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AGREEMENT AND PLAN OF MERGER
BETWEEN
MATTEL, INC.
AND
THE LEARNING COMPANY, INC.
DATED AS OF DECEMBER 13, 1998
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TABLE OF CONTENTS
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ARTICLE I. DEFINITIONS........................................................................ 2
ARTICLE II. THE MERGER......................................................................... 11
SECTION 2.1. THE MERGER.................................................................... 11
SECTION 2.2. CLOSING AND CLOSING DATE...................................................... 11
SECTION 2.3. EFFECTIVE TIME................................................................ 11
SECTION 2.4. EFFECTS OF THE MERGER......................................................... 12
SECTION 2.5. CERTIFICATE OF INCORPORATION; BYLAWS.......................................... 12
SECTION 2.6. DIRECTORS AND OFFICERS........................................................ 12
SECTION 2.7. CONVERSION OF SECURITIES...................................................... 12
SECTION 2.8. TREATMENT OF EMPLOYEE OPTIONS AND OTHER COMPANY STOCK RIGHTS.................. 14
SECTION 2.9. TREATMENT OF EXCHANGEABLE SHARES.............................................. 15
SECTION 2.10. FRACTIONAL INTERESTS.......................................................... 16
SECTION 2.11. SURRENDER OF SHARES OF COMPANY COMMON STOCK; STOCK TRANSFER BOOKS............. 16
SECTION 2.12. LOST, STOLEN OR DESTROYED CERTIFICATES........................................ 18
SECTION 2.13. TAX CONSEQUENCES.............................................................. 19
SECTION 2.14. WITHHOLDING RIGHTS............................................................ 19
SECTION 2.15. AFFILIATES.................................................................... 19
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................. 19
SECTION 3.1. ORGANIZATION AND QUALIFICATION................................................ 19
SECTION 3.2. AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT............................... 20
SECTION 3.3. CAPITALIZATION................................................................ 20
SECTION 3.4. SUBSIDIARIES.................................................................. 21
SECTION 3.5. OTHER INTERESTS............................................................... 22
SECTION 3.6. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.................................... 22
SECTION 3.7. COMPLIANCE.................................................................... 23
SECTION 3.8. SEC DOCUMENTS................................................................. 23
SECTION 3.9. ABSENCE OF CERTAIN CHANGES.................................................... 24
SECTION 3.10. LITIGATION.................................................................... 24
SECTION 3.11. TAXES......................................................................... 24
SECTION 3.12. EMPLOYEE BENEFIT PLANS........................................................ 26
SECTION 3.13. ASSETS........................................................................ 27
SECTION 3.14. CONTRACTS..................................................................... 28
SECTION 3.15. LABOR RELATIONS............................................................... 29
SECTION 3.16. INTELLECTUAL PROPERTY......................................................... 30
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SECTION 3.17. AFFILIATE TRANSACTIONS........................................................ 31
SECTION 3.18. ENVIRONMENTAL MATTERS......................................................... 31
SECTION 3.19. JOINT PROXY STATEMENT PROSPECTUS; REGISTRATION STATEMENT...................... 32
SECTION 3.20. OPINION OF FINANCIAL ADVISOR.................................................. 32
SECTION 3.21. BROKERS....................................................................... 33
SECTION 3.22. VOTE REQUIRED................................................................. 33
SECTION 3.23. ACCOUNTING AND TAX MATTERS.................................................... 33
SECTION 3.24. NO OTHER AGREEMENTS TO SELL THE COMPANY OR ITS ASSETS; NO EXISTING
DISCUSSIONS................................................................... 34
SECTION 3.25. INSURANCE..................................................................... 34
SECTION 3.26. TAKEOVER PROVISIONS INAPPLICABLE.............................................. 34
SECTION 3.27. ACCOUNTS RECEIVABLE........................................................... 34
SECTION 3.28. INVENTORY..................................................................... 34
SECTION 3.29. PRODUCT LIABILITY............................................................. 35
SECTION 3.30. STANDSTILL AGREEMENT.......................................................... 35
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF ACQUIROR........................................... 35
SECTION 4.1. ORGANIZATION AND QUALIFICATION................................................ 35
SECTION 4.2. AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT............................... 35
SECTION 4.3. CAPITALIZATION................................................................ 36
SECTION 4.4. SUBSIDIARIES.................................................................. 37
SECTION 4.5. OTHER INTERESTS............................................................... 37
SECTION 4.6. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.................................... 37
SECTION 4.7. COMPLIANCE.................................................................... 38
SECTION 4.8. SEC DOCUMENTS................................................................. 38
SECTION 4.9. ABSENCE OF CERTAIN CHANGES.................................................... 39
SECTION 4.10. LITIGATION.................................................................... 39
SECTION 4.11. TAXES......................................................................... 40
SECTION 4.12. EMPLOYEE BENEFIT PLANS........................................................ 41
SECTION 4.13. TITLE TO ASSETS............................................................... 42
SECTION 4.14. CONTRACTS..................................................................... 42
SECTION 4.15. LABOR RELATIONS............................................................... 43
SECTION 4.16. INTELLECTUAL PROPERTY......................................................... 43
SECTION 4.17. ENVIRONMENTAL MATTERS......................................................... 44
SECTION 4.18. JOINT PROXY STATEMENT PROSPECTUS; REGISTRATION STATEMENT...................... 44
SECTION 4.19. OPINION OF FINANCIAL ADVISOR.................................................. 44
SECTION 4.20. OWNERSHIP OF COMPANY COMMON STOCK............................................. 45
SECTION 4.21. BROKERS....................................................................... 45
SECTION 4.22. VOTE REQUIRED................................................................. 45
SECTION 4.23. TAX AND ACCOUNTING MATTERS.................................................... 45
SECTION 4.24. RIGHTS PLAN................................................................... 45
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ARTICLE V. CONDUCT OF BUSINESS PENDING THE MERGER................................................ 46
SECTION 5.1. CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER.......................... 46
SECTION 5.2. CONDUCT OF BUSINESS OF ACQUIROR PENDING THE MERGER............................. 49
ARTICLE VI. ADDITIONAL AGREEMENTS................................................................. 50
SECTION 6.1. PREPARATION OF FORM S-4 AND THE PROXY STATEMENT; STOCKHOLDER MEETING........... 50
SECTION 6.2. COOPERATION; NOTICE; CURE...................................................... 51
SECTION 6.3. NO SOLICITATION................................................................ 52
SECTION 6.4. ACCESS TO INFORMATION.......................................................... 54
SECTION 6.5. GOVERNMENTAL APPROVALS......................................................... 54
SECTION 6.6. PUBLICITY...................................................................... 55
SECTION 6.7. INDEMNIFICATION................................................................ 55
SECTION 6.8. EMPLOYEE BENEFITS MATTERS...................................................... 56
SECTION 6.9. AFFILIATE AGREEMENTS........................................................... 57
SECTION 6.10. POOLING ACCOUNTING............................................................. 57
SECTION 6.11. TAX TREATMENT OF REORGANIZATION................................................ 58
SECTION 6.12. FURTHER ASSURANCES AND ACTIONS................................................. 58
SECTION 6.13. STOCK EXCHANGE LISTING......................................................... 58
SECTION 6.14. LETTER OF THE COMPANY'S ACCOUNTANTS............................................ 58
SECTION 6.15. LETTER OF ACQUIROR'S ACCOUNTANTS............................................... 59
ARTICLE VII. CONDITIONS OF MERGER.................................................................. 59
SECTION 7.1. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.................... 59
SECTION 7.2. CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE MERGER.................. 60
SECTION 7.3. CONDITIONS TO OBLIGATIONS OF ACQUIROR TO EFFECT THE MERGER..................... 60
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER.............................................. 61
SECTION 8.1. TERMINATION.................................................................... 61
SECTION 8.2. EFFECT OF TERMINATION.......................................................... 62
SECTION 8.3. EXPENSES....................................................................... 64
SECTION 8.4. AMENDMENT...................................................................... 64
SECTION 8.5. WAIVER......................................................................... 64
ARTICLE IX. GENERAL PROVISIONS.................................................................... 64
SECTION 9.1. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS..................... 64
SECTION 9.2. NOTICES........................................................................ 64
SECTION 9.3. SEVERABILITY................................................................... 65
SECTION 9.4. ENTIRE AGREEMENT; ASSIGNMENT................................................... 65
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SECTION 9.5. PARTIES IN INTEREST.................................. 66
SECTION 9.6. GOVERNING LAW........................................ 66
SECTION 9.7. HEADINGS............................................. 66
SECTION 9.8. SPECIFIC PERFORMANCE................................. 66
SECTION 9.9. ALTERNATIVE TRANSACTION STRUCTURE.................... 66
SECTION 9.10. COUNTERPARTS......................................... 66
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EXHIBITS
--------
EXHIBIT A FORM OF STOCK OPTION AGREEMENT
EXHIBIT B FORM OF STOCKHOLDER SUPPORT AGREEMENT
EXHIBIT C FORM OF COMPANY AFFILIATE LETTER
EXHIBIT D FORM OF ACQUIROR AFFILIATE LETTER
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 13, 1998
(the "Agreement"), between MATTEL, INC., a Delaware corporation ("Acquiror"),
--------- --------
and THE LEARNING COMPANY, INC., Delaware corporation (the "Company").
-------
RECITALS
WHEREAS, the Boards of Directors of Acquiror and the Company
have each approved the merger of the Company with and into Acquiror (the
"Merger") in accordance with the Delaware General Corporation Law (the "DGCL")
------ ----
upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Acquiror's willingness to enter
into this Agreement, Acquiror and the Company have entered into Stock Option
Agreement, dated as of the date of this Agreement, in the form attached hereto
as Exhibit A (the "Stock Option Agreement"), pursuant to which the Company has
----------------------
granted to Acquiror an option to purchase shares of common stock of the Company
under certain circumstances;
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Acquiror's willingness to enter
into this Agreement, certain stockholders of the Company have entered into
Stockholder Support Agreements with Acquiror, dated as of the date of this
Agreement, in the form attached hereto as Exhibit B (the "Stockholder Support
-------------------
Agreements"), pursuant to which such stockholders have agreed, among other
----------
things, to vote all voting securities of the Company beneficially owned by them
in favor of approval and adoption of the Agreement and the Merger;
WHEREAS, for federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and
----
WHEREAS, it is intended that, for accounting purposes, the
Merger will be accounted for as a "pooling of interests" under GAAP and
applicable rules and regulations of the SEC.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Acquiror and the Company hereby agree as follows:
1
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ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the term:
"Acquiror" shall have the meaning set forth in the Preamble.
--------
"Acquiror Board" shall have the meaning set forth in Section
--------------
2.8(a).
"Acquiror Common Stock" shall mean the common stock, par value
---------------------
$1.00 per share, of Acquiror.
"Acquiror Contract" shall mean any note, bond, mortgage,
-----------------
indenture, guarantee, other evidence of indebtedness, lease, license, contract,
agreement or other instrument or obligation to which Acquiror or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound and which involves the payment or receipt of money in excess
of $5,000,000 in any year.
"Acquiror Employee Plans" shall mean all Employee Plans with
-----------------------
respect to which Acquiror, any of its Subsidiaries or any ERISA Affiliates of
Acquiror or any Subsidiary of Acquiror has or may have any liability (accrued,
contingent or otherwise).
"Acquiror Disclosure Schedule" shall have the meaning set
----------------------------
forth in Article IV.
"Acquiror Intellectual Property Rights" shall have the meaning
-------------------------------------
set forth in Section 4.16(a).
"Acquiror Option Plans" shall have the meaning set forth in
---------------------
Section 4.3(a).
"Acquiror Options" shall have the meaning set forth in
----------------
Section 4.3(a).
"Acquiror Preferred Stock" shall have the meaning set forth
------------------------
in Section 4.3(a).
"Acquiror Right" shall mean a Right (as defined in the
--------------
Acquiror Rights Agreement).
"Acquiror Rights Agreement" shall mean the Rights Agreement,
-------------------------
dated as of February 7, 1992, between Acquiror and The First National Bank of
Boston, as Rights Agent.
"Acquiror SEC Reports" shall have the meaning set forth in
--------------------
Section 4.8(a).
"Acquiror Series E Preference Stock" shall have the meaning
----------------------------------
set forth in Section 4.3(a).
"Acquiror Special Voting Share" shall mean the one share of a
-----------------------------
class or series of capital stock of Acquiror, to be issued by Acquiror to, and
deposited with, the trustee under the Old Voting and Exchange Trust Agreement,
and to entitle the holder of record thereof to a
2
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number of votes at meetings of holders of shares of Acquiror Common Stock equal
to the number of shares of Acquiror Common Stock into which the Exchangeable
Shares outstanding from time to time after the Effective Time (other than
Exchangeable Shares held by Acquiror, its Subsidiaries and Affiliates) are
exchangeable, and to have substantially the rights, privileges, restrictions and
conditions to be described in the Old Voting and Exchange Trust Agreement.
"Acquiror Stockholder Approval" shall have the meaning set
-----------------------------
forth in Section 4.22.
"Acquiror Stockholder Meeting" shall have the meaning set
----------------------------
forth in Section 3.19.
"Acquisition Proposal" shall have the meaning set forth in
--------------------
Section 6.3(b).
"Acquisition Transaction" shall have the meaning set forth in
-----------------------
Section 6.3(b).
"Action" shall mean any action, order, writ, injunction,
------
judgment or decree outstanding or claim, suit, litigation, proceeding,
arbitration or investigation by or before any court, governmental or other
regulatory or administrative agency or commission or any other Person.
"Additional Termination Fee" shall have the meaning set forth
--------------------------
in Section 8.2(b).
"Affiliate" shall mean, with respect to any Person, any other
---------
Person that directly, or through one or more intermediaries, controls or is
controlled by or is under common control with such Person.
"Affiliate Agreement" shall have the meaning set forth in
-------------------
Section 2.15.
"Agreement" shall have the meaning set forth in the Preamble.
---------
"Assets" shall mean, with respect to any Person, all land,
------
buildings, improvements, leasehold improvements, Fixtures and Equipment and
other assets, real or personal, tangible or intangible, owned, leased or
licensed by such Person or any of its Subsidiaries.
"Average Acquiror Price" shall mean the average of the closing
----------------------
prices of the Acquiror Common Stock on the NYSE as reported on the NYSE
Composite Transaction Tape for the Random Trading Days. "Random Trading Days"
means the ten trading days selected by lot out of the twenty trading days ending
on and including the fifth trading day preceding the Effective Time. The Random
Trading Days shall be selected by lot by designated representatives of Acquiror
and the Company at 5:00 p.m. New York City time on the second trading day
preceding the Effective Time.
"Benefit Arrangement" shall mean, with respect to any Person,
-------------------
any employment, consulting, severance, change in control or other similar
contract, arrangement or policy and each plan, arrangement (written or oral),
program, agreement or commitment providing for insurance
3
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coverage (including without limitation any self-insured arrangements), workers'
compensation, disability benefits, life, health, disability or accident benefits
(including without limitation any "voluntary employees' beneficiary association"
as defined in Section 501(c)(9) of the Code providing for the same or other
benefits) or for deferred compensation, profit-sharing bonuses, stock options,
stock appreciation rights, stock purchases or other forms of incentive
compensation other than Welfare Plan, Pension Plan or Multiemployer Plan, in
each case with respect to which such Person or any ERISA Affiliate has or may
have any liability (accrued, contingent or otherwise).
"Blue Sky Laws" shall have the meaning set forth in Section
-------------
3.6(b).
"Business Day" shall mean each day other than Saturdays,
------------
Sundays and days when commercial banks are authorized to be closed for business
in New York, New York.
"Bylaws" shall have the meaning set forth in Section 2.5(b).
------
"Canadian Sub" shall mean SoftKey Software Products Inc., a
------------
corporation governed by the Business Corporations Act (Ontario), all of the
issued and outstanding shares of which, other than 5,205,191 Exchangeable
Shares, are, as of the date hereof, owned, directly or indirectly, by the
Company.
"Canadian Sub Board" shall have the meaning set forth in
------------------
Section 2.9(a).
"Certificate of Incorporation" shall have the meaning set
----------------------------
forth in Section 2.5(a).
"Certificate of Merger" shall have the meaning set forth in
---------------------
Section 2.3.
"Certificates" shall have the meaning set forth in Section
------------
2.11(b).
"Claims" shall have the meaning set forth in Section 4.12(d).
------
"Closing" shall have the meaning set forth in Section 2.2.
-------
"Closing Date" shall have the meaning set forth in Section
------------
2.2.
"Code" shall have the meaning set forth in the Recitals.
----
"Common Merger Consideration" shall have the meaning set
---------------------------
forth in Section 2.7(a).
"Company" shall have the meaning set forth in the Preamble.
-------
"Company Affiliate" shall have the meaning set forth in
-----------------
Section 6.9.
"Company Board" shall have the meaning set forth in Section
-------------
2.8(a).
"Company Common Stock" shall have the meaning set forth in
--------------------
Section 2.7(a).
4
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"Company Contract" shall have the meaning set forth in
----------------
Section 3.14(a).
"Company Disclosure Schedule" shall have the meaning set
---------------------------
forth in Article III.
"Company Employee Plans" shall mean all Employee Plans with
----------------------
respect to which the Company, any of its Subsidiaries or any ERISA Affiliates of
the Company or any Subsidiary of the Company has or may have any liability
(accrued, contingent or otherwise).
"Company Financial Advisor" shall have the meaning set forth
-------------------------
in Section 3.20.
"Company Insurance Policies" shall have the meaning set forth
--------------------------
in Section 3.25.
"Company Intellectual Property Rights" shall have the meaning
------------------------------------
set forth in Section 3.16(a).
"Company Leased Property" shall have the meaning set forth in
-----------------------
Section 3.13(a).
"Company Options" shall have the meaning set forth in Section
---------------
3.3(a).
"Company Owned Property" shall have the meaning set forth in
----------------------
Section 3.13(a).
"Company Preferred Stock" shall have the meaning set forth in
-----------------------
Section 2.7(b).
"Company Real Property" shall have the meaning set forth in
---------------------
Section 3.13(a).
"Company SEC Reports" shall have the meaning set forth in
-------------------
Section 3.8(a).
"Company Special Voting Stock" shall have the meaning set
----------------------------
forth in Section 2.7(c).
"Company Stock" shall have the meaning set forth in Section
-------------
2.11(a).
"Company Stock Plans" shall mean the LTIP, the Non-Employee
-------------------
Director Plans, the Stock Option Plan, the Employee Stock Purchase Plan and any
other stock option, performance unit or similar plan of the Company and its
Subsidiaries provided, however, that "Company Stock Plans" shall not include the
Stock Option Agreement.
"Company Stock Rights" shall mean all stock options,
--------------------
restricted stock awards, performance awards, dividend equivalents, deferred
stock, stock payments, stock appreciation rights and shares of capital stock
granted, awarded, earned or purchased pursuant to any Company Stock Plan.
"Company Stockholder Approval" shall have the meaning set
----------------------------
forth in Section 3.22.
"Company Stockholder Meeting" shall have the meaning set
---------------------------
forth in Section 3.19.
5
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"Confidentiality Agreement" shall have the meaning set forth
-------------------------
in Section 6.4.
"Consents" shall have the meaning set forth in Section 7.3(e).
--------
"Contracts" shall have the meaning set forth in Section
---------
3.14(a).
"Current Premium" shall have the meaning set forth in Section
---------------
6.7(b).
"DGCL" shall have the meaning set forth in the Recitals.
----
"Effective Time" shall have the meaning set forth in Section
--------------
2.3.
"Employee Benefits" shall have the meaning set forth in
-----------------
Section 6.8.
"Employee Plans" shall mean all Benefit Arrangements,
--------------
Multiemployer Plans, Pension Plans and Welfare Plans.
"Employee Stock Purchase Plan" shall mean the Company's 1997
----------------------------
Employee Stock Purchase Plan.
"Encumbrances" shall mean any claim, lien, pledge, option,
------------
charge, easement, security interest, deed of trust, mortgage, right-of-way,
covenant, condition, restriction, encumbrance or other rights of third parties,
including, without limitation, Encumbrances that arise pursuant to Environmental
Laws.
"Environmental Laws" shall mean any foreign, federal, state or
------------------
local law, statute, ordinance, order, decree, rule or regulation relating to
releases, discharges, emissions or disposals to air, water, land or groundwater
of Hazardous Materials; to the use, handling, transport, release or disposal of
polychlorinated biphenyls, asbestos or urea formaldehyde or any other Hazardous
Material; to the treatment, storage, disposal or management of Hazardous
Materials; to exposure to toxic, hazardous or other controlled, prohibited or
regulated substances; to health or safety in the workplace; and to the
protection of the public's health and safety and the environment, including the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
9601, et seq. ("CERCLA"), the Resource Conservation and Recovery Act, 42 U.S.C.
------
6901, et seq. ("RCRA"), the Toxic Substances Control Act, 15 U.S.C. 2601, et
----
seq. ("TSCA"), the Occupational, Safety and Health Act, 29 U.S.C. 651, et seq.,
----
the Clean Air Act, 42 U.S.C. 7401, et seq., the Federal Water Pollution Control
Act, 33 U.S.C. 1251, et seq., the Safe Drinking Water Act, 42 U.S.C. 300f, et
seq., the Hazardous Materials Transportation Act, 49 U.S.C. 1802 et seq.
("HMTA") and the Emergency Planning and Community Right to Know Act, 42 U.S.C.
----
11001 et seq. ("EPCRA"), and other comparable foreign, state and local laws and
-----
all rules, regulations and guidance documents promulgated pursuant thereto or
published thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended.
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"ERISA Affiliate" shall mean, with respect to any Person, any
----------------
entity which is (or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of as "affiliated
service group" with, such Person as defined in Section 414(b), (c), (m) or (o)
of the Code.
"Exchange Act" shall mean the Securities and Exchange Act of
------------
1934, as amended, and the rules and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning set forth in Section
--------------
2.11(a).
"Exchange Ratio" shall have the meaning set forth in Section
--------------
2.7(a).
"Exchangeable Shares" shall mean the Exchangeable
--------------------
Non-Voting Shares in the capital of Canadian Sub.
"Fees and Expenses" shall have the meaning set forth in
-----------------
Section 8.2(c).
"Fixtures and Equipment" shall mean, with respect to any
----------------------
Person, all of the furniture, fixtures, furnishings, machinery and equipment
owned, leased or licensed by such Person and located in, at or upon the
facilities of such Person.
"GAAP" shall mean generally accepted accounting principles in
----
the United States of America, as in effect from time to time, consistently
applied.
"Governmental Approvals" shall have the meaning set forth in
----------------------
Section 6.5(a).
"Governmental Entities" shall mean all courts, administrative
---------------------
agencies, commissions or other governmental authorities, bodies or
instrumentalities, federal, state, local, domestic or foreign.
"Hazardous Materials" shall mean each and every element,
-------------------
compound, chemical mixture, contaminant, pollutant, material, waste or other
substance which is defined, determined or identified as or has the potential to
be hazardous or toxic under Environmental Laws or the release of which is
regulated under Environmental Laws. Without limiting the generality of the
foregoing, the term includes: "hazardous substances" as defined in CERCLA;
"extremely hazardous substances" as defined in EPCRA; "hazardous waste" as
defined in RCRA; "hazardous materials" as defined in HMTA; "chemical substance
or mixture" as defined in TSCA; crude oil, petroleum products or any fraction
thereof; radioactive materials including source, byproduct or special nuclear
materials; asbestos or asbestos-containing materials; chlorinated fluorocarbons
("CFCs"); and radon.
----
"HSR Act" shall have the meaning set forth in Section 3.6(b).
-------
"Indemnified Parties" shall have the meaning set forth in
-------------------
Section 6.7(a).
"Initial Termination Fee" shall have the meaning set forth in
-----------------------
Section 8.2(b).
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"Joint Proxy Statement/Prospectus" shall have the meaning set
--------------------------------
forth in Section 3.19.
"Lease and Operational Documents" shall have the meaning set
-------------------------------
forth in Section 3.13(c).
"LTIP" shall mean the Company's Long-Term Equity Incentive
----
Plan, restated as of August 31, 1998.
"Material Adverse Effect" shall mean, with respect to either
-----------------------
of the Company or Acquiror, as the context requires, a material adverse change
in, or effect on, the business, results of operations or financial condition of
such Person and its Subsidiaries taken as a whole or any change which materially
impairs or materially delays the ability of such Person to consummate the
transactions contemplated by this Agreement; provided, however, that none of the
following shall be deemed by itself or by themselves, either alone or in
combination, to constitute a Material Adverse Effect: (i) with respect to the
Company, a failure by the Company to meet the revenue or earnings predictions of
equity analysts as reflected in the First Call consensus estimate, or any other
revenue or earnings predictions or expectations, for any period ending on or
after the date of this Agreement, or, in the case of the Acquiror, a failure by
the Acquiror to meet the revenue or earnings predictions of equity analysts as
reflected in the First Call consensus estimate, or any other revenue or earnings
predictions or expectations, for any period ending on or after the date of this
Agreement, (ii) in the case of the Company, conditions affecting the educational
and/or productivity software industries as a whole, or, in the case of the
Acquiror, conditions affecting the toy and edutainment industries as whole,
(iii) any effect arising primarily out of or resulting primarily from actions
contemplated by the parties in connections with, or which is attributable to,
the announcement of this Agreement and the transactions contemplated hereby.
"Material Intellectual Property Rights" shall have the
-------------------------------------
meaning set forth in Section 3.16(c).
"Material Licenses" shall have the meaning set forth in
-----------------
Section 3.16(b).
"Merger" shall have the meaning set forth in the Recitals.
------
"Merger Consideration" shall have the meaning set forth in
--------------------
Section 2.11(a).
"Multiemployer Plan" shall mean, with respect to any Person,
------------------
any "multiemployer plan," as defined in Section 4001(a)(3) of ERISA, under which
such Person or any ERISA Affiliate has or may have any liability (accrued,
contingent or otherwise).
"New Stock Rights" shall have the meaning set forth in
----------------
Section 2.8(a).
"Non-Employee Director Plans" shall mean the Company's 1994
---------------------------
Non-Employee Director Stock Option Plan, as amended and restated effective
February 5, 1996 and the Company's 1996 Non-Employee Director Stock Option Plan.
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"Notifying Party" shall have the meaning set forth in Section
---------------
6.5(a).
"NYSE" shall mean the New York Stock Exchange.
----
"Old Support Agreement" shall mean that certain support
---------------------
agreement made as of February 4, 1994 between the Company (under its previous
name, "SoftKey International, Inc.") and Canadian Sub.
"Old Voting and Exchange Trust Agreement" shall mean that
---------------------------------------
certain voting and exchange trust agreement made as of February 4, 1994 between
the Company (under its previous corporate name, "SoftKey International, Inc."),
Canadian Sub and CIBC Mellon Trust Company (under its previous corporate name,
"The R-M Trust Company").
"Pension Plan" shall mean, with respect to any Person, any
------------
"employee pension benefit plan" as defined in Section 3(2) of ERISA (other than
a Multiemployer Plan) which such Person contributed to or was required to
contribute to, or under which such Person or any ERISA Affiliate has or may have
any liability (accrued, contingent or otherwise).
"Permitted Encumbrances" shall mean any Encumbrances resulting
----------------------
from (i) all statutory or other liens for Taxes or assessments which are not yet
due or delinquent or the validity of which are being contested in good faith by
appropriate proceedings for which adequate reserves are being maintained in
accordance with GAAP; (ii) all cashiers', landlords', workers' and repairers'
liens, and other similar liens imposed by law, incurred in the ordinary course
of business; (iii) all laws and governmental rules, regulations, ordinances and
restrictions; (iv) all leases, subleases, licenses, concessions or service
contracts to which any Person or any of its Subsidiaries is a party; (v)
Encumbrances identified on title policies or preliminary title reports or other
documents or writing delivered or made available for inspection to any Person
prior to the date hereof or included in the Public Records; and (vi) all other
liens and mortgages, covenants, imperfections in title, charges, easements,
restrictions and other Encumbrances which, in the case of any such Encumbrances
pursuant to clause (i) through (vi), do not materially detract from or
materially interfere with the present use of the asset subject thereto or
affected thereby.
"Person" shall mean any individual, corporation, partnership,
------
limited liability company, joint venture, governmental agency or
instrumentality, or any other entity.
"Preferred Merger Consideration" shall have the meaning set
------------------------------
forth in Section 2.7(b).
"Proceeding" shall have the meaning set forth in Section
----------
6.7(a).
"Registration Statement" shall have the meaning set forth in
----------------------
Section 3.19.
"Representative" shall have the meaning set forth in Section
--------------
6.3(b).
"Rule 145" shall have the meaning set forth in Section 6.9.
--------
9
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"SEC" shall mean the Securities Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations promulgated thereunder.
"Special Voting Stock Merger Consideration" shall have the
-----------------------------------------
meaning set forth in Section 2.7(c).
"Stock Option Agreement" shall have the meaning set forth in
----------------------
the Recitals.
"Stock Option Plan" shall mean the Company's 1996 Stock Option
-----------------
Plan, restated as of March 5, 1998.
"Stockholder Support Agreement" shall have the meaning set
-----------------------------
forth in the Recitals.
"Subsidiary" shall mean, with respect to any Person, any
----------
corporation, entity or other organization, whether incorporated or
unincorporated, of which (i) such Person directly or indirectly owns or controls
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions; or (ii) such Person is a general partner, manager
or managing member.
"Superior Proposal" shall have the meaning set forth in
-----------------
Section 6.3(b).
"Support Agreement Amendment" shall mean an agreement to be
---------------------------
made as of the Effective Time between Acquiror, the Company and Canadian Sub, as
required by Section 2.9 thereof, for the purpose of amending the Old Support
Agreement, and providing for, among other things, the Merger.
"Surviving Corporation" shall have the meaning set forth in
---------------------
Section 2.1.
"Tax" or "Taxes" shall mean all federal, state, local, foreign
--- -----
and other taxes, levies, imposts, assessments, impositions or other similar
government charges, including, without limitation, income, estimated income,
business, occupation, franchise, real property, payroll, personal property,
sales, transfer, stamp, use, employment, commercial rent or withholding,
occupancy, premium, gross receipts, profits, windfall profits, deemed profits,
license, lease, severance, capital, production, corporation, ad valorem, excise,
duty or other taxes, including interest, penalties and additions (to the extent
applicable) thereto whether disputed or not.
"Tax Return" shall mean any report, return, document,
----------
declaration or other information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes,
including, without limitation, information returns, any documents with respect
to or accompanying payments of estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file any such
report, return, document, declaration or other information.
10
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"Termination Time" shall have the meaning set forth in
----------------
Section 8.1(b).
"Third Party" shall have the meaning set forth in Section
-----------
6.3(b).
"Voting and Exchange Trust Supplement" shall mean an agreement
------------------------------------
to be made as of the Effective Time between Acquiror, the Company, Canadian Sub
and a trustee for the holders of the Exchangeable Shares, to the extent required
by Section 11.1 and Section 12.4 of the Old Voting and Exchange Trust Agreement,
providing for the assumption by Acquiror of the obligations of the Company under
the Old Voting and Exchange Trust Agreement and the other matters specified
therein.
"Voting Debt" shall have the meaning set forth in Section
-----------
3.3(b).
"Welfare Plan" shall mean, with respect to any Person, any
------------
"employee welfare benefit plan" as defined in Section 3(1) of ERISA under which
such Person has or may have any liability (accrued, contingent or otherwise).
ARTICLE II.
THE MERGER
SECTION 2.1. THE MERGER. Upon the terms and subject to the conditions
of this Agreement and in accordance with the DGCL, at the Effective Time, the
Company shall be merged with and into Acquiror. As a result of the Merger, the
separate corporate existence of the Company shall cease and Acquiror shall
continue as the surviving corporation (the "Surviving Corporation") and shall
---------------------
succeed to and assume all of the rights and obligations of the Company in
accordance with the DGCL. The name of Acquiror, as the Surviving Corporation,
shall remain "Mattel, Inc."
SECTION 2.2. CLOSING AND CLOSING DATE. Unless this Agreement shall
have been terminated and the transactions herein contemplated shall have been
abandoned pursuant to the provisions of Section 8.1, the closing (the "Closing")
-------
of the Merger shall take place (a) at 9:00 a.m., New York City time, on the
second Business Day after all of the conditions to the respective obligations of
the parties set forth in Article VII hereof shall have been satisfied or waived
or (b) at such other time and date as Acquiror and the Company shall agree (such
date and time on and at which the Closing occurs being referred to herein as the
"Closing Date"). The Closing shall take place at the offices of Latham & Watkins
------------
located at 633 West Fifth Street, Sixth Floor, Los Angeles, California 90071. At
the Closing the documents, certificates, opinions and instruments referred to in
Article VII shall be executed and delivered.
SECTION 2.3. EFFECTIVE TIME. The parties hereto shall cause the Merger
to be consummated by filing a certificate of merger (the "Certificate of
--------------
Merger") on the Closing Date with the Secretary of State of the State of
------
Delaware, in such form as required by and executed in accordance with the
relevant provisions of the DGCL (the date and time of the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware or at
such later time or date after such filing as may be specified in the Certificate
of Merger being the "Effective Time").
--------------
11
<PAGE>
SECTION 2.4. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Acquiror shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Acquiror shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 2.5. CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time and without any further action on the part of
the Company and Acquiror, the Certificate of Incorporation (the "Certificate of
--------------
Incorporation") of Acquiror shall be the Certificate of Incorporation of the
-------------
Surviving Corporation.
(b) At the Effective Time and without any further action on the part of
the Company and Acquiror, the bylaws (the "Bylaws") of Acquiror as in effect
------
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until duly amended as provided for therein and under the DGCL.
SECTION 2.6. DIRECTORS AND OFFICERS. The directors of Acquiror
immediately prior to the Effective Time shall continue as the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Acquiror immediately prior to the Effective Time shall continue as the officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
SECTION 2.7. CONVERSION OF SECURITIES. At the Effective Time, by
virtue of the Merger and without any action on the part of Acquiror, the Company
or the holders of any of the following securities:
(a) Subject to Section 2.10, each share of Common Stock, par value $.01
per share, of the Company (the "Company Common Stock"), issued and outstanding
--------------------
immediately prior to the Effective Time (other than shares of Company Common
Stock to be canceled in accordance with Section 2.7(d) hereof) shall be changed
and converted into and represent the right to receive a number (rounded to the
nearest hundred thousandth of a share) (adjusted as set forth in subsection (f),
the "Exchange Ratio") of fully paid and nonassessable shares of Acquiror Common
--------------
Stock equal to the number determined by dividing $33.00 by the Average Acquiror
Price; provided, however, that (i) if the number determined by dividing $33.00
by the Average Acquiror Price is less than or equal to 1.0, the Exchange Ratio
shall be 1.0, and (ii) if the number determined by dividing $33.00 by the
Average Acquiror Price is 1.2 or higher, the Exchange Ratio shall be 1.2 (the
"Common Merger Consideration"). As of the Effective Time, all such shares of
---------------------------
Company Common Stock shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
which, prior to the Effective Time, represented any such shares of Company
Common Stock shall cease to have any rights with respect thereto, except the
right to receive (i) the Common Merger Consideration, (ii) any cash in lieu of
fractional shares of Acquiror Common Stock to be issued or paid in
12
<PAGE>
consideration therefor upon surrender of such certificate in accordance with
Section 2.10 and (iii) any dividends and distributions in accordance with
Section 2.11(e), in each case without interest.
(b) Subject to Section 2.10, each share of Series A Convertible
Participating Preferred Stock, par value $.01 per share, of the Company (the
"Company Preferred Stock"), issued and outstanding immediately prior to the
-----------------------
Effective Time (other than shares of Company Preferred Stock to be canceled in
accordance with Section 2.7(d) hereof) shall be changed and converted into and
represent the right to receive a number of fully paid and nonassessable shares
of Acquiror Common Stock equal to the product of (i) the Exchange Ratio and (ii)
the number of shares of Company Common Stock issuable upon conversion of such
share of Company Preferred Stock immediately prior to the Effective Time (the
"Preferred Merger Consideration"). As of the Effective Time, all such shares of
------------------------------
Company Preferred Stock shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate which, prior to the Effective Time, represented any such shares of
Company Preferred Stock shall cease to have any rights with respect thereto,
except the right to receive (i) the Preferred Merger Consideration, (ii) any
cash in lieu of fractional shares of Acquiror Common Stock to be issued or paid
in consideration therefor upon surrender of such certificate in accordance with
Section 2.10 and (iii) any dividends and distributions in accordance with
Section 2.11(e), in each case without interest.
(c) As of the Effective Time, each outstanding share of special voting
stock, par value $1.00 per share, of the Company ("Company Special Voting
----------------------
Stock") shall be changed and converted into and represent the right to receive
-----
one Acquiror Special Voting Share (the "Special Voting Stock Merger
---------------------------
Consideration"). As of the Effective Time, all such shares of Company Special
-------------
Voting Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate which,
prior to the Effective Time, represented any such shares of Company Special
Voting Stock shall cease to have any rights with respect thereto, except the
right to receive the Special Voting Stock Merger Consideration.
(d) Each share of Company Common Stock and Company Preferred Stock that
is (i) held in the treasury of the Company or (ii) owned by Acquiror or any
direct or indirect Subsidiary of Acquiror or the Company, in each case
immediately prior to the Effective Time, shall be canceled and retired without
any conversion thereof and no payment or distribution shall be made with respect
thereto.
(e) Each share of common, preferred or other capital stock of Acquiror
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and shall be unchanged after the Merger.
(f) The Exchange Ratio shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Acquiror Common Stock),
reorganization, recapitalization, reclassification or other like change with
respect to Acquiror Common Stock occurring after the date hereof and prior to
the Effective Time.
13
<PAGE>
SECTION 2.8. TREATMENT OF EMPLOYEE OPTIONS AND OTHER COMPANY STOCK
RIGHTS.
(a) Prior to the Effective Time, the Board of Directors of the Company
(the "Company Board") (or, if appropriate, any Committee thereof) and the Board
-------------
of Directors of Acquiror (the "Acquiror Board") shall adopt appropriate
--------------
resolutions and take all other actions necessary to provide that effective at
the Effective Time, all outstanding Company Stock Rights heretofore granted
under the Company Stock Plans, whether vested or unvested, shall be assumed by
Acquiror and converted automatically into options to purchase shares of Acquiror
Common Stock (collectively, "New Stock Rights") in an amount and, if applicable,
----------------
at an exercise price determined as provided below:
(i) The number of shares of Acquiror Common Stock to be
subject to the New Stock Rights shall be equal to the product of (x)
the number of shares of Company Common Stock remaining subject (as of
immediately prior to the Effective Time) to the original Company Stock
Right multiplied by (y) the Exchange Ratio, provided that any
fractional shares of Acquiror Common Stock resulting from such
multiplication shall be rounded down to the nearest share.
(ii) The exercise price per share of Acquiror Common Stock
under the New Stock Right shall be equal to the exercise price per
share of the Company Common Stock under the original Company Stock
Right divided by the Exchange Ratio, provided that such exercise price
shall be rounded up to the nearest tenth of a cent.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be, and is intended
to be, effected in a manner which is consistent with Section 424(a) of the Code.
Subject to Sections 2.8(b) and 2.8(c), after the Effective Time, each New Stock
Right shall be exercisable and shall vest upon the same terms and conditions as
were applicable to the related Company Stock Right immediately prior to the
Effective Time (except that with regard to such New Stock Right, any references
to the Company shall be deemed, as appropriate, to include Acquiror), it being
understood that the vesting of the Company Stock Rights shall accelerate in
accordance with their respective terms, or the terms of separate agreements
between the Company and the holders thereof, as a result of the Merger. Acquiror
agrees that it shall take all action necessary, on or prior to the Effective
Time, to authorize and reserve a number of shares of Acquiror Common Stock
sufficient for issuance upon exercise of New Stock Rights as contemplated by
this Section 2.8. As soon as practicable after the Effective Time, Acquiror
shall file a registration statement on Form S-8 (or any successor or other
appropriate form) with respect to the shares of Acquiror Common Stock subject to
the Company Stock Rights assumed pursuant to this Section 2.8 and shall use its
reasonable best efforts to maintain the effectiveness of such registration
statement or statements (and maintain the current status of the prospectus or
prospectuses contained therein) for as long as the New Stock Rights remain
outstanding.
(b) Prior to the Effective Time, the Company will take all actions
necessary (i) to shorten the offering period under the Company's Employee Stock
Purchase Plan in which the
14
<PAGE>
Effective Time occurs so that such offering period terminates on the day prior
to the Effective Time and (ii) to terminate the Employee Stock Purchase Plan
effective as of the Effective Time.
(c) The Company will use its best efforts so that, as of the Effective
Time, none of its Subsidiaries is or will be bound by any Company Stock Rights,
other options, warrants, rights or agreements which would entitle any person,
other than Acquiror or its affiliates, to own any capital stock of any of its
Subsidiaries or to receive any payment in respect thereof.
SECTION 2.9. TREATMENT OF EXCHANGEABLE SHARES.
(a) Prior to the Effective Time, the Company Board, the Acquiror Board
and the Board of Directors of Canadian Sub (the "Canadian Sub Board"), or any of
------------------
their respective appropriate committees, shall adopt appropriate resolutions
and, along with the Company, Acquiror and Canadian Sub, shall take all other
actions required under the Old Support Agreement and the Old Voting and Exchange
Trust Agreement to provide that at and after the Effective Time each outstanding
Exchangeable Share shall thereafter be exchangeable for that number of shares of
Acquiror Common Stock equal to the Exchange Ratio.
(b) Without limiting the generality of Section 2.9(a), the parties
agree as follows:
(i) at or before the Effective Time, the Company and Canadian
Sub (including its Board of Directors) shall comply with their
respective obligations under the provisions attaching to the
Exchangeable Shares, the Old Support Agreement and the Old Voting and
Exchange Trust Agreement;
(ii) at or before the Effective Time, Acquiror, the Company
and Canadian Sub shall execute and deliver the Support Agreement
Amendment and Acquiror, Canadian Sub, the Company and a trustee for the
holders of the Exchangeable Shares shall execute and deliver the Voting
and Exchange Trust Supplement;
(iii) at or before the Effective Time, Acquiror shall have
authorized the Acquiror Special Voting Share and at the Effective Time,
Acquiror shall deliver to the trustee for the holders of the
Exchangeable Shares a new certificate evidencing the Acquiror Special
Voting Share, to the extent required by the Voting and Exchange Trust
Supplement;
(iv) at or before the Effective Time, Acquiror, Company and
Canadian Sub shall take all such actions as may reasonably be required
to permit the continued unrestricted tradeability in Canada of the
Exchangeable Shares and the issuance and first resale in Canada and the
United States of America of the shares of Acquiror Common Stock issued
upon exchange of the Exchangeable Shares from time to time (but only to
the extent that such unrestricted tradeability is available to holders
of Exchangeable Shares in a particular jurisdiction on the date
hereof), in each case without requiring the holder of the relevant
share, in connection with any such trade or resale, to qualify with,
file any document or take any proceeding with, or obtain any further
order, ruling or consent from, any Governmental Entity or regulatory
authority under any Canadian or
15
<PAGE>
United States federal, provincial, state or territorial securities or
other laws or pursuant to the rules and regulations of any regulatory
authority administering such laws, or the fulfillment of any other
legal requirement in any such jurisdiction (other than, with respect to
such first resales, any restrictions on transfer by reason of, among
other things, a holder being a "control person" of Acquiror for
purposes of Canadian federal, provincial or territorial securities
laws). Without limiting the generality of the foregoing, such actions
shall include the confirmation of the continued effectiveness,
following the Merger, of all existing Canadian securities regulatory
orders and rulings, or the granting of new such orders and rulings,
respecting such unrestricted tradeability of the Exchangeable Shares
and such unrestricted issuance and first resale of the shares of
Acquiror Common Stock issuable upon exchange of the Exchangeable Shares
from time to time, and respecting the satisfaction of Canadian Sub's
Canadian securities law continuous and timely disclosure obligations
through the filing and provision of information relating to Acquiror;
and
(v) at or before the Effective Time, Acquiror shall take all
action necessary to authorize and reserve that number of shares of
Acquiror Common Stock sufficient for issuance upon all exchanges of the
outstanding Exchangeable Shares (other than Exchangeable Shares held by
Acquiror, its Subsidiaries and Affiliates) from time to time after the
Effective Time.
(c) Acquiror agrees that at the Effective Time, the holder(s) of each
Exchangeable Share shall receive a number of Acquiror Rights equal to the number
of shares of Acquiror Common Stock issuable upon exchange of such Exchangeable
Share, or similar rights having economically equivalent value to such Acquiror
Rights.
SECTION 2.10. FRACTIONAL INTERESTS. No certificates or scrip
representing fractional shares of Acquiror Common Stock shall be issued in
connection with the Merger or any exchange of an Exchangeable Share at any time
after the Effective Time, and such fractional interests will not entitle the
owner thereof to any rights of a stockholder of Acquiror. In lieu of any such
fractional interests, each holder of shares of Company Common Stock exchanged
pursuant to Section 2.7(a), Company Preferred Stock exchanged pursuant to
Section 2.7(b) or Exchangeable Shares exchanged pursuant to the provisions
thereof who would otherwise have been entitled to receive a fraction of a share
of Acquiror Common Stock (after taking into account all shares of Acquiror
Common Stock to which such holder is entitled pursuant to Sections 2.7(a) and
2.7(b) and the provisions of the Exchangeable Shares) shall be entitled to
receive cash (without interest) in an amount equal to the product of such
fractional part of Acquiror Common Stock multiplied by the Average Acquiror
Price.
SECTION 2.11. SURRENDER OF SHARES OF COMPANY COMMON STOCK; STOCK
TRANSFER BOOKS.
(a) Prior to the Closing Date, Acquiror shall designate a bank or trust
company reasonably acceptable to the Company to act as agent for the holders of
shares of Company Common Stock and Company Preferred Stock (collectively,
"Company Stock") in connection
-------------
16
<PAGE>
with the Merger (the "Exchange Agent") to receive the Common Merger
--------------
Consideration and the Preferred Merger Consideration (collectively, the "Merger
------
Consideration") to which holders of shares of Company Stock shall become
-------------
entitled to receive pursuant to Sections 2.7(a) and (b) and Section 2.10. Prior
to the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, Acquiror will make available to the Exchange Agent sufficient
shares of Acquiror Common Stock to make all exchanges pursuant to Section
2.11(b). The Exchange Agent shall cause the shares of Acquiror Common Stock
deposited by Acquiror to be (i) held for the benefit of the holders of the
Company Stock and (ii) promptly applied to making the exchanges and payments
provided for in Section 2.11(b). Such shares of Acquiror Common Stock shall not
be used for any purpose that is not provided for herein.
(b) Promptly after the Effective Time, Acquiror shall cause to be
mailed to each record holder, as of the Effective Time, of an outstanding
certificate or certificates which immediately prior to the Effective Time
represented shares of Company Common Stock or Company Preferred Stock
(collectively, the "Certificates"), a form of letter of transmittal (which shall
------------
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and
such other documents as may be reasonably required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor, (i) a certificate representing that number of whole shares of
Acquiror Common Stock which such holder has the right to receive pursuant to the
provisions of Sections 2.7(a) and (b), (ii) cash in lieu of any fractional
shares of Acquiror Common Stock to which such holder is entitled pursuant to
Section 2.10, after giving effect to any required tax withholdings, and (iii)
any dividends or distributions to which such holder is entitled pursuant to
Section 2.11(e), and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered and exchanged, each Certificate, subject to Section 2.7(d),
shall represent solely the right to receive the consideration payable in respect
thereto pursuant to Sections 2.7(a) and (b) and Section 2.10. If the exchange of
certificates representing shares of Acquiror Common Stock is to be made to a
person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of exchange that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requesting such exchange shall have paid any
transfer and other taxes required by reason of the exchange of certificates
representing shares of Acquiror Common Stock to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such tax either has been paid
or is not applicable.
(c) At any time after the one-year anniversary of the Effective Time,
Acquiror shall be entitled to require the Exchange Agent to deliver to Acquiror
all cash and any other instruments (including shares of Acquiror Common Stock)
in its possession relating to the transactions contemplated by this Agreement
which had been made available to the Exchange Agent and which have not been
distributed to holders of Certificates. Thereafter, each holder of a
Certificate, subject to Section 2.7(d), may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat or
other similar laws) receive
17
<PAGE>
in exchange therefor the consideration payable in respect thereof pursuant to
Sections 2.7(a) and (b) and Section 2.10, without interest, but shall have no
greater rights against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under the DGCL. Notwithstanding the
foregoing, none of Acquiror, the Surviving Corporation or the Exchange Agent
shall be liable to any holder of a Certificate for shares of Acquiror Common
Stock (and any cash payable in lieu of any fractional shares of Acquiror Common
Stock) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Stock on the records of the Company. From and
after the Effective Time, the holders of Certificates evidencing ownership of
shares of Company Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares of Company Stock
except as otherwise provided for herein or by applicable law.
(e) No dividends or other distributions declared or made after the
Effective Time with respect to shares of Acquiror Common Stock shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of
Acquiror Common Stock it is entitled to receive and no cash payment in lieu of
fractional interests shall be paid pursuant to Section 2.10 until the holder of
such Certificate shall surrender such Certificate in accordance with the
provisions of this Agreement. Upon such surrender, Acquiror shall cause to be
paid to the person in whose name the certificates representing such shares of
Acquiror Common Stock shall be issued, any dividends or distributions with
respect to such shares of Acquiror Common Stock which have a record date after
the Effective Time and shall have become payable between the Effective Time and
the time of such surrender. In no event shall the person entitled to receive
such dividends, distributions or cash in lieu of fractional interests be
entitled to receive interest thereon.
(f) If, at any time after the Effective Time, the Surviving Corporation
shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in the Surviving Corporation its
right, title or interest in, to or under any of the rights, properties or assets
of the Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of the Company or otherwise, all
such deeds, bills of sale, assignments and assurances and to take and do, in
such names and on such behalves or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
SECTION 2.12. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock (and cash in lieu of any
18
<PAGE>
fractional shares of Acquiror Common Stock and dividends or distributions, if
any, in respect thereof) as may be required pursuant to Sections 2.7(a) and (b);
provided, however, that Acquiror may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Acquiror or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
SECTION 2.13. TAX CONSEQUENCES. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
SECTION 2.14. WITHHOLDING RIGHTS. Acquiror or the Exchange Agent shall
be entitled to deduct and withhold from the Merger Consideration otherwise
payable pursuant to this Agreement to any holder of Certificates which prior to
the Effective Time represented shares of Company Stock such amounts as Acquiror
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under the Code or any provision of state, local, or
foreign tax law. To the extent that amounts are so withheld by Acquiror or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Stock in
respect of which such deduction and withholding was made by the Company or the
Exchange Agent.
SECTION 2.15. AFFILIATES. Notwithstanding anything herein to the
contrary, Certificates surrendered for exchange by any Company Affiliate (as
defined in Section 6.9) shall not be exchanged until the later of (i) the date
Acquiror has received a signed agreement (an "Affiliate Agreement") from such
-------------------
Company Affiliate (the form of which is attached hereto as Exhibit C) as
provided in Section 6.9 or (ii) the date such shares of Acquiror Common Stock
are transferable pursuant to the Affiliate Agreement regardless of whether such
agreement was executed by the Company Affiliate.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Acquiror that the statements
contained in this Article III are true and correct except as set forth in the
disclosure schedule delivered by the Company to Acquiror on or before the date
of this Agreement (the "Company Disclosure Schedule"). The Company Disclosure
---------------------------
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III and the disclosure in any
paragraph shall qualify other paragraphs in this Article III only to the extent
that it is readily apparent from a reading of such disclosure that it also
qualifies or applies to such other paragraphs.
SECTION 3.1. ORGANIZATION AND QUALIFICATION. The Company and each of
its Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, with the corporate power and
authority to own and operate its
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business as presently conducted, except for any failure of any Subsidiaries to
be in good standing that would not have a Material Adverse Effect. The Company
and each of its Subsidiaries is duly qualified as a foreign corporation or other
entity to do business and is in good standing in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except for such failures of the
Company and any of its Subsidiaries to be so qualified as would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
has previously made available to Acquiror true and correct copies of (i) its
certificate of incorporation and bylaws, (ii) the charter and bylaws of SoftKey
Holdings Corporation, SoftKey Software Products Inc. and SoftKey Products
International Inc., and (iii) the charter documents and bylaws or other
organizational documents of each of its non-corporate Subsidiaries and each of
its non-wholly owned Subsidiaries, as currently in effect.
SECTION 3.2. AUTHORIZATION; VALIDITY AND EFFECT OF AGREEMENT. The
Company has the requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby have been duly authorized
by the Company Board and all other necessary corporate action on the part of the
Company, other than the adoption and approval of this Agreement by the holders
of the Company Common Stock, the Company Preferred Stock and the Company Special
Voting Stock and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
SECTION 3.3. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (i)
200,000,000 shares of Company Common Stock, (ii) 5,000,000 shares of Preferred
Stock, par value $.01 per share, of which 750,000 shares have been designated as
Company Preferred Stock, and (iii) one share of Company Special Voting Stock.
The Special Voting Stock entitles the holder thereof to vote, together with the
holders of Company Common Stock, on all matters submitted for the vote of the
holders of Company Common Stock. The number of votes represented by the Special
Voting Stock is equal to the number of outstanding Exchangeable Shares (other
than Exchangeable Shares held by the Company, its Subsidiaries and its
Affiliates). As of December 7, 1998, there were issued and outstanding (i)
87,073,106 shares of Company Common Stock, (ii) 750,000 shares of Company
Preferred Stock, currently convertible into 15,000,000 shares of Company Common
Stock, and (iii) 12,580,133 Exchangeable Shares (of which 7,374,942 are held
directly or indirectly by the Company). Section 3.3(a) of the Company Disclosure
Schedule sets forth the number of shares of capital stock of the Company
(including Exchangeable Shares) held in
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treasury and the number of shares of Company Common Stock reserved for future
issuance upon (i) exercise of any unexpired and unexercised outstanding option,
whether or not vested or exercisable in accordance with its terms, to purchase
shares of Company Common Stock ("Company Options") granted and outstanding as of
---------------
the date hereof under any Company Stock Plans and (ii) exchange of the
outstanding Exchangeable Shares. As of the date of this Agreement, the Company
and its Subsidiaries have not granted any stock appreciation rights or any other
contractual rights the value of which is derived from the financial performance
of the Company or any Subsidiary or the value of shares of Company Common Stock.
Except as disclosed in Section 3.3(a) of the Company Disclosure Schedule, there
are no obligations, contingent or otherwise, of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or the capital stock or ownership interests of any Subsidiary or to
provide funds to or make any material investment (in the form of a loan, capital
contribution or otherwise) in any such Subsidiary or any other entity other than
guarantees of bank obligations or indebtedness for borrowed money of
Subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock (including shares which may be issued upon
exercise of outstanding options) or other ownership interests of each of the
Company's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and, except as disclosed in Section 3.3(a) of the Company
Disclosure Schedule, all such shares (other than directors' qualifying shares)
are owned by the Company or another Subsidiary of the Company free and clear of
all security interests, liens, claims, pledges, agreements, limitations on the
Company's voting rights, charges or other encumbrances or restrictions on
transfer of any nature (other than restrictions imposed by law).
(b) There are no bonds, debentures, notes or other indebtedness having
voting rights (or convertible into securities having such rights) ("Voting
------
Debt") of the Company or any of its Subsidiaries issued and outstanding. Except
----
as set forth in Section 3.3(b) of the Company Disclosure Schedule or as reserved
for future grants of options under the Company Stock Plans as of the date hereof
and for future exchanges of Exchangeable Shares, (i) there are no shares of
capital stock of any class of, or any security exchangeable into or exercisable
for such equity securities, issued, reserved for issuance or outstanding; (ii)
there are no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which the Company or any of its Subsidiaries is a
party or by which it is bound obligating the Company or any of its Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other ownership interests (including Voting Debt) of
the Company or any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right, commitment or agreement; and
(iii) there are no voting trusts, proxies or other voting agreements or
understandings with respect to the shares of capital stock of the Company to
which the Company or any of its Subsidiaries is a party. All shares of Company
Common Stock subject to issuance as specified in this Section 3.3(b) are duly
authorized and, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be validly issued, fully
paid and nonassessable.
SECTION 3.4. SUBSIDIARIES. The only Subsidiaries of the Company are
those set forth in Section 3.4 of the Company Disclosure Schedule. There are no
existing options,
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<PAGE>
warrants, calls, subscriptions, convertible securities or other securities,
agreements, commitments or obligations of any character relating to the
outstanding capital stock or other securities of any Subsidiary of the Company
or which would require any Subsidiary of the Company to issue or sell any shares
of its capital stock, ownership interests or securities convertible into or
exchangeable for shares of its capital stock or ownership interests.
SECTION 3.5. OTHER INTERESTS. Except as set forth in Section 3.5 of
the Company Disclosure Schedule, neither the Company nor any of the Company's
Subsidiaries owns, directly or indirectly, any interest or investment in
(whether equity or debt) any corporation, partnership, limited liability
company, joint venture, business, trust or other Person (other than the
Company's Subsidiaries).
SECTION 3.6. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Except as set forth in Section 3.6 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
performance by the Company of its obligations hereunder, nor the consummation of
the transactions contemplated hereby, will: (i) conflict with the Company's
certificate of incorporation or bylaws or the comparable charter or
organizational documents of any of its material Subsidiaries; (ii) assuming
satisfaction of the requirements set forth in Section 3.6(b) below, violate any
statute, law, ordinance, rule or regulation, applicable to the Company or any of
its Subsidiaries or any of their properties or assets; or (iii) violate, breach,
be in conflict with or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination of any provision of, or result in the termination of, the
acceleration of the maturity of, or the acceleration of the performance of any
obligation of the Company or any of its Subsidiaries under, or result in the
creation or imposition of any lien upon any properties, assets or business of
the Company or any of its Subsidiaries under, any note, bond, indenture,
mortgage, deed of trust, lease, franchise, permit, authorization, license,
contract (including, without limitation, Company Contracts), instrument or other
agreement or commitment or any order, judgment or decree to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective assets or properties is bound or
encumbered, or give any Person the right to require the Company or any of its
Subsidiaries to purchase or repurchase any notes, bonds or instruments of any
kind except, in the case of clauses (ii) and (iii), for such violations,
breaches, conflicts, defaults or other occurrences which, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect.
(b) Except (i) for applicable requirements, if any, of the Exchange
Act, the Securities Act, and state securities or "blue sky" laws ("Blue Sky
--------
Laws"), (ii) for the pre-merger notification requirements of the
----
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), (iii) for the filing of the
-------
Certificate of Merger pursuant to the DGCL, (iv) for other governmental
approvals and filings required under the applicable laws of any foreign
jurisdiction, and (v) with respect to matters set forth in Sections 3.6(a) or
3.6(b) of the Company Disclosure Schedule, no consent, approval or authorization
of, permit from, or declaration, filing or registration with, any governmental
or regulatory authority, or any other Person is required to be made or obtained
by the Company or
22
<PAGE>
its Subsidiaries in connection with the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby,
except where the failure to obtain such consent, approval, authorization, permit
or declaration or to make such filing or registration would not, individually or
in the aggregate, have a Material Adverse Effect.
SECTION 3.7. COMPLIANCE. The Company and each of its Subsidiaries are
in compliance with all foreign, federal, state and local laws and regulations
applicable to its operations or with respect to which compliance is a condition
of engaging in the business thereof, except to the extent that failure to comply
would not, individually or in the aggregate, have a Material Adverse Effect. To
the knowledge of the Company, neither the Company nor any of its Subsidiaries
has received any notice asserting a failure, or possible failure, to comply with
any such law or regulation, the subject of which notice has not been resolved as
required thereby or otherwise to the satisfaction of the party sending the
notice, except for such failure as would not, individually or in the aggregate,
have a Material Adverse Effect. The Company and its Subsidiaries hold all
permits, licenses and franchises from Governmental Entities required to conduct
their respective businesses as they are now being conducted, except for such
failures to have such permits, licenses and franchises that would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.8. SEC DOCUMENTS.
(a) The Company has filed and made available to Acquiror true and
complete copies of each registration statement, proxy or information statement,
form, report and other document required to be filed by the Company or any of
its Subsidiaries with the SEC or any securities regulatory authority in Canada
since January 1, 1995 (collectively, the "Company SEC Reports"). As of their
-------------------
respective dates, the Company SEC Reports (i) complied, or, with respect to
those not yet filed, will comply, in all material respects with the applicable
requirements of the Securities Act and the Exchange Act or any applicable
Canadian law, rule or regulation, and (ii) did not, or, with respect to those
not yet filed, will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. The Company has filed each registration statement, proxy
or information statement, form, report and other documents required to be filed
by the Company or any of its subsidiaries with any foreign governmental agency
equivalent to, or of like purpose as, the SEC, except as would not have a
Material Adverse Effect.
(b) Each of the consolidated balance sheets of the Company included in
or incorporated by reference into the Company SEC Reports (including the related
notes and schedules) presents fairly, in all material respects, the consolidated
financial position of the Company and its consolidated Subsidiaries as of its
date, and each of the consolidated statements of income, retained earnings and
cash flows of the Company included in or incorporated by reference into the
Company SEC Reports (including any related notes and schedules) presents fairly,
in all material respects, the results of operations, retained earnings or cash
flows, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the
23
<PAGE>
case of unaudited statements, to normal year-end audit adjustments), in each
case in accordance with GAAP consistently applied during the periods involved,
except as may be noted therein.
(c) Except as set forth in Section 3.8(c) of the Company Disclosure
Schedule and except as set forth in the Company SEC Reports, neither the Company
nor any of its Subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on, or reserved against in, a balance sheet of the Company or in
the notes thereto, prepared in accordance with GAAP consistently applied, except
for (i) liabilities or obligations that were so reserved on, or reflected in
(including the notes to), the consolidated balance sheet of the Company as of
October 3, 1998, (ii) liabilities or obligations arising in the ordinary course
of business (including trade indebtedness) since October 3, 1998 and (iii)
liabilities or obligations which would not, individually or in the aggregate,
have a Material Adverse Effect.
SECTION 3.9. ABSENCE OF CERTAIN CHANGES. Except as set forth in
Section 3.9 of the Company Disclosure Schedule or the Company SEC Reports, and
except for the transactions expressly contemplated hereby, since October 3,
1998, the Company and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course consistent with past practices
and there has not been any change in the Company's business, operations,
condition (financial or otherwise), results of operations, assets or
liabilities, except for changes contemplated hereby or changes which have not,
individually or in the aggregate, had or are reasonably likely to have a
Material Adverse Effect. Except as set forth in Section 3.9 of the Company
Disclosure Schedule, from October 3, 1998 through the date of this Agreement,
neither the Company nor any of its Subsidiaries has taken any of the actions
prohibited by Section 5.1 hereof.
SECTION 3.10. LITIGATION. Except as set forth in Section 3.10 of the
Company Disclosure Schedule and except as set forth in the Company SEC Reports,
there is no Action instituted, pending or, to the knowledge of the Company,
threatened, in each case against the Company or any of its Subsidiaries, which,
individually or in the aggregate, directly or indirectly, could reasonably be
expected to have a Material Adverse Effect, nor is there any outstanding
judgment, decree or injunction, in each case against the Company or any of its
Subsidiaries, or any statute, rule or order of any domestic or foreign court,
governmental department, commission or agency applicable to the Company or any
of its Subsidiaries which has or could reasonably be expected to have,
individually or in the aggregate, any Material Adverse Effect.
SECTION 3.11. TAXES. Except as set forth in Section 3.11 of the
Company Disclosure Schedule:
(a) The Company and its Subsidiaries have (A) duly filed (or there have
been filed on their behalf) with the appropriate governmental authorities all
Tax Returns required to be filed by them and such Tax Returns are true, correct
and complete in all respects, except for any such filings which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect, and (B) duly paid in full all Taxes, whether or not shown to be due on
such Tax
24
<PAGE>
Returns, except for which the failure to pay would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect;
(b) No claim has ever been made by an authority in a jurisdiction where
any of the Company and its Subsidiaries does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction which is reasonably likely to
have a Material Adverse Effect;
(c) Each of the Company and its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party, except for amounts which are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect;
(d) No federal income Tax Returns of the Company have ever been
audited, and no federal or state, local or foreign audits or other
administrative proceedings or court proceedings are presently being conducted
with regard to any Taxes or Tax Returns of the Company or its Subsidiaries and
neither the Company nor its Subsidiaries has received a written notice of any
pending audits with respect to Taxes or Tax Returns of the Company, and neither
the Company nor any of its Subsidiaries has waived any statute of limitations
with respect to Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency, except with respect to Taxes which are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect;
(e) Neither the Internal Revenue Service nor any other taxing authority
(whether domestic or foreign) has asserted against the Company or any of its
Subsidiaries any material deficiency or material claim for Taxes not reserved
under the Company's most recent balance sheet as set forth in its most recent
Quarterly Report on Form 10-Q;
(f) There are no liens for Taxes upon any Assets of the Company or any
Subsidiary thereof, except for liens for Taxes not yet due and payable and liens
for Taxes that are being contested in good faith by appropriate proceedings,
except for liens which would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect, and no written power of attorney
that has been granted by the Company or its Subsidiaries (other than to the
Company or a Subsidiary) currently is in force with respect to any matter
relating to Taxes except with respect to Taxes which are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect;
(g) Neither the Company nor any of its Subsidiaries has, with regard to
any assets or property held by any of them, agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries;
(h) None of the Company and its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Code;
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<PAGE>
(i) None of the Company and its Subsidiaries has been 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) of the
Code;
(j) None of the Company and its Subsidiaries is a party to any Tax
allocation or sharing agreement; and
(k) None of the Company and its Subsidiaries (A) has been a member of
an affiliated group filing a consolidated federal income Tax Return (other than
a group the common Parent of which was the Company) or (B) has any Liability for
the Taxes of any Person (other than any of the Company and its Subsidiaries)
under Treasury Regulation Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise,
other than such Taxes which are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect.
SECTION 3.12. EMPLOYEE BENEFIT PLANS.
(a) Section 3.12 of the Company Disclosure Schedule contains a complete
list of all Company Pension Plans, Welfare Plans and material Benefit
Arrangements (other than those maintained outside the United States) as of the
date hereof. To the extent in the Company's or its Subsidiaries' possession,
true and complete copies or descriptions of the Pension Plans, Welfare Plans and
material Benefit Arrangements (other than those maintained outside the United
States), including, without limitation, trust instruments, if any, that form a
part thereof, and all amendments thereto have been furnished or made available
to Acquiror and its counsel.
(b) Except as described in Section 3.12 of the Company Disclosure
Schedule, each of the Company Employee Plans (other than any Multiemployer Plan)
has been administered and is in material compliance with the terms of such
Company Employee Plan and all applicable laws, rules and regulations.
(c) No material "reportable event" (as such term is used in Section
4043 of ERISA) for which the notice requirements to the Pension Benefit Guaranty
Corporation have not been waived, "prohibited transaction" (as such term is used
in Section 406 of ERISA or Section 4975 of the Code) for which no exemption
exists, or material "accumulated funding deficiency" (as such term is used in
Section 412 or 4971 of the Code) has heretofore occurred with respect to any
Pension Plan (other than any Multiemployer Plan) of the Company or its
Subsidiaries.
(d) There is no material action, order, writ, injunction, judgment or
decree outstanding or claim, suit litigation, proceeding, arbitral action,
governmental audit or investigation relating to or seeking benefits under any
Company Employee Plan that is pending or, to the Company's knowledge, threatened
against the Company, any of its ERISA Affiliates, or any Company Employee Plan,
other than routine claims for benefits or which are not reasonably likely to
result in a material liability.
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<PAGE>
(e) Except as set forth in Section 3.12 of the Company Disclosure
Schedule, none of the Company, its Subsidiaries or ERISA Affiliates have
incurred any withdrawal liability with respect to any Multiemployer Plan under
Title IV of ERISA which remains unsatisfied.
(f) Except as set forth in Section 3.12 of the Company Disclosure
Schedule, any termination of, or withdrawal from, any Pension Plans or
Multiemployer Plan of the Company any Subsidiaries or any ERISA Affiliate, on or
prior to the Closing Date, will not subject the Company to any liability under
Title IV of ERISA.
(g) Except as set forth in Section 3.12 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby will result in the
acceleration or creation of any rights of any current or former employee of the
Company or any of its Subsidiaries to benefits under any Company Employee Plan
(including, without limitation, the acceleration of the vesting or
exercisability of any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any Pension Plan or the acceleration or creation of any rights under any
severance, parachute or change in control agreement).
(h) With respect to the Company Employee Plans, individually and in the
aggregate, there are no funded benefit material obligations for which material
contributions have not been made or properly accrued and there are no unfunded
material benefit obligations which have not been accounted for by reserves, or
otherwise properly footnoted in accordance with generally accepted accounting
principles, on the financial statements of the Company.
SECTION 3.13. ASSETS.
(a) Section 3.13(a) of the Company Disclosure Schedule identifies all
real property owned by the Company and its Subsidiaries (the "Company Owned
-------------
Property") and all real property leased or operated by the Company and its
--------
Subsidiaries and providing for occupancy of more than 20,000 square feet (the
"Company Leased Property" and, together with the Company Owned Property, the
-----------------------
"Company Real Property").
---------------------
(b) The Company and its Subsidiaries have good and marketable fee
simple title to the Company Owned Property, and a valid leasehold interest in
the Company Leased Property, sufficient to allow each of the Company and its
Subsidiaries to conduct, and to continue to conduct, its business as and where
currently conducted, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect. Such
title and leasehold interest is free and clear of any and all Encumbrances,
except for the exceptions described in the Company SEC Reports filed prior to
the date of this Agreement or in Section 3.13(b) of the Company Disclosure
Schedule and such other Encumbrances that would not, individually or in the
aggregate, result in a Material Adverse Effect. Prior to the date hereof, the
Company has delivered to Acquiror true and correct copies of all title reports
and surveys for each parcel of Company Real Property.
(c) True and correct copies of all of the principal documents under
which the Company Owned Property and the Company Leased Property is leased or
operated (the "Lease
-----
27
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and Operational Documents") have been delivered or made available for review to
-------------------------
Acquiror. The Lease and Operational Documents are unmodified and in full force
and effect. None of the Company, its Subsidiaries or any other party is in
material default under the Lease and Operational Documents, and, to the best
knowledge of the Company, no defaults (whether or not subsequently cured) by the
Company, its Subsidiaries or any other party have been alleged thereunder,
except for such defaults that, individually, or in the aggregate, are not
reasonably likely to have a Material Adverse Effect.
(d) To the best knowledge of the Company, the Company and each of its
Subsidiaries has sufficiently good and valid title to, or an adequate leasehold
interest in, its material tangible personal properties and assets in order to
allow it to conduct, and continue to conduct, its business as and where
currently conducted. Such material tangible personal assets and properties are
sufficiently free of Encumbrances to allow each of the Company and its
Subsidiaries to conduct, and continue to conduct, its business as currently
conducted and, to the best knowledge of the Company, the consummation of the
transactions contemplated by this Agreement will not alter or impair such
ability in any respect which, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect. There are no defects in the
physical condition or operability of such material tangible personal assets and
properties which would impair the use of such assets and properties as such
assets and properties are currently used, except for such defects which,
individually or in the aggregate, would not be reasonably likely to have a
Material Adverse Effect.
SECTION 3.14. CONTRACTS.
(a) Section 3.14(a) of the Company Disclosure Schedule contains a
complete and accurate list of all contracts (written or oral), plans,
undertakings, commitments or agreements ("Contracts") of the following
categories to which the Company or any of its Subsidiaries is a party or by
which any of them is bound as of the date of this Agreement:
(i) (A) with respect to officers with annual base compensation
equal to or in excess of $100,000: all employment contracts, severance,
change in control or similar arrangements that will result in any
obligation (absolute or contingent) of the Company or any of its
Subsidiaries to make any payment to the foregoing following either the
consummation of the transactions contemplated hereby, termination of
employment, or both and (B) all other contracts (that are not available
to officers, directors, employees or agents generally) with any
officer, director, employee or agent that provides for compensation
based on operating results or other financial performance of the
Company;
(ii) contracts with labor unions;
(iii) material exclusive distribution agreements not
terminable by the Company without penalty upon 90 days or less notice;
(iv) promissory notes, loans, agreements, indentures,
evidences of indebtedness or other instruments relating to the lending
of money, whether as borrower, lender or guarantor, in excess of
$5,000,000;
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(v) Contracts containing covenants limiting the freedom of
the Company or any of its Subsidiaries to engage in any line of
business or compete with any Person or operate at any location which
are not terminable by the Company without penalty upon 90 days or less
notice;
(vi) any material Contract with any federal, state or local
government other than such Contracts relating to the sales of goods in
the ordinary course of business;
(vii) other than license agreements and distribution
agreements, Contracts involving annual expenditures or liabilities in
excess of $10,000,000 which are not terminable by the Company without
penalty upon 90 days or less notice;
(viii) the principal documents (excluding escrow agreements,
affiliate agreements and other ancillary documents) relating to any
merger, consolidation, business combination, share exchange, business
acquisition, or for the purchase, acquisition, sale or disposition of
any material assets of the Company or any of its Subsidiaries outside
the ordinary course of business which (A)(1) involves consideration to
any party in excess of $20,000,000, and (2) were entered into after
January 1, 1995, or (B) under which the Company remains obligated to
make "earnout" payments or other conditional payments of cash or stock
based on the operating results or other financial performance of the
Company or a portion of its business; and
(ix) other than as set forth in Section 3.12 of the Company
Disclosure Schedule, any other Contract to be performed after the date
hereof which would be a material contract (as defined in Item
601(b)(10) of Regulation S-K of the SEC).
True copies of the written Contracts identified in Section
3.14(a) of the Company Disclosure Schedule (collectively with the Material
Licenses, the "Company Contracts") have been delivered or made available to
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Acquiror.
(b) Except as disclosed in Schedule 3.14(a) of the Company Disclosure
Schedule, as of the date of this Agreement, (i) each of the Company Contracts is
valid and binding upon the Company or any of its Subsidiaries (and, to the
Company's best knowledge, on all other parties thereto) in accordance with its
terms and is in full force and effect, (ii) there is no material breach or
violation of or default by the Company or any of its Subsidiaries under any of
the Company Contracts, whether or not such breach, violation or default has been
waived, and (iii) no event has occurred with respect to the Company or any of
its Subsidiaries which, with notice or lapse of time or both, would constitute a
material breach, violation or default, or give rise to a right of termination,
modification, cancellation, foreclosure, imposition of a lien, prepayment or
acceleration under any of the Company Contracts, which breach, violation or
default referred to in clauses (ii) or (iii), alone or in the aggregate with
other such breaches, violations or defaults referred to in clauses (ii) or
(iii), would be reasonably likely to have a Material Adverse Effect.
SECTION 3.15. LABOR RELATIONS. Except as disclosed in Schedule 3.15 of
the Company Disclosure Schedule or as would not be reasonably likely to have a
Material Adverse Effect, (i) to the knowledge of the Company, there are no
activities or proceedings of any labor
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union to organize any non-unionized employees; (ii) neither the Company nor any
of its Subsidiaries has breached or otherwise failed to comply with any
provision of any collective bargaining agreement or contract and there are no
grievances outstanding against the Company or any of its Subsidiaries under any
such agreement or contract; (iii) there are no unfair labor practice charges
and/or complaints pending against the Company or any of its Subsidiaries before
the National Labor Relations Board, or any similar foreign labor relations
governmental bodies, or any current union representation questions involving
employees of the Company or any of its Subsidiaries; and (iv) there is no
strike, slowdown, work stoppage or lockout, or, to the knowledge of the Company,
threat thereof, by or with respect to any employees of the Company or any of its
Subsidiaries. The Company and its Subsidiaries are not parties to any collective
bargaining agreements, except for collective bargaining agreements disclosed in
Schedule 3.15 of the Company Disclosure Schedule. To the knowledge of the
Company, there are no controversies pending or threatened between the Company or
any of its Subsidiaries and any of their respective employees, except for such
controversies that would not be reasonably likely to have a Material Adverse
Effect.
SECTION 3.16. INTELLECTUAL PROPERTY.
(a) The Company and its Subsidiaries own, or are licensed or otherwise
possess, legally enforceable rights to use, all patents, trademarks, trade
names, service marks and copyrights, any applications for and registrations of
such patents, trademarks, trade names, service marks and copyrights, and all
processes, formulae, methods, schematics, technology, know-how, computer
software programs or applications, tangible or intangible proprietary
information or material, waivers or licenses of publicity or privacy rights or
any other third party licenses that are necessary to conduct the business of
Company and its Subsidiaries as currently conducted, the absence of which would
be reasonably likely to have a Material Adverse Effect (the "Company
-------
Intellectual Property Rights").
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(b) (i) The execution and delivery of this Agreement and consummation
of the Merger will not result in the breach of, or create on behalf of any third
party the right to terminate or modify, any license, sublicense or other
agreement relating to the Company Intellectual Property Rights, or any material
licenses, sublicenses and other agreements as to which Company or any of its
Subsidiaries is a party and pursuant to which Company or any of its Subsidiaries
is authorized to use any third party patents, trademarks, copyrights, trade
secrets, likeness or other proprietary rights, including software that is used
in the manufacture of, incorporated in, or forms a part of any product sold by
or expected to be sold by the Company or any of its Subsidiaries (collectively,
"Licenses"), the termination, modification (including without limitation any
--------
modification to the scope of any license from the scope as currently granted to
and enjoyed by the Company even if such modification is contemplated by the
agreement) or breach of which would be reasonably likely to have a Material
Adverse Effect.
(ii) Except as set forth in Section 3.16(b)(i) of the Company
Disclosure Schedule, the execution and delivery of this Agreement and
consummation of the Merger will not result in the breach of, or create on behalf
of any third party the right to terminate or modify, any License the
termination, modification (including without limitation any modification to the
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<PAGE>
scope of any license from the scope as currently granted to and enjoyed by the
Company even if such modification is contemplated by the agreement) or breach of
which would be reasonably likely to have a material adverse effect on any
Company Material Product. "Company Material Product" means any product of the
------------------------
Company which accounted for more than $3,000,000 of revenues in the United
States during the nine month fiscal period ending September 30, 1998.
(iii) Schedule 3.16(b)(iii) sets forth each License relating to
Company Material Products.
(c) All patents, registered trademarks, service marks and copyrights
which are held by the Company or any of its Subsidiaries the loss or invalidity
of which would cause a Material Adverse Effect or would have a material adverse
effect on any Company Material Product ("Material Intellectual Property
------------------------------
Rights"), are valid and subsisting. Section 3.16(c) of the Company Disclosure
------
Schedule sets forth a complete and accurate list of all registered copyrights,
registered tradenames, patents, patent applications and the unregistered
tradenames for the twenty-five highest revenue producing products included in
the Material Intellectual Property Rights. Except as would not be reasonably
expected to have a Material Adverse Effect, the Company (i) has not been sued in
any suit, action or proceeding, or received in writing any claim or notice,
which involves a claim of (w) infringement or violation of any patents,
trademarks, service marks, copyrights, trade secrets, right of privacy or
publicity or any other proprietary right of any third party or (x) libel or
defamation; and (ii) has no knowledge that the manufacturing, marketing,
licensing or sale of its products infringes or violates any patent, trademark,
service mark, copyright, trade secret, right of privacy or publicity, or other
proprietary right of any third party.
SECTION 3.17. AFFILIATE TRANSACTIONS. Except as set forth in the
Company SEC Reports and as set forth in Section 3.17 of the Company Disclosure
Schedule, from January 1, 1998 through the date of this Agreement there have
been no transactions, agreements, arrangements or understandings between the
Company or any of its Subsidiaries, on the one hand, and any Affiliates (other
than wholly owned Subsidiaries) of the Company or other Persons, on the other
hand, that would be required to be disclosed under Item 404 of Regulation S-K
under the Securities Act.
SECTION 3.18. ENVIRONMENTAL MATTERS. Except as set forth in Section
3.18 of the Company Disclosure Schedule or the Company SEC Reports and except
for such matters that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect: the Company and each of its
Subsidiaries (i) have obtained all applicable permits, licenses and other
authorizations which are required to be obtained under all applicable
Environmental Laws by the Company or its Subsidiaries; (ii) are in material
compliance with all terms and conditions of such required permits, licenses and
authorization, and also are in material compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in or arising from applicable Environmental
Laws; (iii) have not received notice of any past or present violations of
Environmental Laws, or of any spill, release, event, incident, condition or
action or failure to act which is reasonably likely to prevent continued
compliance with such Environmental Laws, or which would give rise to any common
31
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law environmental liability or liability under Environmental Laws, or which
would otherwise form the basis of any claim, action, suit or proceeding against
the Company or any of its Subsidiaries based on or resulting from the
manufacture, processing, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge or release into the environment, of any
Hazardous Material by any Person; and (iv) have taken all actions required under
applicable Environmental Laws to register any products or materials required to
be registered by the Company or its Subsidiaries thereunder.
SECTION 3.19. JOINT PROXY STATEMENT PROSPECTUS; REGISTRATION
STATEMENT. None of the information supplied by the Company or its Subsidiaries
to be included or incorporated by reference in the joint proxy
statement/prospectus to be sent to the stockholders of Acquiror and the Company
in connection with the meeting of the Company's stockholders (the "Company
-------
Stockholder Meeting") and the meeting of Acquiror's stockholders (the "Acquiror
------------------- --------
Stockholder Meeting") to consider the Agreement and the Merger (the "Joint Proxy
------------------- -----------
Statement/Prospectus") or any amendment thereof or supplement thereto, will, on
--------------------
the date it becomes effective with the SEC, at the time of the mailing of the
Joint Proxy Statement/Prospectus or any amendment or supplement, at the time of
the Company Stockholder Meeting and the Acquiror Stockholder Meeting and at the
Effective Time, 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 Joint Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of the Securities Act and the Exchange
Act and the rules and regulations thereunder; provided, however, that the
Company makes no representations with respect to any information supplied or to
be supplied by the Acquiror for inclusion or incorporation by reference from
Acquiror SEC Filings in the Joint Proxy Statement/Prospectus or any amendment
thereof or supplement thereto. None of the information supplied by the Company
or its Subsidiaries to be included or incorporated by reference from Company SEC
filings in the registration statement on Form S-4 pursuant to which shares of
Acquiror Common Stock issued in the Merger will be registered under the
Securities Act (the "Registration Statement"), of which the Joint Proxy
Statement/Prospectus will form a part, will, at the time the Registration
------------
Statement is declared effective