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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: June 9, 1999
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NEW ERA OF NETWORKS, INC.
(Exact name of registrant as specified in its charter)
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STATE OF DELAWARE 000-22043 84-1234845
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification No.)
Incorporation)
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7400 EAST ORCHARD RD., SUITE 230, ENGLEWOOD, CO 80111
(Address of principal executive offices and zip code)
(303) 694-3933
(Telephone number, including area code)
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ITEM 2. ACQUISITIONS OR DISPOSITION OF ASSETS
Effective June 9, 1999, New Era of Networks, Inc., a Delaware
corporation (the "Registrant"), acquired Convoy Corporation, a Delaware
corporation ("Convoy") pursuant to an Agreement and Plan of Reorganization (the
"Agreement") by and among Convoy, the Registrant and Cobra Acquisition
Corporation ("Merger Sub"), a Delaware corporation and a wholly-owned subsidiary
of the Registrant. Pursuant to the Agreement, Merger Sub was merged with and
into Convoy (the "Merger") and the Convoy stockholders received a total of
approximately 920,000 shares of the Registrant's common stock in exchange for
their Convoy capital stock. The description contained in this Item 2 of the
Merger and the Agreement is qualified in its entirety by reference to the full
text of the Agreement, a copy of which is attached hereto as Exhibit 2.
Of the approximately 920,000 shares of the Registrant's common
stock issued in the Merger, approximately 92,000 shares were placed into escrow,
to be held as security for any losses incurred by the Registrant in the event of
certain breaches of the representations and warranties covered in the Agreement.
Pursuant to the Agreement, the Registrant also assumed all options outstanding
under Convoy's stock option plan.
The consideration paid by the Registrant was determined pursuant
to arms' length negotiations and took into account various factors concerning
the valuation of the business of Convoy, including valuations of comparable
companies and the business and operating results of Convoy.
The shares of Registrant's common stock issued pursuant to the
Merger were not registered under the Securities Act of 1933, as amended (the
"Securities Act") in reliance upon the exemptions provided by Section 4(2) under
the Securities Act.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of the business acquired.
(1) The financial statements required by this item will be
filed by amendment not later than 60 days after the date
of this initial report on Form 8-K.
(b) Pro forma financial information.
(1) The pro forma financial statements required by this item
will be filed by amendment not later than 60 days after
the date of this initial report on Form 8-K.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization dated June 2, 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.
NEW ERA OF NETWORKS, INC.
June 24, 1999 /s/ Stephen E. Webb
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Stephen E. Webb, Senior Vice President
and Chief Financial Officer
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Index to Exhibits
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SEQUENTIALLY
EXHIBIT NUMBER DESCRIPTION OF DOCUMENTS NUMBERED PAGE
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2.1 Agreement and Plan of Reorganization dated June 2, 1999.
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NEW ERA OF NETWORKS, INC.
COBRA ACQUISITION CORPORATION
AND
CONVOY CORPORATION
Dated as of June 2, 1999
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TABLE OF CONTENTS
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INDEX OF EXHIBITS AND SCHEDULES.......................................................................................v
ARTICLE I THE MERGER..................................................................................................2
1.1 The Merger..........................................................................................2
1.2 Effective Time......................................................................................2
1.3 Effect of the Merger................................................................................2
1.4 Certificate of Incorporation; Bylaws................................................................2
1.5 Directors and Officers..............................................................................2
1.6 Maximum Shares to Be Issued; Effect on Capital Stock................................................3
1.7 Dissenting Shares...................................................................................6
1.8 Surrender of Certificates...........................................................................7
1.9 No Further Ownership Rights in Company Capital Stock................................................8
1.10 Lost, Stolen or Destroyed Certificates..............................................................8
1.11 Tax and Accounting Consequences.....................................................................9
1.12 Taking of Necessary Action; Further Action..........................................................9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................................9
2.1 Organization of the Company.........................................................................9
2.2 Company Capital Structure...........................................................................9
2.3 Subsidiaries.......................................................................................10
2.4 Authority..........................................................................................10
2.5 Company Financial Statements.......................................................................11
2.6 No Undisclosed Liabilities.........................................................................11
2.7 No Changes.........................................................................................12
2.8 Tax and Other Returns and Reports..................................................................13
2.9 Restrictions on Business Activities................................................................15
2.10 Title to Properties; Absence of Liens and Encumbrances.............................................15
2.11 Intellectual Property..............................................................................16
2.12 Agreements, Contracts and Commitments..............................................................17
2.13 Interested Party Transactions......................................................................19
2.14 Compliance with Laws...............................................................................19
2.15 Litigation.........................................................................................19
2.16 Insurance..........................................................................................20
2.17 Minute Books.......................................................................................20
2.18 Environmental Matters..............................................................................20
2.19 Brokers'and Finders'Fees; Third Party Expenses.....................................................21
2.20 Employee Matters and Benefit Plans.................................................................21
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TABLE OF CONTENTS
(continued)
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2.21 Employees..........................................................................................24
2.22 Governmental Authorization.........................................................................24
2.23 Third Party Consents...............................................................................25
2.24 Representations Complete...........................................................................25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..................................................25
3.1 Organization, Standing and Power...................................................................25
3.2 Authority..........................................................................................25
3.3 Parent Capital Structure; Issuance of Shares.......................................................25
3.4 SEC Filings; Parent Financial Statements...........................................................26
3.5 Litigation.........................................................................................26
3.6 No Conflict........................................................................................26
3.7 Governmental Approvals.............................................................................27
3.8 Absence of Changes or Events.......................................................................27
3.9 Brokers' and Finder's Fees.........................................................................27
3.10 Third Party Consents...............................................................................27
3.11 Representations Complete...........................................................................27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................................................28
4.1 Conduct of Business of the Company.................................................................28
4.2 No Solicitation....................................................................................30
ARTICLE V ADDITIONAL AGREEMENTS......................................................................................31
5.1 Issuance of Parent Common Stock; Registration under Securities Act.................................31
5.2 Stockholder Approval...............................................................................32
5.3 Access to Company Information......................................................................32
5.4 Confidentiality....................................................................................32
5.5 Expenses...........................................................................................33
5.6 Public Disclosure..................................................................................33
5.7 Consents...........................................................................................33
5.8 FIRPTA Compliance..................................................................................33
5.9 Reasonable Efforts.................................................................................33
5.10 Notification of Certain Matters....................................................................33
5.11 Additional Documents and Further Assurances........................................................34
5.12 Nasdaq Listing; Blue Sky Laws......................................................................34
5.13 Company's Auditors.................................................................................34
5.14 Form S-8...........................................................................................34
5.15 Employees; Parent Stock Options....................................................................34
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(continued)
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ARTICLE VI CONDITIONS TO THE MERGER..................................................................................35
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................................35
6.2 Additional Conditions to Obligations of the Company................................................35
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..................................36
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.......................................................37
7.1 Survival of Representations and Warranties.........................................................37
7.2 Escrow Arrangements................................................................................37
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................................................................44
8.1 Termination........................................................................................44
8.2 Effect of Termination..............................................................................45
8.3 Amendment..........................................................................................46
8.4 Extension; Waiver..................................................................................46
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TABLE OF CONTENTS
(continued)
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ARTICLE IX GENERAL PROVISIONS........................................................................................46
9.1 Notices............................................................................................46
9.2 Interpretation.....................................................................................47
9.3 Counterparts.......................................................................................47
9.4 Entire Agreement...................................................................................48
9.5 Severability.......................................................................................48
9.6 Other Remedies.....................................................................................48
9.7 Specific Performance...............................................................................48
9.8 Governing Law......................................................................................48
9.9 Rules of Construction..............................................................................48
9.10 Assignment.........................................................................................49
9.11 Absence of Third Party Beneficiary Rights..........................................................49
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INDEX OF EXHIBITS AND SCHEDULES
EXHIBIT DESCRIPTION
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Exhibit A Form of Stockholder Certificate
Exhibit B Declaration of Registration Rights
Exhibit C Form of Legal Opinion of Counsel to Parent
Exhibit D Form of Legal Opinion of Counsel to the Company
Exhibit E Form of Noncompetition Agreement
SCHEDULE DESCRIPTION
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2.2 Stockholder List and Option Holders
2.3 Subsidiaries
2.4 Governmental and Third Party Consents
2.5 Company Financial
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions of Business Activities
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Trademarks and Servicemarks
2.11(c) Intellectual Property Licenses
2.11(d) Claims of Intellectual Property Infringement
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.19 Expenses of Transactions
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(h)(i) Effect of Transaction
2.20(h)(ii) Excess Parachute Payments
2.20(j) Labor
2.23 Third Party Consents
4.1 Conduct of the Business
5.15 Employee Stock Options
6.3(c) Third Party Consents Required of the Company
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AGREEMENT AND PLAN OF REORGANIZATION
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This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of June 2, 1999 among New Era of Networks, Inc., a Delaware
corporation ("PARENT"), Cobra Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Parent ("MERGER SUB"), and Convoy Corporation,
a Delaware corporation (the "COMPANY").
RECITALS
A. The Boards of Directors of each of the Parent, Company and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement, all of the issued and outstanding shares of common
and preferred stock of the Company ("COMPANY CAPITAL STOCK"), together with
certain outstanding warrants to purchase Company Capital Stock, shall be
converted into the right to receive shares of Common Stock of Parent ("PARENT
COMMON STOCK") as set forth herein, and all outstanding options (whether vested
or unvested) to acquire shares of Company Capital Stock shall be assumed by
Parent and shall thereafter represent options to acquire shares of Parent Common
Stock upon payment to Parent of the applicable exercise price under such
options.
C. A portion of the shares of Parent Common Stock issued by Parent in
connection with the Merger shall be placed in escrow by Parent, the release of
which shares shall be contingent upon certain events and conditions, all as set
forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. 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 (the "CODE").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
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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 Delaware General Corporation Law ("DELAWARE LAW"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
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, 650 Page Mill Road, Palo Alto, California,
unless another place or time is agreed to 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 the Certificate of Merger (or like instrument) with the
Secretary of State of Delaware (the "CERTIFICATE OF MERGER"), in accordance with
the relevant provisions of applicable law (the time of acceptance by the
Secretary of State of Delaware 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 Delaware 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 Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Certificate of Incorporation of Merger Sub shall be
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation shall be amended to
read as follows: "The name of this corporation is NEON Convoy Corporation."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The
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officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, each to hold office in accordance
with the Bylaws of the Surviving Corporation.
1.6 Maximum Shares to Be Issued; Effect on Capital Stock. The maximum
number of shares of Parent Common Stock to be issued (including Parent Common
Stock to be reserved for issuance upon exercise of all of the Company's
outstanding options) in exchange for the acquisition by Parent of all
outstanding Company Capital Stock shall be equal to the Aggregate Parent Share
Number (as defined in Section 1.6(h)(iii)). Subject to the terms and conditions
of this Agreement, as of the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub, the Company or the holder of any shares of
the Company Capital Stock, the following shall occur:
(a) Conversion of Company Series C Preferred Stock. Each share of the
Series C Preferred Stock of the Company (the "COMPANY PREFERRED STOCK") issued
and outstanding immediately prior to the Effective Time (other than any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will
be canceled and extinguished and be converted automatically into the right to
receive that fraction of a share of Parent Common Stock obtained by dividing
$3.00 by the Average Price of Parent's Common Stock as determined in Section
1.6(h)(iii) below (the "PREFERRED EXCHANGE RATIO"), upon surrender of the
certificate representing such share of Company Preferred Stock in the manner
provided in Section 1.8. The total number of shares of Parent Common Stock
issued in exchange for the Company Preferred Stock are sometimes referred to as
the "PARENT SERIES C ALLOCATION SHARES."
(b) Conversion of Company Common Stock. Each share of Common Stock of
the Company (including all shares of Common Stock of the Company issued upon
conversion of all Series A and Series B Preferred Stock of the Company and upon
exercise of all outstanding warrants to purchase shares of Series A and Series B
Preferred Stock and shares of Common Stock (the "WARRANTS") immediately prior to
the Closing) (collectively, the "COMPANY COMMON STOCK") issued and outstanding
immediately prior to the Effective Time (other than any shares of Company Common
Stock to be canceled pursuant to Section 1.6(c) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled and
extinguished and be converted automatically into the right to receive that
number of shares of Parent Common Stock equal to the Common Exchange Ratio (as
defined in Section 1.6(h)(v) below) upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.8. Consistent with and pursuant to Parent's existing Rights Agreement,
dated as of December 18, 1996, as amended (the "RIGHTS AGREEMENT"), between
Parent and BankBoston N.A., as rights agent, one right issuable pursuant to the
Rights Agreement or any other right issued in substitution thereof (a "RIGHT"),
shall be issued together with and shall attach to each share of Parent Common
Stock issued pursuant to this Section 1.6(b), unless the Rights shall have
expired or been redeemed prior to the Effective Time.
(c) Cancellation of Company-Owned Stock. Each share of Company Capital
Stock owned by the Company or any direct or indirect wholly-owned subsidiary of
the Company
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immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(d) Stock Options. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's 1997 Stock Option Plan
(the "OPTION PLAN") shall be assumed by Parent in accordance with provisions
described below.
(i) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each a "COMPANY OPTION") under the Option Plan,
whether vested or unvested, shall be assumed by Parent. Each Company Option so
assumed by Parent under this Agreement shall continue to have, and be subject
to, the same terms and conditions set forth in the Option Plan and as provided
in the respective option agreements governing such Company Option immediately
prior to the Effective Time, except that (A) such Company Option shall be
exercisable (when vested) 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 Common Exchange Ratio, rounded down to the nearest whole
number of shares of Parent Common Stock and (B) the per share exercise price for
the shares of Parent Common Stock issuable upon exercise of such assumed Company
Option shall 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 Common Exchange Ratio, rounded up
to the nearest whole cent.
(ii) It is the intention of the parties that the Company Options
assumed by Parent qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "CODE"), to the extent the Company Options qualified as incentive
stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Parent will issue to
each holder of an outstanding Company Option a document evidencing the foregoing
assumption of such Company Option by Parent.
(iv) Promptly following the Effective Time, Parent will file with
the Securities and Exchange Commission (the "SEC") a Registration Statement on
Form S-8 or other appropriate form under the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder (the "SECURITIES ACT"), to
register Parent Common Stock issuable upon exercise of the Company Options
assumed by Parent pursuant to this Section 1.6(d) and use its commercially
reasonable best efforts to cause such Registration Statement to remain effective
until the exercise or expiration of such options.
(e) Capital Stock of Merger Sub. Each share of Common Stock of Merger
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 Merger Sub evidencing ownership of any such shares of Common
Stock of Merger Sub shall, as of the Effective Time, evidence ownership of such
shares of Common Stock of the Surviving Corporation.
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(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Company
Capital Stock), reorganization, recapitalization or other like change with
respect to Company Capital Stock that occurs or has a record date after the date
hereof and prior to the Effective Time.
(g) 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 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 be entitled to receive, without any interest,
from Parent an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the Average Price of a share of
Parent Common Stock (as defined in Section 1.6(h)(iii)).
(h) Definitions.
(i) Aggregate Company Common Number. The "AGGREGATE COMPANY COMMON
NUMBER" shall mean the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (including all shares of
Company Common Stock to be issued upon conversion of all Company Series A and
Series B Preferred Stock and following exercise of the Warrants.)
(ii) Aggregate Company Option Number. The "AGGREGATE COMPANY OPTION
NUMBER" shall mean the aggregate number of shares of Company Common Stock
issuable upon the exercise of all outstanding Company Options (vested and
unvested) to acquire shares of Company Common Stock immediately prior to the
Effective Time.
(iii) Aggregate Parent Share Number. The "AGGREGATE PARENT SHARE
NUMBER" shall be the number of shares of Parent Common Stock determined by
dividing (A) $42 million by (B) the average closing sale price of a share of
Parent Common Stock, as reported on The Nasdaq National Market, for the forty
(40) most recent trading days ending on the trading day immediately preceding
the Closing Date (the "AVERAGE PRICE"); provided, however, that the $42 million
amount in clause (A) herein shall be reduced, dollar for dollar, by the amount
(x) of any reduction in the Company's fixed assets from April 30, 1999 to May
31, 1999 as shown on the respective balance sheets as of such dates (excluding
amortization and depreciation consistent with past practices), and (y) that the
Company's total liabilities at May 31, 1999 exceed $4,638,342 (all as shown on
the balance sheets of the Company as of April 30, 1999 (in the case of clause
(x) above) and May 31, 1999, as prepared and certified by the Company's Chief
Financial Officer in accordance with GAAP and consistent with past practices)
plus the amount of cash proceeds received by the Company (not to exceed
$230,000) from the exercise of warrants prior to the Closing. The Average Price
shall be adjusted to reflect fully the effect of any stock split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock that occurs or has a record date after the date
hereof and prior to the Effective Time.
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(iv) Escrow Amount. The "ESCROW AMOUNT" shall be a number of shares
of Parent Common Stock obtained by multiplying (x) the Aggregate Parent Share
Number by (y) 0.10.
(v) Common Exchange Ratio. The "COMMON EXCHANGE RATIO" shall mean
the quotient obtained by dividing (x) the difference between the Aggregate
Parent Share Number and the Parent Series C Allocation Shares by (y) the sum of
(A) the Aggregate Company Common Number, plus (B) the Aggregate Company Option
Number.
(vi) Net Revenue. "NET REVENUE" shall mean the revenues recognized
by the Company during the Measurement Period (as defined below) from the sale or
license of software products, and from related maintenance and professional
services sold and delivered to customers, as determined in accordance with GAAP
and recognized as revenue by Parent in accordance with SOP 97-2 and Parent's
revenue recognition policies (as finally determined by Parent's independent
auditors, Arthur Andersen LLP, whose determination shall be final and
conclusive).
(vii) Share Reduction. In the event that the Company does not
achieve Net Revenue (as defined herein) of at least $2,472,700 for the period
from June 1 through June 30, 1999 (the "MEASUREMENT PERIOD"), then that number
of shares of Parent Common Stock having a value (based on the Average Price) of
$1 million shall be immediately delivered by the Escrow Agent to Parent from the
shares in the Escrow Fund (the "REDUCTION"). Such Reduction shall decrease pro
rata each stockholder's interest in the Escrow Fund.
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 demanded and
perfected appraisal or dissenters' rights for such shares in accordance with
Delaware Law and who, as of the Effective Time, has not effectively withdrawn or
lost such appraisal or dissenters' rights ("DISSENTING SHARES") shall not be
converted into or represent a right to receive Parent Common Stock pursuant to
Section 1.6, but the holder thereof shall only be entitled to such rights as are
granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Capital Stock who is otherwise entitled to exercise
dissenters' rights under Delaware Law shall effectively withdraw or lose
(through failure to perfect or otherwise) such dissenters' rights, then, as of
the later of the Effective Time and the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive Parent Common Stock and payment for any fractional share as provided in
Section 1.6(g), without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for the exercise of dissenters' rights in respect of any shares of
Company Capital Stock, withdrawals of such demands, and any other instruments
served pursuant to Delaware Law (including without limitation instruments
concerning appraisal or dissenters' rights) and received by the Company and (ii)
the opportunity to participate in all negotiations and proceedings with respect
to such demands.
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The Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for the exercise of
dissenters' rights in respect of any shares of Company Capital Stock or offer to
settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. Parent's Transfer Agent shall serve as Exchange
Agent in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, the Aggregate Parent Share Number in exchange for
outstanding shares of Company Capital Stock; provided that, on behalf of the
holders of Company Capital Stock, Parent shall cause the Exchange Agent to
deposit into an escrow account a number of shares of Parent Common Stock equal
to the Escrow Amount out of the Aggregate Parent Share Number. The portion of
the Escrow Amount contributed on behalf of each holder of Company Capital Stock
shall be in proportion to the aggregate number of shares of Parent Common Stock
which such holder would otherwise be entitled to receive under Section 1.6 by
virtue of ownership of outstanding shares of Company Capital Stock.
(c) Exchange Procedures. As soon as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of record of
a certificate or certificates (the "CERTIFICATES") which immediately prior to
the Effective Time represented outstanding shares of Company Capital Stock and
which shares were converted into the right to receive shares of Parent Common
Stock pursuant to Section 1.6, (i) a letter of transmittal (which shall be in
customary form and 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 (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of Parent Common Stock. Upon surrender of a Certificate to the Exchange
Agent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock (less the number
of shares of Parent Common Stock to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article VII hereof), plus cash in lieu of fractional
shares in accordance with Section 1.6(g), to which such holder is entitled
pursuant to Section 1.6, and any dividends or other distributions to which
holder is entitled pursuant to Section 1.8(d) (collectively, the "ADDITIONAL
PAYMENTS"), and the Certificate so surrendered shall forthwith be cancelled. As
soon as practicable after the Effective Time, and subject to and in accordance
with the provisions of Article VII hereof, Parent shall cause to be distributed
to the Escrow Agent (as defined in Article VII) a certificate or certificates
representing that number of shares of Parent Common Stock equal to the Escrow
Amount, which certificate shall be registered in the name of the Escrow Agent.
Such shares shall be beneficially owned by the holders on whose behalf such
shares were deposited in the Escrow Fund and shall be available to compensate
Parent as provided in Article VII. From the Closing and until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Capital Stock will be deemed from and after the Effective
Time, for all corporate purposes, to represent
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<PAGE> 14
solely (i) ownership of the number of full shares of Parent Common Stock into
which such shares of Company Capital Stock shall have been so exchanged and (ii)
the right to receive the Additional Payments, if any.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock declared or made with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person 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 a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate 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 Parent Common Stock or 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 shares of
Parent Common Stock issued pursuant to the Merger upon the surrender for
exchange of shares of Company Capital Stock in accordance with the terms hereof
(including any cash paid in respect thereof) shall be deemed to have been issued
in 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.
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 receiving notice from the holder thereof and upon
the making of an affidavit of that fact by such holder, such shares of Parent
Common Stock and the Additional payments, if any; 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 as indemnity
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<PAGE> 15
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 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 Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations. It is intended by the parties hereto that
the Merger shall be treated as a "purchase" for accounting purposes.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any such further action is necessary or reasonably 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 and Merger Sub, the officers
and directors of the Company and Merger Sub are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are clearly disclosed in the disclosure letter
supplied by the Company to Parent which identify the section and subsection to
which such disclosure relates (the "COMPANY SCHEDULES") and dated as of the date
hereof, 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
Delaware. The Company has the corporate power and authority 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
the State of California and in each state or other jurisdiction in which the
failure to be so qualified would have a material adverse effect on the business,
assets (including intangible assets), financial condition or results of
operations of the Company (hereinafter referred to as a "MATERIAL ADVERSE
EFFECT"). The Company has delivered a true and correct copy of its Certificate
of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of (i)
20,000,000 shares of authorized Common Stock, par value $.001 per share
("COMMON"), of which 3,399,324 shares are issued and outstanding and 258,834
shares (assuming the exercise of the warrants listed in clause (ii) of Section
2.2(b) below and conversion of the Series B Preferred Stock into Common Stock
prior to the Effective Time), and (ii) 20,000,000 shares of Preferred Stock, par
value $.001 per share ("PREFERRED STOCK"), of which 6,000,000 shares have been
designated "Series A Preferred Stock," of which 5,424,945 shares are issued and
outstanding, 5,000,000 shares have been designated "Series B Preferred Stock,"
of which 3,910,000 shares are issued and outstanding, and 4,060,000 shares have
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been designated "Series C Preferred Stock," of which 3,333,360 shares are issued
and outstanding (the Common Stock and Preferred Stock are collectively referred
to herein as the "Company Capital Stock"). Except as set forth in the
immediately preceding sentence, no shares of capital stock or other equity
securities of the Company are issued, reserved for issuance or outstanding. The
Company Capital Stock is held of record by the persons, with the addresses of
record and in the amounts set forth on Schedule 2.2(a). All outstanding shares
of Company Capital Stock are, and at the Effective Time will be, duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound. None of the outstanding Company Capital Stock or other securities of
the Company was issued in violation of the Securities Act of 1933, as amended,
or any applicable state Blue Sky laws.
(b) In addition, there are currently issued and outstanding (i)
Warrants to purchase 30,000 shares of Series A Preferred Stock at an exercise
price of $.40 per share, (ii) Warrants to purchase 120,000 shares of Series B
Preferred Stock at an exercise price of $0.50 per share, (iii) Warrants to
purchase 1,000,000 shares of Common Stock at an exercise price of $0.10 per
share, (iv) Warrants to 100,000 shares of Common Stock at an exercise price of
$1.00 per share, and (v) options outstanding to purchase an aggregate of
1,016,361 shares of Company Common Stock issued to employees and consultants
pursuant to the Company Option Plan. The Warrants and Options are held by the
persons and in the amounts set forth on Schedule 2.2(b). There are no other
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 capital stock of the Company.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the Company does not
have and has never had any subsidiaries or affiliated companies and does not
otherwise own and has never otherwise owned any shares of capital stock or any
interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company, subject
only to the approval of the Merger by the Company's stockholders. The Company's
Board of Directors has unanimously approved the Merger and this Agreement. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors'
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<PAGE> 17
rights generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. Subject
only to the approval of the Merger and this Agreement by the Company's
stockholders, the execution and delivery of this Agreement by the Company does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby 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 or acceleration of any obligation or
loss of any benefit under (any such event, a "CONFLICT") (i) any provision of
the Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. 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 foreign governmental authority, instrumentality, agency
or commission ("GOVERNMENTAL ENTITY") or any third party (so as not to trigger
any Conflict), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Delaware Secretary of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws, (iii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as shall have been obtained prior to the Effective
Time, and (iv) such other consents, waivers, authorizations, filings, approvals
and registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's (i)
audited balance sheets as of March 31, 1999 and 1998, and the related audited
statements of operations, cash flows and stockholders equity (deficit) for the
two fiscal years then ended, together with the report thereon of Ernst & Young
LLP, and (ii) the Company's unaudited balance sheet as of April 30, 1999 (the
"APRIL BALANCE SHEET") and (iii) the Company's unaudited balance sheet at May
31, 1999 and the related unaudited statement of operations for the two-month
period then ended (collectively, the "COMPANY FINANCIAL STATEMENTS"). There
shall not be any reduction in fixed assets or increase in total liabilities
between May 31, 1999 and the Closing Date other than any increase in total
liabilities in an amount (not to exceed $230,000) up to the amount of cash
proceeds received by the Company from the exercise of Warrants prior to the
Closing and increases incurred subsequent to May 31, 1999 in the ordinary course
of business and in amounts consistent with past practices. The Company Financial
Statements are complete and correct and have been prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a basis consistent
throughout the periods indicated and consistent with each other. The Company
Financial Statements present fairly the financial condition and operating
results and cash flows of the Company as of the dates and during the periods
indicated therein (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments and to the extent they may not
include footnotes or may be condensed or summary statements).
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement
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of any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP), that in the aggregate exceed $50,000, and which (i) has not been
reflected or reserved against in the April Balance Sheet, or (ii) has arisen
other than in the ordinary course of the Company's business and consistent with
past practices since April 30, 1999.
2.7 No Changes. Except as set forth in Schedule 2.7, since April 30, 1999,
there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company of $25,000 in any
individual case or $45,000 in the aggregate.
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) 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 any of its
capital stock;
(i) 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 of a bonus or other additional salary or compensation to any such person
except as otherwise contemplated by this Agreement other than any such increase,
declaration, payment or commitment in the ordinary course of business as
conducted on that date and consistent with past practice;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
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<PAGE> 19
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(l) 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
practices;
(m) waiver or release of any right or claim of the Company, including
any write-off of provisions for uncollectible accounts receivable of the
Company;
(n) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of the Company's
Intellectual Property (as defined in Section 2.11 below) or of infringement by
the Company of any third party's Intellectual Property rights;
(p) issuance or sale by the Company of any shares of capital stock, or
securities exchangeable, convertible or exercisable therefor, or of any other of
its securities;
(q) 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;
(r) event or condition of any character that has or could reasonably be
expected to have a Material Adverse Effect on the Company; or
(s) negotiation or agreement by the Company or any officer or employees
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).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "TAX" or,
collectively, "TAXES", means 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 and 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. Except as set forth in Schedule 2.8:
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(i) The Company as of the Effective Time will have prepared and
filed on a timely basis, all required federal, state, local and foreign returns,
estimates, information statements and reports due to be filed on or before the
Effective Time ("RETURNS") relating to any and all Taxes concerning or
attributable to the Company or its operations and, to the best of the Company's
knowledge, such Returns are true, correct and complete and have been completed
in accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will have paid or
accrued all Taxes it is required to pay or accrue and (B) will have withheld
with respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, proposed or assessed 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.
(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 does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
in accordance with GAAP on the Balance Sheet whether asserted or unassented
contingent or otherwise, and the Company has no knowledge of any basis for the
assertion of any such liability attributable to the Company, its assets or
operations.
(vi) The Company has provided to Parent copies of all federal and
state income and all state sales and use Tax Returns for all periods through its
fiscal year ended March 31, 1999.
(vii) There are (and as of immediately following the Closing there
will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes, other than Liens for Taxes not yet due and payable.
(viii) The Company has no 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
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<PAGE> 21
the payment of any amount that would not be deductible pursuant to Section 280G
or 162 of the Code.
(xi) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) 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 is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xiii) 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.
(xiv) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is consistent with the amounts reported on the Company's federal
income tax returns.
2.9 Restrictions on Business Activities. Except as set forth on Schedule
2.9, 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 reasonably would be expected to have the effect of
prohibiting or impairing any business practice (including, without limitations,
the licensing of any product) 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 the Company is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor and the date of the lease and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in 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) by the
Company or, to the knowledge of the Company, any other party.
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets used or held for use in its business, free and clear of
any Liens (as defined in Section 2.8(b)(vii)), except as reflected in the
Company Financials or in Schedule 2.10(b) 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 materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
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2.11 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, registered and unregistered trademarks,
trade names, service marks, trade secrets, copyrights, and any applications
therefor, net lists, schematics, technology, know-how, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material that are required for
the conduct of business of the Company as currently conducted by the Company
(the "COMPANY INTELLECTUAL PROPERTY RIGHTS"). Schedule 2.11(a) sets forth a
complete list of all patents, registered and unregistered trademarks, registered
copyrights, trade names and service marks, and any applications therefor,
included in the Company Intellectual Property Rights, and specifies, where
applicable, the jurisdictions in which each such Company Intellectual Property
Right has been issued or registered or in which an application for such issuance
and registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 2.11(b) sets forth a complete list of all material
licenses, sublicenses and other agreements to which the Company is a party and
pursuant to which the Company or any other person is authorized to use any
Company Intellectual Property Right (excluding object code end-user licenses
granted to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the same
("END-USER LICENSES")) or trade secret of the Company, and includes the identity
of all parties thereto, a description of the nature and subject matter thereof,
the applicable royalty or other fees and the term thereof. The execution and
delivery of this Agreement by the Company, and the consummation of the
transactions contemplated hereby, will neither cause the Company to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement. Except as set forth
in Schedules 2.11(a) or 2.11(b), the Company is the sole and exclusive owner or
licensee of, with all right, title and interest in and to (free and clear of any
liens or encumbrances), the Company Intellectual Property Rights, and has sole
and exclusive rights (and is not contractually obligated to pay any compensation
to any third party in respect thereof) to the use thereof or the material
covered thereby in connection with the services or products in respect of which
the Company Intellectual Property Rights are being used.
(c) No claims with respect to the Company Intellectual Property Rights
have been asserted or are, to the Company's knowledge, threatened by any person,
nor to the best of the Company's knowledge, are there any valid grounds for any
bona fide claims, (i) to the effect that the production, sale, licensing or use
of any of the products of the Company infringes on any copyright, patent,
trademark, service mark, trade secret or other proprietary right, (ii) against
the use by the Company of any trademarks, service marks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software programs
and applications used in the Company's business as currently conducted by the
Company, or (iii) challenging the ownership by the Company, or the validity or
effectiveness of, any of the Company Intellectual Property Rights. All
registered trademarks, service marks and copyrights held by the Company are
valid and subsisting. To the best of the Company's knowledge, the Company has
not infringed, and the business of the
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<PAGE> 23
Company as currently conducted does not infringe or misappropriate, any
copyright, patent, trademark, service mark, trade secret or other intellectual
property right of any third party. To the best of the Company's knowledge, there
is no material unauthorized use, infringement or misappropriation of any of the
Company Intellectual Property Rights by any third party, including any employee
or former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restricting in any manner the licensing
thereof by the Company. Each employee, consultant or contractor of the Company
has executed a proprietary information and confidentiality agreement
substantially in the Company's standard forms. To the Company's knowledge, all
software included in the Company Intellectual Property Rights is original with
the Company and has been either created by employees of the Company on a
work-for-hire basis or by consultants or contractors who have created such
software themselves and have assigned or are under an obligation to assign all
rights they may have had in such software to the Company.
(d) Schedule 2.11(d) lists all contracts, licenses and agreements
between the Company and any other person wherein the Company has agreed to, or
assumed, any material obligation or material duty to warrant, indemnify,
reimburse, hold harmless, guaranty or otherwise assume or incur any material
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 of any person or entity other than the Company.
(e) All of the products currently offered by the Company will
accurately record, store, process, calculate and present calendar dates falling
on and after (and if applicable, spans of time including) January 1, 2000, and
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 products
currently offered by the Company (i) will lose no functionality with respect to
the introduction of records containing dates falling on or after January 1,
2000. All of the Company's internal computer and technology products and systems
are Year 2000 Compliant.
2.12 Agreements, Contracts and Commitments. Except as set forth on Schedule
2.12(a), the Company does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements;
(ii) any agreements or arrangements that contain any severance pay
or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements;
(iv) any employment or consulting agreement or contract with an
employee or individual consultant or salesperson or consulting or sales
agreement or contract, under which a
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firm or other organization provides services to the Company pursuant to which
the Company is obligated to make payments in excess of $25,000 per year;
(v) 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;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value individually in
excess of $25,000;
(viii) any agreement of indemnification or guaranty;
(ix) 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;
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000 individually or
$50,000 in the aggregate;
(xi) 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;
(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof;
(xiii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more;
(xiv) any construction contract;
(xv) any material distribution, joint marketing or development
agreement;
(xvi) any agreement, contract or commitment pursuant to which the
Company has granted or may grant in the future, to any party a source-code
license or option or other right to use or acquire source-code; or
(xvii) any other agreement, contract or commitment that involves
$50,000 or more or is not cancelable without penalty within thirty (30) days.
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Schedule 2.12(a) sets forth a list of the Company's top 15 customers
according to revenue for the fiscal year ended March 31, 1999, and each customer
with which the Company currently has an agreement that the Company in good faith
expects to be one of the Company's top 15 customers for the fiscal year ending
March 31, 2000, and a list of all effective agreements between such customer and
the Company.
Except for such alleged breaches, violations and defaults, and events that
would constitute a breach, violation or default with the lapse of time, giving
of notice, or both, all of which are noted in Schedule 2.12(b), the Company 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 or commitment required to be set forth on Schedule 2.12(a)
or Schedule 2.11(b) (any such agreement, contract or commitment, a "CONTRACT").
Each Contract is in full force and effect and, except as otherwise disclosed in
Schedule 2.12(b), is not subject to any default thereunder of which the Company
has knowledge by any party obligated to the Company pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule 2.13,
no officer, director, affiliate (as defined under Regulation C under the
Securities Act of 1933, as amended) or, to the knowledge of the Company,
stockholder of the Company (nor, to the knowledge of the Company, 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 economic
interest), has or has had, directly or indirectly, (i) an economic interest in
any entity which furnished or sold, or furnishes or sells, services or products
that the Company furnishes or sells, or proposes to furnish or sell, or (ii) an
economic 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 or agreement set forth in Schedule 2.12(a) or Schedule 2.11(b);
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 "economic
interest in any entity" for purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation, except where any such violations or failures to comply would not,
individually or in the aggregate, have a Material Adverse Effect.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or, to the best of the Company's
knowledge, threatened against the Company, its properties or any of its officers
or directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, to the best of the Company's knowledge there is no investigation
pending or threatened against the Company, its properties or any of its officers
or directors by or before any Governmental Entity. Schedule 2.15 sets forth,
with respect to any such pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. No Governmental Entity
has at any time challenged or questioned the legal right of the Company to
manufacture, offer or sell any of its products in the present manner or style
thereof.
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2.16 Insurance. The insurance policies and fidelity bonds covering the
assets, business, equipment, properties, operations, employees, officers and
directors of the Company contain provisions which are reasonable and customary
in the Company's industry, and 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 material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
The Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (including committees
thereof) and stockholders or actions by written consent since the time of
incorporation of the Company.
2.18 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; or (ii) illegally released in violation of
applicable law 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,
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 actions of the Company, or, to the
Company's knowledge, as a result of any actions of any third party 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
Closing Date, nor has the Company 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. To the Company's knowledge, 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 and other businesses of the Company as such activities and
businesses are currently being conducted.
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<PAGE> 27
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability
that would have a Material Adverse Effect.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth
on Schedule 2.19, 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 this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth (i) the principal terms and
conditions of any agreement with respect to such fees, and (ii) the Company's
current reasonable estimate of all Third Party Expenses (as defined in Section
5.5) expected to be incurred by the Company in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate"
set forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any 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 thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, 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,
and pursuant to which the Company or any Affiliate has or may have any material
liability, contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation, visa,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
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<PAGE> 28
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any Pension Plan which is a
"multiemployer plan", as defined in Section 3(37) of ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee Plan
which is an "employee pension benefit plan", within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete list
of each Company Employee Plan and each Employee Agreement, together with a
schedule of all liabilities, whether or not accrued, under each such Company
Employee Plan or Employee Agreement. The Company does not have any plan or
commitment, stated or unstated, whether legally binding or not, to establish any
new Company Employee Plan or Employee Agreement, to modify any Company Employee
Plan or Employee Agreement (except to the extent required by law or to conform
any such Company 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 Company Employee Plan or
Employee Agreement, nor does it have any intention to do any of the foregoing.
(c) Documents. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company Employee
Plan and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications, if
any, required under ERISA with respect to each Company Employee Plan; (vi) all
IRS determination letters and rulings relating to Company Employee Plans and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all
material written agreements and contracts relating to each Company Employee
Plan, including but not limited to, administration service agreements, group
annuity contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company 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
material liability to the Company; and (ix) all registration statements and
prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule 2.20(d),
(i) the Company has performed in all material respects all obligations required
to be performed by it under each Company Employee Plan and each Company Employee
Plan has been established and maintained in all material respects 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) each
Company Employee Plan intended to qualify under Section 401(a) of the Code and
each trust
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<PAGE> 29
intended to qualify under Section 501(a) of the Code has either received a
favorable determination letter with respect to each such Plan from the IRS or
has remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination letter and make any
amendments necessary to obtain a favorable determination; (iii) no "prohibited
transaction", within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Company Employee Plan; (iv) there are no
actions, suits or claims pending and served, or, to the knowledge of the
Company, threatened or anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; (v) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to the Company, Parent or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (vi) there
are no inquiries or proceedings pending or, to the knowledge of the Company or
any affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) neither the Company nor any Affiliate is subject to any
penalty or tax with respect to any Company Employee Plan under Section 402(i) of
ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or
been required to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason, except as may be
required by statute, and the Company has never represented to, promised to or
contracted with (whether in oral or written form) any Employee (either
individually or to or with Employees as a group) that such Employee(s) would be
provided with life insurance, medical or other employee welfare benefits upon
their retirement or termination of employment, except to the extent required by
statute.
(h) COBRA. Neither the Company nor any Affiliate has, prior to the
Effective Time and in any material respect, violated any of the health care
continuation requirements of the Consolidated Omnibus Budget Reconciliation Act
of 1985 or any similar provisions of state law applicable to its employees.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(i), 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 Company 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.
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<PAGE> 30
(ii) Except as set forth on Schedule 2.20(i), no payment or benefit
which will or may be made by the Company or Parent or any of their respective
affiliates with respect to any Employee will be characterized as an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code.
(j) Employment Matters. The Company (i) is in compliance in all
material respects 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 other than such non-compliance as would not have a Material Adverse
Effect; (ii) has withheld all amounts required by law or by agreement to be
withheld from the 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 material amount
for any payment to any trust or other fund or to any governmental or
administrative 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).
(k) Labor. No work stoppage or labor strike against the Company is
pending or, to the best knowledge of the Company, threatened. Except as set
forth in Schedule 2.20(k), the Company is not involved in or, to the knowledge
of the Company, threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would result in any
liability to the Company that would have a Material Adverse Effect. Neither the
Company nor any of its subsidiaries has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act which would directly or
indirectly result in any liability to the Company that would have a Material
Adverse Effect. Except as set forth in Schedule 2.20(k), the Company is not
presently, nor has it 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.
2.21 Employees. To the best of the Company's knowledge, no employee of the
Company (i) is in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
the Company because of the nature of the business conducted or presently
proposed to be conducted by the Company or to the use of trade secrets or
proprietary information of others and (ii) has given notice to the Company, nor
is the Company otherwise aware, that any employee intends to terminate his or
her employment with the Company.
2.22 Governmental Authorization. The Company possesses all material
consents, licenses, permits, grants or other authorizations issued to the
Company by a governmental entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business or the holding of any such interest,
other than such consents, licenses, permits, grants or authorizations the
failure to obtain which would not, either
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<PAGE> 31
individually or in the aggregate, have a Material Adverse Effect (herein
collectively called "Company Authorizations"), which Company Authorizations are
in full force and effect.
2.23 Third Party Consents. Except as set forth on Schedule 2.23, no consent
or approval is needed from any person or entity in order to consummate any of
the transactions contemplated by this Agreement.
2.24 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the stockholders of the Company in connection with 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company 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. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted. Parent is duly qualified to do business and in good
standing as a foreign corporation in each state in which the failure to be so
qualified would have a Material Adverse Effect on Parent and its subsidiaries,
taken as a whole.
3.2 Authority. Parent and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies.
3.3 Parent Capital Structure; Issuance of Shares.
(a) The authorized capital stock of Parent consists of 2,000,000 shares
of Preferred Stock, $0.0001 par value, none of which is issued outstanding, and
45,000,000 shares of Common Stock, $0.0001 par value, of which 30,918,040 shares
were issued and outstanding as of
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March 31, 1999. As of March 31, 1999, Parent had reserved _________ shares of
Common Stock for issuance pursuant to Parent's 1995 Stock Option Plan, 1998
Nonstatutory Stock Option Plan and 1997 Director Option Plan and _________
shares of Common Stock for issuance pursuant to the 1997 Employee Stock Purchase
Plan.
(b) The Shares of Parent Common Stock to be issued pursuant to the
Merger have been duly authorized by all necessary corporate action and, when
issued in accordance with the terms and provisions of this Agreement, will be
validly issued, fully paid and non-assessable and free of preemptive rights with
respect thereto.
3.4 SEC Filings; Parent Financial Statements. Parent has furnished or made
available to the Company true and correct copies of its Annual Report on Form
10-K for the year ended December 31, 1998 and its Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, and its definitive Proxy Statement dated
April 30, 1999, each as filed with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the foregoing being collectively referred to as the "SEC
DOCUMENTS"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Exchange Act, and the
applicable rules and regulations of the SEC thereunder, and none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a document subsequently filed
with the SEC prior to the date hereof and delivered to the Company. The
financial statements of Parent, including the notes thereto, included in the SEC
Documents (the "PARENT FINANCIAL STATEMENTS") comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC) and present fairly the consolidated financial position of Parent at
the dates thereof and of its consolidated results of operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, recurring audit adjustments).
3.5 Litigation. There is no action, suit, proceeding, claim or
investigation pending, or as to which Parent has received any notice of
assertion against Parent or any of its material subsidiaries, which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay any of
the transactions contemplated by this Agreement. Except as disclosed in the SEC
Documents, there is no action, suit, proceeding, claim, arbitration or
investigation pending, or as to which Parent or any of its material subsidiaries
have received any notice of assertion, which, if determined adversely to Parent
or any of its material subsidiaries would have a Material Adverse Effect on the
Parent and its subsidiaries, taken as a whole.
3.6 No Conflict. Neither the execution and delivery of this Agreement by
Parent or Merger Sub, nor the consummation by Parent or Merger Sub of the
transactions contemplated hereby, nor compliance by Parent or Merger Sub with
any of the provisions hereof, will (i) conflict with or result in a breach of
any provision of Parent's or Merger Sub's Certificate of Incorporation or
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<PAGE> 33
Bylaws, (ii) constitute or result in a default under, or require any consent
pursuant to, or result in the creation of any lien on any material asset of any
Parent or Merger Sub under, any contract of Parent or Merger Sub, where such
default or lien, or any failure to obtain such consent, is reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Parent and
its subsidiaries, taken as a whole.
3.7 Governmental Approvals. 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 Merger Sub
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of the Certificate of Merger with the Delaware Secretary of State, (ii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, if any, (iii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as shall have been
obtained prior to the Effective Time, (iv) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings the failure to
obtain which would not either materially delay the ability of Parent or Merger
Sub to consummate the Merger or have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
3.8 Absence of Changes or Events. Since March 31, 1999, except as set forth
and disclosed in the SEC Documents and in the periodic reports filed by Parent
under the Exchange Act since March 31, 1999 and prior to the date of this
Agreement, including all exhibits filed therewith, there has not been any event
that has had a Material Adverse Effect on Parent and its subsidiaries, taken as
a whole; provided, however, that neither of the following, in and of itself,
shall be deemed to constitute a Material Adverse Effect: (i) any change in the
market price or trading volume of the Company Common Shares, or (ii) the failure
to meet analysts's expectation.
3.9 Brokers' and Finder's Fees. Except for fees payable to SoundView
Technology group, 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.
3.10 Third Party Consents. No consent or approval is needed from any person
or entity in order for Parent and Merger Sub to consummate any of the
transactions contemplated by this Agreement.
3.11 Representations Complete. None of the representations or warranties
made by the Parent or Merger Sub, nor any statement made in any Schedule or
certificate furnished by the Parent or Merger Sub pursuant to this Agreement,
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, nor misleading.
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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 and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
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, and any material event involving or adversely
affecting the Company or its business. Except as expressly contemplated by this
Agreement, or disclosed in Schedule 4.1, the Company shall not, without the
prior written consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary course
of business.
(b) Transfer to any person or entity any rights to the Company
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(c) Enter into or amend in any material respect any agreements pursuant
to which any other party is granted manufacturing, marketing, distribution or
similar rights of any type or scope with respect to any products of the Company;
(d) Amend or otherwise modify in any material respect (or agree to do
so), except in the ordinary course of business, or violate the terms of, any of
the agreements set forth or described in the Company Schedules where such
violation would have a Material Adverse Effect;
(e) Commence any litigation;
(f) 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 its capital
stock (or options, warrants or other rights exercisable therefor), other than
pursuant to the Company's repurchase right under employee restricted stock
purchase agreements;
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(g) Except for the issuance of shares of Company Common Stock upon
exercise or conversion of the presently outstanding Series A and Series B
Preferred Stock, the Warrants and Company Options, 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 any such
shares or other convertible securities;
(h) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
(i) 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 business of
the Company;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, except in the ordinary course of business and consistent with past
practice;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
(l) Grant any severance or termination pay to any director, officer,
employee or consultant, except payments made pursuant to standard written
agreements outstanding on the date hereof (which are disclosed on Schedule
4.1(l));
(m) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment offer,
pay or agree to pay any special bonus or special remuneration to any director,
employee or consultant, or increase the salaries or wage rates of its employees;
(n) 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 and consistent with past practice;
(o) Pay, discharge or satisfy, in an amount in excess of $20,000 in any
one case or $40,000 in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unassented, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements or
that arose in the ordinary course of business subsequent to March 31, 1999;
(p) 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;
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(q) Take any action, including the acceleration of vesting of any
restricted stock or any options or other rights to acquire shares of the capital
stock of the Company which would be reasonably likely to jeopardize the tax-free
reorganization hereunder;
(r) Enter into any strategic alliance, joint development or joint
marketing agreement;
(s) Waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $25,000, in the aggregate;
(t) Cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(u) Alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in which
the Company directly or indirectly holds any interest on the date hereof; or
(v) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (u) 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 and the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof and subject to such obligations and duties as may be imposed upon the
Company and its Board of Directors by applicable law, as determined by advice of
outside counsel, the Company will not (nor will the Company permit any of the
Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit or initiate any proposals or offers
from, or conduct discussions with or engage in negotiations with, any person,
relating to, any possible acquisition of the Company or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or any
equity interest in the Company or any of its Subsidiaries, (b) provide
information with respect to it to any person, other than Parent, relating to, or
otherwise cooperate with, facilitate or encourage any effort or attempt by any
such person with regard to, any possible acquisition of the Company or any of
its subsidiaries (whether by way of merger, purchase of capital stock, purchase
of assets or otherwise), any material portion of its or their capital stock or
assets or any equity interest in the Company or any of its subsidiaries, (c)
enter into an agreement with any person, other than Parent, providing for the
acquisition of the Company or any of its subsidiaries (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any material
portion of its or their capital stock or assets or any equity interest in the
Company or any of its subsidiaries, or (d) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, by any person, other than by Parent. The Company shall
immediately cease and cause to be terminated any such contracts or negotiations
with third parties relating to any such transaction or proposed transaction.
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In addition to the foregoing, if the Company receives prior to the Effective
Time or the termination of this Agreement any offer or proposal relating to any
of the above, the Company shall immediately notify Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request.
Except as contemplated by this Agreement, disclosure by the Company of the terms
hereof (other than the prohibition of this section and other than disclosure by
the Company to its authorized representatives, consultants and advisors) shall
be deemed to be a violation of this Section 4.2.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Issuance of Parent Common Stock; Registration under Securities Act
(a) The shares of Parent's Common Stock to be issued pursuant to the
Merger have not been registered under the Securities Act, in reliance upon
exemptions from registration provided by Rule 506 and/or Section 4(2) under the
Securities Act. The certificates for shares of Parent Common Stock to be issued
pursuant to the Merger shall bear appropriate legends to identify such shares as
being "restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act and to comply with applicable state securities laws. The Parent
Common Stock being offered and sold pursuant to this Agreement in reliance upon
such exemptions from registration is based in part upon the representations of
each stockholder of the Company contained in the Stockholder Certificate
attached hereto as Exhibit A.
(b) Restrictive Legends: Stop Transfer Instructions. Each certificate
representing shares of Parent Common Stock issued pursuant to Article I shall
bear a legend substantially in the form set forth below, which legend shall be
removed by delivery of substitute certificates upon the second anniversary of
the Effective Time or, for shares sold by a stockholder, at such earlier time as
requested by a stockholder after a registration statement with respect to the
shares represented by such certificate has become effective. The sale or
transfer of such shares of Parent Common Stock may only be made (A) pursuant to
an effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or (B) in conformity with the provisions of Rule 144
under the Securities Act or (C) the receipt by Parent of an opinion in form and
substance reasonably satisfactory to Parent from counsel reasonably satisfactory
to Parent to the effect that such transfer may be made without registration
under the Securities Act.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
SUCH SHARES MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR
OTHERWISE DISPOSED OF, DIRECTLY OR INDIRECTLY, UNLESS (I) A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT WITH RESPECT TO SUCH
SHARES, OR (II) THERE IS AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
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ACT OR (III) SUCH TRANSFER MAY BE MADE PURSUANT TO RULE 144 OF
THE ACT."
Parent may instruct its transfer agent to stop the transfer of any shares of
Parent Common Stock issued pursuant to Article I unless Parent shall have been
provided evidence of compliance with the restrictions set forth in such legend
reasonably satisfactory to Parent.
(c) Promptly and in any event within 30 days after the Closing Date
Parent shall file a registration statement on Form S-3 to register under the
Securities Act the Parent Common Stock issued pursuant to the Merger in
accordance with the terms and conditions set forth in the Declaration of
Registration Rights in substantially the form attached hereto as Exhibit B.
Parent will, at its expense (excluding any broker fees and commissions), use its
best efforts to have such registration statement become effective and to keep
such registration statement effective for the lesser of one year or until all
such shares of Parent Common Stock have been sold; provided, however, that in no
event shall such registration statement become effective until after the date
Parent publicly announces its operating results for the period ended June 30,
1999.
5.2 Stockholder Approval. Promptly following the execution of the
Agreement, the Company shall submit this Agreement and the transactions
contemplated hereby to its stockholders for approval and adoption by written
consent as provided by Delaware Law and its Certificate of Incorporation and
Bylaws. The Company shall use its best efforts to solicit and obtain the consent
of its stockholders holding 90% of Company Common Stock and 90% of each series
of Company Preferred Stock, to approve the Merger and this Agreement and to
enable the Closing to occur as promptly as practicable. The materials submitted
to the Company' stockholders shall be subject to review and reasonable 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.
5.3 Access to Company Information. Subject to any applicable contractual
confidentiality obligations (which the Company shall use its commercially
reasonable efforts to cause to be waived), Company shall afford to 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 its properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of Company as may reasonably request. No
information or knowledge obtained in any investigation pursuant to this Section
5.3 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.
5.4 Confidentiality. Each of the parties hereto hereby agrees to maintain
the confidentiality of the information obtained in any investigation pursuant to
Section 5.3, or pursuant to the negotiation of this Agreement, in accordance
with the provisions of the Letter of Intent between Parent and the Company dated
as of May 12, 1999.
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5.5 Expenses. If the Merger is not 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") shall be the obligation of the party that
incurred such Third Party Expenses (set forth on Schedule 5.5 hereto). If the
Merger is consummated, the reasonable Third Party Expenses incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby shall be
paid by Parent up to an amount not to exceed $1,000,000, plus that amount of
Third Party Expenses which do not, when accrued on the Company's May 31, 1999
balance sheet, cause the Company's aggregate liabilities to exceed $4,638,342,
and any such expenses in excess of such maximum amount shall be borne and paid
by the stockholders of the Company pro rata based on the aggregate Parent Common
Stock to which such stockholders are entitled hereunder.
5.6 Public Disclosure. No disclosure (whether or not in response to an
inquiry) of the existence or nature of this Agreement shall be made by any party
hereto unless approved by duly authorized officers of both Parent and the
Company prior to release, provided that such approval shall not be unreasonably
withheld and subject in any event to Parent's obligation to comply with
applicable securities law and Nasdaq Stock Market regulations.
5.7 Consents. The Company shall use its reasonable efforts to obtain the
consents, waivers 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 Company Schedules) so as to preserve all rights of, and benefits to the
Company thereunder.
5.8 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).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary 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 the
Company or 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.
5.10 Notification of Certain Matters. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event which is likely to cause any
representation or warranty of the Company and Parent or Merger
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Sub, respectively, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any failure of the
Company, Parent or Merger Sub, 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 5.10 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
5.11 Additional Documents and Further Assurances. Each party hereto, at the
request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
reasonably desirable for effecting completely and promptly the consummation of
this Agreement and the transactions contemplated hereby.
5.12 Nasdaq Listing; Blue Sky Laws.
(a) On or before the Closing Date, Parent shall apply for the
additional listing on the Nasdaq National Market of 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.
(b) Parent shall take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of the Parent Common Stock pursuant hereto. The Company shall use its
best efforts (at the expense of Parent) to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock pursuant
hereto.
5.13 Company's Auditors. The Company will use its commercially reasonable
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) as required by Parent to comply with
applicable SEC regulations, and (ii) the review of the Company's audit work
papers, including the examination of selected interim financial statements and
data.
5.14 Form S-8. Promptly following the Effective Time, Parent shall file a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Options promptly following the Closing
Date.
5.15 Employees; Parent Stock Options.
(a) As soon as practicable after the date of this Agreement, the Chief
Executive Officer of the Company and the Vice President Human Resources of
Parent will use their best efforts to agree upon the guidelines within which the
Company will proceed with respect to retention of existing Company employees.
(b) As soon as practicable after the Closing, subject to the approval
of its Board of Directors, Parent will grant stock options to purchase 180,000
shares of its Common Stock to the employees of the Company as mutually
determined by Parent and the Company's President promptly after the Effective
Time, consistent with standard Parent practices.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the stockholders of the Company by the requisite vote
under applicable law and the Company's Certificate of Incorporation.
(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 or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect.
(c) Government Approvals. All approvals of governments and government
agencies necessary to consummate the Merger hereunder, shall have been received.
(d) Nasdaq National Market Listing. The shares of Parent Common Stock
issuable to stockholders of the Company pursuant to this Agreement in connection
with the Merger shall have been authorized for listing on the Nasdaq National
Market upon official notice of issuance.
6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and correct
in all material respects on and as of the Closing, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Effective Time, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and the Company shall have received a certificate to such
effect signed by a duly authorized officer of Parent.
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(c) Legal Opinion. The Company shall have received a legal opinion from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to Parent
and Merger Sub, in substantially the form attached hereto as Exhibit C.
(d) Dissenters' Rights. Holders of no more than 19% of the outstanding
shares of Company Capital Stock shall have exercised dissenters' or similar
rights under applicable law with respect to their shares.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the Closing, except for changes contemplated by
this Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such date), with the same force and effect as if made on and as of the Effective
Time, except, in all such cases, for such breaches, inaccuracies or omissions of
such representations and warranties which have neither had nor reasonably would
be expected to have a Material Adverse Effect on the Company; and Parent and
Merger Sub shall have received a certificate to such effect signed on behalf of
the Company by the chief executive officer of the Company;
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate to
such effect signed by the chief executive officer of the Company;
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 2.23.
(d) Legal Opinion. Parent shall have received a legal opinion from Wise
& Shepard LLP or its successor, Manatt Phelps & Phillips, LLP, legal counsel to
the Company, in substantially the form attached hereto as Exhibit D.
(e) Material Adverse Change. Since the April Balance Sheet, no event
shall have occurred that would constitute a Material Adverse Effect on the
Company.
(f) Stockholder Approval. Holders of at least 90% of the outstanding
shares of Company Common Stock and of each series of Company Preferred Stock
shall have voted to approve of the Merger, and holders of no more than 5% of the
outstanding shares of Company Capital Stock shall have exercised dissenters' or
similar rights under applicable law with respect to their shares.
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(g) Noncompetition Agreements. Each of John Valencia, Caleb Entrekin
and Charles Entrekin shall have executed and delivered to Parent a
Noncompetition Agreement in substantially the form attached hereto as Exhibit E
and Exhibit E-1, respectively, and the Noncompetition Agreements shall be in
full force and effect.
(h) Stockholder Certificate. Each of the Company's stockholders shall,
not later than the Effective Time, have executed and delivered to Parent the
Stockholder Certificate in the form attached hereto as Exhibit A.
(i) Disclosure Schedules. Parent shall, in its sole discretion, have
accepted the Company Schedules.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Company Schedules) shall
survive the Merger and continue until 5:00 p.m., California time, on the first
anniversary date of the Closing Date (the "EXPIRATION DATE"). Subject to the
following requirements, the Escrow Fund (as defined in Section 7.2(a) below)
shall be in existence immediately following the Effective Time and shall
terminate at 5:00 p.m., California time, on the date which is one year following
the Closing Date (the "ESCROW PERIOD"); provided that the Escrow Period shall
not terminate with respect to such amount (or some portion thereof) that is
necessary in the reasonable judgment of Parent, subject to the objection of the
Stockholder Agent (as defined below) and the subsequent arbitration of the
matter in the manner provided in Section 7.2(f) hereof, to satisfy any
unsatisfied claims concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any Officer's Certificate (as
defined in Section 7.2(d) below) delivered to the Escrow Agent prior to
termination of such Escrow Period; provided further that the Escrow Fund will
terminate in full upon final and complete resolution of all disputed matters.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time the Company's stockholders will
be deemed to have received and consented to the deposit with the Escrow Agent
(as defined below) of the Escrow Amount (plus any additional shares as may be
issued upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time), without any act required on the part of any
stockholder. As soon as practicable after the Effective Time, the Escrow Amount,
without any act required on the part of any stockholder, will be deposited with
an escrow agent acceptable to Parent and the Stockholder Agent (as defined in
Section 7.2(g)(i) below) as Escrow Agent (the "ESCROW AGENT"), such deposit to
constitute an escrow fund (the "ESCROW FUND") to be
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governed by the terms set forth herein and at Parent's cost and expense. The
portion of the Escrow Amount contributed on behalf of each stockholder of the
Company shall be in proportion to the aggregate Parent Common Stock to which
such holder would otherwise be entitled under Sections 1.6(a) and 1.6(b). The
Escrow Amount shall be contributed entirely out of the shares of Parent Common
Stock issuable upon the Merger in respect of Capital Common Stock, and no
portion of the Escrow Amount shall be contributed out of the shares of Parent
Common Stock reserved for issuance in respect of Company Options. The Escrow
Fund is available to compensate Parent and its affiliates for any claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defenses (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 any inaccuracy or breach of a
representation or warranty of the Company contained in Article II herein, or any
failure by the Company to perform or comply with any covenant contained herein.
Parent and the Company each acknowledge that such Losses, if any, would relate
to unassented contingent liabilities existing at the Effective Time, which if
resolved at the Effective Time would have led to a reduction in the aggregate
Merger consideration. Parent may not receive any shares from the Escrow Fund
unless and until Officer's Certificates (as defined in paragraph (d) below)
identifying Losses, the aggregate amount of which exceed $100,000 have been
delivered to the Escrow Agent as provided in paragraph (e); in such case, Parent
may recover from the Escrow Fund its Losses, including the first $100,000.
(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.,
(Pacific Time) on the Expiration Date (the "ESCROW PERIOD"); provided that the
Escrow Period shall not terminate with respect to such amount (or some portion
thereof), that together with the aggregate amount remaining in the Escrow Fund
is necessary in the reasonable judgment of Parent (subject to reduction as may
be determined by arbitration of the matter as provided in Section 7.2(f) hereof
in the event of the objection of the Stockholder Agent in the manner provided in
Section 7.2(e) hereof) to satisfy any unsatisfied claims concerning facts and
circumstances existing prior to the termination of such Escrow Period and to the
extent specified in any Officer's Certificate delivered to the Escrow Agent
prior to termination of such Escrow Period. As soon as all such claims have been
resolved, the Escrow Agent shall transfer to the stockholders of the Company,
pursuant to written instructions by Parent, the remaining portion of the Escrow
Fund not required to satisfy such claims. Deliveries of Escrow Amounts to the
stockholders of the Company pursuant to this Section 7.2(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
and any cash dividends 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 as of the time of
such issuance or distribution by Parent shall be added to the Escrow Fund and
become a part thereof. New Shares and cash dividends issued in respect of shares
of Parent Common Stock which have been released from the Escrow Fund as of the
time of such issuance or distribution by Parent shall not be added to the Escrow
Fund but shall be distributed to the recordholders thereof.
(iii) Each stockholder shall be entitled to control the vote of the
shares of Parent Common Stock contributed to the Escrow Fund by such stockholder
(and on any voting securities added to the Escrow Fund in respect of such shares
of Parent Common Stock), and the Escrow Agent in whose name the shares are held
shall vote such shares on all matters as instructed by the respective
stockholders in writing.
(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 reasonably anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant to which such item is related,
the Escrow Agent shall, subject to the provisions of Section 7.2(e) hereof,
transfer 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.
Such payments of shares from the Escrow Fund will be made pro rata in proportion
to the stockholders original contributions to the Escrow Fund.
(ii) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued at
the Average Price (as defined in Section 1.6(h)(iii)). Parent and the
Stockholder Agent shall certify such fair market value in a certificate signed
by both Parent and the Stockholder Agent, and shall deliver such certificate to
the Escrow Agent.
(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 Stockholder Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no transfer to Parent of any Escrow
Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Stockholder Agent to make such transfer.
After the expiration of such thirty (30) day period, the Escrow Agent shall
transfer shares of Parent Common Stock from the Escrow Fund in accordance with
Section 7.2(d) hereof, provided that no such transfer may be made if the
Stockholder Agent shall object in a written statement to the claim made in the
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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 Stockholder Agent shall object in writing to any
claim or claims made in any Officer's Certificate as provided in Section 7.2(e)
hereof, the Stockholder 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 Stockholder 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 Stockholder 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 three
arbitrators. Parent and the Stockholder Agent shall each select one arbitrator,
and the two arbitrators so selected shall select a third arbitrator. The
arbitrators 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 judgment of the arbitrators, to discover
relevant information from the opposing parties about the subject matter of the
dispute. The arbitrators 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
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(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 arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
San Francisco, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.2(f), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Parent shall be deemed to be the prevailing party in
the event that the arbitrators award Parent an amount equal to at least the sum
of one-half (1/2) of the disputed amount plus any amounts not in dispute;
otherwise, the stockholders of the Company as represented by the Stockholder
Agent shall be deemed to be the prevailing party. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the
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arbitration, and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
(g) Stockholder Agent; Power of Attorney.
(i) In the event that the Merger is approved, effective upon such
vote, and without further act of any stockholder, John Valencia shall be
appointed as agent and attorney-in-fact (the "STOCKHOLDER AGENT") for each
stockholder of the Company (except such stockholders, if any, as shall have
perfected their appraisal or dissenters' rights under Delaware Law), for and on
behalf of stockholders of the Company, 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 Stockholder Agent for the accomplishment of the
foregoing. Such agency may be changed by the stockholders of the Company from
time to time upon not less than thirty (30) days prior written notice to Parent;
provided that the Stockholder Agent may not be removed unless holders of a
two-thirds interest of the Escrow Fund agree to such removal and to the identity
of the substituted agent. Any vacancy in the position of Stockholder Agent may
be filled by approval of the holders of a majority in interest of the Escrow
Fund. No bond shall be required of the Stockholder Agent, and the Stockholder
Agent shall not receive compensation for its services. Notices or communications
to or from the Stockholder Agent shall constitute notice to or from each of the
stockholders of the Company.
(ii) The Stockholder Agent shall not be liable for any act done or
omitted hereunder as Stockholder Agent while acting in good faith and in the
exercise of reasonable judgment. The stockholders of the Company on whose behalf
the Escrow Amount was contributed to the Escrow Fund shall severally on a pro
rata basis (based on the Aggregate Parent Common Stock to which such
stockholders are entitled) indemnify the Stockholder Agent and hold the
Stockholder Agent harmless against any loss, liability or expense incurred
without gross negligence or willful misconduct on the part of the Stockholder
Agent and arising out of or in connection with the acceptance or administration
of the Stockholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Stockholder Agent.
(h) Actions of the Stockholder Agent. A decision, act, consent or
instruction of the Stockholder Agent shall constitute a decision of all the
stockholders 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 stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Stockholder Agent as being the
decision, act, consent or instruction of each every such stockholder of the
Company. 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 Stockholder Agent.
(i) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent reasonably believes may result in a demand
against the Escrow Fund, Parent shall notify the Stockholder Agent of such claim
in accordance with Section 7.2(e), and the Stockholder
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Agent, as representative for the stockholders of the Company, shall be entitled,
at his expense, to participate in any defense of such claim. Parent shall have
the right in its sole discretion to control the defense of all such claims and
to settle any such claim; provided, however, that no settlement of any such
claim with third-party claimants in excess of $100,000 in a single matter shall
permit any claim against the Escrow Fund, except with the consent of the
Stockholder Agent, which consent shall not be unreasonably withheld. In the
event that the Stockholder Agent has consented to any such settlement and
acknowledged that the claim is a valid claim against the Escrow Fund, the
Stockholder Agent shall be deemed to have agreed to the claim by Parent against
the Escrow Fund in an amount equal 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
Stockholder 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 absent gross negligence or willful
misconduct.
(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 absent gross negligence or willful
misconduct.
(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
gross negligence or willful 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
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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 provided that the Escrow Agent has exercised reasonable
care in the selection of such 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. In
such event, the Escrow Agent will not be liable for damage.
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. 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) Parent and its 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, 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.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; 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 Colorado. The
successor escrow agent shall execute and deliver an instrument accepting such
appointment and it shall, without 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. 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. It is understood that the fees and usual
charges agreed upon for services of
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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 this escrow
or its subject matter, the Escrow Agent shall be reasonably compensated by
Parent for such extraordinary services and reimbursed for all costs, attorney's
fees, and expenses occasioned by such default, delay, controversy or litigation.
(l) Exclusive Remedy. The Escrow Fund provided for herein is intended
by the parties to this Agreement to apply to breaches by the Company of any
representation, warranty, covenant or agreement of the Company contained herein,
by reason of any misrepresentation by the Company made in or pursuant to Article
II of this Agreement and resort to the Escrow Fund shall be the exclusive remedy
of Parent for such breaches. Notwithstanding the foregoing, the existence of
this Article VII and of the rights and restrictions set forth herein do not
limit any other potential remedies of Parent for (i) breach of the
representations set forth in Section 2.8 or (ii) any intentional or willful
misrepresentation of any breach of or default in connection with any
representation, agreement or covenant contained in this Agreement or the
Disclosure Schedule, for which liability shall be capped at the proceeds of the
transaction to each Shareholder, including the Incentive Cash, whether or not
yet paid.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the Merger abandoned
at any time prior to the Effective Time of the Merger, whether before or after
approval of the Merger by the stockholders of the Company:
(a) by mutual written consent of the Company and Parent;
(b) by either Parent or the Company if: (i) the Effective Time has not
occurred by June 11, 1999 (provided that the right to terminate this Agreement
under this clause 8.1(b)(i) shall not be available to any party whose failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date); (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 either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action (an "ORDER"), in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
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(d) by either Company or Parent if the required approval of the
stockholders of Company contemplated by this Agreement shall not have been
obtained by reason of the failure to obtain the required vote or written consent
of Company stockholders (provided that the right to terminate this Agreement
under this Section 8.1(d) shall not be available to Company where the failure to
obtain Company stockholder approval shall have been caused by the action or
failure to act of Company in breach of this Agreement);
(e) 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 the
Company'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, as a result
of the Merger, any portion of the business or assets of the Company or Parent;
(f) by Company if it is not in material breach of its obligations under
this Agreement and there has been, a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or if
any representation or warranty of Parent shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not then be satisfied; provided that if such inaccuracy in Parent's
representations and warranties or breach by Parent is curable by Parent through
the exercise of its commercially reasonable efforts, then Company may only
terminate this Agreement under this Section 8.1(f) if the breach is not cured
within ten (10) days following the date of written notice from Company of such
breach (but no cure period shall be required for a breach which by its nature
cannot be cured); or
(g) by Parent if it is not in material breach of its obligations under
this Agreement and there has been upon a breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not then be satisfied; provided, that if such inaccuracy in Company's
representations and warranties or breach by Company is curable by Company
through the exercise of its commercially reasonable efforts, then Company may
only terminate this Agreement under this Section 8.1(g) if the breach is not
cured within ten (10) days the date of written notice from Parent of such breach
(but no cure period shall be required for a breach which by its nature cannot be
cured).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
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, Merger Sub or the
Company, or their respective officers, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 5.4, 5.5, 5.6
and Article VIII of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
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8.3 Amendment. Except as is otherwise required by applicable law after the
stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time only by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
Merger Sub, on the one hand, and the Company, on the other, 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.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing, shall be effective when received, and shall in any event be deemed to
have been received (i) when delivered, if delivered personally or by commercial
delivery service, (ii) three (3) business days after deposit with U.S. Mail, if
mailed by registered or certified mail (return receipt requested), (iii) one (1)
business day after the business day of deposit with Federal Express or similar
overnight courier for next day delivery (or, two (2) business days after such
deposit if deposited for second business day delivery), if delivered by such
means, or (iv) one (1) business day after delivery by facsimile transmission
with copy by U.S. Mail, if sent via facsimile plus mail copy (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):
(a) if to Parent or Merger Sub, to:
New Era of Networks, Inc.
7400 East Orchard Road
Englewood, CO 80111
Attention: Leonard Goldstein
Telephone No.: (303) 694-3933
Facsimile No.: (303) 409-9677
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Mark A. Bertelsen, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
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(b) if to the Company, to:
Convoy Corporation
2000 Powell Street, Suite 1380
Emeryville, CA 94608
Attention: John Valencia
Telephone No.:
Facsimile No.:
with a copy to:
Wise & Shepard LLP
3030 Hansen Way, Suite 100
Palo Alto, CA 94304-1006
Attention: Jerrold F. Petruzzelli
Telephone No.: (650) 856-1200
Facsimile No.: (650) 856-1344
(c) if to the Escrow Agent:
Norwest Investment Management and Trust
Corporate Trust and Escrow Services
1740 Broadway
Denver, Colorado 80274-8693
Attention: Greg Walters
Telephone No.: (303) 863-6247
Facsimile No.: (303) 863-5645
9.2 Interpretation. When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The word "AGREEMENT" when used herein shall be deemed in each case to mean any
contract, commitment or other agreement, whether oral or written, that is
legally binding. 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. When reference is made herein to "THE BUSINESS
OF" an entity, such reference shall be deemed to include the business of all
direct and indirect subsidiaries of such entity. Reference to the subsidiaries
of an entity shall be deemed to include all direct and indirect subsidiaries of
such entity.
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.
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9.4 Entire Agreement. This Agreement, the Company Schedule, 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, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder.
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. Except as otherwise provided herein, 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.
9.7 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to 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.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof;
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the State of Colorado, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, other than issues involving the corporate governance of any of the
parties hereto, agrees that process may be served upon them in any manner
authorized by the laws of the State of Delaware for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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9.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the other party. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
9.11 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner of any party hereto or any other person or entity
unless specifically provided otherwise herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized respective officers as of the date first written
above.
NEW ERA OF NETWORKS INC.
By: /s/ Leonard M. Goldstein
-------------------------------------
Name: Leonard M. Goldstein
Title: Senior Vice President, Senior
Counsel and Secretary
COBRA ACQUISITION
CORPORATION
By: /s/ Mark A. Bertelsen
-------------------------------------
Name: Mark A. Bertelsen
Title: Secretary
CONVOY CORPORATION
By: /s/ John Valencia
-------------------------------------
Name: John Valencia
Title: President and Chief Executive
Officer
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