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AGREEMENT AND PLAN OF MERGER
Dated as of February 29, 2000
By and Among
24/7 MEDIA, INC.,
EVERGREEN ACQUISITION SUB CORP.
And
EXACTIS.COM, INC.
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<PAGE>
Contents, p. 1
TABLE OF CONTENTS
Page
ARTICLE I
The Merger
SECTION 1.01. The Merger................................................... 2
SECTION 1.02. Closing ................................................... 3
SECTION 1.03. Effective Time............................................... 3
SECTION 1.04. Effects of the Merger........................................ 3
SECTION 1.05. Certificate of Incorporation and By-laws..................... 3
SECTION 1.06. Board of Directors and Officers.............................. 3
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock...................................... 4
(a) Capital Stock of Sub..................................... 4
(b) Cancelation of Treasury Stock and Parent-
Owned Stock.............................................. 4
(c) Conversion of Target Common Stock........................ 4
(d) Anti-Dilution Provisions................................. 4
SECTION 2.02. Exchange of Certificates..................................... 5
(a) Exchange Agent........................................... 5
(b) Exchange Procedures...................................... 5
(c) Distributions with Respect to
Unexchanged Shares.................................... 6
(d) No Further Ownership Rights in Target
Common Stock............................................. 6
(e) No Fractional Shares..................................... 7
(f) Termination of Exchange Fund............................. 7
(g) No Liability............................................. 7
(h) Investment of Exchange Fund.............................. 7
(i) Lost Certificates........................................ 8
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of Target..................... 8
(a) Organization, Standing and Corporate
Power.................................................... 8
(b) Subsidiaries............................................. 9
(c) Capital Structure........................................ 9
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Contents, p. 2
Page
(d) Authority; Noncontravention.............................. 11
(e) SEC Documents; Undisclosed
Liabilities........................................... 13
(f) Information Supplied..................................... 14
(g) Absence of Certain Changes or Events..................... 14
(h) Litigation............................................... 15
(i) Compliance with Applicable Laws.......................... 15
(j) Absence of Changes in Benefit Plans...................... 16
(k) ERISA Compliance; Excess Parachute
Payments................................................. 17
(l) Taxes.................................................... 21
(m) Voting Requirements...................................... 23
(n) State Takeover Statutes.................................. 23
(o) Brokers.................................................. 23
(p) Opinion of Financial Advisor............................. 24
(q) Intellectual Property; Year 2000......................... 24
(r) Contracts................................................ 26
(s) Title to Properties...................................... 28
(t) Privacy Policy........................................... 29
SECTION 3.02. Representations and Warranties of Parent and
Sub.......................................................... 30
(a) Organization, Standing and Corporate
Power.................................................... 31
(b) Subsidiaries............................................. 31
(c) Capital Structure........................................ 31
(d) Authority; Noncontravention.............................. 32
(e) SEC Documents; Undisclosed
Liabilities........................................... 33
(f) Information Supplied..................................... 34
(g) Absence of Certain Changes or Events..................... 35
(h) Litigation............................................... 35
(i) Compliance with Applicable Laws.......................... 35
(j) ERISA Compliance......................................... 35
(k) Taxes.................................................... 35
(l) Voting Requirements...................................... 36
(m) State Takeover Statutes.................................. 36
(n) Intellectual Property; Year 2000......................... 36
(o) Title to Properties...................................... 37
(p) Privacy Policy........................................... 37
(q) Tax Matters.............................................. 38
(r) Interim Operations of Sub................................ 38
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business.......................................... 38
(a) Conduct of Business by Target............................ 38
(b) Conduct of Business by Parent............................ 42
(c) Advice of Changes........................................ 42
SECTION 4.02. No Solicitation by Target.................................... 43
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Contents, p. 3
Page
SECTION 4.03. Recommendation by Parent..................................... 43
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form S-4 and the Proxy
Statement; Target Stockholders Meeting;
Parent Stockholders Meeting.................................. 44
SECTION 5.02. Letters of Target's Accountants.............................. 46
SECTION 5.03. Letters of Parent's Accountants.............................. 46
SECTION 5.04. Access to Information; Confidentiality....................... 46
SECTION 5.05. Reasonable Efforts........................................... 47
SECTION 5.06. Stock Options; Warrants...................................... 48
SECTION 5.07. Employee Matters............................................. 50
SECTION 5.08. Indemnification, Exculpation and
Insurance.................................................... 51
SECTION 5.09. Fees and Expenses............................................ 52
SECTION 5.10. Public Announcements......................................... 53
SECTION 5.11. Affiliates................................................... 53
SECTION 5.12. Quotation.................................................... 54
SECTION 5.13. Litigation................................................... 54
SECTION 5.14. Tax Treatment................................................ 54
SECTION 5.15. Target Stockholder Agreement Legend; Parent
Stockholder Agreement Legend................................. 54
SECTION 5.16. Termination of Agreements.................................... 55
SECTION 5.17. Resignations................................................. 55
SECTION 5.18. Composition of Board of Directors of Parent.................. 55
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligation To
Effect the Merger............................................ 55
(a) Stockholder Approval..................................... 55
(b) HSR Act.................................................. 55
(c) No Litigation............................................ 55
(d) Form S-4................................................. 56
SECTION 6.02. Conditions to Obligations of Parent
and Sub...................................................... 56
(a) Representations and Warranties........................... 56
(b) Performance of Obligations of Target..................... 56
SECTION 6.03. Conditions to Obligations of Target.......................... 57
(a) Representations and Warranties........................... 57
(b) Performance of Obligations of
Parent and Sub........................................ 57
(c) Tax Opinion.............................................. 57
(d) Nasdaq Quotation...................................... 57
SECTION 6.04. Frustration of Closing Conditions............................ 57
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Contents, p. 4
Page
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination.................................................. 58
SECTION 7.02. Effect of Termination........................................ 59
SECTION 7.03. Amendment.................................................... 59
SECTION 7.04. Extension; Waiver............................................ 59
SECTION 7.05. Procedure for Termination, Amendment,
Extension or Waiver.......................................... 60
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and
Warranties................................................... 60
SECTION 8.02. Notices...................................................... 60
SECTION 8.03. Definitions.................................................. 61
SECTION 8.04. Interpretation............................................... 62
SECTION 8.05. Counterparts................................................. 62
SECTION 8.06. Entire Agreement; No Third-Party
Beneficiaries................................................ 62
SECTION 8.07. Governing Law................................................ 63
SECTION 8.08. Assignment................................................... 63
SECTION 8.09. Enforcement.................................................. 63
SECTION 8.10. Severability................................................. 64
Annex I - Index of Defined Terms
Exhibit A - Form of Affiliate Letter
Exhibit B - Form of Tax Representation Letters
Schedule I - Board of Directors of Parent
<PAGE>
AGREEMENT AND PLAN OF MERGER (this
"Agreement") dated as of February 29, 2000,
among 24/7 MEDIA, INC., a Delaware corpora
tion ("Parent"), EVERGREEN ACQUISITION SUB
CORP., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and
EXACTIS.COM, INC., a Delaware corporation
("Target").
WHEREAS the respective Boards of Directors of
Parent, Sub and Target have approved and declared advisable
this Agreement and the merger of Sub with and into Target
(the "Merger"), upon the terms and subject to the conditions
set forth in this Agreement, whereby each issued and
outstanding share of common stock, par value $0.01 per share,
of Target ("Target Common Stock"), other than shares owned by
Parent, Sub or Target, will be converted into the right to
receive the Merger Consideration, and the Boards of Directors
of Parent and Target have recommended that their respective
stockholders adopt this Agreement;
WHEREAS the respective Boards of Directors of
Parent, Sub and Target have each determined that the Merger
and the other transactions contemplated hereby are consistent
with, and in furtherance of, their respective business
strategies and goals;
WHEREAS Parent, Sub and Target desire to make
certain representations, warranties, covenants and agreements
in connection with the Merger and also to prescribe various
conditions to the Merger;
WHEREAS for U.S. federal income tax purposes, it is
intended that (a) the Merger will qualify as a reorgani
zation under the provisions of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the rules
and regulations promulgated thereunder and (b) this Agreement
constitutes a plan of reorganization;
WHEREAS simultaneously with the execution and
delivery of this Agreement and as a condition and inducement
to the willingness of Parent and Sub to enter into this
Agreement, Parent and certain stockholders of Target
(collectively, the "Target Stockholders") are entering into
an agreement (the "Target Stockholder Agreement") pursuant to
which the Target Stockholders will agree to vote to adopt and
approve this Agreement and to take certain other actions in
furtherance of the Merger upon the terms and subject to the
conditions set forth in the Target Stockholder Agree ment;
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2
WHEREAS simultaneously with the execution and
delivery of this Agreement and as a condition and inducement
to the willingness of Target to enter into this Agreement,
Target and certain stockholders of Parent (collectively, the
"Parent Stockholders") are entering into an agreement (the
"Parent Stockholder Agreement") pursuant to which the Parent
Stockholders will agree to vote to approve the issuance of
shares of Parent Common Stock (as defined in Section 2.01(c))
in connection with the Merger upon the terms and subject to
the conditions set forth in the Parent Stockholder Agreement;
WHEREAS simultaneously with the execution and
delivery of this Agreement, Parent and certain individuals
are entering into employment agreements (the "Employment
Agreements") pursuant to which Parent will agree to employ
such individuals following the Effective Time (as defined in
Section 1.03) and such individuals will agree to be subject
to non-compete and non-solicitation obligations upon the
terms and conditions set forth in the Employment Agreements;
and
WHEREAS simultaneously with the execution and
delivery of this Agreement and as a condition and inducement
to the willingness of Parent to enter into this Agreement,
Parent and the Target Stockholders have entered into Lock-Up
Agreements (collectively, the "Lock-Up Agreements") pursuant
to which the Target Stockholders have agreed to certain
restrictions relating to the disposition of Parent Common
Stock following the Effective Time under certain
circumstances.
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements
contained in this Agreement, the parties agree as follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and
subject to the conditions set forth in this Agreement, and in
accordance with the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into Target at the
Effective Time. Following the Effective Time, Target shall be
the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of
Sub in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger
(the "Closing") will take place at 10:00 a.m. on a date to
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3
be specified by the parties (the "Closing Date"), which shall
be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI (other
than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or
waiver of those conditions), unless another time or date is
agreed to by the parties hereto. The Closing will be held at
such location in the City of New York as is agreed to by the
parties hereto.
SECTION 1.03. Effective Time. Subject to the
provisions of this Agreement, as soon as practicable on or
after the Closing Date, the parties shall file a certificate
of merger or other appropriate documents (in any such case,
the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger
shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State, or
at such subsequent date or time as Parent and Target shall
agree and specify in the Certificate of Merger (the time the
Merger becomes effective being hereinafter referred to as the
"Effective Time").
SECTION 1.04. Effects of the Merger. The Merger
shall have the effects set forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and
By-laws. (a) The certificate of incorporation of Target, as
in effect immediately prior to the Effective Time, shall be
amended as of the Effective Time so that Article IV of such
certificate of incorporation reads in its entirety as
follows: "The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 1,000
shares of common stock, par value $0.01 per share.", and, as
so amended, such certificate of incorporation shall be the
certificate of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable law.
(b) The by-laws of Target, as in effect immediately
prior to the Effective Time, shall be the by-laws of the
Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.06. Board of Directors and Officers. (a)
The directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the
case may be.
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4
(b) The officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or
removal or until their respective successors are duly elected
and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock. As of the
Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Target
Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and
outstanding share of capital stock of Sub shall be
converted into one share of common stock of the
Surviving Corporation.
(b) Cancelation of Treasury Stock and Parent- Owned
Stock. Each share of Target Common Stock that is owned
by Target, Sub or Parent shall automatically be canceled
and shall cease to exist, and no consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion of Target Common Stock. Subject to
Section 2.02(e), each issued and outstanding share of
Target Common Stock (other than shares to be canceled in
accordance with Section 2.01(b)) shall be converted into
the right to receive 0.60 (the "Exchange Ratio") fully
paid and nonassessable shares of common stock, par value
$0.01 per share, of Parent ("Parent Common Stock") (the
"Merger Consideration"). As of the Effective Time, all
such shares of Target Common Stock shall no longer be
outstanding and shall automatically be canceled and
shall cease to exist, and each holder of a certificate
representing any such shares of Target Common Stock
shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration to
be issued in consideration therefor upon surrender of
such certificate in accordance with Section 2.02,
without interest.
(d) Anti-Dilution Provisions. In the event Parent
changes (or establishes a record date for changing) the
number of shares of Parent Common Stock issued and
outstanding prior to the Effective Time as a result of a
stock split, stock dividend, recapitaliza tion,
subdivision, reclassification, combination, exchange of
shares or similar transaction with respect
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5
to the outstanding Parent Common Stock and the record
date therefor shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted to
reflect such stock split, stock dividend, recapitaliza
tion, subdivision, reclassification, combination,
exchange of shares or similar transaction.
SECTION 2.02. Exchange of Certificates. (a)
Exchange Agent. As of the Effective Time, Parent shall enter
into an agreement with such bank or trust company as may be
designated by Parent (the "Exchange Agent"), which shall
provide that Parent shall deposit with the Exchange Agent as
of the Effective Time, for the benefit of the holders of
shares of Target Common Stock, for exchange in accordance
with this Article II, through the Exchange Agent,
certificates representing the shares of Parent Common Stock
(such shares of Parent Common Stock, together with any
dividends or distributions with respect thereto with a record
date after the Effective Time being hereinafter referred to
as the "Exchange Fund") issuable pursuant to Section 2.01 in
exchange for outstanding shares of Target Common Stock.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time
represented outstanding shares of Target Common Stock (the
"Certificates") whose shares were converted into the right to
receive the Merger Consideration pursuant to Section 2.01,
(i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form
and have such other provisions as Parent and Target may
reasonably specify) and (ii) instructions for use in
surrendering the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for
cancelation to the Exchange Agent, together with such letter
of transmittal, duly executed, and such other documents as
may reasonably be required by the Exchange Agent, the holder
of such Certificate shall receive in exchange therefor a
certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II and
certain dividends or other distributions in accordance with
Section 2.02(c), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of
ownership of Target Common Stock which is not registered in
the transfer records of Target, a certificate representing
the proper number of shares of Parent Common Stock may be
issued to a person other than the person in whose name the
Certificate so surrendered is registered if such Certificate
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6
shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay
any transfer or other taxes required by reason of the
issuance of shares of Parent Common Stock to a person other
than the registered holder of such Certificate or establish
to the satisfaction of Parent that such tax has been paid or
is not applicable. Until surrendered as contemplated by this
Section 2.02(b), each Certificate shall be deemed at any time
after the Effective Time to represent only the right to
receive the Merger Consideration to be issued in
consideration therefor upon surrender of such certificate in
accordance with this Section 2.02. No interest shall be paid
or will accrue on any cash payable to holders of Certificates
pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions with respect to
Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock
represented thereby, and all such dividends and other
distributions shall be paid by Parent to the Exchange Agent
and shall be included in the Exchange Fund, until the
surrender of such Certificate in accordance with this Article
II. Subject to the effect of applicable escheat or similar
laws, following surrender of any such Certificate there shall
be paid to the holder of the certificate representing whole
shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock and (ii) at the
appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to
such surrender payable with respect to such whole shares of
Parent Common Stock.
(d) No Further Ownership Rights in Target Common
Stock. All shares of Parent Common Stock issued upon the
surrender for exchange of Certificates in accordance with the
terms of this Article II (including any cash paid pursuant to
this Article II) shall be deemed to have been issued (and
paid) in full satisfaction of all rights pertaining to the
shares of Target Common Stock theretofore represented by such
Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective
Time which may have been declared or made by Target on such
shares of Target Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the shares of Target Common Stock
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7
which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by
law.
(e) No Fractional Shares. (i) No certificates or
scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Parent shall
relate to such fractional share interests and such fractional
share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of Parent.
(ii) Notwithstanding any other provision of this
Agreement, each holder of shares of Target Common Stock
exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount, less the amount of any
withholding taxes that may be required thereon, equal to such
fractional part of a share of Parent Common Stock multiplied
by the per share last reported sale price of Parent Common
Stock on the Closing Date, as such price is quoted by Nasdaq.
(f) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders
of the Certificates for six months after the Effective Time
shall be delivered to Parent, upon demand, and any holders of
the Certificates who have not theretofore complied with this
Article II shall thereafter look only to Parent for payment
of their claim for Merger Consideration and any dividends or
distributions with respect to Parent Common Stock.
(g) No Liability. None of Parent, Sub, Target or
the Exchange Agent shall be liable to any person in respect
of any shares of Parent Common Stock or any dividends or
distributions with respect thereto, in each case delivered to
a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall
not have been surrendered prior to one year after the
Effective Time (or immediately prior to such date on which
any amounts payable pursuant to this Article II would
otherwise escheat to or become the property of any Govern
mental Entity), any such amounts shall, to the extent
permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
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8
(h) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as
directed by Parent, on a daily basis. Any interest and other
income resulting from such investments shall be paid to
Parent.
(i) Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certifi
cate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond in such reason
able amount as Parent may direct as indemnity against any
claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed Certificate the applicable
Merger Consideration with respect thereto and, if appli
cable, any unpaid dividends and distributions on shares of
Parent Common Stock deliverable in respect thereof, in each
case pursuant to this Agreement.
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of
Target. Except as disclosed in the Target Filed SEC Docu
ments or as set forth on the Disclosure Schedule delivered by
Target to Parent prior to the execution of this Agreement
(the "Target Disclosure Schedule") (each section of which
qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein and such
other representations and warranties or covenants to the
extent a matter in such section is disclosed in such a way as
to make its relevance to the information called for by such
other representation and warranty or covenant reasonably
apparent), Target represents and warrants to Parent and Sub
as follows:
(a) Organization, Standing and Corporate Power.
Target is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Delaware and has the requisite corporate power and
authority to carry on its business as now being
conducted. Target is duly qualified or licensed to do
business and is in good standing in each jurisdiction in
which the nature of its business or the ownership,
leasing or operation of its assets makes such
qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or
licensed or to be in good standing, individually and in
the aggregate, is not reasonably likely to have a
material adverse effect on Target. Target has made
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9
available to Parent prior to the execution of this
Agreement complete and correct copies of its certificate
of incorporation and by-laws, as amended to the date of
this Agreement.
(b) Subsidiaries. Target has no subsidiaries.
(c) Capital Structure. The authorized capital stock
of Target consists of 35,000,000 shares of Target Common
Stock and 3,500,000 shares of preferred stock, par value
$0.01 per share, of Target ("Target Author ized
Preferred Stock"). At the close of business on February
10, 2000, (i) 12,700,898 shares of Target Common Stock
were issued and outstanding; (ii) no shares of Target
Common Stock were held by Target in its treasury; (iii)
no shares of Target Authorized Preferred Stock were
issued and outstanding; (iv) 3,202,264 shares of Target
Common Stock were reserved for issuance pursuant to the
Target 1996 Stock Option Plan, the Target 1997 Stock
Option Plan, the Target 1999 Equity Incentive Plan and
the Target 1999 Employee Stock Purchase Plan (such
plans, collectively, the "Target Stock Plans") of which
2,073,548 are subject to outstanding Target Stock
Options; and (v) 1,275,158 shares of Target Common Stock
were reserved for issuance upon the exercise of the
warrants (the "Warrants") subject to the warrant
agreements listed in Section 3.01(c) of the Target
Disclosure Schedule. Except as set forth above, at the
close of business on February 10, 2000, no shares of
capital stock or other voting securities of Target were
issued, reserved for issuance or outstanding. There are
no outstanding stock appreciation rights ("SARs") or
rights (other than the Target Stock Options) to receive
shares of Target Common Stock on a deferred basis
granted under the Target Stock Plans or otherwise.
Target has delivered to Parent a complete and correct
list, as of February 10, 2000, of each holder of
outstanding stock options or other rights to purchase or
receive Target Common Stock granted under the Target
Stock Plans (collectively, "Target Stock Options") and
the Warrants, the number of shares of Target Common
Stock subject to each such Target Stock Option and
Warrant, the name of the Target Stock Plan pursuant to
which such Target Stock Options were granted, the grant
dates and exercise prices of such Target Stock Options
and Warrants and the dates on which such Target Stock
Options and Warrants become vested. All (i) outstanding
shares of Target Common Stock in respect of which Target
has a right under specified circumstances to repurchase
such shares at a fixed purchase price and (ii)
outstanding Target Stock Options, are evidenced by stock
option agreements and
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10
restricted stock purchase agreements in substantially
the forms attached as Exhibit A to Section 3.01(c) of
the Target Disclosure Schedule, and no stock option
agreement or restricted stock purchase agreement
contains terms that are substantially inconsistent with
such forms. No bonds, debentures, notes or other
indebtedness of Target having the right to vote (or
convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders
of Target may vote are issued or outstanding or subject
to issuance. All outstanding shares of capital stock of
Target are, and all shares which may be issued will be,
when issued, duly authorized, validly issued, fully paid
and nonassessable and will be delivered free and clear
of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever
(collectively, "Liens"), other than Liens created by or
imposed upon the holders thereof, and not subject to
preemptive rights. Except as set forth in this Section
3.01(c) (including pursuant to the conversion or
exercise of the securities referred to above), (x) there
are not issued, reserved for issuance or outstanding (A)
any shares of capital stock or other voting securities
of Target, (B) any securities of Target convertible into
or exchangeable or exercisable for shares of capital
stock or other voting securities of, or other ownership
interests in, Target or (C) any warrants, calls, options
or other rights to acquire from Target, and no
obligation of Target to issue, any capital stock or
other voting securities of, or other ownership interests
in, or any securities convertible into or exchangeable
or exercisable for any capital stock or other voting
securities of, or other ownership interests in, Target
and (y) there are not any outstanding obligations of
Target to repurchase, redeem or otherwise acquire any
such securities or to issue, deliver or sell, or cause
to be issued, delivered or sold, any such securities.
Target is not a party to any voting agreement with
respect to the voting of any such securities. Target
does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in
any other entity. The Target Stockholders hold of record
over 50% of the outstanding shares of Target Common
Stock (calculated on a fully diluted basis assuming the
exercise of all outstanding securities of Target that
are currently, or may become on or prior to August 31,
2000, convertible into or exchangeable or exercisable
for, shares of capital stock or other voting securities
of Target).
(d) Authority; Noncontravention. Target has all
requisite corporate power and authority to enter into
<PAGE>
11
this Agreement and, subject to the Target Stockholder
Approval, to consummate the transactions contemplated by
this Agreement. The execution and delivery of this
Agreement by Target and the consummation by Target of
the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action
on the part of Target, subject, in the case of the
Merger, to the Target Stockholder Approval. This
Agreement has been duly executed and delivered by Target
and, assuming the due authorization, execution and
delivery by each of the other parties thereto,
constitutes a legal, valid and binding obligation of
Target, enforceable against Target in accordance with
its terms. The execution and delivery of this Agree ment
does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to
a right of termination, cancelation or acceleration of
any obligation or to the loss of a benefit under, or
result in the creation of any Lien upon any of the
properties or assets of Target under, (i) the
certificate of incorporation or by-laws of Target, (ii)
any loan or credit agreement, note, bond, mortgage,
indenture, lease or other contract, agreement,
obligation, commitment, arrangement, understanding,
instrument, permit, concession, franchise, license or
similar authorization (each, a "Contract") applicable to
Target or its properties or assets or (iii) subject to
the governmental filings and other matters referred to
in the following sentence, (A) any judgment, order or
decree or (B) any statute, law, ordinance, rule or
regulation, in each case applicable to Target or its
properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations,
defaults, rights, losses or Liens that, individually and
in the aggregate, are not reasonably likely to (x) have
a material adverse effect on Target, (y) impair the
ability of Target to perform its obligations under this
Agreement or (z) prevent or materially delay the
consummation of the transactions contemplated by this
Agreement. No consent, approval, order or authorization
of, action by or in respect of, or registration,
declaration or filing with, any federal, state, local or
foreign government, any court, administrative,
regulatory or other governmental agency, commission or
authority or any non-governmental self-regulatory
agency, commission or authority (each a "Governmental
Entity") is required by or with respect to Target in
connection with the execution and delivery of this
Agreement by Target or the consummation by Target of the
transactions contemplated by this
<PAGE>
12
Agreement, except for (1) the filing of a premerger
notification and report form by Target under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and any applicable filings and
approvals under similar foreign antitrust or competition
laws and regulations; (2) the filing with the Securities
and Exchange Commission (the "SEC") of (A) a joint proxy
statement relating to the Target Stockholders Meeting
and the Parent Stockholders Meeting (such proxy
statement, as amended or supplemented from time to time,
the "Proxy Statement"), and (B) such reports under
Section 13(a), 13(d), 15(d) or 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
as may be required in connection with this Agreement,
the Target Stockholder Agreement, the Parent Stockholder
Agreement and the transactions contemplated by this
Agreement, the Target Stockholder Agreement and the
Parent Stockholder Agreement; (3) the filing of the
Certificate of Merger with the Delaware Secretary of
State and appropriate documents with the relevant
authorities of other states in which Target is qualified
to do business and such filings with Governmental
Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; and (4) such other
consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of
which to be made or obtained, individually and in the
aggregate, are not reasonably likely to (x) have a
material adverse effect on Target, (y) impair the
ability of Target to perform its obligations under this
Agreement or (z) prevent or materially delay the
consummation of the transactions contemplated by this
Agreement.
(e) SEC Documents; Undisclosed Liabilities. Target
has filed all required reports, schedules, forms,
statements and other documents (including exhibits and
all other information incorporated therein) with the SEC
since November 24, 1999 (together with Target's
Registration Statement on Form S-1 (Registration No.
333-85315), the "Target SEC Documents"). As of their
respective dates, the Target SEC Documents complied in
all material respects with the requirements of the
Securities Act of 1933 (the "Securities Act") or the
Exchange Act, as the case may be, and the rules and
regulations of the SEC promul gated thereunder
applicable to such Target SEC Documents, and none of the
Target SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not
misleading. The financial
<PAGE>
13
statements of Target included in the Target SEC
Documents comply as to form, as of their respective
dates of filing with the SEC, in all material respects
with applicable accounting requirements and the
published rules and regulations of the SEC with respect
thereto (the "Accounting Rules"), have been prepared in
accordance with generally accepted accounting principles
("GAAP") (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly
present in all material respects the financial position
of Target as of the dates thereof and the results of its
operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as
reflected in the financial statements contained in the
Target Filed SEC Documents or in the notes thereto or
(ii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby,
Target does not have any liabilities or obligations of
any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, when
taken as a whole with any benefits or rights
corresponding to such liabilities or obligations, are
reasonably likely to have a material adverse effect on
Target.
(f) Information Supplied. None of the informa tion
supplied or to be supplied by Target specifically for
inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the
SEC by Parent in connection with the issuance of Parent
Common Stock in the Merger (the "Form S-4") will, at the
time the Form S-4 becomes effective under the Securities
Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading or (ii) the Proxy Statement will, at the date
it is first mailed to Target's or Parent's stockholders
or at the time of the Target Stockholders Meeting or the
Parent Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any
material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange
Act and the rules and regulations thereunder. No
representa tion or warranty is made by Target with
respect to statements made or incorporated by reference
therein based on information supplied by Parent
specifically
<PAGE>
14
for inclusion or incorporation by reference in the Proxy
Statement.
(g) Absence of Certain Changes or Events. Except
for liabilities incurred in connection with this
Agreement, the Parent Stockholder Agreement or the
transactions contemplated hereby or thereby and except
as disclosed in the Target SEC Documents filed and
publicly available prior to the date of this Agreement
(as amended to the date of this Agreement, the "Target
Filed SEC Documents"), from December 31, 1998 to the
date of this Agreement, Target has conducted its
business only in the ordinary course, and during such
period there has not been (1) any material adverse
change in Target, (2) any declaration, setting aside or
payment of any dividend or other distribution (whether
in cash, stock or property) with respect to any of
Target's capital stock, (3) any split, combination or
reclassification of any of Target's capital stock or any
issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in
substitution for shares of Target's capital stock, (4)
(A) any granting by Target to any current or former
director, consultant, executive officer or other
employee of Target of any increase in compensation,
bonus or other benefits, except for normal increases in
cash compensation in the ordinary course of business
consistent with past practice or as was required under
any employment agreements in effect as of the date of
the most recent audited financial statements included in
the Target Filed SEC Documents, (B) any granting by
Target to any such current or former director,
consultant, executive officer or employee of any
increase in severance or termination pay, (C) any entry
by Target into, or any amendments of, any Target Benefit
Agreement or (D) any amendment to, or modification of,
any Target Stock Option, (5) except insofar as may have
been required by a change in GAAP, any change in
accounting methods, principles or practices by Target
materially affecting their respective assets,
liabilities or businesses, (6) any tax election that
individually or in the aggregate is reasonably likely to
adversely affect in any material respect the tax
liability or tax attributes of Target or (7) any
settlement or compromise of any material income tax
liability. Except for liabilities incurred in connection
with this Agreement, the Parent Stock holder Agreement
or the transactions contemplated hereby or thereby and
except as disclosed in the Target Filed SEC Documents,
since December 31, 1998, there has not been any material
adverse change in Target.
<PAGE>
15
(h) Litigation. There is no suit, action or
proceeding pending or, to the knowledge of Target,
threatened against or affecting Target that,
individually or in the aggregate, is reasonably likely
to have a material adverse effect on Target nor is there
any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against
Target having, or which is reasonably likely to have,
individually or in the aggregate, a material adverse
effect on Target. Section 3.01(h) of the Target
Disclosure Schedule sets forth a true and complete list,
as of the date of this Agreement, of each settlement or
similar agreement in respect of any pending or
threatened suit, action, proceeding, judgment, decree,
injunction, rule or order of any Governmental Entity or
arbitrator which Target has entered into or become bound
by since June 30, 1999.
(i) Compliance with Applicable Laws. (i) Target
holds all material permits, licenses, variances,
exemptions, orders, registrations and approvals of all
Governmental Entities (the "Target Permits") that are
required for them to own, lease or operate their assets
and to carry on their businesses. Target is in
compliance with the terms of the Target Permits and all
applicable statutes, laws (including Environmental
Laws), ordinances, rules and regulations, except for
such failures to comply that, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target. No action, demand, requirement
or investigation by any Governmental Entity and no suit,
action or proceeding by any person, in each case with
respect to Target or any of its properties that,
individually or in the aggregate, is reasonably likely
to have a material adverse effect on Target, is pending
or, to the knowledge of Target, threatened.
(ii) To Target's knowledge, there have been no
Releases of any Hazardous Materials at, on or under any
facility or property currently or formerly owned,
leased, or operated by Target that, individually or in
the aggregate, are reasonably likely to have a material
adverse effect on Target. Target is not the subject of
any pending or, to Target's knowledge, threatened
investigation or proceeding under Environmental Law
relating in any manner to the off-site treatment,
storage or disposal of any Hazardous Materials generated
at any facility or property currently or formerly owned,
leased or operated by Target. The term "Environmental
Law" means any and all applicable laws or regulations or
other requirements of any Governmental Entity concerning
the protection of human
<PAGE>
16
health or the environment. The term "Hazardous
Materials" means all explosive or radioactive materials,
hazardous or toxic substances, wastes or chemicals,
petroleum (including crude oil or any fraction thereof)
or petroleum distillates, asbestos or
asbestos-containing materials, and all other materials
or chemicals regulated under any Environmental Law. The
term "Release" means any spill, emission, leaking,
pumping, injection, deposit, disposal, discharge,
dispersal, leaching, emanation or migration in, into,
onto, or through the environment.
(j) Absence of Changes in Benefit Plans. Since the
date of the most recent audited financial state ments
included in the Target Filed SEC Documents, there has
not been any adoption or amendment by Target of any
collective bargaining agreement or any bonus, pension,
profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, thrift, savings,
stock bonus, restricted stock, cafeteria, paid time off,
perquisite, fringe benefit, vacation, severance,
disability, death benefit, hospitalization, medical,
welfare benefit or other plan, arrangement or
understanding (whether or not legally binding) providing
benefits to any current or former employee, officer,
consultant or director of Target (collectively, the
"Target Benefit Plans"), or any change in any actuarial
or other assumption used to calculate funding
obligations with respect to any Target pension plans, or
any change in the manner in which contributions to any
Target pension plans are made or the basis on which such
contributions are determined. Except as disclosed in the
Target Filed SEC Documents, there are not any
employment, consulting, deferred compensation,
indemnification, severance or termination agreements or
arrangements between Target and any current or former
employee, officer, consultant or director of Target
(collectively, the "Target Benefit Agreements").
(k) ERISA Compliance; Excess Parachute Payments.
(i) Section 3.01(k) of the Target Disclosure Schedule
contains a list of all "employee pension benefit plans"
(as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Target Pension
Plans"), "employee welfare benefit plans" (as defined in
Section 3(1) of ERISA) and all other Target Benefit
Plans and Target Benefit Agreements maintained, or
contributed to, by Target, or to which Target is a
party, for the benefit of any current or former
employees, officers or directors of Target. Target has
<PAGE>
17
made available to Parent or will make available to
Parent upon request true, complete and correct copies of
(a) each Target Benefit Plan and Target Benefit
Agreement (or, in the case of any unwritten Target
Benefit Plan or Target Benefit Agreement, a description
thereof), (b) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to
each Target Benefit Plan (if any such report was
required), (c) the most recent summary plan description
for each Target Benefit Plan for which such summary plan
description is required and (d) each trust agreement and
group annuity contract relating to any Target Benefit
Plan.
(ii) Each Target Benefit Plan has been admini
stered in all material respects in accordance with its
terms. Target and each Target Benefit Plan are in
substantial compliance with the applicable provisions of
ERISA and the Code, and all other applicable laws and
the terms of all collective bargaining agreements. All
Target Pension Plans intended to be qualified have
received favorable determination letters from the
Internal Revenue Service with respect to "TRA" (as
defined in Section 1 of Rev. Proc. 93-39), to the effect
that such Target Pension Plans are qualified and exempt
from Federal income taxes under Sections 401(a) and
501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the
knowledge of Target, has revocation been threatened, nor
has any such Target Pension Plan been amended since the
date of its most recent determination letter or
application therefor in any respect that would adversely
affect its qualification or materially increase its
costs. There is no pending or, to the knowledge of
Target, threatened litigation relating to Target Benefit
Plans.
(iii) None of Target or any person which is
considered one employer with Target under Section 4001
of ERISA or Section 414 of the Code (an "ERISA
Affiliate") has or could reasonably be expected to have
any liability under Title IV of ERISA with respect to
any Target Benefit Plan. None of Target, any officer of
Target or any of the Target Benefit Plans which are
subject to ERISA, including the Target Pension Plans,
any trusts created thereunder or, to the knowledge of
Target, any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the
Code) or any other breach of fiduciary responsibility
that could subject Target or any officer of Target to
the tax or penalty on prohibited transactions imposed by
such Section 4975 in an amount that would be
<PAGE>
18
material or to any material liability under Section
502(i) or 502(l) of ERISA. All contributions and
premiums required to be made under the terms of any
Target Benefit Plan as of the date hereof have been
timely made or have been reflected on the most recent
consolidated balance sheet filed or incorporated by
reference in the Filed Target SEC Documents. Neither any
Target Pension Plan nor any single-employer plan of an
ERISA Affiliate has an "accumulated funding deficiency"
(as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived.
(iv) With respect to any Target Benefit Plan that
is an employee welfare benefit plan, (a) no such Target
Benefit Plan is unfunded or funded through a "welfare
benefit fund" (as such term is defined in Section 419(e)
of the Code) and (b) each such Target Benefit Plan that
is a "group health plan" (as such term is defined in
Section 5000(b)(1) of the Code) complies with the
applicable requirements of Section 4980B(f) of the Code.
Target has no obligations for retiree health and life
benefits under any Target Benefit Plan or Target Benefit
Agreement.
(v) The consummation of the Merger or any other
transaction contemplated by this Agreement, the Target
Stockholder Agreement or the Parent Stockholder Agree
ment will not (x) entitle any employee, officer,
consultant or director of Target to severance pay, (y)
accelerate the time of payment or vesting or trigger any
payment or funding (through a grantor trust or
otherwise) of compensation or benefits under, increase
the amount payable or trigger any other material
obligation pursuant to, any of the Target Benefit Plans
or Target Benefit Agreements or (z) result in any breach
or violation of, or a default under, any of the Target
Benefit Plans or Target Benefit Agreements.
(vi) Other than payments that may be made to the
persons listed in Section 3.01(k)(vi) of the Target
Disclosure Schedule (the "Primary Target Executives"),
any amount or economic benefit that could be received
(whether in cash or property or the vesting of property)
as a result of the Merger or any other transaction
contemplated by this Agreement, the Target Stockholder
Agreement or the Parent Stockholder Agreement (including
as a result of termination of employment on or following
the Effective Time) by any employee, officer or director
of Target or any of its affiliates who is a
"disqualified individual" (as such term is defined in
proposed Treasury Regulation
<PAGE>
19
Section 1.280G-1) under any Target Benefit Plan or
Target Benefit Agreement or otherwise would not be
characterized as an "excess parachute payment" (as
defined in Section 280G(b)(1) of the Code), and no
disqualified individual is entitled to receive any
additional payment from Target or any other person in
the event that the excise tax under Section 4999 of the
Code is imposed on such disqualified individual. Set
forth in Section 3.01(k)(vi) of the Target Disclosure
Schedule is (a) the estimated maximum amount that could
be paid to each Primary Target Executive as a result of
the Merger and the other transactions contemplated by
this Agreement, the Target Stockholder Agreement and the
Parent Stockholder Agreement (including as a result of a
termination of employment on or following the Effective
Time) under all Target Benefit Plans and Target Benefit
Agreements and (b) the "base amount" (as defined in
Section 280G(b)(3) of the Code) for each Primary Target
Executive calculated as of the date of this Agreement.
(vii) Target is in compliance with all Federal,
state and local requirements regarding employment,
except for such failures to comply that, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Target. As of the date of
this Agreement, Target is not a party to any collective
bargaining or other labor union contract applicable to
persons employed by Target and no collective bargaining
agreement is being negotiated by Target. As of the date
of this Agreement, there is no labor dispute, strike or
work stoppage against Target pending or, to the
knowledge of Target, threatened which may interfere with
the business activities of Target. As of the date of
this Agreement, to the knowledge of Target, none of
Target or any of its representatives or employees has
committed an unfair labor practice in connection with
the operation of the business of Target, and there is no
charge or complaint against Target by the National Labor
Relations Board or any comparable governmental agency
pending or threatened in writing.
(l) Taxes. (i) Target has filed all tax returns and
reports required to be filed by it and all such returns
and reports are complete and correct in all material
respects, or requests for extensions to file such
returns or reports have been timely filed, granted and
have not expired, except to the extent that such
failures to file, to be complete or correct or to have
extensions granted that remain in effect, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Target. Target has paid all
taxes due with respect to such returns, and the
<PAGE>
20
most recent financial statements contained in the Target
Filed SEC Documents reflect an adequate reserve for all
taxes payable by Target for all taxable periods and
portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been
proposed, asserted or assessed against Target that are
not adequately reserved for, except for deficiencies
that individually or in the aggregate are not reasonably
likely to have a material adverse effect on Target. The
Federal income tax returns of Target for periods ending
on or before December 31, 1995, have closed by virtue of
the applicable statute of limitations and no requests
for waivers of the time to assess any such taxes are
pending, and, with respect to all subsequent periods, no
Federal or state tax return or report or any other
material tax return or report of Target is currently
under audit and no written or unwritten notice of any
such audit or similar examination has been received by
Target. There is no currently effective agreement or
other document extending, or having the effect of
extending, the period of assessment or collection of any
taxes and no power of attorney with respect to taxes has
been executed or filed with any taxing authority.
(iii) There are no material liens for taxes (other
than for current taxes not yet due and payable) on the
assets of Target. Target is not bound by any agreement
with respect to taxes.
(iv) Target has not been and is not a United States
real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii).
(v) Section 3.01(l)(v) of the Target Disclosure
Schedule sets forth each state in which Target has filed
a tax return relating to state income, franchise,
license, excise, net worth, property and sales and use
taxes, except in a case where Target is or has been
required to file such a tax return and such failures to
file could not individually or in the aggregate
reasonably be expected to have a material adverse effect
on Target. To the knowledge of Target, it is not
required to file any tax return or report in any other
state and no claim has ever been made by a taxing
authority in a jurisdiction where Target does not file a
tax return that it is, or may be subject to, taxation in
that jurisdiction.
<PAGE>
21
(vi) Target has not taken any action or knows of
any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a)
of the Code.
(vii) Target has not paid and has not entered into
any binding agreement to pay any amount, nor will any
bonuses paid by Target with respect to which a deduction
is claimed for the 1999 fiscal year constitute amounts,
to which Section 162(m) of the Code will apply so as to
result in the disallowance of any material deduction.
(viii) Target has not constituted either a
"distributing corporation" or a "controlled corporation"
in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (x) in the two
years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a
"plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction
with the Merger.
(ix) As used in this Agreement, "taxes" shall
include all (x) Federal, state, local or foreign income,
property, sales, excise and other taxes or similar
governmental charges, including any interest, penalties
or additions with respect thereto, and (y) liability for
the payment of any amounts as a result of being party to
any tax sharing agreement or as a result of any express
or implied obligation to indemnify any other person with
respect to the payment of any amounts of the type
described in clause (x).
(m) Voting Requirements. The affirmative vote of
the holders of a majority of the voting power of all
outstanding shares of Target Common Stock to adopt this
Agreement (the "Target Stockholder Approval") is the
only vote of the holders of any class or series of
Target's capital stock necessary to approve and adopt
this Agreement and the transactions contemplated hereby.
(n) State Takeover Statutes. The Board of Directors
of Target has unanimously approved the terms of this
Agreement and the Target Stockholder Agreement and the
consummation of the Merger and the other trans actions
contemplated by this Agreement and the Target
Stockholder Agreement and such approval constitutes
approval of this Agreement and the Target Stockholder
Agreement and the Merger and the other transactions
contemplated by this Agreement and the Target Stock
holder Agreement by the Board of Directors of Target
under the provisions of Section 203 of the DGCL and
represents all the action necessary to ensure that the
restrictions contained in such Section 203 do not apply
to Parent or Sub in connection with the Merger and the
other transactions contemplated by this Agreement and
the Target Stockholder Agreement. To the knowledge of
Target, no other state takeover statute is applicable to
the Merger or the other transactions contemplated hereby
and by the Target Stockholder Agreement.
(o) Brokers. No broker, investment banker,
financial advisor or other person, other than Thomas
Weisel Partners LLC, the fees and expenses of which will
be paid by Target, is entitled to any broker's,
finder's, financial advisor's or other similar fee or
commission in connection with the transactions
contemplated by this Agreement based upon arrangements
made by or on behalf of Target. Target has furnished to
Parent true and complete copies of all agreements under
which any such fees or expenses are payable and all
indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(p) Opinion of Financial Advisor. Target has
received the written opinion of Thomas Weisel Partners
LLC, dated the date of this Agreement, to the effect
that, as of such date, the Exchange Ratio is fair from a
financial point of view to the stockholders of Target, a
signed copy of which opinion has been or promptly will
be delivered to Parent.
(q) Intellectual Property; Year 2000. (i) As used
herein, "Intellectual Property Rights" shall mean all
trademarks, service marks, trade names, brands,
copyrights and patents, all applications for registra
tion and registrations for such trademarks, copyrights
and patents and all mask works, trade secrets,
confidential and proprietary information, compositions
of matter, formulas, designs, proprietary rights, know-
how and processes; and "Target Intellectual Property
Rights" shall mean all Intellectual Property Rights
owned by or licensed to or used by Target. A list and
brief description of all Target Intellectual Property
Rights that are material to the conduct of the business
of Target, and all licenses, contracts, rights and
arrangements with respect to the foregoing, are set
forth in Section 3.01(q) of the Target Disclosure
Schedule. To Target's knowledge, all the Target
Intellectual Property Rights which are material to the
conduct of its business are valid, enforceable and in
full force and effect. Target owns, free and clear of
<PAGE>
22
all Liens, or is validly licensed or otherwise has the
right to use all the Target Intellectual Property Rights
which are material to the conduct of its business.
(ii) To Target's knowledge, Target has not
interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Intellectual
Property Rights or other proprietary information of any
other person. Target has not received any written
charge, complaint, claim, demand or notice alleging any
such interference, infringement, misappropriation or
other conflict (including any claim that Target or any
such subsidiary must license or refrain from using any
Intellectual Property Rights or other proprietary
information of any other person) which has not been
settled or otherwise fully resolved, except for such
charges, complaints, claims, demands or notices that,
individually and in the aggregate, are not reasonably
likely to have a material adverse effect on Target. To
Target's knowledge, no other person has materially
interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Target
Intellectual Property Rights.
(iii) As the business of Target is presently
conducted, Parent's use after the Closing of the Target
Intellectual Property Rights which are material to the
conduct of the business of Target will not interfere
with, infringe upon, misappropriate or otherwise come
into conflict with the Intellectual Property Rights or
other proprietary information of any other person,
except for such interferences, infringements,
misappropriations or other conflicts that, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Target.
(iv) Target has taken, and until the Closing Date,
Target will take all steps reasonably necessary to
preserve Target's legal rights in all the Target
Intellectual Property Rights, except for such steps the
failure of which to be taken, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target. In addition, each employee,
agent, consultant or contractor who has materially
contributed to or participated in the creation or
development of any copyrightable, patentable or trade
secret material on behalf of Target or any predecessor-
in-interest thereto either (x) is a party to a "work-
for-hire" relationship under which Target is deemed to
be the original owner/author of all property rights
therein or (y) has executed an assignment or an
agreement to assign in favor of Target or such
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23
predecessor-in-interest, as applicable, all right, title
and interest in such material.
(v) Target has reviewed and assessed all areas
within its business and operations that could be
adversely affected by the "Target Year 2000 Problem"
(that is, the risk that computer applications used by
Target or used by any of the suppliers and vendors of
Target and that interface with a computer application
used by Target may be unable to recognize and perform
properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999).
Based on the foregoing, Target represents that all
computer applications used by Target and all computer
applications used by the suppliers and vendors of Target
that interface with any computer application used by
Target that are material to its business or operations
are Year 2000 Compliant, except for such failures to be
Year 2000 Compliant that, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target. The term "Year 2000
Compliant", with respect to a computer system or
software program, means that such computer system or
program: (a) is capable of correctly recognizing,
processing, managing, representing, interpreting and
manipulating accurate and correctly formatted date-
related data for dates earlier and later than January 1,
2000; (b) does not lack the ability to function
automatically into and beyond the year 2000 without
human intervention and without any change in operations
as a result of the advent of the year 2000; (c) has the
ability to interpret accurate and correctly formatted
date data correctly into and beyond the year 2000; (d)
does not lack the ability not to produce noncompliance
in existing data, nor otherwise corrupt such data, into
and beyond the year 2000 as a result of the advent of
the year 2000; (e) has the ability to process correctly
after January 1, 2000, accurate and correctly formatted
date data containing dates and times before that date;
and (f) has the ability to recognize all "leap year"
dates, including February 29, 2000.
(r) Contracts. Except for Contracts filed as
exhibits to the Target Filed SEC Documents, Target is
not a party to or bound by, and none of its properties
or assets are bound by or subject to, any written or
oral:
(i) Contract not made in the ordinary course
of business entered into prior to the date of this
Agreement;
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24
(ii) Contract pursuant to which Target has
agreed not to compete with any person or to engage
in any activity or business, or pursuant to which
any benefit is required to be given or lost as a
result of so competing or engaging;
(iii) Contract pursuant to which Target is
restricted in any material respect in the
development, marketing or distribution of its
products or services;
(iv) Contract with (A) any affiliate of Target
or (B) any current or former director or officer of
Target or of any affiliate of Target or any of the
25 most highly compensated employees of Target or
(C) any affiliate of any such person (other than
(w) contracts on arm's-length terms with companies
whose common stock is publicly traded, (x) offer
letters providing solely for "at will" employment,
(y) invention assignment and confidentiality
agreements relating to the assignment of inventions
to Target not involving the payment of money and
(z) Target Benefit Plans referred to in Section
3.01(j));
(v) license or franchise granted by Target
pursuant to which Target has agreed to refrain from
granting license or franchise rights to any other
person;
(vi) Contract under which Target has (i)
incurred any indebtedness that is currently owing
or (ii) given any guarantee in respect of
indebtedness, in each case having an aggregate
principal amount in excess of $250,000;
(vii) Contract that requires consent, approval
or waiver of or notice to a third party in the
event of or with respect to the Merger, including
in order to avoid termination of or a loss of
material benefit under any such Contract, except
for such Contracts the termination or loss of
material benefit under which, individually and in
the aggregate, are not reasonably likely to have a
material adverse effect on Target;
(viii) Contract or other agreement, whether
written or oral, that contains any guarantees as to
Target's future revenues;
(ix) Contract providing for payments of
royalties to third parties;
<PAGE>
25
(x) Contract granting a third party any
license to Intellectual Property Rights that is not
limited to the internal use of such third party;
(xi) Contract providing confidential treatment
by Target of third party information other than
non-disclosure agreements and provisions entered
into by Target in the ordinary course of business
consistent with past practice;
(xii) Contract granting the other party to
such Contract or a third party "most favored
nation" status that, following the Merger, would in
any way apply to Parent or any of its subsidiaries
(other than Target and its products or services
(other than any similar products or services
produced or offered by Parent or any of its
subsidiaries (other than Target))); and
(xiii) Contract which (i) has aggregate future
sums due from Target in excess of $250,000 and is
not terminable by Target for a cost of less than
$250,000 or (ii) is otherwise material to the
business of Target as presently conducted or as
proposed to be conducted.
Each Contract of Target is in full force and effect and
is a legal, valid and binding agreement of Target and,
to the knowledge of Target, of each other party thereto,
enforceable against Target and, to the knowledge of
Target, against the other party or parties thereto, in
each case, in accordance with its terms, except for such
failures to be in full force and effect or enforceable
that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on
Target. Target has performed or is performing all
material obligations required to be performed by it
under its Contracts and is not (with or without notice
or lapse of time or both) in breach or default in any
material respect thereunder, and, to the knowledge of
Target, no other party to any of its Contracts is (with
or without notice or lapse of time or both) in breach or
default in any material respect thereunder except, in
each case, for such breaches that, individually and in
the aggregate, are not reasonably likely to have a
material adverse effect on Target.
(s) Title to Properties. (i) Section 3.01(s) of the
Target Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of all
real property and leasehold property owned or leased by
<PAGE>
26
Target or any of its subsidiaries. Target has good and
valid title to, or valid leasehold interests in or valid
rights to, all its material properties and assets except
for such as are no longer used or useful in the conduct
of its businesses or as have been disposed of in the
ordinary course of business and except for defects in
title, easements, restrictive covenants and similar
encumbrances that, individually and in the aggregate, do
not materially interfere with its ability to conduct its
business as currently conducted. All such material
assets and properties, other than assets and properties
in which Target has a leasehold interest, are free and
clear of all Liens except for Liens that, individually
and in the aggregate, do not materially interfere with
the ability of Target to conduct its business as
currently conducted.
(ii) Target has complied in all material respects
with the terms of all leases to which it is a party and
under which it is in occupancy, and all such leases are
in full force and effect. Target enjoys peaceful and
undisturbed possession under all such leases, except for
failures to do so that, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target.
(t) Privacy Policy. (i) For purposes of this
Section 3.01(t):
(A) "Privacy Statement" means the written
privacy policy of Target to be established by
Target on or before the Policy Launch Date
regarding the collection, use and distribution of
personal information from visitors to its web site
as in effect from time to time;
(B) "Policy Launch Date" means the date on
which Target makes the Privacy Statement accessible
to visitors of its website, provided that such date
shall occur no later than March 15, 2000; and
(C) "Terms and Conditions" means Target's
written agreements with its customers that
establish the terms and conditions of Target's
services as in effect from time to time.
(ii) On and after the Policy Launch Date, the
Privacy Statement will be conspicuously linked at all
times on Target's homepage and from any page on Target's
website on which personal information is collected from
visitors to its web site. The Privacy Statement will
include at the minimum the
<PAGE>
27
following: (A) notice to visitors about Target's web
site's information collection policies and practices
prior to disclosing their personal information; (B)
options for the visitors regarding how their personal
information will be used, including any uses beyond
those for which the information was provided and the
option to choose whether or not to allow their personal
information to be disclosed and used for such purposes
and by third parties, but excluding the use and
disclosure of personal information to the extent that
Target believes in good faith (based on the advise of
outside counsel) that applicable law requires such use
or disclosure or for administrative purposes to the
extent that Target determines in good faith that such
use or disclosure is reasonably necessary to maintain or
service its site or its services; (C) a mechanism by
which visitors may view and correct their personal data
if it is inaccurate or incomplete; (D) representation
that Target uses industry standard security measures to
protect all data collected by Target from visitors; and
(E) a notice that visitors under the age of eighteen
should not disclose personal information without the
consent of a parent or guardian.
(iii) Except as set forth in the Terms and
Conditions, Target does not sell, rent or otherwise make
available to third parties any personal data submitted
by visitors and consumers; provided, however, that
Target does make use of non-personally identifiable
statistical information including, but not limited to,
browser-type, geographical location, age and gender,
solely for its own statistical analysis.
(iv) Target and its employees have (A) complied
with all privacy policies issued by Target, all
applicable privacy laws and all applicable Terms and
Conditions regarding the disclosure and use of data, (B)
not violated the Privacy Statement and (C) taken all
steps to protect and maintain the confidential nature of
the personal information provided to Target by visitors
who do not consent to the disclosure of such information
to third parties or have otherwise expressly requested
that Target not disclose such information. All personal
data collected by Target from time to time is or will be
used in accordance with the most current privacy
policies of Target or, to the extent applicable, the
Terms and Conditions.
SECTION 3.02. Representations and Warranties of
Parent and Sub. Except as disclosed in the Parent Filed SEC
Documents or as set forth on the Disclosure Schedule
delivered by Parent to Target prior to the execution of this
Agreement (the "Parent Disclosure Schedule") (each section
<PAGE>
28
of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent
specified therein and such other representations and
warranties or covenants to the extent a matter in such
section is disclosed in such a way as to make its relevance
to the information called for by such other representation
and warranty or covenant reasonably apparent), Parent and Sub
represent and warrant to Target as follows:
(a) Organization, Standing and Corporate Power.
Each of Parent and Sub is a corporation duly organized,
validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its
business as now being conducted. Each of Parent and Sub
is duly qualified or licensed to do business and is in
good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or
operation of its assets makes such quali fication or
licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to
be in good standing, individually and in the aggregate,
is not reasonably likely to have a material adverse
effect on Parent. All outstanding shares of capital
stock of Parent are duly authorized, validly issued,
fully paid and nonassessable. Parent has made available
to Target prior to the execution of this Agreement
complete and correct copies of its certificate of
incorporation and by-laws and the certificate of
incorporation and by-laws of Sub, in each case as
amended to the date of this Agreement.
(b) Subsidiaries. Section 3.02(b) of the Parent
Disclosure Schedule sets forth a true and complete list,
as of the date of this Agreement, of each of Parent's
subsidiaries. All the outstanding shares of capital
stock of, or other equity interests in, each subsidiary
of Parent have been validly issued, are fully paid and
nonassessable and are owned directly or indirectly by
Parent, free and clear of all Liens.
(c) Capital Structure. The authorized capital stock
of Parent consists of 70,000,000 shares of Parent Common
Stock and 10,000,000 shares of preferred stock, par
value $0.01 per share, of Parent ("Parent Authorized
Preferred Stock"). At the close of business on January
31, 2000, (i) 22,615,709 shares of Parent Common Stock
were issued and outstanding; (ii) no shares of Parent
Authorized Preferred Stock were issued and outstanding;
(iii) 4,218,874 shares of Parent Common Stock were
reserved for issuance pursuant to Parent's 1998 Stock
Incentive Plan; and (iv) 3,411,832
<PAGE>
29
shares of Parent Common Stock were reserved for issuance
upon exercise of outstanding warrants. As of the date of
this Agreement, no bonds, debentures, notes or other
indebtedness of Parent having the right to vote (or
convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders
of Parent may vote are issued or outstanding or subject
to issuance. The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value
$0.01 per share, all of which are issued and outstanding
and wholly owned by Parent. All outstanding shares of
capital stock of Parent and Sub are, and all shares
which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights.
(d) Authority; Noncontravention. Each of Parent and
Sub has all requisite corporate power and authority to
enter into this Agreement and, subject to the Parent
Stockholder Approval, to consummate the transactions
contemplated by this Agreement. The execution and
delivery of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions
contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Parent
and Sub, subject, in the case of the issuance of shares
of Parent Common Stock in connection with the Merger, to
the Parent Stockholder Approval. This Agreement has been
duly executed and delivered by Parent and Sub and,
assuming the due authorization, execution and delivery
by each of the other parties thereto, constitutes a
legal, valid and binding obligation of Parent and Sub,
enforceable against each of them in accordance with its
terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to
a right of termination, cancelation or acceleration of
any obligation or loss of a benefit under, or result in
the creation of any Lien upon any of the properties or
assets of Parent or Sub under, (i) the certificate of
incorporation or by-laws of Parent or Sub, (ii) any
Contract applicable to Parent or Sub or their respective
properties or assets or (iii) subject to the
governmental filings and other matters referred to in
the following sentence, (A) any judgment, order or
decree or (B) any statute, law, ordinance, rule or
regulation, in each case applicable to Parent or any of
its subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and
<PAGE>
30
(iii), any such conflicts, violations, defaults, rights,
losses or Liens that, individually and in the aggregate,
are not reasonably likely to (x) have a material adverse
effect on Parent, (y) impair the ability of Parent or
Sub to perform its obligations under this Agreement or
(z) prevent or materially delay the consummation of the
transactions contemplated by this Agreement. No consent,
approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with,
any Governmental Entity is required by or with respect
to Parent or Sub in connection with the execution and
delivery of this Agreement by Parent and Sub or the
consummation by Parent and Sub of the transactions
contemplated by this Agreement, except for (1) the
filing of a premerger notification and report form by
Parent under the HSR Act and any applicable filings and
approvals under similar foreign antitrust or competition
laws and regulations; (2) the filing with the SEC of (A)
the Form S-4 and (B) such reports under Section 13(a),
13(d), 15(d) or 16(a) of the Exchange Act as may be
required in connection with this Agreement, the Target
Stockholder Agreement, the Parent Stockholder Agreement
and the transactions contemplated by this Agreement, the
Target Stockholder Agreement and the Parent Stockholder
Agreement; (3) the filing of the Certificate of Merger
with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states
in which Parent is qualified to do business and such
filings with Govern mental Entities to satisfy the
applicable requirements of state securities or "blue
sky" laws; (4) such filings with and approvals of The
Nasdaq National Market ("Nasdaq") to permit the shares
of Parent Common Stock that are to be issued in the
Merger to be quoted on Nasdaq; and (5) such other
consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of
which to be made or obtained, individually and in the
aggregate, are not reasonably likely to (x) have a
material adverse effect on Parent, (y) impair the
ability of Parent or Sub to perform its obligations
under this Agreement or (z) prevent or materially delay
the consummation of the transactions contemplated by
this Agreement.
(e) SEC Documents; Undisclosed Liabilities. Parent
has filed all required reports, schedules, forms,
statements and other documents (including exhibits and
all other information incorporated therein) with the SEC
since December 31, 1997 (collectively, the "Parent SEC
Documents"). As of their respective dates, the Parent
SEC Documents complied in all material respects with the
requirements
<PAGE>
31
of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents when
filed contained any untrue statement of a material fact
or omitted to state a material fact required to be
stated therein or necessary in order to make the
statements therein, in light of the circumstances under
which they were made, not misleading. The financial
statements of Parent included in the Parent SEC
Documents comply as to form, as of their respective
dates of filing with the SEC, in all material respects
with the Accounting Rules, have been prepared in
accordance with GAAP (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods
involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the
consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case
of unaudited statements, to normal recurring year-end
audit adjustments). Except (i) as reflected in the
financial statements contained in the Parent Filed SEC
Documents or in the notes thereto or (ii) for liabili
ties incurred in connection with this Agreement or the
transactions contemplated hereby, neither Parent nor any
of its subsidiaries has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, when
taken as a whole with any benefits or rights
corresponding to such liabilities or obligations, are
reasonably likely to have a material adverse effect on
Parent.
(f) Information Supplied. None of the informa tion
supplied or to be supplied by Parent specifically for
inclusion or incorporation by reference in (i) the Form
S-4 will, at the time the Form S-4 becomes effective
under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading or (ii) the Proxy
Statement will, at the date it is first mailed to
Target's or Parent's stockholders or at the time of the
Target Stockholders Meeting or the Parent Stockholders
Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated
therein or neces sary in order to make the statements
therein, in light of the circumstances under which they
are made, not misleading. The Form S-4 will comply as to
form in all
<PAGE>
32
material respects with the requirements of the Exchange
Act and the rules and regulations thereunder. No
representation or warranty is made by Parent with
respect to statements made or incorporated by reference
therein based on information supplied by Target
specifically for inclusion or incorporation by reference
in the Form S-4.
(g) Absence of Certain Changes or Events. Except
for liabilities incurred in connection with this
Agreement, the Target Stockholder Agreement, the
Employment Agreements or the transactions contemplated
hereby or thereby and except as disclosed in the Parent
SEC Documents filed and publicly available prior to the
date of this Agreement (as amended to the date of this
Agreement, the "Parent Filed SEC Documents"), from
December 31, 1998 to the date of this Agreement, Parent
and its subsidiaries have conducted their business only
in the ordinary course, and during such period there has
not been (1) any material adverse change in Parent, (2)
any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock
or property) with respect to any of Parent's capital
stock, (3) any split, combination or reclassification of
any of Parent's capital stock or any issuance or the
authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of
Parent's capital stock, (4) (A) any granting by Parent
or any of its subsidiaries to any current or former
director, consultant, executive officer or other
employee of Parent or its subsidiaries of any increase
in compensation, bonus or other benefits, except for
normal increases in cash compensation in the ordinary
course of business consistent with past practice or as
was required under any employment agreements in effect
as of the date of the most recent audited financial
statements included in the Parent Filed SEC Documents,
(B) any granting by Parent or any of its subsidiaries to
any such current or former director, consultant,
executive officer or employee of any increase in
severance or termination pay, (C) any entry by Parent or
any of its subsidiaries into, or any amendments of, any
Parent Benefit Agreement or (D) any amendment to, or
modification of, any Parent Stock Option, (5) except
insofar as may have been required by a change in GAAP,
any change in accounting methods, principles or
practices by Parent or any of its subsidiaries
materially affecting their respective assets,
liabilities or businesses, (6) any tax election that
individually or in the aggregate is reasonably likely to
adversely affect in any material respect the tax
liability or tax attributes of Parent or any of its
subsidiaries or (7) any settlement or compromise of any
<PAGE>
33
material income tax liability. Except for liabilities
incurred in connection with this Agreement, the Target
Stockholder Agreement, the Employment Agreements or the
transactions contemplated hereby or thereby and except
as disclosed in the Parent Filed SEC Documents, since
December 31, 1998, there has not been any material
adverse change in Parent.
(h) Litigation. There is no suit, action or
proceeding pending or, to the knowledge of Parent or any
of its subsidiaries, threatened against or affecting
Parent or any of its subsidiaries that, individually or
in the aggregate, is reasonably likely to have a
material adverse effect on Parent nor is there any
judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against
Parent or any of its subsidiaries having, or which is
reasonably likely to have, individually or in the
aggregate, a material adverse effect on Parent. Section
3.02(h) of the Parent Disclosure Schedule sets forth a
true and complete list, as of the date of this
Agreement, of each settlement or similar agreement in
respect of any pending or threatened suit, action,
proceeding, judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator which Parent or
any of its subsidiaries has entered into or become bound
by since June 30, 1999.
(i) Compliance with Applicable Laws. (i) Parent and
its subsidiaries hold all material permits, licenses,
variances, exemptions, orders, registrations and
approvals of all Governmental Entities (the "Parent
Permits") that are required for them to own, lease or
operate their assets and to carry on their businesses.
Parent and its subsidiaries are in compliance with the
terms of the Parent Permits and all applicable statutes,
laws (including Environmental Laws), ordinances, rules
and regulations, except for such failures to comply
that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on
Parent. No action, demand, requirement or investigation
by any Governmental Entity and no suit, action or
proceeding by any person, in each case with respect to
Parent or any of its subsidiaries or any of their
respective properties that, individually or in the
aggregate, is reasonably likely to have a material
adverse effect on Parent, is pending or, to the
knowledge of Parent, threatened.
(ii) To Parent's knowledge, there have been no
Releases of any Hazardous Materials at, on or under any
facility or property currently or formerly owned,
leased, or operated by Parent or any of its subsidi
aries that, individually or in the aggregate, are
reasonably likely to have a material adverse effect on
Parent. Neither Parent nor any of its subsidiaries is
the subject of any pending or, to Parent's knowledge,
threatened investigation or proceeding under Environ
mental Law relating in any manner to the off-site
treatment, storage or disposal of any Hazardous
Materials generated at any facility or property
currently or formerly owned, leased or operated by
Parent or any of its subsidiaries.
(j) ERISA Compliance. (i) Section 3.02(j) of the
Parent Disclosure Schedule contains a list of all
"employee pension benefit plans" (as defined in Section
3(2) of ERISA) (sometimes referred to herein as "Parent
Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA), all other collective
bargaining agreements or any bonus, pension, profit
sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom
stock, retirement, thrift, savings, stock bonus,
restricted stock, cafeteria, paid time off, perquisite,
fringe benefit, vacation, severance, disability, death
benefit, hospitalization, medical, welfare benefit or
other plan, arrangement or under standing (whether or
not legally binding) providing benefits to any current
or former employee, officer, consultant or director of
Parent (collectively, the "Parent Benefit Plans"), and
employment, consulting, deferred compensation,
indemnification, severance or termination agreements or
arrangements between Parent and any current or former
employee, officer, consultant or director of Parent
(collectively, the "Parent Benefit Agreements")
maintained, or contributed to, by Parent or any of its
subsidiaries, or to which Parent or any of its
subsidiaries is a party, for the benefit of any current
or former employees, officers or directors of Parent or
any of its subsidiaries. Parent has made available to
Target or will make available to Target upon request
true, complete and correct copies of (a) each Parent
Benefit Plan and Parent Benefit Agreement (or, in the
case of any unwritten Parent Benefit Plan or Parent
Benefit Agreement, a description thereof), (b) the most
recent annual report on Form 5500 filed with the
Internal Revenue Service with respect to each Parent
Benefit Plan (if any such report was required), (c) the
most recent summary plan description for each Parent
Benefit Plan for which such summary plan description is
required and (d) each trust agreement and group annuity
contract relating to any Parent Benefit Plan.
<PAGE>
34
(ii) Each Parent Benefit Plan has been administered
in all material respects in accordance with its terms.
Parent, its subsidiaries and each Parent Benefit Plan
are in substantial compliance with the applicable
provisions of ERISA and the Code, and all other
applicable laws and the terms of all collective
bargaining agreements. All Parent Pension Plans intended
to be qualified have received favorable determination
letters from the Internal Revenue Service with respect
to "TRA" (as defined in Section 1 of Rev. Proc. 93-39),
to the effect that such Parent Pension Plans are
qualified and exempt from Federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code,
and no such determination letter has been revoked nor,
to the knowledge of Parent, has revocation been
threatened, nor has any such Parent Pension Plan been
amended since the date of its most recent determination
letter or application therefor in any respect that would
adversely affect its qualification or materially
increase its costs. There is no pending or, to the
knowledge of Parent, threatened litigation relating to
Parent Benefit Plans.
(iii) None of Parent or any person which is
considered an ERISA Affiliate of Parent has or could
reasonably be expected to have any liability under Title
IV of ERISA with respect to any Parent Benefit Plan.
None of Parent, any of its subsidiaries, any officer of
Parent or any of its subsidiaries or any of the Parent
Benefit Plans which are subject to ERISA, including the
Parent Pension Plans, any trusts created thereunder or,
to the knowledge of Parent, any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section
4975 of the Code) or any other breach of fiduciary
responsibility that could subject Parent, any of its
subsidiaries or any officer of Parent or any of its
subsidiaries to the tax or penalty on prohibited
transactions imposed by such Section 4975 in an amount
that would be material or to any material liability
under Section 502(i) or 502(l) of ERISA. All
contributions and premiums required to be made under the
terms of any Parent Benefit Plan as of the date hereof
have been timely made or have been reflected on the most
recent consolidated balance sheet filed or incorporated
by reference in the Filed Parent SEC Documents. Neither
any Parent Pension Plan nor any single-employer plan of
an ERISA Affiliate of Parent has an "accumulated funding
deficiency" (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not
waived.
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(iv) With respect to any Parent Benefit Plan that
is an employee welfare benefit plan, (a) no such Parent
Benefit Plan is unfunded or funded through a "welfare
benefit fund" (as such term is defined in Section 419(e)
of the Code) and (b) each such Parent Benefit Plan that
is a "group health plan" (as such term is defined in
Section 5000(b)(1) of the Code) complies with the
applicable requirements of Section 4980B(f) of the Code.
Neither Parent nor any of its subsidiaries has any
obligations for retiree health and life benefits under
any Parent Benefit Plan or Parent Benefit Agreement.
(v) Parent and its subsidiaries are in compliance
with all Federal, state and local requirements regarding
employment, except for such failures to comply that,
individually and in the aggregate, are not reasonably
likely to have a material adverse effect on Parent. As
of the date of this Agreement, neither Parent nor any of
its subsidiaries is a party to any collective bargaining
or other labor union contract applicable to persons
employed by Parent or any of its subsidiaries and no
collective bargaining agreement is being negotiated by
Parent or any of its subsidiaries. As of the date of
this Agreement, there is no labor dispute, strike or
work stoppage against Parent or any of its subsidiaries
pending or, to the knowledge of Parent, threatened which
may interfere with the respective business activities of
Parent or its subsidiaries. As of the date of this
Agreement, to the knowledge of Parent, none of Parent,
any of its subsidiaries or any of their respective
representatives or employees has committed an unfair
labor practice in connection with the operation of the
respective businesses of Parent or any of its
subsidiaries, and there is no charge or complaint
against Parent or any of its subsidiaries by the
National Labor Relations Board or any comparable
governmental agency pending or threatened in writing.
(k) Taxes. (i) Each of Parent and its subsidiaries
has filed all tax returns and reports required to be
filed by it and all such returns and reports are
complete and correct in all material respects, or
requests for extensions to file such returns or reports
have been timely filed, granted and have not expired,
except to the extent that such failures to file, to be
complete or correct or to have extensions granted that
remain in effect, individually and in the aggregate, are
not reasonably likely to have a material adverse effect
on Parent. Parent and each of its subsidiaries has paid
(or Parent has paid on its behalf) all taxes due with
respect to such returns, and
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36
the most recent financial statements contained in the
Parent Filed SEC Documents reflect an adequate reserve
for all taxes payable by Parent and its subsidiaries for
all taxable periods and portions thereof accrued through
the date of such financial statements.
(ii) No deficiencies for any taxes have been
proposed, asserted or assessed against Parent or any of
its subsidiaries that are not adequately reserved for,
except for deficiencies that individually or in the
aggregate are not reasonably likely to have a material
adverse effect on Parent. The Federal income tax returns
of Parent and each of its subsidiaries consolidated in
such returns for periods ending on or before December
31, 1995, have closed by virtue of the applicable
statute of limitations and no requests for waivers of
the time to assess any such taxes are pending, and, with
respect to all subsequent periods, no Federal or state
tax return or report or any other material tax return or
report of Parent and such subsidiaries is currently
under audit and no written or unwritten notice of any
such audit or similar examination has been received by
Parent. There is no currently effective agreement or
other document extending, or having the effect of
extending, the period of assessment or collection of any
taxes and no power of attorney with respect to taxes has
been executed or filed with any taxing authority.
(iii) There are no material liens for taxes (other
than for current taxes not yet due and payable) on the
assets of Parent or any of its subsidiaries. Neither
Parent nor any of its subsidiaries is bound by any
agreement with respect to taxes.
(iv) Neither Parent nor any of its subsidiaries has
been or is a United States real property holding
corporation within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in
Section 897(c)(1)(A)(ii).
(v) Section 3.02(k)(v) of the Parent Disclosure
Schedule sets forth each state in which Parent or any of
its subsidiaries has filed a tax return relating to
state income, franchise, license, excise, net worth,
property and sales and use taxes, except in a case where
Parent or any of its subsidiaries is or has been
required to file such a tax return and such failures to
file could not individually or in the aggregate
reasonably be expected to have a material adverse effect
on Parent or any of its subsidiaries. To the knowledge
of Parent, it is not required to file any tax return or
report in any other state and no claim has
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37
ever been made by a taxing authority in a jurisdiction
where any of Parent and each of its subsidiaries does
not file a tax return that it is, or may be subject to,
taxation in that jurisdiction.
(vi) Neither Parent nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan
or other circumstance that is reasonably likely to
prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(vii) The Parent Benefit Plans and other Parent
employee compensation arrangements in effect as of the
date of this Agreement have been designed so that the
disallowance of a material deduction under Section
162(m) of the Code for employee remuneration will not
apply to any amounts paid or payable by Parent or any of
its subsidiaries under any such plan or arrangement and,
to the knowledge of Parent, no fact or circumstance
exists that is reasonably likely to cause such
disallowance to apply to any such amounts.
(viii) Neither Parent nor any of its subsidiaries
has constituted either a "distributing corporation" or a
"controlled corporation" in a distribution of stock
qualifying for tax-free treatment under Section 355 of
the Code (x) in the two years prior to the date of this
Agreement or (y) in a distribution which could other
wise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of
the Code) in conjunction with the Merger.
(l) Voting Requirements. The affirmative vote of a
majority of the votes cast at the Parent Stockholders
Meeting to approve the issuance of shares of Parent
Common Stock in connection with the Merger in accordance
with the rules and regulations of Nasdaq (the "Parent
Stockholder Approval") is the only vote of the holders
of any class or series of Parent's capital stock
necessary to approve such issuance and the transactions
contemplated hereby.
(m) State Takeover Statutes. The Board of Directors
of Parent has unanimously approved the terms of this
Agreement and the Parent Stockholder Agreement and the
consummation of the transactions contemplated by this
Agreement and the Parent Stockholder Agreement and such
approval constitutes approval of this Agreement and the
Parent Stockholder Agreement and the transactions
contemplated by this Agreement and the Parent
Stockholder Agreement by the Board of Directors of
Parent under the provisions of Section 203 of the DGCL
and represents all the action necessary to ensure
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38
that the restrictions contained in such Section 203 do
not apply to Target in connection with the transactions
contemplated this Agreement and the Parent Stockholder
Agreement. To the knowledge of Parent, no other state
takeover statute is applicable to the transactions
contemplated hereby and by the Parent Stockholder
Agreement.
(n) Intellectual Property; Year 2000. (i) As used
herein, "Parent Intellectual Property Rights" shall mean
all Intellectual Property Rights owned by or licensed to
or used by Parent as of the date of this Agreement. To
the knowledge of Parent, all the Parent Intellectual
Property Rights which are material to the conduct of its
business are valid, enforceable and in full force and
effect. Parent and its subsidiaries own, free and clear
of all Liens, or are validly licensed or otherwise have
the right to use all the Parent Intellectual Property
Rights which are material to the conduct of the business
of Parent and its subsidiaries.
(ii) To the knowledge of Parent, neither Parent nor any
of its subsidiaries has materially interfered with,
infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property Rights or other
proprietary information of any other person. Neither
Parent nor any of its subsidiaries has received any
written charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappro
priation or other conflict (including any claim that
Parent or any such subsidiary must license or refrain
from using any Intellectual Property Rights or other
proprietary information of any other person) which has
not been settled or otherwise fully resolved, except for
such charges, complaints, claims, demands or notices
that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on
Parent. Except as set forth in Section 3.02(n) of the
Parent Disclosure Schedule, to Parent's knowledge, no
other person has materially interfered with, infringed
upon, misappropriated or otherwise come into conflict
with any Parent Intellectual Property Rights or any
Intellectual Property Rights of any of its subsidiaries.
(iii) Parent has reviewed and assessed all areas within
its business and operations that could be adversely
affected by the "Parent Year 2000 Problem" (that is, the
risk that computer applications used by Parent or used
by any of the suppliers and vendors of Parent and that
interface with a computer application used by Target
that may be unable to recognize and
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39
perform properly date-sensitive functions involving
certain dates prior to and any date after December 31,
1999). Based on the foregoing, Parent represents that
all computer applications used by Parent and all
computer applications used by the suppliers and vendors
of Parent that interface with any computer application
used by Target that are material to its business or
operations are Year 2000 Compliant, except for such
failures to be Year 2000 Compliant that, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Parent.
(o) Title to Properties. (i) Each of Parent and its
subsidiaries has good and valid title to, or valid
leasehold interests in or valid rights to, all its
material properties and assets except for such as are no
longer used or useful in the conduct of its businesses
or as have been disposed of in the ordinary course of
business and except for defects in title, easements,
restrictive covenants and similar encumbrances that,
individually and in the aggregate, do not materially
interfere with its ability to conduct its business as
currently conducted. All such material assets and
properties, other than assets and properties in which
Parent or any of its subsidiaries has a leasehold
interest, are free