SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
SCHEDULE 13D
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UNDER THE SECURITIES EXCHANGE ACT OF 1934
Trusted Information Systems, Inc.
(Name of Issuer)
Common Stock, $.01 par value
(Title of Class of Securities)
897908-10-9
(CUSIP number)
Stephen E. Smaha
10713 RR 620 North, Suite 512
Austin, Texas 78726
(512) 918-3555
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 16, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of
Rule 13d-1(b)(3) or (4), check the following box: [ ]
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Signatures
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned hereby certifies that the information set forth in
this amendment is true, complete and correct.
Dated: October 24, 1997
By /s/ Stephen E. Smaha
Stephen E. Smaha
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Exhibit 2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), entered into as
of October 3, 1997 by and among TRUSTED INFORMATION SYSTEMS, INC., a Delaware
corporation (the "Buyer"), TRUSTED ACQUISITIONS, INC., a Delaware corporation
and a wholly-owned subsidiary of the Buyer (the "Merger Sub"), and HAYSTACK
LABORATORIES, INC., a Delaware corporation (the "Company"). The Buyer, the
Merger Sub and the Company are referred to collectively herein as the "Parties."
This Agreement contemplates a merger of the Merger Sub into the Company
in a transaction that will qualify as a non taxable transaction under Section
368 of the Code (as defined below). In such merger, the stockholders of the
Company will receive capital stock of the Buyer in exchange for their capital
stock of the Company.
NOW, THEREFORE, in consideration of the representations, warranties,
agreements and covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1......The Merger. Upon and subject to the terms and conditions of
this Agreement, the Merger Sub shall merge with and into the Company (with such
merger referred to herein as the "Merger") at the Effective Time (as defined
below). From and after the Effective Time, the separate corporate existence of
the Merger Sub shall cease and the Company shall continue as the surviving
corporation in the Merger (the "Surviving Corporation"). The "Effective Time"
shall be the time at which the Company and the Merger Sub file the agreement of
merger and certificate of merger prepared and executed in accordance with the
relevant provisions of the Delaware General Corporation Law ("DGCL"), with the
Secretary of State of the State of Delaware (the "Certificate of Merger"). The
Merger shall have the effects specified in this Agreement and in Section 259 of
the DGCL. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.2......The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Piper &
Marbury L.L.P., 1200 Nineteenth Street, N.W., Washington, D.C., or at such other
location as the Parties mutually agree, commencing at 10:00 a.m. local time on
October 16, 1997, or, if all of the conditions to the obligations of the Parties
to consummate the transactions contemplated hereby have not been satisfied or
waived by such date, on such mutually agreed upon later date as soon as
practicable after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(the "Closing Date").
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1.3......Actions at the Closing. At the Closing: (a) the Company shall
deliver to the Buyer and the Merger Sub the various certificates, instruments
and documents referred to in Section 5.2; (b) the Buyer and the Merger Sub shall
deliver to the Company the various certificates, instruments and documents
referred to in Section 5.3; (c) the Company and the Merger Sub shall file with
the Secretary of State of the State of Delaware the Certificates of Merger; and
(d) the Buyer shall deliver certificates for the Merger Shares (as defined
below) to American Stock Transfer as exchange agent (the "Exchange Agent") in
accordance with Section 1.7.
1.4......Additional Action. The Surviving Corporation may, at any time
after the Effective Time, take any action, including executing and delivering
any document, in the name and on behalf of either the Company or the Merger Sub,
necessary to consummate the transactions contemplated by this Agreement.
1.5......Effect on Capital Stock.
..................(a) Definitions.
.................."Buyer Common Stock" shall mean the common stock, par
value $0.01 per share, of Trusted Information Systems, Inc.
.................."Buyer Share Market Value" shall mean the average closing
price on the Nasdaq National Market System for shares of Buyer Common Stock for
the five (5) trading days prior to the date for which the Buyer Share Market
Value is being determined.
.................."Code" shall mean the Internal Revenue Code of 1986, as
amended.
.................."Common Stock Conversion Ratio" shall mean a fraction,
the numerator of which shall be the number of Merger Shares and the
denominator of which shall be the number of Common Stock Equivalents as of
the Effective Time plus the number of Counted Assumed Option Shares.
.................."Common Stock Equivalents" shall mean the total number of
shares of Company Common Stock outstanding plus the total number of shares to
which holders of outstanding shares of the Company's Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock would be entitled upon
conversion, including shares of Company Common Stock issued upon exercise of
Options between the date hereof and immediately prior to the Effective Time.
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.................."Company Common Stock" shall mean the common stock, par
value $0.001 per share, of Haystack Laboratories, Inc.
.................."Company Shares" shall mean shares of the Company's equity
securities including Company Common Stock, Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock actually held by each Company
Stockholder.
.................."Company Stockholder" shall mean the holders of the Company's
Series A Convertible Preferred Stock, the Company's Series B Convertible
Preferred Stock and Company Common Stock as of the Effective Time and the
holders of 1996 Options automatically converted into Buyer Common Stock as of
the Effective Time in accordance with Section 1.10.
.................."Counted Assumed Option Shares" shall mean the shares of
Company Common Stock issuable upon exercise of options outstanding at the
Closing (regardless of whether vested), including the Options which have not
been exercised as of the Effective Time and which are converted into Buyer
Common Stock in accordance with Section 1.10. In addition, any option granted by
the Company from the date of this Agreement until the Closing shall only be
exercisable for shares of Company Common Stock that are Counted Assumed Option
Shares. In addition, any warrant granted by the Company from the date of this
Agreement until the Closing shall only be exercisable for shares of Company
Common Stock that are Counted Assumed Option Shares.
.................."Counted Assumed Option Merger Shares" shall mean that
number of Merger Shares equal to the Counted Assumed Option Shares multiplied by
the Common Stock Conversion Ratio.
.................."Former Company Stockholder" shall mean each Company
Stockholder at the Effective Time and each person that is issued an Assumed
Option (as defined below).
.................."Merger Shares" shall mean two million, one hundred five
thousand four hundred ninety-four (2,105,494) shares of Buyer Common Stock (as
such number may be appropriately adjusted for stock splits, stock dividends,
reverse stock splits and other subdivisions and combinations of Buyer Common
Stock between the date of this Agreement and the Effective Time).
.................."Series A Convertible Preferred Stock" shall mean the
Company's Series A Convertible Preferred Stock, par value $0.001 per share.
.................."Series B Convertible Preferred Stock" shall mean the
Company's Series B Convertible Preferred Stock, par value $0.001 per share.
.................."Merger Sub Common Stock" shall mean the common stock,
par value $0.01 per share, of the Merger Sub.
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.................."Securities Act" shall mean the Securities Act of 1933,
as amended.
..................(b) Immediately prior to the Effective Time and without
any action on the part of any Party or the holder of any of the following
securities:
.................. (i) Each share of Series A Convertible Preferred Stock,
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Company Common Stock; and
.................. (ii) Each share of Series B Convertible Preferred Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Company Common Stock; and
.................. (iii) Each option under the Company's 1996 Stock Plan
issued and outstanding immediately prior to the Effective Time (the "1996
Option') shall be exercised for Company Common Stock.
.........(c) At the Effective Time, by virtue of the Merger and without
any action on the part of any Party or the holder of any of the Company's
securities, each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into such fraction of
a share of Buyer Common Stock as is equal to the Common Stock Conversion Ratio.
..................(d) At the Effective Time, each share of Merger Sub Common
Stock issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
..................(e) Notwithstanding the foregoing, no fractional shares
of Buyer Common Stock shall be issued; rather such fractional shares shall be
converted into cash as provided in Section 1.9.
1.6......Dissenting Shares.
..................(a) For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a Company Stockholder who has
not voted such Company Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 262 of the DGCL and not effectively
withdrawn or forfeited prior to the Effective Time. Notwithstanding anything to
the contrary contained in Section 1.5(a) above, Dissenting Shares shall not be
converted into or represent the right to receive Merger Shares, unless such
Company Stockholder shall have forfeited his right to appraisal under the DGCL
or withdrawn, with the consent of the Company, his demand for appraisal. If such
Company Stockholder has so forfeited or withdrawn his right to appraisal of
Dissenting Shares, then as of the occurrence of such event, such holder's
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Merger Shares issuable in respect of
such Company Shares pursuant to Section 1.5(a).
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..................(b) The Company shall give the Buyer: (i) prompt notice
of any written demands for appraisal of any Company Shares, withdrawals of such
demands, and any other instruments that relate to such demands received by the
Company; and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The Company shall not,
except with the prior written consent of the Buyer, make any payment with
respect to any demands for appraisal of Company Shares or offer to settle or
settle any such demands.
1.7......Exchange of Shares.
..................(a) Prior to the Effective Time, the Buyer shall appoint the
Exchange Agent to effect the exchange for the Merger Shares of certificates
that, immediately prior to the Effective Time, represented Company Shares
converted into Merger Shares pursuant to Section 1.5 ( the "Certificates"). On
the Closing Date, the Buyer shall deliver to the Exchange Agent, in trust for
the benefit of holders of Certificates, a stock certificate (issued in the name
of the Exchange Agent or its nominee) representing the Merger Shares, as
described in Section 1.5(a), other than the Merger Shares that are (i) Escrow
Shares pursuant to Article VII below or (ii) that are Counted Assumed Option
Merger Shares. No later than 15 days following the Effective Time, the Buyer
shall cause the Exchange Agent to send a notice and a transmittal form to each
holder of a Certificate advising such holder of the effectiveness of the Merger
and the procedure for surrendering to the Exchange Agent such Certificate in
exchange for the Merger Shares issuable pursuant to Section 1.5(a). Each holder
of a Certificate, upon proper surrender thereof to the Exchange Agent in
accordance with the instructions in such notice, shall be entitled to receive in
exchange therefor (subject to any taxes required to be withheld) the Merger
Shares issuable pursuant to Section 1.5(a) (other than the Escrow Shares). Until
properly surrendered, each such Certificate shall be deemed for all purposes to
evidence only the right to receive the Merger Shares issuable pursuant to
Section 1.5(a). Holders of Certificates shall not be entitled to receive
certificates for the Merger Shares to which they would otherwise be entitled
until such Certificates are properly surrendered.
..................(b) If any Merger Shares are to be issued in the name of a
person other than the person in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition to the issuance of such
Merger Shares that: (i) the Certificate 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 to the Exchange Agent any transfer or other
taxes payable by reason of the foregoing or establish to the satisfaction of the
Exchange Agent that such taxes have been paid or are not required to be paid.
Notwithstanding the foregoing, neither the Exchange Agent nor any Party shall be
liable to a holder of Company Shares for any Merger Shares issuable to such
holder pursuant to Section 1.5(a) that are delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
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..................(c) In the event any Certificate shall have been lost, stolen
or destroyed, only upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, shall the Buyer issue
in exchange for such lost, stolen or destroyed Certificate the Merger Shares
issuable in exchange therefor pursuant to Section 1.5(a). The Board of Directors
of the Buyer may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
submit to the Buyer an affidavit and to give to the Buyer an indemnity against
any claim that may be made against the Buyer with respect to the Certificate
alleged to have been lost, stolen or destroyed. In addition, a holder of such
lost, stolen or destroyed Certificate may be required by the Exchange Agent to
post a bond in connection therewith.
..................(d) Promptly following the date that is twelve (12) months
from the Closing Date, the Exchange Agent shall return to the Buyer all Merger
Shares in its possession, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate may surrender such Certificate to the
Buyer and, subject to applicable abandoned property, escheat and similar laws,
receive in exchange therefor the Merger Shares issuable with respect thereto
pursuant to Section 1.5(a).
1.8......Dividends. No dividends or other distributions that are
payable to the holders of record of Buyer Common Stock as of a date on or after
the Closing Date shall be paid to former Company Stockholders entitled by reason
of the Merger to receive Merger Shares until such holders surrender their
Certificates in accordance with Section 1.7. Upon such surrender, the Buyer
shall pay or deliver to the persons in whose name the certificates representing
such Merger Shares are issued any dividends or other distributions that are
payable to the holders of record of Buyer Common Stock as of a date on or after
the Closing Date and that were paid or delivered between the Effective Time and
the time of such surrender; provided, however, that no such person shall be
entitled to receive any interest on such dividends or other distributions.
1.9......Fractional Shares. No certificates or scrip representing
fractional Merger Shares shall be issued to former Company Stockholders upon the
surrender for exchange of Certificates, and such former Company Stockholders
shall not be entitled to any voting rights, rights to receive any dividends or
distributions or other rights as a stockholder of the Buyer with respect to any
fractional Merger Shares that would otherwise be issued to such former Company
Stockholders. In lieu of any fractional Merger Shares that would otherwise be
issued, each former Company Stockholder that would have been entitled to receive
a fractional Merger Share shall, upon proper surrender of such person's
Certificates, receive a cash payment equal to the Buyer Share Market Value,
multiplied by the fraction of a share that such Company Stockholder would
otherwise be entitled to receive.
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1.10 Options.
(a) As of the Effective Time, by virtue of the Merger and
without any action on the part of any Party or the holder of any option under
the Company's 1993 Stock Option Plan (the "1993 Options") and the Company's 1996
Stock Option Plan (the "1996 Options" and together with the 1993 Options, the
"Options"), each Option issued and outstanding immediately prior to the
Effective Time that has not been exercised shall be converted into such number
of shares of Buyer Common Stock as is equal to:
A - (B/C)
where
A = the number of Company Shares subject to the unexercised portion of
such Option multiplied by the Common Stock Conversion Ratio;
B = the number of Company Shares subject to the unexercised portion of
such Option multiplied by the per share exercise price of such Option; and
C = the Buyer Share Market Value.
(b) As soon as practicable after the Effective Time, the Buyer
or the Surviving Corporation shall deliver to each holder of an Option converted
pursuant to subsection (i) a certificate for 90% of the shares of Buyer Common
Stock issuable pursuant to subsection (i) and shall deliver to the Escrow Agent
a certificate for 10% of the shares of Buyer Common Stock issuable pursuant to
subsection (i) for the purposes of Article VII.
1.11 Certificate Legends. The shares of Buyer Common Stock to be issued
pursuant to this Article I shall not have been registered and shall be
characterized as "restricted securities" under the federal securities laws, and
under such laws such shares may be resold without registration under the
Securities Act (as defined below) only in certain limited circumstances. Each
certificate evidencing shares of Buyer Common Stock to be issued pursuant to
this Article I shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE
SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
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1.12 Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of Merger Sub, as in effect immediately prior the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by DGCL; provided, however, that Section 1
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the Corporation is Haystack
Laboratories, Inc."
1.13 By-laws. The By-laws of the Surviving Corporation shall be the same as
the By-laws of the Merger Sub immediately prior to the Effective Time.
1.14 Directors and Officers. The directors of the Merger Sub shall remain
the directors of the Surviving Corporation after the Effective Time. The
officers of the Merger Sub shall remain as officers of the Surviving Corporation
after the Effective Time, retaining their respective positions.
1.15 No Further Rights. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and the holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.16 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation or the Exchange Agent, they shall be cancelled and
exchanged for Merger Shares in accordance with Section 1.5(a), subject to
applicable law in the case of Dissenting Shares.
1.17 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall: (i) constitute a reorganization within the meaning of
Section 368 of the Code; and (ii) qualify for accounting treatment as a pooling
of interests.
1.18 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Buyer and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Merger Sub
that, as of the date hereof, the statements contained in this Article II are
true and correct in all material respects, except as set forth in the disclosure
schedule attached hereto (the "Disclosure Schedule") or except where the failure
to comply or fulfill, accurately state or accurately represent or accurately
warrant would not have a material adverse effect on the business or results of
operations of the Company. The Disclosure Schedule shall be initialed by the
Parties and shall be updated as of the Closing Date.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Delaware. The Company is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
Delaware and in each other jurisdiction in which the failure to be so qualified
would have a material adverse effect on the Company. The Company has the
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
furnished or made available to the Buyer true and complete copies of its
Certificate of Incorporation and By-laws, each as amended and as in effect on
the date hereof (hereinafter the "Company Charter" and the "Company By-laws,"
respectively). The Company is not in default under or in violation of any
provision of the Company Charter or the Company By-laws, each as amended to
date. The Company does not have any direct or indirect subsidiaries or any other
equity interest in any other firm, corporation, partnership, joint venture,
association or other business organization.
2.2 Capitalization. The authorized capital stock of the Company
consists of: (a) Eleven Million, Nine Hundred Thousand (11,900,000) shares of
Company Common Stock, of which 44,002 shares are issued and outstanding and no
shares are held in the treasury of the Company; and (b) Eight Million, One
Hundred Thousand (8,100,000) shares of preferred stock, of which (i) Six
Million, Two Hundred Thousand (6,200,000) shares have been designated as Series
A Convertible Preferred Stock, of which 5,814,825 shares are issued and
outstanding, and (ii) One Million, Nine Hundred Thousand (1,900,000) have been
designated as Series B Convertible Preferred Stock, of which 1,551,111 shares
are issued and outstanding. Section 2.2 of the Disclosure Schedule sets forth a
complete and accurate list of: (a) all stockholders of the Company, indicating
the type and number of Company Shares held by each stockholder; and (b) all
holders of Options and Warrants, indicating the type and number of Company
Shares subject to each Option and Warrant and the exercise price thereof. All of
the Options and Warrants have been granted pursuant to a form of agreement or
other instrument previously provided to the Buyer. All of the issued and
outstanding Company Shares are, and all Company Shares that may be issued upon
exercise of Options and Warrants will be, duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights. There are no declared or
accrued but unpaid dividends with regard to any issued and outstanding Company
Shares. Holders of issued and outstanding Company Shares have no basis for
asserting rights to rescind the purchase of any such Company Shares. Other than
the Options and Warrants, there are no outstanding or authorized options,
warrants, rights, calls, agreements or commitments to which the Company is a
party or which are binding upon the Company providing for the issuance,
disposition or acquisition of any of its capital stock. There are no outstanding
or authorized stock appreciation, phantom stock or similar rights with respect
to the Company. There are no agreements, voting trusts, proxies, or
understandings with respect to the voting, or registration under the Securities
Act, of any Company Shares: (a) between or among the Company and any of its
stockholders; and (b) to the Company's knowledge, between or among any of the
Company's stockholders. All of the issued and outstanding Company Shares were
issued in compliance with applicable federal and state securities laws.
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2.3 Authorization of Transaction. The Company has the corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and, subject
to the adoption of this Agreement and the approval of the Merger by a majority
of the votes represented by the outstanding Company Shares entitled to vote on
this Agreement and the Merger, including the approval of the holders of a
majority of the shares of Series B Convertible Preferred Stock, voting in
accordance with the DGCL and the Company Charter (the "Requisite Stockholder
Approval"), the performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by the Buyer
and the Merger Sub, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally,
and except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
2.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws and
the filing of the Certificate of Merger as required by the DGCL, neither the
execution and delivery of this Agreement by the Company, nor the consummation by
the Company of the transactions contemplated hereby, will (a) conflict with or
violate any provision of the Company Charter or the Company By-laws, (b) require
on the part of the Company any filing with, or any permit, authorization,
consent or approval of, any court, arbitrational tribunal, administrative agency
or commission or other governmental or regulatory authority or agency (a
"Governmental Entity"), (c) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver under, any contract,
lease, sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest (as
defined below) or other arrangement to which the Company is a party or by which
the Company is bound or to which any of their assets is subject, (d) result in
the imposition of any Security Interest upon any assets of the Company or (e)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its properties or assets. For purposes of this
Agreement, "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien (whether arising by contract or by operation
of law), other than: (i) mechanic's, materialmen's, and similar liens; (ii)
liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation; and (iii) liens on goods in
transit incurred pursuant to documentary letters of credit, in each case arising
in the ordinary course of business consistent with past custom and practice
(including with respect to frequency and amount) ("Ordinary Course of Business")
of the Company and not material to the Company.
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2.5 [Intentionally Omitted].
2.6 Financial Statements.
(a) The Company has provided to the Buyer: (i) the audited
balance sheets and statements of operations, changes in stockholders' equity and
cash flows for each of the last three fiscal years for the Company; and (ii) the
unaudited balance sheet, statement of operations and statement of cash flows as
of and for the month and eight-month period ended as of August 31, 1997 (the
"Most Recent Fiscal Month End"), as set forth on Schedule 2.6. As of the Most
Recent Fiscal Month End, the Company has a net worth (assets less liabilities)
of at least $74,000 and a non-negative balance of cash and cash equivalents.
Such financial statements (collectively, the "Financial Statements") have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods covered
thereby, fairly present the financial condition, results of operations and cash
flows of the Company as of the respective dates thereof and for the periods
referred to therein and are consistent with the books and records of the
Company, provided, however, that the Financial Statements referred to in clause
(ii) above are subject to normal recurring year-end adjustments (which will not
in the aggregate be material) and do not include footnotes.
(b) The Company has provided the Buyer with its most recent
business plan and the budgeted operating results for the year January 1, 1997
through December 31, 1997 (the "Budget"). As of the date hereof, the prospective
financial information set forth in the Budget for the calendar quarters and
months of July 1, 1997 through December 31, 1997 (the "Forecast Period"),
represents the Company's best estimates of the most likely expected operating
results for the Forecast Period. The Company knows of no information or fact
that has or would have a material adverse effect on the business or condition
(financial or otherwise) of the Company that has not been disclosed to the Buyer
in writing. The budget and financial projections for the Forecast Period were
prepared with due care based on management's most reasonable estimates and
assumptions at the time the budget was prepared and as of the Closing Date, the
Company knows of no material adverse event that has occurred that would cause
the Company's management to change the assumptions and estimates underlying the
budget.
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2.7 Absence of Certain Changes. Since August 31, 1997, the Company has
conducted its business in the ordinary course consistent with past practice and
there has not occurred: (a) any change, event or condition (whether or not
covered by insurance) that has resulted in, or might reasonably be expected to
result in any material adverse change in the assets, business, financial
condition or results of operations of the Company; and (b) the Company has not
taken any of the actions set forth in paragraphs (a) through (q) of Section 4.5.
2.8 Undisclosed Liabilities. The Company has no liability, whether
liquidated or unliquidated and whether due or to become due), except for: (a)
liabilities accrued or reserved against the August 31, 1997, unaudited
consolidated balance sheet of the Company ("Most Recent Balance Sheet"); (b)
liabilities which have arisen since August 31, 1997, in the Ordinary Course of
Business and which are similar in nature and amount to the liabilities which
arose during the comparable period of time in the immediately preceding fiscal
period; (c) contractual or statutory liabilities incurred in the Ordinary Course
of Business which are consistent with past practice and are not required by GAAP
to be reflected on a balance sheet; (d) up to an aggregate of $1,000,000
incurred in connection with the preparation and execution of the Agreement and
in anticipation of the Merger for legal, accounting, investment banking fees and
expenses and transition costs related to severance payments to key employees
necessary to transition the Company's business to the Buyer (the "Transition
Costs") (the Transition Costs, with the other merger expenses, collectively, the
"Transaction Costs"); and (e) liabilities adequately reserved against as set
forth on Schedule 2.8.
2.9 Tax Matters.
(a) The Company has filed all material Tax Returns (as defined
below) that it was required to file and all such Tax Returns were correct and
complete in all material respects. The Company has paid or will pay all Taxes
(as defined below) due on or before the Closing Date, regardless of whether
shown on any such Tax Returns, except such as are being contested in good faith
by appropriate proceedings (to the extent any such proceedings are required) and
with respect to which the Company is maintaining reserves adequate for their
payment. The accrued but unpaid Taxes of the Company for tax periods through the
date of the Most Recent Balance Sheet do not exceed the accruals and reserves
for Taxes set forth on the Most Recent Balance Sheet. All Taxes attributable to
the period January 1, 1997, through the Closing Date are attributable to the
conduct by the Company of its operations in the Ordinary Course of Business or
to the transactions contemplated by this Agreement. The Company has no actual or
potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Company during a prior period) other than the Company. All Taxes that the
Company is or was required by law to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the proper
Governmental Entity.
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(i) For purposes of this Agreement, "Taxes" means all taxes, charges, fees,
levies or other similar assessments or liabilities, including without limitation
income, gross receipts, ad valorem, premium, value-added, excise, real property,
personal property, sales, use, transfer, withholding, employment, payroll and
franchise taxes imposed by the United States of America or any state, local or
foreign government, or any agency thereof, or other political subdivision of the
United States or any such government, and any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any tax or any contest or dispute thereof and any amounts of
Taxes of another person that the Company is liable to pay by law or otherwise.
The jurisdictions in which the Company has incurred Taxes in the past three (3)
years are set forth on Schedule 2.9(i).
(ii) For purposes of this Agreement, "Tax Returns" means all reports,
returns, declarations, statements or other information required to be supplied
to a taxing authority in connection with Taxes.
(iii) For purposes of determining the amount of Taxes attributable to a
specified period (e.g., the period from the date of the Most Recent Balance
Sheet through the Closing Date) other than a Tax Period, each Tax shall be
computed as if the specified period were a Tax Period. For purposes of this
sub-paragraph (iii), a Tax Period means a period for which a Tax is required to
be computed under applicable statutes and regulations.
(b) The Company has delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports and
statements of deficiencies assessed against or agreed to by any of the Company
since December 31, 1993. The federal income Tax Returns of the Company have not
been audited by the Internal Revenue Service. No examination or audit of any Tax
Returns of the Company by any Governmental Entity is, to the knowledge of the
Company, currently in progress or, threatened or contemplated. The Company has
not waived any statute of limitations with respect to taxes or agreed to an
extension of time with respect to a tax assessment or deficiency is currently in
effect with respect to Taxes of the Company.
(c) The Company is not a "consenting corporation" within the
meaning of Section 341(f) of the Code and none of the assets of the Company are
subject to an election under Section 341(f) of the Code. The Company has not
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(l)(A)(ii) of the Code. The Company is not a party to any Tax allocation
or sharing agreements.
(d) The Company is not and has never been a member of an
"affiliated group" (other than the common parent) of corporations (within the
meaning of Section 1504 of the Code).
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2.10 Assets.
(a) The Company has good and marketable title or has valid
leasehold interests to all its tangible assets. No asset of the Company
(tangible or intangible) is subject to any Security Interest.
(b) Subject to any reserves set forth in the Financial
Statements, the accounts receivable shown on the Financial Statements represent
and will represent bona fide claims against debtors for sales and other charges,
and are not subject to discount except for normal cash and immaterial trade
discounts. The amount carried for doubtful accounts and allowances disclosed in
the Financial Statements is sufficient to provide for any losses which may be
sustained on reevaluation of the receivables.
2.11 Owned Real Property. The Company does not own any real property.
2.12 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications for such patents, trademarks, trade
names, service marks and copyrights, and all patent rights, trade secrets,
schematics, technology, know-how, computer software programs or applications and
tangible or intangible proprietary information or material (collectively,
"Intellectual Property") that are used to conduct its business as currently
conducted. The Company has taken adequate measures to protect the proprietary
nature of each item of Intellectual Property, and to maintain in confidence all
trade secrets and confidential information that it owns or uses.
(i) Section 2.12(a)(i) of the Disclosure Schedule lists all patents
and patent applications and all trademarks, registered copyrights, trade
names and service marks owned by the Company and which are used in the
business of the Company, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
such application for such issuance or registration has been filed.
(ii) Section 2.12(a)(ii) of the Disclosure Schedule lists all written
licenses, sublicenses and other agreements to which the Company is a party
and pursuant to which any person is authorized to use any Intellectual
Property rights, except such non-material licenses, sublicenses or other
agreements with end-users that have been entered into in the Ordinary
Course of Business and grant non-exclusive rights to use a Company
products.
(iii) Section 2.12(a)(iii) of the Disclosure Schedule lists all
written licenses, sublicenses and other agreements as to which the Company
is a party and pursuant to which the Company is authorized to use any third
party patents, patent rights, trademarks, service marks, trade secrets or
copyrights, excluding non-material end-user licenses granted to the Company
in the Ordinary Course of Business that permit the use of software products
without a right to modify, distribute or sublicense the same, but including
software ("Third Party Intellectual Property Rights") which are used in the
business of the Company or which form a part of any existing product or
service of the Company, including, without limitation, the products in the
Stalker Series and WebStalker series.
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(iv) Section 2.12(a)(iv) of the Disclosure Schedule lists all written
agreements or other arrangements under which the Company has provided or
agreed to provide source code of any Company products to any third party,
except for software development kits provided to agent integration
providers.
The Company has made available to the Buyer correct and complete copies
of all such patents, registrations, applications, licenses, sublicenses and
agreements as amended to date. The Company is a not party to any oral license,
sublicense or agreement which, if reduced to written form, would be required to
be listed in Section 2.12 of the Disclosure Schedule under the terms of this
Section 2.12(a).
(b) With respect to each item of Intellectual Property that
the Company owns: (i) subject to such rights as have been granted by the Company
under license agreements entered into by the Company (copies of which have
previously been made available to the Buyer), the Company possesses all right,
title and interest in and to such item; and (ii) such item is not subject to any
outstanding judgment, order, decree, stipulation or injunction. With respect to
each item of Third Party Intellectual Property Rights: (i) the license,
sublicense or other agreement covering such item is legal, valid, binding,
enforceable and in full force and effect with respect to the Company party
thereto, and to the Company's knowledge is legal, valid, binding, enforceable
and in full force and effect with respect to each other party thereto; (ii) such
license, sublicense or other agreement will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
(iii) the Company is not in breach or default under, and to the Company's
knowledge no other party is in breach or default under, any such license or
other agreement and, to the Company's knowledge, no event has occurred which
with notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder; (iv) the underlying item
of Third Party Intellectual Property is not subject to any outstanding judgment,
order, decree, stipulation or injunction to which the Company is a party or has
been specifically named, nor to the Company's knowledge subject to any other
outstanding judgment, order, decree, stipulation, or injunction; and (v) no
license or other fee is payable upon any transfer or assignment of such license,
sublicense or other agreement.
(c) Except as set forth in Section 2.12(c) of the Disclosure
Schedule, the Company: (i) has not been named in any suit, action or proceeding
which involves a claim of infringement or misappropriation of any Intellectual
Property right of any third party; and (ii) has not received any written notice
alleging any such claim of infringement or misappropriation. The Company has
made available to the Buyer correct and complete copies of all such suits,
actions or proceedings or written notices to the extent the Company is not
prohibited from disclosing the same under applicable court orders. The
manufacturing, marketing, licensing or sale of the products or performance of
the service offerings of the Company do not currently infringe, and have not
within the five (5) years prior to the date of this Agreement infringed, any
Intellectual Property right of any third party; and to the knowledge of the
Company, the Intellectual Property rights of the Company are not being infringed
by activities, products or services of any third party.
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2.13 Real Property Leases. Section 2.13 of the Disclosure Schedule
lists all real property leased or subleased to the Company. The Company has
delivered to the Buyer correct and complete copies of the leases and subleases
(as amended to date) listed in Section 2.13 of the Disclosure Schedule. With
respect to each lease and sublease listed in Section 2.13 of the Disclosure
Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and in full
force and effect with respect to the Company and will continue to be so
following the Closing in accordance with the terms thereof as in effect prior to
the Closing;
(b) the Company is not in breach or default under any such lease or
sublease and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(c) there are no disputes, oral agreements or forbearance programs in
effect as to the lease or sublease; and
(d) the Company has not assigned, transferred, conveyed, mortgaged, deeded
in trust or encumbered any interest in the leasehold or subleasehold.
2.14 Contracts. Section 2.14 of the Disclosure Schedule lists the following
written arrangements to which the Company is a party:
(a) any written arrangement for the lease of personal property from or to
third parties providing for lease payments in excess of $15,000 per annum;
(b) any written arrangement for the licensing or distribution of software,
products or other personal property or for the furnishing or receipt of
services: (i) which calls for performance over a period of more than one year;
(ii) which involves more than the sum of $15,000; or (iii) in which the Company
has granted rights to license, sublicense or copy, "most favored nation" pricing
provisions or exclusive marketing or distribution rights relating to any
products or territory or has agreed to purchase a minimum quantity of goods or
services or has agreed to purchase goods or services exclusively from a certain
party;
(c) any written arrangement establishing a partnership or joint venture;
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(d) any written arrangement (or group of related written arrangements)
under which it has created, incurred, assumed, or guaranteed (or may create,
incur, assume, or guarantee) indebtedness (including capitalized lease
obligations) involving more than $15,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(e) any written arrangement concerning confidentiality or noncompetition;
(f) any written arrangement with any of the Company Stockholders or their
affiliates, as defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") ("Affiliates");
(g) any written arrangement under which the consequences of a default or
termination could have a material adverse effect on the assets, business,
financial condition, results of operations or future prospects of the Company;
(h) any other written arrangement including those not entered into in the
Ordinary Course of Business involving more than $15,000;
(i) other than arrangements pursuant to the Company's standard form
maintenance and/or support agreement, the form of which has been provided to the
Buyer, any written arrangement under which the Company provides maintenance or
support services to any third party with regard to the Company's products and
any written arrangement containing a commitment by the Company to provide
support for any such products for more than one year from the date of this
Agreement; and
(j) any written arrangement by which the Company agrees to make available
any Stalker series, WebStalker series or other product.
The Company has delivered to the Buyer a correct and complete copy of each
written arrangement (as amended to date) listed in Section 2.14 of the
Disclosure Schedule. With respect to each written arrangement so listed: (i) the
written arrangement is legal, valid, binding and enforceable and in full force
and effect with respect to the Company and, to the Company's knowledge the
written arrangement is legal, valid, binding and is enforceable and in full
force and effect with respect to each other party thereto, except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws effecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceedings therefor may be brought; (ii) the written arrangement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing and does not require the consent of any party to the
transactions contemplated hereby; and (iii) the Company is not in breach or
default, to the Company's knowledge, no other party thereto is in breach or
default, and no event has occurred which, with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration, under the written arrangement. The Company is not a party to any
oral contract, agreement or other arrangement which, if reduced to written form,
would be required to be listed in Section 2.14 of the Disclosure Schedule under
the terms of this Section 2.14.
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2.15 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
2.16 Insurance.
(a) Section 2.16 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company is a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past year. Section 2.16 of the Disclosure Schedule lists
each person or entity required to be listed as an additional insured under each
such policy. Each such policy is in full force and effect and will continue to
be in full force and effect following the Closing.
(b) The Company is not in breach or default (including with
respect to the payment of premiums or the giving of notices) under such policy,
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification or
acceleration, under such policy; and the Company has not received any notice
from the insurer disclaiming coverage or reserving rights with respect to a
particular claim or such policy in general. The Company has not incurred any
loss, damage, expense or liability covered by any such insurance policy for
which it has not properly asserted a claim under such policy. The Company is
covered by insurance in scope and amount customary and reasonable for the
businesses in which it is engaged.
2.17 Litigation.
(a) Section 2.17(a) of the Disclosure Schedule identifies, and
contains a description of: (i) any unsatisfied judgment, order, decree,
stipulation or injunction; and (ii) any claim, complaint, action, suit,
proceeding, hearing or investigation of or in any Governmental Entity or before
any arbitrator to which the Company, any officer, director, employee or agent of
the Company is or was (for the five (5) years prior to and including the date
hereof) a party or, to the knowledge of the Company, is threatened to be made a
party. Other than as set forth in Section 2.17(a) of the Disclosure Schedule,
none of the complaints, actions, suits, proceedings, hearings, and
investigations set forth in Section 2.17(a) of the Disclosure Schedule, if
determined adversely to the Company, could have a Material Adverse Effect on the
Company.
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(b) Section 2.17(b) of the Disclosure Schedule identifies any
agreement or other document or instrument settling any claim, complaint, action,
suit or other proceeding, or a threat of any such claim, complaint, action, suit
or other proceeding, against the Company that has arisen during the five (5)
year period prior to and including the date hereof.
2.18 Employees. Section 2.18 of the Disclosure Schedule contains a list
of all employees of the Company, along with the position and the annual rate of
compensation of each such person. Each such employee has entered into a
confidentiality/assignment of inventions agreement with the Company, a copy of
which has previously been delivered to the Buyer. To the Company's knowledge, no
key employee or group of employees has any plans to terminate employment with
the Company. The Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, grievances, claims of unfair
labor practices or other collective bargaining disputes. The Company has no
knowledge of any organizational effort made or threatened, either currently or
within the past two years, by or on behalf of any labor union with respect to
employees of the Company. To the Company's knowledge, the Company is in
compliance in all material respects with all currently applicable laws and
regulations respecting discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety, and is not engaged in any
unfair labor practice. There are no pending claims against the Company under any
workers compensation plan or policy or for long term disability. The Company has
no material obligations under COBRA with respect to any former employees or
beneficiaries thereunder. There are no proceedings pending or, to the knowledge
of the Company, threatened, between the Company and its employees, which
proceedings have or could reasonably be expected to have a Material Adverse
Effect on the Company. In addition, the Company has provided all employees with
all relocation benefits, stock options, bonuses and incentives, and all other
compensation that such employee has earned up through the date of this Agreement
or that such employee was otherwise promised in their employment agreements with
the Company.
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2.19 Employee Benefits.
(a) Section 2.19(a) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans (as defined below)
maintained, or contributed to, by the Company, or any ERISA Affiliate (as
defined below). For purposes of this Agreement, "Employee Benefit Plan" means
any "employee pension benefit plan" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any other
written or oral plan, agreement or arrangement involving direct or indirect
compensation, including without limitation, insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses, stock options,
stock purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation. For purposes of this Agreement,
"ERISA Affiliate" means any entity which is a member of: (i) a controlled group
of corporations (as defined in Section 414(b) of the Code); (ii) a group of
trades or businesses under common control (as defined in Section 414(c) of the
Code); or (iii) an affiliated service group (as defined under Section 414(m) of
the Code or the regulations under Section 414(o) of the Code), any of which
includes the Company. Complete and accurate copies of: (i) all Employee Benefit
Plans which have been reduced to writing; (ii) written summaries of all
unwritten Employee Benefit Plans; (iii) all related trust agreements, insurance
contracts and summary plan descriptions; and (iv) all annual reports filed on
IRS Form 5500, 5500C or 5500R for the last [three] plan years for each Employee
Benefit Plan, have been delivered to the Buyer. Each Employee Benefit Plan has
been administered in all material respects in accordance with its terms and each
of the Company and the ERISA Affiliates has met its obligations with respect to
such Employee Benefit Plan and has made all required contributions thereto. The
Company and all Employee Benefit Plans are in compliance in all material
respects with the currently applicable provisions of ERISA and the Code and the
regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any liability.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost.
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(d) Neither the Company nor any ERISA Affiliate has ever
maintained an Employee Benefit Plan subject to Section 412 of the Code or Title
IV of ERISA.
(e) At no time has the Company or any ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Company (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980B of
the Code and insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists
with respect to any Employee Benefit Plan maintained by the Company or any ERISA
Affiliate that would subject the Company or any ERISA Affiliate to any fine,
penalty, tax or liability of any kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Section 2.19(j) of the Disclosure Schedule discloses each:
(i) agreement with any director, executive officer or other key employee of the
Company (A) the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of a transaction involving the Company of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation guarantee or (C) providing severance
benefits or other benefits after the termination of employment of such director,
executive officer or key employee; (ii) agreement, plan or arrangement under
which any person may receive payments from the Company that may be subject to
the tax imposed by Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Company, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
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2.20 Environmental Matters.
(a) The Company has complied with all applicable Environmental
Laws (as defined below). There is no pending or threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity,
relating to any Environmental Law involving the Company. For purposes of this
Agreement, "Environmental Law" means any federal, state or local law, statute,
rule or regulation or the common law relating to the environment or occupational
health and safety, including without limitation any statute, regulation or order
pertaining to: (i) treatment, storage, disposal, generation and transportation
of industrial, toxic or hazardous substances or solid or hazardous waste; (ii)
air, water and noise pollution; (iii) groundwater and soil contamination; (iv)
the release or threatened release into the environment of industrial, toxic or
hazardous substances, or solid or hazardous waste, including without limitation
emissions, discharges, injections, spills, escapes or dumping of pollutants,
contaminants or chemicals; (v) the protection of wild life, marine sanctuaries
and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels and containers; (vii) underground and other
storage tanks or vessels, abandoned, disposed or discarded barrels, containers
and other closed receptacles; (viii) health and safety of employees and other
persons; and (ix) manufacture, processing, use, distribution, treatment,
storage, disposal, transportation or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or oil or petroleum
products or solid or hazardous waste. As used above, the terms "release" and
"environment" shall have the meaning set forth in the federal Comprehensive
Environmental Compensation, Liability and Response Act of 1980 ("CERCLA").
(b) There have been no releases of any Materials of
Environmental Concern (as defined below) into the environment at any parcel of
real property or any facility when leased, operated or controlled by the Company
or a Subsidiary. The Company is not aware of any other releases of Materials of
Environmental Concern that could reasonably be expected to have an impact on the
real property or facilities owned, operated or controlled by the Company or a
Subsidiary. For purposes of this Agreement, "Materials of Environmental Concern"
means any chemicals, pollutants or contaminants, hazardous substances (as such
term is defined under CERCLA), solid wastes and hazardous wastes (as such terms
are defined under the federal Resources Conservation and Recovery Act), toxic
materials, oil or petroleum and petroleum products, or any other material
subject to regulation under any Environmental Law.
(c) Set forth in Section 2.20(c) of the Disclosure Schedule is
a list of all environmental reports, investigations and audits relating to
premises currently or previously leased or operated by the Company (whether
conducted by or on behalf of the Company or a third party, and whether done at
the initiative of the Company or directed by a Governmental Entity or other
third party) which were issued or conducted during the past five years and which
the Company has possession of or access to. Complete and accurate copies of each
such report, or the results of each such investigation or audit, have been
provided to the Buyer.
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2.21 Legal Compliance; Restrictions on Business Activities. The Company
and the conduct and operations of its business are in compliance with each law
(including rules and regulations thereunder) of any federal, state, local or
foreign government, or any Governmental Entity, which (a) affects or relates to
this Agreement or the transactions contemplated hereby or (b) is applicable to
the Company or business, except for any violation of or default under a law
referred to in clause (b) above which may reasonably be expected not to have a
Material Adverse Effect on the Company. There is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of the Company , any acquisition of
property of the Company or the conduct of business by the Company as currently
conducted.
2.22 Permits. The Company possesses all material consents, licenses,
permits, grants or other authorizations issued to the Company by a Governmental
Entity: (a) pursuant to which the Company currently operates or holds any
interest in any of its properties; or (b) which is required for the operation of
its business or the holding of any such interest (collectively, the "Permits"),
which Permits are in full force and effect and constitute all Permits required
to permit the Company to operate or conduct its business or hold any interest in
its property or assets.
2.23 Certain Business Relationships With Affiliates. No Affiliate
of the Company: (a) owns any property or right, tangible or intangible, which
is used in the business of the Company; (b) has any claim or cause of action
against the Company; or (c) owes any money to the Company. Section 2.23 of the
Disclosure Schedule describes any transactions or relationships between the
Company and any Affiliate thereof which are reflected in the statements of
operations of the Company included in the Financial Statements.
2.24 Fees. Except as disclosed in Section 2.24 of the Disclosure
Schedule, the Company has no liability or obligation to pay any fees or
commissions to any broker, investment banking firm, finder or agent with respect
to the transactions contemplated by this Agreement.
2.25 Books and Records. The minute books and other similar records of
the Company contain true and complete records of all actions taken at any
meetings of the Company's stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company accurately reflect in all material
respects the assets, liabilities, business, financial condition and results of
operations of the Company and have been maintained in accordance with good
business and bookkeeping practices.
2.26 Company Action. The Board of Directors of the Company, at a
meeting duly called and held, has by the unanimous vote of all directors: (a)
determined that the Merger is fair and in the best interests of the Company and
its stockholders; (b) adopted this Agreement in accordance with the provisions
of the DGCL; and (c) directed that this Agreement and the Merger be submitted to
the Company Stockholders for their adoption and approval and resolved to
recommend that Company Stockholders vote in favor of the adoption of this
Agreement and the approval of the Merger.
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2.27 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 5% of the Company's gross revenues during
the 12 month period preceding the date hereof and no supplier or the Company has
canceled or otherwise terminated, or, to the Company's knowledge, made any
written threat to the Company to cancel or otherwise terminate its relationship
with the Company or has at any time on or after August 31, 1997, decreased
materially its services or supplies to the Company in the case of any such
supplier, or its usage of these services or products of the Company in the case
of such customer, and to the Company's knowledge, no supplier or customer has
indicated either orally or in writing that it will cancel or otherwise terminate
its relationship with the Company or to decrease materially its services or
supplies to the Company or its usage of the services or products of the Company,
as the case may be. The Company has not knowingly breached, so as to provide a
benefit to the Company that was not intended by the parties, any agreement with,
or engaged in any fraudulent conduct with respect to, any customer or supplier
of the Company.
2.28 Pooling of Interests. Neither the Company nor to the knowledge of
the Company, any of its directors, officers or Company Stockholders, has taken
any action which would interfere with the Buyer's ability to account for the
Merger as a pooling of interests.
2.29 Disclosure. No representation or warranty by the Company contained
in this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered to or to be delivered
by or on behalf of the Company pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
The Company has disclosed to the Buyer all material adverse information relating
to the business of the Company or the transactions contemplated by this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE MERGER SUB
Each of the Buyer and the Merger Sub represents and warrants to the
Company as follows:
3.1 Organization. Each of the Buyer and the Merger Sub is a corporation
duly organized, validly existing and in corporate and tax good standing under
the laws of the State of Delaware. The Buyer is duly qualified to conduct
business and is in corporate and tax good standing under the laws of Delaware
and in each other jurisdiction in which the failure to be so qualified would
have a material adverse effect on the Buyer. The Buyer has the corporate power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Buyer has furnished or made
available to the Company true and complete copies of its Certificate of
Incorporation and By-laws, each as amended and as in effect on the date hereof
(hereinafter the "Buyer Charter" and the "Buyer By-laws," respectively). The
Buyer is not in default under or in violation of any provision of its Charter or
By-laws, each as amended to date.
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3.2 Capitalization. The authorized capital stock of the Buyer consists of
Five Million (5,000,000) shares of undesignated preferred stock, of which no
shares were issued and outstanding as of August 31, 1997, and Forty Million
(40,000,000) shares of Buyer Common Stock, of which 11,611,851 shares were
issued and outstanding and no shares were held in the treasury of the Buyer as
of July 31, 1997. All of the issued and outstanding shares of Buyer Common Stock
are duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. All of the Merger Shares will be, when issued in accordance
with this Agreement, duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the Merger Sub has
all corporate requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement and the performance of this Agreement and the
consummation of the transactions contemplated hereby and thereby by the Buyer
and the Merger Sub have been duly and validly authorized by all necessary
corporate action on the part of the Buyer and Merger Sub. This Agreement has
been duly and validly executed and delivered by the Buyer and the Merger Sub
and, assuming the due authorization, execution and delivery by the Company,
constitutes a valid and binding obligation of the Buyer and the Merger Sub,
enforceable against them in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
DGCL, neither the execution and delivery of this Agreement, nor the consummation
by the Buyer or the Merger Sub of the transactions contemplated hereby or
thereby, will: (a) conflict or violate any provision of the Buyer Charter or the
Buyer By-laws or the Charter or By-Laws of the Merger Sub; (b) require on the
part of the Buyer or the Merger Sub any filing with, or permit, authorization,
consent or approval of, any Governmental Entity; (c) conflict with, result in
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which the Buyer or
Merger Sub is a party or by which either is bound or to which any of their
assets are subject; or (d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Buyer or the Merger Sub or any of their
properties or assets.
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3.5 Reports and Financial Statements. The Buyer has previously furnished or
made available to the Company complete and accurate copies, as amended or
supplemented, all other reports filed by the Buyer under Section 13 of the
Exchange Act with the Securities and Exchange Commission ("SEC") since the
quarter ended September 27, 1996 (such reports are collectively referred to
herein as the "Buyer Reports"). The Buyer Reports constitute all of the
documents required to be filed by the Buyer under Section 13 of the Exchange Act
with the SEC since such date. As of their respective dates, the Buyer Reports
complied in all material respects with applicable SEC and Nasdaq requirements
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 to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited financial statements and unaudited interim financial
statements of the Buyer included in the Buyer Reports: (a) comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto; (b) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act); (c) fairly present the consolidated financial condition,
results of operations and cash flows of the Buyer as of the respective dates
thereof and for the periods referred to therein; and (d) are consistent with the
books and records of the Buyer.
3.6 Absence of Material Adverse Changes. Since August 31, 1997, there has
not been any material adverse change in the assets, business, financial
condition or results of operations of the Buyer, nor has there occurred any
event or development that could reasonably be foreseen to result in such a
material adverse change in the future.
3.7 Brokers' Fees. Neither the Buyer nor the Merger Sub has any liability
or obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement except to The Updata
Group, Inc.
3.8 Disclosure. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in any document, certificate or other
instrument delivered to or to be delivered by or on behalf of the Buyer pursuant
to this Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading. The Buyer has disclosed to the
Company all material adverse information relating to the business of the Buyer
or the transactions contemplated by this Agreement.
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3.9 Undisclosed Liabilities. (a) The Buyer has no liability, whether
liquidated or unliquidated and whether due or to become due), except for
liabilities accrued or reserved against unaudited consolidated balance sheet of
the Company as of June 27, 1997; (b) liabilities which have arisen since June
27, 1997, in the Ordinary Course of Business and which are similar in nature and
amount to the liabilities which arose during the comparable period of time in
the immediately preceding fiscal period; and (c) contractual or statutory
liabilities incurred in the Ordinary Course of Business which are consistent
with past practice and are not required by GAAP to be reflected on a balance
sheet.
3.10 Taxes. The Buyer has filed all material Tax Returns that it was
required to file and all such Tax Returns were correct and complete in all
material respects. The accrued but unpaid Taxes of the Buyer for tax periods
through the date of the June 27, 1997, balance sheet do not exceed the accruals
and reserves for Taxes set forth on such balance sheet. All Taxes attributable
to the period January 1, 1997, through June 27, 1997, are attributable to the
conduct by the Buyer of its operations in the Ordinary Course of Business or to
the transactions contemplated by this Agreement. The Buyer has no actual or
potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Buyer during a prior period) other than the Buyer. All Taxes that the Buyer
is or was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Entity.
3.11 Intellectual Property.
(a) The Buyer owns, or is licensed or otherwise possesses
legally enforceable rights to use, all Intellectual Property that are used to
conduct its business as currently conducted. The Buyer has taken adequate
measures to protect the proprietary nature of each item of Intellectual
Property, and to maintain in confidence all trade secrets and confidential
information that it owns or uses.
(b) With respect to each item of Intellectual Property that
the Buyer owns: (i) subject to such rights as have been granted by the Buyer
under license agreements entered into by the Buyer, the Buyer possesses all
right, title and interest in and to such item; and (ii) such item is not subject
to any outstanding judgment, order, decree, stipulation or injunction. With
respect to each item of Third Party Intellectual Property Rights: (i) the
license, sublicense or other agreement covering such item is legal, valid,
binding, enforceable and in full force and effect with respect to the Buyer
party thereto, and to the Buyer's knowledge is legal, valid, binding,
enforceable and in full force and effect with respect to each other party
thereto; (ii) such license, sublicense or other agreement will continue to be
legal, valid, binding, enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect prior to
the Closing; (iii) the Buyer is not in breach or default under, and to the
Buyer's knowledge no other party is in breach or default under, any such license
or other agreement and, to the Buyer's knowledge, no event has occurred which
with notice or lapse of time would constitute a breach or default or permit
termination, modification or acceleration thereunder; (iv) the underlying item
of Third Party Intellectual Property is not subject to any outstanding judgment,
order, decree, stipulation or injunction to which the Buyer is a party or has
been specifically named, nor to the Buyer's knowledge subject to any other
outstanding judgment, order, decree, stipulation, or injunction; and (v) no
license or other fee is payable upon any transfer or assignment of such license,
sublicense or other agreement.
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3.12 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any court,
tribunal or Governmental Entity or, to the Buyer's knowledge, threatened against
the Buyer or any of its officers, directors, employees or agents (in their
capacities as such) that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Buyer. There is no judgment,
decree or order against the Buyer or, to the Buyer's knowledge, any of its
officers, directors, employees or agents (in their capacities as such) that
could prevent, enjoin or materially alter or delay any of the transactions
contemplated by this Agreement or that could reasonably be expected to have a
Material Adverse Effect on the Buyer.
3.13 Employee Benefits.
(a) The Buyer and all its Employee Benefit Plans are in
compliance in all material respects with the currently applicable provisions of
ERISA and the Code and the regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Buyer's Employee Benefit Plans and proceedings with
respect to qualified domestic relations orders), suits or proceedings against or
involving any of Buyer's Employee Benefit Plan or asserting any rights or claims
to benefits under any of Buyer's Employee Benefit Plan that could give rise to
any liability.
(c) All of Buyer's Employee Benefit Plans that are intended to
be qualified under Section 401(a) of the Code have received determination
letters from the Internal Revenue Service to the effect that such Employee
Benefit Plans are qualified and the plans and the trusts related thereto are
exempt from federal income taxes under Sections 401(a) and 501(a), respectively,
of the Code, no such determination letter has been revoked and revocation has
not been threatened, and no such Employee Benefit Plan has been amended since
the date of its most recent determination letter or application therefor in any
respect, and no act or omission has occurred, that would adversely affect its
qualification or materially increase its cost.
(d) Neither the Buyer nor any ERISA Affiliate has ever
maintained an Employee Benefit Plan subject to Section 412 of the Code or Title
IV of ERISA.
(e) At no time has the Buyer or any ERISA Affiliate been
obligated to contribute to any "multi-employer plan" (as defined in Section
4001(a)(3) of ERISA).
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(f) There are no unfunded obligations under any Employee
Benefit Plan providing benefits after termination of employment to any employee
of the Buyer (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under Section 4980B of
the Code and insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists
with respect to any Employee Benefit Plan maintained by the Buyer or any ERISA
Affiliate that would subject the Buyer or any ERISA Affiliate to any fine,
penalty, tax or liability of any kind imposed under ERISA or the Code.
(h) No Buyer Employee Benefit Plan is funded by, associated
with, or related to a "voluntary employee's beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(i) No Buyer Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits the Buyer from amending or
terminating any such Employee Benefit Plan.
ARTICLE IV
COVENANTS
4.1 Best Efforts. Each of the Parties shall use its best efforts to take
all actions and to do all things necessary, proper or advisable to consummate
the transactions contemplated by this Agreement.
4.2 Notices and Consents. Each of the Buyer, the Merger Sub and the Company
shall use its respective best efforts to obtain, at its expense, all such
waivers, permits, consents, approvals or other authorizations from third parties
and Governmental Entities, and to effect all such registrations, filings and
notices with or to third parties and Governmental Entities, as may be required
by or with respect to the Buyer, the Merger Sub or the Company, respectively, in
connection with the transactions contemplated by this Agreement (including
without limitation, with respect to the Company, those listed in Section 2.4 or
Section 2.22 of the Disclosure Schedule).
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4.3 Special Meeting.
(a) The Company shall call a special meeting of Company
Stockholders to be held to vote in favor of the adoption of this Agreement and
the approval of the Merger ("the Company Special Meeting") in accordance with
the DGCL and shall solicit proxies from its stockholders to vote in favor of the
adoption of this Agreement and the approval of the Merger at the Company Special
Meeting. In lieu of the Company calling a Special Meeting of the Company
Stockholders, the Company may circulate for execution a written consent of
stockholders in lieu of special meeting; provided, however, that the Company
shall obtain the consent of the holders of no fewer than 90% the outstanding
shares of Common Stock and Preferred Stock entitled to vote on the Merger.
(b) The Company shall comply with all applicable provisions of
the DGCL in the preparation, filing and distribution of any proxy materials, the
solicitation of proxies thereunder, and the calling and holding of the Company
Special Meeting. Without limiting the foregoing, the Company shall ensure that
the proxy materials do not, as of the date on which it is distributed to Company
Stockholders, and as of the date of the Company Special Meeting, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading (provided that the Company shall only be
responsible for the accuracy and completeness of information relating to the
Company or furnished by the Company in writing for inclusion in any such proxy
materials).
(c) The Buyer shall comply with all applicable provisions of
and rules under the Securities Act and the Exchange Act and state securities
laws in the offering and issuance of the Merger Shares. As soon as commercially
practicable after the Closing but not later than one month after the Closing
Date, the Buyer shall prepare and file with the SEC a Registration Statement on
Form S-3 (the "Registration Statement") with respect to the sale of the Merger
Shares by the Company Stockholders. The Buyer shall take all reasonable steps
necessary to ensure that the Registration Statement does not, as of its
effective date, contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading (provided that the Buyer shall not be
responsible for the accuracy and completeness of information relating to the
Company, any other information furnished by the Company in writing for inclusion
in the Registration Statement, or the Company Stockholders). The Buyer shall
keep the Registration Statement effective for a period of one year after the
Closing Date.
(d) The Company, acting through its Board of Directors, shall
include in any proxy materials the recommendation of its Board of Directors that
the Company Stockholders vote in favor of the adoption of this Agreement and the
approval of the Merger, and shall otherwise use its best efforts to obtain the
Requisite Stockholder Approval.
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4.4 Securities Laws.
(a) Prior to the Closing, the Company shall not take any
action, including the granting of employee stock options, that would cause the
number of Company Stockholders who are not "accredited investors" pursuant to
Regulation D promulgated under the Securities Act to increase to more than 35
during the term of this Agreement or that would cause any person who does not
meet the standards of Regulation D required for "purchasers" under Regulation D
to become a stockholder or option holder.
(b) The Buyer shall take all steps necessary to comply with
the securities and blue sky laws of all jurisdictions which are applicable to
the issuance of the Buyer Common Stock in connection with the Merger. The
Company shall use its best efforts to assist the Buyer as may be necessary to
comply with such securities and blue sky laws.
4.5 Operation of Business. Except as contemplated by this Agreement and
except as set forth on Schedule 2.7, during the period from the date of this
Agreement to the Effective Time, the Company shall conduct its operations in the
Ordinary Course of Business and in compliance with all applicable laws and
regulations and, to the extent consistent therewith, use all reasonable efforts
to preserve intact its current business organization, keep its physical assets
in good working condition, keep available the services of its current officers
and employees and preserve its relationships with customers, suppliers and
others having business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect. Without limiting the
generality of the foregoing, prior to the Effective Time, the Company shall not,
without the written consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) or authorize the issuance, sale
or delivery of, or redeem or repurchase, any stock of any class or any other
securities or any rights, warrants or options to acquire any such stock or other
securities (except pursuant to the conversion or exercise of convertible
securities, Options or Warrants outstanding on the date hereof), or amend any of
the terms of any such convertible securities, Options or Warrants;
(b) split, combine or reclassify any shares of its capital stock; declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock;
(c) except in the Ordinary Course of Business, create, incur or assume any
debt not currently outstanding (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to, or
investments in, any other person or entity;
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(d) enter into, adopt or amend any Employee Benefit Plan or any employment
or severance agreement or arrangement of the type described in Section 2.19(j)
or increase in any manner the compensation or fringe benefits of, or modify the
employment terms of, its directors, officers or employees, generally or
individually, except in the Ordinary Course of Business and consistent with past
practices, or pay any benefit not required by the terms in effect on the date
hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any assets or property
(including without limitation any shares or other equity interests in or
securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) amend the Company Charter or the Company By-laws, except as required by
this Agreement;
(g) change in any material respect its accounting methods, principles or
practices, except insofar as may be required by a generally applicable change in
GAAP;
(h) discharge or satisfy any Security Interest or pay any obligation or
liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any such
assets to any Security Interest;
(j) sell, assign, transfer or license any Intellectual Property, other than
in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive, release or assign
any rights under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of $10,000 per
item;
(m) take any action or fail to take any action permitted by this Agreement
with the knowledge that such action or failure to take action would result in
(i) any of the representations and warranties of the Company set forth in this
Agreement becoming untrue or (ii) any of the conditions to the Merger set forth
in Article V not being satisfied;
(n) hire, terminate or discharge any employee or engage any consultant,
provided, however, that any employee or consultant may terminate his or her
relationship with the Company;
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(o) take any action, which would interfere with the Buyer's ability to
account for the Merger as a pooling of interests; or
(p) agree in writing or otherwise to take any of the foregoing actions.
4.6 Full Access. The Company shall permit representatives of the Buyer to
have full access (at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company) to all premises,
properties, financial and accounting records, contracts, other records and
documents, and personnel, of or pertaining to the Company, subject to compliance
with applicable confidentiality obligations and requirements of the Company.
4.7 Notice of Breaches. The Company shall promptly deliver to the Buyer
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Disclosure Schedule) inaccurate or incomplete in any material respect, or (b)
constitute or result in a material breach by the Company or any of its
Affiliates of, or a failure by the Company or any of its Affiliates to comply
with, any agreement or covenant in this Agreement applicable to such party. The
Buyer or the Merger Sub shall promptly deliver to the Company written notice of
any event or development that would (i) render any statement, representation or
warranty of the Buyer or the Merger Sub in this Agreement inaccurate or
incomplete in any material respect, or (ii) constitute or result in a breach by
the Buyer or the Merger Sub of, or a failure by the Buyer or the Merger Sub to
comply with, any agreement or covenant in this Agreement applicable to such
party. No such disclosure shall be deemed to avoid or cure any such
misrepresentation or breach.
4.8 Exclusivity. The Company shall not, and the Company shall use its best
efforts to cause its Affiliates and each of its officers, directors, employees,
representatives and agents not to, directly or indirectly, except to the extent
required by fiduciary obligations under applicable law, (a) solicit, initiate,
engage or participate in or knowingly encourage discussions or negotiations with
any person or entity (other than the Buyer) concerning any merger,
consolidation, sale of material assets, tender offer, recapitalization,
accumulation of Company Shares, proxy solicitation or other business combination
involving the Company or any division of the Company or (b) provide any
non-public information concerning the business, properties or assets of the
Company to any person or entity (other than the Buyer). The Company shall
immediately notify the Buyer of, and shall disclose to the Buyer all details of,
any material inquiries, discussions or negotiations of the nature described in
the first sentence of this Section 4.8.
4.9 Agreements From Certain Affiliates of the Company.
(a) Schedule 4.9 sets forth a list of all persons or entities
who are at such time Affiliates of the Company (the "Company Affiliates"). The
Company shall provide the Buyer such information and documents as the Buyer
shall reasonably request for purposes of reviewing such list. The Company shall
use its best efforts or cause to be delivered to the Buyer, concurrently with
the execution of this Agreement (and in each case prior to the Effective Time),
from each of the Company Affiliates an executed Affiliate Agreement in the form
attached hereto as Exhibit B (the "Affiliate Agreements"). The Buyer and Merger
Sub shall be entitled to place appropriate legends on the certificates
evidencing any Buyer Common Stock to be received by the Company Affiliates
pursuant to the terms of this Agreement and to issue appropriate stock transfer
instructions to the transfer agent for Buyer Common Stock, consistent with the
terms of such Affiliate Agreement.
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(b) The Company shall use its best efforts, on behalf of the
Buyer and pursuant to the request of the Buyer, to cause holders of more than
90% of the sum of: (i) all shares of Company Common Stock issued and
outstanding; (ii) all shares of the Company's Series A Convertible Preferred
Stock issued and outstanding; and (iii) all shares of the Company's Series B
Convertible Preferred Stock issued and outstanding to execute and deliver to the
Buyer the Target Stockholder Agreements substantially in the form of Exhibit C
hereto (the "Stockholder Agreements") concurrently with the execution of the
Agreement if such holders have not otherwise executed an Affiliate Agreement.
4.10 Listing of Merger Shares. As soon as reasonably practicable after the
Closing, the Buyer shall use its best efforts to list the Merger Shares on the
Nasdaq National Market.
4.11 Confidentiality. Each of the parties hereto agrees that it shall, and
shall cause its subsidiaries and the officers, employees and authorized
representatives of each of them to, hold in strict confidence all data and
information obtained by them from the other parties hereto (unless such
information is or becomes readily ascertainable from public or published
information) and shall not, and shall use its best efforts to ensure that such
subsidiaries, directors, officers, employees and authorized representatives do
not, disclose such information to others without the prior written consent of
the party from which such data or information was obtained, except as required
by law after consultation with counsel (provided that any such party shall
consult with the other party prior to making such disclosure). In the event of
the termination of this Agreement, each of the parties will return or destroy
all documents, work papers and other materials (including all copies made
thereof) obtained pursuant hereto.
4.12 Piggy-Back Registration Rights.
(a) Whenever the Buyer proposes to file a registration
statement at any time and from time to time, it will, prior to such filing, give
written notice to all of the Company Stockholders of its intention to do so and,
upon the written request of a Company Stockholder (or Company Stockholders)
holding Merger Shares given within twenty (20) days after the Buyer provides
such notice (which request shall state the intended method of disposition of
such Merger Shares), the Buyer shall use its best efforts to cause all Merger
Shares (including any and all shares of the Buyer's Common Stock issued in
respect of the Merger Share because of a stock split, stock dividend or like
event) that the Buyer has been requested by such Company Stockholder (or Company
Stockholders) to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such Company
Stockholder or Company Stockholders; provided that the Buyer shall have the
right to postpone or withdraw any registration effected pursuant to this Section
4.12 without obligation to any Company Stockholder.
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(b) In connection with any offering under this Section 4.12
involving an underwriting, the Buyer shall not be required to include any Merger
Shares in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between the Buyer and the underwriters selected by
it, and then only in such quantity as will not, in the opinion of the
underwriters, jeopardize the success of the offering by the Buyer. If in the
opinion of the managing underwriter the registration of all, or part of, the
Merger Shares which the holders have requested to be included would materially
and adversely affect such public offering, then, then the holders of Merger
Shares who have requested registration and other holders of shares of Buyer
Common Stock entitled to include shares of Buyer Common Stock in such
registration shall participate in the underwriting pro rata based upon the
number of shares each such holder is entitled to include in such underwriting;
provided, however, that if the Buyer is issuing and selling shares of its Common
Stock in such offering, no reduction will occur in the number of shares that the
Buyer is seeking to issue and sell shall occur until the number of shares of the
Buyer Common Stock to be included in the offering by the foregoing individuals
has been reduced to zero.
4.13 Pooling Accounting. The Buyer and the Company shall each use
reasonable commercial efforts to cause the business combination to be effected
by the Merger to be accounted for as a pooling of interests. Each of the Company
and the Buyer shall use its best efforts to cause its respective Affiliates not
to take any action that would adversely affect the ability of the Buyer to
account of the business combination to be effected by the Merger as a pooling of
interests.
4.14 Escrow Agreement. On or before the Effective Time, the Escrow Agent
and the Stockholders' Agent (as defined in Article VII hereto) will execute the
Escrow Agreement contemplated by Article VII in the form attached hereto as
Exhibit D (the "Escrow Agreement").
4.15 [Intentionally omitted.]
4.16 Reorganization. The Buyer and the Company shall each use its best
efforts to cause the business combination to be effected by the Merger to be
qualified as a "reorganization" described in Section 368(a) of the Code.
4.17 Best Efforts and Further Assurances. Each of the Parties shall use
best efforts to effectuate the transactions contemplated hereby and to fill and
cause to be fulfilled the conditions to Closing under this Agreement. Each
Party, at the reasonable request of another Party, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
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4.18 Payments by Buyer at Closing.
(a) Company Bridge Loans. The Buyer agrees to provide the
Company with the necessary funds to pay in full, and thereafter cause the
Company to pay in full, immediately following the Closing, all amounts
(including principal and any interest, late fees or penalties accrued as of the
date of the Closing) owed by the Company under those certain notes held by
Imperial Bank, Venrock Associates and Venrock Associates II, L.P. as listed on
Schedule 4.18(a).
(b) Transaction Costs. The Buyer agrees to pay, at the
Closing, all of the Transaction Costs of the Company, other than the Transition
Costs, up to the amount of $1,000,000. At least three (3) days prior to the
Closing, the Company shall deliver to the Buyer a schedule of the Company's
actual Transaction Costs (the "Transaction Cost Schedule"). At the Closing, the
Buyer shall deliver checks payable to the parties listed on the Transaction Cost
Schedule. The Buyer will have no responsibility for payment of any of the
Company's Transaction Costs in excess of $1,000,000.
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ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Stockholder Approval by the Company Stockholders;
(b) the Buyer and the Company shall be satisfied that the issuances of
Buyer Common Stock in the transaction shall be exempt under Section 4(2) of the
Securities Act;
(c) no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger or
limiting or restricting the Buyer's conduct or operation of the business of the
Buyer or the Surviving Corporation after the Merger shall have been issued, nor
shall any proceeding brought by any Governmental Entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal;
(d) the Buyer shall have received all permits and other authorizations
required under applicable state securities laws for the issuance of the Merger
Shares;
(e) the Company, the Buyer, the Escrow Agent and the Stockholders' Agent
(as defined in Article VII hereto) shall have entered into the Escrow Agreement;
and
(f) the Buyer and the Company shall each have received the written opinion
of their respective counsel in form reasonably satisfactory to each of the
opposing counsel to the effect that the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code. In preparing the tax opinions, counsel may rely on reasonable
assumptions and may also rely on (and to the extent reasonably required, the
parties and Company Stockholders shall make) reasonable representations related
thereto.
5.2 Conditions to Obligations of the Buyer and the Merger Sub. The
obligation of each of the Buyer and the Merger Sub to consummate the Merger is
subject to the satisfaction of the following additional conditions:
(a) the Agreement and the Merger shall have been approved and adopted with
the Requisite Stockholder Approval and the number of Dissenting Shares shall not
exceed 10% of the number of outstanding Company Shares as of the Effective Time;
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(b) the Company shall have obtained all of the waivers, permits, consents,
approvals or other authorizations, and effected all of the registrations,
filings and notices, referred to in Section 4.2, except for any which if not
obtained or effected would not have a material adverse effect on the assets,
business, financial condition, results of operations or future prospects of the
Company or on the ability of the Parties to consummate the transactions
contemplated by this Agreement;
(c) the representations and warranties of the Company set forth in Article
II shall be true and correct when made on the date hereof and shall be true and
correct in all material respects as of the Effective Time as if made as of the
Effective Time, except for representations and warranties made as of a specific
date, which shall be true and correct as of such date;
(d) the Company shall have performed or complied with in all material
respects its agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Effective Time;
(e) the Company shall have delivered to the Buyer and the Merger Sub a
certificate (without qualification as to knowledge or materiality or otherwise)
to the effect that each of the conditions specified in clauses (a), (b) and (c)
(to the extent the Company is a party or is named therein) of Section 5.1 and
clauses (a) through (d) of this Section 5.2 is satisfied in all respects;
(f) the Buyer and the Merger Sub shall have received from Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, counsel to the Company, an opinion
substantially in the form set forth as Exhibit E attached hereto, addressed to
the Buyer and the Merger Sub and dated as of the Closing Date;
(g) the Buyer and the Merger Sub shall have received the resignations,
effective as of the Effective Time, of each director of the Company;
(h) (i) all of the employees identified on Schedule 2.18 hereof are
available for continued employment (subject to the parties' mutual agreement as
to salary and option levels) and (ii) the Company Affiliates shall have executed
and delivered non-disclosure developments and non-competition agreements to the
Buyer in substantially the form of Exhibit F attached hereto or others
reasonably acceptable to the Buyer;
(i) each Company Affiliate shall have executed and delivered an Affiliate
Agreement and each Company Stockholder who is not a Company Affiliate shall have
executed and delivered a Stockholder Agreement;
(j) the Buyer shall have received a written memorandum from Ernst & Young,
LLP, dated as of the Closing Date, stating that the Merger will qualify as a
"pooling of interests" transaction under Accounting Principles Board Opinion No.
16 and applicable SEC regulations, if the Merger is consummated in accordance
with this Agreement;
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(k) all actions to be taken by the Company in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Buyer and the Merger Sub; and
(l) there shall not have occurred any material adverse change in the
official condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of the Company, the
Company's Transaction Costs shall not have exceeded $1,000,000 and the Company
shall have a net worth (assets less liabilities) of at least $74,000 and a
non-negative balance of cash and cash equivalents.
5.3 Conditions to Obligations of the Company. The obligation of the Company
to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the representations and warranties of the Buyer and the
Merger Sub set forth in Article III shall be true and correct when made on the
date hereof and shall be true and correct in all material respects as of the
Effective Time as if made as of the Effective Time, except for representations
and warranties made as of a specific date, which shall be true and correct as of
such date;
(b) each of the Buyer and the Merger Sub shall have performed
or complied with in all material respects its agreements and covenants required
to be performed or complied with under this Agreement as of or prior to the
Effective Time;
(c) each of the Buyer and the Merger Sub shall have delivered
to the Company a certificate (without qualification as to knowledge or
materiality or otherwise) to the effect that each of the conditions specified in
clauses (b), (c) (to the extent the Buyer or Merger Sub is a party or is named
therein) and (d) of Section 5.1 and clauses (a) and (b) of this Section 5.3 is
satisfied in all respects;
(d) the Company Stockholders shall have received from Piper &
Marbury L.L.P., counsel to the Buyer and the Merger Sub, an opinion
substantially in the form set forth as Exhibit G attached hereto, addressed to
the Company and dated as of the Closing Date; and
(e) all actions to be taken by the Buyer and the Merger Sub in
connection with the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to the Company.
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ARTICLE VI
TERMINATION
6.1 Termination of Agreement. The Parties may terminate this Agreement
prior to the Effective Time (whether before or after Requisite Stockholder
Approval) as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in material breach, and the
Company may terminate this Agreement by giving written notice to the Buyer and
the Merger Sub in the event the Buyer or the Merger Sub is in breach, of any
representation, warranty or covenant contained in this Agreement, and such
breach is not remedied within 10 days of delivery of written notice thereof;
(c) any Party may terminate this Agreement by giving written
notice to the other Parties (i) at any time after the Company Stockholders have
voted on whether to approve this Agreement and the Merger in the event this
Agreement and the Merger failed to receive the Requisite Stockholder Approval or
(ii) upon the entry of any permanent injunction or other order of a court or
other competent authority preventing the consummation of the Merger that has
become final and nonappealable;
(d) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred on or before
October 16, 1997, by reason of the failure of any condition precedent under
Section 5.1 or 5.2 hereof (unless the failure results from a breach by the Buyer
or the Merger Sub of any representation, warranty or covenant contained in this
Agreement); and
(e) the Company may terminate this Agreement by giving written
notice to the Buyer and the Merger Sub if the Closing shall not have occurred on
or before October 16, 1997, by reason of the failure of any condition precedent
under Section 5.1 or 5.3 hereof (unless the failure results primarily from a
breach by the Company of any representation, warranty or covenant contained in
this Agreement).
6.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 6.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except for any
liability of any Party for breaches of this Agreement).
6.3 Amendment. The board of directors of the Parties may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the Parties; provided that an amendment made
subsequent to the adoption of the Agreement by Company Stockholders shall not:
(a) alter or change the amount or kind of consideration to be received on
conversion of the Company Shares; (b) alter or change any term of the Charter or
By-laws of the Surviving Corporation to be effected by the merger; or (c) alter
or change any of the terms and conditions of the Agreement if such alteration or
change would adversely affect the holders of Company Shares.
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6.4 Extension; Waiver. At any time prior to the Effective Time, any
Party may, to the extent legally allowed: (a) extend the time for the
performance of any of the obligations or other acts of the other Parties; (b)
waive any inaccuracies in the representations and warranties made to such Party
contained herein or in any document delivered pursuant hereto; and (c) waive
compliance with any of the agreements or conditions for the benefit of such
Party contained herein. Any agreement on the part of a Party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such Party.
ARTICLE VII
ESCROW AND INDEMNIFICATION
7.1 Indemnification.
(a) Survival of the Warranties.
(i) The representations, warranties and covenants set forth in Sections
2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.13 and 2.28 shall terminate and expire upon
the date of issuance by the Buyer of its first annual audited financial
statements following the consummation of the Merger.
(ii) Other than Sections 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.13 and 2.28, the
representations, warranties and covenants set forth in Articles II hereof shall
terminate and expire on the first anniversary of the Closing Date.
(b) Subject to the limitations set forth in this Article VII,
the Former Company Stockholders will indemnify and hold harmless the Buyer and
the Surviving Corporation and its respective officers, directors, agents and
employees, and each person, if any, who controls or may control the Buyer or the
Surviving Corporation within the meaning of the Securities Act (hereinafter
referred individually as an "Indemnified Person" and collectively as
"Indemnified Person") from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions, causes of
action, including, without limitation reasonable legal fees, net of any
recoveries under existing insurance policies, tax benefit received by the Buyer
or its Affiliates as a result of such damages, indemnities from third parties or
in the case of third party claims, by any amount actually recovered by the Buyer
or its Affiliates pursuant to counterclaims made by any of them directly
relating to the facts giving rise to such third party claims (collectively,
"Damages") arising out of any misrepresentation or breach of or default in
connection with any of the representations and warranties given or made by the
Company in Article II of this Agreement, the Disclosure Schedules or any exhibit
or schedule to this Agreement. The Buyer and its Affiliates shall act in good
faith and in a commercially reasonable manner to mitigate any Damages they may
suffer. Notwithstanding the foregoing, in no event shall the aggregate liability
of a Former Company Stockholder exceed an amount equal to 45.38% of the Buyer
Share Market Value of the Merger Shares received by such Former Company
Stockholder hereunder, as such value is determined as of the Closing Date in
accordance with Section 1.5(a) (the "Indemnity Value").
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(c) Nothing in this Agreement shall limit the liability of the
Company for any breach of any representation, warranty or covenant if the Merger
does not close.
7.2 Holdbacks.
(a) Escrow Fund. Notwithstanding the provisions of Article I,
upon the Closing of the Merger, the Buyer shall issue to each Company
Stockholder 90% of the Buyer Common Stock otherwise issuable to such stockholder
pursuant to Article I (rounded upward to the nearest whole share). The remaining
10% of the Buyer Common Stock issuable to a Company Stockholder in connection
with the Merger shall be referred to as "Escrow Shares," collectively, the
Escrow Shares shall be referred to as the "Escrow Fund." The obligation of the
Buyer to issue the Escrow Shares otherwise issuable upon the Merger or any such
exercise shall be subject to reduction to satisfy the Company's obligations
under this Article VII. Damages that: (i) are accepted as valid by the
Stockholders' Agents (as defined below); or (ii) are determined to be valid by
arbitration as described in this Article VII, shall reduce the number of Escrow
Shares issuable to the Company Stockholders by the number of Escrow Shares
(rounded to the closest whole number) equal to such Damages divided by the Buyer
Share Market Value. As soon as practicable after the Effective Date, the Escrow
Shares shall be registered in the name of, and be deposited with, Mercantile
Bank (or other institution selected by the Buyer with the reasonable consent of
the Company) as escrow agent (the "Escrow Agent"), such deposit to constitute
the Escrow Fund and to be governed by the terms set forth herein and in the
Escrow Agreement attached hereto as Exhibit D. The Escrow Shares shall be
beneficially owned by the Company Stockholders and the Escrow Fund shall be
available to partially compensate the Buyer pursuant to the indemnification
obligations of the Former Company Stockholders. With respect to the claims made
prior to the termination of the "Escrow Period" (as defined below), arising out
of breaches of the representations and warranties set forth in Section 2.12 and,
with respect only to Intellectual Property and Third Party Intellectual Property
Rights, in Section 2.14 (collectively, the "Intellectual Property Claims"), the
Buyer, in addition to the Escrow Fund, may seek indemnification from the Former
Company Stockholders pursuant to the Affiliate Agreements and Stockholder
Agreements. To the extent not used for the foregoing purposes, such Escrow
Shares shall be released as provided in this Article VII.
(b) Exclusivity of Remedies. The total liability of each
Former Company Stockholder under or in connection with this Agreement shall be
based on such stockholder's pro rata share of the Merger Shares to be received
pursuant to this Agreement, shall be several and not joint and, with respect to
claims other than Intellectual Property Claims, shall be limited to the Escrow
Shares of such Former Company Stockholder, and Buyer and the Surviving
Corporation (together with the other persons indemnified hereunder) may look
solely to such Escrow Shares for the satisfaction of any claims against the
Former Company Stockholder, other than with respect to the Intellectual Property
Claims. Other than the Intellectual Property Claims, the Buyer agrees that no
Former Company Stockholder shall be personally liable with respect to such
claims, except for the interest of such Former Company Stockholder in the Escrow
Shares. This Article VII sets forth the sole and exclusive remedy of the Buyer
and the Surviving Corporation (together with the other Indemnified Persons)
after the Closing with respect to any representation, warranty, covenant or
agreement made by the Company under or in connection with this Agreement or any
covenants or agreements contemplated by this Agreement.
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7.3 Damage Threshold.
(a) Notwithstanding Section 7.1, the Buyer may not receive any
shares from the Escrow Fund unless and until an Officer's Certificate or
Certificates (as defined in Section 7.5 below) and identifying the requirements
of Section 7.5(a)(ii) and identifying Damages has been delivered to the Escrow
Agent as provided in Section 7.5 below and such amount is determined pursuant to
this Article VII to be payable, in which case the Buyer shall receive shares
equal in value to the full amount of Damages.
(b) If the Damages for the Intellectual Property Claims are in
excess of the value of the Escrow Fund, the Buyer may then seek indemnification
from the Company Stockholders pursuant to the Affiliate Agreements and the
Stockholder Agreements. In no event shall the liability of each Former Company
Stockholder with respect to all claims hereunder, including the Intellectual
Property Claims, exceed the Indemnity Value for such Former Company Stockholder.
7.4 Escrow Period. The period commencing upon the Effective Time and ending
upon the date twelve months following the Effective Time shall be referred to as
the "Escrow Period." The Escrow Period shall terminate upon the expiration of
twelve months after the Effective Time; provided, however, that a portion of the
Escrow Shares, which, in the reasonable judgment of the Buyer, subject to the
objection of the Stockholders' Agent and the subsequent arbitration of the
matter in the manner provided in Section 7.7 hereof, are necessary to satisfy
any unsatisfied claims specified in any Officer's Certificate theretofore
delivered to the Escrow Agent prior to termination of the Escrow Period with
respect to claims made by the Buyer pursuant to Section 7.5 prior to expiration
of the Escrow Period, shall remain in the Escrow Fund until such claims have
been resolved.
7.5 Claims Upon Escrow Fund. Subject to the procedures set forth in Section
7.6:
(a) Upon receipt by the Escrow Agent on or before the last day
of the Escrow Period of a certificate signed by any officer of the Buyer (an
"Officer's Certificate"):
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(i) stating that with respect to the indemnification obligations of Company
Stockholders, Damages exist in an aggregate amount greater than $75,000, and
(ii) specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each such item was paid, or properly
accrued or arose, the nature of the misrepresentation, breach of warranty or
claim to which such item is related,
the Escrow Agent shall, subject to the provisions of this Article VII, deliver
to the Buyer out of the Escrow Fund, as promptly as practicable, Buyer Common
Stock or other assets held in the Escrow Fund having a value equal to such
Damages with respect to the indemnification obligations of Company Stockholders
set forth in Section 7.1. The Escrow Agent shall use the Escrow Fund first to
satisfy any Damages arising from claims other than the Intellectual Property
Claims and any remainder in the Escrow Fund shall then be used to satisfy the
Intellectual Property Claims to the extent possible.
(b) For the purpose of compensating the Buyer for its Damages
pursuant to this Agreement, Buyer Common Stock in the Escrow Fund shall be
valued at the Buyer Share Market Value as of the date of the Officer's
Certificate delivered to the Escrow Agent.
7.6 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholders' Agent (defined in Section 7.8 below) and
for a period of forty-five (45) days after such delivery, the Escrow Agent shall
make no delivery of Buyer Common Stock or other property pursuant to Section 7.5
hereof unless the Escrow Agent shall have received written authorization from
the Stockholders' Agent to make such delivery. After the expiration of such
forty-five (45) days period, the Escrow Agent shall make delivery of Buyer
Common Stock or other property in the Escrow Fund in accordance with Section 7.5
hereof, provided that no such payment or delivery may be made if the
Stockholders' Agent shall object in a written statement to the claim made in the
Officer's certificate, and such statement shall have been delivered to the
Escrow Agent and to the Buyer prior to the expiration of such forty-five (45)
day period.
7.7 Resolution of Conflicts and Arbitration.
(a) In case the Stockholders' Agent shall so object in writing
to any claim or claims by the Buyer made in any Officer's Certificate, the Buyer
shall have forty-five (45) days to respond in a written statement to the
objection of the Stockholders' Agent. If after such forty-five (45) day period
there remains a dispute as to any claims, the Stockholders' Agent and the Buyer
shall attempt in good faith for sixty (60) days to agree upon the rights of the
respective parties with respect to each of such claims. If the Stockholders'
Agent and the Buyer should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties and shall be furnished to the
Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum
and shall distribute Buyer Common Stock or other property from the Escrow Fund
in accordance with the terms thereof.
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(b) If no such agreement can be reached after good faith
negotiation, either the Buyer or the Stockholders' Agent may, by written notice
to the other, demand arbitration of the matter unless the amount of the damage
or loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, the Buyer and the Stockholders' Agent shall
each selected one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The decision of the arbitrators as to the validity and amount
of any claim in such Officer's Certificate shall be binding and conclusive upon
the parties to this Agreement, and notwithstanding anything in Section 7.6
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Montgomery County, Maryland under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 7.7(c), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, the Buyer shall be deemed to be the
Non-Prevailing Party unless the arbitrators award the Buyer more than one- half
(1/2) of the amount in dispute, plus any amounts not in dispute; otherwise, the
Company Stockholders for whom shares of Buyer Common Stock otherwise issuable to
them have been deposited in the Escrow Fund shall be deemed to be the
Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its
own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitations attorneys' fees and costs, reasonably incurred by other party to the
arbitration.
7.8 Stockholders' Agent.
(a) Stephen E. Smaha and Ray A. Rothrock shall be constituted
and appointed as agents ("Stockholders' Agents") for and on behalf of Company
Stockholders to give and receive notices and communications, to authorize
delivery to the Buyer of Buyer Common Stock or other property from the Escrow
Fund in satisfaction of claims by the Buyer, to object to such deliveries, to
agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims, and to take all actions necessary or appropriate in the
judgment of the Stockholders' Agents for the accomplishment of the foregoing.
Such agency may be changed by the holders of a majority in interest of the
Escrow Fund from time to time upon not less than 10 days' prior written notice
to the Buyer. No bond shall be required of the Stockholders' Agents, and the
Stockholders' Agent shall receive no compensation for his services. Notices or
communications to or from the Stockholders' Agents shall constitute notice to or
from each Company Stockholder.
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(b) The Stockholders' Agents shall not be liable for any act
done or omitted hereunder as Stockholders' Agents while acting in good faith and
in the exercise of reasonable judgment and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Company Stockholders shall severally indemnify the Stockholders' Agents and hold
each, individually harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Stockholders' Agents
and arising out of or in connection with the acceptance or administration of his
duties hereunder.
(c) The Stockholders' Agents shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for purposes of performing its duties and exercising its
rights hereunder, provided that the Stockholders' Agents shall treat
confidentially and not disclose any nonpublic information from or about the
Company to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially).
(d) The Buyer acknowledges that Stephen E. Smaha and Ray A.
Rothrock may each have a conflict of interest with respect to his respective
duties as Stockholders' Agents, and in such regard will act in the best
interests of the Company Stockholders.
7.9 Actions of the Stockholders' Agents. A decision, act, consent or
instruction of the Stockholders' Agents shall constitute a decision of all
Company Stockholders for whom shares of Buyer Common Stock otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each such Company Stockholder, and the Escrow Agent and the Buyer may rely
upon any decision, act, consent or instruction of the Stockholders' Agents as
being the decision, act consent or instruction of each and every such Company
Stockholder. The Escrow Agent and the Buyer are hereby relived from any
liability to any person for any acts done by them in accordance with such
decision, act consent or instruction of the Stockholders' Agent.
7.10 Third-Party Claims. In the event the Buyer becomes aware of a
third-party claim which the Buyer believes may result in a demand against the
Escrow Fund, the Buyer shall notify the Stockholders' Agents of such claim, and
the Stockholders' Agents and the Company Stockholders for whom shares of Buyer
Common Stock otherwise issuable to them are deposited in the Escrow Fund shall
be entitled, at their expense, to participate in any defense of such claim. The
Buyer shall have the right in its sole discretion to settle any such claim;
provided, however, that the Buyer may not affect the settlement of any such
claim without the consent of the Stockholders' Agents, which consent shall not
be unreasonably withheld. In the event that the Stockholders' Agents have
consented to any such settlements, the Stockholders' Agents shall have no power
or authority to object under Section 7.6 or any other provision of this Article
VII to the amount of any claim by the Buyer against the Escrow Fund for
indemnity with respect to such settlement.
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7.11 Buyer Indemnification. The Buyer will indemnify and hold harmless the
Former Company Stockholders from and against any and all losses, costs, damages,
liabilities and expenses arising from claims, demands, actions, causes of
action, including, without limitation reasonable legal fees, net of any
recoveries under existing insurance policies, tax benefit received by a Former
Company Stockholder as a result of such damages, indemnities from third parties
or in the case of third party claims, by any amount actually recovered by a
Former Company Stockholder pursuant to counterclaims made by any of them
directly relating to the facts giving rise to such third party claims arising
out of any misrepresentation or breach of or default in connection with any of
the representations, warranties, covenants and agreements given or made by the
Buyer in this Agreement, the Disclosure Schedules or any exhibit or schedule to
this Agreement, the Disclosure Schedules or any exhibit or schedule to this
Agreement.
ARTICLE VIII
DEFINITIONS
(a) In this Agreement, any reference to any event, change,
condition or effect being "material" with respect to any entity or group of
entities means any material event, change, condition or effect related to the
financial condition, properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "Material Adverse
Effect" with respect to any entity or group of entities means any event, change
or effect that is materially adverse to the financial condition, properties,
assets, liabilities, business, operations or results of operations of such
entity. In this Agreement, any reference to a Party's knowledge means such
Party's actual knowledge after reasonable inquiry of officers, directors and
other employees of such Party reasonably believed to have knowledge of such
matters.
(b) For purposes of this Agreement, each of the following
defined terms is defined in the Section of this Agreement indicated below.
Defined Term Section
1993 Option................................................1.10
1996 Option. ..............................................1.10
Affiliate..................................................2.14
Affiliate Agreement.. .....................................4.9
Agreement..................................................Preamble
Budget.....................................................2.6
Buyer .....................................................Preamble
Buyer By-Laws......... ....................................3.1
Buyer Charter..............................................3.1
Buyer Common Stock..... ...................................1.5
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Buyer Share Market Value...................................1.5
Buyer Reports........... .................................3.5
CERCLA.....................................................2.20
Certificate of Merger......................................1.1
Certificates...............................................1.7
Closing....................................................1.2
Closing Date...............................................1.2
Code.......................................................1.5
Company....................................................Preamble
Company Affiliate..........................................4.9
Company By-Laws............................................2.1
Company Charter............................................2.1
Company Common Stock.......................................1.5
Company Shares.............................................1.5
Company Special Meeting....................................4.3
Company Stockholder........................................1.5
Common Stock Conversion Ratio .............................1.5
Common Stock Equivalents...................................1.5
Continuity of Interest Agreement...........................4.9
Counted Assumed Option Merger Shares.......................1.5
Counted Assumed Option Shares..............................1.5
DGCL.......................................................1.1
Disclosure Schedule........................................Article II
Dissenting Shares..........................................1.6
Effective Time.............................................1.1
Employee Benefit Plan......................................2.19
Environmental Law..........................................2.20
ERISA......................................................2.19
ERISA Affiliate............................................2.19
Escrow Fund................................................7.2
Escrow Period..............................................7.2
Escrow Shares..............................................7.2
Exchange Act...............................................2.14
Exchange Agent.............................................1.3
Financial Statements.......................................2.6
Forecast Period............................................2.6
Former Company Stockholder.................................1.5
GAAP.......................................................2.6
Governmental Entity........................................2.4
Indemnity Value............................................7.1
Intellectual Property......................................2.12
Intellectual Property Claims...............................7.2
Material Adverse Effect....................................Article VII
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Materials of Environmental Concern.........................2.20
Merger.....................................................1.1
Merger Shares..............................................1.5
Most Recent Balance Sheet..................................2.8
Most Recent Fiscal Month End...............................2.6
Options....................................................1.10
Ordinary Course of Business................................2.4
Party......................................................Preamble
Permit.....................................................2.22
Principal Stockholders.....................................1.5
Registration Statement.....................................4.3
Requisite Stockholder Approval.............................2.3
SEC........................................................3.5
Securities Act.............................................1.5
Security Interest..........................................2.4
Series A Convertible Preferred Stock.......................1.5
Series B Convertible Preferred Stock.......................1.5
Stockholder Agreement......................................4.9
Surviving Corporation......................................1.1
Taxes......................................................2.9
Tax Returns................................................2.9
Third Party Intellectual Property Rights...................2.12
Merger Sub.................................................Preamble
Merger Sub Common Stock....................................1.5
Transaction Costs..........................................2.8
Transition Costs...........................................2.8
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
release or make any public disclosure relating to the subject matter of this
Agreement without the prior written approval of the other Parties; provided,
however, that any Party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing Party shall
advise the other Parties and provide them with a copy of the proposed disclosure
prior to making the disclosure).
9.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
Article I concerning issuance of the Merger Shares are intended for the benefit
of the Former Company Stockholders.
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9.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
9.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Parties; provided that the Merger Sub may assign its rights,
interests and obligations hereunder to an Affiliate of the Buyer.
9.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9.6 Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, one business day after it is sent via a reputable
nationwide overnight courier service, or when actually received after it is sent
via facsimile in each case to the intended recipient as set forth below:
If to the Company:
Haystack Laboratories, Inc.
10713 RR 620 North, Suite 512
Austin, TX 78726
Attn: Mr. Steve Smaha
Fax: (512) 918-1265
Copies to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
8911 Capital of Texas Highway, Suite 4140
Austin, TX 78759
Attn: Brian K. Beard, Esq.
Fax: (512) 342-8181
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If to the Buyer:
Trusted Information Systems, Inc.
3060 Washington Road
Glenwood, MD 21738
Attention: Stephen T. Walker
Fax: (301) 854-5755
Copy to:
Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attn: Edwin M. Martin, Jr., Esq.
Fax: (202) 861-6317
If to the Merger Sub:
Trusted Acquisitions, Inc.
3060 Washington Road
Glenwood, MD 21738
Attn: Stephen T. Walker
Fax: (301) 854-5755
Copy to:
Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attn: Edwin M. Martin, Jr., Esq.
Fax: (202) 861-6317
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Delaware.
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9.9 Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time; provided, however, that
any amendment effected subsequent to the Requisite Stockholder Approval shall be
subject to the restrictions contained in the DGCL. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by all of the Parties. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
9.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
9.11 Specific Performance. Each of the Parties acknowledges and agrees that
one or more of the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity. The prevailing party in any such
action shall be entitled to recover from the other party its attorneys' fees,
costs and expenses incurred in connection with regard to such action.
9.12 Construction. The Parties agree that they have been represented by
counsel during the negotiation, preparation and execution of this Agreement and,
therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.
9.13 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
TRUSTED INFORMATION SYSTEMS, INC.
By:
Name:
Title:
TRUSTED ACQUISITIONS, INC.
By:
Name:
Title:
HAYSTACK LABORATORIES, INC.
By:
Name:
Title:
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The undersigned, being the duly elected Secretary of the Merger Sub,
hereby certifies that this Agreement has been adopted by a majority of the votes
represented by the outstanding shares of capital stock of the Merger Sub
entitled to vote on this Agreement.
--------------------------
Secretary
The undersigned, being the duly elected Secretary or Assistant
Secretary of the Company, hereby certifies that this Agreement has been adopted
by a majority of the votes represented by the outstanding Company Shares
entitled to vote on this Agreement.
---------------------------
Secretary or Assistant Secretary
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