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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
PACKETEER, INC.
a Delaware corporation;
WORKFIRE ACQUISITION CORP.,
a Delaware corporation;
WORKFIRE TECHNOLOGIES INTERNATIONAL, INC.
a Nevada corporation
and
WORKFIRE HOLDINGS, INC.
a Nevada corporation
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Dated as of July 13, 2000
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TABLE OF CONTENTS
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SECTION 1. Description of Transaction......................................... 1
1.1. Merger of Merger Sub into the Company.............................. 1
1.2. Effect of the Merger............................................... 1
1.3. Liquidation and Distributions of Holdings.......................... 2
1.4. Closing; Effective Time............................................ 2
1.5. Articles of Incorporation and Bylaws; Directors and Officers....... 2
1.6. Conversion of Shares............................................... 2
1.7. Stock Options...................................................... 4
1.8. Closing of the Company's Transfer Books............................ 4
1.9. Exchange of Certificates; Escrow Shares............................ 5
1.10. Dissenting Shares.................................................. 6
1.11. Tax Consequences................................................... 6
1.12. Accounting Treatment............................................... 6
1.13. Further Action..................................................... 7
1.14. Exemption from Registration........................................ 7
1.15. The Company Stockholders' Restrictions Regarding Securities Law
Matters............................................................ 9
1.16. Agreements......................................................... 10
SECTION 2. Representations and Warranties of the Company...................... 10
2.1. Due Organization; Subsidiaries; Etc. .............................. 10
2.2. Certificate of Incorporation and Bylaws; Records................... 11
2.3. Capitalization, Etc. .............................................. 11
2.4. Financial Statements............................................... 12
2.5. Absence of Changes................................................. 13
2.6. Title to Assets.................................................... 14
2.7. Intellectual Property.............................................. 15
2.8. Bank Accounts...................................................... 17
2.9. Real Property; Equipment........................................... 17
2.10. Contracts.......................................................... 17
2.11. Liabilities........................................................ 19
2.12. Compliance with Legal Requirements................................. 20
2.13. Governmental Authorizations........................................ 20
2.14. Tax Matters........................................................ 20
2.15. Redemptions and Distributions...................................... 22
2.16. Employee and Labor Matters; Benefit Plans.......................... 22
2.17. Environmental Matters.............................................. 23
2.18. Insurance.......................................................... 23
2.19. Related Party Transactions......................................... 24
2.20. Legal Proceedings; Orders.......................................... 24
2.21. Authority; Binding Nature of Agreement............................. 24
2.22. Non-Contravention; Consents........................................ 25
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2.23. Vote Required...................................................... 26
2.24. No Brokers......................................................... 26
2.25. Change of Control Payments......................................... 26
2.26. Information Statement.............................................. 26
2.27. Board Approval..................................................... 27
2.28. Tax Matters........................................................ 27
2.29. Full Disclosure.................................................... 27
SECTION 3. Representations and Warranties of Parent and Merger Sub............ 28
3.1. Corporate Existence and Power...................................... 28
3.2. Authority; Binding Nature of Agreement............................. 28
3.3. No Conflict; Consents.............................................. 28
3.4. SEC Filings; Financial Statements.................................. 29
3.5. Absence of a Material Change. Between December 31, 1999 and the
date of this Agreement:............................................ 30
3.6. Valid Issuance..................................................... 30
3.7. Capitalization, Etc. .............................................. 30
3.8. Merger Sub......................................................... 30
3.9. Information Statement.............................................. 31
3.10. Legal Proceedings; Orders.......................................... 31
3.11. Board Approval..................................................... 31
3.12. Tax Matters........................................................ 31
3.13. Fairness Opinion................................................... 31
3.14. Full Disclosure.................................................... 32
SECTION 4. Certain Covenants.................................................. 32
4.1. Access and Investigation........................................... 32
4.2. Operation of the Business of the Company........................... 32
4.3. Operation of the Business of Parent and Merger Sub................. 35
4.4. Notification; Updates to Disclosure Schedule....................... 35
4.5. No Negotiation..................................................... 35
4.6. Working Capital Loans.............................................. 36
SECTION 5. Additional Covenants of the Parties................................ 36
5.1. Information Statement.............................................. 36
5.2. Meetings of Stockholders........................................... 37
5.3. Filings and Consents............................................... 37
5.4. Public Announcements............................................... 37
5.5. Reasonable Efforts................................................. 37
5.6. Employee and Related Matters....................................... 37
5.7. FIRPTA Matters..................................................... 38
5.8. Reservation of Authorized Common Stock............................. 38
5.9. Nasdaq Listing..................................................... 38
5.10. Form S-8 Registration Statement.................................... 38
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SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub....... 38
6.1. Accuracy of Representations........................................ 38
6.2. Performance of Covenants........................................... 39
6.3. Stockholder Approval............................................... 39
6.4. Issuance of Shares................................................. 39
6.5. Agreements and Documents........................................... 39
6.6. No Restraints...................................................... 40
SECTION 7. Conditions Precedent to Obligations of the Company................. 40
7.1. Accuracy of Representations........................................ 40
7.2. Performance of Covenants........................................... 41
7.3. Agreements and Documents........................................... 41
7.4. Listing............................................................ 41
7.5. No Restraints...................................................... 41
SECTION 8. Termination........................................................ 41
8.1. Termination Events................................................. 41
8.2. Termination Procedures............................................. 42
8.3. Effect of Termination.............................................. 42
SECTION 9. Indemnification, Etc. ............................................. 43
9.1. Survival of Representations, Etc. ................................. 43
9.2. Indemnification.................................................... 43
9.3. Exclusive Remedy................................................... 44
9.4. No Contribution.................................................... 44
9.5. Defense of Third Party Claims...................................... 44
9.6. Exercise of Remedies by Indemnitees Other Than Parent.............. 45
SECTION 10. Miscellaneous Provisions........................................... 45
10.1. Stockholders' Agent................................................ 45
10.2. Further Assurances................................................. 46
10.3. Expenses........................................................... 46
10.4. Attorneys' Fees.................................................... 46
10.5. Notices............................................................ 46
10.6. Headings........................................................... 47
10.7. Counterparts....................................................... 47
10.8. Governing Law; Venue............................................... 48
10.9. Successors and Assigns............................................. 48
10.10. Remedies Cumulative; Specific Performance.......................... 48
10.11. Waiver............................................................. 48
10.12. Amendments......................................................... 48
10.13. Severability....................................................... 49
10.14. Parties in Interest................................................ 49
10.15. Entire Agreement................................................... 49
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10.16. Construction....................................................... 49
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made and entered into as of July 13, 2000, by and among PACKETEER, INC., a
Delaware corporation ("Parent"); WORKFIRE ACQUISITION CORP., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub");
WORKFIRE.COM, a Nevada corporation ("Holdings"); and WORKFIRE TECHNOLOGIES
INTERNATIONAL, INC., a Nevada corporation (the "Company"). Certain capitalized
terms used in this Agreement are defined in EXHIBIT A.
RECITALS
A. Parent, Merger Sub, Holdings and the Company intend to effect a
merger of Merger Sub with and into the Company in accordance with this
Agreement, the Nevada General Corporation Law and the Delaware General
Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The parties desire to enter into an Agreement and Plan of
Reorganization pursuant to Section 368 (a)(1)(c) of the Code, pursuant to which
Parent shall acquire substantially all of the assets, property and business of
Holdings solely in exchange for shares of Parent Common Stock.
C. This Agreement has been approved by the respective boards of
directors of Parent, Merger Sub, Holdings and the Company.
D. Contemporaneously with the execution and delivery of this Agreement,
Holdings and certain holders of voting capital stock of Holdings are executing
and delivering to Parent voting agreements (each a "Voting Agreement") of even
date herewith substantially in the form of EXHIBIT B and EXHIBIT C,
respectively.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1. MERGER OF MERGER SUB INTO THE COMPANY. Upon the terms and subject
to the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2. EFFECT OF THE MERGER. The Merger shall have the effects set forth
in this Agreement and in the applicable provisions of the Nevada General
Corporation Law and the Delaware General Corporation Law.
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1.3. LIQUIDATION AND DISTRIBUTIONS OF HOLDINGS. Upon liquidation of
Holdings pursuant to this tax-free reorganization, Holding shall distribute its
shares of Parent Common Stock to the stockholders of Holdings.
1.4. CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, CA 94043 at 10:00 a.m. on the second business day following the
satisfaction of the conditions set forth in Sections 6.5 and 7.3 (provided that
all other conditions set forth in Sections 6 and 7 have been satisfied or
waived) or on such other date as is mutually agreed upon by the Company and
Parent. (The date on which the Closing actually takes place is referred to in
this Agreement as the "Closing Date.") Contemporaneously with or as promptly as
practicable after the Closing, a properly executed agreement or certificate of
merger conforming to the requirements of the Nevada General Corporation Law
shall be filed with the Secretary of State of the State of Nevada and a properly
executed agreement or certificate of merger conforming to the requirements of
the Delaware General Corporation Law shall be filed with the Secretary of State
of the State of Delaware. The Merger shall become effective at the time such
filings are made (provided that such filings are subsequently accepted in due
course) (the "Effective Time").
1.5. ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the certificate of incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time in a form acceptable to
Parent;
(b) the bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time in a form acceptable to Parent; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals selected by Parent
prior to the Closing.
1.6. CONVERSION OF SHARES.
(a) Subject to Section 1.10, at the Effective Time, by virtue of the
Merger and without any further action on the part of Parent, Merger Sub,
Holdings, the Company or any stockholder of Holdings or the Company:
(i) Each share of Company Common Stock outstanding immediately
prior to the Effective Time shall entitle the holder thereof to the Applicable
Participating Fraction (as defined below) of a share of Parent Common Stock. The
"Applicable Participating Fraction" shall be the fraction (A) having a numerator
equal to 2,000,000 and (B) having a denominator equal to the Fully Diluted
Number of Company Capital Shares.
(ii) Each share of the common stock (par value $0.001 per share)
of Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
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(iii) All calculations under this Section 1.6(a) shall be
rounded to the nearest one millionth (1/1,000,000th).
(iv) Subject only to Section 1.6(c), in no case shall the number
of shares of Parent Common Stock issued under this Section 1.6 (a) to the
stockholders of the Company, when added to the shares of Parent Common Stock
issuable to the holders of options to purchase Company Common Stock under
Section 1.7, exceed 2,000,000 shares.
(b) Notwithstanding anything to the contrary contained in this
Agreement, a portion of the shares of Parent Common Stock issued in the Merger
shall be delivered into escrow and held as specified in Section 1.9 hereof.
(c) In the event Parent at any time or from time to time between the
date of this Agreement and the Effective Time declares or pays any dividend on
Parent Common Stock payable in Parent Common Stock or in any right to acquire
Parent Common Stock, or effects a subdivision of the outstanding shares of
Parent Common Stock into a greater number of shares of Parent Common Stock (by
stock dividends, combinations, splits, recapitalizations and the like), or in
the event the outstanding shares of Parent Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Parent Common Stock, then the Applicable Fraction shall be appropriately
adjusted.
(d) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common Stock
will also be unvested and subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates representing such shares of
Parent Common Stock may accordingly be marked with appropriate legends.
(e) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of Company Common
Stock who would otherwise be entitled to receive a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock
issuable to such holder) shall, upon surrender of such holder's stock
certificate(s) representing shares of capital stock of the Company, be paid in
cash the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the Parent Average Stock Price. In no
case shall any holder of capital stock of the Company be entitled to receive
cash in an amount equal to or greater than the value of one share of Parent
Common Stock.
(f) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of Company Common Stock pursuant to this Agreement such
amounts as Parent or the Surviving Corporation may be required to deduct or
withhold therefrom under the Code or under any provision of state, local or
foreign tax law. To the extent such amounts are so deducted or withheld, such
amounts shall be paid to the applicable taxing authority for, and shall be
treated
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for all purposes under this Agreement as having been paid to the Person to whom
such amounts would otherwise have been paid.
(g) The shares of Parent Common Stock issued upon surrender for
exchange of shares of Company Common Stock in accordance with the terms of this
Agreement shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares.
1.7. STOCK OPTIONS.
At the Effective Time, each option to purchase shares of Company
Common Stock that is then outstanding, whether vested or unvested (a "Company
Option"), shall be assumed by Parent in accordance with the terms (as in effect
as of the date of this Agreement) of the stock option agreement by which such
Company Option is evidenced. At the Effective Time, all rights with respect to
Company Common Stock under outstanding Company Options shall be converted into
rights with respect to Parent Common Stock. Accordingly, from and after the
Effective Time, (i) each Company Option assumed by Parent may be exercised
solely for shares of Parent Common Stock, (ii) the number of shares of Parent
Common Stock subject to each such assumed Company Option shall be equal to the
number of shares of Company Common Stock that were subject to such Company
Option immediately prior to the Effective Time multiplied by the Applicable
Participating Fraction, rounded down to the nearest whole number of shares of
Parent Common Stock, (iii) the per share exercise price for the Parent Common
Stock issuable upon exercise of each such assumed Company Option shall be
determined by dividing the exercise price per share of Company Common Stock
subject to such Company Option, as in effect immediately prior to the Effective
Time, by the Applicable Participating Fraction, and rounding the resulting
exercise price up to the nearest whole cent and (iv) all restrictions on the
exercise of each such assumed Company Option shall continue in full force and
effect, and the term, exercisability, vesting schedule and other provisions of
such Company Option shall otherwise remain unchanged; provided, however, that
each such assumed Company Option shall, in accordance with its terms, be subject
to further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction effected by
Parent after the Effective Time. It is the intention of the parties that the
Company Options so assumed by Parent shall not qualify as incentive stock
options as defined in Section 422 of the Code. The Company and Parent shall take
all action that may be necessary to effectuate the provisions of this Section
1.7. As soon as is reasonably practicable following the Closing, Parent will
send to each holder of an assumed Company Option a written notice setting forth
(i) the number of shares of Parent Common Stock subject to such assumed Company
Option and (ii) the exercise price per share of Parent Common Stock issuable
upon exercise of such assumed Company Option. Parent shall file with the SEC,
within two weeks after the Closing, a registration statement on Form S-8
registering the exercise of any Company Options assumed by Parent pursuant to
this Section 1.7.
1.8. CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time,
holders of certificates representing shares of Company's capital stock that were
outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the
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Effective Time. If, after the Effective Time, a valid certificate previously
representing any of such shares of the Company's capital stock (a "Company Stock
Certificate") is presented to the Surviving Corporation or Parent, such Company
Stock Certificate shall be canceled and shall be exchanged as provided in
Section 1.9. None of Parent, Merger Sub, Holdings or the Company shall be liable
to any holder of shares of capital stock of the Company, or any holder of any
option to acquire any such shares, for shares (or dividends or distributions
with respect thereto) of Parent Common Stock to be issued in exchange for
capital stock of the Company pursuant to this Agreement if, on or after the
expiration of six months following the Effective Time, such shares are delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
1.9. EXCHANGE OF CERTIFICATES; ESCROW SHARES.
(a) At the Closing, Parent shall segregate from the Parent Stock
issuable hereunder such number of shares of Parent Stock as is equal to 12% of
the shares of Parent Stock to be issued to the Company stockholders at the
Closing (excluding shares of Parent Stock issuable upon assumed Company Options)
represented by one stock certificate issued in the name of the Escrow Agent and
cause such stock to be deposited with U.S. Bank Trust National Association or
such other financial institution selected by Parent to act as escrow agent (the
"Escrow Agent"), under the escrow agreement in substantially the form attached
hereto as EXHIBIT D (the "Escrow Agreement").
(b) At the Closing, each Company stockholder that does not perfect
its dissenters' rights and is otherwise entitled to receive shares of Parent
Common Stock pursuant to Section 1.6 (a "Merger Stockholder") shall surrender to
Parent all certificates representing shares of Company Common Stock for
cancellation, together with an executed stock power duly endorsed in blank by
such holder and such other documents as may be reasonably required by Parent. At
or as soon as practicable after the Effective Time, Parent shall (i) deliver to
each Merger Stockholder who has surrendered his or her certificates formerly
representing shares of capital stock of the Company in compliance with the
preceding sentence a certificate representing 88 percent of the number of whole
shares of Parent Common Stock that such Merger Stockholder has the right to
receive pursuant to the provisions of Section 1.6 and (ii) deliver to the escrow
agent under the Escrow Agreement in the form of EXHIBIT D hereto (the "Escrow
Agreement"), on behalf of all Merger Stockholders, a certificate representing 12
percent of the number of whole shares of Parent Common Stock that the Merger
Stockholders in the aggregate have the right to receive pursuant to the
provisions of Section 1.6 (the "Escrow Shares"). In determining the number of
whole shares that represent 88 percent of the number of shares of Parent Common
Stock to which each Merger Stockholder is entitled pursuant to Section 1.6,
Parent shall round up to the nearest whole number of shares, and in determining
the number of Escrow Shares to which such Merger Stockholder is entitled
pursuant to Section 1.6, Parent shall round down to the nearest whole number. If
any shares of Parent Common Stock are to be issued in the name of a person other
than the person in whose name the Company Stock Certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance of such
shares that (i) the certificate(s) so surrendered shall be transferable, and
shall be properly assigned, endorsed or accompanied by appropriate stock powers,
(ii) such transfer shall otherwise be proper and (iii) the person requesting
such transfer shall pay Parent, or its exchange agent, any transfer or other
taxes payable by reason of the foregoing or establish to the
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satisfaction of Parent that such taxes have been paid or are not required to be
paid. If any Company Stock Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
issuance of any certificate representing Parent Common Stock, require the owner
of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as Parent may
reasonably direct) as indemnity against any claim that may be made against
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(c) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with this
Section 1.9 (at which time such holder shall be entitled receive all such
dividends and distributions and such cash payment).
1.10. DISSENTING SHARES. Notwithstanding anything to the contrary
contained in this Agreement, any shares of capital stock of the Company that, as
of the Effective Time, are or may become owned by "dissenters" (hereinafter
referred to as "dissenting shares") within the meaning of Section 92A.315 of the
Nevada General Corporation Law shall not be converted into or represent the
right to receive Parent Common Stock in accordance with Section 1.6 (or cash in
lieu of fractional shares in accordance with Section 1.6(e)), and the holder or
holders of such shares shall be entitled only to such rights as may be granted
to such holder or holders in the Nevada General Corporation Law; provided,
however, that if the status of any such shares as "dissenting shares" shall not
be perfected, or if any such shares shall lose their status as "dissenting
shares," then, as of the later of the Effective Time or the time of the failure
to perfect such status or the loss of such status, such shares shall
automatically be converted into and shall represent only the right to receive
(upon the surrender of the certificate or certificates representing such shares)
Parent Common Stock in accordance with Section 1.6 (and cash in lieu of
fractional shares in accordance with Section 1.6(e)), subject to the escrow
requirements of Section 1.9(a). The Company shall give Parent (i) prompt notice
of any written demands for payment with respect to any shares of capital stock
of the Company pursuant to Section 92A.440 of the Nevada General Corporation
Law, withdrawals of such demands, and any other instruments served pursuant to
the Nevada General Corporation Law and received by the Company and (ii) the
opportunity to participate in all negotiations and proceedings with respect to
demands for dissenter's rights under the Nevada General Corporation Law. The
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for dissenter's rights or offer to
settle or settle any such demands.
1.11. TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement 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.
1.12. ACCOUNTING TREATMENT. For accounting purposes, the Merger is
intended to be treated as a purchase.
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1.13. FURTHER ACTION. If, at any time after the Effective Time, any
further action is determined by Parent to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation or Parent
with full right, title and possession of and to all rights and property of
Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action. Following the
Effective Time, Holdings shall cease doing business, shall effect an amendment
to its articles of incorporation to delete the word "Workfire" from its
corporate name and shall promptly notify Parent of any liabilities which may
arise. Parent may, at its option assume such additional liabilities; provided,
however, that Escrow Shares with a value equal to the assumed liabilities based
on the Parent Average Stock Price may be released to Parent. Holdings shall
adopt a plan of liquidation and dissolution as promptly as practicable following
the Effective Time and shall cause such plan of liquidation and dissolution to
be completed as promptly as practicable.
1.14. EXEMPTION FROM REGISTRATION.
(a) The shares of Parent Common Stock to be issued in the Merger and
to be distributed to the stockholders of Holdings pursuant to a plan of
liquidation and dissolution will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of Section 3(a)(10) thereof or, to the extent Section 1.14(b)
is applicable, pursuant to Regulation D of the Securities Act and SEC rules and
regulations promulgated thereunder. Subject to the provisions hereof, the shares
of Parent Common Stock to be issued in the Merger will be qualified under the
California Corporations Code, pursuant to Section 25121 thereof, after a
fairness hearing has been held pursuant to the authority granted by Section
25142 of such law, and (if deemed necessary by Parent in its good faith
judgment) such fairness hearing shall also address the assumption by Parent of
all Company Options pursuant to this Agreement. Parent and Company shall each
use all requisite commercially reasonable efforts (i) to file, as promptly as
practicable following the execution and delivery of this Agreement an
application for issuance of a permit pursuant to Section 25121 of the California
Corporations Code to issue such securities (and, if deemed necessary by Parent
in its good faith judgment, to assume such Company Options) (the "California
Permit") and (ii) to obtain the California Permit as promptly as practicable.
(b) In the event that the California Permit cannot be obtained on or
before September 15, 2000, or without the imposition of burdensome conditions,
then Parent and Company shall use commercially reasonable efforts to effect the
issuance of the shares of Parent Common Stock to be issued in the Merger, in a
private placement pursuant to Regulation D of the Securities Act and SEC rules
and regulations promulgated thereunder, on terms and conditions that are
reasonably satisfactory to Parent and Company. The parties hereto acknowledge
and agree that in the event of such a private placement: (i) as a condition to
effecting such issuance as a private placement pursuant to Regulation D of the
Securities Act, Parent shall be entitled to obtain from each stockholder of
Company and Holdings such representations, warranties, certifications and
additional information as shall be reasonably satisfactory to Parent, Holdings
and Company and that Parent will be relying upon the representations made by
each stockholder of Company and Holdings in such statements in connection with
the issuance of Parent Common Stock to such stockholder, (ii) until registered
on Form S-3 as provided below, the shares of Parent Common Stock so issued
pursuant to
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Section 1.6 will not be registered under the Securities Act and will constitute
"restricted securities" within the meaning of the Securities Act, and (iii) the
certificates representing the shares of Parent Common Stock shall bear
appropriate legends to identify such privately placed shares as being restricted
under the Securities Act, to comply with applicable state securities laws and,
if applicable, to notice the restrictions on transfer of such shares.
(c) In the event of a private placement as described in Section
1.14(b) above, Parent shall use commercially reasonable efforts to prepare and
file with the SEC, as soon as practicable (and in any event within 30 days)
after the Effective Time, a registration statement on Form S-3 covering the
resale of such shares of Parent Common Stock issued prior thereto in connection
with the Merger and Parent shall use commercially reasonable efforts to cause
such registration statement to become effective as promptly as practicable after
filing and to keep such registration statement effective until twelve (12)
months after the Effective Time or such earlier date on which the shares covered
thereby are sold or transferred by the original holders thereof. Parent's
obligation in the preceding sentence to file the registration statement within
30 days is subject to the condition that the holders of Parent Common Stock
provide Parent promptly, but in no event more than fifteen (15) days after the
Closing, all information relating to them for inclusion in the registration
statement. While the foregoing registration statement is effective, Parent shall
use commercially reasonable efforts to ensure that the registration statement,
as amended or supplemented, does not contain any untrue statement of a material
fact or omit to state a material fact required to make the statements therein,
in light of the circumstances in which they were made, not misleading.
Notwithstanding anything herein to the contrary, the holders of shares covered
by any such registration statement shall only resell securities pursuant to such
registration statement subject to (i) Blackout Period Restrictions (as defined
below) and (ii) in the case of holders who are officers, employees or
consultants of Parent, the Surviving Company or any of their affiliates, any
trading window restrictions applicable to similarly situated Parent officers,
employees or consultants. "Blackout Period Restrictions" shall mean the
restrictions on sale of registered shares of Parent Common Stock pursuant to the
registration statement permitted to be imposed by Parent as follows: in the
event that, at any time while the registration statement remains effective,
Parent determines in its reasonable judgment and in good faith that the sale of
securities pursuant to such registration statement would require disclosure of
material information that Parent has a bona fide business purpose for preserving
as confidential, upon giving written notice to the selling securityholders of
such good faith determination, Parent shall be entitled to suspend sales of the
registered securities pursuant to the registration statement for a period
beginning on the date of receipt of such notice and expiring on the earlier of
(i) the date upon which such material information is disclosed to the public or
ceases to be material or (ii) ninety (90) days after the receipt of such notice
from Parent; provided, however, that Parent shall not be permitted to impose
such restrictions provided herein on more than two (2) occasions.
(d) If Parent obtains a California Permit, the certificates (other
than those certificates issued to persons who were not as of the Effective Time,
an affiliate of the Company or Holdlings, as such term is defined in Rule 144
under the Securities Act) representing the shares of Parent Common Stock issued
pursuant to this Agreement shall bear the restrictive legends (and stop transfer
orders shall be placed against the transfer thereof with Parent's transfer
agent) as follows:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED
IN CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH A WRITTEN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND
SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED."
If such shares of Parent Common Stock are issued in reliance upon an
exemption from the registration requirements of Section 5 of the Securities Act
as set forth in Regulation D thereof, the certificates representing the shares
of Parent Common Stock issued pursuant to this Agreement shall bear a
restrictive legend (and stop transfer orders shall be placed against the
transfer thereof with Parent's transfer agent) stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION.
1.15. THE COMPANY STOCKHOLDERS' RESTRICTIONS REGARDING SECURITIES LAW
MATTERS.
Each stockholder of the Company, by virtue of the Merger and the
conversion into Parent Common Stock of the Company Common Stock or assumed
Company Options held by such stockholder, shall be bound by the following
provisions:
(a) If Parent issues the shares of Parent Common Stock in the Merger
in reliance on a California Permit for an exemption from registration, such
stockholder will not offer or sell any shares of Parent Common Stock except in
compliance with Rule 145 promulgated under the Securities Act or otherwise
dispose of any such shares except in compliance with the Securities Act and the
rules and regulations thereunder.
(b) In the event that the shares of Parent Common Stock to be issued
pursuant to this Agreement are issued pursuant to an exemption from registration
pursuant to Regulation D of the Securities Act, then such stockholder agrees
that such stockholder will not sell, transfer or otherwise dispose of any shares
of Parent Common Stock unless (i) such sale, transfer or other disposition is
within the limitations of and in compliance with Rule 144 promulgated by the SEC
under the Securities Act and the Shareholder furnishes Parent with reasonable
proof of compliance with such Rule, (ii) in the opinion of counsel, reasonably
satisfactory to Parent and its counsel, some other exemption from registration
under the Securities Act is available with respect to any such proposed sale,
transfer, or other disposition of
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Parent Common Stock or (iii) the offer and sale of Parent Common Stock is
registered under the Securities Act.
1.16. AGREEMENTS. Each stockholder and optionee of the Company, by
virtue of the Merger and the conversion into Parent Common Stock of the Company
Common Stock or Company Option held by such stockholder or optionee, as the case
may be, shall be bound by the following provisions:
(a) The shares of Parent Common Stock issued to each Merger
Stockholder upon the cancellation and conversion of the Company Common Stock
shall be subject to a hold period and may not be transferred, sold, or otherwise
disposed of during such hold period without the written consent of Parent. The
hold period shall expire as to 16 2/3% of the Parent Common Stock subject to the
hold period on the three month anniversary of the Effective Date and a further
16 2/3% of the Parent Common Stock initially subject to the hold period upon the
expiry of each three month period thereafter. The certificates representing the
foregoing Parent Common Stock shall bear legends to the foregoing effect. Parent
will not register a transfer of Parent Common Stock unless the foregoing
conditions are satisfied and Parent may instruct its transfer agent not to
register the transfer of any Parent Common Stock unless the foregoing conditions
are satisfied. Each holder of Parent Common Stock also agrees and consents to
the entry of stop transfer instructions with the Parent's transfer agent and
registrar against the transfer of such shares of Parent Common Stock except in
compliance with the foregoing restrictions.
(b) Each share of Parent Common Stock issued in connection with the
Merger shall bear the following legend restricting the transfer of such shares:
(c) "THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO A HOLD PERIOD
THAT EXPIRES AS SET OUT BELOW AND MAY NOT BE TRANSFERRED, TRADED OR OTHERWISE
DISPOSED OF UNTIL THE EXPIRY OF SUCH HOLD PERIOD EXCEPT WITH THE CONSENT OF THE
COMPANY. 16 2/3% OF THE INITIAL TOTAL OF NUMBER OF SHARES SHALL BE RELEASED FROM
THE HOLD 3 MONTHS AFTER THE CLOSING AND 16 2/3 OF THE INITIAL TOTAL NUMBER OF
SHARES SHALL BE RELEASED FROM THE HOLD ON THE EXPIRY OF EACH SUBSEQUENT THREE
MONTH PERIOD.
(d) Each holder of Company Capital Stock or assumed Company Options
understands and agrees that the agreements set forth in this Section 1.16 are
irrevocable and shall be binding upon such holder's heirs, legal
representatives, successors, and assigns.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and Holdings represent and warrant to Parent that,
except as set forth in the Disclosure Schedule, the following representations
are true and correct.
2.1. DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) Each of the Company and Holdings is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and the Company has
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all necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to own and use its assets
in the manner in which its assets are currently owned and used and (iii) to
perform its obligations under all Company Contracts. Each of the Company and
Holdings is qualified to business as a foreign corporation and is in good
standing in each jurisdiction where the nature of its business requires it to be
so qualified, except where the failure to be so qualified has not had and would
not have a Material Adverse Effect on the Company.
(b) The Company has not conducted any business under or otherwise
used, for any purpose or in any jurisdiction, any fictitious name, assumed name,
trade name or other name, other than the names "Workfire Networks, Inc." and
"Workfire Technologies International, Inc."
(c) Part 2.1(c) of the Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, and (ii) the names
and titles of the Company's officers.
(d) Except as set forth in Part 2.1(d) of the Disclosure Schedule,
the Company or Holdings has no subsidiaries, and has never owned, beneficially
or otherwise, any shares or other securities of, or any direct or indirect
interest of any nature in, any other Entity.
2.2. CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (a) the certificate of
incorporation and bylaws, including all amendments thereto, of the Company and
each Subsidiary; and (b) the stock records of the Company and each Subsidiary;
and (c) the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or otherwise without a meeting)
of the stockholders of the Company, the board of directors of the Company, the
stockholders of each Subsidiary and the board of directors of each Subsidiary.
There have been no meetings or other proceedings or actions of the stockholders
of the Company or any Subsidiaries or the board of directors of the Company or
any Subsidiary that are not fully reflected in such minutes or other records.
There has not been any violation of any of the provisions of the Company's or
any Subsidiary's certificate of incorporation or bylaws or of any resolution
adopted by the Company's Stockholders, the Company's board of directors, the
Stockholders of any Subsidiary or the board of directors of any Subsidiary. The
books of account, stock records, minute books and other records of the Company
are accurate, up-to-date and complete, and have been maintained in accordance
with prudent business practices and all applicable Legal Requirements.
2.3. CAPITALIZATION, ETC.
(a) The authorized capital stock of the Company consists of (i)
100,000,000 shares of Common Stock, of which 15,212,631 shares are issued and
outstanding as of the date of this Agreement and (ii) 1,000,000 shares of
Preferred Stock, none of which are issued and outstanding as of the date of this
Agreement. Part 2.3(a)(1) of the Disclosure Schedule sets forth the names of the
Company's Stockholders and the number of shares of Company Common Stock owned of
record by each of such Stockholders. The Company has reserved an additional
2,000,000 shares of Company Common Stock for issuance under its 2000 Stock
Option Plan (the "Stock Plan") to employees, advisory board members, officers or
directors of, or consultants to,
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<PAGE> 17
the Company, of which options to acquire 1,319,353 shares of Common Stock have
been granted as of the date of this Agreement. Part 2.3(a)(2) of the Disclosure
Schedule sets forth a true and complete list as of the date hereof of all
holders of outstanding Company Options, including the number of shares of
Company Common Stock subject to each such Company Option, the exercise and
vesting schedule, the exercise price per share and the term of each such Company
Option. Part 2.3(a)(2) of the Disclosure Schedule also identifies whether (i)
the optionee is a consultant or employee of the Company, (ii) the Company Option
was granted pursuant to the Company's Stock Plan and (iii) the Company Option is
intended to be an incentive stock option pursuant to Section 422 of the Code.
Part 2.3(a)(3) of the Disclosure Schedule sets forth for each Subsidiary (i) a
description of the authorized capital stock of such Subsidiary and (ii) the
number of shares of capital stock issued and outstanding. Part 2.3(a)(4) of the
Disclosure Schedule sets forth the names of Holdings stockholders and the number
of shares of Holdings capital stock, warrants to purchase shares of Holdings
capital stock or options to purchase shares of Holdings capital stock owned or
held of record by each of such stockholders.
(b) All of the outstanding shares of Company Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. There
are no preemptive rights applicable to any shares of capital stock of the
Company. As of the date hereof, Parent is acquiring good and valid title to all
of the outstanding shares of Company Common Stock, free and clear of any
Encumbrances.
(c) Except as identified in Section 2.3(a), as of the date of this
Agreement, there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company or any Subsidiary; (ii)
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities of
the Company or any Subsidiary; or (iii) agreement or understanding between or
among any persons and/or entities, that affects or relates to the acquisition or
disposition of, or voting or giving of written consents with respect to, any
security of the Company or any Subsidiary.
(d) Any shares of capital stock or other securities repurchased,
redeemed or otherwise reacquired by the Company or any Subsidiary were validly
reacquired in compliance with (i) the applicable provisions of the Nevada
General Corporation Law and all other applicable Legal Requirements, and (ii)
any requirements set forth in applicable Contracts.
2.4. FINANCIAL STATEMENTS.
(a) The Company and Holdings have delivered to Parent the following
financial statements and notes (collectively, the "Company Financial
Statements"):
(i) the audited balance sheets of each of the Company and
Holdings as of December 31, 1998 and 1999, and the related audited income
statements, statements of stockholders' equity and statements of cash flows of
each of the Company and Holdings for the years then ended, together with the
notes thereto and the report and opinion of KPMG LLP relating thereto; and
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(ii) the unaudited balance sheet of each of the Company and
Holdings as of June 30, 2000 (the "Unaudited Interim Balance Sheet"), and the
related unaudited income statement of the Company for the six months then ended.
(b) The Company Financial Statements are accurate and complete in
all respects and present fairly the financial position of each of the Company
and Holdings as of the respective dates thereof and the results of operations
and (in the case of the financial statements referred to in Section 2.4(a)(i))
cash flows of the Company for the periods covered thereby. The Company Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods covered (except
that the financial statements referred to in Section 2.4(a)(ii) do not contain
footnotes and are subject to normal and recurring year-end audit adjustments)
which will not, individually or in the aggregate, be material in magnitude.
2.5. ABSENCE OF CHANGES. Between December 31, 1999 and the date of this
Agreement:
(a) there has not been any adverse change in the business, financial
condition, operations, prospects or results of operations of the Company and any
Subsidiary and no event has occurred that will, or could reasonably be expected
to have a Material Adverse Effect on the Company;
(b) there has not been any loss, damage or destruction to, or any
interruption in the use of, any of the Company's or its Subsidiaries' assets
(whether or not covered by insurance);
(c) the Company and its Subsidiaries have not declared, accrued, set
aside or paid any dividend or made any other distribution in respect of any
shares of capital stock, nor has the Company or any of its Subsidiaries
repurchased, redeemed or otherwise reacquired any shares of its capital stock or
other securities;
(d) there has been no amendment to the certificate of incorporation
or bylaws of the Company or any of its Subsidiaries, and the Company and its
Subsidiaries have not effected or been a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(e) the Company and its Subsidiaries have not (i) lent money to any
Person (other than pursuant to advances made to employees in the ordinary course
of business) or (ii) incurred or guaranteed any indebtedness for borrowed money;
(f) the Company and its Subsidiaries have not changed any of its
methods of accounting or accounting practices in any material respect;
(g) the Company and its Subsidiaries have not commenced or settled
any Legal Proceeding;
(h) the Company and its Subsidiaries have not sold, issued or
authorized the issuance of (i) any capital stock or other security, (ii) any
option, call, warrant or right to acquire,
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or otherwise relating to, any capital stock or any other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or other
security;
(i) the Company and its Subsidiaries have not made any capital
expenditure which, when added to all other capital expenditures made by the
Company since December 31, 2000, exceeds $25,000 in the aggregate;
(j) the Company and its Subsidiaries have not (i) entered into or
permitted any of the assets owned or used by them to become bound by any
Material Contract (as defined in Section 2.10(a)), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any
Material Contract to which they are or were a party or under which they have or
had any rights or obligations;
(k) the Company and its Subsidiaries have not (i) acquired, leased
or licensed any right or other asset from any other Person (other than
immaterial rights or other immaterial assets acquired, leased or licensed by the
Company and its Subsidiaries from other Persons in the ordinary course of
business and consistent with the Company's and its Subsidiaries' past
practices), (ii) sold or otherwise disposed of, or leased or licensed, any right
or other asset to any other Person (other than immaterial rights or other
immaterial assets disposed of or leased or licensed by the Company to other
Persons in the ordinary course of business and consistent with the Company's and
its Subsidiaries' past practices), or (iii) waived or relinquished any right
(other than immaterial rights waived or relinquished by the Company and its
Subsidiaries in the ordinary course of business and consistent with the
Company's and its Subsidiaries' past practices);
(l) the Company and its Subsidiaries have not written off as
uncollectible, or established any extraordinary reserve with respect to, any
account receivable or other indebtedness;
(m) the Company and its Subsidiaries have not made any pledge of any
of their assets or otherwise permitted any of its assets to become subject to
any Encumbrance, except for pledges of immaterial assets made in the ordinary
course of business and consistent with the Company's and its Subsidiaries' past
practices;
(n) the Company and its Subsidiaries have not (i) established,
adopted or amended any Employee Benefit Plan, or (ii) made any profit-sharing or
similar payment to any of its directors, officers or employees;
(o) the Company and its Subsidiaries have not entered into any
material transaction or taken any other material action outside the ordinary
course of business or inconsistent with its past practices; and
(p) the Company and its Subsidiaries have not agreed or committed to
take any of the actions referred to in clauses "(c)" through "(o)" above.
2.6. TITLE TO ASSETS.
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(a) Except as set forth in Part 2.6(a) of the Disclosure Schedule,
the Company and each Subsidiary owns, and has good, valid and marketable title
to, all assets purported to be owned by it, including: (i) all assets reflected
on the Unaudited Interim Balance Sheet; (ii) all assets referred to in Part 2.9
of the Disclosure Schedule and all of the Company's and each Subsidiary's rights
under the Contracts identified in Part 2.10(a) of the Disclosure Schedule; and
(iii) all other assets reflected in the Company's and each Subsidiary's books
and records as being owned by the Company and each Subsidiary. Except as set
forth in Part 2.6(a) of the Disclosure Schedule, all of said assets are owned by
the Company and each Subsidiary free and clear of any liens or other
Encumbrances, except for (i) any lien for current taxes not yet due and payable,
and (ii) minor liens that have arisen in the ordinary course of business and
that do not (in any case or in the aggregate) materially detract from the value
of the assets subject thereto or materially impair the operations of the
Company.
(b) Part 2.6(b) of the Disclosure Schedule identifies all assets
that are being leased or licensed to the Company and each Subsidiary, except for
(i) any equipment being leased to the Company and each Subsidiary under a
standard operating lease requiring annual payments by the Company or a
Subsidiary of less than $5,000, and (ii) any software being licensed to the
Company or a Subsidiary under any third party software license generally
available to the public at a total cost of less than $5,000.
2.7. INTELLECTUAL PROPERTY.
(a) Part 2.7(a)(1) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset that has been registered, recorded or
filed with any Governmental Body or with respect to which an application has
been filed with any Governmental Body, (i) a brief description of such Company
Proprietary Asset, and (ii) the names of the jurisdictions covered by the
applicable registration, recordation, filing or application. Part 2.7(a)(2) of
the Disclosure Schedule identifies and provides a brief description of all other
Company Proprietary Assets owned by the Company. Part 2.7(a)(3) of the
Disclosure Schedule identifies and provides a brief description of each Company
Proprietary Asset that is owned by any other Person and that is licensed to or
used by the Company (except for any Company Proprietary Asset that is licensed
to the Company under any third party software license that (1) is generally
available to the public at a one-time cost of less than $1,000, and (2) imposes
no future monetary obligation on the Company) and identifies the license
agreement or other agreement under which such Company Proprietary Asset is being
licensed to or used by the Company. Except as set forth in Part 2.7(a)(4) of the
Disclosure Schedule, the Company has good, valid and marketable title to all of
the Proprietary Assets identified in Parts 2.7(a)(1) and 2.7(a)(2) of the
Disclosure Schedule, free and clear of all liens and other Encumbrances, and has
a valid right to use all Proprietary Assets identified in Part 2.7(a)(3) of the
Disclosure Schedule. Except as set forth in Part 2.7(a)(5) of the Disclosure
Schedule, the Company is not obligated to make any payment to any Person for the
use of any Company Proprietary Asset. Except as set forth in Part 2.7(a)(6) of
the Disclosure Schedule, the Company is free to use, modify, copy, distribute,
sell, license or otherwise exploit each of the Company Proprietary Assets on an
exclusive basis (other than Company Proprietary Assets consisting of software
licensed to the Company under third party licenses generally available to the
public, with respect to which the Company's rights are not exclusive).
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(b) The Company has made best efforts to take such measures and
precautions as are necessary to protect and maintain the confidentiality and
secrecy of all Company Proprietary Assets (except Company Proprietary Assets
whose value would be unimpaired by public disclosure) and otherwise to maintain
and protect the value of all Company Proprietary Assets. Except as set forth in
Part 2.7(b) of the Disclosure Schedule, the Company has not disclosed or
delivered or permitted to be disclosed or delivered to any Person, and no Person
(other than the Company) has access to or has any rights with respect to, the
source code, or any portion or aspect of the source code, of any Company
Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. Except as set
forth in Part 2.7(c) of the Disclosure Schedule, the Company is not infringing,
misappropriating or making any unlawful use of, and the Company has not at any
time infringed, misappropriated or made any unlawful use of, or received any
notice or other communication of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other Person. Except as set forth in Part 2.7(c) of the
Disclosure Schedule, no other Person is infringing, misappropriating or making
any unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(d) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been conducted and in the manner in which such business
is proposed to be conducted. Except as set forth in Part 2.7(d) of the
Disclosure Schedule, (i) the Company has not licensed any of the Company
Proprietary Assets to any Person on an exclusive basis, and (ii) the Company has
not entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
(e) Except as set forth in Part 2.7(e) of the Disclosure Schedule,
all current and former employees of the Company, and all current and former
consultants and independent contractors to the Company, have executed and
delivered to the Company written agreements (containing no exceptions to or
exclusions from the scope of their coverage) that are substantially identical to
the form of Employee Invention Assignment and Confidentiality Agreement attached
to Part 2.7(e) of the Disclosure Schedule.
(f) None of the Company's employees or consultants or employees or
consultants of its Subsidiaries is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of the Company or that would conflict with Company's business as presently
conducted and as presently proposed to be conducted. Neither the execution of
this Agreement, the related agreements nor the transactions contemplated by this
Agreement nor the carrying on of the Company's business by the employees and
consultants of Company and its Subsidiaries, nor the conduct of the Company's
business as presently proposed to be conducted, will conflict with or result in
a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees or
consultants is now obligated. The Company and its Subsidiaries are not using and
do not believe
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it will necessary to utilize any inventions of any of their employees or
consultants (or people they currently intends to hire or engage as consultants)
made prior to their employment or consulting with the Company or its
Subsidiaries, except for inventions that have been assigned or licensed to the
Company or its Subsidiaries.
(g) Except as set forth in Part 2.7(f) of the Disclosure Schedule,
the Company has not entered into and is not bound by any Contract under which
any Person has the right to distribute or license, on a commercial basis, any
Company Proprietary Asset including source code, object code, or any versions,
modifications or derivative works of source code or object code in any Company
Proprietary Asset.
(h) Each computer program and other item of software owned or used
by the Company is Year 2000 Compliant or will be Year 2000 Compliant in
sufficient time to avoid any disruption to any of the businesses of acquired by
Parent pursuant to this Agreement. Each computer program and other item of
software that has been designed, developed, sold, installed, licensed or
otherwise made available by the Company to any Person is Year 2000 Compliant.
2.8. BANK ACCOUNTS. Part 2.8(a) of the Disclosure Schedule provides
accurate and complete information (including account numbers, type of account
and names of all individuals authorized to draw on or make withdrawals from each
account) with respect to each account maintained by or for the benefit of the
Company and each Subsidiary at any bank or other financial institution.
2.9. REAL PROPERTY; EQUIPMENT.
(a) The Company and each Subsidiary do not own any real property or
interests in real property other than leasehold interests in real property. Part
2.9 of the Disclosure Schedule sets forth a complete list of all real property
and interests in real property leased by the Company and the Company has a valid
leasehold interest in such real property.
(b) Part 2.9 of the Disclosure Schedule provides accurate and
complete information with respect to all material items of equipment, fixtures,
leasehold improvements and other tangible assets owned by or leased to the
Company and each Subsidiary. The assets identified in Part 2.9 of the Disclosure
Schedule are adequate for the uses to which they are being put, are in good
condition and repair (ordinary wear and tear excepted) and are adequate for the
conduct of the Company's business in the manner in which such business is
currently being conducted and in the manner in which such business is proposed
to be conducted.
2.10. CONTRACTS.
(a) Part 2.10(a) of the Disclosure Schedule identifies each Company
Contract that constitutes a "Material Contract." For purposes of this Agreement,
each of the following (and each other Contract that is material to the business
of the Company) shall be deemed to constitute a "Material Contract":
(i) any Contract relating to the employment or engagement of, or
the performance of services by, any employee, consultant or independent
contractor;
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(ii) any Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset;
(iii) any Contract imposing any restriction on the Company's
right or ability (A) to compete with any other Person, (B) to acquire any
product or other asset or any services from any other Person, to sell any
product or other asset to or perform any services for any other Person or to
transact business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology;
(iv) any Contract creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(v) any Contract relating to the acquisition, issuance or
transfer of any securities;
(vi) any Contract creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by the Company;
(vii) any Contract involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity, any right of
contribution or any surety arrangement;
(VIII) any Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or liabilities;
(ix) any Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or for,
any Related Party (as defined in Section 2.19);
(x) any Contract to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations, or involving or
directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between the Company and any contractor or
subcontractor to any Governmental Body);
(xi) any Contract entered into outside the ordinary course of
business or inconsistent with the Company's past practices;
(xii) any Contract that has a term of more than 60 days and that
may not be terminated by the Company (without penalty) within 60 days after the
delivery of a termination notice by the Company; and
(b) any Contract (not otherwise identified in clauses "(i)" through
"(xii)" of this section) that contemplates or involves (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $25,000 in the aggregate, or (B) the performance of services having a value
in excess of $25,000 in the aggregate).
(c) The Company has delivered to Parent accurate and complete copies
of all written Contracts identified in Part 2.10 of the Disclosure Schedule,
including all amendments
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thereto. Each Contract identified in Part 2.10 of the Disclosure Schedule is
valid and in full force and effect, and, is enforceable by the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(d) Except as set forth in Part 2.10(d) of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed any
default under, any Company Contract, and, to the best of the Knowledge of the
Company, no other Person has violated or breached, or committed any default
under, any Company Contract;
(ii) to the best of the Knowledge of the Company, no event has
occurred, and no circumstance or condition exists, that (with or without notice
or lapse of time) will, or could reasonably be expected to, (A) result in a
violation or Breach of any of the provisions of any Company Contract, (B) give
any Person the right to declare a default or exercise any remedy under any
Company Contract, (C) give any Person the right to accelerate the maturity or
performance of any Company Contract, or (D) give any Person the right to cancel,
terminate or materially modify any Company Contract;
(iii) the Company has not received any notice or other
communication regarding (i) any actual or possible violation or breach of, or
default under, any Company Contract, or (ii) any actual or possible termination
of any Company Contract; and
(iv) the Company has not waived any of its material rights under
any Contract.
(e) No Person is renegotiating, or has the right to renegotiate, any
amount paid or payable to the Company under any Company Contract or any other
term or provision of any Company Contract.
(f) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Material Contracts necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted and in the manner in which its business is proposed
to be conducted.
2.11. LIABILITIES.
(a) The Company and each Subsidiary have no accrued, contingent or
other liabilities of any nature, either matured or unmatured (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles, and whether due or to become due), except for:
(a) liabilities identified in the Unaudited Interim Balance Sheet and the notes
thereto; (b) accounts payable and accrued salaries incurred by the Company since
December 31, 1999 in the ordinary course of business consistent with the past
practices of the Company; (c) liabilities identified in Part 2.11(a) of the
Disclosure Schedule.
(b) Part 2.11(b) of the Disclosure Schedule provides an accurate and
complete breakdown of (i) all accounts payable of Holdings, the Company and each
Subsidiary as of June 30, 2000, and (ii) all notes payable of Holdings, the
Company and each Subsidiary and all
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indebtedness of Holdings, the Company and each Subsidiary for borrowed money as
of the date of this Agreement, including the name of the debtholder, the date
the debt was incurred, aggregate principal amount owed to each person, the
interest accrued to date, the interest rate and the compounding period.
2.12. COMPLIANCE WITH LEGAL REQUIREMENTS. The Company and each
Subsidiary are, and have been at all times, in full compliance with all
applicable Legal Requirements, including all applicable Environmental Laws. No
event has occurred, and no condition or circumstance exists, that might (with or
without notice or lapse of time) constitute or result directly or indirectly in
a violation by the Company or any Subsidiary of, or a failure on the part of the
Company or any Subsidiary to comply with, any Legal Requirement. Except as set
forth in Part 2.12 of the Disclosure Schedule, the Company and each Subsidiary
have never received any notice or other communication from any Governmental Body
regarding any actual or possible violation of, or failure to comply with, any
material Legal Requirement.
2.13. GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each Governmental Authorization held by the Company or any Subsidiary
and the Company has delivered to Parent or Parent's counsel accurate and
complete copies of all such Governmental Authorizations. The Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule are valid and
in full force and effect, and collectively constitute all Governmental
Authorizations necessary to enable the Company and its Subsidiaries to conduct
its business in the manner in which its business is currently being conducted.
The Company and each Subsidiary are, and at all times have been, in compliance
with the material terms and requirements of the respective Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The Company
and each Subsidiary have never received any notice or other communication from
any Governmental Body regarding (a) any actual or possible violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (b) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
2.14. TAX MATTERS.
(a) All Tax Returns required to be filed by Holdings, the Company or
any of its Subsidiaries with any Governmental Body on or before the date hereof
(i) have been filed in a timely manner, and (ii) have been accurately and
completely prepared in compliance with all applicable legal requirements. All
Taxes with respect to the periods covered by such Tax Returns (whether or not
shown on the Tax Returns) due on or before the date hereof have been paid. The
Company has delivered to Parent accurate and complete copies of all Tax Returns
filed or required to be filed by Holdings, the Company and the Subsidiaries
since the date of the Company's and any Subsidiary's incorporation. Holdings,
the Company and its Subsidiaries have not requested any extension of time within
which to file any Tax Return.
(b) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by Holdings, the Company (whether pursuant to
or shown on any Tax Return or otherwise) or a Subsidiary has been duly paid in
full on a timely basis. Any Tax required to have been withheld or collected by
Holdings, the Company or a Subsidiary has been duly withheld and collected on a
timely basis; and (to the extent required) each such Tax has
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been paid to the appropriate Governmental Body on a timely basis. There are no
security interests on any of the assets of any of Holdings, the Company and its
Subsidiaries that arose in connection with any failure (or alleged failure) to
pay any Tax.
(c) The Company's Financial Statements fully accrue all actual and
contingent liabilities for Taxes of Holdings, the Company and its Subsidiaries
with respect to all periods through the dates thereof. There are and will be no
material liabilities for Taxes of Holdings, the Company and the Subsidiaries
that has or will accrue after June 30, 2000 through the date of the Merger other
than Taxes arising in the ordinary course of business. Any distribution of the
stock of Parent received in the Merger by Holdings to its shareholders will not
result in any taxable gain to Holdings.
(d) Except as set forth in section 2.14(d) of the Disclosure
Schedule, no Tax Return of Holdings, the Company or any Subsidiary has ever been
examined or audited by any Governmental Body, and no such examination or audit
has been proposed or scheduled by any Governmental Body. The Company has
delivered to Parent accurate and complete copies of all audit reports and
similar documents (to which the Company has access) relating to such Tax
Returns. Except as set forth in section 2.14(d) of the Disclosure Schedule, no
extension or waiver of the limitation period applicable to any such Tax Returns
has been granted , and no such extension or waiver has been requested from
Holdings, the Company or any Subsidiary.
(e) Except as set forth in section 2.14(e) of the Disclosure
Schedule, no claim or Legal Proceeding is pending or has been threatened against
or with respect to Holdings, the Company or any Subsidiary in respect of any
Tax, and no claim has ever been made by a Governmental Body that Holdings, the
Company or a Subsidiary are or may be subject to taxation in any jurisdiction in
which each has not filed a Tax Return. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company. There are no liens for Taxes upon any
of the assets of the Company or a Subsidiary, except liens for current Taxes not
yet due and payable. Neither the Company nor any Subsidiary has entered into or
become bound by any agreement or consent pursuant to Section 341(f) of the Code.
Neither the Company nor any Subsidiary has been, and neither will be, required
to include any adjustment in taxable income for any tax period (or portion
thereof) pursuant to Section 481 or 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions or events occurring,
or accounting methods employed, prior to the date hereof.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company or a Subsidiary that, considered
individually or considered collectively with any other such Contracts, will, or
could reasonably be expected to, give rise directly or indirectly to the payment
of any amount that would not be deductible pursuant to Section 280G of the Code.
Neither the Company nor any Subsidiary is, and neither has ever been, a party to
or bound by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar Contract. Neither the Company nor any Subsidiary is and
neither has ever been a party to any cost sharing agreements or advance pricing
agreement.
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Except as set forth in section 2.14(g) of the Disclosure Schedule
(i) no Governmental Body has asserted any claim or otherwise made any allegation
that Holdings, the Company or a Subsidiary has failed or may have failed to pay
any sales tax, use tax or similar Tax, and (ii) neither Holdings, the Company
nor any Subsidiary has engaged in any discussions or negotiations with any
Governmental Body, and has not sent any written communication to or received any
written communication from any Governmental Body, in connection with any
possible failure on the part of Holdings, the Company or a Subsidiary to pay any
sales tax, use tax or similar Tax.
None of the Company and its Subsidiaries has been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). Except
as set forth in section 2.14(h) of the Disclosure Schedule, none of Holdings,
the Company or any Subsidiary has disclosed on its federal income Tax Returns
any position, or been required by law to disclose any position, taken therein
that could give rise to a substantial understatement of federal income Tax
within the meaning of Code Section 6662. None of Holdings, the Company or its
Subsidiaries (A) has been a member of an affiliated group filing a consolidated
federal income Tax Return (other than the common parent of which was Holdings )
or (B) has any Liability for the Taxes of any Person (other than any of
Holdings, the Company or the Subsidiaries) under Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
2.15. REDEMPTIONS AND DISTRIBUTIONS. Prior to the merger, no Stockholder
of the Company had a portion of such Stockholder's shares redeemed by the
Company or a Subsidiary, or received an extraordinary distribution with respect
to such shares. No corporation related to the Company or a Subsidiary within the
meaning of Treasury Regulation Section 1.368-1(e)(3)(i)(B) has acquired any
shares from a Stockholder of the Company.
2.16. EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.16(a) of the Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, Employee Welfare Benefit Plan or
Employee Pension Benefit Plan sponsored or maintained by the Company or any
Subsidiary as of the date of this Agreement (the "Plans") for the benefit of any
current employee of the Company or any Subsidiary ("Employee").
(b) With respect to each Plan, the Company has delivered to Parent
an accurate and complete copy of such Plan (including all amendments thereto),
and the most recent summary plan description.
(c) With respect to all Employee Pension Benefit Plans, the Company
has delivered to Parent an accurate and complete copy of the annual report with
respect to such Plans for each of 1999, 1998 and 1997 (as applicable), and the
most recent Internal Revenue Service Determination Letter.
(d) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
the Code and ERISA.
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(e) Each of the Employee Welfare Benefit Plans have been operated
and administered in all material respects in compliance with COBRA and HIPAA.
Part 2.16(e) lists all existing COBRA covered participants under the Company's
Employee Welfare Benefit Plans.
(f) Part 2.16(f) of the Disclosure Schedule contains a list of all
employees of the Company as of the date of this Agreement, and correctly
reflects, in all material respects, their salaries, their dates of employment,
social security numbers and their positions. The Company is not a party to any
collective bargaining contract or other Contract with a labor union involving
any of its Employees.
2.17. ENVIRONMENTAL MATTERS. The Company and each Subsidiary are and
have at all times been in compliance with all applicable Environmental Laws. To
the best of the Knowledge of Company, each property that is owned by, leased to,
controlled by or used by the Company and each Subsidiary, and all surface water,
groundwater, soil and air associated with or adjacent to such property (a) is
free of any Materials of Environmental Concern and any harmful chemical or
physical conditions, and (b) is free of any environmental contamination of any
nature. The Company and each Subsidiary possess all permits and other
Governmental Authorizations required under applicable Environmental Laws, and
the Company and each Subsidiary are and have at all times been in compliance
with the terms and requirements of all such Governmental Authorizations. The
Company and each Subsidiary have not received any notice or other communication
(whether from a Governmental Body, citizens' group, employee or otherwise) that
alleges that the Company or any Subsidiary is not in compliance with any
Environmental Law, and, to the best of the Knowledge of the Company or any
Subsidiary, there are no circumstances that could reasonably be expected to
prevent or interfere with the Company's or any Subsidiary's compliance with any
Environmental Law in the future. To the best of the Knowledge of the Company, no
current or prior owner of any property leased or controlled by the Company or
any Subsidiary has received any notice or other communication (whether from a
Governmental Body, citizens' group, employee or otherwise) that alleges that
such current or prior owner, the Company or any Subsidiary is not or was not in
compliance with any Environmental Law. All Governmental Authorizations currently
held by the Company or any Subsidiary pursuant to Environmental Laws are
identified in Part 2.13 of the Disclosure Schedule.
2.18. INSURANCE. Part 2.18 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of, or for the benefit of the
Company or any Subsidiary, identifies any claims made thereunder, and includes a
summary of the amounts and types of coverage and the deductibles under each such
insurance policy. The Company has delivered to Parent or counsel for Parent
accurate and complete copies of the insurance policies identified on Part 2.18
of the Disclosure Schedule. Each of the insurance policies identified in Part
2.18 of the Disclosure Schedule is in full force and effect. The Company has not
received any notice regarding any actual or possible (a) cancellation or
invalidation of any insurance policy identified in Part 2.18 of the Disclosure
Schedule, (b) refusal of any coverage or rejection of any claim under any such
insurance policy or (c) material adjustment in the amount of the premiums
payable with respect to any such insurance policy. No event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) give rise to or serve as a basis for any claim under any insurance policy
identified in Part 2.18 of the Disclosure Schedule.
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2.19. RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.19 of
the Disclosure Schedule: (a) no Related Party has, and no Related Party has at
any time had any direct or indirect interest in any material asset used in or
otherwise relating to the business of the Company or any Subsidiary; (b) no
Related Party is, or has at any time been, indebted to the Company or any
Subsidiary; (c) no Related Party has entered into, or has had any direct or
indirect financial interest in, any material Contract, transaction or business
dealing involving the Company or any Subsidiary; (d) no Related Party is
competing, or has at any time competed, directly or indirectly, with the Company
or any Subsidiary; and (e) no Related Party has any claim or right against the
Company or any Subsidiary (other than rights to receive compensation for
services performed as an employee of the Company or any Subsidiary). (For
purposes of this Section 2.19, each of the following shall be deemed to be a
"Related Party": (i) each of the Stockholders or stockholders of Holdings; (ii)
each individual who is, or who has at any time been, an officer or director of
the Company or any Subsidiary; (iii) each individual who is, or who at any time
been, a member of the immediate family of any of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other than
the Company or any Subsidiary) in which any one of the individuals referred to
in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more than one of
such individuals collectively hold), beneficially or otherwise, a material
voting, proprietary or equity interest.)
2.20. LEGAL PROCEEDINGS; ORDERS. There is no pending Legal Proceeding,
and, to the Knowledge of the Company, no Person has threatened to commence any
Legal Proceeding: (i) to which Holdings, the Company or any Subsidiary is or is
threatened to be made a party; or (ii) that challenges the Merger. To the best
of the Knowledge of the Company, except as set forth in Part 2.20 of the
Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
Legal Proceeding. There is no order, writ, injunction, judgment or decree to
which the Company or any Subsidiary is subject. To the best of the Knowledge of
the Company, no officer or other employee of the Company or any Subsidiary is
subject to any order, writ, injunction, judgment or decree that prohibits such
officer or other employee from engaging in or continuing any conduct, activity
or practice relating to the Company's or any Subsidiary's business.
2.21. AUTHORITY; BINDING NATURE OF AGREEMENT. Each of Holdings and the
Company has the right, power and authority to enter into and to perform its
obligations under this Agreement and under each other agreement, document or
instrument referred to in or contemplated by this Agreement to which Holdings or
the Company is or will be a party; and the execution, delivery and performance
by Holdings and the Company of this Agreement and of each such other agreement,
document and instrument have been duly authorized by all necessary action on the
part of Holdings and the Company and their boards of directors. The execution,
delivery and performance of this Agreement have been duly authorized by the
Company's and Holdings' Boards of Directors. This Agreement and each other
agreement, document and instrument referred to in or contemplated by this
Agreement to which Holdings and the Company is a party constitutes the legal,
valid and binding obligation of Holdings or the Company, enforceable against
Holdings or the Company in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
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2.22. NON-CONTRAVENTION; CONSENTS. Neither the execution, delivery or
performance of this Agreement or any other agreements, documents or instruments
referred to or contemplated by this Agreement or any of the transactions
contemplated by this Agreement or any other agreements, documents or instruments
referred to or contemplated herein, nor the consummation of the Merger, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of Holdings' or the Company's certificates of incorporation or
bylaws, or (ii) any resolution adopted by the Company's Stockholders, Holdings'
stockholders or the Company's or Holdings' board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract, or give any
Person the right to (i) declare a default or exercise any remedy under any
Company Contract, (ii) accelerate the maturity or performance of any Company
Contract, or (iii) cancel, terminate or modify any Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
(f) The Company is not and will not be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
any other agreement, document or instrument referred to in or contemplated by
this Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement or contemplated by any other
agreement, document or instrument referred to in or contemplated by this
Agreement.
2.23. VOTE REQUIRED. The affirmative vote of the holders of a majority
of the outstanding shares of Company Common Stock (the "Required Vote") and the
affirmative vote of the holders of a majority of the outstanding shares of
Holdings' capital stock are the only votes of the holders of any class or series
of the Company's or Holdings' capital stock necessary to adopt and approve this
Agreement and the Merger.
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2.24. NO BROKERS. No broker, finder or investment banker is entitled to
any brokerage or finder's fee from Holdings, the Company or its Stockholders in
connection with the transactions contemplated by this Agreement based on
arrangements made by or on behalf of Holdings, the Company or its Stockholders.
2.25. CHANGE OF CONTROL PAYMENTS. Part 2.25 of the Disclosure Schedule
sets forth each plan or agreement pursuant to which any amounts may become
payable (whether currently or in the future) to current or former officers or
directors of the Company as a result of or in connection with the Merger.
2.26. INFORMATION STATEMENT. The information to be supplied by the
Company and Holdings for inclusion in the Information Statement (as defined in
Section 5.1) shall not 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 not misleading. The information to be supplied by
the Company for inclusion in the proxy statement to be sent to the stockholders
of the Company and Holdings in connection with the meeting of the Company's
stockholders to consider the approval and adoption of this Agreement and the
approval of the Merger (the "Company Stockholders' Meeting") and to the
stockholders of Holdings in connection with the meeting of Holdings stockholders
to consider the approval and adoption of this Agreement and the approval of the
Merger (the "Holdings Stockholders' Meeting") (such proxy statement as amended
or supplemented is referred to herein as the "Proxy Statement") shall not, on
the date the Proxy Statement is first mailed to the Company's stockholders and
Holdings' stockholders, at the time of the Company Stockholders' Meeting and the
Holdings Stockholders' 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 false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders' Meeting and the Holdings Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time, any event
relating to the Company or any of its affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment to the
Information Statement or a supplement to the Proxy Statement, the Company shall
promptly inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
2.27. BOARD APPROVAL. The Board of Directors of each of the Company and
Holdings has, as of the date of this Agreement, determined (i) that the Merger
is fair to, and in the best interests of such company and its stockholders, (ii)
to propose this Agreement for approval and adoption by such company's
stockholders and to declare the advisability of this Agreement, and (iii) to
recommend that the stockholders of such company approve and adopt this Agreement
and approve the Merger.
2.28. TAX MATTERS. Neither the Company nor, to the Company's Knowledge,
any of its affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent the Merger from qualifying as a tax-free
reorganization within the meaning of Section 368(a) of Code.
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2.29. FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule) does not (i) contain any Company representation, warranty or
information in the Company Disclosure Schedule that is false or misleading with
respect to any material fact, or (ii) omit to state any material fact necessary
in order to make the Company representations, warranties and information in the
Company Disclosure Schedule contained herein (in light of the circumstances
under which such Company representations, warranties and information in the
Company Disclosure Schedule were made or provided) not false or misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally represent and warrant to
Holdings and the Company as follows:
3.1. CORPORATE EXISTENCE AND POWER. Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate power required to conduct
its business as now conducted, and is duly qualified to do business and is in
good standing in each jurisdiction in which the conduct of its business or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified would not have a Material Adverse Effect on
Parent.
3.2. AUTHORITY; BINDING NATURE OF AGREEMENT. Each of Parent and Merger
Sub has all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Parent and Merger Sub, subject only to the filing of the agreement or
certificate of merger pursuant to Delaware law and Nevada law. This Agreement
has been duly executed and delivered by each of Parent and Merger Sub and,
assuming the due authorization, execution and delivery by the Company,
constitutes the valid and binding obligation of each of Parent and Merger Sub,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and other similar laws and general principles of equity.
3.3. NO CONFLICT; CONSENTS.
(a) The execution and delivery of this Agreement by Parent and
Merger Sub and the consummation by Parent and Merger Sub of the transactions
contemplated hereby are not prohibited by, and will not: (i) violate or conflict
with, any provision of the Certificate of Incorporation or Bylaws of Parent or
the Certificate of Incorporation or Bylaws of Merger Sub; (ii) contravene,
conflict with or result in a material breach or default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
license agreement, lease or other material contract, instrument or obligation to
which Parent or Merger Sub is a party or by which any of its assets may be
bound; (iii) contravene, conflict with or result in violation in any material
respects any statute, rule, regulation, order, writ, injunction or decree or any
other Government Authorization applicable to Parent or Merger Sub or any of its
material assets, where the consequences of any and all such breaches, defaults
and violations would, in the aggregate, have a material and adverse effect on
the business, operations or financial condition of Parent and Merger Sub taken
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as a whole, (iv) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under any Legal Requirement or any order, writ, injunction, judgement
or decree, or (v) result in the creation of any material (individually or in the
aggregate) liens, charges or Encumbrances on any of the assets of Parent and
Merger Sub.
(b) No Consent of any Governmental Body is necessary on the part of
Parent or Merger Sub for the consummation by Parent and Merger Sub of the
transactions contemplated by this Agreement, except where the failure to obtain
any such Consent has not had (and would not reasonably be expected to have) a
Material Adverse Effect on Parent and except for (i) if applicable, the filing
of a Form S-3 Registration Statement (the "Registration Statement") with the SEC
in accordance with the Securities Act, (ii) the California Permit, filings,
procedures and approvals contemplated by Section 1.14(a) and the filing of the
agreement or certificate of merger with each of the Secretary of State of the
States of Delaware and Nevada, if applicable, (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings (if any) as may
be required under applicable federal and state securities laws and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations (if any) which if
not obtained or made would not have (and would not reasonably be expected to
have), a Material Adverse Effect on Parent or Parent's ability to consummate the
Merger.
3.4. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed with the Securities and Exchange Commission
(the "SEC") and has heretofore made available to the Company true and complete
copies of each report, registration statements and definitive proxy statement
required to be filed by Parent from June 30, 1999 until the date of this
Agreement under the Exchange Act (collectively, the "Parent SEC Documents"). As
of their respective dates or, if amended, as of the date of the last such
amendment, the Parent SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act (as the case
may be), and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements contained in the Parent
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to normal and recurring
year-end audit adjustments (which will not, individually or in the aggregate, be
material in magnitude); and (iii) fairly present the consolidated financial
position of Parent and its subsidiaries as of the respective dates thereof and
the consolidated results of operations of Parent and its subsidiaries for the
periods covered thereby.
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3.5. ABSENCE OF A MATERIAL CHANGE. Between December 31, 1999 and the
date of this Agreement:
(a) there has not been any adverse change in the business, financial
condition, operations, prospects or results of operations of Parent and no event
has occurred that will, or could reasonably be expected to have a Material
Adverse Effect on Parent;
(b) Parent has not declared, accrued, set aside or paid any dividend
or made any other distribution in respect of any shares of capital stock, nor
has Parent repurchased, redeemed or otherwise reacquired any shares of its
capital stock or other securities;
(c) there has been no amendment to the certificate of incorporation
or bylaws of Parent, and Parent has not effected or been a party to any
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction; and
(d) Parent has not changed any of its methods of accounting or
accounting practices in any material respect.
3.6. VALID ISSUANCE. Subject to Section 1.6(d), the Parent Common Stock
to be issued in the Merger will, when issued in accordance with the provisions
of this Agreement, be validly issued, fully paid and nonassessable.
3.7. CAPITALIZATION, ETC.
As of June 30, 2000, the authorized capital stock of Parent consists
of (i) 85,000,000 shares of Common Stock, $.001 par value per share, of which
27,208,000 shares are issued and outstanding and (ii) 5,000,000 shares of
Preferred Stock, $.001 par value per share, none of which are issued or
outstanding. As of June 30, 2000, Parent has reserved an additional (i)
4,137,696 shares of Parent Common Stock authorized for issuance under Parent's
stock option and stock purchase plans, under which options to purchase 3,640,074
shares are issued and are outstanding; and (ii) 45,000 shares of Common Stock
issuable upon exercise of outstanding warrants.
As of June 30, 2000, all of the outstanding shares of Parent Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. As of June 30, 2000, there are no preemptive rights applicable to
any shares of capital stock of Parent.
Except as set forth in Section 3.2(a) or 3.2(b) or in the Parent SEC
Documents, as of June 30, 2000, there is no: (i) outstanding subscription,
option, call, warrant or right (whether or not currently exercisable) to acquire
any shares of the capital stock or other securities of Parent; or (ii)
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities of
Parent.
3.8. MERGER SUB. Merger Sub has been formed solely for the purpose of
executing and delivering this Agreement and consummating the transactions
contemplated hereby. Merger Sub has not engaged and will not engage in any
business or activity other than activities related to its corporate organization
and the execution and delivery of this Agreement.
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3.9. INFORMATION STATEMENT. The information to be supplied by Parent for
inclusion in the Information Statement shall not 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 not misleading. The
information to be supplied by Parent for inclusion in the Proxy Statement shall
not, on the date the Proxy Statement is first mailed to the Company's and
Holdings' stockholders, at the time of the Company Stockholders' Meeting, the
Holdings Stockholders' 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 false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders' Meeting and the Holdings Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time, any event
relating to Parent or any of its affiliates, officers or directors should be
discovered by Parent which should be set forth in an amendment to the
Information Statement or a supplement to the Proxy Statement, Parent shall
promptly inform the Company. Notwithstanding the foregoing, Parent makes no
representation or warranty with respect to any information supplied by the
Company or Holdings which is contained in any of the foregoing documents.
3.10. LEGAL PROCEEDINGS; ORDERS. There is no pending material Legal
Proceeding, and, to the Knowledge of Parent, no Person has threatened to
commence any material Legal Proceeding: (i) to which Parent is or is threatened
to be made a party; or (ii) that challenges the Merger. To the best of the
Knowledge of Parent, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that will, or that could reasonably be
expected to, give rise to or serve as a basis for the commencement of any such
material Legal Proceeding.
3.11. BOARD APPROVAL. The Board of Directors of Parent has, as of the
date of this Agreement, determined that the Merger is fair to, and in the best
interests of Parent and its stockholders.
3.12. TAX MATTERS. Neither Parent nor, to Parent's Knowledge, any of its
affiliates has through the date of this Agreement taken or agreed to take any
action that would prevent the Merger from qualifying as a tax-free
reorganization within the meaning of Section 368(a) of Code.
3.13. FAIRNESS OPINION. Parent has received a written opinion from
BancBoston Robertson Stephens Inc., to the effect that, the purchase price is
fair to Parent from a financial point of view.
3.14. FULL DISCLOSURE. This Agreement does not (i) contain any Parent
representation or warranty that is false or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in order to
make the Parent representations and warranties contained herein (in light of the
circumstances under which such Parent representations and warranties were made
or provided) not false or misleading.
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SECTION 4. CERTAIN COVENANTS
4.1. ACCESS AND INVESTIGATION.
(a) During the period from the date of this Agreement through the
earlier of the Closing Date or the termination of this Agreement pursuant to
Section 8 hereof (the "Pre-Closing Period"), the Company and Holdings shall: (a)
provide Parent and Parent's Representatives with reasonable access to the
Company's personnel and assets and to all existing books, records, tax returns,
work papers and other documents and information relating to Holdings, the
Company and its Subsidiaries; and (b) provide Parent and Parent's
Representatives with copies of such existing books, records, tax returns, work
papers and other documents and information relating to Holdings, the Company and
its Subsidiaries, and with such additional financial, operating and other data
and information regarding Holdings, the Company and its Subsidiaries, as Parent
may reasonably request.
(b) During the Pre-Closing Period, Parent shall: (a) provide the
Company and the Company's Representatives with reasonable access to the Parent's
personnel and assets and to all existing books, records, tax returns, work
papers and other documents and information relating to Parent; and (b) provide
the Company and the Company's Representatives with copies of such existing
books, records, tax returns, work papers and other documents and information
relating to Parent, and with such additional financial, operating and other data
and information regarding Parent, as the Company may reasonably request.
(c) All information provided during the Pre-Closing Period by Parent
or the Company to the other or the other's Representatives in connection with
any investigation hereunder or pursuant to the negotiation and execution of this
Agreement and the consummation of the transactions contemplated hereby shall be
subject to the provisions of the Non-Disclosure Agreement dated as of February
4, 2000 between Parent and Holdings (the "Mutual Non-Disclosure Agreement"),
which shall remain in full force and effect. No information obtained in any
investigation shall effect or be deemed to modify any representation or warranty
contained in this Agreement.
4.2. OPERATION OF THE BUSINESS OF THE COMPANY. Without the prior written
consent of Parent during the Pre-Closing Period, and except as otherwise
contemplated or permitted by this Agreement:
(a) each of Holdings, the Company and each Subsidiary shall conduct
its business and operations in the ordinary course and in substantially the same
manner as such business and operations have been conducted prior to the date of
this Agreement, shall pay its debts and Taxes when due (subject to good faith
disputes, if any, over such debts and Taxes), and shall pay or perform its other
obligations when due;
(b) each of Holdings, the Company and each Subsidiary shall use
reasonable efforts to (i) preserve intact its current business organization,
(ii) keep available the services of its current officers and employees and (iii)
maintain its relations and good will with all suppliers, customers, landlords,
creditors, employees and other Persons having business relationships with the
Company and each Subsidiary;
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(c) each of Holdings, the Company and each Subsidiary shall not
declare, accrue, set aside or pay any dividend or make any other distribution in
respect of any shares of capital stock;
(d) each of Holdings, the Company and each Subsidiary shall not
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities other than pursuant to Contracts in effect as of the date of this
Agreement; except for Company Common Stock issued upon the exercise of options
to purchase Company Common Stock outstanding on the date of this Agreement,
Holdings, the Company and each Subsidiary shall not sell, issue or authorize the
issuance of (i) any capital stock or other security, (ii) any option or right to
acquire any capital stock or other security; or (iii) any instrument convertible
into or exchangeable for any capital stock or other security;
(e) Neither Holdings, the Company nor any Subsidiary shall amend its
certificate of incorporation or bylaws, or effect or permit itself to become a
party to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(f) neither Holdings, the Company nor any Subsidiary shall form any
subsidiary or acquire any equity interest or other interest in any other Entity;
(g) neither Holdings, the Company nor any Subsidiary shall (i)
establish, adopt or amend any employee benefit plan, (ii) pay any bonus or make
any profit-sharing payment, severance, cash incentive payment or similar payment
to, increase the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers or
employees, or accelerate the vesting of any Company Option or any Company Common
Stock subject to vesting or (iii) hire any new employee, other than (y) new
employees who accept offers that are currently outstanding that have been
previously disclosed to Parent, in either case on at-will terms, and provided
that prior to making any such offers the Company gives Parent three business
days notice and (z) new employees hired to replace employees who leave the
employ of the Company consistent with the Company's past practices.; or, (iv)
except with prior written consent of Parent which will not be unreasonably
withheld, terminate any current employee;
(h) neither Holdings, the Company nor any Subsidiary shall change
any of its methods of accounting or accounting practices;
(i) neither Holdings, the Company nor any Subsidiary shall make any
Tax election;
(j) neither Holdings, the Company nor any Subsidiary shall, except
with prior written consent of Parent which will not be unreasonably withheld,
commence or settle any Legal Proceeding;
(k) except in the ordinary course of business (which specifically
does not include any licenses for source code or exclusive licenses) neither
Holdings, the Company nor any Subsidiary shall enter into any license agreement
with respect to or otherwise transfer any
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rights to any Company Proprietary Asset, or except in the ordinary course of
business enter into any license with respect to any Proprietary Asset of any
other person or entity;
(l) except in the ordinary course of business (which specifically
shall not include exclusive licenses), neither Holdings, the Company nor any
Subsidiary shall enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution or similar rights of any type or scope
with respect to any products or technology of the Company;
(m) the Company shall not amend or otherwise modify or violate the
terms of any of the Contracts set forth or described in the Disclosure Schedule;
(n) except with prior written consent of Parent which will not be
unreasonably withheld, neither Holdings, the Company nor any Subsidiary shall
incur any indebtedness for borrowed money (other than indebtedness to trade
creditors in the ordinary course of business) or guarantee any such indebtedness
or issue or sell any debt securities or guarantee any debt securities of others;
(o) neither Holdings, the Company nor any Subsidiary shall grant any
loans to others (other than advances of employee travel expenses in the ordinary
course of business consistent with past practices) or purchase debt securities
of others or amend the terms of any outstanding loan agreement;
(p) neither Holdings, the Company nor any Subsidiary shall revalue
any of its assets, including without limitation writing down the value of
inventory or writing off notes or accounts receivable;
(q) neither Holdings, the Company nor any Subsidiary shall pay,
discharge or satisfy, in an amount in excess of $75,000 (in any one case or in
the aggregate), any claim, liability or obligation (absolute, accrued, asserted
or unasserted, contingent or otherwise); provided, that for any amounts in
excess of $25,000, the Company will provide Parent three days prior written
notice of any such payments; and
(r) neither Holdings, the Company nor any Subsidiary shall agree or
commit to take any of the actions described in clauses "(c)" through "(q)"
above.
4.3. OPERATION OF THE BUSINESS OF PARENT AND MERGER SUB.
Merger Sub shall not engage in any business activities or
operations, other than those specific actions set forth in this Agreement solely
for the purpose of effecting the Merger.
4.4. NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, Holdings and the Company shall
promptly notify Parent in writing of: (i) the discovery by the Company of any
event, condition, fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes a material inaccuracy
in or material breach of any representation or warranty made by Holdings and the
Company in this Agreement; (ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute a
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material inaccuracy in or material breach of any representation or warranty made
by Holdings and the Company in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement; (iii) any breach of any covenant or obligation of Holdings and
the Company; and (iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6
impossible or unlikely. Notification in accordance with this Section 4.4(a)
shall not affect Holdings' and the Company's liability for breach of any such
representation, warranty or covenant under this Agreement.
(b) During the Pre-Closing Period, Parent shall promptly notify
Holdings and the Company in writing of: (i) the discovery by Parent of any
event, condition, fact or circumstance that occurred or existed on or prior to
the date of this Agreement and that caused or constitutes a material inaccuracy
in or material breach of any representation or warranty made by Parent or Merger
Sub in this Agreement; (ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that would cause
or constitute a material inaccuracy in or material breach of any representation
or warranty made by Parent or Merger Sub (other than Section 3.7) in this
Agreement if (A) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement; (iii) any breach of
any covenant or obligation of Parent or Merger Sub; and (iv) any event,
condition, fact or circumstance that would make the timely satisfaction of any
of the conditions set forth in Section 7 impossible or unlikely. Notification in
accordance with this Section 4.4(b) shall not affect Parent's liability for
breach of any such representation, warranty or covenant under this Agreement.
4.5. NO NEGOTIATION. During the Pre-Closing Period, neither Holdings,
the Company nor any Subsidiary shall, and shall permit its Representatives to:
(a) solicit any proposal or offer from any Person (other than Parent) for or
relating to a possible Acquisition Transaction; or (b) participate in any
negotiations or enter into any agreement with, or provide any information to or
cooperate with, any Person (other than Parent) relating to or in connection with
a possible Acquisition Transaction or any other transaction which would
significantly alter the equity ownership of the Company. In addition to the
foregoing, if Holdings, the Company or any Subsidiary receives prior to the
Effective Time or the termination of this Agreement any offer, proposal, or
request relating to any of the above, the Company shall immediately notify
Parent thereof, including information as to the identity of the offeror or the
party making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request.
4.6. WORKING CAPITAL LOANS. During the Pre-Closing Period, Parent agrees
to provide loans to the Company on a monthly basis in an aggregate principal
amount of not more than $300,000 and such loans shall be made pursuant to the
Bridge Loan Agreement in substantially the form attached as EXHIBIT E.
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SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1. INFORMATION STATEMENT. As soon as practicable after the execution
of this Agreement, Company and Holdings shall prepare, with the cooperation of
Parent and furnish to their stockholders an information statement (the
"Information Statement") for the stockholders of Company and Holdings to approve
and adopt this Agreement, the Merger and the other transactions contemplated by
this Agreement. The Information Statement shall constitute a disclosure document
for the offer and issuance of the shares of Parent Common Stock to be received
by the holders of Company Common Stock in the Merger and a proxy statement for
solicitation of stockholder consent to or approval of this Agreement, the Merger
and the other transactions contemplated hereby. Each of Parent, Holdings and
Company shall use its reasonable best efforts to cause the Information Statement
to comply with applicable federal and state securities laws requirements. Each
of Parent, Holdings and Company agrees to provide promptly to the other such
information concerning it and its respective affiliates, directors, officers and
securityholders as, in the reasonable judgment of the other party or its
counsel, may be required or appropriate for inclusion in the Information
Statement, or in any amendments or supplements thereto, and to cause its counsel
and auditors to cooperate with the other's counsel and auditors in the
preparation of the Information Statement. Company and Holdings will promptly
advise Parent, and Parent will promptly advise Company and Holdings, in writing
if at any time prior to the Effective Time either Company, Holdings or Parent
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendations of
the Boards of Directors of Company and Holdings that the Company Stockholders
and Holdings' stockholders approve and adopt this Agreement, the Merger and the
other transactions contemplated by this Agreement, and the conclusion of the
Boards of Directors that the terms and conditions of the Merger are fair and
reasonable and in the best interests of Company, Holdings and their
stockholders. Anything to the contrary contained herein notwithstanding,
Holdings and the Company shall not include in the Information Statement any
information with respect to Parent or its affiliates or associates, the form and
content of which information shall not have been expressly approved by Parent
prior to such inclusion.
5.2. MEETINGS OF STOCKHOLDERS. Promptly after the date hereof, the
Company and Holdings will take all action necessary in accordance with Nevada
General Corporation Law and its Certificate of Incorporation and Bylaws to
convene the Company Stockholders' Meeting and the Holdings Stockholders' Meeting
to be held as promptly as practicable (to the extent permissible under
applicable law) for the purpose of voting upon this Agreement. The Company and
Holdings will use their best efforts to solicit from their stockholders proxies
in favor of the adoption and approval of this Agreement and the approval of the
Merger.
5.3. FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings, if any, and give all notices, if any, required to be made and given by
such party in connection with the Merger and the other transactions contemplated
by this Agreement and (b) shall use all commercially reasonable efforts to
obtain all Consents, if any, required to be obtained (pursuant to any applicable
Legal
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Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement.
5.4. PUBLIC ANNOUNCEMENTS. Unless otherwise required by law, neither
Holdings, the Company nor any Subsidiary shall (and neither Holdings, the
Company nor any Subsidiary shall not permit any of its Representatives to) issue
any press release or make any public statement regarding this Agreement or the
Merger, or regarding any of the other transactions contemplated by this
Agreement, without Parent's prior written consent.
5.5. REASONABLE EFFORTS. During the Pre-Closing Period, the Company,
Holdings, Parent and Merger Sub shall use reasonable efforts to effectuate the
Merger and the other transactions contemplated hereby and to fulfill and cause
to be fulfilled the conditions to closing under this Agreement on a timely
basis.
5.6. EMPLOYEE AND RELATED MATTERS.
(a) Parent and the Company shall use reasonable efforts to recruit
each key employee of the Company and each Subsidiary to accept at-will
employment with Parent. Those employees of the Company and each Subsidiary that
continue to be employees of Parent or any of its affiliates, including the
Company, following the Closing shall upon the closing be eligible to participate
in Parent's health, vacation, employee stock purchase, 401(k) and other plans,
to the same extent as comparably situated employees of Parent and shall receive
credit under Parent's benefit plans for time served as an employee of the
Company.
(b) Once every two weeks and at such other times as requested by the
Company's request, the Company shall notify Parent of any exercises or
cancellations of Company Options after the date of this Agreement until the
Closing.
5.7. FIRPTA MATTERS. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by Brobeck,
Phleger & Harrison LLP) conforming to the requirements of Section
1.897-2(h)(1)(I) of the United States Treasury Regulation, and (b) the Company
shall deliver to Parent for delivery to the Internal Revenue Service the
notification required under Section 1.897-2(h)(2) of the United States Treasury
Regulations.
5.8. RESERVATION OF AUTHORIZED COMMON STOCK. Parent shall also reserve a
sufficient number of shares of Common Stock for issuance upon exercise of
assumed Company Options.
5.9. NASDAQ LISTING. Parent agrees to authorize for listing on Nasdaq
the shares of Parent Common Stock issuable, and those required to be reserved
for issuance, in connection with the Merger, upon official notice of issuance.
5.10. FORM S-8 REGISTRATION STATEMENT. Parent agrees to file a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Options as soon as is reasonably
practicable after the Effective Time.
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SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction (or waiver by Parent), at or prior to the Closing, of each
of the following conditions:
6.1. ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Holdings and the Company in this Agreement shall have been
accurate as of the date of this Agreement (it being understood that for purposes
of determining the accuracy of such representations and warranties, any
inaccuracy that has not had a Material Adverse Effect on the Company shall be
disregarded). In addition, except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as of
a particular date (which shall have remained true and correct as of such
particular date), the representations and warranties of Holdings and the Company
contained in this Agreement shall be true and correct on and as of the Closing
with the same force and effect as if made on and as of the Closing, except in
such cases (other than the representations in Section 2.7 regarding ownership,
good title and non-infringement and Section 2.21) where the failure to be so
true and correct would not have a Material Adverse Effect on the Company. Parent
shall have received a certificate with respect to the foregoing signed on behalf
of each of Holdings and the Company by the Chief Executive Officer and the Chief
Financial Officer of each of Holdings and the Company.
6.2. PERFORMANCE OF COVENANTS. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects and Parent
shall have received a certificate to such effect signed on behalf of each of the
Company and Holdings by the President and Chief Executive Officer and the Chief
Financial Officer of each of Holdings and the Company.
6.3. STOCKHOLDER APPROVAL. The Merger and this Agreement shall have been
duly approved by the stockholders of the Company by at least a majority of the
outstanding shares of Company Common Stock and by the stockholders of Holdings
by at least a majority of the outstanding shares of Holdings Common Stock.
6.4. ISSUANCE OF SHARES. The fairness hearing with respect to the Merger
shall have been held, and the terms of the Merger shall have been determined to
be fair, by the Commissioner of Corporations of the State of California and the
California Permit shall have been issued by the State of California. In the
alternative, each securityholder of Company shall have duly executed and
delivered to Company the representations, warranties, certifications and other
information contemplated by Section 1.15(b), and the parties shall be reasonably
satisfied that the shares of Parent Common Stock to be issued in connection with
the Merger pursuant to Sections 1.6 and 1.7 are issuable without registration
pursuant to Regulation D of the Securities Act and SEC rules and regulations
promulgated thereunder as set forth in Section 1.14(c).
6.5. AGREEMENTS AND DOCUMENTS. Parent and Merger Sub shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) a FIRPTA Statement, executed by the Company;
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(b) an Escrow Agreement in the form of EXHIBIT D hereto, executed by
the Stockholders' Agent on behalf of the Stockholders and the Escrow Agent;
(c) an agreement or certificate of merger executed by the Company to
be filed with the Secretary of State of the States of Delaware and California in
accordance with Section 1.3;
(d) written resignations of all officers and directors of the
Company, effective as of the Closing Date;
(e) a legal opinion of Dill Dill Carr Stonbraker & Hutchings, P.C.
dated as of the Closing Date to the effect that any distribution of the stock of
Parent received by Holdings in the Merger will not result in the recognition of
any taxable gain by Holdings for which the Company or any of the Subsidiaries
could be held liable under Section 1.1502-6 of the Treasury Regulations or any
applicable state laws.
(f) a legal opinion of Dill Dill Carr Stonbraker & Hutchings, P.C.
substantially in the form of EXHIBIT F hereto;
(g) Employment, Non-Competition and Non-Solicitation Agreements in
the form of EXHIBIT G hereto, executed by Tom Taylor, Jennifer Nyland, Nicholas
Swart, and Paul Archard.
(h) The prior written consent to this Agreement, the Merger and the
transactions contemplated by this Agreement in a form reasonably acceptable to
Brobeck, Phleger & Harrison LLP of the parties set forth on Part 2.22 of the
Company Disclosure Schedules.
(i) A Consulting Agreement between Parent and Tom Taylor in the form
of EXHIBIT H hereto executed by Tom Taylor and Parent.
(j) Evidence satisfactory to Parent of assignments of intellectual
property from employees, officers and consultants of the Company.
(k) Evidence satisfactory to Parent that none of the Company Options
has, or will, become partially or fully exercisable as a result of the Merger
pursuant to their terms or Section 6(e) of the Company's 2000 Stock Option Plan
and that none of the assumed Company Options are incentive stock options under
the Code.
6.6. NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
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SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject
to the satisfaction (or waiver), at or prior to the Closing, of the
following conditions:
7.1. ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate as of the date of this Agreement (it being understood that, for
purposes of determining the accuracy of such representations and warranties, any
inaccuracy that has not had a Material Adverse Effect on Parent shall be
disregarded). In addition, except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as of
a particular date (which shall have remained true and correct as of such
particular date), the representations and warranties of Parent and Merger Sub
contained in this Agreement shall be true and correct on and as of the Closing
with the same force and effect as if made on and as of the Closing, except in
such cases where the failure to be so true and correct would not have a Material
Adverse Effect on Parent and Merger Sub.
7.2. PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material respects
and the Company shall have received a certificate to such effect signed on
behalf of Parent by the Chief Executive Officer and the Chief Financial Officer
of Parent.
7.3. AGREEMENTS AND DOCUMENTS. Holdings and the Company shall have
received the following documents.
(a) an Escrow Agreement in the form of EXHIBIT D hereto, executed by
Parent; and
(b) a legal opinion of Dill Dill Carr Stonbraker & Hutchings, P.C.,
dated as of the Closing Date to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code .
(c) an executed Bridge Loan Agreement in the form of EXHIBIT E
hereto executed by Parent.
7.4. LISTING. The shares of Parent common stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance) on
the Nasdaq National Market.
7.5. NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
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SECTION 8. TERMINATION
8.1. TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by Parent if any representation or warranty of Holdings or the
Company contained in Section 2 was incorrect when made such that the condition
set forth in Section 6.1 would not be satisfied, or if: (i) any of Holdings or
the Company's covenants contained in this Agreement shall have been breached;
(ii) such breach has not been cured within 15 days after written notice thereof
is delivered by Parent to Holdings or the Company; provided, however, that no
cure period shall apply if such breach is not capable of cure; and (iii) as a
result of such breach, the condition set forth in Section 6.2 would not be
satisfied;
(b) by Holdings or the Company if any representation or warranty of
Parent or Merger Sub contained in Section 3 was incorrect when made such that
the condition set forth in Section 7.1 would not be satisfied, or if: (i) any of
Parent's or Merger Sub's covenants contained in this Agreement shall have been
breached; (ii) such breach has not been cured within 15 days after written
notice thereof is delivered by Holdings or the Company to Parent; provided,
however, that no cure period shall apply if such breach is not capable of cure;
and (iii) as a result of such breach, the condition set forth in Section 7.2
would not be satisfied;
(c) by Parent if the Closing has not taken place on or before
November 30, 2000 (other than as a result of any failure on the part of Parent
or Merger Sub to comply with or perform any covenant or obligation of Parent or
Merger Sub set forth in this Agreement or in any other agreement or instrument
delivered to the Company);
(d) by Holdings or the Company if the Closing has not taken place on
or before November 30, 2000 (other than as a result of the failure on the part
of the Company to comply with or perform any covenant or obligation set forth in
this Agreement or in any other agreement or instrument delivered to Parent); or
(e) by the mutual written consent of Parent and the Company.
8.2. TERMINATION PROCEDURES. If Parent wishes to terminate this
Agreement pursuant to Section 8.1(a) or Section 8.1(c), Parent shall deliver to
Holdings and the Company a written notice stating that Parent is terminating
this Agreement and setting forth a brief description of the basis on which
Parent is terminating this Agreement. If Holdings or the Company wishes to
terminate this Agreement pursuant to Section 8.1(b) or Section 8.1(d), Holdings
or the Company shall deliver to Parent a notice, in writing, stating that
Holdings or the Company is terminating this Agreement and setting forth a brief
description of the basis on which it is terminating this Agreement.
8.3. EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) none of the parties shall be relieved of
any obligation or liability arising from any prior willful breach by such party
of any provision of this Agreement; and (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in
Sections 5.4, 10 and this Section 8.2 and in the Non-Disclosure Agreement and
(c) any loans made pursuant to Section 4.6 hereof shall become due and payable
30 days after the date of such termination.
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<PAGE> 46
SECTION 9. INDEMNIFICATION, ETC.
9.1. SURVIVAL OF REPRESENTATIONS, ETC. The representations and
warranties made by Holdings, the Company, Parent and Merger Sub in this
Agreement shall survive the Closing and shall expire one year from the date of
the Closing. Upon the expiration of the representations and warranties of
Holdings, the Company, Parent and Merger Sub, all liability of the parties with
respect to any breach of such representation or warranties shall thereupon be
extinguished except to the extent a claim for breach shall have been made prior
to such expiration. The pre-closing covenants of Holdings, Company, Parent and
Merger Sub contained in this Agreement shall terminate as of the Closing.
9.2. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY STOCKHOLDERS. From and after the
Closing Date (but subject to Section 9.1), the stockholders of the Company who
shall have received Parent Common Stock pursuant to Section 1.6 and the
stockholders of Holdings who receive shares of Parent Common Stock as a result
of the liquidation and distribution of Holdings (the "Stockholder Indemnitors"),
jointly and severally, shall hold harmless and indemnify each of the Indemnitees
from and against, and shall compensate and reimburse each of the Indemnitees
for, any Damages which are suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which arise from or as
a direct or indirect result of, or are directly or indirectly connected with:
(i) any inaccuracy in or Breach of any representation or warranty made by
Holdings and the Company in this Agreement or in any other agreement, document
or instrument referred to or contemplated by this Agreement (without giving
effect to any "Material Adverse Effect" or other materiality qualification or
similar qualification contained or incorporated directly or indirectly in such
representation or warranty); (ii) any inaccuracy in or other Breach of any
representation, warranty, statement, information or provision contained in the
Disclosure Schedule; or (iii) any breach of any covenant or obligation of
Holdings and the Company ; or (iv) any Legal Proceeding relating to any Breach,
alleged Breach, Liability or matter of the type referred to in clause "(i),"
"(ii)", or "(iii)" of this sentence.
(b) DAMAGES TO SURVIVING CORPORATION. If the Surviving Corporation
suffers or otherwise becomes subject to any Damages, then (without limiting any
of the rights of the Surviving Corporation as an Indemnitee) Parent shall also
be deemed, by virtue of its ownership of the stock of the Surviving Corporation,
to have suffered Damages.
(c) DEDUCTIBLE. The Stockholder Indemnitors shall not be required to
make any indemnification, compensation or reimbursement payment pursuant to
Section 9.2 (a) until such time as the total amount of all Damages incurred by
Parent exceeds $50,000. If the total amount of such Damages exceeds $50,000,
then Parent shall be entitled to be indemnified against only for the portion of
such Damages exceeding $50,000. Notwithstanding the foregoing, Parent shall be
entitled to be indemnified for all Damages resulting from payments to Digital
Island pursuant to the loan referred to in Section 2.11(b) of the Disclosure
Schedule and any amounts paid to Broadview International LLC pursuant to the
letter agreement dated April 7, 2000 between the Company and Broadview
International LLC.
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<PAGE> 47
9.3. EXCLUSIVE REMEDY. Absent fraud, from and after the Closing,
recourse of the Indemnitees to the Escrow Amount in the Escrow Fund shall be the
sole and exclusive remedy of Parent and such Indemnitees for Damages relating to
any breach of any representation, warranty, covenant or agreement contained in
this Agreement or otherwise in connection with the transactions contemplated by
this Agreement.
9.4. NO CONTRIBUTION. Each Stockholder waives, and acknowledges and
agrees that he shall not have and shall not exercise or assert (or attempt to
exercise or assert), any right of contribution, right of indemnity or other
similar right or remedy against the Surviving Corporation in connection with any
actual or alleged inaccuracy in or other Breach of any representation, warranty,
covenant or obligation set forth in this Agreement.
9.5. DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Holdings, the Company, against any other Indemnitee or against any other Person)
with respect to which any of the Stockholders may become obligated to indemnify,
hold harmless, pay, compensate or reimburse any Indemnitee pursuant to this
Section 9, (i) Parent, as soon as practicable after it receives written notice
of any such claim or Legal Proceeding, shall notify the Stockholders' Agent of
such claim or Legal Proceeding (it being understood that the failure to notify
the Stockholders' Agent shall not in any way limit the rights of the Indemnitees
under this Agreement unless such failure materially prejudices the defenses
available to the Stockholders' Agent), and (ii) Parent shall have the right, at
its election, to designate the Stockholders' Agent to assume the defense of such
claim or Legal Proceeding at the sole expense of the Stockholders. If Parent so
elects to designate the Stockholders' Agent to assume the defense of any such
claim or Legal Proceeding:
(a) the Stockholders' Agent shall proceed to defend such claim or
Legal Proceeding in a diligent manner with counsel satisfactory to Parent;
(b) Parent shall make available to the Stockholders' Agent any
non-privileged documents and non-privileged materials in the possession of
Parent that may be necessary to the defense of such claim or Legal Proceeding;
(c) the Stockholders' Agent shall keep Parent informed of all
material developments and events relating to such claim or Legal Proceeding;
(d) Parent shall have the right to participate in the defense of
such claim or Legal Proceeding;
(e) the Stockholders' Agent shall not settle, adjust or compromise
such claim or Legal Proceeding without the prior written consent of Parent; and
(f) Parent may at any time (notwithstanding the prior designation of
the Stockholders' Agent to assume the defense of such claim or Legal Proceeding)
assume the defense of such claim or Legal Proceeding if (i) the Stockholders'
Agent shall fail to comply with any of its obligations under this Section 9.5
(including its obligation to defend any claim or Legal Proceeding in a diligent
manner), or (ii) Parent, after consultation with its counsel, determines that
the control of the defense by the Stockholders' Agent would give rise to a
conflict of interest or would otherwise be inappropriate in such claim or Legal
Proceeding.
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<PAGE> 48
If Parent does not elect to designate the Stockholders' Agent to assume the
defense of any such claim or Legal Proceeding (or if, after initially
designating the Stockholders' Agent to assume such defense, Parent elects to
assume such defense), Parent may proceed with the defense of such claim or Legal
Proceeding on its own. If Parent so proceeds with the defense of any such claim
or Legal Proceeding on its own:
(i) all expenses relating to the defense of such claim or Legal
Proceeding (whether or not incurred by Parent) shall be borne and paid
exclusively by the Stockholders;
(ii) the Stockholders shall make available to Parent any
documents and materials in the possession or control of any of the Stockholders
that may be necessary to the defense of such claim or Legal Proceeding;
(iii) Parent shall keep the Stockholders' Agent informed of all
material developments and events relating to such claim or Legal Proceeding; and
(iv) Parent shall have the right to settle, adjust or compromise
such claim or Legal Proceeding with the consent of the Stockholders' Agent;
provided, however, that the Stockholders' Agent shall not unreasonably withhold
such consent.
9.6. EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No
Indemnitee (other than Parent or any successor thereto or assign thereof) shall
be permitted to assert any indemnification claim or exercise any other remedy
under this Agreement unless Parent (or any successor thereto or assign thereof)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1. STOCKHOLDERS' AGENT. By virtue of their approval of the Merger,
the Stockholders irrevocably appoint Kevin O'Neill as their agent in connection
with the transactions contemplated by Section 9 of this Agreement and the Escrow
Agreement (the "Stockholders' Agent"), and Kevin O'Neill hereby accepts his
appointment as the Stockholders' Agent. Parent shall be entitled to deal with
the Stockholders' Agent on all matters relating to Section 9 and the Escrow
Agreement, and shall be entitled to rely on any document executed or purported
to be executed on behalf of the Stockholder Indemnitors by the Stockholders'
Agent, and on any other action taken or purported to be taken on behalf of the
Stockholder Indemnitors by the Stockholders' Agent, as fully binding upon such
Stockholder Indemnitor. If the Stockholders' Agent shall die, become disabled or
otherwise be unable to fulfill his responsibilities as agent of the Stockholder
Indemnitors, then the Stockholder Indemnitors shall, within ten days after such
death or disability, appoint a successor agent and, promptly thereafter, shall
notify Parent of the identity of such successor. Any such successor shall become
the "Stockholders' Agent" for purposes of this Section 10.1. If for any reason
there is no Stockholders' Agent at any time, all references herein to the
Stockholders' Agent shall be deemed to refer to the Stockholder Indemnitors.
10.2. FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other
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actions, as such other party may reasonably request (prior to, at or after the
Closing) for the purpose of carrying out or evidencing any of the transactions
contemplated by this Agreement.
10.3. EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the other agreements and
transactions contemplated hereby and thereby shall be paid by the party
incurring such expense; provided, however, that any out-of-pocket expenses
incurred by Company in connection with the transactions contemplated hereby,
including, without limitation, fees and expenses of financial advisors, legal
counsel and accountants shall be the obligation of Company's stockholders.
Parent or Company, with Parent's written approval, may pay such fees; provided,
however, that such payment shall, if not promptly reimbursed by Company's
stockholders at Parent's request, constitute "Damages" recoverable under the
Escrow Agreement.
10.4. ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5. NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
IF TO PARENT OR MERGER SUB:
Packeteer, Inc.
10495 N. De Anza Blvd.
Cupertino, California 95014
Attention: David Yntema
Telephone No.: (408) 873-4518
Facsimile: (408) 873-4518
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: John Montgomery
Telephone No. 650-424-0160
Facsimile No. 650-424-2777
IF TO THE COMPANY OR HOLDINGS:
Workfire Networks, Inc.
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<PAGE> 50
1708 Dolphin Avenue, Suite 400
Kelowna, B.C. Canada V1R 9S4
Telephone No. (250) 717-8966
Facsimile No. (250) 717-8946
Attention: Tom Taylor
With a copy to:
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, CO 80203
Telephone No. (303) 777-3737
Facsimile No. (303) 777-3823
Attention: Fay Matsukage
IF TO THE STOCKHOLDERS' AGENT OR ANY OF THE STOCKHOLDER
INDEMNITORS:
c/o Workfire Networks, Inc.
1708 Dolphin Avenue, Suite 400
Kelowna, B.C. Canada V1R 9S4
Telephone No. (250) 717-8966
Facsimile No. (250) 717-8946
10.6. HEADINGS. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.7. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.8. GOVERNING LAW; VENUE. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of California (without giving effect to principles of conflicts of laws). In any
action between the parties arising out of or relating to this Agreement or any
of the transactions contemplated by this Agreement: (a) each of the parties
irrevocably and unconditionally consents and submits to the exclusive
jurisdiction and venue of the state and federal courts located in the County of
Santa Clara, State of California; (b) if any such action is commenced in a state
court, then, subject to applicable law, no party shall object to the removal of
such action to any federal court located in the Northern District of California;
(c) each of the parties irrevocably consents to service of process by first
class certified mail, return receipt requested, postage prepaid, to the address
at which such party is to receive notice in accordance with Section 10.5.
10.9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon each
of the parties hereto and each of their respective successors and assigns, if
any. No party may assign any of its rights, or delegate any of its obligations,
under this Agreement without the prior written consent of the other parties.
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<PAGE> 51
10.10. REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision and (b) an injunction restraining such breach or threatened
breach.
10.11. WAIVER. No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy. No Person shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such Person; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
10.12. AMENDMENTS. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.13. SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.14. PARTIES IN INTEREST. None of the provisions of this Agreement is
intended to provide any rights or remedies to any Person other than the parties
hereto and their respective successors and assigns, if any.
10.15. ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof; provided, however, that the Mutual
Non-Disclosure Agreement shall not be superseded by this Agreement and shall
remain in effect in accordance with its terms until the earlier of (a) the
Closing Date or (b) the date on which such Mutual Non-Disclosure Agreement is
terminated in accordance with its terms.
10.16. CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the
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<PAGE> 52
feminine and neuter genders; the feminine gender shall include the masculine and
neuter genders; and the neuter gender shall include the masculine and feminine
genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections", "Schedules" and "Exhibits" are intended to refer to Sections of
this Agreement and Schedules and Exhibits to this Agreement.
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<PAGE> 53
The parties hereto have caused this Agreement to be executed and
delivered as of the date first written above.
PACKETEER, INC.
a Delaware corporation
By:
---------------------------------------
Title:
-------------------------------------
WORKFIRE ACQUISITION CORP.
a Delaware corporation
By:
---------------------------------------
Title:
-------------------------------------
WORKFIRE.COM
a Nevada corporation
By:
---------------------------------------
Title:
-------------------------------------
WORKFIRE TECHNOLOGIES INTERNATIONAL, INC.
a Nevada corporation
By:
---------------------------------------
Title:
-------------------------------------
48
<PAGE> 54
The following Person hereby executes this Agreement on this 13th day
of July, 2000 for the purpose of being bound by the provisions of Section 10.1
hereof.
---------------------------
KEVIN O'NEILL
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EXHIBITS
Exhibit A Certain Definitions
Exhibit B Form of Voting Agreement
Exhibit C Form of Voting Agreement
Exhibit D Form of Escrow Agreement
Exhibit E Form of Bridge Loan Agreement
Exhibit F Form of Opinion of Dill Dill Carr Stonbraker & Hutchings (corporate
and tax)
Exhibit G Form of Employment, Non-Competition and Non-Solicitation Agreement
Exhibit H Form of Consulting Agreement
v
<PAGE> 56
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" means any transaction
involving: (a) the sale, license, disposition or acquisition of all or
substantially all of the business or assets of the Company (taken as a whole);
(b) the issuance, disposition or acquisition of capital stock or other equity
securities of the Company constituting more than 50% of the outstanding voting
securities of the Company; or (c) any merger, consolidation, business
combination, reorganization or similar transaction involving the Company.
AGREEMENT. "Agreement" means the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
BREACH. There shall be deemed to be a "Breach" of a representation,
warranty, covenant, obligation or other provision if there is or has been (i)
any inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision, or (ii) any
claim (by any Person) or other circumstance that is inconsistent with such
representation, warranty, covenant, obligation or other provision; and the term
"Breach" shall be deemed to refer to any such inaccuracy, breach, failure, claim
or circumstance.
COBRA. "COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended from time to time.
CODE. "Code" means the Internal Revenue Code of 1986, as amended.
COMPANY CONTRACT. "Company Contract" means a Contract (a) to which the
Company or a Subsidiary is a party; (b) by which the Company, any Subsidiary or
any of their assets is or may become bound or under which the Company or a
Subsidiary has, or may become subject to, any obligation; or (c) under which the
Company or a Subsidiary has or may acquire any right or interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" means any
Proprietary Asset owned by or licensed to the Company or a Subsidiary or
otherwise used by the Company or a Subsidiary.
CONSENT. "Consent" means any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" means any written or oral or other agreement or
legally binding commitment of any nature.
DAMAGES. "Damages" means any loss, damage, injury, decline in value,
lost opportunity, Liability, claim, demand, settlement, judgment, award, fine,
penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature, including any
amounts paid to Digital Island pursuant to the loan referred to in Section
2.11(b) of the Disclosure Schedule and any amounts paid to Broadview
International LLC
<PAGE> 57
pursuant to the letter agreement dated April 7, 2000. between the Company and
Broadview International LLC.
DISCLOSURE SCHEDULE. "Disclosure Schedule" means the schedule (dated as
of the date of the Agreement) delivered to Parent on behalf of the Company.
EMPLOYEE PENSION BENEFIT PLAN. "Employee Pension Benefit Plan" has the
meaning set forth in ERISA Section 3(2).
EMPLOYEE WELFARE BENEFIT PLAN. "Employee Welfare Benefit Plan" has the
meaning set forth in ERISA Section 3(1).
ENCUMBRANCE. "Encumbrance" means any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" means any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
ERISA. "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
FULLY DILUTED NUMBER OF COMPANY CAPITAL SHARES. "Fully Diluted Number of
Company Capital Shares" means the sum of (i) the aggregate number of shares of
Company Common Stock outstanding immediately prior to the Effective Time, plus
(ii) the aggregate number of shares of Company Common Stock issuable upon the
exercise of any option to purchase Company Common Stock outstanding immediately
prior to the Effective Time, regardless of whether such option is in fact
exercisable in full as of the Effective Time.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" means any: (a)
permit, license, certificate, franchise, permission, clearance, registration,
qualification or authorization
<PAGE> 58
issued, granted, given or otherwise made available by or under the authority of
any Governmental Body or pursuant to any Legal Requirement; or (b) right under
any Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" means any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
HIPAA. "HIPAA " means the Health Insurance Portability and
Accountability Act of 1996.
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; provided,
however, that the Stockholders shall not be deemed to be "Indemnitees."
KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if: (a) such individual is actually aware of
such fact or other matter; or (b) a prudent individual could be expected to
discover or otherwise become aware of such fact or other matter in the course of
conducting a reasonable investigation concerning the truth or existence of such
fact or other matter. The Company shall be deemed to have "Knowledge" of a
particular fact or other matter if any officer or employee of the Company has
Knowledge of such fact or other matter. Parent shall be deemed to have
"Knowledge" of a particular fact or other matter if any officer or employee of
Parent has Knowledge of such fact or other matter.
LEGAL PROCEEDING. "Legal Proceeding" means any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or before, or otherwise
involving, any court or other Governmental Body or any arbitrator or arbitration
panel.
LEGAL REQUIREMENT. "Legal Requirement" means any federal, state, local,
municipal, foreign or other law, statute, ordinance, code, rule or regulation
issued, enacted, adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any Governmental Body.
LIABILITY. "Liability" means any debt, obligation, duty or liability of
any nature (including any unknown, undisclosed, unmatured, unaccrued,
unasserted, contingent, indirect, conditional, implied, vicarious, derivative,
joint, several or secondary liability), regardless of whether such debt,
obligation, duty or liability would be required to be disclosed on a balance
sheet prepared in accordance with generally accepted accounting principles and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
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MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on the Company or the Surviving Corporation if
such violation or other matter (considered together with all other matters that
would constitute exceptions to the representations and warranties set forth in
the Agreement but for the presence of the "Material Adverse Effect" or other
materiality qualifications, or any similar qualifications, in such
representations and warranties) would have a material adverse effect on the
business, condition, operations, assets, liabilities or financial performance of
the Company or the Surviving Corporation resulting in an aggregate amount equal
to or greater than $500,000; provided, however, that in no event shall any of
the following constitute a Material Adverse Effect: (x) any effects, changes,
events, circumstances or conditions generally affecting the industry in which
the Company operates; and (y) any effects, changes, events, circumstances or
conditions to the extent resulting from the announcement or pendency of any of
the transactions contemplated by this Agreement. A violation or other matter
will be deemed to have a "Material Adverse Effect" on Parent if such violation
or other matter (considered together with all other matters that would
constitute exceptions to the representations and warranties set forth in the
Agreement but for the presence of the "Material Adverse Effect" or other
materiality qualifications, or any similar qualifications, in such
representations and warranties) would have a material adverse effect on the
business, condition, operations, assets, liabilities or financial performance of
Parent; provided, however, that in no event shall any of the following
constitute a Material Adverse Effect: (x) any effects, changes, events,
circumstances or conditions generally affecting the industry in which the
Company operates; and (y) any effects, changes, events, circumstances or
conditions to the extent resulting from the announcement or pendency of any of
the transactions contemplated by this Agreement, including any actions taken at
the request of any federal or state governmental agency in connection with any
of the transactions contemplated by this Agreement and (z) changes and
fluctuations in the trading price of Parent Common Stock.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
include chemicals, pollutants, contaminants, wastes, toxic substances, petroleum
and petroleum products and any other substance that is now or hereafter
regulated by any Environmental Law or that is otherwise a danger to health,
reproduction or the environment.
PARENT AVERAGE STOCK PRICE. "Parent Average Stock Price" means the
average of the closing prices of a share of Parent Common Stock as reported on
the Nasdaq National Market for the thirty day period ending on the three days
prior to the Closing.
PERMITTED ENCUMBRANCES. "Permitted Encumbrances" mean any liens for
taxes not yet due and payable and any liens for other imperfections of title and
encumbrances which are not material in character, amount or extent.
PERSON. "Person" means any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" means any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product,
<PAGE> 60
technology, proprietary right or other intellectual property right or intangible
asset; or (b) right to use or exploit any of the foregoing.
REPRESENTATIVES. "Representatives" means officers, directors, employees,
agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" means the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" means the Securities Act of 1933, as
amended.
STOCKHOLDER. "Stockholder" means any Person who owns of record any
Company Common Stock or Company Preferred Stock immediately prior to the
Closing.
SUBSIDIARY. "Subsidiary" shall mean any corporation with respect to
which the Company (or a Subsidiary thereof) owns stock representing a majority
of the total voting power or value of all the corporation's stock.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean, with respect to Holdings, the
Company or any Subsidiary, any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
(e) YEAR 2000 COMPLIANT. "Year 2000 Compliant" means, with respect
to a computer program or other item of software (i) the functions, calculations,
and other computing processes of the program or software (collectively,
"Processes") perform in a consistent and correct manner without interruption
regardless of the date on which the Processes are actually performed and
regardless of the date input to the applicable computer system, whether before,
on, or after January 1, 2000; (ii) the program or software accepts, calculates,
compares, sorts, extracts, sequences, and otherwise processes date inputs and
date values, and returns and displays date values, in a consistent and correct
manner regardless of the dates used whether before, on, or after January 1,
2000; (iii) the program or software accepts and responds to year input, if any,
in a manner that resolves any ambiguities as to century in a defined,
predetermined, and appropriate manner; (iv) the program or software stores and
displays date information in ways that are unambiguous as to the determination
of the century; and (v) leap years will be determined by the following standard
(A) if dividing the year by 4 yields an integer, it is a leap year, except for
years ending in 00, but (B) a year ending in 00 is a leap year if dividing it by
400 yields an integer.
