SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
Date of Report (Date of earliest event reported) April 28, 1999
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ADRENALIN INTERACTIVE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-27828 13-3779546
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
5301 Beethoven Street, Los Angeles, California 90066
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 821-7880
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(Former name or former address, if changed since last report)
Exhibit Index on Page 4
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ITEM 5. OTHER EVENTS.
On April 28, 1999, the Registrant entered into an Agreement and Plan
of Merger (the "Merger Agreement") among the Registrant, Adrenalin Acquisition
Corporation, a wholly-owned subsidiary of the Registrant (the "Merger Sub"),
McGlen Micro, Inc., a California corporation ("McGlen"), and George Lee, Mike
Chen, and ACST Computers, Inc., a California corporation (the principal
shareholders of McGlen).
Pursuant to the terms and subject to the conditions of the Merger
Agreement, Merger Sub will merge with and into McGlen, which will thereby become
a wholly-owned subsidiary of the Registration (the "Merger"). Upon consummation
of the Merger, the outstanding shares of McGlen common stock on a Fully Diluted
Basis (as defined in Section 3.2(a) of the Merger Agreement) plus the Loan
Shares (as defined in the Merger Agreement) will be converted into 87.5% of the
outstanding shares of the Registrant's common stock on a Fully Diluted Basis
immediately after the Merger.
The consummation of the merger and obligation of each of the parties
thereto is subject to certain conditions, which conditions include, without
limitation, the completion of satisfactory due diligence investigations of both
companies, the negotiation and acceptance of disclosure schedules and exhibits,
and shareholder and regulatory approval. No assurances can be given that such
conditions will be met and that the Merger will be consummated.
Each party will have the right to terminate the Merger Agreement if
the closing of the Merger does not occur by August 31, 1999, due to reasons
other than that party's breach of any provision of the Merger Agreement, or if
there shall be any law or regulation that makes consummation of the Merger
prohibited.
The foregoing description of the Merger and the Merger Agreement is
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached hereto as Exhibit 2.1 and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(C) EXHIBITS
(2.1) Agreement and Plan of Merger, dated as of April 28,
1999, among Adrenalin Interactive, Inc., Adrenalin
Acquisition Corporation, McGlen Micro, Inc., George Lee,
Mike Chen, and ACST Computers, Inc.
(99) Press Release issued April 30, 1999 by Registrant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADRENALIN INTERACTIVE, INC.
April 30, 1999 By: /s/ Jay Smith, III
____________________________
Jay Smith, III, President and
Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description Page No.
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2.1 Agreement and Plan of Merger, dated as of 5
April 28, 1999, among Adrenalin Interactive,
Inc., Adrenalin Acquisition Corporation, McGlen
Micro, Inc., George Lee, Mike Chen, and ACST
Computers, Inc.
99 Press Release issued April 30, 1999 by Registrant 83
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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
Dated as of April 28, 1999, by and among
Adrenalin Interactive, Inc.
Adrenalin Acquisition Corporation
McGlen Micro Inc.
and
The Shareholders of McGlen Micro Inc.
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TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER......................................................2
1.1 The Merger..........................................................2
1.2 The Closing.........................................................2
1.3 Effective Time......................................................2
1.4 Effects of the Merger...............................................2
1.5 Articles of Incorporation and Bylaws of the Surviving
Corporation.........................................................3
1.6 The Parent Private Placement........................................3
1.7 The Company Private Placement.......................................3
(a) Sale of Shares.................................................3
(b) Parent Approval................................................4
(c) Compliance with Law............................................4
1.8 Synnex Agreement....................................................4
1.9 Merger Proxy........................................................4
ARTICLE II DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.............4
2.1 Directors...........................................................4
2.2 Director's Agreement................................................5
2.3 Parent Officers.....................................................5
2.4 Executive Employment Agreements.....................................5
2.5 Termination of Existing Agreements..................................5
(a) Repudiation ..................................................5
(b) Repudiation by the Company's Officers..........................5
ARTICLE III EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND
THE COMPANY.....................................................5
3.1 Merger Sub Stock....................................................5
3.2 The Company Securities..............................................6
3.3 Exchange of Certificates Representing the Company
Stock...............................................................7
3.4 Amendment of Certificate............................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................7
4.1 Existence; Good Standing; Corporate Authority;
Compliance with Law.................................................8
4.2 Authorization, Validity and Effect of Agreements....................9
4.3 Capitalization......................................................9
4.4 Other Interests....................................................10
4.5 No Violation.......................................................10
4.6 Financial Statements..............................................11
4.7 Absence of Undisclosed Liabilities.................................11
4.8 Absence of Certain Changes or Events...............................12
4.9 List of Properties, Contracts, Etc.................................14
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4.10 Title to Assets....................................................17
4.11 Adequacy of Assets.................................................18
4.12 Condition of Inventory, Property and Equipment.....................18
4.13 Litigation.........................................................18
4.14 Taxes ..........................................................19
4.15 Proprietary Rights.................................................20
4.16 Royalties..........................................................23
4.17 Year 2000 Compliance...............................................23
4.18 Labor Relations....................................................23
4.19 Certain Employee Matters...........................................24
4.20 Transactions With Affiliates.......................................24
4.21 Permits; Compliance with Laws......................................25
4.22 Environmental Matters..............................................25
4.23 Adverse Agreements.................................................26
4.24 Fees ..........................................................26
4.25 Books and Records..................................................26
4.26 ERISA ..........................................................26
4.27 Insurance..........................................................28
4.28 Disclosure.........................................................28
4.29 Investment Representations of Principal Shareholders ..............29
4.30 Subsidiary.........................................................30
4.31 Authorization......................................................30
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB............................................................30
5.1 Existence; Good Standing; Corporate Authority;
Compliance with Law................................................30
5.2 Authorization, Validity and Effect of Agreements...................31
5.3 Capitalization.....................................................32
5.4 Other Interests....................................................33
5.5 No Violation.......................................................33
5.6 SEC Documents......................................................34
5.7 Financial Statements...............................................34
5.8 Absence of Undisclosed Liabilities.................................35
5.9 Absence of Certain Changes or Events...............................35
5.11 Title to Assets....................................................41
5.12 Adequacy of Assets.................................................42
5.13 Condition of Inventory, Property and Equipment.....................42
5.15 Accounts Receivable and Accounts Payable...........................43
5.16 Litigation.........................................................43
5.17 Taxes ..........................................................44
5.18 Proprietary Rights.................................................45
5.19 Royalties..........................................................48
5.20 Year 2000 Compliance...............................................48
5.21 Labor Relations....................................................49
5.22 Certain Employee Matters...........................................50
5.23 Environmental Matters..............................................50
5.24 ERISA ..........................................................51
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5.25 Fees...............................................................52
5.26 Books and Records..................................................52
5.27 Insurance..........................................................52
5.28 Disclosure.........................................................52
5.29 Purchase Accounting Treatment......................................53
5.30 Subsidiaries.......................................................53
ARTICLE VI INTERIM OPERATING COVENANTS OF THE PARENT AND
SUBSIDIARIES...................................................53
6.1 Operations.........................................................53
6.2 No Change..........................................................54
6.3 Access; Confidential Information...................................55
6.4 Obtain Consents....................................................56
6.5 Exclusivity........................................................56
6.6 Listing Application................................................56
ARTICE VII INTERIM COVENANTS OF THE COMPANY................................56
7.1 Interim Operations.................................................56
7.2 Meeting of Stockholders............................................58
7.3 Notices to Holders of Company Stock Options........................58
7.4 Exclusivity........................................................58
ARTICLE VIII ADDITIONAL COVENANTS OF THE PARTIES.............................59
8.1 Filings; Other Action..............................................59
8.2 Publicity..........................................................59
8.3 Further Action.....................................................59
8.4 Expenses ..........................................................60
8.5 Tax Matters........................................................60
8.6 Brokers and Finders Fees...........................................60
8.7 Company's Directors and Officers Liability.........................60
8.8 Notices of Certain Events..........................................60
8.9 Completion of Due Diligence........................................61
8.10 Preparation of Schedules and Exhibits..............................61
ARTICLE IX CONDITIONS TO CLOSING..........................................61
9.1 Conditions to Each Party's Obligations to Effect the
Merger.............................................................61
9.2 Conditions to Obligation of the Company to Effect the
Merger.............................................................63
9.3 Conditions to Obligation of the Parent and Merger Sub
to Effect the Merger...............................................64
ARTICLE X TERMINATION....................................................66
10.1 Termination by Mutual Consent......................................66
10.2 Termination by Either Party........................................66
10.3 Effect of Termination and Abandonment..............................66
10.4 Extension; Waiver..................................................67
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ARTICLE XI GENERAL PROVISIONS.............................................67
11.1 Notices ..........................................................67
11.2 Assignment, Binding Effect.........................................68
11.3 Entire Agreement...................................................68
11.4 Amendment..........................................................69
11.5 Subsequent Actions.................................................69
11.6 Governing Law......................................................69
11.7 Counterparts.......................................................69
11.8 Headings ..........................................................69
11.9 Interpretation.....................................................70
11.10 Waivers ..........................................................70
11.11 Attorneys' Fees....................................................70
11.12 Survival ..........................................................70
11.13 Incorporation of Exhibits..........................................70
11.14 Severability.......................................................71
11.15 Enforcement of Agreement...........................................71
11.16 Consent ..........................................................71
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is
entered into as of April 28, 1999, among Adrenalin Interactive,
Inc., a Delaware corporation (the "Parent"), Adrenalin Acquisition
Corporation, a California corporation and a wholly owned subsidiary
of the Parent (the "Merger Sub"), McGlen Micro Inc., a California
corporation (the "Company"), George Lee, Mike Chen, and ACST
Computers, Inc., a California corporation (collectively, the
"Principal Shareholders"), with reference to the following.
RECITALS
A. The Parent is in the business of development and
licensing of interactive programming and toy design.
B. The Company is in the business of retail sales of
computer hardware and software via the Internet.
C. The Merger Sub is or will be upon formation, a wholly
owned subsidiary of the Parent formed for the purpose of merging
with the Company.
D. The Board of Directors of the Parent and the Company each
have determined that a business combination between the Parent and
the Company is fair to and in the best interest of their respective
companies and stockholders and, accordingly, have agreed to effect
the merger provided for herein upon the terms and subject to the
conditions set forth herein.
E. The Principal Shareholders own an aggregate of 2,450,000
shares of common stock, of the Company's current 2,545,000 shares
outstanding, which constitute all of the issued and outstanding
shares of common stock of the Company.
F. In connection with the merger provided for herein, shares
of the Parent's common stock will be issued in exchange for all of
the issued and outstanding shares of the Company's Stock.
G. This merger is intended for tax purposes to qualify as a
non-taxable reorganization under Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code").
H. The parties desire that the Merger Sub, upon the terms
and subject to the conditions of this Agreement and in accordance
with the California General Corporation Law (the "Corporate Law"),
merge with and into the Company (the "Merger"), and pursuant
thereto the Company's Stock shall be converted into the right to
receive shares of the Parent, as set forth herein.
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AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and
of the provisions, representations, warranties, covenants and
agreements contained herein and other good and valuable
consideration, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Subject to the provisions of this Agreement,
in accordance with the Corporate Law, at the Effective Time (as
defined in Section 1.3 below), the Merger Sub shall be merged with
and into the Company in a transaction intended to qualify as a tax-
free reorganization under Section 368(a) of the Code. Immediately
following the Merger, the separate corporate existence of the
Merger Sub shall cease and the Company, under the name "McGlen
Micro Inc.," as the surviving corporation (the "Surviving
Corporation"), shall continue to exist under and be governed by the
Corporate Law as a direct, wholly-owned subsidiary of the Parent.
1.2 THE CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take
place at the offices of the Company at 3002 Dow Avenue, Suite 212,
Tustin, California 92780 at 10:00 a.m., on (i) the second business
day following the satisfaction of the conditions set forth in
Article X (other than those conditions that by their nature are to
be satisfied at the Closing, but subject to the satisfaction or,
where permitted, waiver of those conditions) or (ii) or at such
other time, date, or place as the Parent and the Company may agree.
The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
1.3 EFFECTIVE TIME. As soon as practicable after the
satisfaction or waiver of all of the conditions to the Merger, the
parties shall cause the Merger to be consummated by causing an
Agreement of Merger (the "Filed Agreement") substantially in the
form of EXHIBIT 1.3 attached hereto, together with officers'
certificates in the forms included with such Exhibit, to be
executed and filed in accordance with the relevant provisions of
the Corporate Law. The Merger shall become effective at the time
of the filing with the California Secretary of State of the Filed
Agreement relating thereto or at such later time as is specified in
the Filed Agreement (the "Effective Time").
1.4 EFFECTS OF THE MERGER. The Merger shall have the effect
set forth in Section 1107 of the Corporate Law. Without limiting
the generality of the foregoing, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the
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Company and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving
Corporation in the same manner as if the Surviving Corporation had
itself incurred them. All rights of creditors and all liens upon
the property of the Company and Merger Sub shall thereafter be
preserved unimpaired.
1.5 ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Articles of Incorporation and Bylaws of the
Company, respectively, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation and Bylaws
of the Surviving Corporation, until thereafter amended in
accordance with the provisions thereof and applicable law.
1.6 THE PARENT PRIVATE PLACEMENT. Prior to the Closing, the
Parent shall complete a private placement of the Parent's common
stock ("Parent Stock") in a minimum subscription amount of
$500,000, and not to exceed $2,000,000, in accordance with the
terms set forth in Schedule 1.6 (the "Parent Placement"). The
Parent Placement shall comply with the provision of Rule 506
promulgated under Regulation D of the Securities Act of 1933, as
amended (the "Act"). The Parent shall comply with all applicable
federal securities laws, the rules and regulations of Nasdaq and
the Securities and Exchange Commission (the "SEC") and applicable
blue sky laws, in the offer and sale of Parent Stock through the
Parent Placement and shall complete all necessary filings prior to
the Closing, including without limitation:
(i) The filing of a Form D with the SEC, if
applicable;
(ii) State blue sky filings; and
(iii) Notices and applications with Nasdaq.
The Parent will make a loan to the Company from the proceeds
of the Private Placement in such amounts requested by the Company
and in accordance with such terms as set forth in Schedule 1.6 (the
"Loan").
1.7 THE COMPANY PRIVATE PLACEMENT.
(a) SALE OF SHARES. The Company may conduct a private
placement of equity or debt securities prior to the Closing (the
"Company Placement"). Each subscriber to the Company Placement
shall be required to agree to the exchange of any securities of the
Company that the subscriber purchases with shares of the Parent
pursuant to the terms of this Agreement as in effect at the
Closing. Subscribers to the Company Placement shall not be
required to be a party to this Agreement or to provide
representations or warranties to the Parent or the Merger Sub other
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than standard investor representations made to comply with state
and federal securities laws.
(b) PARENT APPROVAL. The Parent shall have the right to
approve the terms of any registration rights, warrants, options,
conversion terms or other material terms if the Company offers any
such rights as part of the Company Placement. Subject to the
foregoing, if the Company offers securities other than common
stock, the Parent agrees to be bound by and perform under the terms
and conditions of the Company Placement upon completion of the
Merger.
(c) COMPLIANCE WITH LAW. The Company Placement shall
comply with applicable state and federal securities laws and the
Company shall complete all necessary federal and blue sky filings
prior to the Closing.
1.8 SYNNEX AGREEMENT. The Parent and Merger Sub acknowledge
and consent to the terms of the agreement between Synnex
Information Technologies, Inc., a California corporation (the
"Synnex Agreement") and the Company (the "Synnex Agreement"),
copies of which are attached hereto as EXHIBIT "1.8". The Parent
shall be bound by the terms of the Synnex Agreement upon completion
of the Merger and hereby assumes all obligations and duties of the
Company set forth in the documents evidencing the Synnex Agreement.
1.9 MERGER PROXY. The Parent shall as soon as reasonably
practicable prepare and file with the SEC, Nasdaq and all other
necessary agencies, a proxy for approval for distribution to the
Parent's shareholders to approve the Merger, the amendment of the
Parent's certificate of incorporation to increase the authorized
number of shares and the terms of this Agreement. The Company
shall assist the Parent in the preparation of the proxy materials
and have the right to review and reasonably approve the proxy
prior to its filing with the SEC and its distribution to the
Parent's shareholders.
ARTICLE II
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
2.1 DIRECTORS. The Surviving Corporation and the Parent
shall take such action as is necessary to elect as directors of
both the Surviving Corporation and the Parent immediately following
the Effective Time: the individuals identified in Schedule 2.1 (the
"Interim Directors"). The Interim Directors shall serve, until
their successors are duly appointed or elected in accordance with
applicable law. The Parent shall take all actions necessary to
nominate the Interim Directors for election.
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2.2 DIRECTOR'S AGREEMENT. The Parent and each of the Interim
Directors shall enter into director agreements in the form attached
hereto as EXHIBIT "2.2" ("Director Agreements").
2.3 PARENT OFFICERS. The Surviving Corporation and the
Parent shall take such actions as are necessary to elect as the
officers of the Parent effective immediately following the
Effective Time: Jay Smith, III, Co-Chief Executive Officer; George
Lee, Co-Chief Executive Officer and President; Mike Chen, Secretary
and Vice President of Technology; and David Yao, Chief Financial
Officer (the "Parent Officers"). At the Closing, the Parent will
enter into a one year Employment Agreement with Jay Smith, III,
pursuant to which Mr. Smith will receive $150,000 per year plus
100,000 incentive stock options.
2.4 EXECUTIVE EMPLOYMENT AGREEMENTS. On the Closing Date,
the Parent shall enter into executive employment agreements with
the Parent Officers in the forms attached hereto as EXHIBIT "2.4"
(the "Executive Employment Agreements").
2.5 TERMINATION OF EXISTING AGREEMENTS.
(a) REPUDIATION. Prior to the Closing, Jay Smith, III,
and each other executive officer and director of the Parent shall
repudiate his or her existing employment agreements with the Parent
or the Subsidiary and all rights thereunder and cancel the existing
agreements and release the Parent from all obligations thereunder.
Each of the officers and directors of the Parent shall have
resigned as of the Closing Date. Each officer, director and
employee identified in Schedule 2.5(a) shall execute as of the
Closing Date, a release in the form attached hereto as EXHIBIT
"2.5" (the "Release").
(b) REPUDIATION BY THE COMPANY'S OFFICERS. On or prior
to the Closing Date, the executive officers of the Company shall
repudiate and cancel their existing employment agreements and
release the Company from all obligations thereunder. Each such
officer shall execute a copy of the Release.
ARTICLE III
EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND THE COMPANY
3.1 MERGER SUB STOCK. At the Effective Time, each share of
common stock of the Merger Sub outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part of the Parent or the Company, be converted into
and exchanged for one validly issued, fully paid and non-assessable
share of common stock of the Surviving Corporation.
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3.2 THE COMPANY SECURITIES.
(a) At the Effective Time, the shares of common stock of
the Company (the "Company Stock") issued and outstanding
immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive the number of shares of the
Parent's Common Stock (the "Share Exchange Ratio") calculated such
that (i) all outstanding shares of Company Stock on a Fully Diluted
Basis (as defined below) immediately prior to Effective Time,
including shares issued in the Company Placement prior to the
Effective Date, plus (ii) the Loan Shares (as defined below) shall
equal, in the aggregate, 87.5% of the outstanding shares of the
Parent Common Stock on a Fully Diluted Basis outstanding
immediately following the Effective Time. For purposes hereof,
"Fully Diluted Basis" shall mean all outstanding shares and all
shares issuable pursuant to Convertible Securities (as defined
below) to the extent in the money as of the Closing Date. "Fully
Diluted Basis" shall not include any shares issuable pursuant to
the Synnex Agreement. For purposes hereof, "Convertible
Securities" means options, warrants, convertible securities or
other rights to acquire common stock. For purposes hereof, "Loan
Shares" shall mean the shares of Parent Common Stock sold in the
Parent Placement, the net proceeds of which were used to fund the
Loan. The Share Exchange Ratio shall be calculated by the Parent
and the Company prior to the Effective Time and such calculation
shall be attached hereto as Schedule 3.2(a).
(b) As a result of the Merger and without any action on
the part of the holder thereof, at the Effective Time, all shares
of the Company Stock shall cease to be outstanding and shall be
canceled and retired, and each holder of shares of the Company
Stock shall thereafter cease to have any rights with respect to
such shares of the Company Stock, except the right to receive,
without interest, the Parent Stock.
(c) All options to purchase Company Stock outstanding at
the Effective Time under any Company stock option plan or agreement
or any other type of option, warrant or right to purchase shares of
the Company (the "Company Stock Options") shall, at the Effective
Time, automatically and without further action on the part of any
holder thereof, be converted into options or similar right to
purchase Parent Stock (individually, a "Parent Stock Option" and
collectively, the "Parent Stock Options"). Each option granted by
the Parent hereunder shall be exercisable upon the same terms and
conditions as under the applicable Company Stock Option in
compliance with the requirements of Section 424(a) of the Code and
the applicable agreement issued thereunder, except that (i) each
such Company Stock Option shall be exercisable for that whole
number of shares of Parent Stock (to the nearest whole share)
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determined by multiplying the number of shares of the Company Stock
subject to such Company Stock Option by the Share Exchange Ratio
immediately prior to the Effective Time times as set forth on
Schedule 3.2(b) (the "Option Exchange Ratio"), (ii) the total
option price of the shares of Parent Stock issuable upon exercise
of a Parent Stock Option shall be an amount equal to the total
option price of the shares of Company Stock subject to such Company
Stock Option in effect immediately prior to the Effective Time,
(iii) the exercise price per share shall be calculated by dividing
the aggregate option value of the shares of Company Stock subject
to such Company Stock Options in effect immediately prior to the
Effective Time by the number of shares of Parent Stock underlying
such Parent Stock Options, (iv) all Parent Stock Options shall be
exercisable otherwise in accordance with their terms. No payment
shall be made for fractional interests.
(d) As soon as practicable after the Effective Time, the
Parent shall deliver to the holders of all Company Stock Options,
a notice stating that the agreements evidencing the grants of such
Company Stock Options shall continue in effect as Parent Stock
Options on the same terms and conditions (subject to the terms of
the relevant Company Stock Option plan and the adjustments to
outstanding Shares and exercise price).
(e) The Parent shall take all corporate action necessary
to reserve for issuance a sufficient number of shares of Parent
Stock for delivery upon exercise of Parent Stock Options.
3.3 EXCHANGE OF CERTIFICATES REPRESENTING THE COMPANY STOCK.
Within 5 days of the Effective Time, the Parent will deliver to the
Company the certificates representing shares of the Parent Stock
(together with any unpaid dividends or distributions with respect
thereto relating to record dates for such dividends or
distributions after the Effective Time) to be issued and paid in
exchange for outstanding shares of Company Stock.
3.4 AMENDMENT OF CERTIFICATE. As soon as permissible under
the Delaware corporation law, the Parent shall amend its
Certificate of Incorporation to increase its authorized number of
shares to 50,000,000. The Parent shall seek approval of a majority
of its shareholders to the Amendment of its Certificate to increase
the authorized number of shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent as of the
date of this Agreement as follows:
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4.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE
WITH LAW.
(a) Each of the Company and its subsidiary is a
corporation duly incorporated, validly existing, and in good
standing (including tax good standing) under the laws of the State
of California and are not qualified to do business in any other
jurisdiction.
(b) Each of the Company and its subsidiary has all
requisite corporate power and authority to own, operate, and lease
its properties and carry on its business as presently conducted and
as proposed to be conducted.
(c) Each of the Company and its subsidiary is not in
violation of any law, ordinance, governmental rule or regulation to
which it or any of its properties or assets is subject, except as
would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect, nor is the Company or
its subsidiary in violation of any order, judgment, or decree of
any court, governmental authority, or arbitration board or
tribunal. A "Company Material Adverse Effect" means a material
adverse change in the business, properties, financial condition,
results of operations, or prospects of the Company, taken as a
whole as more particularly described in Schedule 4.1(e).
(d) The copies of the Articles of Incorporation of the
Company and its subsidiary and Bylaws of each entity, which have
been delivered to the Parent, include any and all amendments made
thereto at any time prior to the date of this Agreement and are
true, correct, and complete.
(e) The Company's and its subsidiary's corporate minute
books are accurate as to their content and include therein the
Articles of Incorporation and Bylaws with any amendments thereto.
The meetings of the directors or stockholders referred to in the
corporate minute books were duly called and held. The signatures
appearing on all documents contained in the corporate minute books
are the true signatures of the persons purporting to have executed
the same and no minutes of meetings or written consents of the
directors or stockholders of the Company or the subsidiaries are
omitted from such minute books that would contain any resolutions
or other actions that would be inconsistent with any of the
representations and warranties contained in Article IV hereof or
prevent or limit any of the transactions contemplated by this
Agreement. Schedule 4.1 sets forth a true and complete list of the
names of all directors of the Company and the names and offices
held of all officers of the Company and each subsidiary as the date
hereof.
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4.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The
Company has the requisite corporate power and authority to execute
and deliver this Agreement and all agreements and documents
contemplated hereby. Subject only to the approval of this
Agreement and the transactions contemplated hereby by the Principal
Shareholders as required by the Corporate Law, the consummation by
the Company of the transactions contemplated hereby has been duly
authorized by all requisite corporate action of the Company. This
Agreement has been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by the
Parent and the Merger Sub, constitutes, and all agreements and
documents contemplated hereby (when executed and delivered pursuant
hereto for value received) will constitute valid and legally
binding obligations of the Company, enforceable against the Company
in accordance with their respective terms, except to the extent
that enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, or other similar laws relating to
creditors' rights and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity
or at law), including, without limitation, possible unavailability
of specific performance, other injunctive relief or other equitable
remedies and an implied covenant of good faith and fair dealing.
4.3 CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of 10,000,000 Shares of
Common Stock, of which 2,545,000 shares are issued and outstanding.
The Company is not authorized to and has not issued, preferred
stock or any other class stock. Schedule 4.3 sets forth the number
of shares of Company Stock issuable upon exercise of outstanding
Company Stock Options. All of the outstanding shares of capital
stock of the Company's subsidiary have been validly issued and are
fully paid and nonassessable and, are owned by the Company free and
clear of all liens, charges, claims or encumbrances. Schedule 4.3
sets forth the name of each record holder of shares of Company
Stock, the number of shares of Company Stock so held, and the
number of whole shares of Parent Stock to be issued in exchange for
such shares of Company Stock in connection with the Merger. Except
as set forth in Schedule 4.3, the Company has no outstanding bonds,
debentures, notes, or other obligations the holders of which have
the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the
Company on any matter. All issued and outstanding shares of
Company Stock are duly authorized, validly issued, fully paid,
nonassessable, free of preemptive or rescission rights, and were
issued in compliance with all applicable federal and state
securities laws. Schedule 4.3 sets forth the name of each person
who holds or has rights to receive Company Stock Options, the
number of shares of Company Stock issuable in respect of such
Company Stock Options, the exercise prices and terms of such
Company Stock Options. Except for the Company Stock Options listed
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on Schedule 4.3, there are not, at the date of this Agreement, any
authorized, issued, or outstanding options, warrants, calls,
subscriptions, convertible securities, conversion privileges,
preemptive rights, or other rights, agreements, or commitments
(whether or not presently exercisable) that obligate the Company to
issue, transfer, or sell any shares of capital stock or other
securities convertible into or evidencing the right to purchase or
otherwise acquire any capital stock of the Company. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar plans, contracts, or rights with respect
to the Company that are effective as of the date hereof or that
have been executed or agreed to as of the date hereof with an
effective date after the date hereof, except as set forth in
Schedule 4.3. There are no stockholders' agreements, voting
trusts, proxies, or other agreements or understandings with respect
to the voting of the capital stock of the Company to which the
Company is a party that are presently effective or have been
executed or agreed to as of the date hereof or, to the best
knowledge of the Company, to which any officer or director of the
Company or any stockholder owned or controlled by such officer or
director is or will be a party, except in accordance with the terms
hereof. There are no restrictions upon the sale, voting, or
transfer of any shares of Company Stock pursuant to the Company's
Articles of Incorporation, Bylaws, or other governing instruments
(other than restrictions typically applicable to unregistered stock
under the Securities Act). After the Effective Time, the Surviving
Corporation will have no obligation to issue, transfer, or sell any
shares of capital stock of the Company or the Surviving Corporation
pursuant to any Plan (as defined in Section 4.26). As used in this
Agreement, except as otherwise provided in Section 4.17(d), the
"knowledge" of a person shall mean the actual knowledge of an
officer or senior manager of such person after reasonable
investigation.
4.4 OTHER INTERESTS. Except as set forth in Schedule 4.4,
the Company does not own, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust, or entity other than
investments in short term investment securities.
4.5 NO VIOLATION. Neither the execution or delivery by the
Company of this Agreement and all agreements or documents
contemplated therein nor the consummation by the Company of the
transactions contemplated therein, will: (i) conflict with or
result in a breach of any provisions of the Articles of
Incorporation or Bylaws of the Company; (ii) except as set forth in
Schedule 4.5, violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, result
in the termination or in a right of termination or cancellation of,
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accelerate the performance required by, result in the triggering of
any payment or other obligations pursuant to, result in the
creation of any lien, security interest, charge or encumbrance upon
any of the properties of the Company under, or result in being
declared void, voidable, or without further binding effect, any of
the terms, conditions, or provisions of any note, bond, mortgage,
indenture, loan agreement, deed of trust, or any license,
franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Company is a party, or by
which the Company or any of its properties is bound or affected;
(iii) violate any law, statute, rule, regulation, judgment, or
decree applicable to the Company; or (iv) other than the filings
provided for in Article I, filings required under the Act, or
applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in
other jurisdictions (collectively, the "Regulatory Filings"),
require any consent, approval, or authorization of, or declaration,
filing, or registration with, any governmental or regulatory
authority.
4.6 FINANCIAL STATEMENTS. The audited balance sheet and
statement of operations as of and for the year ended December 31,
1998, accompanied by the audit report of the Company's independent
certified public accountants, attached to Schedule 4.6, are
prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied throughout the periods
involved except as otherwise set forth therein and present fairly
the financial condition of the Company as of such date and the
results of operations of the Company for the year then ended. The
unaudited balance sheet of the Company as of March 31, 1999 and the
related statement of operations for the three months ended on such
date, which are attached to Schedule 4.6, were prepared in
accordance with GAAP consistently applied except as otherwise set
forth therein and of such date and the results of operations of the
Company for the three months then ended, except that such interim
financial statements are subject to normal year-end adjustments
that are not and are not expected to be, individually or in the
aggregate, material in amount and do not include certain notes
which may be required by GAAP. The balance sheet of the Company as
of December 31, 1998 is referred to in this Agreement as the
"Company Balance Sheet."
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent reflected or reserved against in the Company Balance Sheet
or set forth in Schedule 4.7, at the date of the Company Balance
Sheet, the Company did not have any obligation or liability of any
kind (whether accrued, absolute, contingent, unliquidated, civil,
criminal, or otherwise and whether due or to become due), whether
or not any such liability or obligation would have been required to
be disclosed on a balance sheet prepared in accordance with GAAP,
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that, individually or in the aggregate, could have a Company
Material Adverse Effect. The Company Balance Sheet has accurate
accruals of all employee benefit costs, including, but not limited
to, payroll, commissions, bonuses, retirement benefits and vacation
accruals.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Since December 31, 1998, no event or events have
occurred, which individually or in the aggregate have had a Company
Material Adverse Effect, as hereafter defined, and there exists no
condition or contingency that could reasonably be expected to
result in a Company Material Adverse Effect.
(b) Since March 31, 1999, and except as set forth in
Schedule 4.8(b):
The Company has not:
(i) declared, set aside, paid, or made any dividend
or other distribution on or in respect of any shares of its capital
stock or directly or indirectly redeemed, retired, purchased, or
otherwise acquired any such shares or any option, warrant,
conversion privilege, preemptive right, or other right or agreement
to acquire the same or any other securities convertible into or
evidencing the right to purchase or otherwise acquire the same;
(ii) made any amendments to its Articles of
Incorporation or Bylaws:
(iii) made any change in the number of shares of
its capital stock authorized, issued, or outstanding or authorized,
issued, granted, or made any option, warrant, conversion privilege,
preemptive right, or other right or agreement to acquire the same
or any other securities convertible into or evidencing the right to
acquire the same;
(iv) incurred any indebtedness for borrowed
money other than pursuant to the Company's relationship with
Synnex Information Technologies, Inc., which borrowings shall not
exceed at any one time $1,500,000 in the aggregate or such greater
amount as the Company's board determines appropriate;
(v) incurred any obligation or liability
(contingent or otherwise) except (i) normal trade or business
obligations incurred in the ordinary course of business, the
performance of which will not, individually or in the aggregate,
have a Company Material Adverse Effect and (ii) obligations under
the contracts, agreements and leases described in Schedule 4.9, the
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performance of which will not, individually or in the aggregate,
have a Company Material Adverse Effect;
(vi) discharged or satisfied any lien or
encumbrance or paid any obligations or liability (fixed or
contingent) other than current liabilities paid to unrelated
parties, wages paid to officers and employees and director's fees
paid to directors, each in the ordinary course of business;
(vii) mortgaged, pledged, or been subjected to
any lien, charge, or other encumbrance any of its respective
properties or assets (tangible or intangible) except liens for
current property taxes not yet due and payable.
(viii)sold, assigned, leased, transferred or
otherwise disposed of, or agreed to sell, assign, lease, transfer
or otherwise dispose of, any of its tangible assets other than
sales of inventory in the ordinary course of business;
(ix) sold, assigned, licensed, transferred, or
otherwise disposed of, or agreed to sell, assign, license, transfer
or otherwise dispose of, any of its patents, inventions, shop
rights, know-how, trade secrets, confidentiality agreements and
confidential information, registered and unregistered trademarks,
service marks, logos, corporate names, trade names, and other
trademark rights, trade dress, or other designations or
combinations of such designations that are distinctive of goods or
services and that are used in a manner that identifies those goods
or services and distinguishes them from the goods or services of
others, works of authorship and any registered or unregistered
copyright therein, Software or Documentation (as defined in Section
4.9(e)), or other intangible assets, and all registrations for, and
applications for registration of, any of the foregoing
(collectively, "Proprietary Rights") or disclosed any of its
confidential Proprietary Rights to any person (other than Parent);
(x) entered into any transaction, contract, or
commitment other than in the ordinary course of business;
(xi) made any capital expenditures or any
commitment therefor in excess of $1,000,000 in the aggregate;
(xii) entered into any employment or consulting
agreement or arrangement, or, except for normal bonuses pursuant to
and consistent with existing plans or programs, or wages or salary
increases consistent with past practices, granted or paid any
bonus, or made or granted any general wage or salary increase or
any specific increase in the wages or salary of any employee;
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(xiii)suffered any casualty loss or damage,
whether or not such loss or damage shall have been covered by
insurance, which would constitute a Company Material Adverse
Effect.
(xiv) canceled or compromised any debt or claim
except for adjustments made in the ordinary course of business
that, in the aggregate, are not material, or waived or released
any rights that are material;
(xv) terminated, amended, or modified any
agreement or instrument described in Schedule 4.9;
(xvi) entered into any transaction with any
stockholder, officer, director, or key employee of the Company or
any affiliate of any such person other than the payment of wages
and salaries and other benefits under employee benefit plans;
(xvii)made any loans or advances to, guaranties
for the benefit of, or investments in, any person (other than
customary travel advances in accordance with past practices);
(xviii) made cash charitable contributions in
excess of $5,000 in the aggregate or any political contributions;
(xix) lost any supplier or suppliers which loss
or losses, individually or in the aggregate, has had, or could
reasonably be expected to have, a Company Material Adverse Effect;
(xx) merged or consolidated with, or acquired
all or substantially all of the assets, capital stock, or business
of any other person;
(xxi) introduced any material change with
respect to the operation of its business, including its method of
accounting, which could amount to a Company Material Adverse
Effect;
(xxii)agreed or committed to do any of the
things described in this Section 4.8.
4.9 LIST OF PROPERTIES, CONTRACTS, ETC. Schedule 4.9 sets
forth a true and complete list of the following:
(a) all leases of real property to which the Company is
a party, identifying the parties thereto and including in each case
a brief description of the property covered thereby, the annual
rental rate, and the termination date (all real property covered by
such leases being referred to herein as the "Company Real
Property");
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(b) all leases of personal property to which the Company
is a party, that (i) provide for future annual payments in excess
of $100,000 or (ii) were entered into other than in the ordinary
course of business, identifying the parties thereto and including
in each case, a brief description of the property covered thereby,
the annual rental rate and the termination date and identifying any
such leases with respect to which the obligations thereunder, in
accordance with GAAP, would be required to be capitalized on a
balance sheet of the Company or for which the amount of the asset
and liability thereunder, as if so capitalized, would be required
to be disclosed in a note to such balance sheet;
(c) all addresses at which inventory or other property
of the Company is located;
(d) all Proprietary Rights, if any, used in the business
or operations of the Company; identifying the owner thereof and in
the case of any license, the parties thereto, the method of
compensating the licensor thereunder and the termination date;
(e) all Software and Documentation owned by the Company
or used in and material to the business or operations of the
Company, identify the owner thereof. As used herein: (i)
"Software" means all computer programs, in machine-readable object
code and any and all corresponding source code, and includes,
without limitation: any and all printed listings, file formats,
interface or operating system designs, application programs,
structure, architecture, libraries, tools, functions, subroutines,
and all components, portions or modules thereof, and (ii)
"Documentation" means all user manuals, handbooks, on-line
materials, development tools, specifications and any other written
or machine readable materials relating in any way to the Software,
and includes, without limitation: any and all Software
specifications; programmer's or developer's notes, and engineering
or system design notes; instructions for compiling or decompiling;
and all pseudo-code, algorithms, diagrams or flow charts whether or
not directly incorporated in the Software. The list on Schedule
4.9 describes the extent to which the listed Software owned by the
Company is proprietary to the Company; if any such Software
requires the use of development tools, routines, libraries or the
like ("tools") that are not proprietary to the Company, such tools
are identified in Schedule 4.9; and if any such Software, or any
portion thereof, is required by law or any agreement to be
dedicated to the public, owned or co-owned, or licensed or
otherwise authorized for use by the public or any other person,
such requirements are described in Schedule 4.9;
(f) all employment and consulting agreements covering
any employee of, or consultant to, the Company;
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(g) the names and current annual or monthly compensation
rates of all employees of the Company;
(h) all deferred compensation agreements, employee stock
option plans, group life, hospitalization or disability insurance,
severance policies and other plans and arrangements providing
benefits for employees of the Company;
(i) all standard and non-standard product warranty terms
and conditions applicable to goods and services sold by the
Company;
(j) all insurance coverage that relates to or covers the
properties, assets, business, or operations of the Company,
including all policies or binders of fire, liability, vehicular,
title, workers' compensation, and other insurance, specifying the
insurer, the type of coverage, the amount of coverage, any
applicable deductibles, the expiration date and the policy number;
(k) all documents pertaining to the environmental
conditions (actual, potential, or threatened) of any real property
owned or leased by the Company including, without limitation, all
environmental reports, assessments, and audits and all notices,
orders, permits, or any other documents from any governmental
authority that refer or relate to any environmental condition of
the Company Real Property or any personal property owned or leased
by the Company or that relate to any actual or potential
liabilities or obligations arising out of such environmental
conditions;
(l) the names and ages of all retired employees and all
employees on long-term disability of the Company who are entitled
to receive health benefits, if any;
(m) all bank accounts and safe deposit boxes of the
Company, indicating the names of the persons authorized to draw
thereon;
(n) all agreements of the Company with sales
representatives, distributors, authorized service centers or other
customers;
(o) all loan agreements, credit agreements, indentures,
and other documents or instruments relating to the borrowing of
money by the Company and all promissory notes and other evidences
of indebtedness of the Company, including without limitation, all
such documents and instruments relating to or evidencing any
stockholder loans to the Company;
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(p) all guaranties of obligations of the Company under
all loan agreements, leases, and other documents and instruments to
which the Company is a party or by which it is bound, by any
officer or director of the Company or any affiliate of any of the
foregoing; and
(q) all other contracts, agreements or commitments of
the Company that (i) provide for future annual payments by the
Company in excess of $150,000 or (i) were entered into other than
in the ordinary course of business. True and correct copies of all
documents, including all amendments thereto, referred to above have
been delivered or made available to the Parent (collectively, the
"Material Contracts"). Each Material Contract is a valid
obligation of and enforceable against the Company and, to the
Company's knowledge, the other parties thereto, in accordance with
its terms for the period stated therein. There is no existing
material breach, default, or event of default by the Company or, to
the knowledge of the Company, by any other party, under any
Material Contract. There is no event that with notice or lapse of
time would constitute a default by the Company under any Material
Contract, nor has any party thereto given notice of or made a claim
with respect to any breach or default. To the Company's knowledge,
there are no material deficiencies in the Company's performance
under any Material Contract. The Company does not have any
knowledge of any existing laws, regulations, or decrees, that
materially and adversely affect, or may materially and adversely
affect any of the Material Contracts or that would have a Company
Material Adverse Effect. Except as set forth in Schedule 4.9, no
third party consents to the execution, delivery, and consummation
of this Agreement, the documents contemplated hereby or the
transactions contemplated herein are required pursuant to the terms
of any Material Contract. Except as set forth in Schedule 4.9, each
employment agreement to which the Company is a party is in full
force and effect, and neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby shall cause or result in any default, termination, or
acceleration of any provision in any such employment agreement or
give rise to the obligation of the Company to make any severance or
change of control payment.
4.10 TITLE TO ASSETS. Except as set forth in Schedule
4.10, the Company has good title, free and clear of all liens,
charges, and encumbrances (except for (a) liens for non-delinquent
taxes and assessments, (b) liens of landlords and other lessors
arising under statute, and (c) other liens, claims and encumbrances
or charges that do not materially detract from the value of, or
impair the use, occupancy or ownership of, the assets and
properties of the Company) to, or a valid leasehold interest in,
all of the personal property (i) reflected on the Company Balance
Sheet or acquired by the Company subsequent to the date thereof
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(other than assets that have been sold or otherwise disposed of in
the ordinary course of business since the date of the Company
Balance Sheet) or (ii) used in the business or operations of the
Company. Neither the Company nor any predecessor to the Company has
owned, leased, or operated any real property other than the Company
Real Property.
4.11 ADEQUACY OF ASSETS. The Company owns or has a valid
leasehold interest in all assets, real and personal properties,
contract rights and licenses necessary for the continued operation
of the Company in substantially the same manner in which it has
been and is now operating and for the future operation of the
Company as presently contemplated. Except as set forth on Schedule
4.11: (a) the Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Proprietary
Rights necessary for the operation of the business of the Company
as presently conducted, (b) each Proprietary Right owned or used by
Company immediately prior to the Effective Time hereunder will be
owned or available for use by Company on identical terms and
conditions immediately subsequent to the Effective Time hereunder,
and (c) Company has taken all necessary action to maintain and
protect each Proprietary Right that it owns or uses.
4.12 CONDITION OF INVENTORY, PROPERTY AND EQUIPMENT.
Schedule 4.12 sets forth a list of the fixed assets of the Company.
The inventory of the Company consists of items of quality and
quantity usable and saleable in the ordinary course of business of
the Company, except for items reserved against or written off on
the Company Balance Sheet. All property, plant, and equipment used
by the Company in the conduct of its business has been maintained
in accordance with standard industry practices and is in good
operating condition and repair, ordinary wear and tear excepted,
and there are no material defects in such property, plant, or
equipment.
4.13 LITIGATION. To the knowledge of the Company, there
are no claims, actions, suits, investigations, or proceedings
(public or private) pending against or affecting the Company or any
of its properties or assets, at law or in equity, before or by any
federal, state, municipal, or other governmental or
non-governmental department, commission, board, bureau, agency,
court, or other instrumentality, or arbitrator or by any private
person or entity. To the knowledge of the Company, there are no
claims, actions, suits, investigations, or proceedings (public or
private) threatened against or affecting the Company or any of its
properties or assets, at law or in equity, before or by any
federal, state, municipal, or other governmental or
non-governmental department, commission, board, bureau, agency,
court, or other instrumentality, or arbitrator or by any private
person or entity, except for any of the foregoing which would not,
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individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. To the knowledge of the Company,
there are no existing orders, judgments, settlements, injunctions,
or decrees of any court or governmental agency that apply to the
Company or any of its assets, properties, business, or operations
solely by replacement of products or adjustment or refunding of
purchase price or substantially equivalent credit on future orders)
that, in the aggregate, would not have a Company Material Adverse
Effect. The Company has not entered into any settlement agreements
relating to the compromise or dismissal of any litigation involving
the Company or any of its properties or assets. Nothing contained
in any settlement agreement to which the Company is a party
prevents the Company in any way from carrying out its business as
now conducted or as presently contemplated to be conducted, in any
market, geographical area, or application, or interferes with the
Company's utilization of its Proprietary Rights.
4.14 TAXES. All Taxes (as hereinafter defined under this
Section 4.14) required to be filed by the Company have been timely
filed and are true, correct, and complete in all material respects,
and all Taxes payable pursuant thereto have been timely paid or
appropriate extensions have been filed for such periods. No
deficiency or adjustment in respect of any Taxes that was assessed
against the Company remains unpaid and no such claim or assessment
is pending or, to the knowledge of the Company, threatened. The
Company has made all withholding of Taxes required to be made under
all applicable federal, state, and local tax regulations and such
withholdings have either been paid on a timely basis to the
respective governmental agencies or set side in accounts for such
purpose or accrued, reserved against and entered upon the books of
the Company. There are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any tax
return or tax liability of the Company, and to the knowledge of the
Company, there is no proposed liability for any Taxes for which
there is not an adequate reserve reflected on the Company Balance
Sheet. The Company has not filed any consent with the Internal
Revenue Service described in Section 341(f) of the Code. The
Company does not reasonably expect any authority to assess any
additional Taxes for any period for which Tax returns have been
filed. There is no dispute or claim concerning any Tax liability
of the Company either (i) claimed or raised by any authority in
writing, or (ii) as to which the Company has knowledge. The
Company has delivered to Parent correct and complete copies of all
federal and state income Tax returns of the Company, examination
reports and statements of deficiencies assessed against or agreed
to by the Company. The Company is not a party to any Tax
allocation or sharing agreement. The Company has not been a member
of an affiliated group filing federal income Tax Returns, and does
not have any liability for the Taxes of any person (other than the
Company) under Treas. Reg. Section 1.1502-6 or any similar
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provision of state, local or foreign law, as a transferee or
successor, by contract or otherwise. No item of income
attributable to transactions occurring on or before the Effective
Time will be required to be included in taxable income by the
Company in a subsequent taxable year by reason of the Company
reporting income on the installment sales method of accounting, the
cash method of accounting, the completed contract method of
accounting or the percentage of complete-capitalized cost method of
accounting. The Company has not made, and is under no obligation
to make, payments that are or, if made, would be, "parachute
payments" under Section 280G of the Code, and no such obligation
will arise as a result of this Agreement or other agreements
entered into in connection with this Agreement. "Taxes" shall mean
all federal, state, county, local, foreign and other taxes and
governmental assessments, including but not limited to, income
taxes, estimated taxes, withholding taxes, transfer taxes, excise
taxes, sales taxes, real and personal property taxes, ad valorem
taxes, payroll-related taxes, employment taxes, franchise taxes and
import duties, together with any related liabilities penalties,
fines or additions to tax and interest.
4.15 PROPRIETARY RIGHTS.
(a) Except as set forth on Schedule 4.15(a):
(i) to the Company's knowledge, the Company has not
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Proprietary Rights of third parties, (ii)
the Company (and its employees with responsibility for Proprietary
Rights matters) has not received any written charge, complaint,
claims, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Proprietary
Rights of any third party), (iii) to the Company's knowledge (and
employees with responsibility for Proprietary Rights matters),
there is no basis for any as-yet unasserted charge, complaint,
claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim
that the Company must license or refrain from using any Proprietary
Rights of any third party), or (iv) to the Company's knowledge (and
employees with responsibility for Proprietary Rights matters), no
third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Proprietary Rights of the
Company.
(b) Schedule 4.15(b) identifies each Proprietary Right
that the Company owns. Schedule 4.15(b) also identifies each
registration that has been issued to the Company with respect to
any of its Proprietary Rights, identifies each pending application
for registration that the Company has made with respect to any of
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its Proprietary Rights, identifies each item of copyrightable
Proprietary Rights (whether or not registration has been sought),
and identifies each license, agreement, or other permission which
the Company has granted to any third party with respect to any of
its Proprietary Rights and all agreements relating to any of the
Software owned by the Company, including any service, nondisclosure
or escrow agreements (together with any exceptions). The Company
has delivered to the Parent correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and
permissions (as amended to date). Schedule 4.15(b) also identifies
each trade name or unregistered trademark used by the Company in
connection with its business. Except as set forth in Schedule
4.15(b), with respect to each Proprietary Right required to be
identified in Schedule 4.15(b) and with respect to each item of
copyrightable Proprietary Rights (whether or not identified in
Schedule 4.15(b)):
(i) the Company possesses all right, title, and
interest in and to the Proprietary Right, free and clear of any
lien, license, or other restriction;
(ii) the Proprietary Right is not subject to
any outstanding injunction, judgment, order, decree, ruling, or
charge; and
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or,
to the knowledge of the Company, threatened, that challenges the
legality, validity, enforceability, manufacture, use or the ability
to authorize the use (including use by way of reproduction of
copies, distribution of copies, preparation of derivative works,
public performance or display, or any other use of any kind or
nature), sale or ownership of the Proprietary Right; and
(c) Schedule 4.15(c) identifies each Proprietary Right
that any third party owns and that the Company uses pursuant to
license, sublicense, agreement, or permission. The Company has
delivered to the Parent correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to
date). Except as set forth on Schedule 4.15(c), with respect to
each Proprietary Right required to be identified in Schedule
4.15(c):
(i) the license, sublicense, agreement, or
permission covering the Proprietary Right is legal, valid, binding,
enforceable against the Company and, to the Company's knowledge,
against the other parties thereto, and in full force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable
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against the Company and, to the Company's knowledge, against the
other parties thereto, and in full force and effect on identical
terms following the Effective Time;
(iii) to the Company's knowledge, no party to
the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense,
agreement, or permission has repudiated in writing any provision
thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (i) through
(iv) above are true and correct with respect to the underlying
license;
(vi) the underlying Proprietary Right is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or,
to the Company's knowledge, threatened, that challenges the
legality, validity, or enforceability of the underlying Proprietary
Right;
(viii)the Company has not granted any sublicense
or similar right with respect to the license, sublicense,
agreement, or permission; and
(ix) no such licenses, agreements or
permissions commit the Company to continued maintenance, support,
improvement, upgrade or similar obligation with respect to any of
the Proprietary Rights, which obligation cannot be terminated by
the Company upon notice of ninety (90) days or less.
(d) Schedules 4.15(b) and 4.15(c) identify every
Proprietary Right used by the Company in the conduct of its
business. Except as set forth in Schedule 4.15(b), all Software
owned by the Company performs substantially as described in all
Documentation for such Software insofar as such Documentation has
to do with the performance, specifications or design of such
Software.
It is understood and agreed that "Software owned by the
Company" shall include all Software owned by the Company, whether
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developed in house by the Company or purchased by the Company from
any third party.
4.16 ROYALTIES. All royalties, license fees, and other
fees relating to the Company's use of Proprietary Rights have been
or will be paid in full as and when due. Except as set forth in
Schedule 4.16, to the Company's knowledge, the method used by the
Company to calculate all royalties, license fees, and other fees
relating to the Company's use of Proprietary Rights is correct and
accurate and in accordance with the terms of any agreements the
Company has with any third party relating to the use of such
party's Proprietary Rights.
4.17 YEAR 2000 COMPLIANCE. Except as set forth on
Schedule 4.17, the Company has undertaken no independent
investigation concerning whether any system, comprised of software,
hardware, databases, or embedded control systems (microprocessor
controlled, robotic or other device), that constitutes any part of,
or is used in connection with the use, operation or enjoyment of
any material tangible or intangible asset or real property of the
Company and each product licensed, sold or otherwise distributed by
the Company, including software, hardware, databases, or embedded
control systems) (a) is designed (or has been modified) to be used
prior to and after January 1, 2000, or (b) will operate without
error arising from the creation, recognition, acceptance,
calculation, display, reporting, storage, retrieval, accessing,
comparison, sorting, manipulation, processing or other use of
dates, or date-based, date-dependent or date-related data,
including but not limited to century recognition, day-of-the-week
recognition, leap years, date values and interfaces of date
functionalities.
4.18 LABOR RELATIONS. There are no material
controversies to the knowledge of the Company, between the Company
and any of its respective employees, former employees, or
applicants for employment. The Company has complied in all
respects with all laws relating to the employment of labor,
including any provisions thereof relating to wages, hours, equal
employment opportunity, collective bargaining, federal immigration
law, and the payment of social security and similar taxes, except
as would not be reasonably expected to have a Company Material
Adverse Effect. The Company is not liable for any arrears of wages
or any taxes or penalties for failure to comply with any of the
foregoing. None of the employees of the Company are covered by any
collective bargaining agreement and, to the knowledge of the
Company, there are no organizational efforts currently being made
or threatened involving any employees of the Company. All employee
severance or change of control policies covering any employee of
the Company are described in Schedule 4.18 and no such employee is
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entitled to any severance or change of control benefits not
described therein.
4.19 CERTAIN EMPLOYEE MATTERS.
(a) Except as set forth on Schedule 4.19(a), all current
and former members of management, key (including sales and
recruiting) personnel and consultants (whether employees or
independent contractors) of the Company have executed and delivered
to the Company a confidential information agreement restricting
such person's right to disclose confidential information of the
Company. Except as set forth on Schedule 4.19(a), all such members
of management, key personnel and consultants of the Company have
been party to a "work-for-hire" arrangement or proprietary rights
agreement with the Company pursuant to which either (i) in
accordance with applicable federal and state law, the Company has
been accorded full, effective, exclusive and original ownership of
all tangible and intangible property thereby arising or (ii) there
has been conveyed to the Company by appropriately executed
instruments of assignment full, effective and exclusive ownership
of all tangible and intangible property thereby arising. No
employee, agent, consultant or contractor of the Company who has
contributed to or participated in the conception and development of
proprietary rights of the Company has asserted in writing or, to
the Company's knowledge, threatened any claim against the Company
in connection with such person's involvement in the conception and
development of the proprietary rights of the Company and, to the
knowledge of the Company, no such person has a reasonable basis
for any such claim.
(b) Schedule 4.19(b) identifies all employees,
independent contractors and other personnel of the Company, their
respective rates of pay at the date hereof, and, with respect to
all consultants (employees or independent contractors), the billing
rate of each such consultant. Unless otherwise noted on Schedule
4.19(b), each of the Company's personnel identified on Schedule
4.19(b) is working full time and none of such personnel has
expressly stated that he or she intends to resign or cease working
with the Company after the Closing. Other than increases granted
in the ordinary course of business, the Company has not committed
to increase in any manner the compensation of any of its personnel
beyond the amount identified on Schedule 4.19(b).
4.20 TRANSACTIONS WITH AFFILIATES. Except as set forth
in Schedule 4.20, the Company is not a party to any contract,
lease, agreement, or other commitment with any officer, director,
or stockholder of the Company or any affiliate of any such person,
and there are no loans outstanding from the Company to, or to the
Company from, any such person or any affiliate of any such person.
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4.21 PERMITS; COMPLIANCE WITH LAWS. Schedule 4.21
contains a true, correct, and complete list of all permits,
licenses, consents, and authorizations of any government or
governmental authority held by the Company. Except as set forth in
Schedule 4.21, the Company holds all permits, licenses, consents,
and authorizations issued by any government or governmental
authority that are necessary for the conduct of its business,
except for any failure to hold that would not, individually or in
the aggregate, reasonably be expected to have a Company Material
Adverse Effect. The Company has not received any written notice of
any violation of any law, ordinance, regulation, or order
applicable to the Company or the business conducted by it. The
conduct of the business of the Company, as presently conducted,
complies with all applicable laws, ordinances, regulations, and
orders, including, but not limited to, all laws, ordinances,
regulations or orders relating to the exportation or importation of
Products, except for any noncompliance that would not, individually
or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
4.22 ENVIRONMENTAL MATTERS. To the knowledge of the
Company, there has been no "release or threatened release of a
hazardous substance" (as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended
("CERCLA")) or any other release, emission, disposal, or discharge
into the environment or any use, storage, transport or handling
(collectively, "activities") of Hazardous Material (as defined
below) on, under, about, or from the Company Real Property other
than those activities that have not resulted and could not
reasonably be expected to result in any material liability on the
part of the Company. To the knowledge of the Company, all
"hazardous waste" (as defined in the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA") and the regulations
thereunder) generated at the Company's Real Property have been
disposed of at sites that maintain valid permits under RCRA and any
other applicable Environmental Requirement (as defined below). To
the knowledge of the Company, there are no underground tanks, PCBs,
or asbestos containing materials on the Company Real Property. The
Company does not have any written notice of any pending formal or
informal assertion by any governmental agency or other person that
the Company or subsidiaries or any predecessor business or owner or
operator of the Company Real Property may be a responsible or
potentially responsible party in connection with any violation or
obligation arising under any Environmental Requirement at any site
or facility (including the Company Real Property itself.)
"Hazardous Material" shall mean any substance (i) the presence of
which requires reporting, investigation or remediation under any
applicable statute, regulation, ordinance or order; or (ii) which
is defined as a "hazardous waste," "hazardous substance," pollutant
or contaminant under any statute, regulation, rule, or ordinance of
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any governmental authority having jurisdiction; or (iii) which is
toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is regulated by
any governmental authority having jurisdiction. "Environmental
Requirement" shall mean all applicable statutes, laws, regulations,
rules, ordinances, codes, licenses, permits, orders, standards,
guidelines, policies, and similar items of any governmental
authority having jurisdiction and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders and
common law relating to the protection of human health or the
environment including, without limitation, all requirements
pertaining to the reporting, licensing, permitting, use, handling,
generation, storage, treatment, transportation, disposal, release,
discharge, investigation, and remediation of Hazardous Material.
4.23 ADVERSE AGREEMENTS. The Company is not a party to
or subject to any contract, agreement, or commitment or subject to
any charter or other corporate restriction or any judgment, order,
writ, injunction, decree law, rule, or regulation that would have,
or could reasonably be expected to have, a Company Material Adverse
Effect.
4.24 FEES. Except as set forth in Schedule 4.24, there
are no claims for legal, accounting, financial advisory, or
investment bankers' fees, brokerage commissions, finders' fees, or
similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Company.
4.25 BOOKS AND RECORDS. Except as set forth in Schedule
4.25, the financial books, records, and work papers of the Company
are complete and correct in all material respects, have been
maintained in accordance with good business practice and accurately
reflect the bases for the consolidated financial condition and
results of operations of the Company set forth in the financial
statements referred to in Section 4.6 hereof.
4.26 ERISA. Neither the Company nor any trade or
business (whether or not incorporated) under common control with
such Person within the meaning of Section 414(b) or (c) of the Code
(and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code) (an "ERISA Affiliate") of the
Company maintains or contributes to or is obligated to contribute
to, and has ever maintained or contributed to or been obligated to
contribute to, (i) any "multiemployer plan," within the meaning of
Section 4001 (a)(3) of the Employee Retirement Income Security Act
of 1974, as amended, and the regulations promulgated and rulings
issued thereunder ("ERISA"), to which any person or any ERISA
Affiliate of such person makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has
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made, or been obligated to make, contributions (a "Multiemployer
Plan"), (ii) any single employer plan, as defined in Section 4001
(a)(15) of ERISA, that (a) is maintained for employees of a person
or any ERISA Affiliate of such person and at least one person other
than such person and any ERISA Affiliate of such person or (b) was
so maintained and in respect of which such person or an ERISA
Affiliate of such person could have liability under Section 4064 of
ERISA in the event such plan has been or were to be terminated (a
"Multiple Employer Plan") or (iii) except as set forth in Schedule
4.26, any employee benefit plan (as defined in Section 3(3) of
ERISA) sponsored or maintained by the Company or to which the
Company makes, is making, or is obligated to make contributions (a
"Plan"), including but not limited to a Pension Plan (as defined
below). With respect to the Plan(s) disclosed in Schedule 4.26:
(a) Each such Plan is in compliance in all material
respects applicable provisions of ERISA, the Code, and other
federal or state law. Any such Plan which is intended to qualify
under Section 401(a) of the Code has received a favorable
determination letter from the IRS and to the knowledge of the
Company, nothing has occurred that would cause the loss of such
qualification. The Company and each ERISA Affiliate of the Company
has made all required contributions to any such Plan subject to
Section 412 of the Code, and no application for a funding waiver or
an extension of any amortization period pursuant to Section 412 of
the Code has been made with respect to any such Plan.
(b) There are no pending claims (other than routine
claims for benefits) or, to the knowledge of the Company,
threatened claims, actions, or lawsuits, or action by any
governmental authority, with respect to any such Plan, and there
has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any such Plan.
(c) (1) the execution of, and the performance of the
transactions contemplated in, this Agreement will not (either alone
or upon the occurrence of any additional or subsequent events)
constitute an event under any Plan that will or is reasonably
expected to result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits
with respect to any employee;
(2) no such Plan which constitutes a Pension Plan
(as defined below) has any Unfunded Pension Liability (as defined
below); (3) neither the Company nor any ERISA Affiliate of the
Company has incurred, or reasonably expects to incur, any material
liability under Title IV of ERISA with respect to any such Plan
which constitutes a Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (4) neither the Company
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nor any ERISA Affiliate of the Company has incurred, or reasonably
expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result
in such liability) under Section 4201 or 4243 of ERISA with
respect to a Multiemployer Plan; and (5) neither the Company nor
any ERISA Affiliate of the Company has engaged in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.
"Pension Plan" shall mean a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA that a person sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a Multiple Employer Plan has made
contributions at any time during the immediately preceding five (5)
plan years. "Unfunded Pension Liability" shall mean the excess of
a Plan's benefit liabilities under Section 4001(a)(16) of ERISA,
over the current value of that Plan's assets, determined in
accordance with the assumptions used for funding the Pension Plan
pursuant to Section 412 of the Code for the applicable plan year.
4.27 INSURANCE. The business, properties, and employees
of the Company are insured by the insurers or through the funds and
with the types and amounts of insurance (including, but not limited
to, property, product liability, automobile, workers compensation,
business interruption, and excess indemnity insurance) set forth in
Schedule 4.27 (the "Company Insurance Coverage"). To the Company's
knowledge, the Company Insurance Coverage is in such amount and on
such terms as to adequately cover the risks attendant to the
Company's business. The Company has not been denied coverage by
any insurance carrier or has failed or currently fails to maintain
any insurance coverage that may be required by the laws of the
states in which the Company sells or manufactures Products or
provides services. The premiums due on the Company Insurance
Coverage that covers calendar year 1998, if any, have been paid in
full and the premiums due for the period from January 1, 1999 to
the Effective Time have been or will be paid in full as and when
due. All such insurance complies in all material respects with the
terms of each of its leases and each of the mortgages, deeds of
trust, service agreements with third parties and/or loan agreements
to which the Company is a party.
4.28 DISCLOSURE. To the Company's knowledge, no
representation or warranty by the Company in this Agreement and no
statement contained in any document, certificate, or other writing
prepared by the Company or its representatives and furnished by the
Company to Parent pursuant to the provisions hereof, affirmatively
misstates a material fact or omits a material fact necessary for
such document, certificate, or writing to be, in good faith,
accurately and completely responsive in all material respects to
the purpose identified by the Parent to the Company for which such
information was furnished by the Company to the Parent.
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4.29 INVESTMENT REPRESENTATIONS OF PRINCIPAL SHAREHOLDERS.
(a) Each Principal Shareholder has such knowledge and
experience in financial and business matters, either alone or with
Principal Shareholders' professional advisors, that he or she is
capable of evaluating the merits and risks of the acquisition of
the Parent Stock.
(b) Each Principal Shareholder is a resident of the
State of California.
(c) Each Principal Shareholder has received copies of
the following documents of the Parent: (i) Form 10-KSB reports
filed with the SEC for 1998; (ii) Form 10-QSB reports filed with
the SEC in 1998 and 1999; and (iii) all Form 8-K reports filed with
the SEC since January 1, 1999.
(d) Each Principal Shareholder has been furnished with
a list of each exhibit to the reports described in paragraph (c)
above and each has been offered a copy of all such exhibits as
requested by each Principal Shareholder.
(e) Each Principal Shareholder is acquiring Parent Stock
pursuant to this Agreement for such Shareholder's own account, not
as a nominee or agent. No one else has any interest, beneficial or
otherwise, in any of such Parent Stock.
(f) Each Principal Shareholder is able to bear the
economic risk of such an investment in the Parent Stock, is aware
that such Principal Shareholder must be prepared to hold such
Parent Stock for an indefinite period and is aware that the Parent
Stock has not been registered under the Act, or registered or
qualified under the Corporate Law, or any other securities law, on
the grounds, among others, that no unregistered distribution or
public offering of Parent Stock is to be effected and the Parent
Stock is being issued by the Parent without any public offering
within the meaning of Section 4(2) of the Act.
(g) Without in any way limiting the representations
herein, each Principal Shareholder further agrees that such
Principal Shareholder shall not encumber, pledge, hypothecate,
sell, transfer, or assign any shares of Parent Stock or any
interest in them, unless and until prior to any proposed
transaction (i) a registration statement on Form S-3 (or any other
form appropriate for the purpose or replacing such form) under the
Act with respect to the shares proposed to be transferred or
otherwise disposed of shall be then effective; (ii) such Principal
Shareholder shall have furnished the Parent with an opinion of
counsel (obtained at such Principal Shareholder's expense) in form
and substance satisfactory to the Parent to the effect that such
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disposition will not required registration of any such shares under
the Act or qualification of any such shares under any other
securities law; or (iii) Rule 144 under the Act is available with
respect to such transaction.
(h) Each Principal Shareholder understands and agrees
that the shares of Parent Stock will be "restricted securities" as
that term is defined in Rule 144 under the Act and, accordingly,
that it must be held indefinitely unless it is subsequently
registered under the Act or an exemption from such registration is
available.
4.30 SUBSIDIARY. The Subsidiary, AMT Component, Inc., is a
wholly owned subsidiary and is the Company's only subsidiary. The
Company owns all right, title and interest in and to each issued
and outstanding shares of AMT Component, Inc.
4.31 AUTHORIZATION. The execution, delivery and performance
by the Company of this Agreement and the consummation by the
Company or the Principal Shareholders of the transactions
contemplated hereby require no consents of any party and no action
by or in respect of, or filing with, any governmental body, agency,
official or authority other than (a) the filing of the Certificate
of Merger in accordance with the Corporate Law, (b) compliance with
any applicable requirements of the Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or Blue Sky laws, and (c)
any other filings, approvals or authorizations, which, if not
obtained, would not, individually or in the aggregate, have a
material adverse effect on the Company or materially impair the
ability of the Company or the Principal Shareholders to consummate
the transactions contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
The Parent and the Merger Sub represent and warrant to the
Company and the Principal Shareholders as of the date of this
Agreement as follows:
5.1 EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY; COMPLIANCE
WITH LAW.
(a) Each of the Parent and the Merger Sub and each and
every subsidiary of the Parent (the "Subsidiaries") is a
corporation duly incorporated, validly existing, and in good
standing (including tax good standing) under the laws of its
jurisdiction of incorporation. Each of the Parent, the Merger Sub
and the Subsidiaries is duly licensed or qualified to do business
as a foreign corporation and is in good standing under the laws of
the jurisdictions listed in Schedule 5.1, which list contains all
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jurisdictions in which the character of the properties owned or
leased by it or in which the transaction of its business makes such
qualification necessary, in each case except as would not,
individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect (as defined below in Section 5.9).
(b) Each of the Parent, the Merger Sub and the
Subsidiaries has all requisite corporate power and authority to
own, operate, and lease its properties and carry on its business
as presently conducted and as proposed to be conducted.
(c) Each of the Parent, the Merger Sub and the
Subsidiaries is not in violation of any law, ordinance,
governmental rule or regulation to which it or any of its
properties or assets is subject, except as would not, individually
or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect, nor is the Parent in violation of any
order, judgment, or decree of any court, governmental authority, or
arbitration board or tribunal.
(d) The copies of the Parent's Certificate of
Incorporation and the Articles of Incorporation of the Merger Sub
and the Subsidiaries and Bylaws of each entity, which have been
delivered to the Company and the Principal Shareholders, include
any and all amendments made thereto at any time prior to the date
of this Agreement and are true, correct, and complete.
(e) The Parent's and the Subsidiaries' corporate minute
books are accurate as to their content and include therein the
Certificates or Articles of Incorporation and Bylaws with any
amendments thereto. The meetings of the directors or stockholders
referred to in the corporate minute books were duly called and
held. The signatures appearing on all documents contained in the
corporate minute books are the true signatures of the persons
purporting to have executed the same and no minutes of meetings or
written consents of the directors or stockholders of the Parent or
the Subsidiaries are omitted from such minute books that would
contain any resolutions or other actions that would be inconsistent
with any of the representations and warranties contained in Article
V hereof or prevent or limit any of the transactions contemplated
by this Agreement. Schedule 5.1 sets forth a true and complete
list of the names of all directors of the Parent and the names and
offices held of all officers of the Parent and each subsidiary as
the date hereof.
5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.
(a) Each of the Parent, the Subsidiaries and Merger Sub
has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents
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contemplated hereby and thereby. Subject only to the approval of
this Agreement and the transactions contemplated hereby by the
stockholders of the Parent, the consummation by the Parent and
Merger Sub of the transactions contemplated hereby has been duly
authorized by all requisite corporate action of the Parent and the
Merger Sub. This Agreement has been duly executed and delivered by
the Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company and all agreements and
documents contemplated hereby (when executed and delivered pursuant
hereto for value received) will constitute, the valid and legally
binding obligations of the Parent and Merger Sub enforceable in
accordance with their respective terms.
(b) The affirmative vote of the holders of a majority of
the shares of the Parent Stock is necessary to approve the issuance
by the Parent of the shares of the Parent Stock pursuant to the
terms hereof. Such vote is the only vote required to approve the
Merger.
5.3 CAPITALIZATION. The authorized capital stock of the
Parent consists of 20,000,000 shares of the Common Stock, $.03 par
value, and 100,000 shares of blank check preferred stock, $.01 par
value. Schedule 5.3 sets forth the number of shares of the Parent
Stock issued and outstanding, and the number of shares of the
Parent Stock issuable upon exercise of outstanding Parent Stock
Options, each as of the Closing Date. There are no shares of
preferred stock issued or outstanding and no commitment exists to
issue any preferred stock. Schedule 5.3 correctly sets forth the
name of each person who holds of record shares of the Parent
Stock, the number of shares of Company Stock so held, and the
number of whole shares of the Parent Stock to be issued in exchange
for such shares of Parent Stock in connection with the Merger as of
the date of this Agreement. No additional shares of capital stock
of the Parent will be issued, except pursuant to the exercise of
options outstanding under and vested or vesting in accordance with
the terms of the Parent Stock Option plans or warrants set forth on
Schedule 5.3 hereof. The Parent has no outstanding bonds,
debentures, notes, or other obligations the holders of which have
the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the
Parent on any matter. All issued and outstanding shares of the
Parent Stock are duly authorized, validly issued, fully paid,
nonassessable, free of preemptive or rescission rights, and were
issued in compliance with all applicable federal and state
securities laws. Schedule 5.3 correctly sets forth the name of
each person who holds or has rights to receive Parent Stock
Options, the number of shares of Parent Stock issuable in respect
of such Parent Stock Options, the exercise prices and terms of such
Parent Stock Options, and whether or not such Parent Stock Options
are intended to qualify as incentive stock options or non-statutory
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stock options. Except for the Parent Stock Options listed on
Schedule 5.3, there are not, at the date of this Agreement, any
authorized, issued, or outstanding options, warrants, calls,
subscriptions, convertible securities, conversion privileges,
preemptive rights, or other rights, agreements, or commitments
(whether or not presently exercisable) that obligate the Parent to
issue, transfer, or sell any shares of capital stock or other
securities convertible into or evidencing the right to purchase or
otherwise acquire any capital stock of the Parent. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar plans, contracts, or rights with respect
to the Parent that are effective as of the date hereof or that have
been executed or agreed to as of the date hereof with an effective
date after the date hereof. There are no stockholders' agreements,
voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Parent to which
the Parent is a party that are presently effective or have been
executed or agreed to as of the date hereof or, to the best
knowledge of the Parent, to which any officer or director of the
Parent or any stockholder owned or controlled by such officer or
director is or will be a party, except in accordance with the terms
hereof. There are no restrictions upon the sale, voting, or
transfer of any shares of Parent Stock pursuant to the Parent's
Certificate of Incorporation, Bylaws, or other governing
instruments (other than restrictions typically applicable to
unregistered stock under the Securities Act). After the Effective
Time, the Surviving Corporation will have no obligation to issue,
transfer, or sell any shares of capital stock of the Parent or the
Surviving Corporation pursuant to any Plan (as defined in Section
5.27). As used in this Agreement, the "knowledge" of a person
shall mean the actual knowledge of an officer or senior manager of
such person after reasonable investigation.
5.4 OTHER INTERESTS. Except as set forth in Schedule 5.4,
neither the Parent nor the Subsidiaries own, directly or
indirectly, any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust, or
entity other than investments in short term investment securities.
5.5 NO VIOLATION. Neither the execution and delivery by the
Parent and Merger Sub of this Agreement and all agreements and
documents contemplated hereby, nor the consummation by the Parent
and Merger Sub of the transactions contemplated hereby or thereby
in accordance with the terms hereof, will: (i) conflict with or
result in a breach of any provisions of the Certificate of
Incorporation, as amended, or Bylaws of the Parent or the Articles
of Incorporation or Bylaws of Merger Sub; (ii) violate any law,
statute, rule, regulation, judgment, or decree applicable to the
Parent or the Merger Sub; (iii) except as set forth in Schedule 5.5
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violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, result in the
termination or in a right of termination or cancellation of,
accelerate the performance required by, result in the triggering
of any payment or other obligations pursuant to, result in the
creation of any lien, security interest, charge or encumbrance upon
any of the properties of the Parent, the Merger Sub or the
Subsidiaries under, or result in being declared void, voidable, or
without further binding effect, any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, loan agreement,
deed of trust, or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment, or obligation to which
the Parent, the Merger Sub or the Subsidiaries is a party, or by
which the Parent, the Merger Sub or the Subsidiaries or any of its
properties is bound or affected; (iv) violate any law, statute,
rule, regulation, judgment, or decree applicable to the Parent, the
Merger Sub or the Subsidiaries; or (v) other than the Regulatory
Filings, require any consent, approval, or authorization of, or
declaration, filing, or registration with, any governmental or
regulatory authority.
5.6 SEC DOCUMENTS. Since the date on which a registration
statement with respect to the Parent Stock became effective with
the SEC, the Parent has filed all forms, reports, and other
documents (including all exhibits, schedules and annexes thereto)
required to be filed by the Parent with the SEC (collectively, the
"Parent Reports"). Except to the extent that information contained
in any Parent Report has been revised or superseded by a later
Parent Report filed and publicly available prior to the date of
this Agreement, as of their respective dates, the Parent Reports
(a) were (and any Parent Reports filed after the date hereof will
be) in all material respects in accordance with the requirements of
the Act or the Exchange Act, as the case may be, and the rules and
regulations promulgated thereunder, and (b) as of their respective
filing dates did not (and any Parent Reports filed after the date
hereof will not) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The
financial statements of the Parent included in such reports (or
incorporated therein by reference) were prepared in accordance with
GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto and subject to
normal year-end adjustments) and fairly present in all material
respects the financial position of the Parent and its consolidated
subsidiaries as of the dates thereof and the periods then ended.
5.7 FINANCIAL STATEMENTS. The audited consolidated balance
sheet and consolidated statement of operations as of and for the
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twelve months ended June 30, 1998, accompanied by the audit report
of Drucker Math & Whitman, P.C., independent certified public
accountants, which are attached hereto as EXHIBIT "5.7", were
prepared in accordance with GAAP, consistently applied throughout
the periods involved except as otherwise set forth therein and
present fairly the financial condition of the Parent as of such
date and the results of operations of the Parent for the year then
ended. The unaudited consolidated balance sheet of the Parent as
of March 31, 1999, and the related consolidated statement of
operations for the nine months ended on such date, which are
attached hereto as EXHIBIT "5.7", were prepared in accordance with
GAAP consistently applied except as otherwise set forth therein and
of such date and the results of operations of the Parent for the
three months then ended, except that such interim financial
statements are subject to normal year-end adjustments that are not
and are not expected to be, individually or in the aggregate,
material in amount and do not include certain notes which may be
required by GAAP. The balance sheet of the Parent as of March 31,
1999, is referred to in this Agreement as the "Parent Balance
Sheet."
5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the
extent reflected or reserved against in the Parent Balance Sheet or
set forth in Schedule 5.8 at the date of the Parent Balance Sheet,
the Parent did not have any obligation or liability of any kind
whatsoever (whether accrued, absolute, contingent, unliquidated,
civil, criminal, or otherwise and whether due or to become due),
whether or not any such liability or obligation would have been
required to be disclosed on a balance sheet prepared in accordance
with GAAP, that, individually or in the aggregate, could have a
Parent Material Adverse Effect. The Parent Balance Sheet has
accurate accruals of all employee benefit costs, including, but not
limited to, payroll, commissions, bonuses, retirement benefits and
vacation accruals.
5.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Since March 31, 1999, no event or events have
occurred, which individually or in the aggregate have had a Parent
Material Adverse Effect, as hereafter defined, and there exists no
condition or contingency that could reasonably be expected to
result in a Parent Material Adverse Effect. A "Parent Material
Adverse Effect" means a material adverse change in the business,
properties, financial condition, results of operations, or
prospects of the Parent, taken as a whole.
(b) Since the date of the Parent Balance Sheet and
except as set forth in Schedule 5.9(b), the Parent has not:
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(i) declared, set aside, paid, or made any dividend
or other distribution on or in respect of any shares of its
capital stock or directly or indirectly redeemed, retired,
purchased, or otherwise acquired any such shares or any option,
warrant, conversion privilege, preemptive right, or other right or
agreement to acquire the same or any other securities convertible
into or evidencing the right to purchase or otherwise acquire the
same;
(ii) made any amendments to its Certificate of
Incorporation or Bylaws:
(iii) made any change in the number of shares of
its capital stock authorized, issued, or outstanding or authorized,
issued, granted, or made any option, warrant, conversion privilege,
preemptive right, or other right or agreement to acquire the same
or any other securities convertible into or evidencing the right to
acquire the same;
(iv) incurred any indebtedness or borrowed
money other than pursuant to the Parent's existing lines of credit
set forth in Schedule 5.9(b)(iv), which borrowings shall not exceed
the maximum amount thereunder in the aggregate;
(v) incurred any obligation or liability
(contingent or otherwise) except (i) normal trade or business
obligations incurred in the ordinary course of business, the
performance of which will not, individually or in the aggregate,
have a Parent Material Adverse Effect and (ii) obligations under
the contracts, agreements and leases described in Schedule 5.10,
the performance of which will not, individually or in the
aggregate, have a Parent Material Adverse Effect;
(vi) discharged or satisfied any lien or
encumbrance or paid any obligations or liability (fixed or
contingent) other than current liabilities paid to unrelated
parties, wages paid to officers and employees and director's fees
paid to directors, each in the ordinary course of business;
(vii) mortgaged, pledged, or subjected to any
lien, charge, or other encumbrance any of its respective properties
or assets (tangible or intangible) except liens for current
property taxes not yet due and payable.
(viii)sold, assigned, leased, transferred or
otherwise disposed of, or agreed to sell, assign, lease, transfer
or otherwise dispose of, any of its tangible assets other than
sales of inventory in the ordinary course of business;
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(ix) sold, assigned, licensed, transferred, or
otherwise disposed of, or agreed to sell, assign, license, transfer
or otherwise dispose of, any of its patents, inventions, shop
rights, know-how, trade secrets, confidentiality agreements and
confidential information, registered and unregistered trademarks,
service marks, logos, corporate names, trade names, and other
trademark rights, trade dress, or other designations or
combinations of such designations that are distinctive of goods or
services and that are used in a manner that identifies those goods
or services and distinguishes them from the goods or services of
others, works of authorship and any registered or unregistered
copyright therein, Software or Documentation (as defined in Section
5.10(e)), or other intangible assets, and all registrations for,
and applications for registration of, any of the foregoing
(collectively, "Proprietary Rights") or disclosed any of its
confidential Proprietary Rights to any person (other than the
Parent);
(x) entered into any transaction, contract, or
commitment other than in the ordinary course of business;
(xi) made any capital expenditures or any
commitment therefor in excess of $100,000 in the aggregate except
as consented to by the Company;
(xii) adopted or made any change in any
executive compensation plan, bonus plan, incentive compensation
plan, deferred compensation agreement, or other employee benefit
plan or arrangement;
(xiii)entered into any employment or consulting
agreement or arrangement, or, except for normal bonuses pursuant to
and consistent with existing plans or programs, or wages or salary
increases consistent with past practices, granted or paid any
bonus, or made or granted any general wage or salary increase or
any specific increase in the wages or salary of any employee;
(xiv) suffered any casualty loss or damage,
whether or not such loss or damage shall have been covered by
insurance;
(xv) canceled or compromised any debt or claim
except for adjustments made in the ordinary course of business
that, in the aggregate, are not material, or waived or released
any rights that are material;
(xvi) terminated, amended, or modified any
agreement or instrument described in Schedule 5.10;
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(xvii)entered into any transaction with any
stockholder, officer, director, or key employee of the Parent or
any affiliate of any such person other than the payment of wages
and salaries and other benefits under employee benefit plans in
existence prior to June 30, 1998;
(xviii) made any loans or advances to, guaranties
for the benefit of, or investments in, any person (other than
customary travel advances in accordance with past practices);
(xix) made cash charitable contributions in
excess of $5,000 in the aggregate or any political contributions;
(xx) lost any supplier or suppliers which loss
or losses, individually or in the aggregate, has had, or could
reasonably be expected to have, a Parent Material Adverse Effect;
(xxi) merged or consolidated with, or acquired
all or substantially all of the assets, capital stock, or business
of any other person;
(xxii)introduced any material change with
respect to the operation of its business, including its method of
accounting or accounting practice by Parent or any of the
Subsidiaries;
(xxiii) agreed or committed to do any of the
things described in this Section 5.10.
5.10 LIST OF PROPERTIES, CONTRACTS, ETC. Schedule 5.10 sets
forth a true and complete list of the following:
(a) all leases of real property to which the Parent or
the Subsidiaries is a party, identifying the parties thereto and
including in each case a brief description of the property covered
thereby, the annual rental rate, and the termination date (all real
property covered by such leases being referred to herein as the
"Parent Real Property");
(b) all leases of personal property to which the Parent
or the Subsidiaries are a party, that (i) provide for future annual
payments in excess of $5,000 or (ii) were entered into other than
in the ordinary course of business, identifying the parties thereto
and including in each case, a brief description of the property
covered thereby, the annual rental rate and the termination date
and identifying any such leases with respect to which the
obligations thereunder, in accordance with GAAP, would be required
to be capitalized on a balance sheet of the Parent or for which the
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amount of the asset and liability thereunder, as if so capitalized,
would be required to be disclosed in a note to such balance sheet;
(c) all addresses at which inventory or other property
of the Parent and the Subsidiaries is located;
(d) all Proprietary Rights, if any, used in the business
or operations of the Parent or the Subsidiaries; identifying the
owner thereof and in the case of any license, the parties thereto,
the method of compensating the licensor thereunder and the
termination date;
(e) all Software and Documentation owned by the Parent
or the Subsidiaries or used in and material to the business or
operations of the Parent or the Subsidiaries, identifying the owner
thereof. As used herein: (i) "Software" means all computer
programs, in machine-readable object code and any and all
corresponding source code, and includes, without limitation: any
and all printed listings, file formats, interface or operating
system designs, application programs, structure, architecture,
libraries, tools, functions, subroutines, and all components,
portions or modules thereof, and (ii) "Documentation" means all
user manuals, handbooks, on-line materials, development tools,
specifications and any other written or machine readable materials
relating in any way to the Software, and includes, without
limitation: any and all Software specifications; programmer's or
developer's notes, and engineering or system design notes;
instructions for compiling or decompiling; and all pseudo-code,
algorithms, diagrams or flow charts whether or not directly
incorporated in the Software. The Software and Documentation owned
by the Parent and the Subsidiaries, listed on Schedule 5.10,
includes the copyright registration number of all registered
copyrights therein. The list on Schedule 5.10 describes the extent
to which the listed Software owned by the Parent or the
Subsidiaries is proprietary to the Parent or the Subsidiaries; if
any such Software requires the use of development tools, routines,
libraries or the like ("tools") that are not proprietary to the
Parent or the Subsidiaries, such tools are identified in Schedule
5.10; and if any such Software, or any portion thereof, is required
by law or any agreement to be dedicated to the public, owned or
co-owned, or licensed or otherwise authorized for use by the public
or any other person, such requirements are described in Schedule
5.10;
(f) all employment and consulting agreements covering
any employee of, or consultant to, the Parent and the Subsidiaries;
(g) the names and current annual or monthly compensation
rates of all employees of the Parent and the Subsidiaries;
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(h) all deferred compensation agreements, employee stock
option plans, group life, hospitalization or disability insurance,
severance policies and other plans and arrangements providing
benefits for employees of the Parent and the Subsidiaries;
(i) all standard and non-standard product warranty terms
and conditions applicable to goods and services sold by the Parent
and the Subsidiaries;
(j) all insurance coverage that relates to or covers the
properties, assets, business, or operations of the Parent and the
Subsidiaries, including all policies or binders of fire, liability,
vehicular, title, workers' compensation, and other insurance,
specifying the insurer, the type of coverage, the amount of
coverage, any applicable deductibles, the expiration date and the
policy number;
(k) all documents pertaining to the environmental
conditions (actual, potential, or threatened) of any real property
owned or leased by the Parent and the Subsidiaries including,
without limitation, all environmental reports, assessments, and
audits and all notices, orders, permits, or any other documents
from any governmental authority that refer or relate to any
environmental condition of the Parent Real Property or any personal
property owned or leased by the Parent and the Subsidiaries or that
relate to any actual or potential liabilities or obligations
arising out of such environmental conditions;
(l) the names and ages of all retired employees and all
employees on long-term disability of the Parent and the
Subsidiaries who are entitled to receive health benefits;
(m) all bank accounts and safe deposit boxes of the
Parent and the Subsidiaries, indicating the names of the persons
authorized to draw thereon;
(n) all agreements of the Parent and the Subsidiaries
with sales representatives, distributors, authorized service
centers or other customers;
(o) all loan agreements, credit agreements, indentures,
and other documents or instruments relating to the borrowing of
money by the Parent and the Subsidiaries and all promissory notes
and other evidences of indebtedness of the Parent and the
Subsidiaries, including without limitation, all such documents and
instruments relating to or evidencing any stockholder loans to the
Parent and the Subsidiaries;
(p) all guaranties of obligations of the Parent and the
Subsidiaries under all loan agreements, leases, and other documents
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and instruments to which the Parent and the Subsidiaries is a party
or by which it is bound, by any officer or director of the Parent
and the Subsidiaries or any affiliate of any of the foregoing; and
(q) all other contracts, agreements or commitments of
the Parent and the Subsidiaries that (i) provide for future annual
payments by the Parent and the Subsidiaries in excess of $5,000 or
(ii) were entered into other than in the ordinary course of
business. True and correct copies of all documents, including all
amendments thereto, referred to above have been delivered or made
available to the Parent and the Subsidiaries (collectively, the
"Material Contracts"). Each Material Contract is a valid
obligation of and enforceable against the Parent or the
Subsidiaries and, to the Parent's knowledge, the other parties
thereto, in accordance with its terms for the period stated
therein. There is no existing material breach, default, or event
of default by the Parent or, to the knowledge of the Parent, by any
other party, under any Material Contract. There is no event that
with notice or lapse of time would constitute a default by the
Parent or the Subsidiaries under any Material Contract, nor has any
party thereto given notice of or made a claim with respect to any
breach or default. To the Parent's knowledge, there are no
material deficiencies in the Parent's or the Subsidiaries'
performance under any Material Contract. The Parent does not have
any knowledge of any existing laws, regulations, or decrees, that
materially and adversely affect, or may materially and adversely
affect any of the Material Contracts or that would have a Parent
Material Adverse Effect. Except as set forth in Schedule 5.10, no
third party consents to the execution, delivery, and consummation
of this Agreement, the documents contemplated hereby or the
transactions contemplated herein are required pursuant to the terms
of any Material Contract. Except as set forth in Schedule 5.10,
each employment agreement to which the Parent or the Subsidiaries
is a party is in full force and effect, and neither the execution
and delivery of this Agreement nor the consummation of the
transactions contemplated hereby shall cause or result in any
default, termination, or acceleration of any provision in any such
employment agreement or give rise to the obligation of the Parent
or the Subsidiaries to make any severance or change of control
payment.
5.11 TITLE TO ASSETS. Except as set forth in Schedule
5.11, the Parent and the Subsidiaries each has good title, free and
clear of all liens, charges, and encumbrances (except for (a) liens
for non-delinquent taxes and assessments, (b) liens of landlords
and other lessors arising under statute, and (c) other liens,
claims and encumbrances or charges that do not materially detract
from the value of, or impair the use, occupancy or ownership of,
the assets and properties of the Parent) to, or a valid leasehold
interest in, all of the personal property (i) reflected on the
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Parent Balance Sheet or acquired by the Parent or the Subsidiaries
subsequent to the date thereof (other than assets that have been
sold or otherwise disposed of in the ordinary course of business
since the date of the Parent Balance Sheet) or (ii) used in the
business or operations of the Parent. Neither the Parent nor any
predecessor to the Parent has owned, leased, or operated any real
property other than the Parent Real Property.
5.12 ADEQUACY OF ASSETS. The Parent and the Subsidiaries
owns or has a valid leasehold interest in all assets, real and
personal properties, contract rights and licenses necessary for the
continued operation of the Parent or the Subsidiaries in
substantially the same manner in which it has been and is now
operating and for the future operation of the Parent or the
Subsidiaries as presently contemplated. Except as set forth on
Schedule 5.12: (a) each of the Parent or the Subsidiaries owns or
has the right to use pursuant to license, sublicense, agreement, or
permission all Proprietary Rights necessary for the operation of
the business of the Parent or the Subsidiaries as presently
conducted, (b) each Proprietary Right owned or used by the Parent
or the Subsidiaries immediately prior to the Effective Time
hereunder will be owned or available for use by the Parent or the
Subsidiaries on identical terms and conditions immediately
subsequent to the Effective Time hereunder, and (c) the Parent and
the Subsidiaries has taken all necessary action to maintain and
protect each Proprietary Right that it owns or uses.
5.13 CONDITION OF INVENTORY, PROPERTY AND EQUIPMENT.
Schedule 5.13 sets forth a list of the fixed assets of the Parent
and the Subsidiaries, together with the depreciation schedule
associated with such fixed assets. The inventory of the Parent and
the Subsidiaries consists of items of quality and quantity usable
and saleable in the ordinary course of business of the Parent and
the Subsidiaries, except for items reserved against or written off
on the Parent Balance Sheet. All property, plant, and equipment
used by the Parent and the Subsidiaries in the conduct of their
business has been maintained in accordance with standard industry
practices and is in good operating condition and repair, ordinary
wear and tear excepted, and there are no material defects in such
property, plant, or equipment.
5.14 AUTHORIZATION. Except as set forth in Schedule 5.14, the
execution, delivery and performance by Parent of this Agreement and
the consummation by Parent and Merger Sub of the transactions
contemplated hereby require no consents of any party and no action
by or in respect of, or filing with, any governmental body, agency,
official or authority other than (a) the filing of the Certificate
of Merger in accordance with the Corporate Law, (b) compliance with
any applicable requirements of the Act, the Exchange Act, or Blue
Sky laws, and (c) any other filings, approvals or authorizations,
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which, if not obtained, would not, individually or in the
aggregate, have a material adverse effect on Parent or materially
impair the ability of the Parent or Merger Sub to consummate the
transactions contemplated by this Agreement.
5.15 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The accounts
receivable reflected on the Balance Sheet contained in the latest
Parent Report filed with the SEC pursuant to the Exchange Act and
all accounts receivable of the Parent and the Subsidiaries that
arose thereafter are valid and arose out of bona fide transactions
in the ordinary course of business. Schedule 5.15 sets forth a
list of any such accounts receivable that the Parent considers to
be doubtful accounts.
5.16 LITIGATION. Except as set forth in Schedule 5.16,
there are no claims, actions, suits, investigations, or proceedings
(public or private) pending against or affecting the Parent, the
Subsidiaries or any of their properties or assets, at law or in
equity, before or by any federal, state, municipal, or other
governmental or non-governmental department, commission, board,
bureau, agency, court, or other instrumentality, or arbitrator or
by any private person or entity. Except as set forth in Schedule
5.16, to the knowledge of the Parent and the Subsidiaries, there
are no claims, actions, suits, investigations, or proceedings
(public or private) threatened against or affecting the Parent, the
Subsidiaries or any of their properties or assets, at law or in
equity, before or by any federal, state, municipal, or other
governmental or non-governmental department, commission, board,
bureau, agency, court, or other instrumentality, or arbitrator or
by any private person or entity, except for any of the foregoing
which would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect. There are no
existing orders, judgments, settlements, injunctions, or decrees of
any court or governmental agency that apply to the Parent, the
Subsidiaries or any of their assets, properties, business, or
operations. No product liability, warranty, or similar claims have
been made against the Parent or the Subsidiaries except routine
claims in the ordinary course of business (i.e., claims relating to
defective products that have been satisfied by the Parent or the
Subsidiaries solely by replacement of products or adjustment or
refunding of purchase price or substantially equivalent credit on
future orders) that, in the aggregate, would not have a Parent
Material Adverse Effect. Neither the Parent nor the Subsidiaries
have entered into any settlement agreements relating to the
compromise or dismissal of any litigation involving the Parent or
the Subsidiaries or any of their properties or assets. Nothing
contained in any settlement agreement to which the Parent or the
Subsidiaries are a party prevents the Parent or the Subsidiaries in
any way from carrying out their business as now conducted or as
presently contemplated to be conducted, in any market, geographical
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area, or application, or interferes with their utilization of their
Proprietary Rights.
5.17 TAXES. All Taxes (as hereinafter defined) required
to be filed by the Parent and the Subsidiaries have been timely
filed and are true, correct, and complete in all material respects,
and all Taxes payable pursuant thereto have been timely paid or
appropriate extensions have been filed for such periods. No
deficiency or adjustment in respect of any Taxes that was assessed
against the Parent or the Subsidiaries remains unpaid and no such
claim or assessment is pending or, to the knowledge of the Parent,
threatened. The Parent and the Subsidiaries have made all
withholding of Taxes required to be made under all applicable
federal, state, and local tax regulations and such withholdings
have either been paid on a timely basis to the respective
governmental agencies or set side in accounts for such purpose or
accrued, reserved against and entered upon the books of the Parent
or the Subsidiaries. There are no outstanding agreements or
waivers extending the statutory period of limitations applicable to
any tax return or tax liability of the Parent or the Subsidiaries,
and there is no proposed liability for any Taxes for which there is
not an adequate reserve reflected on the Parent Balance Sheet. The
Parent has not filed any consent with the Internal Revenue Service
described in Section 341(f) of the Code.
The unpaid taxes of the Parent and the Subsidiaries
(i) did not, as of the end of the most recent period for which
financial statements have been prepared, exceed the reserve for Tax
liability (rather than any reserve for deferred Taxes established
to reflect timing differences between book and Tax income), and
(ii) do not exceed that reserve as adjusted for the passage of time
through the Effective Time in accordance with the past custom and
practice of the Parent and the Subsidiaries in filing their tax
returns. The Parent does not reasonably expect any authority to
assess any additional Taxes for any period for which tax returns
have been filed. There is no dispute or claim concerning any Tax
liability of the Parent or the Subsidiaries either (i) claimed or
raised by any authority in writing, or (ii) as to which the Parent
has knowledge. The Parent has delivered to the Company and the
Principal Shareholders correct and complete copies of all federal
and state income tax returns of the Parent and the Subsidiaries.
Neither the Parent nor the Subsidiaries is a party to any Tax
allocation or sharing agreement. Neither the Parent nor the
Subsidiaries has been a member of an affiliated group filing
federal income tax returns, and does not have any liability for the
Taxes of any person (other than the Parent and the Subsidiaries)
under Treas. Reg. Section 1.1502-6 or any similar provision of
state, local or foreign law, as a transferee or successor, by
contract or otherwise. No item of income attributable to
transactions occurring on or before the Effective Time will be
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required to be included in taxable income by the Parent or the
Subsidiaries in a subsequent taxable year by reason of the Parent
or the Subsidiaries reporting income on the installment sales
method of accounting, the cash method of accounting, the completed
contract method of accounting or the percentage of
complete-capitalized cost method of accounting. Neither the Parent
nor the Subsidiaries has made, and is not under any obligation to
make, payments that are or, if made, would be "parachute payments"
under Section 280G of the Code, and no such obligation will arise
as a result of this Agreement or other agreements entered into in
connection with this Agreement. "Taxes" shall mean all federal,
state, county, local, foreign and other taxes and governmental
assessments, including but not limited to, income taxes, estimated
taxes, withholding taxes, transfer taxes, excise taxes, sales
taxes, real and personal property taxes, ad valorem taxes,
payroll-related taxes, employment taxes, franchise taxes and import
duties, together with any related liabilities penalties, fines or
additions to tax and interest.
5.18 PROPRIETARY RIGHTS.
(a) Except as set forth on Schedule 5.18(a):
(i) To the Parent's knowledge, neither the Parent
nor the Subsidiaries has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
Proprietary Rights of third parties, (ii) neither the Parent nor
the Subsidiaries (and its employees with responsibility for
Proprietary Rights matters) has received any written charge,
complaint, claims, demand, or notice alleging any such
interference, infringement, misappropriation, or violation
(including any claim that the Parent or the Subsidiaries must
license or refrain from using any Proprietary Rights of any third
party), (iii) to the Parent's knowledge, there is no basis for any
as-yet unasserted charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Parent must license or
refrain from using any Proprietary Rights of any third party), or
(iv) to the Parent's knowledge, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict
with any Proprietary Rights of the Parent or the Subsidiaries.
(b) Schedule 5.18(b) also identifies each Proprietary
Right that the Parent owns. Schedule 5.18(b) identifies each
registration that has been issued to the Parent or the Subsidiaries
with respect to any of its Proprietary Rights, identifies each
pending application for registration that the Parent or the
Subsidiaries has made with respect to any of its Proprietary
Rights, identifies each item of copyrightable Proprietary Rights
(whether or not registration has been sought), and identifies each
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license, agreement, or other permission which the Parent or the
Subsidiaries has granted to any third party with respect to any of
their Proprietary Rights and all agreements relating to any of the
Software owned by the Parent or the Subsidiaries, including any
service, nondisclosure or escrow agreements (together with any
exceptions). The Parent and the Subsidiaries have delivered to the
Company and the Principal Shareholders correct and complete copies
of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) set forth in
Schedule 5.18(b). Schedule 5.18(b) also identifies each trade name
or unregistered trademark used by the Parent or the Subsidiaries in
connection with its business. Except as set forth in Schedule
5.18(b), with respect to each Proprietary Right required to be
identified in Schedule 5.18(b) and with respect to each item of
copyrightable Proprietary Rights (whether or not identified in
Schedule 5.18(b):
(i) the Parent or the Subsidiaries, as applicable
possess all right, title, and interest in and to the Proprietary
Rights, free and clear of any lien, license, or other restriction;
(ii) the Proprietary Rights are not subject to
any outstanding injunction, judgment, order, decree, ruling, or
charge; and
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or to
the Parent's knowledge threatened, that challenges the legality,
validity, enforceability, manufacture, use or the ability to
authorize the use (including use by way of reproduction of copies,
distribution of copies, preparation of derivative works, public
performance or display, or any other use of any kind or nature),
sale or ownership of the Proprietary Rights; and
(c) Schedule 5.18(c) identifies each Proprietary Right
that any third party owns and that the Parent or the Subsidiaries
use pursuant to license, sublicense, agreement, or permission. The
Parent has delivered to the Company and the Principal Shareholders
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date) each of which are
identified in Schedule 5.18(c). Except as set forth on Schedule
5.18(c), with respect to each Proprietary Rights required to be
identified in Schedule 5.18(c):
(i) the license, sublicense, agreement, or
permission covering the Proprietary Rights is legal, valid,
binding, enforceable against the Parent or the Subsidiaries and, to
the Parent's knowledge, against the other parties thereto, and in
full force and effect;
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(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable
against the Parent or the Subsidiaries and, to the Parent's
knowledge, against the other parties thereto, and in full force and
effect on identical terms following the Effective Time;
(iii) to the Parent's knowledge, no party to the
license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense,
agreement, or permission has repudiated in writing any provision
thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (i) through
(iv) above are true and correct with respect to the underlying
license;
(vi) the underlying Proprietary Right is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or,
to the knowledge of the Parent, threatened, that challenges the
legality, validity, or enforceability of the underlying Proprietary
Right;
(viii)neither the Parent nor the Subsidiaries
has granted any sublicense or similar right with respect to the
license, sublicense, agreement, or permission; and
(ix) no such licenses, agreements or
permissions commit the Parent or the Subsidiaries to continued
maintenance, support, improvement, upgrade or similar obligation
with respect to any of the Proprietary Rights, which obligation
cannot be terminated by the Parent or the Subsidiaries upon notice
of ninety (90) days or less.
(d) Schedules 5.18(b) and 5.18(c) identify every
Proprietary Right used by the Parent or the Subsidiaries in the
conduct of its business. Except as set forth in Schedule 5.18(b),
all Software owned by the Parent or the Subsidiaries performs
substantially as described in all Documentation for such Software
insofar as such Documentation has to do with the performance,
specifications or design of such Software; and in addition, all
Software owned by the Parent or the Subsidiaries and which has been
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licensed to any third party performs in accordance with the
warranties, if any, given by the Parent or the Subsidiaries in
respect of such Software. Except as set forth in Schedule 5.18(c),
all Software owned by any third party and used by the Parent or the
Subsidiaries pursuant to license, sublicense, agreement or
permission performs in accordance with the warranties, if any,
given by such third party to the Parent or the Subsidiaries, and to
the knowledge of the Parent (and its employees with responsibility
for use and maintenance or service thereof) such Software performs
substantially as required for the conduct of the Parent's or the
Subsidiaries' business.
It is understood and agreed that "Software owned by the
Parent" shall include all Software owned by the Parent and the
Subsidiaries, whether developed in house by the Parent or the
Subsidiaries or purchased by the Parent or the Subsidiaries from
any third party.
5.19 ROYALTIES. All royalties, license fees, and other
fees relating to the Parent's use of Proprietary Rights have been
or will be paid in full as and when due. Except as set forth in
Schedule 5.19, to the Parent's knowledge, the method used by the
Parent to calculate all royalties, license fees, and other fees
relating to the Parent's use or the Subsidiaries' use of
Proprietary Rights is correct and accurate and in accordance with
the terms of any agreements with any third party relating to the
use of such party's Proprietary Rights.
5.20 YEAR 2000 COMPLIANCE. Except as set forth on
Schedule 5.20, each system, comprised of software, hardware,
databases, or embedded control systems (microprocessor controlled,
robotic or other device) (collectively, a "System"), that
constitutes any part of, or is used in connection with the use,
operation or enjoyment of any material tangible or intangible asset
or real property of the Parent or the Subsidiaries and each product
licensed, sold or otherwise distributed by the Parent or the
Subsidiaries, including software, hardware, databases, or embedded
control systems (collectively, a "Product") (a) is designed (or has
been modified) to be used prior to and after January 1, 2000, (b)
will operate without error arising from the creation, recognition,
acceptance, calculation, display, reporting, storage, retrieval,
accessing, comparison, sorting, manipulation, processing or other
use of dates, or date-based, date-dependent or date-related data,
including but not limited to century recognition, day-of-the-week
recognition, leap years, date values and interfaces of date
functionalities, and (c) will not be adversely affected by the
advent of the year 2000 or subsequent years, the advent of the
twenty-first century or the transition from the twentieth century
through the year 2000 and into the twenty-first century
(collectively, items (a) through (c) are referred to herein as
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"Year 2000 Compliant"). Except as set forth on Schedule 5.20, all
licenses for the use of any System-related software, hardware,
databases or embedded control system are certified by the
manufacturer to be Year 2000 Compliant and to contain the
capabilities required to enable Year 2000 Compliance within the
Parent's or the Subsidiaries' computer systems (hardware and
software), or the licenses permit the Parent or a third party to
make all modifications, bypasses, debugging, work-around, repairs,
replacements, conversions or corrections necessary to permit the
System to operate compatibly, in conformance with their respective
specifications, and to be Year 2000 Compliant. No System that is
material to the business, finances, or operations of the Parent or
the Subsidiaries receives data from or communications with any
component or system external to itself (whether or not such
external component or system is the Parent's or the Subsidiaries'
or any third party's) that is not itself Year 2000 Compliant
excepting the parts of the external component or system within
which noncompliance to Year 2000 Compliance will have no effect on
the data or communications sent to the Parent or the Subsidiaries,
nor on the Systems of the Parent or the Subsidiaries. Except as
set forth on Schedule 5.20, the Parent has no reason to believe
that it or the Subsidiaries may incur material expenses arising
from or relating to the failure of any of its Systems or Products
as a result of not being Year 2000 Compliant. Notwithstanding
anything in this Section 5.20 to the contrary, any representation
with respect to a System or Product that was developed wholly by a
third party and not by the Parent or the Subsidiaries shall be
deemed to qualified in its entirety to the Parent's knowledge
regarding the facts or events set forth in such representation.
5.21 LABOR RELATIONS. There are no material
controversies pending or, to the knowledge of the Parent,
threatened, between the Parent or the Subsidiaries and any of their
respective employees, former employees, or applicants for
employment. The Parent and the Subsidiaries have complied in all
respects with all laws relating to the employment of labor,
including any provisions thereof relating to wages, hours, equal
employment opportunity, collective bargaining, federal immigration
law, and the payment of social security and similar taxes, except
as would not be reasonably expected to have a Parent Material
Adverse Effect. The Parent and the Subsidiaries are not liable for
any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing. None of the employees of the
Parent or the Subsidiaries are covered by any collective bargaining
agreement and, to the knowledge of the Parent, there are no
organizational efforts currently being made or threatened involving
any employees of the Parent or the Subsidiaries. All employee
severance or change of control policies covering any employee of
the Parent or the Subsidiaries are described in or filed as
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exhibits to the Parent Reports and no such employee is entitled to
any severance or change of control benefits not described therein.
5.22 CERTAIN EMPLOYEE MATTERS. Except as set forth on
Schedule 5.22, all current and former members of management, key
(including sales and recruiting) personnel and consultants (whether
employees or independent contractors) of the Parent and the
Subsidiaries have executed and delivered to the Parent or the
Subsidiaries, a confidential information agreement restricting such
person's right to disclose confidential information of the Parent.
Except as set forth on Schedule 5.22, all such members of
management, key personnel and consultants of the Parent and the
Subsidiaries have been party to a "work-for-hire" arrangement or
proprietary rights agreement with the Parent or the Subsidiaries
pursuant to which either (i) in accordance with applicable federal
and state law, the Parent or the Subsidiaries has been accorded
full, effective, exclusive and original ownership of all tangible
and intangible property thereby arising or (ii) there has been
conveyed to the Parent or the Subsidiaries by appropriately
executed instruments of assignment full, effective and exclusive
ownership of all tangible and intangible property thereby arising.
No employee, agent, consultant or contractor of the Parent or the
Subsidiaries who has contributed to or participated in the
conception and development of proprietary rights of the Parent or
the Subsidiaries has asserted in writing or, to the Parent's
knowledge, threatened any claim against the Parent in connection
with such person's involvement in the conception and development of
the proprietary rights of the Parent or the Subsidiaries and, to
the knowledge of the Parent, no such person has a reasonable basis
for any such claim.
5.23 ENVIRONMENTAL MATTERS. To the Parent's knowledge,
there has been no "release or threatened release of a hazardous
substance" (as defined in CERCLA) or any other release, emission,
disposal, or discharge into the environment or any use, storage,
transport or handling (collectively, "activities") of Hazardous
Material on, under, about, or from the Parent Real Property other
than those activities that have not resulted and could not
reasonably be expected to result in any material liability on the
part of the Parent or the Subsidiaries. To the knowledge of the
Parent, all "hazardous waste" (as defined in RCRA) and the
regulations thereunder) generated at the Parent's real property
have been disposed of at sites that maintain valid permits under
RCRA and any other applicable Environmental Requirement. To the
knowledge of the Parent, there are no underground tanks, PCBs, or
asbestos containing materials on the Parent Real Property. Neither
the Parent nor Subsidiaries have any written notice of any pending
formal or informal assertion by any governmental agency or other
person that the Parent or the Subsidiaries or any predecessor
business or owner or operator of the Parent Real Property may be a
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responsible or potentially responsible party in connection with any
violation or obligation arising under any Environmental Requirement
at any site or facility (including the Parent Real Property
itself.)
5.24 ERISA. Neither the Parent nor the Subsidiaries nor
any ERISA Affiliate of the Parent or the Subsidiaries maintains or
contributes to or is obligated to contribute to, and has ever
maintained or contributed to or been obligated to contribute to,
(i) any Multiemployer Plan, (ii) any a Multiple Employer Plan or
(iii) except as set forth in Schedule 5.24, any Plan, including but
not limited to a Pension Plan. With respect to the Plan(s)
disclosed in Schedule 5.24;
(i) Each such Plan is in compliance in all material
respects with the applicable provisions of ERISA, the Code, and
other federal or state law. Any such Plan which is intended to
qualify under Section 401(a) of the Code has received a favorable
determination letter from the IRS and to the knowledge of the
Parent, nothing has occurred that would cause the loss of such
qualification. The Parent and the Subsidiaries and each ERISA
Affiliate of the Parent has made all required contributions to any
such Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to
any such Plan.
(ii) There are no pending claims (other than routine
claims for benefits) or, to the knowledge of the Parent, threatened
claims, actions, or lawsuits, or action by any governmental
authority, with respect to any such Plan, and there has been no
prohibited transaction or violation of the fiduciary responsibility
rules with respect to any such Plan.
(iii) (1) the execution of, and the performance of
the transactions contemplated in, this Agreement will not (either
alone or upon the occurrence of any additional or subsequent
events) constitute an event under any Plan that will or is
reasonably expected to result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee; (2) no such Plan which
constitutes a Pension Plan (as defined below) has any Unfunded
Pension Liability; (3) neither the Parent nor any ERISA Affiliate
of the Parent has incurred, or reasonably expects to incur, any
material liability under Title IV of ERISA with respect to any such
Plan which constitutes a Pension Plan (other than premiums due and
not delinquent under Section 4007 of ERISA); (4) neither the Parent
nor any ERISA Affiliate of the Parent has incurred, or reasonably
expects to incur, any liability (and no event has occurred which,
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with the giving of notice under Section 4219 of ERISA, would result
in such liability) under Section 4201 or 4243 of ERISA with respect
to a Multiemployer Plan; and (5) neither the Parent nor any ERISA
Affiliate of the Parent has engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA.
5.25 FEES. Except as set forth in Schedule 5.25, there
are no claims for legal, accounting, financial advisory, or
investment bankers' fees, brokerage commissions, finders' fees, or
similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Parent or the Subsidiaries.
5.26 BOOKS AND RECORDS. Except as set forth in Schedule
5.26, the financial books, records, and work papers of the Parent
and the Subsidiaries are complete and correct in all material
respects, have been maintained in accordance with good business
practice and accurately reflect the bases for the consolidated
financial condition and results of operations of the Parent
Subsidiaries set forth in the financial statements referred to in
Section 5.7 hereof.
5.27 INSURANCE. The business, properties, and employees
of the Parent and the Subsidiaries are insured by the insurers or
through the funds and with the types and amounts of insurance
(including, but not limited to, property, product liability,
automobile, workers compensation, business interruption, and excess
indemnity insurance) set forth in Schedule 5.27 (the "Parent
Insurance Coverage"). To the knowledge of the Parent, the Parent
Insurance Coverage is in such amount and on such terms as to
adequately cover the risks attendant to the Parent's business.
Neither the Parent nor the Subsidiaries have been denied coverage
by any insurance carrier or has failed or currently fails to
maintain any insurance coverage that may be required by the laws of
the states in which the Parent or the Subsidiaries sells or
manufactures Products or provides services. The premiums due on
the Parent Insurance Coverage that covers calendar year 1998 have
been paid in full and the premiums due for the period from January
1, 1999 to the Effective Time have been or will be paid in full as
and when due. All such insurance complies in all material respects
with the terms of each of its leases and each of the mortgages,
deeds of trust, service agreements with third parties and/or loan
agreements to which the Parent or the Subsidiaries are a party.
5.28 DISCLOSURE. To the Parent's knowledge, no
representation or warranty by the Parent in this Agreement and no
statement contained in any document, certificate, or other writing
prepared by the Parent or its representatives and furnished by the
Parent to the Company pursuant to the provisions hereof,
affirmatively misstates a material fact or omits a material fact
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necessary for such document, certificate, or writing to be, in good
faith, accurately and completely responsive in all material
respects to the purpose identified by the Parent to the Company for
which such information was furnished by the Parent to the Company.
5.29 PURCHASE ACCOUNTING TREATMENT. Parent intends that the
Merger be accounted for under the "purchase" method of accounting.
5.30 SUBSIDIARIES. The Parent has two active, wholly owned
subsidiaries, the Merger Sub and Western Technologies, Inc. The
Parent owns all right, title and interest in and to all of the
issued and outstanding shares of the Merger Sub and Western
Technologies, Inc., free and clear of all liens and encumbrances
and no other person or entity has any ownership or possessory
interest in or to the Merger Sub or Western Technologies, Inc., or
any of their shares, or any rights which may convert or create an
ownership interest in such shares.
ARTICLE VI
INTERIM OPERATING COVENANTS OF THE PARENT AND SUBSIDIARIES
6.1 OPERATIONS. Between the date of this Agreement and the
Effective Time, each of the Parent and the Merger Sub and the
Subsidiaries will:
(a) carry on its business in substantially the same
manner and consistent with past practice as it has heretofore and
not introduce any material new method, or discontinue any existing
material method, of operation or accounting;
(b) maintain its properties and facilities, including
those held under leases, in as good working order and condition as
at present, ordinary wear and tear excepted;
(c) perform all of its material obligations under
agreements relating to or affecting its assets, properties,
business operations and rights;
(d) keep in full force and effect present insurance
policies or other comparable insurance coverage;
(e) use its best efforts to maintain and preserve its
business organization intact, retain its present employees and
maintain its relationship with suppliers, customers and others
having business relationships with it;
(f) file on a timely basis all notices, reports or other
filings required to be filed with or reported to any federal,
state, municipal or other governmental department, commission,
board, bureau, agency or any instrumentality of any of the
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foregoing wherever located with respect to the continuing
operations of the Parent and the Merger Sub;
(g) maintain material compliance with all Governmental
Permits and all laws, rules, regulations and consent orders;
(h) file on a timely basis all complete and correct
applications or other documents necessary to maintain, renew or
extend any site assessment, permit, license, variance or any other
approval required by any governmental authority necessary and/or
required for the continuing operation of the Parent's, the
Subsidiaries and the Merger Sub's business operations, whether or
not such approval would expire before or after the Effective Time;
and
(i) advise the Company promptly in writing of any
material change in any document or Schedule, including without
limitation any Schedule, Exhibit or other information delivered
pursuant to this Agreement.
(j) Complete the formation of the Merger Sub to conform
to the terms of this Agreement.
6.2 NO CHANGE. Between the date of this Agreement and the
Effective Time, the Parent, the Merger Sub and the Subsidiaries
will not, without the prior written consent of the Company or
except as described in this Agreement:
(a) make any change in their Certificate or Articles of
Incorporation or Bylaws;
(b) authorize, issue, transfer, distribute, or register
any of their securities, other than the exercise of previously
existing options and warrants;
(c) declare or pay any dividend or make any distribution
in respect of their capital stock whether now or hereafter
outstanding, or purchase, redeem or otherwise acquire or retire for
value any shares of its capital stock;
(d) enter into any contract or commitment or incur or
agree to incur any liability other than in the ordinary course of
business other than the transactions contemplated by this Agreement
or make any single capital expenditure in excess of $10,000 or in
excess of $100,000 in the aggregate during any consecutive thirty
day period without regard to whether such capital expenditure is in
the ordinary course of business;
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(e) change or promise to change the compensation payable
or to become payable to any director, officer, employee or agent,
or make or promise to make any bonus payment to any such person;
(f) create, assume or otherwise permit the imposition of
any mortgage, pledge or other lien (except for current property
taxes) or encumbrance upon or grant any option or right of first
refusal with respect to any assets or properties whether now owned
or hereafter acquired;
(g) sell, assign, lease or otherwise transfer or dispose
of any property or equipment other than in the ordinary course of
business;
(h) merge or consolidate or agree to merge or
consolidate with or into any firm, corporation or other entity;
(i) waive any material rights or claims;
(j) amend or terminate any material agreement or any
site assessment, permit, license or other right;
(k) enter into any other transaction outside the
ordinary course of its business or prohibited hereunder; or
(l) take any action or suffer or permit any event to
occur that would cause any representation or warranty in this
Agreement to become untrue as of the Effective Time.
6.3 ACCESS; CONFIDENTIAL INFORMATION. Between the date of
this Agreement and the Effective Time, the Parent, the Merger Sub
and the Subsidiaries will afford to the officers and authorized
representatives of the Company, including, without limitation, its
counsel, independent auditors and investment bankers, access to the
facilities, plants, corporate properties and other properties,
books and records of the Parent, the Subsidiaries and the Merger
Sub and will furnish the Company with such additional financial and
operating data and other information as to the business and
properties of the Parent, the Subsidiaries and the Merger Sub as
the Company may from time to time reasonably request. The Parent
and the Merger Sub and the Subsidiaries will cooperate with the
Company, its representatives and counsel in the preparation of any
documents or other material which may be required by any
governmental agency. Except as necessary to comply with the terms
of this Agreement, the rules and regulations of the Nasdaq and the
SEC and the disclosures necessary for the Parent Placement, the
Company will cause all information obtained from the Parent, the
Subsidiaries and the Merger Sub in connection with the negotiation
and performance of this Agreement to be treated as confidential
(except such information which is in the public domain or which the
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Company may be required to disclose to any governmental agency, or
pursuant to any court or regulatory agency order) and will not use,
and will not knowingly permit others to use, any such confidential
information in a manner detrimental to the Parent, the Subsidiaries
or the Merger Sub. The Parent, each of the Subsidiaries and the
Merger Sub covenant and agree not to disclose to any third persons
other than their accountants, brokers, bankers, investment advisers
or legal counsel any of the specific terms or provisions of this
Agreement (including financial terms) prior to or after the date
hereof without the prior written consent of the Company.
6.4 OBTAIN CONSENTS. Promptly after the execution of this
Agreement, the Parent, each of the Subsidiaries and the Merger Sub
shall make all filings and take all steps reasonably necessary to
obtain all approvals and consents required to be obtained by the
Parent, each of the Subsidiaries and the Merger Sub to consummate
the transactions contemplated by this Agreement.
6.5 EXCLUSIVITY. The Parent, the Subsidiaries, and the
Merger Sub agree that they will not (and will use their best
efforts to cause the Parent's, the Subsidiaries' and the Merger
Sub's directors, officers, agents, representatives, and affiliates,
and any other person acting on their behalf not to) enter into any
contract or agreement that has as a purpose a business combination
or merger, an issuance or sale of debt or equity of the Parent or
the Merger Sub (including the capital stock), a sale of a
substantial portion of the assets of the Parent or the Merger Sub,
or a transaction comparable to or similar to the Merger (any of the
foregoing, a "Competing Transaction"). The Parent, the
Subsidiaries, and the Merger Sub will promptly notify the Company
if they receive any offer, inquiry or proposal with respect to a
Competing Transaction and the details thereof, and keep the Company
informed with respect to each such offer, inquiry or proposal. The
Parent, the Subsidiaries, and the Merger Sub will provide the
Company with copies of all such offers, inquiries or proposals
which are in writing.
6.6 LISTING APPLICATION. If required by Nasdaq, the Parent
shall promptly prepare and submit to the Nasdaq a listing
application covering the shares of the Parent Stock issuable in the
Merger, and shall use its best efforts to obtain, prior to the
Effective Time, approval for the listing of such Parent Stock,
subject to official notice of issuance.
ARTICLE VII
INTERIM COVENANTS OF THE COMPANY
7.1 INTERIM OPERATIONS. Prior to the Effective Time, except
as authorized by any other provision of this Agreement, unless the
Parent has consented in writing thereto, the Company will not do
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any of the things enumerated in Section 4.8(b). Further, except as
set forth in Schedule 7.1, the Company:
(a) shall conduct its operations according to its usual,
regular, and ordinary course in substantially the same manner as
heretofore conducted unless otherwise set forth in its business
plan or planned financing activities;
(b) shall use its best efforts to preserve intact its
business organization and goodwill, keep available the services of
its officers, employees, and partners and maintain satisfactory
relationships with those persons having business relationships with
them;
(c) will maintain the existence of and protect its
Proprietary Rights;
(d) will comply in all material respects with applicable
contractual obligations;
(e) will operate the Company businesses in compliance
with all applicable municipal, county, state, federal, and foreign
laws, regulations, ordinances, standards, and orders as now in
effect (including, without limitation, the building, zoning, and
life safety codes as currently applied with respect thereto) where
the failure to comply therewith would have a Company Material
Adverse Effect.
(f) will pay as and when due the accounts payable that
arise in the ordinary course of its business except to the extent
that the amount owing is being duly contested by the Company or
such creditors have agreed to defer collection and such contest
does not have a Company Material Adverse Effect and adequate
reserves therefore are reflected on the Company Balance Sheet in
accordance with the representations and warranties contained in
this Agreement;
(g) will provide to the Parent copies of all material
documents that relate to, and, upon request, with verbal or written
updates concerning the status of any litigation filed as of the
date hereof or filed from and after the date hereof by or against
the Company after the date of this Agreement but prior to the
Closing Date;
(h) Principal Shareholders will afford to the officers
and authorized representatives of the Parent, including, without
limitation, its counsel, independent auditors and investment
bankers, access to the facilities, plants, corporate properties and
other properties, books and records of the Company and its
subsidiary and will furnish the Parent with such additional
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financial and operating data and other information as to the
business and properties of the Company and its subsidiary as the
Parent may from time to time reasonably request. The Company and
the Principal Shareholders will cooperate with the Parent, its
representatives and counsel in the preparation of any documents or
other material which may be required by any governmental agency.
Except as necessary to comply with the terms of this Agreement, the
rules and regulations of the Nasdaq and the SEC and the disclosures
necessary for the Parent Placement, the Parent will cause all
information obtained from the Company and the Principal
Shareholders in connection with the negotiation and performance of
this Agreement to be treated as confidential (except such
information which is in the public domain or which the Parent may
be required to disclose to any governmental agency, or pursuant to
any court or regulatory agency order) and will not use, and will
not knowingly permit others to use, any such confidential
information in a manner detrimental to the Company or the Principal
Shareholders. The Parent, each of the Subsidiaries and the Merger
Sub covenant and agree not to disclose to any third persons other
than their accountants, brokers, bankers, investment advisers or
legal counsel any of the specific terms or provisions of this
Agreement (including financial terms) prior to or after the date
hereof without the prior written consent of the Company and the
Principal Shareholders.
7.2 MEETING OF STOCKHOLDERS. The Company will take all
action necessary in accordance with applicable law and their
respective charter documents to convene a meeting of their
stockholders on or before May 1, 1999, to consider and vote upon
the approval of this Agreement and the transactions contemplated
hereby.
7.3 NOTICES TO HOLDERS OF COMPANY STOCK OPTIONS. The Company
will take all actions necessary in accordance with applicable law
and the terms of the Company Option Plans to provide all required
notice of the Merger to the holders of Company Stock Options.
7.4 EXCLUSIVITY. The Company and the Principal Shareholders
agree that they will not (and will use their best efforts to cause
the Company's directors, officers, agents, representatives, and
affiliates, and any other person acting on their behalf not to)
enter into any contract or agreement that has as a purpose a
business combination or merger, an issuance or sale of debt or
equity of the Company (including the capital stock), a sale of a
substantial portion of the assets of the Company, or a transaction
comparable to or similar to the Merger (any of the foregoing, a
"Competing Transaction"). The Company and the Principal
Shareholders will promptly notify the Parent if they receive any
offer, inquiry or proposal with respect to a Competing Transaction
and the details thereof, and keep the Parent informed with respect
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to each such offer, inquiry or proposal. The Company and the
Principal Shareholders will provide the Parent with copies of all
such offers, inquiries or proposals which are in writing.
ARTICLE VIII
ADDITIONAL COVENANTS OF THE PARTIES
8.1 FILINGS; OTHER ACTION. Subject to the terms and
conditions herein provided, the Company and the Parent shall and
the Subsidiaries and the Merger Sub shall cause any appropriate
other party to: (a) use all reasonable efforts to cooperate with
one another in (i) determining which filings are required to be
made prior to the Effective Time with, and which consents,
approvals, permits, or authorizations are required to be obtained
prior to the Effective Time from governmental or regulatory
authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby and (ii) timely making all such filings and timely seeking
all such consents, approvals, permits, or authorizations; and (b)
use all reasonable efforts to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary,
proper, or appropriate to consummate and make effective the
transactions contemplated by this Agreement.
8.2 PUBLICITY. Each of the Parent and the Company shall,
subject to the Parent's legal obligations (including requirements
of stock exchanges and other similar regulatory bodies), consult
with each other before issuing any press release or otherwise
making public statements with respect to the transactions
contemplated hereby, and will not issue any such press release or
make any such public statement prior to such consultation.
8.3 FURTHER ACTION. Each party hereto shall, subject to the
fulfillment at or before the Effective Time of each of the
conditions set forth herein or the waiver thereof, directly or by
or through its officers or directors, perform such further acts and
execute such documents whether before or after the Effective Time
as may be reasonably required to effect the Merger. In addition,
subject to the limitations set forth in this Agreement, and unless
specifically prohibited by applicable law, each party will use its
best efforts to cause all of the conditions to Closing set forth in
this Agreement that are within its control to be satisfied prior
to the Closing Date and will not take any action inconsistent with
its obligations under this Agreement or which could hinder or delay
the consummation of the transactions contemplated by this Agreement
or that would cause any representation, warranty, or covenant made
by it in this Agreement or in any certificate, list, exhibit, or
other instrument furnished or to be furnished pursuant hereto, or
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in connection with the transaction contemplated hereby, to be
untrue in any material respect as of the Effective Time.
8.4 EXPENSES. If the Merger is not consummated, all costs
and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party
incurring such expenses.
8.5 TAX MATTERS. The Parent, the Merger Sub and the Company
will treat and cause the Surviving Corporation to treat the Merger
as a reorganization qualifying under Section 368(a)(2)(E) of the
Code and will file and cause the Surviving Corporation to file all
returns and reports (including without limitation those required
under Treasury Regulation Section 1.368-3) as required and in a
manner consistent with such treatment; (ii) no shareholder is
required to recognize income gain or loss with respect the Merger;
and (iii) they will take no action that will prevent or be
inconsistent with treating the Merger as a reorganization
qualifying under Section 368(a)(2)(E) of the Code.
8.6 BROKERS AND FINDERS FEES. Each party shall pay and be
responsible for any broker's, finder's or financial advisory fee
incurred by such party in connection with the transactions
contemplated by this Agreement. The Parent shall be responsible
for its obligations to Mackenzie Shea, Inc. ("MSI") calculated as
issued prior to the determination of the exchange ratio. The
Company shall be responsible for its obligations to MSI calculated
prior to the determination of the Exchange Ratio and the Option
Exchange Ratio.
8.7 COMPANY'S DIRECTORS AND OFFICERS LIABILITY. Parent
agrees that all rights to exculpation and indemnification for acts
or omissions occurring prior to the Effective Time now existing in
favor of the current or former directors or officers of the Company
as provided in its Articles of Incorporation or bylaws or in any
agreement disclosed in writing to Parent prior to the date hereof
shall survive the Merger and shall continue in full force and
effect in accordance with their terms.
8.8 NOTICES OF CERTAIN EVENTS. Each party shall promptly
notify the other party hereto of:
(a) any notice or other communication from any person
alleging that the consent of such person is or may be required in
connection with the transactions contemplated by this Agreement;
(b) any notice or other communication from any
governmental or regulatory agency or authority in connection with
the transactions contemplated by this Agreement; and
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(c) any actions, suits, claims, investigations or
proceedings commenced or, to its knowledge threatened against,
relating to or involving or otherwise affecting such party that, if
pending on the date of this Agreement, would have been required to
have been disclosed pursuant to this Agreement.
8.9 COMPLETION OF DUE DILIGENCE. Each party acknowledges
that this Agreement is being executed prior to the completion of
necessary due diligence and prior to the preparation and review of
the appropriate Schedules and Exhibits. Each party shall grant the
other and each of their officers, attorneys, accountants and
advisors, complete and unfiltered access to all information,
documentation and personnel of the other. Each party shall conduct
such diligence within 30 days of the date of this Agreement unless
such party notifies the other parties in to the Agreement that they
require further time and information to complete their
investigations to their satisfaction, including information
contained or in Schedules or Exhibits to this Agreement.
8.10 PREPARATION OF SCHEDULES AND EXHIBITS. Each party to
this Agreement shall prepare and attach all necessary Schedules and
Exhibits after the execution of this Agreement, but no later than
the Closing Date, which information shall be true and correct as of
the Closing Date, unless otherwise specified therein.
ARTICLE IX
CONDITIONS TO CLOSING
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligation of each party to effect the
Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated
hereby shall have been approved in the manner required by
applicable law by the holders of the issued and outstanding shares
of capital stock of the Company and of the Parent.
(b) No party to this Agreement shall be subject to any
order or injunction of a court of competent jurisdiction that
prohibits the consummation of the transactions contemplated by this
Agreement. In the event any such order or injunction shall have
been issued, each party agrees to use its reasonable efforts to
have any such injunction lifted or order reversed.
(c) No action, suit, proceeding, or investigation to
suspend the offering of the Parent Stock in connection with the
Merger shall have been initiated and be continuing, and all
necessary approvals under state securities laws relating to the
issuance or trading of the Parent Stock to be issued to the
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Principal Shareholders in connection with the Merger shall have
been received.
(d) All consents, authorizations, orders, and approvals
of (or filings or registrations with) any governmental commission,
board, or other regulatory body required in connection with the
execution, delivery, and performance of this Agreement shall have
been obtained or made, except for filings in connection with the
Merger and any other documents required to be filed after the
Effective Time.
(e) The Parent Stock to be issued to the Principal
Shareholders in connection with the Merger shall have been approved
for listing on the Nasdaq, subject only to official notice of
issuance.
(f) No action, suit, or proceeding shall be pending or
threatened by or before any court or governmental body in which an
unfavorable judgment, order, or decree would prevent any of the
transactions contemplated hereby or cause any such transaction to
be declared unlawful or rescinded or that could reasonably be
expected to cause a Company Material Adverse Effect or a Parent
Material Adverse Effect.
(g) All documents and instruments to be delivered by the
parties in connection with the transactions contemplated hereby
shall be in form and substance reasonably satisfactory to the
parties and their respective counsel, and the parties shall have
received such other documents and instruments as they may
reasonably request in connection therewith.
(h) Each party to this Agreement shall have completed to
its satisfaction, due diligence investigation on the other, its
shareholders, its business and operations, financial condition,
outstanding liabilities, business prospects and other material
information.
(i) Each party to this Agreement shall have provided the
information necessary to complete the Schedules and Exhibits to
this Agreement and the Schedules and Exhibits must be completed and
the information contained therein must be satisfactory to each
party to this Agreement, in each such party's sole discretion.
(j) This Agreement shall be modified and amended to
reflect changes, provisions, terms and conditions agreed upon by
the parties hereto prior to the Closing.
(k) None of these transactions contemplated hereby shall
have been enjoined by the court or by any federal or state
governmental branch, agency, commission or regulatory authority and
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not suit or other proceeding challenging the transactions
contemplated hereby shall have been threatened or instituted and no
investigative or other demand shall have been made by any federal
or state governmental branch, agency, commission or regulatory
authority.
(l) The Parent shall have had its listing application
for each of the Parent Shares issued pursuant to this Agreement and
its continued listing on Nasdaq approved by Nasdaq.
(m) The Parent or its Board of Directors and the
Subsidiaries or their Board of Directors shall have received the
written opinion of the Parent's financial advisor, to the effect
that, as of the date thereof, the consideration to be paid in
respect of the Company Common Stock is fair from a financial point
of view to the Parent and such opinion has not been withdrawn. An
executed copy of such opinion has been delivered to the Parent.
(n) Each of the Company shareholders shall have executed
a Subscription Agreement in a form reasonably acceptable to the
Parent.
(o) The Merger Sub shall have been formed in accordance
with this Agreement.
9.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall
be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The Parent, the Subsidiaries and the Merger Sub
shall have performed or be in compliance in all respects with
agreements contained in this Agreement required to be performed on
or prior to the Closing Date. The representations and warranties
of the Parent and the Merger Sub contained in this Agreement and in
any document delivered in connection herewith shall be true and
correct as of the Closing Date, and the Company shall have received
a certificate of the President of the Parent, dated the Closing
Date, certifying to such effect; provided, however, that
notwithstanding anything herein to the contrary, this Section
9.2(a) shall be deemed to have been satisfied even if such
performance has not occurred or such representations or warranties
are not true and correct, unless the failure to perform or the
failure of any of the representations or warranties to be so true
and correct would have or would be reasonably likely to have a
Parent Material Adverse Effect.
(b) There shall have been delivered to the Company
certificates, dated within five days of the Closing Date, of the
Secretary of State of the State of Delaware and the State of
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California, with respect to the incorporation, subsistence, and
good legal standing of the Parent, the Subsidiaries and the Merger
Sub, respectively.
(c) All consents and approvals of any third parties
required in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby shall have been obtained and delivered to the Company
including a Release from each executive officer and the new
Employment Agreement for Jay Smith, III.
(d) There shall have been delivered to the Company
certificates, dated as of the Closing Date, of the President and
Secretary, respectively, of the Parent and the Merger Sub as set
forth as EXHIBIT 9.2(D), (i) to the effect that the Certificate of
Incorporation of the Parent and Articles of Incorporation of Merger
Sub have not been amended since the date of this Agreement, (ii)
attaching a true and complete copy of the Bylaws of the Parent, the
Subsidiaries and the Merger Sub as in effect on the Closing Date,
(iii) attaching a true and complete copy of the resolutions of the
Board of Directors of the Parent and the Merger Sub approving the
execution and delivery of this Agreement and authorizing the
consummation of the transactions contemplated hereby; and (iv) to
the effect that each of the provisions of Section 9.2(a) are true
and correct as of the Closing Date.
(e) There shall have been delivered to the Company
certificates, dated as of the Closing Date, with respect to the
incumbency and signatures of all officers of the Parent and the
Merger Sub signing this Agreement and any other certificate,
agreement, or instrument delivered on behalf of the Parent and the
Merger Sub in connection with this Agreement.
(f) The Parent shall have delivered to the Company an
opinion of its counsel in the form attached hereto as EXHIBIT
"9.2".
(g) Since the Closing Date, there shall not have been
any material adverse change in the condition (financial or
otherwise), business, properties or assets of the Parent or the
Subsidiaries.
9.3 CONDITIONS TO OBLIGATION OF THE PARENT AND MERGER SUB TO
EFFECT THE MERGER. The obligations of the Parent and the Merger
Sub to effect the Merger shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
(a) The Company and the Principal Shareholders shall
have performed in all respects their agreements contained in this
Agreement required to be performed on or prior to the Closing Date.
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The representations and warranties of the Company contained in this
Agreement and in any document delivered in connection herewith
shall be true and correct as of the Closing Date as if made on the
Closing Date, and the Parent shall have received a certificate of
the President of the Company, dated the Closing Date, certifying to
such effect; provided, however, that notwithstanding anything
herein to the contrary, this Section 9.3(a) shall be deemed to have
been satisfied even if such performance has not occurred or such
representations or warranties are not true and correct, unless the
failure to perform or the failure of any of the representations or
warranties to be so true and correct would have or would be
reasonably likely to have a Company Material Adverse Effect.
(b) The Company shall not be in default of any
obligation, where such default cannot be cured by the Closing Date,
under any of the Material Contracts, unless any such defaults,
individually or in the aggregate, would not reasonably be expected
to have a Company Material Adverse Effect, and the Parent shall
have received a certificate of the President or a Vice President of
the Company, dated the Closing Date, certifying to such effect.
(c) All consents and approvals of any third parties
required in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby shall have been obtained and delivered to the Parent.
(d) There shall have been delivered to the Parent
certificates, dated as of the Closing Date, of the President and
Secretary, respectively, of the Company as set forth as EXHIBIT
9.3(D), (i) to the effect that the Articles of Incorporation of the
Company have not been amended since the date of this Agreement,
(ii) attaching a true and complete copy of the Bylaws of the
Company as in effect on the Closing Date, (iii) attaching a true
and complete copy of the resolutions of the Board of Directors of
the Company approving the execution and delivery of this Agreement
and authorizing the consummation of the transactions contemplated
hereby; and (iv) to the effect that each of the provisions of
Section 9.3(a) are true and correct as of the Closing Date.
(e) There shall have been delivered to the Parent a
certificate, dated within five days of the Closing Date, of the
Secretary of State of the State of California, with respect to the
incorporation, existence, and good legal standing of the Company
and its subsidiary.
(f) There shall have been delivered to the Parent a
certificate, dated as of the Closing Date, with respect to the
incumbency and signatures of all officers of the Company signing
this Agreement and any other certificate, agreement or instrument
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delivered on behalf of the Company in connection with this
Agreement.
(g) The Company shall have delivered to the Parent an
opinion of its counsel in the form attached hereto as EXHIBIT
"9.3(G)".
(h) The Company's shareholders shall have unanimously
approved the Merger.
(i) The Parent's Shareholders shall have approved the
Merger in accordance with Section 5.2(b).
ARTICLE X
TERMINATION
10.1 TERMINATION BY MUTUAL CONSENT. This Agreement may
be terminated and the Merger may be abandoned at any time prior
to the Effective Time, by the mutual consent of the Parent and
the Company.
10.2 TERMINATION BY EITHER PARTY. This Agreement may
be terminated by either party under any of the following
conditions:
(a) the Closing has not occurred by August 31, 1999;
provided that the right to terminate this Agreement pursuant to
this clause shall not be available to any party whose breach of
any provision of this Agreement results in the failure of the
Merger to be consummated by such time;
(b) there shall be any law or regulation that makes
consummation of the Merger illegal or otherwise prohibited or if
any judgment, injunction, order or decree enjoining any party
from consummating the Merger is entered and such judgment,
injunction, order or decree shall have become final and non-
appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause shall have used its best
efforts to remove such injunction, order or decree.
10.3 EFFECT OF TERMINATION AND ABANDONMENT. In the
event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article XI, all obligations of the
parties hereto shall terminate, except the obligations of the
parties pursuant to this Section 10.2 and Section 6.12 and except
for the provisions of Sections 11.2, 11.3, 11.5, 11.6, 11.7,
11.11, 11.12, and 11.13 and pursuant to any confidentiality
agreement signed by the parties hereto.
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10.4 EXTENSION; WAIVER. At any time prior to the
Effective Time, any party hereto, by action taken by its Board of
Directors, may, to the extent legally allowed, (a) extend the
time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, or (c) waive
compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
GENERAL PROVISIONS
11.1 NOTICES. Any notice required to be given hereunder
shall be sufficient if in writing, and sent by facsimile
transmission and by same day or overnight courier service (with
proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid),
addressed as follows:
If to the Parent or the
Merger Sub: Adrenalin Entertainment, Inc.
5301 Beethoven Street
Los Angeles, California 90066
Attn: Jay Smith, III, President
Facsimile: (310) 821-4251
Telephone: (310) 306-7788
With a copy to: Clark & Trevithick
800 Wilshire Boulevard
12th Floor
Los Angeles, California 90017
Attn: Alexander McGilvray, Esq.
Telephone: (213) 629-5700
Facsimile: (213) 624-9441
With a copy to: Sheppard, Mullin, Richter & Hampton,
LLP
333 S. Hope Street, 48th Floor
Los Angeles, CA 90071
Attn: Jon Newby, Esq.
Telephone: (213) 620-1780
Facsimile: (213) 617-5508
If to the Company or the
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Principal: McGlen Micro Inc.
Shareholders: 3002 Dow Avenue, Suite 212
Tustin, CA 92780
Attn: George Lee, President
Facsimile: (714) 918-1951
Telephone: (949) 851-8078
With copies to: Boyd & Chang, LLP
19900 MacArthur Boulevard
Suite 660
Irvine, California 92612
Attn: Patrick R. Boyd
Facsimile: (949) 851-0159
Telephone: (949) 851-9800
or such other address or fax number as any party may specify by
written notice so given, and such notice shall be deemed to have
been delivered as of the date so telecommunicated, personally
delivered, or delivered by courier or 5 days after mailing thereof
if received prior to 5:00 p.m. in the place of receipt and such day
is a business day in the place of receipt. Otherwise, any such
notice, request or communication shall be deemed not to have been
received until the next succeeding business day in the place of
receipt.
11.2 ASSIGNMENT, BINDING EFFECT. Neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law
or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing in
this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or certain stockholders of the
Company (as to Article X of this Agreement) and other named
beneficiaries of covenants or agreements in the Agreement, or their
respective heirs, successors, executors, administrators, and
assigns any rights, remedies, obligations, or liabilities under or
by reason of this Agreement.
11.3 ENTIRE AGREEMENT. This Agreement, the Exhibits, the
Parent Disclosure Schedule, the confidentiality agreements between
the parties hereto and any schedules or agreements delivered in
connection with this Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties
with respect thereto. No information previously provided, addition
to or modification of any provision of this Agreement shall be
binding upon any party hereto unless made in writing and signed by
all parties hereto.
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11.4 AMENDMENT. This Agreement may be amended by the
parties hereto, by action taken by their respective Boards of
Directors, at any time before or after approval of matters
presented in connection with the Merger by the stockholders of the
Company, the Parent and Merger Sub, but after any such stockholder
approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further
approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties
hereto.
11.5 SUBSEQUENT ACTIONS. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that
any deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable to continue in, vest,
perfect or confirm of record or otherwise in the Surviving
Corporation's right, title or interest, in, to or under any of the
rights, properties, privileges, franchises or assets of either of
its constituent corporations acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the
Merger, or otherwise to carry out the intent of this Agreement, the
officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of
either of the constituent corporations of the Merger, all such
deeds, bills of sale, assignments and assurances and to take and
do, in the name and on behalf of each of such corporations or
otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties, privileges,
franchises or assets in the Surviving Corporation or otherwise
carry out the intent of this Agreement.
11.6 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of
California without regard to its rules of conflict of laws.
11.7 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties
hereto. Executed counterparts transmitted by fax shall be
effective as originals.
11.8 HEADINGS. Headings of the Articles and Sections of
this Agreement are for the convenience of the parties only, and
shall be given no substantive or interpretive effect whatsoever.
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11.9 INTERPRETATION. In this Agreement, unless the
context otherwise requires, words describing the singular number
shall include the plural and vice versa, and words denoting any
gender shall include all genders and words denoting natural persons
shall include corporations and partnerships and vice versa.
11.10 WAIVERS. Except as provided in this Agreement, no
action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall
be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or
be construed as a waiver of any prior or subsequent breach of the
same or any other provision hereunder.
11.11 ATTORNEYS' FEES. If any arbitration, litigation,
action, suit or other proceeding is instituted to remedy, prevent
or obtain relief from a breach of this Agreement, in relation to a
breach of this Agreement or pertaining to a declaration of rights
under this Agreement, the prevailing party will recover all such
party's attorneys' fees incurred in each and every such action,
suit or other proceeding, including any and all appeals or
petitions therefrom. As used in this Agreement, attorneys' fees
will be deemed to be the full and actual cost of any legal services
actually performed in connection with the matters involved,
including those related to any appeal or the enforcement of any
judgment, calculated on the basis of the usual fee charged by
attorneys performing such services, and will not be limited to
"reasonable attorneys' fees" as defined in any statute or rule of
court.
11.12 SURVIVAL. All representations and warranties of any
party contained in this Agreement shall survive the execution and
delivery of this Agreement and the Closing until 18 months after
the Closing.
11.13 INCORPORATION OF EXHIBITS. The Schedules and all
Exhibits and schedules attached
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hereto and referred to herein are hereby incorporated herein and
made a part hereof for all purposes as if fully set forth herein.
11.14 SEVERABILITY. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction
shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement
or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction unless the
same is material to the terms of this Agreement, in the judgment of
either party to this Agreement, in which case the parties shall
negotiate in good faith to revise the same so as to be valid or
enforceable. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
11.15 ENFORCEMENT OF AGREEMENT. The parties hereto agree
that irreparable damage would occur in the event that any of the
provisions of this Agreement was not performed in accordance with
its specific terms or was otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in
addition to any other remedy to which they are entitled at law or
in equity.
11.16 CONSENT. Whenever the consent or approval of a
party is required by the terms of this Agreement, unless otherwise
provided, the same shall not be unreasonably withheld or delayed.
"PARENT"
ADRENALIN INTERACTIVE, INC., a
California corporation
By: /s/ Jay Smith, III
---------------------------------
Jay Smith, III, President and
Chairman
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"MERGER SUB"
ADRENALIN ACQUISITION
CORPORATION, a California
corporation
By: /s/ Jay Smith, III
---------------------------------
Jay Smith, III, President
By: /s/ Jay Smith, III
---------------------------------
Jay Smith, III, Secretary
"THE COMPANY"
MCGLEN MICRO INC., a California
corporation
By: /s/ George Lee
---------------------------------
George Lee, President
By: /s/ Mike Chen
---------------------------------
Mike Chen, Secretary
"THE PRINCIPAL SHAREHOLDERS"
/s/ George Lee
- ---------------------------------
GEORGE LEE, an individual
/s/ Mike Chen
- ---------------------------------
MIKE CHEN, an individual
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ACST COMPUTERS, INC., a California
corporation
By: /s/ Alex Chen
-------------------------------
Alex Chen, President and
Chairman
73
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<PAGE>
EXHIBIT 99
----------
FOR IMMEDIATE RELEASE
CONTACT:
George Lee, CEO
McGlen Micro, Inc.
(949) 851-8078, (949) 851-0251 fax
http://www.mcglen.com Stephen D. Axelrod, CFA
Nancy S. L. Block
Jay Smith, CEO Susan T. Bolen (Media)
ADRENALIN INTERACTIVE INC. WOLFE AXELROD ASSOCIATES
(310) 821-7880, (310) 821-4251 fax (212) 370-4500, (212) 370-4505 fax
e-mail: [email protected] e-mail: [email protected]
http://www.adrenalin.com
ADRENALIN INTERACTIVE SIGNS DEFINITIVE AGREEMENT TO ACQUIRE
McGLEN MICRO, INC., AN E-COMMERCE COMPANY
Los Angeles, CA, April 30, 1999 --- Adrenalin Interactive Inc. (NASDAQ: ADRN)
announced today that it has signed the Definitive Agreement to acquire McGlen
Micro, Inc. a leading Southern California based E-Commerce company. Adrenalin
will issue new common stock to McGlen equal to approximately 87% of the combined
companies outstanding stock on a fully diluted basis.
McGlen Micro, founded in 1996, is a global internet retailer
(http://www.mcglen.com) of computer hardware and peripheral products to the
consumer, small office/home office (SOHO), and corporate markets. At the current
time, McGlen has over 40,000 stock keeping units (SKUs) and over 120,000
customers. Repeat customers generated over 35% of sales during the first quarter
of 1999 with the average repeat order size reaching approximately $310 versus
$240 overall. McGlen's 1998 unaudited revenues were approximately $16.3 million
with a small profit. Based on McGlen's unaudited first quarter revenue of
approximately $5.4 million, George Lee, CEO of McGlen Micro, is projecting that
1999 revenue could rise to over $30 million, an 86% increase over the prior
year.
McGlen operates in a competitive space that has attracted such successes as:
Cyberian Outpost (NASDAQ:COOL), Beyond.com (NASDAQ:BYND) and Onsale Inc.
(NASDAQ:ONSL). International Data Corporation, a well respected market research
firm, estimates that the online market for computer products and software will
grow from approximately $2.8 billion in 1998 to over $11 billion in 2002; a
compound annual growth rate of roughly 40%.
McGlen's e-commerce site is designed to offer convenience, ease of use and
security for the online shopper and fully integrates all aspects of retail
transaction processing into a user-friendly, automated infrastructure.
George Lee, McGlen Micro's CEO, stated, "McGlen Micro's vision is to be the
leading company in the online retailing, or e-commerce, of computer hardware,
software and other category leaders in a variety of niche markets. As a result
of the intended merger with Adrenalin, McGlen will have the resources to pursue
our strategy for growth and profitability."
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Jay Smith, CEO of Adrenalin, said, "In a relatively short period of time we have
accomplished a significant milestone in Adrenalin's corporate life. By combining
with McGlen Micro, Inc. our shareholders will not only benefit from the internal
progress that we have made but also be able to participate in one of the fastest
growing business opportunities available today - E-Commerce. The
Adrenalin/McGlen merger will combine the special infotainment talents of
Adrenalin with the growth prospects of online retailing, an unbeatable
combination in my estimation."
For additional information regarding the merger, please refer to the Form 8-K
filed with the Securities and Exchange Commission.
McGlen Micro, Inc. is a private company that provides E-Commerce services and
products for a wide range of computer related categories. McGlen Micro has a
unique consumer interface and software technology that is popular with
mass-market consumers. In February 1999, McGlen Micro acquired a similar
company, Access Micro Inc., dba AMT Component, Inc.
(http://www.accessmicro.com). The offices are located in Tustin, CA.
Adrenalin Interactive Inc. develops and licenses console video games for Sony,
Nintendo and Sega consoles, entertainment titles for personal computers, and
Internet "play-to-win-cash" games for the World Wide Web.
-------------------------
The statements set forth above with respect to the proposed acquisition, the
benefits thereof and the potential growth of the combined company are forward
looking statements within the meaning of that term in the Private Securities
Litigation Reform Act of 1995. As such, they are inherently uncertain and should
not be unduly relied upon. As to the consummation of the proposed acquisition,
uncertainties include the ability of the parties to negotiate related
agreements, completion of satisfactory due diligence by both parties, the
receipt of approval by Adrenalin's shareholders, the satisfaction of other
conditions to closing and other uncertainties normally associated with the
consummation of business acquisitions. As to the hoped for benefits of the
acquisition and potential future growth, uncertainties include the ability to
successfully integrate the companies' businesses, technologies and management,
the availability of sufficient capital to expand the businesses, customer
acceptance on new products, competition and other uncertainties associated with
integrating businesses after acquisitions and growth.
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