with any of the Employment and Consulting
Agreements to which he is a party.
7.5 Supplemental Disclosure. Subject to Section 4.3, each party shall give
prompt notice to the other of (i) the occurrence, or non-occurrence, of any
event the occurrence, or nonoccurrence, of which would be likely to cause (x)
any representation or warranty contained in this Agreement to be untrue or
inaccurate or (y) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied and (ii) any failure of the other
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 7.5 shall not have any effect for the
purpose of determining the satisfaction of the conditions set forth in Article V
of this Agreement or otherwise limit or affect the remedies available hereunder
to any party.
7.6 Employees; Continued Operations.
(a) Prior to the Closing, the Company shall use its reasonable efforts
to ensure that each person who is an officer or employee of the Company,
and each person who is a consultant of the Company, shall, after the
Closing, remain an employee or consultant, as the case may be, of the
Company, until such person's employment or consulting arrangement expires
or is terminated in accordance with its terms. Nothing herein shall be
deemed or construed to give rise to a right of employment. As of the
Closing, the Purchaser will make available to employees who continue in the
employ, or become employed by, the Company, terms and conditions of
employment, including employee benefit plans, that, taken as a whole, are
comparable to the terms and conditions of employment, including employee
benefit plans, provided to employees of the Company as of the date hereof
and which are no less favorable than such employees' current employment
terms; provided, however, that the terms and conditions of such employee
benefit plans may be varied or eliminated at any time subsequent to the
first anniversary of the Closing Date in a manner determined by the
Compensation Committee of the Purchaser. Each such employee or consultant
shall receive credit for his or her service with the Company for all
purposes under such employee benefit plans.
(b) It is the present intent of the parties that, as of and after the
Closing, the Purchaser will conduct the business of the Company as
described in Schedule 7.6.
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(c) The provisions of this Section 7.6 represent the present intent of
the Purchaser, and the Purchaser will exercise good faith efforts to comply
with the provisions of this Section 7.6. Notwithstanding anything to the
contrary contained herein, it is understood that the Purchaser retains
discretion to manage its business in the best interests of its
shareholders, and that good faith modifications of or variances from these
provisions in the exercise of such discretion are appropriate and
permitted.
7.7 Form S-8. Promptly after the Effective Date, Purchaser shall use its
reasonable best efforts to file a Registration Statement on Form S-8 (or any
successor form) under the Securities Act, covering the shares of Purchaser
Common Stock issuable pursuant to outstanding Stock Options under the Company
Plan assumed by Purchaser pursuant to Section 1.1(c)(iii). As soon as
practicable after the date hereof and prior to the Closing, the Company will use
its reasonable best efforts to cause all holders of assumed Stock Options to
agree in writing not to exercise their options until Purchaser has filed a
registration statement on Form S-8 in accordance with this section. The Company
shall cooperate with and assist Purchaser in the preparation of such
registration statement.
7.8 Listing of Additional Shares. Promptly following the date hereof,
Purchaser shall use its reasonable best efforts to file with the Nasdaq National
Market, to the extent required, a Notification Form for Listing of Additional
Shares with respect to the shares of Purchaser Common Stock issuable upon
conversion of the Company Stock as a result of the Merger and upon exercise of
Stock Options and Warrants to acquire Company Stock assumed by Purchaser as a
result of the Merger.
7.9 401(k) Plan. Prior to Closing, the Company's Board of Directors shall
take all necessary and appropriate actions to approve the termination of the
Company's 401(k) plan so that, after the Closing, Purchaser may complete such
termination and provide for (i) a rollover of the assets of such plan to
Purchaser's 401(k) plan or (ii) the distribution of the assets of such plan in a
lump sum form to the plan's participants, as may be directed by such
participants.
7.10 Dissenters. During the period from the date of this Agreement to the
Closing Date, the Company (and its officers, directors, employees, affiliates,
agents and representatives) shall comply with all provisions of the California
Code relating to dissenters' rights applicable to the Merger and other
transactions contemplated hereby.
7.11 Shareholder Meeting; Shareholder Approval; Information Statement.
(a) The Company shall, subject to and in accordance with applicable
Law and the Company's Organizational Documents, duly call, give notice of,
convene and hold a meeting of the holders of Company Common Stock and
Company Preferred Stock, voting as a separate class, as promptly as
practicable after the date of this Agreement, for the purpose of
considering and voting to approve and adopt this Agreement, the Plan of
Merger and the transactions contemplated hereby and thereby. The
shareholder vote required for the adoption and approval of this Agreement,
the Plan of Merger and the transactions contemplated hereby and thereby,
shall be the vote required by the California Code and the Company's
Organizational Documents. The Board of Directors of the Company shall
recommend to the Shareholders that they vote in favor of the approval and
adoption of this Agreement, the Plan of Merger and the transactions
contemplated hereby and thereby and take all action reasonably necessary to
solicit and obtain such approval.
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(b) In connection with such shareholder meeting, as soon as
practicable after the date of this Agreement, the Company shall prepare an
information statement (the "Information Statement") for distribution to its
Shareholders. The Information Statement shall be subject to review by the
Purchaser. The Company will cooperate with the Purchaser so as to
coordinate the distribution on a timely basis of the Information Statement
with any materials related to the fairness hearing referred to in Section
7.2.
7.12 Director and Officer Indemnification. Purchaser agrees that all rights
to indemnification now existing in favor of any director or officer of the
Surviving Corporation, as provided in its Articles of Incorporation or bylaws,
for acts or omissions occurring at or prior to the Effective Time, shall
continue in full force and effect and that Purchaser shall not cause or allow
the Surviving Corporation to modify such rights to indemnification.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNITY; SET-OFF
8.1 Survival of Representations. The respective representations and
warranties of the Company, the Shareholders, the Purchaser and Merger Sub
contained in this Agreement or in any schedule attached hereto shall survive the
consummation of the Merger and the other transactions contemplated hereby and
shall remain in full force and effect notwithstanding any investigation or
examination of, or knowledge with respect to, the subject matter thereof by or
on behalf of the Company, the Shareholders, Merger Sub or the Purchaser, as the
case may be, until the first anniversary of the Closing Date (the period ending
on such date is referred to as the "Representations Period"), except that (i)
the representation and warranty in Section 2.20(i)(i) and (ii) shall expire at
and as of the Effective Time, and (ii) such representations and warranties
(including Section 2.20(i)(i) and (ii)) shall survive indefinitely in the event
of fraud or intentional misrepresentation with respect thereto. No claim for
indemnification pursuant to Section 8.2(a) or (f) based on an alleged breach of
any such representation or warranty may be brought after the expiration of the
Representations Period, except that claims made in good faith in writing and
setting forth in reasonable detail the claim prior to such expiration, including
without limitation claims made with respect to actions anticipated in good
faith, regardless of whether any action or demand has in fact been commenced,
shall be deemed to have been brought prior to the end of the Representations
Period (it being understood, without limitation, that any and all Losses arising
after the expiration of the Representations Period shall be recoverable upon
notice properly given prior to the expiration of the Representations Period in
accordance with this Section 8.1).
8.2 Indemnification.
(a) Subject to the limitations set forth in this Article VIII, the
Shareholders shall indemnify, defend and hold harmless the Purchaser,
Merger Sub and their Affiliates (including the Company after the Merger),
and all of their respective officers, directors, employees (other than the
Key Persons), agents and shareholders (other than the Shareholders) (each,
an "Indemnitee") to the fullest extent permitted in law or equity, from and
against any and all losses, claims, actions, damages, liabilities, costs
and expenses (including reasonable attorneys' fees and expenses) net of
actual tax benefits, and net of actual cash insurance recoveries or
recoveries from indemnities of third parties (collectively, "Losses")
relating to or arising from or in connection with (i) any
misrepresentation, breach or violation of, or default in any of the
representations, warranties, covenants, or agreements given or made by
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the Company or any Shareholder in or pursuant to this Agreement or any of
the other Transaction Documents or in any other agreement or officer's
certificate delivered to the Purchaser or Merger Sub in connection with
this Agreement, (ii) the enforcement by the Purchaser of its rights
pursuant to this Section 8.2, including any litigation, proceeding or
investigation relating thereto, and (iii) any matter described in Schedule
8.2. The Purchaser shall have no obligation to seek an insurance recovery
or third party indemnification and if the Purchaser does so and obtains a
recovery, the Purchaser's indemnity claim shall not be offset to the extent
of the Purchaser's expenses in obtaining such recovery and an amount equal
to anticipated premium increases for the following three (3) years.
(b) Except with respect to any misrepresentation or non-fulfillment of
the representations and warranties in Section 2.1 above, any breach of any
post-Closing covenant, or any Losses resulting from or arising out of fraud
or other intentional or knowing misconduct or misrepresentation, as to
which (in each case) the Shareholders shall be liable to the Indemnities
without limitation, notwithstanding the foregoing provisions of Section
8.2(a), (i) recovery from the Escrow Fund shall be the sole monetary
recourse of any Indemnitee for claims under Section 8.2(a), and (ii) the
Indemnitees shall not be entitled to indemnification under Section 8.2(a)
above for any amount unless and until the aggregate of all amounts for
which the Indemnitees would otherwise be entitled to be indemnified exceeds
$500,000 (in the aggregate), all amounts in excess of which the Indemnitees
shall be indemnified for as provided in this Section 8.2; provided,
however, that any amounts arising under Schedule 8.2 shall be immediately
subject to a claim of indemnity hereunder and shall not be subject to the
$500,000 threshold set forth in this Section 8.2(b)(ii). Solely for
purposes of determining whether the aggregate of all amounts for which the
Indemnitees would otherwise be entitled to be indemnified exceeds $500,000,
the amount of each indemnifiable claim and the aggregate amount of all
indemnifiable claims shall not be limited by the definition of "material"
in Section 10.1(i) below, or the use of the term "material" or its related
forms in any representations or warranties. Accordingly, indemnifiable
claims may consist of Losses (whether or not arising from a breach of an
individual representation, warranty, covenant or indemnity) that
individually or in the aggregate do not constitute material amounts,
provided such amounts in the aggregate exceed $500,000. In no event shall
the indemnification of Purchaser by the Shareholders be deemed to include
indemnification against potential third party claims described in Section
2.20(i)(i) and (ii); provided, however, that for any such claims resulting
from or arising out of the Company's or the Shareholders' fraud or other
intentional or knowing misrepresentation, the Shareholders shall be jointly
and severally liable to the Indemnitees without limitation.
(c) The obligations of the Shareholders under this Section 8.2 shall
be secured pursuant to the Escrow Agreement.
(d) As of and after the Closing, the Surviving Corporation shall have
no liability under this Agreement, and no Shareholder shall threaten or
bring any claim or action whatsoever against the Surviving Corporation for
contribution to any amounts payable under this Section 8.2 by such
Shareholder.
(e) The obligations to indemnify, defend and hold harmless pursuant to
this Section 8.2 shall survive the consummation of the transactions
contemplated by this Agreement.
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(f) After the Closing, subject to Section 8.1, Purchaser shall
indemnify and hold harmless the Shareholders from and against any Losses
relating to, arising from or in connection with (i) any misrepresentation,
breach or violation of or default in any of the representations,
warranties, covenants or agreements given or made by Purchaser or Merger
Sub in this Agreement and (ii) the enforcement of the Shareholder's rights
under this Section 8.2(f). Except in the case of fraud or other intentional
or knowing misconduct or misrepresentation, the maximum aggregate recourse
by the Company and the Shareholders (collectively) on account of breaches
of this Agreement by the Purchaser or Merger Sub shall not exceed the
amount determined by multiplying ten percent (10%) by the aggregate value
(calculated with reference to the closing prices on the Closing Date) of
the Purchaser Common Stock issued in the Merger at the Effective Time, and
no claim shall be made unless the aggregate losses of the Shareholders
exceeds $500,000, and only to the extent of such excess. No claim for
indemnification pursuant to this Section 8.2(f) may be brought after the
expiration of the Representations Period, except that claims made in good
faith in writing and setting forth in reasonable detail the claim prior to
such expiration, including without limitation claims made with respect to
actions anticipated in good faith, regardless of whether any action or
demand has in fact been commenced, shall be deemed to have been brought
prior to the end of the Representations Period. No claim for indemnity
shall be made without the consent of the Shareholder Representative, who
shall have the power to settle or otherwise resolve any claim on behalf of
the Shareholders. In no event shall the Purchaser be obligated to indemnify
the Shareholders for the reasonable fees and expenses of more than one
counsel for all Shareholders (and local counsel, if appropriate).
ARTICLE IX
TERMINATION
9.1 Termination.
(a) The parties hereto shall be entitled to terminate this Agreement
as follows, provided that no such termination shall limit or terminate any
liability of one party to another for any breach hereof, and provided
further that the provisions of Sections 7.1(c) (confidentiality), 8.2
(indemnification) and 10.7 (publicity) shall survive any such termination:
(i) the parties hereto may terminate this Agreement by mutual
written consent at any time;
(ii) the Purchaser may terminate this Agreement by written notice
to the Company on or prior to the Closing Date if the Company or any
Shareholder shall have breached in any material respect any
representation, warranty, covenant or agreement contained in this
Agreement and failed to cure the same within ten (10) days after
written notice thereof from the Purchaser;
(iii) the Company may terminate this Agreement by written notice
to the Purchaser on or prior to the Closing Date if the Purchaser
shall have breached in any material respect any representation,
warranty, covenant or agreement contained in this Agreement and failed
to cure the same within ten (10) days after written notice thereof
from the Company;
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(iv) the Purchaser or the Company may terminate this Agreement by
written notice to the other if the consummation of the Merger shall
not have occurred on or before May 31, 2000 (provided, that if the
Secretary of State of North Carolina shall not have issued a permit
with respect to the fairness of the Merger to the Shareholders of the
Company prior to such date, the date shall be extended to June 30,
2000; provided, however, that the right to terminate this Agreement
pursuant to this subsection (iv) shall not be available to a party
whose (or whose affiliate's) action or failure to act shall have been
a principal cause of or resulted in the failure of the Merger to occur
on or before such date; and
(v) the Purchaser or the Company may terminate this Agreement by
written notice to the other parties hereto on or prior to the Closing
Date if any court or other governmental instrumentality of competent
jurisdiction shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement which order or injunction
shall not have been lifted within ten (10) days of issuance thereof.
(b) Notwithstanding approval of this Agreement and the Plan of Merger
by the shareholders of Merger Sub and the Company, the parties hereto agree
that termination of this Agreement shall constitute mutual termination and
abandonment of the Plan of Merger and that, upon any such termination,
neither Merger Sub nor the Company shall have any further rights or
obligations under or arising out of the Plan of Merger; provided that in
the event of termination under clauses 9.1(a)(ii) or (iii), no party shall
be relieved of liability for its breach of this Agreement.
ARTICLE X
MISCELLANEOUS
10.1 Definitions of Certain Terms. As used in this Agreement, the following
capitalized terms shall have the respective meanings set forth below:
(a) "Casualty" shall mean any fire, explosion, accident, casualty,
labor trouble, flood, drought, riot, storm, condemnation or act of God or
other public force.
(b) "Code" shall mean the United States Internal Revenue Code of 1986
and all rules and regulations promulgated thereunder from time to time, in
each case as amended.
(c) "Contract" shall mean any contract, agreement, indenture,
instrument or other binding commitment or arrangement of any kind.
(d) "Encumbrance" shall mean any lien, encumbrance, security interest,
mortgage, pledge, lease, option, easement, servitude, covenant, condition,
restriction under any Contract, or other charge, restriction or claim of
any kind.
(e) "ERISA" shall mean the Federal Employee Retirement Income Security
Act of 1974 and all rules and regulations promulgated thereunder from time
to time, in each case as amended.
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(f) "Exchange Act" shall mean the federal Securities Exchange Act of
1934 and all rules and regulations promulgated thereunder from time to
time, in each case as amended.
(g) "HSR Act" shall mean the Federal Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and all rules and regulations promulgated
thereunder from time to time, in each case as amended.
(h) "Law" shall mean any national, federal, state, local or foreign
law, rule, regulation, statute, ordinance, order, judgment, decree, permit,
franchise, license or other governmental restriction or requirement of any
kind.
(i) "Material Adverse Effect" shall mean any material adverse effect
on the business, financial condition, results of operations, or prospects
of the affected party, including without limitation any effect which
prevents or impairs materially such party's performance of its obligations
under, or the consummation of, this Agreement. When the term "material" is
used with reference to the Company, a matter shall be deemed "material" if
the matter involves or affects (i) in the case of Section 5.9, an amount or
amounts in excess of $500,000 individually or in the aggregate and (ii) in
all other cases, an amount in excess of $25,000 individually or in the
aggregate with other like matters.
(j) "Organizational Document" shall mean any certificate or articles
of incorporation, bylaw, board of directors' or shareholders' resolution,
or other corporate document or action comparable to any of the foregoing
currently in effect.
(k) "Permitted Encumbrance" shall mean such of the following as to
which no enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced (except as otherwise provided below): (i) liens
reflected in the Balance Sheet; (ii) liens consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on
the use of real property or irregularities in title thereto which do not
detract from the value of, or impair the use of, such property by the
Company in the operation of its business; (iii) liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent or that are being contested in good faith; (iv) statutory
Encumbrances, such as materialmen's, mechanics', carriers', workmens' and
repairmens' liens and other similar liens arising in the ordinary course of
business for amounts that are not yet due and delinquent or that are being
contested in good faith; (v) pledges or deposits to secure obligations
under workers' compensation laws or similar legislation; and (vi)
Encumbrances related to bank credit facilities, capital lease obligations,
obligations for borrowed money and purchase money mortgages and conditional
sales contracts entered into in the ordinary course of business which will
be retired at Closing.
(l) "Person" shall mean any individual, partnership, joint venture,
corporation, trust, limited liability company, unincorporated organization,
government (or subdivision thereof) or other entity.
(m) "Securities Act" shall mean the United States Securities Act of
1933 and all rules and regulations promulgated thereunder from time to
time, in each case as amended.
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(n) "Stock Acquisition Right" shall mean any option, warrant, right
(preemptive or otherwise), call, commitment, conversion right, right of
exchange, plan or other agreement of any character providing for the
purchase, issuance or sale of any securities.
10.2 Expenses. Each party hereto shall pay all of its own expenses relating
to the transactions contemplated by this Agreement, including without limitation
the fees and expenses of its respective counsel.
10.3 Remedies Not Exclusive. Except as specifically provided in Section
8.2, nothing in this Agreement shall limit or restrict in any manner any other
rights or remedies any party hereto may have against any other party hereto at
law, in equity or otherwise, including without limitation any such rights
pursuant to the Escrow Agreement or any of the Employment and Consulting
Agreements.
10.4 Governing Law. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the laws of the State of
North Carolina, without regard to the choice of law principles thereof. The
parties acknowledge and agree that this Agreement is being executed and
delivered in North Carolina.
10.5 Further Assurances. In addition to the actions, documents and
instruments specifically required by this Agreement or any other Transaction
Document to be taken or delivered on or before the Closing Date or from time to
time thereafter, each of the parties to this Agreement shall, before and after
the Closing Date, without further consideration, take such other actions and
execute and deliver such other documents and instruments as another party hereto
reasonably may request in order to effect and perfect the transactions
contemplated by this Agreement and the other Transaction Documents.
10.6 Captions. The Article and Section captions used in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
10.7 Publicity. Except as otherwise required by applicable law, no party
and no affiliate of any party shall issue any press release or make any other
public statement relating to, connected with or arising out of this Agreement or
the matters contained herein without the other parties' prior written approval
of the contents and the manner of presentation and publication thereof.
10.8 Notices. Notice or other communications required or permitted
hereunder shall be sufficiently given if delivered in person or sent by telecopy
or by registered or certified mail or by recognized overnight courier, postage
prepaid, addressed as follows:
If to the Purchaser or Merger Sub, to:
Cree, Inc.
4600 Silicon Drive
Durham, North Carolina 27703
Attention: Adam H. Broome, General Counsel and Secretary
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with a copy to its counsel,
Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P.
2500 First Union Capitol Center
Raleigh, North Carolina 27601
Attention: Gerald F. Roach, Esq.
If to the Company or any Shareholder, to:
Nitres, Inc.
5655 Lindero Canyon Road
Suite 404
Westlake Village, California 91362
Attention: Fred A. Blum
with a copy to its counsel:
Riordan & McKinzie
300 South Grand Avenue, 29th Floor
Los Angeles, California 90071
Attention: Thomas A. Waldman, Esq.
or to such other address or number as shall be furnished in writing by any such
party in such manner, and such notice or communication shall be deemed to have
been given as of the date so delivered, sent by telecopier or mailed.
10.9 Recovery of Litigation Costs. If any legal action or arbitration or
other proceeding is brought for the enforcement of this Agreement, or based on
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of the Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
10.10 Parties in Interest. This Agreement may not be transferred, assigned,
pledged or hypothecated by any party hereto without the other parties' prior
written consent. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
10.11 Counterparts. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument. This
Agreement may be executed and delivered by facsimile or telecopy and any
signature delivered by such means shall be deemed an original.
10.12 Entire Agreement. This Agreement, including the other documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter, other than the
Confidentiality Agreement between the parties dated February 8, 2000, as
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amended. All exhibits and schedules referred to in this Agreement are intended
to be and hereby are specifically made a part of this Agreement.
10.13 Construction of Certain Disclosures. The representations and
warranties set forth in Articles II and III above, respectively, are cumulative.
The subject matter covered by any section of either such article shall not be
exclusive as to such subject matter to the extent covered by another section of
such article, and the specificity of any representation or warranty shall not
affect or limit the generality of any other representation or warranty made or
given by the same party.
10.14 Amendments. This Agreement may be waived, amended, supplemented or
modified only by a written agreement executed by each of the parties hereto.
10.15 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
10.16 Third Party Beneficiaries. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person or entity other than the parties hereto.
[signatures appear on next page]
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[signature page to Merger Agreement]
IN WITNESS WHEREOF, the Purchaser, Merger Sub, the Company and the
Principal Shareholders have caused their respective names to be hereunto
subscribed individually or by their respective officers thereunto duly
authorized, as the case may be, all as of the day and year first above written.
CREE, INC.
By: /s/ F. Neal Hunter
-------------------------------------
F. Neal Hunter
Chairman and Chief Executive Officer
CRYSTAL ACQUISITION, INC.
By: /s/ Charles M. Swoboda
-------------------------------------
Charles M. Swoboda
President
NITRES, INC.
By: /s/ Fred A. Blum
-------------------------------------
Fred A. Blum
President and Chief Executive Officer
[signatures continue on next page]
<PAGE>
[signature page to Merger Agreement]
PRINCIPAL SHAREHOLDERS
[signature lines to follow]
