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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 1, 1999
INTRAWARE, INC.
--------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 000-25249 68-0389976
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
25 Orinda Way 94563
Orinda, California (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (925) 253-4500
Not Applicable
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(Former name or former address, if changed since last report)
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<PAGE>
ITEM 5. OTHER EVENTS
On October 1, 1999, Intraware, Inc. ("Intraware"), Tango Acquisition
Corp., a California corporation and a wholly owned subsidiary of Intraware
("Acquisition Company"), and Internet Image, Inc., a California corporation
("Internet Image") entered into an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), pursuant to which, subject to the terms and
conditions set forth therein, Acquisition Company will merge (the "Merger")
with and into Internet Image, with Internet Image as the surviving
corporation in the Merger (the "Surviving Corporation"). Intraware will pay
$36,550,000 in stock, subject to adjustments, for Internet Image and expects
to account for the transaction as a pooling-of-interests. The transaction is
subject to customary closing conditions.
In connection with the Reorganization Agreement, Intraware entered
into individual Voting Agreements dated as of October 1, 1999 (the "Voting
Agreements") with Lung C. Tsai, TSAI FAMILY TRUST, Andy Lee, Austin Jieh,
William J. Almon, Tai Yuen Venture Capital Investment Corporation and the
Pac-Link Fund. The Voting Agreements relate to approximately 2,217,080 shares
of Internet Image Common Stock and 965,558 shares of Internet Image Preferred
Stock. The shareholders that have entered into Voting Agreements have agreed
to vote all of the shares of Internet Image Common Stock and Preferred Stock
they own as of October 1, 1999 in favor of the Merger, for approval and
adoption by Internet Image of the Reorganization Agreement, and for approval
of the other transactions contemplated by the Reorganization Agreement.
The Board of Directors of Intraware and the Board of Directors of
Internet Image have approved the Merger. The consummation of the transactions
contemplated by the Reorganization Agreement is subject to certain
conditions, including (i) approval of the Merger by the holders of a majority
of the shares of Internet Image Common Stock, (ii) approval of the Merger by
the holders of a majority of the shares of Internet Image Preferred Stock,
and (iii) certain other customary conditions in a transaction of this nature,
including receipt of all necessary regulatory approvals. Intraware, with the
assistance and cooperation of Internet Image, will prepare a joint proxy
statement/prospectus (the "Joint Proxy Statement/Prospectus") relating to the
Merger and the registered shares of Intraware Common Stock to be issued
thereunder and distribute the Joint Proxy Statement/Prospectus to the
stockholders of Internet Image. A copy of each of the Reorganization
Agreement dated October 1, 1999, and the Press Release of Intraware, dated
October 4, 1999, issued in connection with approval and execution of the
Reorganization Agreement is filed as an Exhibit hereto and is incorporated
herein by reference.
(c) EXHIBITS
2.1 Agreement and Plan of Reorganization dated as of
October 1, 1999, by and among Intraware, Inc.,
Tango Acquisition Corp., Internet Image, Inc. and
the Principal Shareholders.
99.1 Press Release of Intraware dated October 4, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTRAWARE, INC.
Date: October 7, 1999 By: /s/ Donald M. Freed
------------------------------------
Donald M. Freed
Executive Vice President and Chief
Financial Officer
<PAGE>
Exhibit 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INTRAWARE, INC.,
TANGO ACQUISITION CORP.,
INTERNET IMAGE, INC.
AND
THE SHAREHOLDERS NAMED HEREIN
DATED AS OF OCTOBER 1, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 EFFECTIVE TIME . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 EFFECT OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . 2
1.4 ARTICLES OF INCORPORATION; BYLAWS. . . . . . . . . . . . . . . . 2
1.5 DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . . . . . 3
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 DISSENTING SHARES. . . . . . . . . . . . . . . . . . . . . . . . 7
1.8 SURRENDER OF CERTIFICATES. . . . . . . . . . . . . . . . . . . . 8
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK . . . . . . 9
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES . . . . . . . . . . . . .10
1.11 TAKING OF NECESSARY ACTION; FURTHER ACTION . . . . . . . . . . .10
1.12 TAX AND ACCOUNTING CONSEQUENCES. . . . . . . . . . . . . . . . .10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.1 ORGANIZATION OF THE COMPANY. . . . . . . . . . . . . . . . . . .10
2.2 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.3 COMPANY CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . .11
2.4 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.5 NO CONFLICT. . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.6 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.7 COMPANY FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . .13
2.8 NO UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . .13
2.9 NO CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . . .14
2.10 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. . . . . . . . . . . . . . .18
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF EQUIPMENT . . . . . . . . . . . . . . . . . . . . .18
2.13 INTELLECTUAL PROPERTY. . . . . . . . . . . . . . . . . . . . . .19
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS. . . . . . . . . . . . . .23
2.15 INTERESTED PARTY TRANSACTIONS. . . . . . . . . . . . . . . . . .24
2.16 GOVERNMENTAL AUTHORIZATION . . . . . . . . . . . . . . . . . . .24
2.17 LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . .25
2.18 ACCOUNTS RECEIVABLE; INVENTORY . . . . . . . . . . . . . . . . .25
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
2.19 MINUTE BOOKS . . . . . . . . . . . . . . . . . . . . . . . . . .25
2.20 ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . .25
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES . . . . . . . .26
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION. . . . . . . . . . . . .26
2.23 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
2.24 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . .30
2.25 WARRANTIES; INDEMNITIES. . . . . . . . . . . . . . . . . . . . .30
2.26 COMPLETE COPIES OF MATERIALS . . . . . . . . . . . . . . . . . .31
2.27 STATEMENTS; PROXY STATEMENT. . . . . . . . . . . . . . . . . . .31
2.28 POOLING OF INTERESTS . . . . . . . . . . . . . . . . . . . . . .31
2.29 REPRESENTATIONS COMPLETE . . . . . . . . . . . . . . . . . . . .31
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB . . . . . . . .32
3.1 ORGANIZATION, STANDING AND POWER . . . . . . . . . . . . . . . .32
3.2 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
3.3 NO CONFLICT. . . . . . . . . . . . . . . . . . . . . . . . . . .32
3.4 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
3.5 CAPITAL STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . .33
3.6 BROKERS' AND FINDERS' FEES . . . . . . . . . . . . . . . . . . .33
3.7 STATEMENTS; PROXY STATEMENT. . . . . . . . . . . . . . . . . . .34
3.8 POOLING OF INTERESTS . . . . . . . . . . . . . . . . . . . . . .34
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . .34
4.1 CONDUCT OF BUSINESS OF THE COMPANY . . . . . . . . . . . . . . .34
4.2 NO SOLICITATION. . . . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE V ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . .37
5.1 REGISTRATION STATEMENT; SHAREHOLDER APPROVAL . . . . . . . . . .37
5.2 ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . .38
5.3 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . .39
5.4 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
5.5 PUBLIC DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . .39
5.6 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
5.7 FIRPTA COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . .40
5.8 REASONABLE EFFORTS . . . . . . . . . . . . . . . . . . . . . . .40
5.9 NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . .40
5.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. . . . . . . . . . .40
5.11 EMPLOYEE PLANS . . . . . . . . . . . . . . . . . . . . . . . . .40
5.12 EMPLOYEE BENEFITS. . . . . . . . . . . . . . . . . . . . . . . .41
5.13 RULE 145 AFFILIATE AGREEMENTS. . . . . . . . . . . . . . . . . .41
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.14 NO ACTIONS INCONSISTENT WITH TAX-FREE REORGANIZATION . . . . . .41
5.15 NASDAQ LISTING . . . . . . . . . . . . . . . . . . . . . . . . .41
5.16 FORM S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
5.17 ESTIMATED BALANCE SHEET AND CLOSING BALANCE SHEET. . . . . . . .41
5.18 ISSUANCE OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . .42
5.19 CREDIT FACILITY. . . . . . . . . . . . . . . . . . . . . . . . .42
5.20 TERMINATION, WAIVER AND RELEASE OF EMPLOYMENT AGREEMENTS . . . .42
ARTICLE VI CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . . .42
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER . .42
6.2 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE PRINCIPAL
SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . .43
6.3 CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB. . . . . . . . .43
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION. . .46
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . .46
7.2 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . .46
7.3 ESCROW ARRANGEMENTS. . . . . . . . . . . . . . . . . . . . . . .46
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . .53
8.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . .53
8.2 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . .54
8.3 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .54
8.4 EXTENSION; WAIVER. . . . . . . . . . . . . . . . . . . . . . . .54
ARTICLE IX GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . .55
9.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
9.2 INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . .57
9.3 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . .57
9.4 ENTIRE AGREEMENT; ASSIGNMENT . . . . . . . . . . . . . . . . . .57
9.5 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . .57
9.6 OTHER REMEDIES; SPECIFIC PERFORMANCE . . . . . . . . . . . . . .57
9.7 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . .58
9.8 RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . .58
9.9 ATTORNEYS FEES . . . . . . . . . . . . . . . . . . . . . . . . .58
</TABLE>
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<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
Exhibit A Form of Voting Agreements
Exhibit B Agreement of Merger
Exhibit C Key Employees
Exhibit D-1 Company Disclosure Schedules
Exhibit D-2 Parent Disclosure Schedules
Exhibit E Form of Legal Opinion of Counsel to the Company
Exhibit F Form of Noncompetition Agreement
Exhibit G Form of Rule 145 Affiliate Agreement
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of October 1, 1999 among Intraware, Inc., a Delaware corporation
("PARENT"), Tango Acquisition Corp., a California corporation and a wholly-owned
subsidiary of Parent ("SUB"), Internet Image, Inc., a California corporation
(the "COMPANY"), and Andy Lee; Chao Ping Wang; Lung Chin Tsai and Ling Chu Tsai,
Trustees of the TSAI FAMILY TRUST U/D/T dated May 20, 1998; and Lung Chin Tsai
as an individual (collectively the "PRINCIPAL SHAREHOLDERS").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub believe
it is in the best interests of each company and their respective Shareholders
that Parent acquire the Company through the statutory merger of Sub with and
into the Company (the "MERGER") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding securities of the Company shall be converted into the right to
receive Parent Common Stock (as defined herein). Parent will assume all
outstanding stock options of the Company, and all outstanding warrants of the
Company that are not exercised on or prior to the Closing Date shall be
terminated.
C. The Company and the Principal Shareholders, on the one hand, and
Parent and Sub, on the other hand, desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended.
E. Concurrent with the execution of this Agreement, as a material
inducement to Parent and Sub to enter into this Agreement, the Principal
Shareholders as well as Austin Jieh, William J. Almon, Steve Tsai, Apex Venture
Capital Corporation, Pac-Link Fund, and Tai Yuen Venture Capital Investment
Corporation (together, the "INVESTORS") are entering into Voting Agreements in
the form of EXHIBIT A hereto with Parent (the "VOTING AGREEMENTS"), Andy Lee and
Lung Tsai are entering into agreements not to compete with Parent (the
"NONCOMPETITION AGREEMENTS") in the form of EXHIBIT F hereto.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
<PAGE>
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the California Corporations Code ("California Law"),
Sub shall be merged with and into the Company, the separate corporate existence
of Sub shall cease and the Company shall continue as the surviving corporation
and as a wholly-owned subsidiary of Parent. The surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "CLOSING") will take
place as promptly as practicable, but no later than five (5) business days
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
650 Page Mill Road, Palo Alto, California, unless another place or time is
agreed to in writing by Parent and the Company. The date upon which the Closing
actually occurs is herein referred to as the "CLOSING DATE." On the Closing
Date, the parties hereto shall cause the Merger to be consummated by filing an
Agreement of Merger (or like instrument) in the form attached hereto as
EXHIBIT B with the Secretary of State of the State of California (the "MERGER
AGREEMENT"), in accordance with the applicable provisions of California Law (the
time of acceptance by the Secretary of State of the State of California of such
filing being referred to herein as the "EFFECTIVE TIME").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
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 Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 ARTICLES OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Articles of Incorporation of Sub shall be the
Articles of Incorporation of the Surviving Corporation until thereafter amended
as provided by law and such Articles of Incorporation; PROVIDED, HOWEVER, that
Section I of the Articles of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Internet Image,
Inc."
(b) The Bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
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1.5 DIRECTORS AND OFFICERS. The directors of the Surviving Corporation
immediately after the Effective Time shall be the directors of Sub immediately
prior to the Effective Time, each to hold the office of director of the
Surviving Corporation in accordance with the provisions of California Law and
the Articles of Incorporation and Bylaws of the Surviving Corporation until
their successors are duly qualified and elected. The officers of the Surviving
Corporation immediately after the Effective Time shall be the officers of Sub
immediately prior to the Effective Time, each to hold office in accordance with
the provisions of the Bylaws of the Surviving Corporation.
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS
(a) CERTAIN DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following meanings:
"COMPANY CAPITAL STOCK" shall mean shares of Company Common
Stock, Company Series A Preferred, Company Series B Preferred, Company Series C
Preferred and shares of any other capital stock of the Company.
"COMPANY COMMON STOCK" shall mean shares of common stock of
the Company.
"COMPANY PREFERRED STOCK" shall mean, collectively, shares of
Company Series A Preferred, Company Series B Preferred and Company Series C
Preferred.
"COMPANY SERIES A PREFERRED" shall mean shares of Series A
Preferred Stock of the Company.
"COMPANY SERIES B PREFERRED" shall mean shares of Series B
Preferred Stock of the Company.
"COMPANY SERIES C PREFERRED" shall mean shares of Series C
Preferred Stock of the Company.
"ESTIMATED BALANCE SHEET" shall mean the estimated unaudited
balance sheet of the Company dated the Closing Date, but delivered to Parent not
fewer than three (3) business days prior to the Closing pursuant to Section
5.17, which shall be (i) prepared in accordance with GAAP (except that such
unaudited balance sheet does not contain the footnotes required by GAAP) and
prepared in good faith and based on reasonable assumptions and (ii) approved by
Parent, which approval shall not be withheld unreasonably.
"ESTIMATED NET ASSETS" shall mean the amount by which total
assets of the Company as determined in accordance with GAAP ("TOTAL ASSETS")
exceeds total liabilities of the Company as determined in accordance with GAAP
("TOTAL LIABILITIES"), each as reflected in the Estimated Balance Sheet.
-3-
<PAGE>
"ESTIMATED THIRD PARTY EXPENSES" shall mean Third Party
Expenses (as defined in Section 5.4) of the Company on the Closing Date as
estimated by the Company and the Principal Shareholders in good faith and based
on reasonable assumptions (including any Third Party Expenses previously paid by
the Company) as set forth in a letter delivered to Parent concurrently with the
Estimated Balance Sheet (the "Estimated Third Party Expenses Letter")
"EXCHANGE RATIO" shall mean a number equal to the quotient
obtained by dividing (i) the number of shares of Participating Stock
Consideration by (ii) the number of Total Participating Shares.
"GAAP" shall mean U.S. generally accepted accounting
principles consistent with the reporting practices and principles used by Parent
from time to time for preparing its public filings under the Securities and
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
"KEY EMPLOYEES" shall mean those employees of the Company
listed on EXHIBIT C hereto.
"KNOWLEDGE" shall mean what would be within the actual
knowledge of a prudent person after reasonable investigation.
"MERGER SHARES" shall mean that number of shares of Parent
Common Stock equal to the quotient obtained by dividing the Total Consideration
by the Trading Price; provided however, that the number of shares shall neither
be greater than 2,000,000 shares nor less than 1,250,000 shares.
"NET ASSETS" shall mean the amount equal to Total Assets of
the Company minus Total Liabilities of the Company.
"PARENT COMMON STOCK" shall mean shares of the common stock,
par value $.0001, of Parent.
"PARTICIPATING STOCK CONSIDERATION" shall mean the total
number of Merger Shares minus the number of shares of Preferred Stock
Consideration.
"SHAREHOLDER" shall mean each holder of any Company Capital
Stock immediately prior to the Effective Time.
"TOTAL CONSIDERATION" shall mean an amount equal to $36.55
million minus: (i) the dollar amount by which Estimated Net Assets (irrespective
of Estimated Third Party Expenses) are less than $250,000 and (ii) the dollar
amount by which Estimated Third Party Expenses exceed $200,000.
-4-
<PAGE>
"TOTAL OUTSTANDING SHARES" shall mean the aggregate number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time plus the aggregate number of shares of Company Common Stock issuable, with
or without the passage of time or satisfaction of other conditions, upon
exercise or conversion of all options, warrants and other rights (other than the
Company Preferred Stock) to acquire or receive shares of Company Common Stock
outstanding immediately prior to the Effective Time.
"TOTAL PARTICIPATING SHARES" shall mean the number equal to
the Total Outstanding Shares plus the total number of shares of Company Common
Stock issuable upon conversion of the shares of Company Series A Preferred,
Company Series B Preferred and Company Series C Preferred issued and outstanding
immediately prior to the Effective Time pursuant to the Articles of
Incorporation of the Company as then in effect.
"TRADING PRICE" shall mean the average closing sales price of
the Parent Common Stock as reported on the Nasdaq National Market for the ten
(10) consecutive trading days ending three (3) business days prior to the
Closing Date.
(b) EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Sub, the Company or the holders
of any shares of the Company Capital Stock, each share of Company Common Stock,
Company Series A Preferred, Company Series B Preferred and Company Series C
Preferred issued and outstanding immediately prior to the Effective Time (other
than any Dissenting Shares, as defined in Article 1.7) will be canceled and
extinguished and be converted automatically into, the right to receive upon
surrender of the certificate representing such share of Company Common Stock,
Company Series A Preferred, Company Series B Preferred or Company Series C
Preferred and upon the terms and subject to conditions set forth below and
throughout this Agreement, including, without limitation, the escrow provisions
set forth in Article VII and/or described in Section 1.8(b) hereof, the
following:
(i) PREFERRED STOCK CONSIDERATION. Prior and in preference
to any delivery of Parent Common Stock to holders of Company Common Stock, the
holders of Company Series A Preferred, Company Series B Preferred and Company
Series C Preferred will be entitled to receive the following; PROVIDED that, if
the Total Consideration is insufficient to permit the receipt of such Merger
Shares, then holders of Company Series A Preferred, Company Series B Preferred
and Company Series C Preferred will be entitled to their pro rata share of the
Merger Shares available in proportion to the respective amounts which would be
received by them if the respective amounts were paid in full:
(A) Each share of Company Series C Preferred issued
and outstanding immediately prior to the Effective Time, shall be converted into
the right to receive that number of shares of Parent Common Stock equal to $2.25
divided by the Trading Price. Such number ($2.25 divided by the Trading Price)
multiplied by the number of shares of Company Series
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C Preferred issued and outstanding immediately prior to the Effective Time is
herein referred to as the "SERIES C CONSIDERATION".
(B) Each share of Company Series B Preferred issued
and outstanding immediately prior to the Effective Time, shall be converted into
the right to receive that number of Shares of Parent Common Stock equal to $1.50
divided by the Trading Price. Such number ($1.50 divided by the Trading Price)
multiplied by the number of shares of Company Series B Preferred issued and
outstanding immediately prior to the Effective Time is herein referred to as the
"SERIES B CONSIDERATION".
(C) Each share of Company Series A Preferred issued
and outstanding immediately prior to the Effective Time, shall be converted into
the right to receive that number of Shares of Parent Common Stock equal to $0.25
divided by the Trading Price. Such number ($0.25 divided by the Trading Price)
multiplied by the number of shares of Company Series A Preferred issued and
outstanding immediately prior to the Effective Time is herein referred to as
"SERIES A CONSIDERATION," and collectively with the Series B Consideration and
the Series C Consideration, the "PREFERRED STOCK CONSIDERATION."
(ii) PARTICIPATING CONSIDERATION. After payment of amounts
pursuant to Section 1.6(b)(i), the Participating Stock Consideration, if any,
shall be distributed as follows:
(A) Each share of Company Common Stock, issued and
outstanding immediately prior to the Effective Time, shall be converted into the
right to receive the number of shares of Parent Common Stock equal to the
Exchange Ratio.
(B) Each share of Company Series A Preferred, Company
Series B Preferred and Company Series C Preferred issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive the number of shares of Parent Common Stock equal to the Exchange Ratio
multiplied by the number of shares of Company Common Stock issuable upon
conversion of such respective share of Company Series A Preferred, Company
Series B Preferred and Company Series C Preferred immediately prior to the
Effective Time pursuant to the Articles of Incorporation of the Company as then
in effect.
(c) COMPANY STOCK OPTIONS AND WARRANTS TO PURCHASE COMPANY CAPITAL
STOCK.
(i) At the Effective Time, each outstanding option or
warrant to purchase shares of Company Common Stock issued pursuant to the
Company's 1997 Stock Option Plan and the Company's NSO Stock Option Plan (each,
a "STOCK OPTION PLAN") or otherwise (each a "COMPANY OPTION"), whether or not
exercisable, will be assumed by Parent. Each Company Option so assumed by Parent
under this Agreement will continue to have, and be subject to, the same terms
and conditions governing such Company Option immediately prior to the Effective
Time (including, without limitation, any vesting schedule or repurchase rights),
except that (i) each Company Option
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will be exercisable (or will become exercisable in accordance with its terms)
for that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock that were issuable upon exercise of
such Company Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common Stock, and (ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed Company Option will be equal
to the quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
After the Effective Time, Parent will issue to each holder of an outstanding
Company Option a notice describing the foregoing assumption of such Company
Options by Parent.
(ii) Prior to the Effective Time, the Company shall take all
action necessary to effect the transactions anticipated by this Section 1.6(c)
under all Company Option agreements and any outstanding warrants and any other
plan or arrangement of the Company.
(d) CAPITAL STOCK OF SUB. Each share of common stock of Sub
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 Sub evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
(e) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, each holder of shares of Company
Capital Stock (including Company Capital Stock issuable upon exercise of
outstanding Company Options at the Effective Time) who would otherwise be
entitled to a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such holder) shall
receive one whole share of Parent Common Stock.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has exercised
and perfected appraisal rights for such shares in accordance with California Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("DISSENTING SHARES"), shall not be converted into or represent
a right to receive the consideration for Company Capital Stock pursuant to
Section 1.6, but the holder thereof shall only be entitled to such rights as are
granted by California Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his or her appraisal rights, then, as of the later of
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
consideration for
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Company Capital Stock as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demand for appraisal received by the Company pursuant to the applicable
provisions of California Law and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, voluntarily make any
payment with respect to any such demands or offer to settle or settle any such
demands. To the extent that Parent or the Company makes any payment or payments
in respect of any Dissenting Shares, Parent shall be entitled to recover under
the terms of Article VII hereof the aggregate amount by which such payment or
payments exceed the aggregate consideration that otherwise would have been
payable in respect of such shares.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. The Corporate Secretary of Parent or an
institution selected by Parent and reasonably satisfactory to the Company shall
serve as exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE SHARES. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, Certificates representing the shares of Parent Common Stock
and any dividends or distributions to which Shareholder may be entitled pursuant
to Section 1.8(d) in exchange for all of the outstanding shares of Company
Capital Stock PROVIDED, HOWEVER, that on behalf of the Shareholders, pursuant to
Section 7.3 hereof, Parent shall deposit into an escrow account ten percent
(10%) of the Merger Shares issued to the Escrow Agent pursuant to Section 1.6(b)
on behalf of the Shareholders (the "ESCROW AMOUNT"). The portion of the Escrow
Amount contributed on behalf of each Shareholder shall be in proportion to the
aggregate number of Merger Shares which such Shareholder would otherwise be
entitled to receive in the Merger by virtue of ownership of outstanding shares
of Company Capital Stock.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record (as of
the Effective Time) of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Capital Stock whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.6 and any dividends or other
distributions payable pursuant to Section 1.8(d), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock and any dividends or other distributions payable pursuant
to Section 1.8(d). Upon surrender of Certificates
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for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock and any dividends
or distributions payable pursuant to Section 1.8(d), and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, outstanding
Certificates will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.8(d) as to the payment of dividends, to evidence
the ownership of the number of full shares of Parent Common Stock into which
such shares of Company Capital Stock shall have been so converted and any
dividends or distributions payable pursuant to Section 1.8(d).
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificates
with respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates, the
Exchange Agent shall deliver to the record holders thereof, without interest,
certificates representing whole shares of Parent Common Stock issued in exchange
therefor and the amount of any such dividends or other distributions with a
record date after the Effective Time payable with respect to such whole shares
of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If certificates for shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
for shares of Parent Common Stock in any name other than that of the registered
holder of the Certificates surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.8, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Company Capital Stock for
any amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All
consideration paid in respect of the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof, shall be deemed to be full
satisfaction of all rights pertaining to such shares of Company Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
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1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock and other amounts, if
any, as may be required pursuant to Section 1.8(d); PROVIDED, HOWEVER, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificates to
deliver a bond in such sum as it may reasonably direct against any claim that
may be made against Parent or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.11 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 Company, Parent and Sub, the officers and directors of the
Company, Parent and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
1.12 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE"). It
is intended by the parties hereto that the Merger be treated as a pooling of
interests for financial accounting purposes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRINCIPAL SHAREHOLDERS
Each of the Company and the Principal Shareholders hereby, severally and
not jointly, represents and warrants to Parent and Sub, subject to such
exceptions as are specifically disclosed in the disclosure schedule (referencing
the appropriate Section and paragraph numbers) supplied by the Company and the
Principal Shareholders to Parent and attached hereto as EXHIBIT D-1 (the
"DISCLOSURE SCHEDULE"), that on the date hereof and as of the Effective Time as
though made at the Effective Time as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified could have a Company Material Adverse
Effect. For all purposes of this Agreement, the term "COMPANY MATERIAL ADVERSE
EFFECT" means any change, event or effect that is materially adverse to the
business, assets (including intangible assets), condition (financial or
otherwise), results of operations of the Company taken as a whole. The
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Company has delivered a true and correct copy of its Articles of Incorporation
and Bylaws, each as amended to date, to Parent. Section 2.1 of the Disclosure
Schedule lists the directors and officers of the Company. The operations now
being conducted by the Company have not been conducted under any other name.
2.2 SUBSIDIARIES. The Company does not have, and has never had, any
subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint venture
or other business entity.
2.3 COMPANY CAPITAL STRUCTURE.
(a) The authorized Company Capital Stock consists of Twenty
Million, (20,000,000) shares of authorized Company Common Stock, no par value,
of which 3,602,270 shares are issued and outstanding as of the date hereof, and
Eight Million, Six Hundred Thirty-Seven Thousand, Seven Hundred Eighty-One
(8,637,781) shares of Preferred Stock, no par value, of which 2,330,000 shares
are designated Series A Preferred Stock, of which 2,330,000 shares are issued
and outstanding as of the date hereof, 1,863,337 shares are designated Series B
Preferred Stock, 1,863,337 shares of which are issued and outstanding as of the
date hereof, and 4,444,444 shares are designated Series C Preferred Stock, of
which 1,115,004 shares are issued and outstanding as of the date hereof. The
Company Capital Stock is held by the persons, with the record addresses and in
the amounts set forth in Section 2.3(a) of the Disclosure Schedule. All
outstanding shares of Company Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Articles of Incorporation or Bylaws of the Company or any agreement
to which the Company is a party or by which it is bound and have been issued in
compliance with federal and state securities laws. There are no declared or
accrued unpaid dividends with respect to any shares of the Company's Capital
Stock. The Company has no other capital stock authorized, issued or outstanding.
(b) Except for the Stock Option Plan, the Company has never
adopted or maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has reserved 1,442,000 shares of Company
Common Stock for issuance to employees and consultants pursuant to the 1997
Stock Option Plan, 634,294 shares of which are subject to outstanding
unexercised options as of the date hereof and 400,000 shares of Company Common
Stock for issuance to a consultant pursuant to the NSO Stock Option Plan,
300,000 shares of which are subject to outstanding unexercised options as of the
date hereof. Except as set forth on Section 2.3(b) of the Disclosure Schedule,
there is no outstanding Company Capital Stock which is subject to vesting.
Section 2.3(b) of the Disclosure Schedule sets forth for each outstanding
Company Option, the name and the domicile address of the holder, the number of
shares of Company Common Stock subject to such Company Option, the exercise
price of such Company Option, the vesting schedule of such Company Option
including the extent to which such Company Option has vested to the date hereof
and whether the vesting of such Company Option will be
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accelerated by reason of the transactions contemplated by this Agreement, and
whether such Company Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Section 2.3(b) of the Disclosure
Schedule also sets forth the name of the holder of any Company Capital Stock
subject to vesting, the number of shares of Company Capital Stock subject to
vesting and the vesting schedule for such Company Capital Stock, including the
extent vested to date. Except as set forth on Section 2.3(b) of the Disclosure
Schedule, there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party or
by which it is bound obligating the Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting stock of the Company. As a result of the Merger, Parent will be the
sole record and beneficial owner of all outstanding Company Capital Stock and
all rights to acquire or receive any Company Capital Stock, whether or not such
Company Capital Stock is outstanding.
2.4 AUTHORITY. Each of the Company and the Principal Shareholders has
all requisite power and authority to enter into this Agreement and any Related
Agreements (as defined below) to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and any Related Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company, and no
further action is required on the part of the Company or the Principal
Shareholders to authorize the Agreement, any Related Agreements to which it is a
party and the transactions contemplated hereby and thereby, subject only to the
approval of this Agreement by the Shareholders. This Agreement and the Merger
have been unanimously approved by the Board of Directors of the Company. This
Agreement and any Related Agreements to which the Company or the Principal
Shareholders is a party have been duly executed and delivered by the Company or
the Principal Shareholders, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Company and the Principal
Shareholders, as the case may be, enforceable in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies. The
"RELATED AGREEMENTS" shall mean all such ancillary agreements required in this
Agreement to be executed and delivered in connection with the transactions
contemplated hereby, including the Noncompetition Agreements, the Rule 145
Affiliate Agreements (as defined in Section 5.13) and the Voting Agreements.
2.5 NO CONFLICT. The execution and delivery of this Agreement and any
Related Agreements to which the Company or the Principal Shareholders are a
party by either the Company
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or the Principal Shareholders do not, and, the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (i) any provision of the Articles of Incorporation and Bylaws of the
Company, (ii) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise or license to which the Company or
the Principal Shareholders or any of their respective properties or assets
(including intangible assets) are subject, or (iii) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or the
Principal Shareholders or their respective properties or assets.
2.6 CONSENTS. Except as set forth on Schedule 2. 6, no consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other federal,
state, county, local or other foreign governmental authority, instrumentality,
agency or commission ("GOVERNMENTAL ENTITY") or any third party, including a
party to any agreement with the Company (so as not to trigger any Conflict), is
required by or with respect to the Company or the Principal Shareholders in
connection with the execution and delivery of this Agreement and any Related
Agreements to which the Company or the Principal Shareholders is a party or the
consummation of the transactions contemplated hereby and thereby, except for
(i) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws and
(ii) the filing of the Merger Agreement with the Secretary of State of the State
of California.
2.7 COMPANY FINANCIAL STATEMENTS. Schedule 2. 7 of the Disclosure
Schedule sets forth the Company's unaudited balance sheets as of June 30, 1999
and June 30, 1998 and the related unaudited statements of income and cash flow
for the twelve-month periods ended June 30, 1999, June 30, 1998 and June 30,
1997 (the "YEAR-END FINANCIALS") and the Company's unaudited balance sheets as
of August 31, 1999, and the related unaudited statements of income and cash flow
for the two months then ended (the "INTERIM FINANCIALS"). The Year-End
Financials and the Interim Financials are correct in all material respects and
have been prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other except for the
absence of footnotes thereto. The Year-End Financials and Interim Financials
present fairly the financial condition and consolidated operating results of the
Company as of the dates and during the periods indicated therein, subject in the
case of the Interim Financials, to normal year-end adjustments, which will not
be material in amount or significance. The Company's unaudited Balance Sheet as
of August 31, 1999 shall be hereinafter referred to as the "CURRENT BALANCE
SHEET." On the Closing Date, the Company's Net Assets will be greater than the
lesser of (A) $250,000, or (B) Estimated Net Assets (each exclusive of $200,000
of Third Party Expenses (as defined in Section 5.4)).
2.8 NO UNDISCLOSED LIABILITIES. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute,
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contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate (i) has not been reflected in the Current Balance Sheet, or (ii) has
not arisen in the ordinary course of business consistent with past practices
since August 31, 1999, none of which is material to the business, results of
operations or condition (financial or otherwise) of the Company.
2.9 NO CHANGES. Since August 31, 1999, there has not been, occurred or
arisen any:
(a) amendments or changes to the Articles of Incorporation or
Bylaws of the Company;
(b) capital expenditure or commitment by the Company, exceeding
$25,000 individually or $100,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company or any direct or
indirect redemption, purchase or other acquisition by the Company of its capital
stock;
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company of a bonus or other additional salary or
compensation to any such person;
(i) except in the ordinary course of business in accordance with
past custom and practice any agreement, contract, covenant, instrument, lease,
license or commitment to which the Company is a party or by which they or any of
its assets (including intangible assets) are bound or any termination,
extension, amendment or modification the terms of any agreement, contract,
covenant, instrument, lease, license or commitment to which the Company is a
party or by which it or any of its assets are bound;
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(j) except as set forth on Schedule 2.9(j), sale, lease, license
or other disposition of any of the assets or properties of the Company or any
creation of any security interest in such assets or properties;
(k) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practice;
(l) except in the ordinary course of business in accordance with
past custom and practice waiver or release of any right or claim of the Company
including any write-off or other compromise of any account receivable of the
Company;
(m) the commencement or notice or threat or reasonable basis
therefor of any lawsuit or, to the Company's or the Principal Shareholders'
Knowledge, proceeding or investigation against the Company or its affairs;
(n) Knowledge of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as defined
in Section 2.13) or of infringement by the Company, of any other person's
Intellectual Property (as defined in Section 2.13);
(o) issuance or sale, or contract to issue or sell, by the Company
of any shares of its capital stock or securities exchangeable, convertible or
exercisable therefor, or any securities, warrants, options or rights to purchase
any of the foregoing, except pursuant to the Company's Stock Option Plans;
(p) except commercial licenses in the ordinary course of business
in accordance with past custom and practice (i) sale or license of any Company
Intellectual Property or entering into of any agreement with respect to the
Company Intellectual Property with any person or entity or with respect to the
Intellectual Property of any person or entity or (ii) purchase or license of any
Intellectual Property or entering into of any agreement with respect to the
Intellectual Property of any person or entity or (iii) change in pricing or
royalties set or charged by the Company to its customers or licensees or in
pricing or royalties set or charged by persons who have licensed Intellectual
Property to the Company;
(q) any event or condition of any character that has had or is
reasonably likely to have a Company Material Adverse Effect;
(r) any transaction by the Company except in the ordinary course
of business as conducted on that date and consistent with past practices; or
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(s) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.10 Tax Matters.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES", means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) As of the Effective Time, each of the Company will have
prepared and timely filed all required federal, state, local and foreign
returns, estimates, information statements and reports ("RETURNS") relating to
any and all Taxes concerning or attributable to the Company or its operations
and such Returns are true and correct and have been completed in accordance with
applicable law.
(ii) As of the Effective Time, each of the Company (A) will
have paid all Taxes it is required to pay and will have withheld with respect to
its employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld and have timely paid over to the proper governmental
authorities all amounts required to be withheld and paid over under all
applicable laws, and (B) will have accrued on the Current Balance Sheet all
Taxes attributable to the periods covered by the Current Balance Sheet and will
not have incurred any liability for Taxes for the period prior to the Effective
Time other than in the ordinary course of business.
(iii) The Company has not been delinquent in the payment of
any Tax nor is there any Tax deficiency outstanding, assessed or proposed
against the Company nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
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(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company has no liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
on the Current Balance Sheet, whether asserted or unasserted, contingent or
otherwise.
(vi) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal and state income and all state sales and
use Returns for the Company filed for all periods since its inception.
(vii) There are (and immediately following the Effective Time
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"LIENS") on the assets of the Company relating to or attributable to Taxes other
than Liens for Taxes not yet due and payable.
(viii) Neither the Company nor the Principal Shareholders has
Knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Company.
(ix) None of the Company's assets are treated as "tax-exempt
use property", within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible as an expense under applicable law.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company (A) has never been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
consolidated group the common parent of which is the Company), (B) has never
been a party to any Tax sharing or Tax allocation agreement, arrangement or
understanding and does not owe any amount under any such agreement, other than
this Agreement, (C) is not liable for the Taxes of any other person under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign law), as a transferee or successor, by contract or otherwise, and (D)
has never been a party to any joint venture, partnership or other arrangement
that could be treated as a partnership for income Tax purposes.
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(xiii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
(xiv) The Company is not and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of
Section 897(c)(2) of the Code.
(xv) No adjustment relating to any Return filed by the
Company and no claim by a tax authority in a jurisdiction in which the Company
does not file returns that the Company may be subject to taxation by such
jurisdiction has been proposed formally or, to the knowledge of the Company or
the Principal Shareholders, informally by any tax authority to the Company or
any representative thereof.
(xvi) The Company has never constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (A) in the
two years prior to the date of this Agreement or (B) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger.
(c) EXECUTIVE COMPENSATION TAX. There is no contract, agreement,
plan or arrangement to which the Company is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of Company, individually or
collectively, that could give rise to the payment of any amount that would not
be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
may have the effect of prohibiting or impairing any business practice of the
Company any acquisition of property (tangible or intangible) by the Company or
the conduct of business by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which it is restricted from
selling, licensing or otherwise distributing any of its technology or products
to or providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT.
(a) The Company does not own any real property, nor has either
ever owned any real property. Section 2.12(a) of the Disclosure Schedule sets
forth a list of all real property currently leased by the Company, the name of
the lessor, the date of the lease and each amendment thereto and, with respect
to any current lease, the aggregate annual rental and/or other fees payable
under any such lease. All such current leases are in full force and effect, are
valid and effective in
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accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of their
respective tangible properties and assets, real, personal and mixed, used or
held for use in its business, free and clear of any Liens, except as reflected
in the Current Balance Sheet and except for Liens for Taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not detract from the
value, or interfere with the present use, of the property subject thereto or
affected thereby.
(c) Section 2.12(c) of the Disclosure Schedule lists all material
items of equipment (the "EQUIPMENT") owned or leased by the Company and such
Equipment is, (i) adequate for the conduct of the business of the Company as
currently conducted and (ii) in good operating condition, regularly and properly
maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear
of any Liens, of all customer files and other customer information relating to
customers of the Company's current and former customers (the "CUSTOMER
INFORMATION"). No person other than the Company possesses any claims or rights
with respect to use of the Customer Information.
2.13 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following
(i) works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, records, data and mask works, (ii) inventions
(whether or not patentable), improvements, and technology, (iii) proprietary and
confidential information, trade secrets and know how, (iv) databases, data
compilations and collections and technical data, (v) logos, trade names, trade
dress, trademarks and service marks, (vi) domain names, web addresses and sites,
(vii) tools, methods and processes, and (viii) all media in which any of the
foregoing is embodied.
"INTELLECTUAL PROPERTY RIGHTS" shall mean worldwide common law
and statutory rights associated with (i) patents and patent applications,
(ii) copyrights, copyrights registrations and copyrights applications and
"moral" rights, (iii) the protection of trade and industrial secrets and
confidential information, (iv) other proprietary rights relating to intangible
intellectual property, (v) trademarks, trade names and service marks, (vi)
analogous rights to those
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set forth above, and (vii) divisions, continuations, renewals, reissuances and
extensions of the foregoing (as applicable) now existing or hereafter filed,
issued or acquired.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property and Intellectual Property Rights that are owned by or exclusively
licensed to the Company.
"REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall mean
Intellectual Property Rights that have been registered, filed, certified or
otherwise perfected by recordation with any state, government or other public
legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all
Registered Intellectual Property owned by, or filed in the name of, the Company
(the "COMPANY REGISTERED INTELLECTUAL PROPERTY") and lists any proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property Rights.
(c) Each item of Company Intellectual Property, including all
Company Registered Intellectual Property listed in Section 2.13(b) of the
Disclosure Schedule and all Intellectual Property licensed to the Company, is
free and clear of any Liens or other encumbrances. The Company is the exclusive
owner of all Company Intellectual Property.
(d) To the extent that any Intellectual Property has been
developed or created independently or jointly by any person other than the
Company for which the Company has, directly or indirectly, paid, the Company has
a written agreement with such person with respect thereto, and the Company
thereby has obtained ownership of, and is the exclusive owner of, all such
Intellectual Property and associated Intellectual Property Rights by operation
of law or by valid assignment.
(e) The Company has not transferred ownership of or granted any
license, other than as listed in Section 2.13(g) of the Disclosure Schedules of
or right to use or authorized the retention of any rights to use any
Intellectual Property or Intellectual Property Rights that is or was Company
Intellectual Property, to any other person.
(f) The Company Intellectual Property constitutes all the
Intellectual Property and Intellectual Property Rights used in and/or necessary
to the conduct of the business of the Company as it currently is conducted,
planned or is reasonably contemplated to be conducted, including, without
limitation, the design, development, manufacture, use, import and sale of
products, technology and services (including products, technology or services
currently under development); provided, however, that this representation shall
not be construed to be a representation or warranty about the success or
timeliness of any product development proposed to be conducted.
(g) Other than "shrink-wrap" and similar widely available
commercial end-user licenses, the contracts, licenses and agreements listed in
Section 2.13(g) of the Disclosure Schedule
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include all contracts, licenses and agreements to which the Company is a party
with respect to any Intellectual Property and Intellectual Property Rights. No
person who has licensed Intellectual Property or Intellectual Property Rights to
the Company has ownership rights or license rights to improvements made by the
Company in such Intellectual Property which has been licensed to the Company.
(h) Section 2.13(h) of the Disclosure Schedule lists all
contracts, licenses and agreements between the Company and any other person
wherein or whereby the Company has agreed to, or assumed, any obligation or duty
to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property Rights of any person other than the Company.
(i) The operation of the business of the Company as it currently
is conducted or is reasonably contemplated to be conducted, including but not
limited to the design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of the Company does not infringe or misappropriate
the Intellectual Property Rights of any person, violate the rights of any person
(including rights to privacy or publicity), or constitute unfair competition or
trade practices under the laws of any jurisdiction, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates the
Intellectual Property Rights of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor is the Company or the
Principal Shareholders aware of any basis therefor).
(j) Each item of Company Registered Intellectual Property is valid
and subsisting, and all necessary registration, maintenance and renewal fees in
connection with such Company Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Company
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. There are no actions that must be taken by the
Company within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Registered Intellectual Property. For each product,
technology or service of the Company that constitutes or includes a
copyrightable work, the Company has registered the copyright in the latest
version of such work with the U.S. Copyright Office. In each case in which the
Company has acquired any Intellectual Property rights from any person, the
Company as obtained a valid and enforceable assignment sufficient to irrevocably
transfer all rights in such Intellectual Property and the associated
Intellectual Property Rights (including the right to seek past and future
damages with respect thereto) to the Company and, to the maximum extent provided
for by, and in accordance with, applicable laws and regulations, the Company has
recorded each such
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assignment with the relevant governmental authorities, including the PTO, the
U.S. Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be.
(k) To the Knowledge of the Company and the Principal
Shareholders, no person is infringing or misappropriating any Company
Intellectual Property.
(l) No Company Intellectual Property, Intellectual Property Rights
or service of the Company is subject to any proceeding or outstanding decree,
order, judgement, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(m) All of the Company's products (including products currently
under development) will record, store, process, calculate and present calendar
dates falling on and after (and if applicable, spans of time including) January
1, 2000, and will calculate any information dependent on or relating to such
dates in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "YEAR 2000 COMPLIANT").
All of the Company's products (i) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000 and
(ii) will be interoperable with other products used and distributed by Parent
that may deliver records to the Company's products or receive records from the
Company's products, or interact with the Company's products, including but not
limited to back-up and archived data.
(n) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company or the Principal Shareholders
regarding the scope of such agreement, or performance under such agreement
including with respect to any payments to be made or received by the Company
thereunder.
(o) Each of the Company has taken all steps that are reasonably
required to protect the Company's rights in confidential information and trade
secrets of the Company or provided by any other person to the Company. Without
limiting the foregoing, each of the Company has, and enforces, a policy
requiring each employee, consultant and contractor to execute proprietary
information, confidentiality and assignment agreements substantially in the
Company's standard forms, and all current and former employees, consultants and
contractors of the Company have executed such an agreement.
(p) No (i) product, technology, service or publication of the
Company, (ii) material published or distributed by the Company or (iii) conduct
or statement of Company constitutes obscene material, a defamatory statement or
material, false advertising or otherwise, to the Company's knowledge violates
any law or regulation.
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2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Sections 2.13(g), 2.13(h), 2.14(a) or
2.22(b) of the Disclosure Schedule, the Company is not a party to nor is either
bound by:
(i) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(ii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of 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,
(iii) any fidelity or surety bond or completion bond,
(iv) any lease of personal property having a value
individually in excess of $25,000 or $100,000 in the aggregate,
(v) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(vi) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000
individually or $100,000 in the aggregate,
(vii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business,
(viii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit,
(ix) any purchase order or contract for the purchase of
materials involving in excess of $25,000 individually or $100,000 in the
aggregate,
(x) any construction contracts,
(xi) any dealer, distribution, joint marketing or
development agreement,
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(xii) any sales representative, original equipment
manufacturer, value added, remarketer, reseller or independent software vendor
or other agreement for use or distribution of the Company's products, technology
or services, or
(xiii) any other agreement, contract or commitment that
involves $25,000 individually or $100,000 in the aggregate or more or is not
cancelable without penalty within thirty (30) days.
(b) The Company is in compliance with and has not breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted under, any of the terms or conditions of any agreement, contract,
covenant, instrument, lease, license or commitment to which it is not a party or
by which either of them is bound (collectively a "CONTRACT"), nor is the Company
or the Principal Shareholders aware of any event that would constitute such a
breach, violation or default with the lapse of time, giving of notice or both.
Each Contract is in full force and effect and is not subject to any default
thereunder by any party obligated to the Company pursuant thereto. The Company
has obtained, or will obtain prior to the Closing Date, all necessary consents,
waivers and approvals of parties to any Contract as are required thereunder in
connection with the Merger or for such Contracts to remain in effect without
modification after the Closing. Following the Effective Time, each of the
Company will be permitted to exercise all of their rights under the Contracts
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company would otherwise be
required to pay had the transactions contemplated by this Agreement not
occurred.
2.15 INTERESTED PARTY TRANSACTIONS. No officer, director or Shareholder
(nor any ancestor, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services, products or technology
that the Company furnishes or sells, or proposes to furnish or sell, or (ii) any
interest in any entity that purchases from or sells or furnishes to the Company
any goods or services or (iii) a beneficial interest in any Contract; PROVIDED,
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed an "interest in any entity"
for purposes of this Section 2. 15.
2.16 GOVERNMENTAL AUTHORIZATION. Section 2. 16 of the Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to the Company by a Governmental Entity (i) pursuant to
which the Company currently operates or holds any interest in any of their
properties or (ii) which is required for the operation of its business or the
holding of any such interest (herein collectively called "COMPANY
AUTHORIZATIONS"). The Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the Company to operate
or conduct its business or hold any interest in its properties or assets.
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2.17 LITIGATION. There is no action, suit, claim or proceeding of any
nature pending, or, to the Company's or the Principal Shareholders' Knowledge,
threatened, against the Company, or its properties (tangible or intangible) or
any of its officers or directors, nor, to the Knowledge of the Company or the
Principal Shareholders, is there any reasonable basis therefor. To the
Company's or the Principal Shareholders' Knowledge, there is no investigation
pending or threatened against the Company, its properties or any of its officers
or directors (nor, to the best Knowledge of the Company or the Principal
Shareholders, is there any reasonable basis therefor) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to conduct its operations as presently
or previously conducted.
2.18 ACCOUNTS RECEIVABLE; INVENTORY.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company as of August 31, 1999 along with a range of
days elapsed since invoice.
(b) All accounts receivable arose in the ordinary course of
business, are carried at values determined in accordance with GAAP consistently
applied and are collectible except to the extent of reserves therefor set forth
in the Current Balance Sheet. No person has any Lien on any of such Accounts
Receivable and no request or agreement for deduction or discount has been made
with respect to any of such Accounts Receivable.
(c) All of the inventories of the Company reflected on the Company
Financials and the Company's books and records were purchased, acquired or
produced in the ordinary and regular course of business and in a manner
consistent with the Company's regular inventory practices and are set forth on
the Company's books and records in accordance with the practices and principles
of the Company consistent with the method of treating said items in prior
periods. None of the inventory of the Company reflected on the Company
Financials or on the Company's books and records (in either case net of the
reserve therefor) is obsolete, defective or in excess of the needs of the
business of the Company reasonably anticipated for the normal operation of the
business consistent with past practices and outstanding customer contracts. The
presentation of inventory on the Company Financials conforms to GAAP and such
inventory is stated at the lower of cost (determined using the first-in,
first-out method) or net realizable value.
2.19 MINUTE BOOKS. The minutes of the Company made available to counsel
for Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of the
Company and its respective shareholders or actions by written consent since the
time of incorporation of the Company.
2.20 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased;
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or (ii) illegally released any material amount of any substance that has been
designated by any Governmental Entity or by applicable federal, state or local
law to be radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "HAZARDOUS MATERIAL"), but excluding office
and janitorial supplies properly and safely maintained. No Hazardous Materials
are present as a result of the deliberate actions of the Company or, to the
Company's or the Principal Shareholders' Knowledge, as a result of any actions
of any other person or otherwise, in, on or under any property, including the
land and the improvements, ground water and surface water thereof, that the
Company has at any time owned, operated, occupied or leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Effective Time, nor has either of them disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all of
the foregoing being collectively referred to as "HAZARDOUS MATERIALS
ACTIVITIES") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities, respectively, and other businesses of the Company as such activities
and businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's or the Principal Shareholders' Knowledge, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Company. Neither the Company nor the Principal Shareholders is aware of any
fact or circumstance which could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
2.21 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. The Company has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby.
Section 2.21 of the Disclosure Schedule sets forth the Company's current
reasonable estimate of all Estimated Third Party Expenses. The Company's Third
Party Expenses shall not exceed the greater of $200,000 or Estimated Third Party
Expenses.
2.22 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
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(a) The following terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
(ii) "EMPLOYEE PLAN" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current or former employee,
consultant or director of the Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or other agreement, contract or understanding between the Company or
any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993,
as amended;
(ix) "IRS" shall mean the Internal Revenue Service;
(x) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xi) "PENSION PLAN" shall mean each Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. Schedule 2.22(b) contains an accurate and complete
list of each Employee Plan and each Employee Agreement under each Employee Plan
or Employee Agreement. The Company has no plan or commitment to establish any
new Employee Plan or Employee Agree-
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ment, to modify any Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Employee Plan or Employee Agreement to
the requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement.
(c) DOCUMENTS. The Company has provided to Parent: (i) correct
and complete copies of all documents embodying each Employee Plan and each
Employee Agreement including (without limitation) all amendments thereto and all
related trust documents; (ii) the three (3) most recent annual reports (Form
Series 5500 and all schedules and financial statements attached thereto), if
any, required under ERISA or the Code in connection with each Employee Plan;
(iii) if the Employee Plan is funded, the most recent annual and periodic
accounting of Employee Plan assets; (iv) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each Employee Plan; (v) all material
written agreements and contracts relating to each Employee Plan, including, but
not limited to, administrative service agreements and group insurance contracts;
(vi) all communications material to any Employee or Employees relating to any
Employee Plan and any proposed Employee Plans, in each case, relating to any
amendments, terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would result
in any liability to the Company; (vii) all correspondence to or from any
governmental agency relating to any Employee Plan; (viii) all COBRA forms and
related notices; (ix) all policies pertaining to fiduciary liability insurance
covering the fiduciaries for each Employee Plan; (x) all discrimination tests
for each Employee Plan for the most recent plan year; and (xi) all registration
statements, annual reports (Form 11-K and all attachments thereto) and
prospectuses prepared in connection with each Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. (i) The Company has performed all
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any default or violation by any other party to each
Employee Plan, and each Employee Plan has been established and maintained in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) no "prohibited transaction," within the meaning of Section 4975 of the Code
or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Employee Plan; (iii) there are no
actions, suits or claims pending, or, to the knowledge of the Company or the
Principal Shareholders, threatened or reasonably anticipated (other than routine
claims for benefits) against any Employee Plan or against the assets of any
Employee Plan; (iv) each Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Parent, the Company or any Affiliate (other than ordinary
administration expenses); (v) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or the Principal Shareholders or any
Affiliates, threatened by the IRS or DOL with respect to any Employee Plan; and
(vi) neither the Company nor any Affiliate is subject to
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any penalty or tax with respect to any Employee Plan under Section 502(i) of
ERISA or Sections 4975 through 4980 of the Code.
(e) NO PENSION PLANS. Neither the Company nor any Affiliate has
ever maintained, established, sponsored, participated in, or contributed to, any
Pension Plan.
(f) NO POST-EMPLOYMENT OBLIGATIONS. No Employee Plan provides, or
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(g) COBRA. Neither the Company nor any Affiliate has, prior to
the Effective Time, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees.
(h) EFFECT OF TRANSACTION. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(i) EMPLOYMENT MATTERS. The Company: (i) is in compliance with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees;
(iii) is not liable for any arrears of wages or any taxes or any penalty for
failure to comply with any of the foregoing; and (iv) is not liable for any
payment to any trust or other fund governed by or maintained by or on behalf of
any governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending or, to the knowledge of the Company or the
Principal Shareholders, threatened or reasonably anticipated claims or actions
against the Company under any worker's compensation policy or long-term
disability policy.
(j) LABOR. No work stoppage or labor strike against the Company
is pending, or to the knowledge of the Company or the Principal Shareholders,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to
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organize any Employees. There are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of the Company or the Principal
Shareholders, threatened or reasonably anticipated relating to any labor, safety
or discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints. The Company has
not engaged in any unfair labor practices within the meaning of the National
Labor Relations Act. The Company is not presently, nor has either been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company.
(k) NO INTERFERENCE OR CONFLICT. To the knowledge of the Company
and the Principal Shareholders, no shareholder, officer, employee or consultant
of the Company is obligated under any contract or agreement subject to any
judgment, decree or order of any court or administrative agency that would
interfere with such person's efforts to promote the interests of the Company or
that would interfere with the Company's business. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business as
presently conducted or presently proposed to be conducted nor any activity of
such officers, directors, employees or consultants in connection with the
carrying on of the Company's business as presently conducted or currently
proposed to be conducted, will, to the Company's and the Principal Shareholders'
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract or agreement under
which any of such officers, directors, employees or consultants is now bound.
2.23 INSURANCE. Section 2. 23 of the Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid, and the Company is otherwise in compliance with the terms
of such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage). Neither the Company nor the Principal Shareholders
has Knowledge of any threatened termination of, or premium increase with respect
to, any of such policies.
2.24 COMPLIANCE WITH LAWS. The Company has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
material foreign, federal, state or local statute, law or regulation.
2.25 WARRANTIES; INDEMNITIES. Except for the warranties and indemnities
contained in (i) those contracts and agreements set forth in Section 2. 13(g)
of the Disclosure Schedule and (ii) the Company's shrink wrap license agreements
substantially in the form set forth in Section 2.13(d) of the Disclosure
Schedule, the Company has not given any warranties or indemnities relating to
products or technology sold or licensed or services rendered by the Company.
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2.26 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
2.27 STATEMENTS; PROXY STATEMENT. The information supplied by the
Company for inclusion in the Registration Statement (as defined in Section 5.
1(a)) shall not at the time the Registration Statement is filed with the SEC and
at the time it becomes effective under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. The information supplied by the
Company for inclusion in the Proxy Statement (as defined in Section 5.1(a)) to
be sent to the Shareholders shall not, on the date the Proxy Statement is first
mailed to the Shareholders and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies or consents for
approval of the this Agreement which has become false or misleading. If at any
time prior to the Effective Time, any event relating to the Company or any of
its affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, the Company shall promptly inform Parent.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained in any of the foregoing documents.
2.28 POOLING OF INTERESTS. To the knowledge of the Company and the
Principal Shareholders, based on consultation with the Company's independent
accountants, neither the Company nor any of its directors, officers or
affiliates has taken any action which would interfere with (i) Parent's ability
to account for the Merger as a pooling of interests for financial accounting
purposes or (ii) Parent's, Surviving Corporation's or the Company's ability to
continue to account for as a pooling of interests any past acquisition by the
Company currently accounted for as a pooling of interests.
2.29 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company or the Principal Shareholders (as modified by the Disclosure
Schedule), nor any statement made in any Schedule or certificate furnished by
the Company or the Principal Shareholders pursuant to this Agreement or
furnished in or in connection with documents mailed or delivered to the
Shareholders for use in soliciting their consent to this Agreement and the
Merger contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Merger Sub represent and warrant to the Company that on the
date hereof, and as of the Effective Time as though made on the date hereof,
except as otherwise disclosed on the Parent Disclosure Schedules attached hereto
as EXHIBIT D-2 as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Each of Parent and Sub has
the corporate power to own its properties and to carry on its business as now
being conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the ability of Parent and Sub to consummate the transactions
contemplated hereby. Parent has made available a true and correct copy of the
Certificate of Incorporation and Bylaws of Parent and the Articles of
Incorporation and Bylaws of Sub, as amended to date, to counsel for the Company.
For all purposes of this Agreement, the term "PARENT MATERIAL ADVERSE EFFECT"
means any change, event or effect that is materially adverse to the business,
assets (including intangible assets), financial condition, or results of
operations of Parent and its subsidiaries taken as a whole.
3.2 AUTHORITY. Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and any Related Agreements to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement and any Related
Agreements to which Parent and Sub are parties have been duly executed and
delivered by Parent and Sub and constitutes the valid and binding obligations of
Parent and Sub, enforceable in accordance with their terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
3.3 NO CONFLICT. The execution and delivery of this Agreement and any
Related Agreements to which it is a party do not, and, the consummation of the
transactions contemplated hereby will not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a Conflict under (i) any provision of the Certificate
of Incorporation, as amended, and Bylaws of Parent or Sub, (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise or license to which Parent or any of its respective properties or
assets are subject and which has been filed as an exhibit to Parent's filings
under the Securities Act or the Exchange Act or (iii) any judgment, order,
decree, statute, law,
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ordinance, rule or regulation applicable to Parent or Sub or its properties or
assets, except where such Conflict will not have a Parent Material Adverse
Effect.
3.4 CONSENTS. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, or any
third party is required by or with respect to Parent or Sub in connection with
the execution and delivery of this Agreement and any Related Agreements to which
it is a party or the consummation of the transactions contemplated hereby and
thereby, except for such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
securities laws and such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings which, if not obtained or made, would
not have a Parent Material Adverse Effect.
3.5 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 250,000,000 shares
of Common Stock, $.0001 par value, of which 24,310,821 shares were issued and
outstanding as of September 29, 1999, and 10,000,000 shares of undesignated
Preferred Stock, $.0001 par value. No shares of Preferred Stock are issued or
outstanding. The authorized capital stock of Sub consists of 1,000 shares of
Common Stock, $.001 par value, 1,000 shares of which, as of the date hereof, are
issued and outstanding and are held by Parent. All such shares of Parent and Sub
have been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof. Parent has also reserved 6,903,144 shares of Common Stock for
issuance pursuant to its employee and director stock and option and stock
purchase plans. Except as set forth in Section 3.5 of the Parent Disclosure
Schedule, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Parent is a party or by which it is bound
obligating Parent to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Parent or obligating Parent to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, non-assessable, free
of any liens or encumbrances and not subject to any preemptive rights or rights
of first refusal created by statute or the Articles of Incorporation or Bylaws
of Parent or Sub or any agreement to which Parent or Sub is a party or is bound.
3.6 BROKERS' AND FINDERS' FEES. The Parent has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
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3.7 STATEMENTS; PROXY STATEMENT. The information supplied by Parent for
inclusion in the Registration Statement (as defined in Section 5. 1(a)) shall
not at the time the Registration Statement is filed with the SEC and at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The
information supplied by Parent for inclusion in the Proxy Statement (as defined
in Section 5.1(a)) to be sent to the Shareholders shall not, on the date the
Proxy Statement is first mailed to the Shareholders and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies or consents for approval of the this Agreement which has become false or
misleading. If at any time prior to the Effective Time, any event relating to
Parent or any of its affiliates, officers or directors should be discovered by
Parent which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, Parent shall promptly inform the
Company. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by the Company which is
contained in any of the foregoing documents.
3.8 POOLING OF INTERESTS. To its knowledge, based on consultation with
its independent accountants, neither Parent nor any of its directors, officers
or affiliates has taken any action which would interfere with Parent's ability
to account for the Merger as a pooling of interests for financial accounting
purposes.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, each of the Company and the Principal
Shareholders agree (except to the extent that Parent shall otherwise consent in
writing), to carry on the Company's business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, to pay the
debts and Taxes of the Company when due, to pay or perform other obligations
when due, and, to the extent consistent with such business, use their reasonable
best efforts consistent with past practice and policies to preserve intact the
Company's present business organizations, keep available the services of the
Company's present officers and key employees and preserve the Company's
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired the Company's goodwill and ongoing businesses at the Effective Time.
The Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of business of the Company and any material event
involving
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the Company. Except as expressly contemplated by this Agreement as set forth in
Section 4.1 of the Disclosure Schedule, the Company shall not, without the prior
written consent of Parent:
(a) Make any expenditures or enter into any commitment or
transaction exceeding $25,000 individually or $100,000 in the aggregate or any
commitment or transaction of the type described in Section 2.9 hereof;
(b) Sell any Company Intellectual Property or enter into any
agreement with respect to the Company Intellectual Property with any person or
entity or with respect to the Intellectual Property of any person or entity,
(ii) buy any Intellectual Property or enter into any agreement with respect to
the Intellectual Property of any person or entity, (iii) enter into any
agreement with respect to development of any Intellectual Property with a third
party;
(c) Sell or enter into any license agreement with respect to the
Company Intellectual Property with any person or entity or buy or enter into any
license agreement with respect to the Intellectual Property of any person or
entity;
(d) Transfer to any person or entity any rights to the Company
Intellectual Property;
(e) Enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of any
type or scope with respect to any products or technology of the Company;
(f) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts set
forth or described in the Disclosure Schedule;
(g) Commence or settle any litigation;
(h) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of the capital
stock of the Company (or options, warrants or other rights exercisable
therefor);
(i) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities.
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(j) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets, except properties or assets which are not Intellectual
Property in the ordinary course of business and consistent with past practices;
(m) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(n) Grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement;
(o) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof and disclosed in the
Disclosure Schedule;
(p) Adopt any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(q) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(r) Pay, discharge or satisfy, in an amount in excess of $25,000
in any one case or $100,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Current Balance Sheet;
(s) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(t) Enter into any strategic alliance or joint marketing
arrangement or agreement;
(u) Other than as specifically requested in writing by Parent,
accelerate the vesting schedule of any of the outstanding Company Options or
Company Capital Stock;
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(v) Hire or terminate employees or encourage employees to resign;
or
(w) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (v) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 NO SOLICITATION. Until the earlier of the Effective Time or the
date of termination of this Agreement pursuant to the provisions of Section 8.
1 hereof, neither the Company nor any of the Principal Shareholders (nor will
the Company nor any of the Principal Shareholders permit any of their respective
officers, directors, agents, representatives or affiliates, as applicable, to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, encourage, initiate or participate
in any negotiations or discussions with respect to, any offer or proposal to
acquire all, substantially all or a significant portion of the Company's
business, properties or technologies or any portion of the Company's capital
stock (whether or not outstanding) whether by merger, purchase of assets, tender
offer or otherwise, or effect any such transaction, (b) disclose any information
not customarily disclosed to any person concerning the Company's business,
technologies or properties or afford to any person or entity access to its
properties, technologies, books or records, (c) assist or cooperate with any
person to make any proposal to purchase all or any part of the Company's capital
stock or assets, or (d) enter into any agreement with any person providing for
the acquisition of all or any significant portion of the Company (whether by way
of merger, purchase of assets, tender offer or otherwise). In addition to the
foregoing, if the Company or any of the Principal Shareholders receives, prior
to the Effective Time or the termination of this Agreement, any offer, proposal,
or request relating to any of the above, the Company or the Principal
Shareholders, as applicable, shall immediately notify Parent thereof, including
information as to the identity of the offer or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request.
The parties hereto agree that irreparable damage would occur in the event that
the provisions of this Section 4.2 were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed by the
parties that Parent shall be entitled to seek an injunction or injunctions to
prevent breaches of the provisions of this Section 4.2 and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which Parent may be entitled at law or in equity.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION STATEMENT; SHAREHOLDER APPROVAL.
(a) As promptly as practicable after the execution of this
Agreement, the Company shall prepare, with the cooperation of Parent, a proxy
statement (the "PROXY STATEMENT"),
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and Parent will prepare and file with the SEC a registration statement on Form
S-4 (the "REGISTRATION STATEMENT") in which the Proxy Statement will be included
as a prospectus. Each of Parent and the Company shall provide promptly to the
other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Proxy Statement and the
Registration Statement, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Proxy Statement and the Registration
Statement. Each of the Company and Parent shall use its respective reasonable
best efforts to respond to any comments of the SEC and have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing. The Company will cause the Proxy Statement to be mailed to
the Shareholders, at the earliest practicable time and in no event later than
10 days after the Registration Statement is declared effective by the SEC,
subject to Parent approval. As promptly as practicable after the date of this
Agreement, the Company and Parent will prepare and file any other filings
required under the Exchange Act, the Securities Act or any other Federal,
foreign or Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "OTHER FILINGS"). Each of the Company and
Parent will notify the other promptly upon the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration
Statement, the Proxy Statement or any Other Filing or for additional information
and will supply the other with copies of all correspondence between such party
or any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any Other Filing. The Proxy
Statement, the Registration Statement and the Other Filings will comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement, the
Registration Statement or any Other Filing, the Company or Parent, as the case
may be, will promptly inform the other of such occurrence and cooperate in
filing with the SEC or its staff or any other government officials, and/or
mailing to the Shareholders, such amendment or supplement.
(b) The Company shall promptly submit this Agreement and the
transactions contemplated hereby to its Shareholders for approval and adoption
as provided by California Law, its Articles of Incorporation and Bylaws. The
Company shall use its best efforts to obtain the consent of its Shareholders
sufficient to approve the Merger and this Agreement and to enable the Closing to
occur as soon as possible. The materials submitted to the Company's Shareholders
shall have been subject to review and approval by Parent and include information
regarding the Company, the terms of the Merger and this Agreement and the
unanimous recommendation of the Board of Directors of the Company in favor of
the Merger and this Agreement.
5.2 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and
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records, (b) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of the Company as
Parent may reasonably request and (c) all key employees of the Company as
identified by Parent. The Company agrees to provide to Parent and its
accountants, counsel and other representatives copies of internal financial
statements (including by returns and supporting documentation) promptly upon
request. Parent shall provide the Company with copies of such publicly available
information about Parent as the Company may request. No information or knowledge
obtained in any investigation pursuant to this Section 5.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.3 CONFIDENTIALITY. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5. 2, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transaction contemplated hereby shall be governed by the terms of the
Confidential Disclosure Agreement effective dated June 8, 1999, as amended
June 16, 1999, between the Company and Parent.
5.4 EXPENSES.
(a) Except as set forth in Section 5.4(b), whether or not the
Merger is consummated, all fees and expenses incurred in connection with the
Merger including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties ("THIRD PARTY
EXPENSES") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses.
(b) In the event that the Merger is consummated, Parent agrees to
bear $200,000 of those Third Party Expenses incurred by the Company (which
$200,000 limitation shall include any Third Party Expenses paid by the Company
prior to the Effective Time), and the Company and the Principal Shareholders
agree that Parent shall have full recourse to the Escrow Fund (as defined
herein) for of all Third Party Expenses of the Company that exceed the greater
of Estimated Third Party Expenses or $200,000.
(c) The Company shall deliver the Estimated Third Party Expenses
Letter to Parent concurrently with the Estimated Closing Balance Sheet.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent regarding the subject matter of this Agreement prior to
release. Any public announcement by Parent regarding the subject matter of this
Agreement shall be delivered to the Company prior to release.
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5.6 CONSENTS. The Company shall use its best efforts to obtain the
consents, waivers, assignments and approvals under any of the Contracts as may
be required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Disclosure Schedule) so as to preserve all rights
of, and benefits to, the Company thereunder.
5.7 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1. 1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.9 NOTIFICATION OF CERTAIN MATTERS. The Company and the Principal
Shareholders shall give prompt notice to Parent of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of the Company or the Principal
Shareholders, respectively, contained in this Agreement to be untrue or
inaccurate at or prior to the Effective Time and (ii) any failure of the Company
or the Principal Shareholders, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5. 9 shall not limit or otherwise affect any remedies available to the
party receiving such notice. No disclosure by the Company or the Principal
Shareholders pursuant to this Section 5.9, however, shall be deemed to amend or
supplement the Disclosure Schedule or prevent or cure any misrepresentations,
breach of warranty or breach of covenant.
5.10 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of another party hereto, 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.
5.11 EMPLOYEE PLANS. The Company and Parent shall use good faith efforts
to determine which Employee Plans of Company shall be terminated prior to
Closing Date .
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5.12 EMPLOYEE BENEFITS. Each employee of the Company who remains an
employee of Parent after the Effective Time shall be eligible, upon completion
of Parent's standard employee background and reference check, upon proof of
appropriate employment authorization from the U. S. Immigration and
Naturalization Service or the U.S. Department of State reflecting a right to
work in the United States, to receive salary and benefits (such as medical
benefits, bonuses, 401(k) and stock options) consistent with Parent's standard
human resource policies.
5.13 RULE 145 AFFILIATE AGREEMENTS. Schedule 5. 13 sets forth those
persons who, in the Company's reasonable judgment, are or may be "affiliates" of
the Company within the meaning of Rule 145 (each such person a "RULE 145
AFFILIATE") promulgated under the Securities Act ("RULE 145"). The Company shall
provide Parent such information and documents as Parent shall reasonably request
for purposes of reviewing such list. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement (and in
any case prior to the Effective Time) from each of the Rule 145 Affiliates of
the Company, an executed agreement ("RULE 145 AFFILIATE AGREEMENT") in the form
attached hereto as Exhibit G. Parent and Sub shall be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to be
received by such Rule 145 Affiliates pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer agent for
Parent Common Stock, consistent with the terms of such Rule 145 Affiliate
Agreements.
5.14 NO ACTIONS INCONSISTENT WITH TAX-FREE REORGANIZATION. The Company,
Parent and Merger Sub shall (and, following the Effective Time, Parent shall
cause the Company to) take no action with respect to the Capital Stock, assets
or liabilities of the Company that would cause the Merger to fail to qualify as
a "reorganization" within the meaning of Section 368(a) of the Code.
5.15 NASDAQ LISTING. Parent agrees to authorize for listing on the
Nasdaq National Market the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
5.16 FORM S-8. Parent shall file a registration statement on Form S-8 to
register shares of Parent Common Stock issuable upon exercise of assumed Company
Options (other than Company Options in the form of warrants or other investments
issued pursuant to arrangements that are not eligible for registration on Form
S-8) within 90 days after the Closing Date.
5.17 ESTIMATED BALANCE SHEET AND CLOSING BALANCE SHEET. Not fewer than
three days prior to the Closing, the Company shall deliver to Parent the
Estimated Balance Sheet. Not more than 10 business days after the Effective
Time, Parent shall prepare, in good faith, a balance sheet of the Company dated
as of the closing (the "Closing Balance Sheet"). To the extent that (A) the
dollar amount of the Net Assets in the Closing Balance Sheet is less than the
Estimated Net Assets and therefore were not deducted from the Total
Consideration, or (B) there are Third Party Expenses that exceed the greater of
(A) $200,000 or (B) Estimated Third Party Expenses, Parent shall be entitled to
recover the amount of such difference in dollar amount from the Escrow Fund as a
Loss in
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accordance with the procedures set from in Section 7.3, without regard to the
Basket Amount (as defined in Section 7.3).
5.18 ISSUANCE OF OPTIONS. Parent agrees that it shall issue options to
purchase an aggregated of not fewer than 200,000 shares of Parent Common Stock,
pursuant to option agreements in the Parent's standard form (the "Options") upon
or promptly after the Effective Date to certain Company employees who commence
employment with Parent after the Effective Date. The Options shall have an
exercise price equal to the fair market value of the date of grant, and be
subject to Parent's customary vesting schedule with a vesting commencement date
not later than the Effective Date.
5.19 CREDIT FACILITY. In the event that (i) this Agreement is still in
full force and effect, and (ii) the Closing has not occurred on or before
December 31, 1999, then Parent shall provide the Company with a secured credit
facility, on arms-length commercial terms, for up to an aggregate of $250,000
per month thereafter, up to a cumulative aggregate of $500,000. If this
Agreement terminates in accordance with its terms, then any principal and
interest owed to the Parent shall be repaid to the Parent in full not later than
180 days after the date of such termination, provided, however, that the Company
may prepay at any time without penalty.
5.20 TERMINATION, WAIVER AND RELEASE OF EMPLOYMENT AGREEMENTS. The
Company shall use its best efforts to provide that its employees listed on
Schedule 5.20 enter into Parent offer letter agreements as provided by Parent to
the Company not more than 10 business days after the date hereof (the "Parent
Offer Letter Agreements").
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of the Company and Parent to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) COMPANY SHAREHOLDER APPROVAL. This Agreement shall have been
approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the Shareholders of Company.
(b) REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT. The SEC
shall have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement, shall have been initiated or
threatened in writing by the SEC.
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(c) NO ORDER. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(d) NASDAQ LISTING. The shares of Parent Common Stock issuable to
the Shareholders of Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on Nasdaq upon official notice of issuance.
6.2 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE PRINCIPAL
SHAREHOLDERS. The obligations of the Company and the Principal Shareholders to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, exclusively
by the Company:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Parent and Sub in this Agreement shall be true
and correct in all material respects on and as of the Effective Time as though
such representations and warranties were made on and as of such time; provided
however that the failure to satisfy this condition shall only be met if the
cumulative failure of such representations and warranties being true and correct
shall constitute a Parent Material Adverse Effect, and each of Parent and Sub
shall have performed and complied in all material respects with all covenants
and obligations of this Agreement required to be performed and complied with by
it as of the Effective Time.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, 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.
(c) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
Parent Material Adverse Effect since the date of this Agreement.
(d) CERTIFICATE OF THE PARENT. Company shall have been provided
with a certificate executed on behalf of Parent by an Executive Vice President
to the effect that, as of the Effective Time the conditions set forth in Section
6.2(a) are true and have been satisfied.
6.3 CONDITIONS TO THE OBLIGATIONS OF PARENT AND SUB. The obligations of
Parent and Sub to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject
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to the satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the Company and the Principal Shareholders in
this Agreement shall be true and correct on and as of the Effective Time as
though such representations and warranties were made on and as of the Effective
Time; provided however that the failure to satisfy this condition shall only be
met if the cumulative failure of such representations and warranties being true
and correct shall constitute a Company Material Adverse Effect; provided
further, however, that any failure of Section B 2.13(a)-(m) of Section
(Intellectual Property) to be true and correct shall automatically be deemed to
be a Company Material Adverse Effect for purposes of this Section 6.3(a), and
the Company and the Principal Shareholders shall have performed and complied in
all material respects with all covenants and obligations of this Agreement
required to be performed and complied with by them as of the Effective Time.
(b) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, 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.
(c) CLAIMS. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Company
Material Adverse Effect. There shall be no BONA FIDE action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Parent, Sub
or the Company, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.
(d) THIRD PARTY CONSENTS. Any and all consents, waivers,
assignments and approvals listed in Section 2.6 of the Disclosure Schedule shall
have been obtained.
(e) LEGAL OPINION. Parent shall have received a legal opinion
from Law Office of Robert D. Cochran, legal counsel to the Company,
substantially in the form of EXHIBIT E hereto.
(f) NONCOMPETITION AGREEMENTS; AT-WILL EMPLOYMENT; TERMINATION,
WAIVER AND RELEASE OF EMPLOYMENT AGREEMENTS. Andy Lee and Lung Tsai shall have
executed and delivered to Parent a Noncompetition Agreement substantially in the
form attached hereto as EXHIBIT F and both of such Noncompetition Agreements
shall be in full force and effect. In addition Andy Lee and Lung Tsai and each
of the Key Employees shall have entered into "at-will" employment arrangements
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reasonably satisfactory to Parent, upon proof of appropriate employment
authorization from the U.S. Immigration and Naturalization Service or the U.S.
Department of State reflecting a right to work in the United States, and subject
to and in compliance with Parent's standard human resources policies and
procedures.
(g) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any event or condition of any character that has had or is reasonably likely to
have a Company Material Adverse Effect since the date of this Agreement.
(h) ESTIMATED BALANCE SHEET. Parent shall have received from the
Company at least three business days prior to the Closing Date a balance sheet
of the Company as of the Closing Date certified as to correctness by the Company
and the Principal Shareholders.
(i) SHAREHOLDER APPROVAL; DISSENTERS. Shareholders holding at
least ninety-five percent (95%) of the Company's Capital Stock shall have
approved this Agreement, the Merger and the transactions contemplated hereby and
thereby (i.e., no shareholder shall have exercised appraisal rights under
California law). Shareholders shall have approved by the requisite vote any
amounts of the Total Consideration received or to be received in exchange for
Company Capital Stock that may be deemed to constitute "parachute payments"
pursuant to Section 280G of the Code, such that all such payments, sales and
purchases resulting from the transactions contemplated hereby shall not be
deemed to be "parachute payments" pursuant to Section 280G of the Code or shall
be exempt from such treatment under such Section of the Code.
(j) AFFILIATE AGREEMENTS. Each Rule 145 Affiliate of the Company
shall have entered into a Rule 145 Affiliate Agreement and each of such
agreements will be in full force and effect as of the Effective Time.
(k) OPINIONS OF ACCOUNTANTS. Parent shall have received (i) from
PricewaterhouseCoopers LLP, independent auditors for the Company, a copy of a
letter addressed to the Company dated as of the Closing Date in substance
reasonably satisfactory to Parent (which may contain customary qualifications
and assumptions) to the effect that PricewaterhouseCoopers LLP concurs with
Company management's conclusion that no conditions exist related to the Company
that would preclude Parent from accounting for the Merger as a
"pooling-of-interests" and (ii) from PricewaterhouseCoopers LLP, independent
accountants for Parent, a letter dated as of the Closing Date in substance
reasonably satisfactory to Parent (which may contain customary qualifications
and assumptions) to the effect that PricewaterhouseCoopers LLP concurs with
Parent management's conclusion that no conditions exist related to Parent that
would preclude Parent from accounting for the Merger as a
"pooling-of-interests."
(l) CERTIFICATE OF THE COMPANY AND PRINCIPAL SHAREHOLDERS. Parent
shall have been provided with a certificate executed by the Principal
Shareholders and executed on behalf of the
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Company by its Chief Executive Officer to the effect that, as of the Effective
Time the conditions set forth in Section 6.3(a), (c), (d) and (i) are true and
have been satisfied.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the
Principal Shareholders' representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall terminate on the third
anniversary of the Closing Date; provided, however, that the representations and
warranties set forth in Section 2.3 shall survive the Closing and continue in
perpetuity and the representations and warranties relating or pertaining to any
Tax or Returns related to such Tax set forth in Section 2.10 hereof, shall
survive until 30 days following the expiration of all applicable statutes of
limitations, or extensions thereof, governing each Tax or Returns related to
such Tax. All of the Parent's and Sub's representations and warranties contained
herein or in any instrument delivered pursuant to this Agreement shall terminate
at the Effective Time.
7.2 INDEMNIFICATION. The Company and the Principal Shareholders agree
severally, and not jointly, and with respect to the Principal Shareholders, in
pro rata proportion relative to the aggregate consideration received by the
Principal Stockholders, to indemnify and hold Parent and its officers, directors
and affiliates harmless against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation and defense (hereinafter individually a "LOSS" and
collectively "LOSSES") incurred by Parent, its officers, directors, or
affiliates (including the Surviving Corporation) directly or indirectly as a
result of (i) any inaccuracy or breach of a representation or warranty of the
Company or the Principal Shareholders contained in this Agreement or (ii) any
failure by the Company or the Principal Shareholders to perform or comply with
any covenant contained in this Agreement. The Shareholders shall not have any
right of contribution from the Company with respect to any Loss claimed by an
indemnified party after the Effective Time, however, in no event shall any
Principal Shareholder be liable for an amount in excess of the value of the
consideration which such Principal Shareholder received in connection with the
Merger.
7.3 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. As security for the indemnity provided for in
Section 7.2 hereof and by virtue of this Agreement and the Merger Agreement, the
Company and the Shareholders will be deemed to have received and deposited with
the Escrow Agent (as defined below) the Escrow Amount (as defined below) (plus
any additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by Parent after the Effective Time with respect to the
Escrow Amount) without any act of the Company or any Shareholders. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
Shareholders, will be deposited with
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U.S. Bank Trust, N.A. (or other institution acceptable to Parent and the
Securityholder Agent (as defined in Section 7.3(g) below)) as Escrow Agent (the
"ESCROW AGENT"), such deposit to constitute an escrow fund (the "ESCROW FUND")
to be governed by the terms set forth herein. The Escrow Agent may execute this
Agreement following the date hereof and prior to the Effective Time, and such
latter execution shall not affect the binding nature of this Agreement as of the
date hereof among the signatories hereto. Nothing herein shall limit the
liability of the Company for any breach of any representation, warranty, or
covenant contained in this Agreement if the Merger does not close. Parent may
not receive any shares from the Escrow Fund unless and until Officer's
Certificates (as defined in paragraph (d)(i) below) identifying Losses, in
excess of $100,000 (the "Basket Amount") have been delivered to the Escrow Agent
as provided in paragraph (d) below, in which case Parent shall be entitled to
recover all Losses including the Basket Amount; PROVIDED, HOWEVER, with respect
to each of: (i) Third Party Expenses in excess of the greater of (A) Estimated
Third Party Expenses or (B) $200,000, and (ii) Net Assets as of the Closing Date
less than the lesser of (A) Estimated Net Assets or (B) $250,000, each as
determined from the Closing Balance Sheet and therefore not previously deducted
from the Total Consideration, the aforementioned $100,000 Basket Amount shall
not be applicable for purposes of claims of Losses against the Escrow Amount.
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m., P.S.T., on the date of the issuance by Parent's independent auditors of a
signed report in respect of Parent's audited financial statements for the fiscal
year ending February 29, 2000. (the "ESCROW PERIOD"); provided that the Escrow
Period shall not terminate with respect to such remaining portion of the Escrow
Fund (or some portion thereof) that in the reasonable judgement of Parent,
subject to the objection of the Securityholder Agent (as defined below) and the
subsequent arbitration of the matter in the manner provided in Section 7.3(f)
hereof, is necessary to satisfy (x) any then pending unsatisfied claims
specified in any Officer's Certificate delivered to the Escrow Agent prior to
the termination of the Escrow Period and (y) any unsatisfied claims specified in
any Officer's Certificate delivered to the Escrow Agent prior to termination of
the Escrow Period with respect to facts and circumstances existing prior to the
termination of such Escrow Period. As soon as all such claims have been resolved
and all Third Party Expenses and Net Liabilities have been paid pursuant to
Section 5.4 and Section 5.17 hereof, the Escrow Agent shall deliver to the
Shareholders the remaining portion of the Escrow Fund not required to satisfy
such claims and Third Party Expenses and any shortfall of Net Assets. Deliveries
of Escrow Amounts to the Shareholders pursuant to this Section 7.3(b) shall be
made in proportion to their respective original contributions to the Escrow
Fund.
(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
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(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("NEW SHARES") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Common Stock, if any, shall not be added to the Escrow Fund
but shall be distributed to the record holders thereof.
(iii) Each Shareholder shall have voting rights and the right
to distributions of dividends with respect to the shares of Parent Common Stock
contributed to the Escrow Fund by such Shareholders (and on any voting
securities added to the Escrow Fund in respect of such shares of Parent Common
Stock). As the record holder of such shares, the Escrow Agent shall vote such
shares in accordance with the instructions of the Shareholders having the
beneficial interest therein and shall promptly deliver copies of all proxy
solicitation materials to such Shareholders. Parent shall show the Parent Common
Stock contributed to the Escrow Fund as issued and outstanding on its balance
sheet.
(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentations, breach of warranty or covenant to which such items is
related, the Escrow Agent shall, subject to the provisions of Section 7.3(e),
deliver to Parent out of the Escrow Fund as promptly as practicable, shares of
Parent Common Stock held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund as
indemnity pursuant to Section 7.3(b) and 7.3(d)(i) hereof, the shares of Parent
Common Stock shall be valued at the Trading Price.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Securityholder Agent and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Parent of
any Escrow Amounts pursuant to Section 7.3(d) hereof unless the Escrow Agent
shall have received written authorization from the Securityholder Agent to make
such delivery. After the expiration of such thirty (30) day period, the Escrow
Agent shall make delivery of shares of Parent Common Stock from the Escrow Fund
in accordance with Section 7.3(d) hereof, provided that no
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such payment or delivery may be made if the Securityholder 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 prior to the expiration
of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Parent 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 distribute shares of Parent Common Stock from the Escrow Fund in
accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may 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 one
arbitrator mutually agreeable to Parent and the Securityholder Agent. In the
event that within forty-five (45) days after submission of any dispute to
arbitration, Parent and the Securityholder Agent cannot mutually agree on one
arbitrator, Parent and the Securityholder Agent shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgement of the arbitrator or majority of the three arbitrators, as the case
may be, to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys'
fees and costs, to the extent as a court of competent law or equity, should the
arbitrator or a majority of the three arbitrators, as the case may be, determine
that discovery was sought without substantial justification or that discovery
was refused or objected to without substantial justification. The decision of a
the arbitrator or a majority of the three arbitrators, as the case may be, 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 7.3(e) 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. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s)
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Contra Costa County,
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California under the rules then in effect of the American Arbitration
Association. The arbitrator(s) shall determine how all expenses relating to the
arbitration shall be paid, including without limitation, the respective expenses
of each party, the fees of each arbitrator and the administrative fee of the
American Arbitration Association.
(g) SECURITYHOLDER AGENT OF THE SHAREHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any Shareholders, Lung Chin Tsai
shall be appointed as agent and attorney-in-fact (the "SECURITYHOLDER AGENT")
for each Shareholder of the Company, for and on behalf of Shareholders, to give
and receive notices and communications, to authorize delivery to Parent of
shares of Parent Common Stock from the Escrow Fund in satisfaction of claims by
Parent, 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 Securityholder Agent for the
accomplishment of the foregoing. Such agency may be changed by the Shareholders
from time to time upon not less than thirty (30) days prior written notice to
Parent; provided that the Securityholder Agent may not be removed unless holders
of a majority interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his or her services. Notices or communications to or from the
Securityholder Agent shall constitute notice to or from each of the
Shareholders.
(ii) The Securityholder Agent shall not be liable for any
act done or omitted hereunder as Securityholder Agent while acting in good faith
and in the exercise of reasonable judgment. The Shareholders on whose behalf the
Escrow Amount was contributed to the Escrow Fund shall severally indemnify the
Securityholder Agent and hold the Securityholder Agent harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Securityholder Agent and arising out of or in connection with the
acceptance or administration of the Securityholder Agent's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent
or instruction of the Securityholder Agent shall constitute a decision of all
the Shareholders for whom a portion of the Escrow Amount otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such Shareholders, and the Escrow Agent and Parent may rely upon
any such decision, act, consent or instruction of the Securityholder Agent as
being the decision, act, consent or instruction of each and every such
Shareholder. The Escrow Agent and Parent are hereby relieved from any liability
to any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
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(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent and the Shareholders of the Company shall be entitled, at
their expense, to participate in any defense of such claim. Parent shall have
the right in its sole discretion to settle any such claim; provided, however,
that except with the consent of the Securityholder Agent, no settlement of any
such claim with third-party claimants shall be determinative of the amount of
any claim against the Escrow Fund. In the event that the Securityholder Agent
has consented to any such settlement, the Securityholder Agent shall have no
power or authority to object under any provision of this Article VII to the
amount of any claim by Parent against the Escrow Fund with respect to such
settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent 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.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for negligence or willful
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misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any
such liability for (A) any act or failure to act made or omitted in good faith,
or (B) any action taken or omitted in reliance upon any instrument, including
any written statement of affidavit provided for in this Agreement that the
Escrow Agent shall in good faith believe to be genuine, nor will the Escrow
Agent be liable or responsible for forgeries, fraud, impersonations, or
determining the scope of any representative authority. In addition, the Escrow
Agent may consult with the legal counsel in connection with Escrow Agent's
duties under this Agreement and shall be fully protected in any act taken,
suffered, or permitted by him/her in good faith in accordance with the advice of
counsel. The Escrow Agent is not responsible for determining and verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damages. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs of
in-house counsel and disbursements that may be imposed on Escrow Agent or
incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to Parent and the Securityholder Agent;
provided, however, that no such resignation shall become effective until the
appointment of a successor escrow agent which shall be accomplished as follows:
the parties shall use their best efforts to mutually agree on a successor escrow
agent within thirty (30) days after receiving such notice. If the parties fail
to agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the state of California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without
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further acts, be vested with all the estates, properties, rights, powers, and
duties of the predecessor escrow agent as if originally named as escrow agent.
Upon appointment of a successor escrow agent, the Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to the Escrow Fund or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, including allocated costs of in-house counsel, and
expenses occasioned by such default, delay, controversy or litigation. The
Parent promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. Except as provided in Section 8. 2, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred by February 29, 2000, PROVIDED, HOWEVER, that the right to terminate
this Agreement under this Section 8.1(b)(i) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or
Sub's ownership or operation of any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or a
portion of the business or assets of the Company or Parent as a result of the
Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement
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contained in this Agreement on the part of the Company or the Principal
Shareholders and such breach has not been cured within ten (10) calendar days
after written notice to the Company; PROVIDED, HOWEVER, that, no cure period
shall be required for a breach which by its nature cannot be cured; PROVIDED
FURTHER, HOWEVER, that a breach or breaches of representations or warranties
must constitute a Company Material Adverse Effect for this termination right to
arise;
(e) by the Company if neither it nor any Principal Shareholder nor
any Key Employee is in material breach of their respective obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Sub and such breach has not been cured within ten (10) calendar days
after written notice to Parent; PROVIDED, HOWEVER, that no cure period shall be
required for a breach which by its nature cannot be cured; PROVIDED FURTHER,
HOWEVER, that a breach or breaches of representations and warranties must
constitute a Parent Material Adverse Effect for this termination right to arise;
(f) by Parent or Sub if an event having a Company Material Adverse
Effect shall have occurred after the date of this Agreement; or
(g) by Company if an event having a Parent Material Adverse Effect
shall have occurred after the date of this Agreement.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8. 1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent, Sub or
the Company, or their respective officers, directors or Shareholders, provided
that each party shall remain liable for any breaches of this Agreement prior to
its termination; provided further that, the provisions of Sections 5.3, 5.4(a)
and 5.5, Article IX and this Section 8.2 shall remain in full force and effect
and survive any termination of this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of Parent,
Sub, the Company and the Principal Shareholders.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, Parent
and Sub, on the one hand, and the Company and the Principal Shareholders, on the
other hand, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
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ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), PROVIDED, HOWEVER,
that notices sent by mail will not be deemed given until received:
(a) if to Parent or Sub, to:
Intraware, Inc.
25 Orinda Way, Suite 101
Orinda, CA 94563
Attn: Donald M. Freed, Executive Vice President and Chief
Financial Officer
Mark Long, Vice President, Strategic Development
Telephone No.: (925) 253-4500
Facsimile No.: (925) 253-6590
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: David J. Segre, Esq.
Adam R. Dolinko, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to
Internet Image, Inc.
39560 Stevenson Place, Suite 119
Fremont, CA 94539
Attn: Lung Tsai
Telephone No.: (510) 739-2030
Facsimile No.: (510) 739-0703
with a copy to:
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Law Office of Robert D. Cochran
2105 Woodside Road
Woodside, CA 94062
Attention: Robert D. Cochran, Esq.
Telephone No.: (650) 298-9901
Facsimile No.: (650) 298-9902
(c) if to the Principal Shareholders, to:
Andy Lee
340 Ohlones Street
Fremont, CA 94539
Telephone No.:___________
Facsimile No.:____________
TSAI FAMILY TRUST U/D/T dated May 20, 1998
Attn: Lung Chin Tsai and Ling Chu Tsai
7050 Foothill Road
Pleasanton, CA 94566
Telephone No.:___________
Facsimile No.:____________
Lung Chin Tsai
7050 Foothill Road
Pleasanton, CA 94566
Telephone No.:___________
Facsimile No.:____________
Chao Pin Wang
4f, 82 Liu-Chou Street
Taipei, Taiwan, R.O.C.
C/o 7050 Foothill Road
Pleasanton, CA 94566
Telephone No.:___________
Facsimile No.:____________
(d) If to the Escrow Agent, to:
U.S. Bank Trust, N.A.
One California Street, 4th Floor
San Francisco, CA 94111
Attention: Ann Gadsby
Telephone No.: (415) 273-4532
Facsimile No.: (415) 273-4593
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<PAGE>
(e) If to the Securityholder Agent, to:
Lung Chin Tsai
7050 Foothill Road
Pleasanton, CA 94566
Telephone No.:___________
Facsimile No.:____________
9.2 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Exhibits hereto,
the Confidential Disclosure Agreement between the Company and Parent and the
documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof; (b) are not intended to confer upon any other person any
rights or remedies hereunder; and (c) shall not be assigned (other than by
operation of law), except that Parent and Sub may assign their respective rights
and delegate their respective obligations hereunder to their respective
affiliates.
9.5 SEVERABILITY. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 OTHER REMEDIES; SPECIFIC PERFORMANCE. Any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in
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accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Contra Costa County, State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process. Each of parent,
company and merger sub hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this agreement or the actions of
parent, company or merger sub in the negotiation, administration, performance
and enforcement hereof.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, 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.
9.9 ATTORNEYS FEES. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
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IN WITNESS WHEREOF, Parent, Sub, the Company and the Principal Shareholders
have caused this Agreement to be signed, all as of the date first written above.
INTRAWARE, INC. INTERNET IMAGE, INC.
By: /s/ Peter H. Jackson By: /s/ Andy Lee /s/ Lung C. Tsai
-------------------------- ------------- ----------------
Name: Peter H. Jackson Name:Andy Lee Lung C. Tsai
Title: CEO Title: President & CTO CEO
TANGO ACQUISITION CORP. PRINCIAPL SHAREHOLDERS:
By: /s/ Donald M. Freed /s/ Chao Ping Wang
-------------------------- --------------------------------------------
Donald M. Freed Chao Ping Wang
President, Chief Executive
Officer, Chief Financial
Officer and Secretary /s/ Lung Tsai
--------------------------------------------
Lung Tsai
ESCROW AGENT: /s/ Lung Tsai
--------------------------------------------
Lung Chin Tsai and Ling Chu Tsai, Trustees of
The TSAI FAMILY TRUST U/D/T dated May
By: 20, 1998
--------------------------
Name:
Title:
SECURITYHOLDER AGENT:
By: /s/ Lung Tsai
----------------------------
Lung Tsai
[SIGNATURE PAGE TO REORGANIZATION AGREEMENT]
<PAGE>
Exhibit 99.1
Press Release
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
INTRAWARE AGREES TO ACQUIRE BITSOURCE AND INTERNET IMAGE FOR A
COMBINED $48 MILLION
BUSINESS-TO-BUSINESS TECHNOLOGY ACQUISITIONS TO EXPAND INTRAWARE'S
INTERNET-BASED SERVICES FOR PURCHASING AND MANAGING CORPORATE SOFTWARE
ORINDA, CA - OCTOBER 4, 1999 -- Intraware, Inc. [NASDAQ: ITRA - news], the
leading IT e-Marketplace for web-based software and services, announced today
that it has agreed to acquire two business-to-business technology vendors:
BITSource, a leading developer of Internet-based volume licensing and electronic
license delivery, and Internet Image, one of the pioneers in Internet-based
application deployment and management. When completed, these acquisitions will
significantly expand Intraware's service offerings to corporate customers by
adding electronic volume licensing (EVL), electronic license delivery (ELD), and
Internet-based application deployment and management (ADM) services.
"Intraware's IT e-Marketplace has emerged as one of the industry's leading
business-to-business e-commerce sites by offering products and online services
that minimize the significant pain associated with buying, deploying and
managing enterprise software," said Peter Jackson, president and CEO of
Intraware. "Our rapidly expanding customer base needs one comprehensive set of
online software purchasing and management solutions instead of looking to a
number of vendors for more limited point solutions. The innovative technologies
and the accomplished teams of both BITSource and Internet Image will not only
extend our leadership position and complement our existing business, but will
also provide us with an expanded platform for developing exciting new services
to help IT professionals do their jobs more effectively."
Intraware will acquire BITSource and Internet Image for an aggregate value of
approximately $48 million. The company will pay $11 million in cash and stock
for BITSource and will account for the transaction under the purchase method of
accounting. Intraware anticipates closing this transaction later this quarter.
The company will pay $37 million in stock for Internet Image and expects to
<PAGE>
account for the transaction as a pooling-of-interests. The Internet Image
transaction is anticipated to close during Intraware's third fiscal quarter.
Both transactions are subject to customary closing conditions.
THE BITSOURCE ADVANTAGE
BITSource a leading developer of online purchasing and licensing solutions,
including web-based volume licensing configuration and ELD. As a leading
provider of business-to-business e-commerce solutions for the software industry,
BITSource has built relationships with leading publishers such as Novell and
Symantec by providing the infrastructure to quote complex pricing programs
online. By adding this advanced functionality to its Internet-based service
offerings, Intraware will provide its customers with the ability to more easily
and cost-effectively price licensing solutions, optimize license purchases, and
accurately track software assets.
"A September 1999 IDC report forecasts that electronic license distribution will
account for half of the total software acquisition market by 2002, " said Katy
Keim, Intraware's vice president of e-commerce. "This increasing importance of
ELD to corporations is a key factor in the BITSource transaction and clearly
indicates our intention to offer our customers comprehensive online solutions to
their software licensing challenges. But ELD alone is just part of the answer to
such challenges. Intraware's integrated, scalable solution combined with
BITSource's technology will give our 3,200+ customers convenient online access
to complex pricing models, but also ensures a better understanding of the
licensing commitments they make, and allow them to optimize their purchasing
power."
THE INTERNET IMAGE ADVANTAGE
Internet Image has developed proven Internet-based application deployment and
management technology that will greatly accelerate Intraware's introduction of
new online software maintenance and deployment services. The introduction of
these additional online services will enable Intraware to maintain its first
mover advantage and deliver the following:
- Desktop software delivery
- Desktop software installation
- Desktop software asset management
- Online sales of additional software licenses
"With our existing SubscribNet service, Intraware currently provides software
upgrades to IT departments at over 3000 companies, including half of the Fortune
1000," said Frost Prioleau, Intraware's vice president of e-services. "Many of
these customers have asked us to extend our services to distribute desktop
software to hundreds, or in many cases, thousands, of desktop and mobile PC's
that they manage. Internet Image's technology, and their talented engineering
team that created it, will allow us to quickly meet these customers' needs with
a proven Internet-based application deployment and management service."
"The demand of an electronic marketplace for software is clear, and can only
increase. Intraware is already delivering on that vision, " said
<PAGE>
Carol Baroudi, senior strategist of e-business for Hurwitz Group. "Presently,
enterprises that buy large quantities of software find managing their software
licenses extremely difficult. Intraware's acquisition of BITSource, among other
benefits, allows enterprises to manage their licenses and know exactly how many
copies they are using, which in turn allows them to purchase the correct number
of licenses. With the acquisition of Internet Image, managing the actual
distribution of software to the desktop, another major software management
headache is solved. Intraware's aggressive steps to address the software
management issues compliments their already strong core software evaluation,
purchasing and electronic distribution capabilities."
ABOUT INTRAWARE
Intraware, Inc. [NASDAQ: ITRA] is the leading IT e-Marketplace for Web-based
software and services. The company enables IT professionals worldwide to
efficiently and cost-effectively research, evaluate, purchase, download, and
update business-class software online. As a business-to-business e-commerce
company, Intraware provides software through its premier online purchasing
service, intraware.shop, comprehensive IT information and interactive research
services through the Intraware IT Knowledge Center, and software update
management services through Intraware SubscribNet.
Intraware's unique spectrum of innovative Internet-based services has attracted
strategic relationships with industry-leading vendors including Allaire,
Bluestone Software, Hewlett-Packard, Informix, Infoseek, Macromedia, Novell,
PeopleSoft, Sun-Netscape Alliance, Sybase, and Vignette. Intraware is a
publicly-held company with headquarters located at 25 Orinda Way, Orinda,
California 94563; (925) 253-4500; FAX (925) 253-4599; http://www.intraware.com.
# # #
"Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995": The statements contained in this release which are not historical facts
may contain forward looking statements, including but not limited to statements
regarding the success of, and potential results from its acquisitions of
Internet Image and BITSource. Each of these transactions is subject to certain
closing conditions and there can be no assurance that either of the transactions
will close if these conditions are not met. Additionally, actual results may
differ materially from those anticipated in any forward looking statements as a
result of certain risks and uncertainties, including the company's ability to
effectively integrate the technologies and tools developed by Internet Image and
BITSource into its portfolio of services. # # # -C- 1999 Intraware, Inc.
Intraware NetInsights, Intraware IT Knowledge Center, Intraware Compariscope,
Intraware Radarscope, intraware.shop, and Intraware SubscribNet are among the
service marks and trademarks of Intraware, Inc. All other company names, product
names, service marks, and trademarks mentioned herein are trademarks of their
respective owners.
CONTACT:
FOR FURTHER INFORMATION CONTACT:
<PAGE>
Mark Long
Intraware, Inc.
925-253-6533
[email protected]
Carole Sinclair
Intraware, Inc.
925-253-6707
[email protected]
