<PAGE> 1
EXHIBIT 2.1
NOTE: Portions of this exhibit are the subject of a Confidential Treatment
Request by the Registrant to the Securities and Exchange Commission. Such
portions have been redacted and are marked with a "[*]" in place of the
redacted language.
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
among:
VERSATA, INC.
a Delaware corporation;
VATA ACQUISITION CORP.
a Delaware corporation;
VERVE, INC.
a California corporation;
and
CERTAIN SHAREHOLDERS OF VERVE, INC.
-------------------------------
Dated as of October 18, 2000
-------------------------------
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TABLE OF CONTENTS
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ARTICLE I THE MERGER........................................................................1
1.1 The Merger...................................................................1
1.2 Closing; Effective Time......................................................1
1.3 Effect of the Merger.........................................................2
1.4 Certificate of Incorporation; Bylaws.........................................2
1.5 Directors and Officers.......................................................2
1.6 Merger Consideration.........................................................3
1.7 Surrender of Certificates....................................................6
1.8 No Further Ownership Rights in Company Capital Stock.........................7
1.9 Lost, Stolen or Destroyed Certificates.......................................7
1.10 Tax Consequences; Accounting.................................................7
1.11 Exemption from Registration..................................................7
1.12 Company Shareholders' Restrictions Regarding Securities Law Matters.........10
1.13 Taking of Necessary Action; Further Action..................................10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY AND CERTAIN SHAREHOLDERS OF
COMPANY............................................................................11
2.1 Organization, Standing and Power............................................11
2.2 Subsidiaries................................................................11
2.3 Capital Structure...........................................................11
2.4 Authority...................................................................12
2.5 No Conflicts................................................................12
2.6 Approvals...................................................................13
2.7 Financial Statements........................................................13
2.8 Absence of Certain Changes..................................................13
2.9 Absence of Undisclosed Liabilities..........................................14
2.10 Litigation..................................................................14
2.11 Restrictions on Business Activities.........................................14
2.12 Governmental Authorization..................................................14
2.13 Title to Property...........................................................15
2.14 Intellectual Property.......................................................15
2.15 Material Contracts..........................................................20
2.16 Environmental Matters.......................................................21
2.17 Taxes.......................................................................23
2.18 Employee Benefit Plans......................................................26
2.19 Certain Agreements Affected by the Merger...................................28
2.20 Employee Matters............................................................28
2.21 Interested Party Transactions...............................................29
2.22 Insurance...................................................................29
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2.23 Compliance With Laws........................................................29
2.24 Minute Books................................................................30
2.25 Board Approval..............................................................30
2.26 Affiliates..................................................................30
2.27 Accounts Receivable.........................................................30
2.28 Customers and Suppliers.....................................................30
2.29 Projections and Product Releases............................................31
2.30 Brokers; Expenses...........................................................31
2.31 Complete Copies of Materials................................................31
2.32 Permit Application; Information Statement...................................31
2.33 Representations Complete....................................................31
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB......................32
3.1 Organization, Standing and Power............................................32
3.2 Capital Structure of Acquiror...............................................32
3.3 Authority...................................................................32
3.4 No Conflicts................................................................32
3.5 Approvals...................................................................33
3.6 SEC Filings; Financial Statements of Acquiror...............................33
3.7 Litigation..................................................................34
3.8 Brokers.....................................................................34
3.9 No Material Adverse Change..................................................34
3.10 Information to be Supplied by Acquiror......................................34
3.11 Representations Complete....................................................34
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.............................................34
4.1 Conduct of Business of Company..............................................34
4.2 Conduct of Business of Company and its Subsidiaries.........................35
4.3 No Solicitation.............................................................37
ARTICLE V ADDITIONAL AGREEMENTS............................................................38
5.1 Written Consent of Shareholders.............................................38
5.2 Access to Information.......................................................38
5.3 Confidentiality.............................................................38
5.4 Public Disclosure...........................................................38
5.5 Consents; Cooperation.......................................................39
5.6 Acquisition of Xedoc........................................................39
5.7 Shareholder Representation Agreement........................................39
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5.8 Blue Sky Laws...............................................................39
5.9 Escrow Agreement............................................................39
5.10 Employees...................................................................39
5.11 Expenses....................................................................40
5.12 Reasonable Efforts and Further Assurances...................................40
5.13 Tax Treatment...............................................................40
5.14 Certain Tax Matters.........................................................40
ARTICLE VI CONDITIONS TO THE MERGER........................................................41
6.1 Conditions to Obligations of Each Party to Consummate the Merger............41
6.2 Additional Conditions to Obligations of Company.............................41
6.3 Additional Conditions to Obligations of Acquiror and Merger Sub.............42
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER..............................................44
7.1 Termination.................................................................44
7.2 Effect of Termination.......................................................45
7.3 Expenses and Termination Fees...............................................45
ARTICLE VIII ESCROW AND INDEMNIFICATION....................................................46
8.1 Escrow Fund.................................................................46
8.2 Indemnification.............................................................46
8.3 Escrow Periods..............................................................48
8.4 Claims upon the Escrow Fund.................................................49
8.5 Shareholders' Agent.........................................................51
8.6 Actions of the Shareholders' Agent..........................................51
8.7 Third-Party Claims..........................................................52
ARTICLE IX GENERAL PROVISIONS..............................................................53
9.1 Non-Survival at Effective Time..............................................53
9.2 Notices.....................................................................53
9.3 Certain Definitions; Interpretation.........................................55
9.4 Counterparts................................................................55
9.5 Entire Agreement; Parties in Interest; Nonassignability.....................55
9.6 Severability................................................................55
9.7 Remedies Cumulative.........................................................56
9.8 Governing Law; Forum........................................................56
9.9 Rules of Construction.......................................................56
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9.10 Extension; Waiver...........................................................56
9.11 No Third-Party Beneficiary..................................................56
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EXHIBITS
Exhibit A -- Delaware Certificate of Merger
Exhibit B -- California Agreement of Merger
Exhibit C -- Amended and Restated Articles of Incorporation
Exhibit D -- Support Agreement
Exhibit E -- Shareholder Representation Agreement
Exhibit F -- Escrow Agreement
Exhibit G -- Non-Competition Agreement
Exhibit H -- Employment Agreement
Exhibit I -- Form of Shareholder Certificate
iv
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
made and entered into as of October 18, 2000, by and among Versata, Inc., a
Delaware corporation ("Acquiror"), VATA Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Acquiror ("Merger Sub"), Verve, Inc.,
a California corporation ("Company"), Brett Adam, an individual, Cameron
Bromley, an individual and J. Matthew Pryor, an individual (each a "Shareholder"
and collectively, the "Shareholders").
RECITALS
A. Acquiror, Merger Sub, Company and the Shareholders intend to effect a
merger of Merger Sub with and into Company (the "Merger") in accordance with
this Agreement, the California Corporation Code ("California Law") and the
Delaware General Corporation Law ("Delaware Law"). Upon consummation of the
Merger, Merger Sub will cease to exist, and Company will become a wholly owned
subsidiary of Acquiror.
B. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), and to cause the Merger to
qualify as a reorganization under the provisions of Sections 368(a) of the
Internal Revenue Code.
C. This Agreement has been approved by the respective boards of
directors of Acquiror, Merger Sub and Company.
D. Contemporaneously with the execution and delivery of this Agreement
and as an inducement to Acquiror to enter into this Agreement, each of the
Shareholders are executing and delivering to Acquiror a support agreement (each
a "Support Agreement") substantially in the form of Exhibit D hereto, to vote
the shares of Company Capital Stock owned by such persons to approve the Merger
and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2), upon
the terms and subject to the conditions set forth in this Agreement and the
applicable provisions of the California Law and the Delaware Law, Merger Sub
shall be merged with and into Company, the separate corporate existence of
Merger Sub shall cease and Company shall continue as the surviving corporation
and as a wholly-owned subsidiary of Acquiror. Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. The closing of the Merger (the "Closing")
shall take place as soon as practicable after the satisfaction or waiver of each
of the conditions set forth in
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Article VI or at such other time as the parties hereto agree in writing (the
"Closing Date"). The parties shall use commercially reasonable efforts to cause
the Closing to occur within thirty (30) days of the execution of this Agreement.
The Closing shall take place at the offices of Brobeck, Phleger & Harrison LLP,
One Market, Spear Street Tower, San Francisco, California, or at such other
location as the parties hereto agree. At the Closing: (i) Acquiror shall deliver
to the Shareholders the shares of Acquiror common stock issuable ("Acquiror
Common Stock") and the cash payable pursuant to Section 1.6 in exchange for
shares of all series and classes of Company capital stock outstanding as of the
Closing Date ("Company Capital Stock") and all shares of Company Capital Stock
reserved for issuance upon exercise of all outstanding Company stock options
("Company Options") and warrants, and the Shareholders shall properly endorse
and immediately deliver the Escrow Shares (as defined in Section 1.6(b)(ii)) to
the Escrow Agent to be deposited into the Escrow Fund pursuant to the
requirements of Section 1.6 and Article VIII and the Escrow Agreement in the
form of Exhibit F hereto; and (ii) simultaneously therewith, the parties hereto
shall cause the Merger to be consummated by filing a Certificate of Merger in
the form of Exhibit A hereto (the "Delaware Certificate of Merger") with the
Secretary of State of the State of Delaware in accordance with the relevant
provisions of Delaware Law, and an Agreement of Merger in the form of Exhibit B
hereto (the "California Agreement of Merger"), together with the required
officers' certificates, with the Secretary of State of the State of California,
in accordance with the relevant provisions of California Law (the time of filing
of the California Agreement of Merger being the "Effective Time").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Delaware Certificate of
Merger, the California Agreement of Merger and the applicable provisions of
Delaware Law and California Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation, and the Surviving Corporation shall be a wholly-owned subsidiary of
Acquiror.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Articles of Incorporation of
Company shall be amended and restated in the form of Exhibit C hereto ("Articles
of Incorporation") and, as so amended and restated, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter further amended in
accordance therewith and as provided by California Law.
(b) The existing Bylaws of Company shall be the Bylaws of the
Surviving Corporation until thereafter further amended in accordance therewith
and as provided by California Law, and the Articles of Incorporation.
1.5 DIRECTORS AND OFFICERS. From and after the Effective Time, the
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation and the officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
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<PAGE> 8
1.6 MERGER CONSIDERATION.
(a) Conversion of Company Capital Stock; Payment of Cash. The
total consideration to be paid by Acquiror in connection with the Merger
pursuant to this Agreement is (and shall not exceed) $10,500,000 (the "Aggregate
Merger Consideration"). The Aggregate Merger Consideration shall consist of:
(i) Cash consideration in the amount of $1,250,000 ("Cash
Consideration"), provided that such amount shall not exceed the twenty percent
(20%) limitation for purposes of qualifying as a reorganization within Section
368(a) of the Internal Revenue Code. To the extent such amount is reduced
because of the foregoing limitation, the shares delivered to the Shareholders at
Closing shall be increased by the number of shares of Acquiror Common Stock at
the Trailing Five Day Price equal to the amount of the reduction below
$1,250,000 ("Cash Equivalent Shares");
(ii) Two hundred-fifty thousand (250,000) shares of
Acquiror Common Stock ("Initial Shares"), subject to the adjustments in Section
1.6(a)(iii); and
(iii) In the event that the average closing price of
Acquiror Common Stock as reported by Nasdaq for the five day period ending on
the third day immediately prior to the Closing Date (the "Trailing Five Day
Price") is outside the range between $22.80 and $51.80 (the "Price Range"), the
number of Initial Shares shall be increased or decreased (the "Adjusted Initial
Shares") as follows: (A) in the event that the Trailing Five Day Price exceeds
$51.80, divide $51.80 by the Trailing Five Day Price ("Quotient A"), and
multiply Quotient A by the number of Initial Shares, and round the product up to
the nearest whole share; (B) in the event that the Trailing Five Day Price is
below $22.80, divide $22.80 by the Trailing Five Day Price ("Quotient B") and
multiply Quotient B by the number of Initial Shares, and round the product up to
the nearest whole share. By way of example, if the Trailing Five Day Price was
$52.00, then the calculation is ($51.80/$52)(250,000 shares) = 249,039 shares.
If the Trailing Five Day Price is $20, then the calculation is
($22.80/$20)(250,000 shares) = 285,000 shares. Notwithstanding the foregoing, if
the Trailing Five Day Price is below $11.40 or above $103.60, no change to
arrive at the number of Adjusted Initial Shares shall be made beyond such
adjustment as would be made at either of those endpoints.
(b) Schedule of Payment of Aggregate Merger Consideration. The
Acquiror shall pay the Aggregate Merger Consideration to the Shareholders
pursuant to Section 1.2 as follows:
(i) The Cash Consideration, any Cash Equivalent Shares and
seventy percent (70%) of the Initial Shares (or the Adjusted Initial Shares, if
applicable) shall be paid to the Shareholders at Closing; and
(ii) Thirty percent (30%) of the Initial Shares (or the
Adjusted Initial Shares, if applicable) shall be paid to the Shareholders at
Closing, which 30% the Shareholders shall properly endorse and immediately
deposit into the Escrow Fund as provided in Article VIII ("Escrow Shares").
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<PAGE> 9
(c) Fractional Shares. No fraction of a share of Acquiror Common
Stock will be issued in the Merger, but in lieu thereof, each holder of shares
of Company Capital Stock who would otherwise be entitled to a fraction of a
share of Acquiror Common Stock (after aggregating all fractional shares of
Acquiror Common Stock to be received by such holder) shall be entitled to
receive from Acquiror an amount of cash (rounded to the nearest whole cent)
equal to the product of (a) such fraction, multiplied by (b) the Trailing Five
Day Price.
(d) Exchange Ratio. At the Effective Time, on the terms and
subject to the conditions of this Agreement (including the limitation set forth
in Section 1.6(a)), by virtue of the Merger and without any action on the part
of the holder of any shares of Company Capital Stock, each share of Company
Capital Stock issued and outstanding immediately prior to the Effective Time
(other than shares to be cancelled pursuant to Section 1.6(e) and shares, if
any, held by persons who have not voted such shares for approval of the Merger
and with respect to which such persons shall become entitled to exercise
dissenters' rights in accordance with California Law or Delaware Law
("Dissenting Shares")) shall be converted into the right to receive (x) the
number of shares of Acquiror Common Stock (the "Exchange Ratio") obtained by
dividing the number of Initial Shares (or the Adjusted Initial Shares, if
applicable) and any Cash Equivalent Shares by the number of shares of Company
Capital Stock outstanding as of the Closing Date; and (y) the amount of cash
obtained by dividing the Cash Consideration (less any adjustments made pursuant
to Section 1.6(a)(i)) by the number of shares of Company Capital Stock
outstanding as of the Closing Date.
(e) Cancellation of Company Capital Stock Owned by Company. At
the Effective Time, all shares of Company Capital Stock that are owned by
Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof and without payment of any
consideration therefor.
(f) Company Stock Option Plans. At the Effective Time, the Verve
Stock Option Plan (the "Company Stock Option Plan") and, to the extent in
compliance with Company's representations in Section 2.3, all Company Options,
whether vested or unvested, shall be assumed by Acquiror (each such Company
Option an "Assumed Option" and collectively the "Assumed Options"). Each Assumed
Option shall continue to have, and be subject to, the same terms and conditions
set forth in the Company Stock Option Plan (if applicable) and the applicable
stock option agreement (on the applicable notice of grant or granting
resolutions, as the case may be) as in effect immediately prior to the Effective
Time, except that (i) each Assumed Option will be exercisable for that number of
whole shares of Acquiror Common Stock equal to the product obtained by
multiplying the number of shares of Company Common Stock that were issuable upon
exercise of such Assumed Option immediately prior to the Effective Time, as if
such Company Options were fully vested, by the quotient obtained by dividing (x)
that number which represents 28.571% of the Aggregate Merger Consideration by
(y) the product obtained by multiplying the Trailing Five Day Price of
Acquiror's Common Stock by the number of Assumed Options (such quotient being
the "Option Exchange Ratio"), rounded down to the nearest whole number of shares
of Acquiror Common Stock; (ii) the per share exercise price for the shares of
Acquiror Common Stock issuable upon exercise of each Assumed Option will be
equal to the quotient obtained by dividing the exercise price per share of
Company Common Stock at which such Assumed Option was exercisable immediately
prior to the Effective Time by the Option Exchange Ratio, rounded up to the
nearest whole cent and (iii) all
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Assumed Options issued to any of the Shareholders shall be subject to a new
thirty (30) month vesting schedule and subject to a right of repurchase by the
Acquiror in the event unvested options are exercised. It is the intention of the
parties that the Assumed Options qualify, to the maximum extent applicable,
following the Effective Time, as incentive stock options as defined in Section
422 of the Internal Revenue Code to the extent such options qualified as
incentive stock options prior to the Effective Time, it being understood and
acknowledged that some or all Company Options may not qualify as incentive stock
options and may instead be treated as nonqualifying options.
(g) Assignment of Repurchase Rights. All outstanding rights of
Company which it may hold immediately prior to the Effective Time to repurchase
unvested shares of Company Common Stock (and the shares of Acquiror Common Stock
into which such shares are converted pursuant to this Section 1.6) (the
"Repurchase Options") shall be and hereby are, effective as of the Effective
Time, assigned to Acquiror in the Merger and shall thereafter be exercisable by
Acquiror upon the same terms and conditions in effect immediately prior to the
Effective Time, except that the number of shares purchasable pursuant to the
Repurchase Options and the purchase price per share shall be adjusted to reflect
the Option Exchange Ratio.
(h) Adjustments to Exchange Ratios. The Exchange Ratio and the
Option Exchange Ratio shall be adjusted to reflect fully the effect of any stock
split, reverse split, stock dividend (including any dividend or distribution of
securities convertible into Acquiror Common Stock or Company Capital Stock),
reorganization, recapitalization or other like change with respect to Acquiror
Common Stock or Company Capital Stock occurring after the date hereof and prior
to the Effective Time.
(i) Conversion of Merger Sub Capital Stock. 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 shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(j) Dissenters' Rights. Any Dissenting Shares shall not be
converted into Acquiror Common Stock but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to applicable law. Company agrees that,
except with the prior written consent of Acquiror, or as required under
applicable law, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such purchase demand. Each holder of Dissenting
Shares ("Dissenting Shareholder") who, pursuant to the provisions of applicable
law, becomes entitled to payment of the "fair market value" for their shares of
Company Capital Stock shall receive payment therefor (but only after the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions). If, after the Effective Time, any Dissenting Shares shall lose
their status as Dissenting Shares, Acquiror shall issue and deliver, upon
surrender by such shareholder of certificate or certificates representing shares
of Company Capital Stock, the number of shares of Acquiror Common Stock and cash
to which such shareholder would otherwise be entitled under this Section 1.6,
less the number of shares allocable to such shareholder that have been deposited
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in the Escrow Fund (as defined in Section 8.1) in respect of such shares of
Acquiror Common Stock pursuant to Section 1.6(a) and Article VIII.
1.7 SURRENDER OF CERTIFICATES.
(a) Exchange Procedures. Upon surrender of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Capital Stock (a "Company Certificate") for
cancellation, the holder of such Company Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock and the amount of cash payable to such holder,
and the number of shares of Acquiror Common Stock which such holder shall
immediately deposit in the Escrow Fund in accordance with Article VIII, and the
Company Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Company 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, other than the payment of
dividends, to evidence only the right to receive that number of full shares of
Acquiror Common Stock issuable and cash payable in exchange for such shares of
Company Capital Stock. Immediately after the Effective Time, and subject to and
in accordance with the provisions of Article VIII, the Shareholders shall cause
to be properly endorsed and delivered to the Escrow Agent (as defined in Section
8.1(a)) a certificate or certificates representing the Escrow Shares, all of
which shall be registered in the name of the Escrow Agent as nominee for the
Shareholders otherwise entitled to such shares. The Escrow Shares endorsed and
deposited with the Escrow Agent shall be beneficially owned by such holders and
shall be held in escrow and shall be available to compensate Acquiror for
certain losses as provided in Article VIII. To the extent not used to compensate
Acquiror for such losses, such shares shall be released to the holders as
provided in Article VIII. Where applicable, Acquiror shall have the right to
inscribe upon any certificate for shares of Acquiror Common Stock issued in the
Merger (or upon transfer thereof) a legend in substantially the following form:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
NUMBER OF MATERIAL RESTRICTIONS, INCLUDING RESTRICTIONS ON SALE, TRANSFER,
DISTRIBUTION, PLEDGE OR OTHER DISPOSAL AND RESTRICTIONS ON REGISTRATION, ALL
PURSUANT TO AN AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF OCTOBER 18, 2000
AND CERTAIN RELATED AGREEMENTS REFERRED TO THEREIN. COPIES OF SUCH AGREEMENTS
MAY BE OBTAINED AT THE EXECUTIVE OFFICES OF ACQUIROR." Acquiror agrees that, in
the case when such a legend no longer applies, such legends shall be removed
from shares of Acquiror Common Stock issued in the Merger upon the request of a
Shareholder or other lawful owner of such Acquiror Common Stock.
(b) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Company Certificate with respect to the shares of Acquiror Common
Stock represented thereby until the holder of record of such Company Certificate
shall surrender such Company Certificate. Subject to applicable law, following
surrender of any such Company Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Acquiror Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of any such dividends or other
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distributions with a record date after the Effective Time theretofore payable
(but for the first sentence of this Section 1.7(b)) with respect to such shares
of Acquiror Common Stock.
(c) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock is to be issued, or any cash is to be paid, in a name or
to a person other than that in which the Company Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the Company 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 Acquiror or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares of
Acquiror Common Stock (or the payment of cash) in any name other than that of
the registered holder of the Company Certificate surrendered, or established to
the satisfaction of Acquiror or any agent designated by it that such tax has
been paid or is not payable.
(d) Dissenting Shares. The provisions of this Section 1.7 shall
also apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.7 shall commence on the date of
loss of such status and the holder of such shares shall be entitled to receive
in exchange for such shares the number of shares of Acquiror Common Stock and
the portion of the Cash Consideration to which such holder is entitled pursuant
to Section 1.6.
1.8 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All shares of
Acquiror Common Stock issued and any cash paid (including any cash paid in lieu
of fractional shares) upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof 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.
1.9 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Company
Certificates shall have been lost, stolen or destroyed, the Acquiror shall issue
in exchange for such lost, stolen or destroyed Company Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock and cash as may be required pursuant to Section 1.6;
provided, however, that Acquiror may, in its discretion and as a condition
precedent to the issuance and payment thereof, require the owner of such lost,
stolen or destroyed Company Certificates to deliver to Acquiror an affidavit of
loss, theft or destruction in form reasonably satisfactory to Acquiror and to
indemnify and hold harmless Acquiror from and against any claim that may be made
against Acquiror, the Surviving Corporation, Company or any of their directors,
officers, employees, affiliates or agents with respect to the Company
Certificates alleged to have been lost, stolen or destroyed.
1.10 TAX CONSEQUENCES; ACCOUNTING. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code. It is intended by the parties hereto that
the Merger shall be accounted for as a purchase.
1.11 EXEMPTION FROM REGISTRATION.
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(a) The shares of Acquiror Common Stock to be issued in the
Merger pursuant to Section 1.6 will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of Section 3(a)(10) thereof or, to the extent Section 1.11(b)
is applicable, pursuant to Section 4(2) of the Securities Act and the rules and
regulations promulgated thereunder. Subject to the provisions hereof, the shares
of Acquiror Common Stock to be issued in the Merger will be qualified under the
California Corporations Code, pursuant to Section 25121 thereof, after a
fairness hearing has been held pursuant to the authority granted by Section
25142 of such law, and (if deemed necessary by Acquiror in its good faith
judgment) such fairness hearing shall also address the assumption by Acquiror of
all Company Options pursuant to this Agreement. Acquiror and Company shall each
use all requisite commercially reasonable efforts to (i) file, as promptly as
practicable following the execution and delivery of this Agreement, an
application for issuance of a permit pursuant to Section 25121 of the California
Corporations Code to issue such securities (and, if deemed necessary by Acquiror
in its good faith judgment, to assume such Company Options) (the "California
Permit") and (ii) to obtain the California Permit as promptly as practicable.
(b) In the event that the California Permit cannot be obtained on
or before December 31, 2000, or without the imposition of burdensome conditions,
then Acquiror and Company shall use commercially reasonable efforts to effect
the issuance of the shares of Acquiror Common Stock to be issued in the Merger,
in a private placement pursuant to Section 4(2) of the Securities Act and the
rules and regulations promulgated thereunder, on terms and conditions that are
reasonably satisfactory to Acquiror and Company. The parties hereto acknowledge
and agree that in the event of such a private placement: (i) as a condition to
effecting such issuance as a private placement pursuant to Section 4(2) of the
Securities Act, Acquiror shall be entitled to obtain from each shareholder of
Company such representations, warranties, certifications and additional
information as shall be reasonably satisfactory to Acquiror and that Acquiror
will be relying upon the representations made by each shareholder of Company in
such statements in connection with the issuance of Acquiror Common Stock to such
shareholder, (ii) until registered on Form S-3 as provided below, the shares of
Acquiror Common Stock so issued pursuant to Section 1.6 will not be registered
under the Securities Act and will constitute "restricted securities" within the
meaning of the Securities Act, and (iii) the certificates representing the
shares of Acquiror Common Stock shall bear appropriate legends to identify such
privately placed shares as being restricted under the Securities Act, to comply
with applicable state securities laws and, if applicable, to notice the
restrictions on transfer of such shares.
(c) In the event of a private placement as described in Section
1.11(b) above, Acquiror shall use commercially reasonable efforts to prepare and
file with the Securities and Exchange Commission ("SEC"), as soon as practicable
(and in any event within thirty (30) days) after the Effective Time, a
registration statement on Form S-3 covering the resale of such shares of
Acquiror Common Stock issued prior thereto in connection with the Merger and
Acquiror shall use commercially reasonable efforts to cause such registration
statement to become effective as promptly as practicable after filing and to
keep such registration statement effective until twelve (12) months after the
Effective Time or such earlier date on which the shares covered thereby are sold
or transferred by the original holders thereof. Acquiror's obligation in the
preceding sentence to file the registration statement within thirty (30) days is
subject to the condition that the holders of Acquiror Common Stock provide
Acquiror promptly, but in no
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event more than fifteen (15) days after the Closing, all information relating to
them for inclusion in the registration statement. While the foregoing
registration statement is effective, Acquiror shall use commercially reasonable
efforts to ensure that the registration statement, as amended or supplemented,
does not contain any untrue statement of a material fact or omit to state a
material fact required to make the statements therein, in light of the
circumstances in which they were made, not misleading. Notwithstanding anything
herein to the contrary, the holders of shares covered by any such registration
statement shall only resell securities pursuant to such registration statement
subject to (i) Blackout Period Restrictions (as defined below) and (ii) in the
case of holders who are officers, employees or consultants of Acquiror, the
Surviving Corporation or any of their affiliates, any trading window
restrictions applicable to similarly situated Acquiror officers, employees or
consultants. "Blackout Period Restrictions" shall mean the restrictions on sale
of registered shares of Acquiror Common Stock pursuant to the registration
statement permitted to be imposed by Acquiror as follows: in the event that, at
any time while the registration statement remains effective, Acquiror determines
in its reasonable judgment and in good faith that the sale of securities
pursuant to such registration statement would require disclosure of material
information that Acquiror has a bona fide business purpose for preserving as
confidential, upon giving written notice to the selling securityholders of such
good faith determination, Acquiror shall be entitled to suspend sales of the
registered securities pursuant to the registration statement for a period
beginning on the date of receipt of such notice and expiring on the earlier of
(i) the date upon which such material information is disclosed to the public or
ceases to be material or (ii) ninety (90) days after the receipt of such notice
from Acquiror; provided, however, that Acquiror shall not be permitted to impose
such restrictions provided herein on more than two (2) occasions.
(d) If Acquiror obtains a California Permit, the certificates
(other than those certificates issued to persons who were not as of the
Effective Time, an affiliate of Company, as such term is defined in Rule 144
under the Securities Act) representing the shares of Acquiror Common Stock
issued pursuant to this Agreement shall bear the restrictive legends as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED
IN CONFORMITY WITH RULE 145(d) OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR IN ACCORDANCE WITH A WRITTEN OPINION OF
COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND
SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED."
If such shares of Acquiror Common Stock are issued in reliance upon an
exemption from the registration requirements of Section 5 of the Securities Act
as set forth in Section 4(2) thereof, the certificates representing the shares
of Acquiror Common Stock issued pursuant to this Agreement shall bear a
restrictive legend stating substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES
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<PAGE> 15
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, OR HYPOTHECATED EXCEPT IN COMPLIANCE
WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO, OR AN OPINION OF COUNSEL, SATISFACTORY
TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION.
1.12 COMPANY SHAREHOLDERS' RESTRICTIONS REGARDING SECURITIES LAW
MATTERS.
Each shareholder of Company, by virtue of the Merger and the conversion
into Acquiror Common Stock of the Company Capital Stock or Assumed Options held
by such shareholder, shall be bound by the following provisions:
(a) If Acquiror issues the shares of Acquiror Common Stock in the
Merger in reliance on a California Permit for an exemption from registration,
such shareholder will not offer or sell any shares of Acquiror Common Stock
except in compliance with Rule 145 promulgated under the Securities Act or
otherwise dispose of any such shares except in compliance with the Securities
Act and the rules and regulations thereunder.
(b) In the event that the shares of Acquiror Common Stock to be
issued pursuant to this Agreement are issued pursuant to an exemption from
registration pursuant to Section 4(2) of the Securities Act, then such
shareholder agrees that such shareholder will not sell, transfer or otherwise
dispose of any shares of Acquiror Common Stock unless (i) such sale, transfer or
other disposition is within the limitations of and in compliance with Rule 144
promulgated by the SEC under the Securities Act and the shareholder furnishes
Acquiror with reasonable proof of compliance with such Rule, (ii) in the opinion
of counsel, reasonably satisfactory to Acquiror and its counsel, some other
exemption from registration under the Securities Act is available with respect
to any such proposed sale, transfer, or other disposition of Acquiror Common
Stock or (iii) the offer and sale of Acquiror Common Stock is registered under
the Securities Act.
If at any time an opinion of counsel is necessary to enable the
Shareholders to freely trade the Acquiror Common Stock to be issued pursuant to
this Agreement, Acquiror shall use its best efforts to secure the requisite
opinion from Acquiror legal counsel.
1.13 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest Acquiror with control over, and to
vest the Surviving Corporation with full right, title and possession to, all
assets, property, rights, privileges, powers and franchises of Company, the
officers and directors of Company, Acquiror and Merger Sub shall, in the name of
their respective corporations or otherwise, take all such lawful and necessary
action as may be requested by Acquiror.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND CERTAIN
SHAREHOLDERS OF COMPANY
Except as disclosed in a document of even date herewith and
delivered by Company to Acquiror prior to the execution and delivery of this
Agreement and referring by numbered section (and, where applicable, by lettered
subsection) of the representations and warranties in this Agreement (the
"Company Disclosure Schedule"), Company and Shareholders, jointly and severally,
represent and warrant to Acquiror and Merger Sub as follows:
2.1 ORGANIZATION, STANDING AND POWER. Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Company has the corporate power to own its properties and to carry
on its business as now being conducted and as proposed to be conducted and is
duly qualified to do business and is in good standing in each jurisdiction where
the failure to be so qualified would reasonably be expected to have a Material
Adverse Effect on the Company. Company has delivered a true, correct and
complete copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Company as amended to date, to Acquiror. Company is
not in violation of any of the provisions of its Articles of Incorporation or
Bylaws.
2.2 SUBSIDIARIES. Company shall acquire an affiliated company, Xedoc
Software Development, Pty. Ltd. of Australia ("Xedoc"). Xedoc shall be deemed a
subsidiary as of the date of this Agreement. Each of the Company's subsidiaries
is a corporation duly organized, validly existing and in good standing under the
terms of its respective jurisdiction and is duly qualified to do business and is
in good standing in each jurisdiction where the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect on the Company. Section
2.2 of the Company Disclosure Schedule lists all subsidiaries and except as
noted therein, all of the outstanding Capital Stock of all such subsidiaries is
owned of record and beneficially by Company.
2.3 CAPITAL STRUCTURE. The authorized capital stock of Company consists
of 3,000,000 shares of Common Stock of which 2,400,000 shares are issued and
outstanding and 2,400,000 shares were issued and outstanding as of the close of
business on September 30, 2000. There are no other outstanding shares of capital
stock or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities after September 30, 2000 other than pursuant
to the exercise of options outstanding as of such date under the Company Stock
Option Plan. All outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and are free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof, and are not subject to preemptive rights or rights of
first refusal created by statute, the Articles of Incorporation or Bylaws of
Company or any agreement to which Company is a party or by which it is bound.
Company has reserved 600,000 shares of Common Stock for issuance to directors,
employees and consultants, of which not more than 570,000 shares of unexercised
options will be outstanding at Closing. Section 2.3 of the Company Disclosure
Schedule sets forth a true and complete list as of the date hereof of all
holders of outstanding Company Options including the number of shares of Company
Capital Stock subject to such option, the exercise and vesting
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<PAGE> 17
schedule, the exercise price per share and the term of such option. On the
Closing Date, the Company shall deliver to Acquiror an updated Section 2.3 of
the Company Disclosure Schedule which shall be true, complete and current as of
such date. Except for (i) the rights created pursuant to this Agreement and (ii)
Company's right to repurchase any unvested shares under the Company Stock Option
Plan and (iii) stock appreciation rights under the Company Stock Option Plan,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Company is a party or by which it is bound obligating
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of capital stock of Company
or obligating Company to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except for the agreements contemplated by this
Agreement, there are no contracts, commitments or agreements relating to voting,
purchase or sale of Company's capital stock (i) between or among Company and any
of its shareholders or option holders and (ii) to the Company's knowledge,
between or among any of Company's shareholders or option holders. The terms of
the Company Stock Option Plan and the applicable stock option agreements permit
the assumption or substitution of options or warrants, as applicable, to
purchase Acquiror Common Stock as provided in this Agreement, without the
consent or approval of the holders of such securities, the Shareholders, or
otherwise. True and complete copies of all agreements and instruments relating
to or issued under the Company Stock Option Plan have been provided to Acquiror
and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form provided to Acquiror. All
outstanding shares of Common Stock were issued in compliance with all applicable
federal and state securities laws.
2.4 AUTHORITY. 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 Company, subject only to the approval of the
Merger by Company's shareholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by Company and constitutes the
valid and binding obligation of Company enforceable against Company in
accordance with its terms, except that such enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to creditors' rights generally, and is subject to general principles of equity.
2.5 NO CONFLICTS. The execution and delivery of this Agreement by
Company do not, and 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 (i) any provision of the Articles of Incorporation or Bylaws of
Company or its subsidiaries as amended, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company or its subsidiaries or any of their properties
or assets, except, in either case, for those conflicts that individually or in
the aggregate would not reasonably be expect to have a Material Adverse Effect
on the Company.
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<PAGE> 18
2.6 APPROVALS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Company, or its subsidiaries 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
California Agreement of Merger, together with the required officers'
certificates, as provided in Section 1.2; (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
(iii) such filings as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR"); and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Company or any of its
subsidiaries or materially impair the benefits expected by Acquiror from the
Merger and would not prevent, alter or delay any of the transactions
contemplated by this Agreement. The affirmative vote of the holders of a
majority of the shares of Company Capital Stock outstanding on the applicable
record date is the only vote of the holders of any of Company's Capital Stock
necessary to approve this Agreement and the transactions contemplated hereby.
2.7 FINANCIAL STATEMENTS. Company has delivered to Acquiror its
unaudited financial statements for the year ended June 30, 2000 (the "Company
Balance Sheet Date"), and its unaudited financial statements (the "Company
Balance Sheet") (balance sheet, statement of operations and statement of cash
flows) as at, and for the three-month period ended September 30, 2000
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with standard accounting principles accepted in the
United States or, with respect to accounting of Xedoc, in Australia ("Standard
Accounting Principles") (except that the unaudited financial statements do not
have notes thereto). The Financial Statements were prepared from and in
accordance with the books and records maintained by Company and fairly present
the financial condition and operating results of Company as of the dates, and
for the periods, indicated therein, subject to normal year-end audit adjustments
which will not be material in nature or in amount.
2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth on Section 2.8 of
the Company Disclosure Schedule, since December 31, 1999, Company has conducted
its business in the ordinary course consistent with past practice and there has
not occurred: (i) any change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to result in, a
Material Adverse Effect (as defined in Section 9.3) on Company; (ii) any
acquisition, sale or transfer of any material asset of Company; (iii) any change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Company or any revaluation by Company of any
of its assets; (iv) any declaration, setting aside, or payment of a dividend or
other distribution with respect to the shares of Company, or any direct or
indirect redemption, purchase or other acquisition by Company of any of its
shares of capital stock, except repurchases of its capital stock pursuant to
agreements with Company's employees and consultants in effect prior to the
commencement of discussions between Company and Acquiror relating to the
transactions contemplated by this Agreement; (v) any material contract entered
into by Company, or any material amendment or termination of, or default under,
any material contract to which Company or its subsidiaries is a party or by
which it or any of its assets is bound; (vi) any amendment or change to the
Articles of Incorporation or
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<PAGE> 19
Bylaws of Company; (vii) any increase in or modification of the compensation or
benefits payable or to become payable by Company to any of its directors,
employees or consultants or (viii) any commitment, agreement or Board of
Directors or shareholder resolution by Company to do any of the things described
in the preceding clauses (i) through (vii) (other than with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).
Since September 30, 2000 (inclusive of such date), Company or any of its
subsidiaries has not taken any action (or failed to take any action), and no
event has occurred, which, if taken or occurring after the date of this
Agreement, would violate or be prohibited by Section 4.2.
2.9 ABSENCE OF UNDISCLOSED LIABILITIES. Company has no obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for in the Company Balance Sheet,
(ii) those incurred in the ordinary course of business and not required to be
set forth in the Company Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the Company Balance Sheet Date and consistent
with past practice and (iv) those set forth in this Agreement. Company's
liability for payments since the Company Balance Sheet Data for legal services
and other services relating to the dispute with Reef and with respect to the
transactions contemplated by this Agreement does not exceed the amount listed in
Section 2.9 of the Company Disclosure Schedule.
2.10 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or, to the knowledge of Company, investigation
pending before any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Company, threatened against Company, its subsidiaries or any of
their assets or properties or any of their officers or directors (in their
capacities as such). There is no judgment, decree or order against Company, or
any of its subsidiaries or any of their directors or officers (in their
capacities as such), limiting the conduct of business by Company or its
subsidiaries or that could prevent, enjoin, or alter or delay any of the
transactions contemplated by this Agreement or have a Material Adverse Effect on
Company or its subsidiaries. The Company Disclosure Schedule also lists all
litigation (including arbitrations) by Company or its subsidiaries which is
pending against any other person or entity.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Company, its subsidiaries or
any of their assets or properties which has had or could reasonably be expected
to have the effect of prohibiting or impairing any current or future business
practice of Company or its subsidiaries, any acquisition of property by Company
or its subsidiaries or the conduct of business by Company or its subsidiaries as
currently conducted or as currently proposed to be conducted by Company or its
subsidiaries.
2.12 GOVERNMENTAL AUTHORIZATION. Company and its subsidiaries have
obtained each material federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a governmental entity
(i) pursuant to which Company or its subsidiaries currently operates or holds
any interest in any of their properties or (ii) that is required for the
operation of Company's or its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called ("Company
Authorizations")except for those Company authorizations that individually or in
the aggregate would not reasonably be expected to have a Material Adverse Effect
on the Company, and all of such Company Authorizations are in full force and
effect.
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2.13 TITLE TO PROPERTY. Company and its subsidiaries have good and
marketable title to all of their respective material assets and properties (real
and personal) and interests in assets and properties (real and personal),
reflected in the Company Balance Sheet or acquired after the Company Balance
Sheet Date (except assets, properties, interests in properties and assets sold
or otherwise disposed of since the Company Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges, charges
or encumbrances of any kind or character, except (i) the lien of current taxes
not yet due and payable, (ii) such imperfections of title, liens and easements
as do not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the Company Balance Sheet. The plants, property and
equipment of Company and its subsidiaries that are used in the operations of
their business' are in good operating condition and repair. All properties used
in the operations of Company and its subsidiaries are reflected in the Company
Balance Sheet to the extent GAAP require the same to be reflected. Section 2.13
of the Company Disclosure Schedule identifies each parcel of real property owned
or leased by Company.
2.14 INTELLECTUAL PROPERTY.
(a) Company and its subsidiaries own, or are licensed or
otherwise possess valid and legally enforceable rights to use, all trademarks
and trademark rights, trade names and trade name rights, service marks and
service mark rights, service names and service name rights, patents and patent
rights, utility models and utility model rights, copyrights, mask work rights,
brand names, trade dress, product designs, product packaging, business and
product names, logos, slogans, rights of publicity, trade secrets, inventions
(whether patentable or not), invention disclosures, improvements, processes,
formulae, industrial models, processes, designs, specifications, technology,
methodologies, computer software (including all source code and object code),
firmware, development tools, flow charts, annotations, all Web addresses, sites
and domain names, all data bases and data collections and all rights therein,
any other confidential and proprietary right or information, whether or not
subject to statutory registration, and all related technical information,
manufacturing, engineering and technical drawings, know-how and all pending
applications for and registrations of patents, utility models, trademarks,
service marks and copyrights, and the right to sue for past infringement, if
any, in connection with any of the foregoing, and all documents, disks, records,
files and other media on which any of the foregoing is stored ("Intellectual
Property") that are used or currently proposed to be used in the business of
Company and its subsidiaries as currently conducted or as currently proposed to
be conducted by Company and its subsidiaries ("Company Intellectual Property").
The Company Intellectual Property constitutes all the Intellectual Property used
in and/or necessary to the conduct of business of Company and its subsidiaries
as currently is conducted and all Intellectual Property required for products
under development by Company or any of its subsidiaries as of the date hereof or
as contemplated to be conducted, including, without limitation, the design,
development, distribution, marketing, manufacture, use, import, license, and
sale of the products, technology and services of Company and its subsidiaries
(including products, technology, or services currently under development).
Neither Company nor any of its subsidiaries have (i) licensed any Company
Intellectual Property in source code form to any third party or (ii) entered
into any exclusive agreements relating to any Company Intellectual Property with
any third
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<PAGE> 21
party. Except for Intellectual Property licensed to Company and its
subsidiaries, Company and its subsidiaries own exclusively each item of Company
Intellectual Property, including all Registered Intellectual Property of Company
and its subsidiaries listed in Section 2.14(b) of the Company Disclosure
Schedule, and own exclusively, and have good title to, all copyrighted works
that are Company products or other works of authorship that Company and its
subsidiaries otherwise purport to own; provided, however, that such works may
incorporate copyrighted works or works of authorship, trademarks or trade names
of third parties which are licensed to Company and its subsidiaries or are in
the public domain. Each item of Company Intellectual Property, including all
Registered Intellectual Property of Company listed in Section 2.14(b) of the
Company Disclosure Schedule, is free and clear of any liens, and has not been
developed or created in conjunction with any third party or entity. Except
pursuant to agreements described in Section 2.14(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has transferred
ownership of or granted to any other person or entity any license of or other
right to use or authorized the retention of any rights to use any Intellectual
Property that is or was Company Intellectual Property. To the extent that any
Company Intellectual Property (other than commercially available "shrink wrap"
software, "shareware" and "freeware") has been developed or created by any
person or entity other than Company (including any founder or employee of or
consultant to the Company), Company and each of its subsidiaries has (or is an
express licensee or beneficiary under) a written agreement with such person or
entity with respect thereto and the Company has obtained ownership of, and is
the exclusive owner of, all such Intellectual Property by operation of law or by
valid assignment of any such rights. No person or entity other than Company and
its subsidiaries has ownership rights to improvements made by Company in
Intellectual Property that has been licensed to Company or any of its
subsidiaries.
(b) Section 2.14(b) of the Company Disclosure Schedule lists (i)
patents, patent applications (including provisional applications); (ii)
registered trademarks and servicemarks, applications to register trademarks and
servicemarks, intent-to-use applications, other registrations or applications to
register trademarks or servicemarks, or trademarks or servicemarks in which
common law rights are owned or otherwise controlled; (iii) registered copyrights
and applications for copyright registration (collectively with the items
described in clauses (i) and (ii)); (iv) any mask work registrations and
applications to register mask works; (v) any other Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any U.S., foreign, international
or supranational governmental authority or other public legal authority; (vi)
all licenses, sublicenses and other agreements as to which Company is a party
and pursuant to which any other person or entity is authorized to use any
Company Intellectual Property; (vii) all licenses, sublicenses and other
agreements as to which Company or any of its subsidiaries is a party and
pursuant to which Company is authorized to use any third-party Intellectual
Property ("Third Party Intellectual Property Rights") which are incorporated in,
are, or form a part of any product of Company or any of its subsidiaries or
which are otherwise used (or currently proposed to be used) by Company or any of
its subsidiaries in the business of Company and its subsidiaries as currently
conducted or as currently proposed to be conducted by Company and its
subsidiaries, other than off-the-shelf software programs licensed under standard
"shrink wrap" license agreements; and (viii) lists any proceedings or actions in
which Company or any of its subsidiaries is a named party that are pending as of
the date hereof before any court, tribunal (including the PTO or equivalent
authority anywhere in the world) related to any of the Registered Intellectual
Property
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of Company and its subsidiaries and other such proceedings or actions that
Company or any of its subsidiaries has knowledge of (regardless of whether
Company or any of its subsidiaries is a party thereto).
(c) To the knowledge of Company and its subsidiaries, no person
or entity (including each employee and former employee of Company or any of its
subsidiaries) is infringing, misappropriating or otherwise making any
unauthorized use or disclosure of any Intellectual Property rights of Company or
any Intellectual Property right of any third party to the extent licensed by or
through Company or any of its subsidiaries. Neither Company nor any of its
subsidiaries has entered into any agreement to indemnify any other person or
entity against any charge of infringement of any Company Intellectual Property
except as part of its standard terms and conditions of sale or license.
(d) Neither Company nor any of its subsidiaries is or will be, as
a result of the execution and delivery of this Agreement or the performance of
its obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to any of the Company Intellectual Property or Third
Party Intellectual Property Rights. Neither this Agreement nor any transactions
contemplated by this Agreement will result in Acquiror's granting any rights or
licenses with respect to the Intellectual Property of Acquiror to any person
pursuant to any contract to which Company or any of its subsidiaries is a party
or by which any of their respective assets and properties are bound.
(e) All patents, registered trademarks, service marks and
copyrights held by Company or any of its subsidiaries are valid and subsisting,
and the manufacturing, marketing, licensing and sale of its products do not
infringe any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party. Neither Company nor any of its
subsidiaries (i) has been sued in any suit, action or proceeding which involves
a claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party; and
(ii) has brought any action, suit or proceeding for infringement of Company
Intellectual Property or breach of any license or agreement involving Company
Intellectual Property against any third party. All necessary registration,
maintenance, renewal fees, annuity fees and taxes in connection with the
Registered Intellectual Property of Company and its subsidiaries have been paid
and all necessary documents and certificates in connection with the Registered
Intellectual Property of Company and its subsidiaries have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property. Section 2.14(e) of the Company Disclosure
Schedule lists all actions that must be taken by Company or any of its
subsidiaries within one hundred eighty (180) days from the date hereof,
including the payment of any registration, maintenance, renewal fees, annuity
fees and taxes or the filing of any documents, applications or certificates for
the purposes of maintaining, perfecting or preserving or renewing any Registered
Intellectual Property of the Company and its subsidiaries.
(f) Company and its subsidiaries have secured valid written
assignments from all consultants and employees who contributed to the creation
or development of Company Intellectual Property of the rights to such
contributions that Company and its subsidiaries do not already own by operation
of law.
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(g) Company and its subsidiaries have taken all reasonably
necessary and appropriate steps to protect and preserve the confidentiality of
all Company Intellectual Property not otherwise protected by patents, patent
applications or copyright ("Confidential Information"). All use, disclosure or
appropriation of Confidential Information by Company or any of its subsidiaries
to a third party has been pursuant to the terms of a written agreement between
Company (or a subsidiary of Company) and such third party. Company and its
subsidiaries have taken all requisite commercially reasonable steps to protect
their respective rights in confidential information and trade secrets and to
protect the confidentiality of confidential information provided to Company or
any of its subsidiaries by any other person or entity subject to a duty of
confidentiality. Without limiting the generality of the foregoing, Company has,
and enforces, a policy requiring each employee, consultant and independent
contractor to execute proprietary information, confidentiality and invention and
copyright assignment agreements substantially in the form attached to or
described in Section 2.14(g) of the Company Disclosure Schedule, and all current
and former employees, consultants and independent contractors of the Company and
its subsidiaries have executed such an agreement. Company and its subsidiaries
have taken all necessary and appropriate steps to protect and preserve ownership
of Company Intellectual Property. Company and its subsidiaries have secured
valid written assignments from all consultants and employees who contributed to
the creation or development of Company Intellectual Property. In the event that
the consultant is concurrently employed by the Company (or any of its
subsidiaries) and a third party, Company and its subsidiaries have taken
additional steps to ensure that any Company Intellectual Property developed by
such a consultant does not belong to the third party or conflict with the third
party's employment agreement which steps include, but are not limited to,
ensuring that all research and development work performed by such a consultant
are performed only on facilities of the Company and its subsidiaries and only
using resources of Company and its subsidiaries.
(h) There has been no material adverse change to the businesses
or electronic systems of Company and its subsidiaries and no material
interruption in the delivery of the products and services of Company and its
subsidiaries by reason of the advent of the year 2000, and all of the products
of Company and its subsidiaries (including products currently under development)
consistently, predictably and accurately, without interruption or manual
intervention, record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000, and will consistently, predictably and accurately calculate any
information dependent on or relating to such dates in substantially the same
manner, and with the same functionality, data integrity and performance, as such
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. Without limiting the generality of the foregoing, (i) Company and
its subsidiaries have taken all actions necessary and appropriate to ensure that
the IT systems and non-IT systems used by Company and its subsidiaries in their
respective internal operations will function properly beyond 1999 (and Company
has no knowledge of any material issues that have arisen in connection
therewith) and (ii) Company and its subsidiaries have made inquiries of their
respective key third-party vendors and suppliers as to the status of their Year
2000 efforts and as a result thereof have not uncovered any problems that could
materially disrupt or harm the day-to-day functioning of the businesses and
operations of Company and its subsidiaries.
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(i) It is the practice of Company and its subsidiaries to scan
all software and data residing on computer network with a commercially available
and up-to-date virus scan software. To the knowledge of Company and its
subsidiaries, their respective software programs and other Intellectual Property
contain no "viruses." For the purposes of this Agreement, "virus" means any
computer code designed to disrupt, disable or harm in any manner the operation
of any software or hardware including worms, bombs, backdoors, clocks, timers,
or other disabling device code, designs or routines which causes the software to
be erased, inoperable, or otherwise incapable of being used, either
automatically or with passage of time or upon command by any person.
(j) Section 2.14(j) of the Company Disclosure Schedule lists all
contracts and licenses between Company and any other person or entity wherein or
whereby Company has agreed to, or assumed, a material obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by Company or such other person or
entity of the Intellectual Property of any person or entity or entity other than
Company.
(k) Except as set forth in Section 2.14(k) of the Company
Disclosure Schedule, Company and its subsidiaries have registered the copyright
with the U.S. Copyright Office for the latest version of each product or
technology of Company and its subsidiaries that constitutes or includes a
copyrightable work. In each case in which Company or any of its subsidiaries
have acquired any Intellectual Property rights from any person or entity, the
Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property (including the
right to seek past and future damages with respect to such Intellectual
Property) to Company and its subsidiaries and, to the maximum extent provided
for by, and in accordance with, applicable laws, Company and its subsidiaries
have recorded each such assignment of Registered Intellectual Property with the
appropriate governmental or regulatory authority, including the PTO, the U.S.
Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be.
(l) The operation of the businesses of Company and its
subsidiaries as currently conducted, or as presently proposed to be conducted,
including the design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of Company and its subsidiaries, does not infringe
or misappropriate the Intellectual Property of any third party, violate the
rights of any third party (including rights to privacy or publicity), or
constitute unfair competition or an unfair trade practice under any law. Except
as set forth in Section 2.14(l) of the Company Disclosure Schedule neither
Company nor any of its subsidiaries has received notice from any person or
entity claiming that such operation or any act, product, technology or service
(including products, technology or services currently under development) of
Company or any of its subsidiaries infringes or misappropriates the Intellectual
Property of any person or entity or constitutes unfair competition or trade
practices under any law, including notice of any third party patent rights or
other Intellectual Property rights from a potential licensor of such rights.
(m) No Company Intellectual Property and no product, technology
or service of Company or any of its subsidiaries is subject to any order or
action or proceeding that restricts, or that is reasonably expected to restrict
in any manner, the use, transfer or licensing of any
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Company Intellectual Property product technology or service by Company or any of
its subsidiaries or that could reasonably be expected to affect the validity,
use or enforceability of such Company Intellectual Property. There is no order
outstanding and no action or proceeding pending finding or alleging, and neither
Company nor any of its subsidiaries has any reason to believe, that any (i)
product, technology, service or publication of Company or any of its
subsidiaries, (ii) material published or distributed by Company or any of its
subsidiaries or (iii) conduct or statement of Company or any of its subsidiaries
constitutes material, false advertising or otherwise violates any law. There is
no contract or license between Company and third party with respect any to
Company Intellectual Property under which there is any dispute known to Company
or any of its subsidiaries regarding the scope of such contract or license, or
performance under such contract or license, including with respect to any
payments to be made or received by Company or any of its subsidiaries
thereunder.
(n) Section 2.14(n) of the Company Disclosure Schedule sets forth
a list of (i) all software which Company or any of its subsidiaries has licensed
from any third party which is used by Company or any of its subsidiaries in its
products or otherwise in its business and (ii) all "freeware" and "shareware"
incorporated into any product now or heretofore shipped by the Company or any of
its subsidiaries. Company and its subsidiaries have all rights necessary to the
use of such software, "freeware" and "shareware".
(o) All product performance comparisons heretofore furnished by
Company or any of its subsidiaries to customers or Acquiror are accurate in all
material respects as of the dates so furnished (except that, in the case of
product performance comparisons made as of a specified earlier date, such
comparisons shall be accurate as of such specified earlier date, and, in the
case or product performance comparisons superseded by a subsequent product
performance comparison furnished to the customer before the customer's
acquisition of a license on the product covered by the superseded comparison,
the superseding comparison shall be accurate in all material respects and the
superseded comparison shall be disregarded).
2.15 MATERIAL CONTRACTS.
(a) Except for the contracts described in Section 2.15 of the
Company Disclosure Schedule (collectively, the "Material Contracts"), Company or
its subsidiaries are not a party to or bound by any material contract,
including:
(i) any distributor, sales, advertising, agency or
manufacturer's representative contract that is not terminable within thirty (30)
days by Company;
(ii) any continuing contract for the purchase of
materials, supplies, equipment or services involving in the case of any such
contract more than Fifty Thousand Dollars ($50,000) over the life of the
contract;
(iii) any contract that expires or may be renewed at the
option of any person or entity other than the Company so as to expire more than
one year after the date of this Agreement;
(iv) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or
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other hedging arrangement or any leasing transaction of the type required to be
capitalized in accordance with GAAP;
(v) any contract for capital expenditures in excess of
Fifty Thousand Dollars ($50,000) in the aggregate;
(vi) any contract limiting the freedom of Company or its
subsidiaries to engage in any line of business or to compete or which requires
Company or its subsidiaries to maintain the confidentiality of any proprietary
information of any third party or any other material confidentiality, secrecy or
non-disclosure contract;
(vii) any contract pursuant to which the Company or its
subsidiaries is a lessor of any machinery, equipment, motor vehicles, office
furniture, fixtures or other personal property involving in the case of any such
contract more than Fifty Thousand Dollars ($50,000) over the remaining life of
the contract;
(viii) any contract with any person or entity with whom
the Company or its subsidiaries does not deal at arm's length within the meaning
of the Internal Revenue Code; or
(ix) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other person or entity.
(b) Each of Company and its subsidiaries has performed in all
material respects all of the obligations required to be performed by it and is
entitled to all material benefits under each, and is not alleged to be in
default in any material respect in respect of any, Material Contract. Each of
the Material Contracts is in full force and effect and has not been amended, and
there exists, to the knowledge of the Company, no default or event of default or
event, occurrence, condition or act, with respect to Company, its subsidiaries
or to Company's or subsidiaries' knowledge with respect to the other contracting
party, which, with the giving of notice, the lapse of time or the happening of
any other event or conditions, would become a default or event of default under
any Material Contract. True, correct and complete copies of all Material
Contracts have been delivered to Acquiror.
2.16 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" means any federal,
state or local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
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(ii) "Environmental Permit" means any permit, license,
approval, consent or authorization required under or in connection with any
Environmental and Safety Law and includes any and all orders, consent orders or
binding agreements issued or entered into by a Governmental or Regulatory
Authority.
(iii) "Facilities" means all buildings and improvements on
any Site.
(iv) "Hazardous Material" means any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious or
radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any Environmental
and Safety Laws.
(v) "Release" means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing of a Hazardous Material into the Environment.
(vi) "Site" means any of the real properties currently or
previously owned, leased, occupied, used or operated by Company, any
predecessors of Company, or any entities previously owned by Company, including
all soil, subsoil, surface waters and groundwater.
(b) Each of Company and its subsidiaries has disposed of all
Hazardous Material and wastes in accordance with all Environmental and Safety
Laws; (ii) each of Company and its subsidiaries has received no notice (verbal,
written or electronic) of any noncompliance with any Environmental and Safety
Law; (iii) no notice, administrative action or suit is pending or, to the
knowledge of Company or its subsidiaries, threatened against Company relating to
any actual or alleged violation of any Environmental and Safety Laws; (iv) no
Site is a current or, to Company's or any subsidiaries' knowledge, proposed
environmental clean-up site, and Company has not been notified that it is a
potentially responsible party under the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or any analogous state
statute arising out of events occurring prior to the Closing Date; (v) to
Company's or any subsidiaries' knowledge, no Release of Hazardous Material has
occurred at, from, in, to, on, or under any Site while Company or any subsidiary
has occupied the Site and no Hazardous Material is present in, on, about or
migrating to or from any Site; (vi) there are not now and, to the knowledge of
Company or any subsidiary, there have not been in the past any underground tanks
or underground improvements at, on or under any Site including treatment or
storage tanks, sumps, or water, gas or oil wells; (vii) there are no
polychlorinated biphenyls (PCBs), asbestos-containing material, lead-based paint
or radon deposited, stored, disposed of or located (or in any equipment located)
at any Site or in any Facilities; (viii) there is no formaldehyde at any Site or
in any Facilities, nor any insulating material containing urea formaldehyde in
the Facilities; (ix) each of Company and its subsidiaries possesses all
Environmental Permits necessary to or required for the operation of its business
and has at all times complied with all Environmental Permits and all
Environmental and Safety Laws; and (x) each of Company and its subsidiaries has
all the permits and licenses required to be issued to it under federal, state or
local laws regarding Environmental and Safety Laws and is in compliance in all
material respects with the terms and conditions of those permits.
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(c) Neither Company nor, to the knowledge of Company, any
predecessor of Company nor any entity previously owned by Company has any
obligation or liability with respect to any Hazardous Material, including any
Release or threatened or suspected Release of any Hazardous Material, and there
have been no events, facts or circumstances since the date of incorporation of
Company or, to the knowledge of Company, prior to such time, which could
reasonably be expected to form the basis of any such obligation or liability.
(d) Neither Company nor any of its subsidiaries is a party,
whether as a direct signatory, assignor or assignee, guarantor, successor, or
third party beneficiary, to, and is otherwise bound by, any lease or other
contract under which Company or any of its subsidiaries is obligated or may be
obligated by any representation, warranty, covenant, restriction,
indemnification or other undertaking respecting any Hazardous Material or under
which any other person is or has been released respecting any Hazardous
Material.
(e) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or for Company or any of
its subsidiaries or, to the knowledge of Company or any of its subsidiaries, by
or for any other person or entity with respect to any Site while Company or any
of its subsidiaries has occupied the Site, which have not been delivered to
Acquiror prior to execution of this Agreement.
2.17 TAXES. For purposes of this Agreement, the following terms have the
following meanings:
(i) "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (A) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax Authority") responsible for the
imposition of any such tax (domestic or foreign), (B) any liability for the
payment of any amounts of the type described in clause (A) as a result of being
a member of an affiliated, consolidated, combined or unitary group for any
Taxable period and (C) any liability for the payment of any amounts of the type
described in (A) or (B) as a result of any express or implied obligation to
indemnify any other person.
(ii) "Tax Return" means any return, statement, report or
form, including estimated Tax Returns and reports, withholding Tax Returns and
reports and information reports and returns required to be filed with respect to
Taxes.
(a) All Tax Returns required to have been filed by or with
respect to Company and each of its subsidiaries or any affiliated, consolidated,
combined, unitary or similar group of which Company (or subsidiary) is or was a
member (a "Relevant Group") have been duly and timely filed (including any
extensions), and each such Tax Return correctly and completely reflects Tax
liability and all other information required to be reported thereon. All Taxes
due and payable by Company, its subsidiaries or any member of a Relevant Group,
whether or not shown on any Tax Return, or claimed to be due by any Tax
Authority, have been
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paid or accrued on the Company Balance Sheet, except for unpaid accruable Taxes
incurred by Company or its subsidiaries in the ordinary course of its business
since the Company Balance Sheet Date. All such Tax Returns are true, complete
and correct in all material respects.
(b) Except for Taxes incurred in the ordinary course of its
business following the date of the Company Balance Sheet, Company and each of
its subsidiaries has not incurred any material liability for Taxes other than as
reflected on the Company Balance Sheet. The unpaid Taxes of Company and its
subsidiaries (i) did not, as of Company Balance Sheet Date, exceed by any
material amount the reserve for liability for income Tax (other than the reserve
for deferred taxes established to reflect timing differences between book and
tax income) set forth on the face of the Company Balance Sheet and (ii) will not
exceed by any material amount that reserve as adjusted for operations and
transactions through the Closing Date.
(c) Company or any subsidiary is not a party to any agreement
extending the time within which to file any Tax Return.
(d) Company and each subsidiary has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, creditor or independent contractor.
(e) No Tax Authority in any jurisdiction where Company or
subsidiary does not file Tax Returns, domestic or foreign, has made any claim
that Company or any subsidiary may be subject to Tax in that jurisdiction. No
claim or action has been made or taken by any Tax Authority for the assessment
of additional Taxes against Company or subsidiary for any past period. There is
no dispute or claim concerning any Tax liability of Company or any subsidiary
either (i) threatened, claimed or raised by any Tax Authority or (ii) of which
Company or any subsidiary is otherwise aware. There are no liens or encumbrances
for Taxes upon any assets or properties of Company or any subsidiary other than
liens for Taxes not yet due. No Tax Return of Company or any subsidiary has been
or is being audited or examined by any Tax Authority. Section 2.17(e) of the
Company Disclosure Schedule indicates those Tax Returns, if any, of Company or
any subsidiary that have been audited or examined by Taxing Authorities, and
indicates those Tax Returns of Company or subsidiary that currently are the
subject of audit or examination. Company and each subsidiary has delivered to
Acquiror complete and correct copies of the most recent federal, state, local
and foreign income Tax Returns filed by, and all Tax examination reports and
statements of deficiencies assessed against or agreed to by, Company and its
subsidiaries.
(f) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, Company or its
subsidiaries or with respect to any Tax assessment or deficiency affecting
Company, its subsidiaries or any Relevant Group.
(g) Company and each of its subsidiaries have not received any
written ruling related to Taxes or entered into any agreement with a Tax
Authority relating to Taxes.
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(h) Company and its subsidiaries have no liability for the Taxes
of any person or entity (i) under Section 1.1502-6 of the Treasury regulations
(or any similar provision of state, local or foreign Law), (ii) as a transferee
or successor, (iii) by contract or (iv) otherwise.
(i) Company and its subsidiaries (i) has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Internal Revenue
Code or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger and (ii)
is not a "consenting corporation" within the meaning of Section 341(f)(1) of the
Internal Revenue Code.
(j) Company and its subsidiaries are not a party to or bound by
any obligations under any Tax sharing, Tax allocation, Tax indemnity or similar
agreement or arrangement.
(k) Company and its subsidiaries were not included and is not
includible in the Tax Return of any Relevant Group with any corporation other
than such a return of which Company or subsidiary is the common parent
corporation.
(l) Company and its subsidiaries have not made any payments, is
not obligated to make any payments, nor is a party to any contract that under
certain circumstances could require it to make any payments that are not
deductible as a result of the provisions set forth in Section 280G of the
Internal Revenue Code or the treasury regulations thereunder or would result in
an excise tax to the recipient of any such payment under Section 4999 of the
Internal Revenue Code.
(m) All material elections with respect to income Taxes affecting
Company and its subsidiaries are set forth in Section 2.17(m) of the Disclosure
Schedule.
(n) Company and its subsidiaries is not and has never been a
United States real property holding corporation within the meaning of Section
897(c)(2) and Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
(o) Company and its subsidiaries have disclosed in their federal
income Tax Return all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Section
6662 of the Internal Revenue Code.
(p) Company and each of its subsidiaries are in full compliance
with all terms and conditions of any Tax exemptions or other Tax-sparing
agreement or order of a foreign government and the consummation of the Merger
shall not have any adverse effect on the continued validity and effectiveness of
any such Tax exemptions or other Tax-sparing agreement or order.
(q) No shareholder of Company or its subsidiaries has disposed of
any shares of Company Capital Stock, or received any distribution from Company
or its subsidiaries, in a manner that would prevent the continuity of interest
requirement necessary to effect a tax-free reorganization under the Internal
Revenue Code from being satisfied or otherwise cause the Merger not to qualify
for treatment as a tax-free reorganization pursuant to Section 368(a) of the
Internal Revenue Code.
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(r) Section 2.17(s) of the Company Disclosure Schedule sets forth
the following information with respect to Company and each of its subsidiaries
as of the most recent practicable date: (i) the basis of Company in its assets;
(ii) the amount of any net operating loss, net capital loss, unused investment
or other credit, unused foreign Tax, or excess charitable contribution allocable
to Company, and (iii) the amount of any deferred gain or loss allocable to
Company arising out of any deferred intercompany transaction.
2.18 EMPLOYEE BENEFIT PLANS.
(a) Section 2.18 of the Company Disclosure Schedule lists, with
respect to Company and its subsidiaries and any trade or business (whether or
not incorporated) which is treated as a single employer with Company (an "ERISA
Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
Internal Revenue Code, (i) all material employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), (ii) each loan to a non-officer employee in excess of ten thousand
dollars ($10,000), loans to officers and directors and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental retirement,
severance, sabbatical, medical, dental, vision care, disability, employee
relocation, cafeteria benefit (Internal Revenue Code Section 125) or dependent
care (Internal Revenue Code Section 129), life insurance or accident insurance
plans, programs or arrangements, (iii) all bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or arrangements,
(iv) other fringe or employee benefit plans, programs or arrangements that apply
to senior management of Company and its subsidiaries and that do not generally
apply to all employees, and (v) any current or former employment or executive
compensation or severance agreements, written or otherwise, as to which
unsatisfied obligations of Company and its subsidiaries of greater than ten
thousand dollars ($10,000) remain for the benefit of, or relating to, any
present or former employee, consultant or director of Company and its
subsidiaries (together, the "Company Employee Plans").
(b) Company has furnished to Acquiror a copy of each of the
Company Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications
relating thereto) and has, with respect to each Company Employee Plan which is
subject to ERISA reporting requirements, provided copies of the Form 5500
reports filed for the last three plan years. Any Company Employee Plan intended
to be qualified under Section 401(a) of the Internal Revenue Code has either
obtained from the Internal Revenue Service a favorable determination letter,
opinion, advisory or notification as to its qualified status under the Internal
Revenue Code, including all amendments to the Internal Revenue Code effected by
the Tax Reform Act of 1986 and subsequent legislation, or has applied to the
Internal Revenue Service for such a determination letter, opinion, advisory or
notification prior to the expiration of the requisite period under applicable
Treasury Regulations or Internal Revenue Service pronouncements in which to
apply for such determination letter, opinion, advisory or notification and to
make any amendments necessary to obtain a favorable determination. Company has
also furnished Acquiror with the most recent Internal Revenue Service
determination letter, opinion, advisory or notification issued with respect to
each such Company Employee Plan, and nothing has occurred since the issuance of
each such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any Company
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Employee Plan subject to Internal Revenue Code Section 401(a). Company has also
furnished Acquiror with all registration statements and prospectuses prepared in
connection with each Company Employee Plan.
(c)(i) None of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Internal Revenue Code, with respect to any Company
Employee Plan, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect; (iii) each Company Employee Plan has been administered
in accordance with its terms and in compliance with the requirements prescribed
by any and all statutes, rules and regulations (including ERISA and the Internal
Revenue Code), except as would not have, in the aggregate, a Material Adverse
Effect on Company or its subsidiaries, and Company, its subsidiaries and each
ERISA Affiliate have performed all obligations required to be performed by them
under, are not in any material respect in default under or violation of, and
have no knowledge of any material default or violation by any other party to,
any of the Company Employee Plans; (iv) neither Company nor any ERISA Affiliate
is subject to any liability or penalty under Sections 4976 through 4980 of the
Internal Revenue Code or Title I of ERISA with respect to any of the Company
Employee Plans; (v) all material contributions required to be made by Company or
ERISA Affiliate to any Company Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each
Company Employee Plan for the current plan years; (vi) with respect to each
Company Employee Plan, no "reportable event" within the meaning of Section 4043
of ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of ERISA) and
no event described in Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no
Company Employee Plan is covered by, and neither Company nor any ERISA Affiliate
has incurred or expects to incur any liability under Title IV of ERISA or
Section 412 of the Internal Revenue Code; and (viii) each Company Employee Plan
can be amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Acquiror (other than ordinary
administrative expenses typically incurred in a termination event). With respect
to each Company Employee Plan subject to ERISA as either an employee pension
plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA, Company and its subsidiaries
has prepared in good faith and timely filed all requisite governmental reports
(which were true and correct as of the date filed) and has properly and timely
filed and distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Company Employee Plan
except as would not have in the aggregate a Material Adverse Effect on Company
or its subsidiaries. No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of Company or its subsidiaries
is threatened, against or with respect to any such Company Employee Plan,
including any audit or inquiry by the Internal Revenue Service or United States
Department of Labor (other than routine benefits claims). No payment or benefit
which will or may be made by Company or its subsidiaries to any Employee will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Internal Revenue Code.
(d) With respect to each Company Employee Plan, Company and its
subsidiaries have complied with (i) the applicable health care continuation and
notice provisions of the
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Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations (including proposed regulations) thereunder, (ii) the applicable
requirements of the Family Medical and Leave Act of 1993 and the regulations
thereunder, except to the extent that such failure to comply would not, in the
aggregate, have a Material Adverse Effect on Company or its subsidiaries, and
(iii) the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed regulations)
thereunder, except to the extent that such failure to comply would not, in the
aggregate, have a Material Adverse Effect on Company or its subsidiaries.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Company or its subsidiaries or any ERISA Affiliate to severance
benefits or any other payment, except as expressly provided in this Agreement,
or (ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Company, its subsidiaries, or other
ERISA Affiliate relating to, or change in participation or coverage under, any
Company Employee Plan which would materially increase the per capita expense of
maintaining such Plan above the level of per capita expense incurred with
respect to that Plan for the most recent fiscal year included in Company's
financial statements.
(g) Pension Plans. Company and its subsidiaries do not currently
maintain, sponsor, participate in or contribute to, nor has it ever maintained,
established, sponsored, participated in, or contributed to, any pension plan
(within the meaning of Section 3(2) of ERISA) which is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Internal
Revenue Code.
(h) Multiemployer Plans. Neither Company and its subsidiaries nor
any ERISA Affiliate is a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in Section
3(37) of ERISA.
2.19 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will, either alone or upon the occurrence of further events,
(i) result in any payment (including severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director, employee or
consultant of Company or its subsidiaries, (ii) increase any benefits otherwise
payable by Company, or its subsidiaries, or (iii) result in the acceleration of
the time of payment or vesting of any such benefits (except as otherwise
expressly provided herein).
2.20 EMPLOYEE MATTERS. Company and each subsidiary is in compliance in
all material respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any material respect in any unfair labor
practice. Company has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries, and other payments to employees; and is not
liable for any arrears of wages or any Taxes or any penalty for failure to
comply with any of the
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foregoing. Company and each subsidiary is not liable 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). There are no
pending claims against Company or its subsidiaries under any workers
compensation plan or policy or for long term disability. There are no
controversies pending or, to the knowledge of Company or its subsidiaries,
threatened, between Company, its subsidiaries and any of their respective
employees, which controversies have or could reasonably be expected to result in
an action, suit, proceeding, claim, arbitration or investigation before any
agency, court or tribunal, foreign or domestic, against the Company or any
subsidiary. Company and each subsidiary is not a party to any collective
bargaining agreement or other labor union contract nor does Company or its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees. To Company's or its subsidiaries' knowledge, no
employees or consultants of Company or its subsidiaries are in violation of any
term of any employment contract, patent disclosure agreement, noncompetition
agreement, or any restrictive covenant to a former employer relating to the
right of any such employee or consultant to be employed or engaged by Company or
its subsidiary because of the nature of the business conducted or presently
proposed to be conducted by Company or its subsidiary or to the use of trade
secrets or proprietary information of others. No employees or consultants of
Company or its subsidiaries have given notice to Company, nor is Company or its
subsidiaries otherwise aware, that any such employee or consultant intends to
terminate his or her employment or engagement with Company or its subsidiary.
2.21 INTERESTED PARTY TRANSACTIONS. Company and its subsidiaries are not
indebted to any director, officer, employee, consultant or agent of Company and
its subsidiaries (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary business expenses), and no such person is indebted to
Company or its subsidiaries (except for cash advances for ordinary business
expenses).
2.22 INSURANCE. Company and its subsidiaries have policies of insurance
and bonds of the type and in amounts which Company and its subsidiaries
customarily carried by persons conducting businesses or owning assets similar to
those of Company and its subsidiaries. There is no material claim 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 Company and its
subsidiaries is otherwise in compliance with the terms of such policies and
bonds. Company and its subsidiaries have no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
2.23 COMPLIANCE WITH LAWS. Company and its subsidiaries have complied
with, is not in violation of, and has not received any notices of violation with
respect to, any federal, state, local or foreign statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of its
business. Without limiting the generality of the foregoing, Company and its
subsidiaries have conducted its export transactions in accordance with
applicable provisions of United States export control laws and regulations,
including the Export Administration Act and implementing Export Administration
Regulations. Without limiting the foregoing: Company and its subsidiaries have
obtained all export licenses and other approvals
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required for its exports of products, software and technologies from the United
States; Company and its subsidiaries are in compliance with the terms of all
applicable export licenses and other approvals; there are no pending or, to
Company's or its subsidiaries' knowledge, threatened claims against Company or
its subsidiaries with respect to such export licenses or other approvals; there
are no actions, conditions or circumstances pertaining to Company's or its
subsidiaries' export transactions that may give rise to any future claims; and
no consents or approvals for the transfer of export licenses to Acquiror are
required, or such consents and approvals can be obtained expeditiously without
material cost.
2.24 MINUTE BOOKS. The minute books of Company and its subsidiaries made
available to Acquiror are the only minutes of the Company and its subsidiaries
documenting actions taken at meetings of directors or shareholders or by written
consent since the time of incorporation of the Company and its subsidiaries.
2.25 BOARD APPROVAL. The Board of Directors of Company has unanimously
(i) approved this Agreement and the Merger, (ii) determined that the Merger is
in the best interests of the shareholders of Company and is on terms that are
fair to the shareholders of Company, and (iii) recommended that the shareholders
of Company approve this Agreement and the Merger.
2.26 AFFILIATES. Section 2.26 of the Company Disclosure Schedule sets
forth the names and addresses of each person who, in Company's reasonable
judgment, may be deemed to be an affiliate (as such term is used in Rule 145
under the Securities Act or under applicable SEC accounting releases with
respect to pooling of interests accounting treatment) of Company or its
subsidiaries. Company or its subsidiaries are not indebted to, nor does it owe
any contractual commitment or arrangement to, with or for the benefit of, any
director, officer, employee, affiliate or agent of Company or its subsidiaries
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses). Except for normal salaries and bonuses and reimbursement of,
and advances for, ordinary business expenses, since September 30, 2000, Company
has not made any payments, loans or advances of any kind, or paid any dividends
or distributions of any kind, to or for the benefit of the shareholders or
option holders of Company or any of their respective affiliates, associates or
family members.
2.27 ACCOUNTS RECEIVABLE. Subject to any reserves set forth in the
Financial Statements, the accounts receivable shown on the Financial Statements
represent and will represent bona fide claims against debtors for sales and
other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Financial Statements is sufficient to provide for
any losses which may be sustained on realization of the receivables.
2.28 CUSTOMERS AND SUPPLIERS. No customer which individually accounted
for more than ten percent (10%) of Company's or each subsidiaries' gross
revenues during the twelve (12) month period preceding the date hereof, and none
of Company's or subsidiaries' ten (10) largest suppliers have canceled or
otherwise terminated its relationship with Company, or has decreased materially
its services or supplies to Company or its subsidiaries (in the case of any such
supplier) or its usage of the services or products of Company or its
subsidiaries (in the case of such customer), and to Company's and its
subsidiaries' knowledge, no such supplier or customer intends to cancel or
otherwise terminate its relationship with Company or its subsidiaries or to
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decrease materially its services or supplies to Company or its subsidiaries or
its usage of the services or products of Company or its subsidiaries, as the
case may be.
2.29 PROJECTIONS AND PRODUCT RELEASES. Set forth in Section 2.29 of the
Company Disclosure Schedule are the current financial projections with respect
to Company's business. Such projections were prepared in good faith and are
based on assumptions believed by Company to be reasonable. Set forth in Section
2.29 of the Company Disclosure Schedule is a Schedule of Product Releases
currently planned by Company. Company believes there is a reasonable basis for
achieving the release of such products on the schedule indicated therein and is
not aware of any change in its circumstances or other fact that has occurred
that would cause it to believe that it will be unable to meet such release
schedule.
2.30 BROKERS; EXPENSES. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of Company. Section
2.30 of the Company Disclosure Schedule sets forth Company's best estimate of
all expenses expected to be incurred by Company in connection with the
negotiation of the Agreement and effectuation of the Merger. Acquiror will have
the right to approve of all expenses, including attorneys' and accountants',
incurred by Company in connection with the Merger, which approval will not be
unreasonably withheld.
2.31 COMPLETE COPIES OF MATERIALS. Company has delivered or made
available true, correct and complete copies of each document which has been
requested in writing by Acquiror or its counsel in connection with their legal
and accounting review of Company.
2.32 PERMIT APPLICATION; INFORMATION STATEMENT. The information supplied
by Company for inclusion in the application for issuance of a California Permit
pursuant to which the shares of Acquiror Common Stock to be issued in the Merger
and (if deemed necessary by Acquiror in its good faith judgment) the Company
Options to be assumed in the Merger will be qualified under the California Code
(the "Permit Application") shall not at the time the Fairness Hearing is held
pursuant to Section 25142 of the California Code and the time the qualification
of such securities is effective under Section 25122 of the California Code
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, Company makes no representation,
warranty or covenant with respect to any information supplied by Acquiror which
is contained in any of the foregoing documents.
2.33 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Company, its subsidiaries or the Shareholders herein (as modified by the
Company Disclosure Schedule) or in any certificate furnished by Company or the
Shareholders 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, not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Except as disclosed in a document of even date herewith and
delivered by Acquiror to Company prior to the execution and delivery of this
Agreement and referring to the representations and warranties of Acquiror in
this Agreement (the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub,
jointly and severally, represent and warrant to Company and the Shareholders as
follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Acquiror and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Acquiror and its subsidiaries
(including Merger Sub) has the corporate power to own its properties and to
carry on its business as now being conducted and as proposed to be conducted and
is duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a material
adverse effect on Acquiror. Neither Acquiror nor any of its subsidiaries
(including Merger Sub) is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws.
3.2 CAPITAL STRUCTURE OF ACQUIROR. The authorized capital stock of
Acquiror consists of 150,000,000 shares of Acquiror Common Stock and 5,000,000
shares of Preferred Stock, $.001 par value per share, of which 40,750,075 shares
(subject to adjustment upon quarterly accounting review) of Acquiror Common
Stock and no shares of Preferred Stock were outstanding as of the close of
business on September 30, 2000. All outstanding shares of Acquiror Common Stock
have been duly authorized, validly issued, fully paid and are nonassessable and
free of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof. The shares of Acquiror Common Stock to
be issued pursuant to the Merger, including shares issuable on exercise of the
options assumed by Acquiror, will be duly authorized, validly issued, fully
paid, and non-assessable.
3.3 AUTHORITY. Acquiror 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 Acquiror and Merger
Sub. This Agreement has been duly executed and delivered by Acquiror and Merger
Sub and constitutes the valid and binding obligation of Acquiror and Merger Sub
enforceable against Acquiror and Merger Sub in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally and by general
principles of equity.
3.4 NO CONFLICTS. The execution and delivery of this Agreement by
Acquiror and Merger Sub do not, and 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 a benefit under (i) any provision of the Certificate of Incorporation or
Bylaws of Acquiror or Merger Sub, or (ii) any material mortgage, indenture or
lease, or any contract or other agreement, or any instrument, permit,
concession, franchise, license, judgment, order,
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decree, statute, law, ordinance, rule or regulation applicable to Acquiror or
Merger Sub or any of their properties or assets.
3.5 APPROVALS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or Merger Sub in connection with the execution
and delivery of this Agreement by Acquiror or Merger Sub or the consummation by
Acquiror or Merger Sub of the transactions contemplated hereby, except for (i)
the filing of the Delaware Certificate of Merger, together with the required
officers' certificates, as provided in Section 1.2, (ii) any filings or
consents, approvals, order or authorizations as may be required under applicable
state securities laws and the securities laws of any foreign country, (iii) such
filings as may be required under HSR and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, could not reasonably be expected to impair in any material respect the
ability of Acquiror or Merger Sub to perform its obligations under this
Agreement or to prevent or materially delay the completion of the Merger or the
payment of the consideration therefor.
3.6 SEC FILINGS; FINANCIAL STATEMENTS OF ACQUIROR.
(a) Acquiror has timely filed all forms, reports, statements and
documents required to be filed by it with the SEC and the Nasdaq National Market
(the "NNM") since the date of the final prospectus of Acquiror filed by Acquiror
pursuant to Rule 424(b) on March 3, 2000 (the "Acquiror Reports"). Each Acquiror
Report was prepared in accordance with the requirements of the Securities Act,
the Exchange Act or the NNM, as the case may be, and did not at the time it was
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No subsidiary of
Acquiror is subject to the periodic reporting requirements of the Exchange Act
or required to file any form, report or other document with the SEC, the NNM,
any other stock exchange.
(b) Except as is provided in the Acquiror Reports, each of the
consolidated financial statements (including, in each case, any notes thereto)
contained in the Acquiror Reports was prepared in accordance with GAAP applied
on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of Acquiror and the consolidated
subsidiaries of Acquiror as at the respective dates thereof and for the
respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal recurring immaterial
year-end adjustments and the absence of notes).
(c) Except as and to the extent set forth or reserved against on
the consolidated balance sheet of Acquiror and the subsidiaries of Acquiror as
reported in the Acquiror Reports, including the notes thereto, none of Acquiror
or any subsidiary of Acquiror has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course of
business consistent
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with past practice since June 30, 2000 that have not had and could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Acquiror.
3.7 LITIGATION. There is (a) no private or governmental action, suit,
proceeding, claim, arbitration or, to the knowledge of Acquiror, investigation
pending before any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Acquiror, threatened against Acquiror or any of its assets or
properties or any of its officers or directors (in their capacities as such),
and (b) no judgment, decree or order against Acquiror, or, to the knowledge of
Acquiror, any of its directors or officers (in their capacities as such), in
each case limiting the conduct of business by Acquiror or that could prevent,
enjoin, or alter or delay any of the transactions contemplated by this Agreement
or have a material adverse effect on Acquiror.
3.8 BROKERS. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Acquiror.
3.9 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
business, operations, properties, assets, or liabilities of Acquiror has
occurred since the filing of Acquiror's latest Acquiror Report.
3.10 INFORMATION TO BE SUPPLIED BY ACQUIROR. The information supplied by
Acquiror for inclusion in the Permit Application shall not either at the time
the Fairness Hearing is held pursuant to Section 25142 of the California Code or
the time the qualification of such securities is effective under Section 25122
of the California Code, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, Acquiror makes no
representation, warranty or covenant with respect to any information supplied by
Company which is contained in any of the foregoing documents.
3.11 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Acquiror, herein or in any certificate furnished by Acquiror 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, not
misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF COMPANY. During the period from (and
including) the date of this Agreement and continuing until the earlier of the
termination of this Agreement in accordance with its terms or the Effective
Time, each of Company and its subsidiaries agrees (except to the extent
expressly contemplated by this Agreement or as consented to in writing by
Acquiror), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted. Each of Company and its
subsidiaries further agrees to pay its debts and Taxes when due (subject to good
faith disputes over such debts or Taxes), to
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pay or perform its other obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact its present
business organizations, 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
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Each of Company and its subsidiaries agrees to promptly notify
Acquiror of any event or occurrence not in the ordinary course of business or
which could have a Material Adverse Effect.
4.2 CONDUCT OF BUSINESS OF COMPANY AND ITS SUBSIDIARIES. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, except as set forth in the
Company Disclosure Schedule or as expressly contemplated by this Agreement,
Company and its subsidiaries shall not do, cause or permit any of the following,
without the prior written consent of Acquiror:
(a) Charter Documents: cause or permit any amendments to its
Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock: declare 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 its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
(c) Stock Option Plans: accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its stock
plans or authorize cash payments in exchange for any options or other rights
granted under any of such plans, except as expressly provided for hereunder;
(d) Material Contracts: enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts other than in the ordinary course of business;
(e) Issuance of Securities: issue, deliver or sell or authorize
or propose the issuance, delivery or sale 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, other than the issuance
of shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of September 30, 2000;
(f) Intellectual Property: transfer to any person or entity any
rights to any Company Intellectual Property other than non-exclusive licenses in
the ordinary course of business consistent with past practice and that
reasonably would not be expected to have a material adverse affect on Company;
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(g) Exclusive Rights: enter into or amend any agreement pursuant
to which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of Company's products or
technology;
(h) Dispositions: sell, lease, license or otherwise dispose of or
encumber any of Company's properties or assets except for sales of products in
the ordinary course of business consistent with past practice;
(i) Indebtedness: incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) Leases: enter into any operating lease;
(k) Payment of Obligations: pay, discharge or satisfy any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Company Financial Statements and reasonable expenses incurred in
connection with the transactions contemplated by this Agreement (which expenses
shall not exceed $50,000);
(l) Capital Expenditures: make any capital expenditures, capital
additions or capital improvements other than in the ordinary course of business;
(m) Insurance: materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(n) Termination or Waiver: terminate or waive any right of
substantial value;
(o) Employee Benefit Plans; New Hires; Pay Increases: adopt or
amend any employee benefit or stock purchase or option plan, or hire any new
director level or officer level, consultant, employee, pay any special bonus or
special remuneration to any employee, consultant or director or increase the
salaries, wage rates or compensation of any employee or consultant;
(p) Severance Arrangements: grant any severance or termination
pay (i) to any director or officer or consultant or (ii) to any other employee
or consultant except payments made pursuant to standard written agreements
outstanding on September 30, 2000;
(q) Lawsuits: commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Acquiror prior to the
filing of such a suit, or (iii) for a breach of this Agreement;
(r) Acquisitions: acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof;
(s) Taxes: make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, file any
material Tax Return or any
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amendment to a material Tax Return other than Company's corporate Tax Return for
the year ended December 31, 1999, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(t) Notices: Company shall give all notices and other information
required to be given to the employees of Company and its subsidiaries, any
collective bargaining unit representing any group of employees of Company and
its subsidiaries, and any applicable government authority under the WARN Act,
the National Labor Relations Act, the Internal Revenue Code, the Consolidated
Omnibus Budget Reconciliation Act, and other applicable law in connection with
the transactions provided for in this Agreement;
(u) Revaluation: revalue any of its assets, including writing
down the value of inventory or writing off notes or accounts receivable; or
(v) Other: take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.2(a) through (u) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect in any material respect or prevent it from performing or
cause it not to perform its covenants hereunder in any material respect.
4.3 NO SOLICITATION. Until the earlier of the Effective Time or the date
of termination of this Agreement in accordance with its terms, Company will not
take (and since September 27, 2000, inclusive, Company has not taken), nor will
Company authorize, permit or encourage any of its directors, officers, agents,
employees, consultants, affiliates, attorneys, accountants, financial advisers
or other representatives (collectively, "Representatives") to (directly or
indirectly): (i) solicit, encourage, initiate, entertain, review or participate
in any negotiations or discussions with respect to an offer or proposal (whether
formal or informal, oral, written, or otherwise) to acquire all or any part of
Company's stock or assets, whether by purchase of stock or assets, exclusive
license, joint venture, merger, consolidation, reorganization or other form of
business combination, or otherwise (a "Competing Proposal"), (ii) disclose any
heretofore nonpublic information, or afford access to the properties, books or
records of Company, to any person or entity concerning Company for the purposes
of considering or formulating a Competing Proposal, (iii) assist, cooperate
with, facilitate or encourage any person or entity to make a Competing Proposal,
(iv) agree to, enter into a contract regarding, approve, recommend or endorse
any transaction involving a Competing Proposal, or (v) authorize or permit any
of Company's Representatives to take any action within the scope of the
immediately preceding clauses (i) through (iv). Upon execution and delivery of
this Agreement, Company shall notify Acquiror of any Competing Proposal
outstanding as of the date hereof. If a Competing Proposal is hereafter made or
if any request for nonpublic information relating to Company or for access to
the properties, books or records of Company is made by any person or entity that
has made a Competing Proposal or has advised Company that it may be considering
making a Competing Proposal, Company shall as promptly as practicable notify
Acquiror of the material details of such Competing Proposal or request
(including the identity of the person or entity making such Competing Proposal,
the terms thereof and the information requested thereby), and shall as promptly
as practicable provide Acquiror with a copy of any Competing Proposal or request
that is made in writing and copies of all correspondence relating thereto.
Thereafter Company shall
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keep Acquiror fully apprised, on a current basis, of the status of any such
Competing Proposal and of any modifications to the terms thereof. Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties other than Acquiror conducted heretofore with
respect to any Competing Proposal. Each of Company and Acquiror acknowledge that
this Section 4.3 was a significant inducement for Acquiror to enter into this
Agreement and the absence of such provision would have resulted in either (i) a
material reduction in the Aggregate Merger Consideration to be paid to Company
shareholders or (ii) a failure to induce Acquiror to enter into this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 WRITTEN CONSENT OF SHAREHOLDERS. Company shall promptly after the
date hereof take all action necessary in accordance with California Law and its
Articles of Incorporation and Bylaws to secure the written consent of its
shareholders as promptly as possible after the date of this Agreement. Company
shall solicit from shareholders of Company written consents in favor of the
Merger and shall take all other action necessary or advisable to secure the
consent of shareholders required to effect the Merger.
5.2 ACCESS TO INFORMATION.
(a) Company shall afford Acquiror and its accountants, counsel
and other representatives reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Company's properties,
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel of Company as Acquiror may
reasonably request. Company agrees to provide to Acquiror and its accountants,
counsel and other representatives copies of internal financial statements
promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Company shall confer on a
regular basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.2 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
5.3 CONFIDENTIALITY. The parties acknowledge that Acquiror and Company
have previously executed a non-disclosure agreement (the "Confidentiality
Agreement"), which Confidentiality Agreement shall continue in full force and
effect in accordance with its terms.
5.4 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
required by law as determined by Acquiror's outside counsel, or Nasdaq rules or
Acquiror's quotation agreement with Nasdaq, the parties agree that the Merger
will be publicly announced (including by any press release or other public (or
non-confidential) disclosure) at a time mutually agreed by the parties after the
date hereof; provided, however, that the parties will endeavor in good faith not
to make any such public announcement until after the Closing has occurred.
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5.5 CONSENTS; COOPERATION. Each of Acquiror and Company shall at its own
expense promptly apply for or otherwise seek, and use its reasonable best
efforts to obtain, all consents and approvals required to be obtained by it for
the consummation of the Merger, if any, and shall use commercially reasonable
efforts to obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the Merger for the assignment thereof or
otherwise. The parties hereto will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in connection
with all proceedings of any federal or state antitrust or fair trade law.
5.6 ACQUISITION OF XEDOC. The Company and each of the Shareholders shall
use their best efforts to promptly take all actions including the execution of
all documents necessary or appropriate for the Company to acquire Xedoc as a
wholly-owned subsidiary.
5.7 SHAREHOLDER REPRESENTATION AGREEMENT. Company shall use commercially
reasonable efforts to deliver or cause to be delivered to Acquiror, prior to the
Closing, from each of the Shareholders an executed Shareholder Representation
Agreement in the form attached hereto as Exhibit E (the "Shareholder
Representation Agreement").
5.8 BLUE SKY LAWS. Acquiror shall use commercially reasonable efforts to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Company shall use its commercially reasonable efforts to assist Acquiror
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 Acquiror
Common Stock in connection with the Merger.
5.9 ESCROW AGREEMENT. At or before the Effective Time, the Escrow Agent,
the Shareholders' Agent (as defined in Section 8.5) and each of the Shareholders
will execute the Escrow Agreement.
5.10 EMPLOYEES.
(a) On or before the Closing, each of the Shareholders shall
enter into an Employment Agreement in the form set forth in Exhibit H hereto and
a Non-Competition Agreement in the form set forth in Exhibit G hereto (the
"Non-Competition Agreement"). Acquiror shall continue the employment of all of
Company's employees employed as of the Closing in job positions, salaries and
benefits commensurate with their industry experience and responsibilities with
Company in accordance with Acquiror's current employee benefit plans and
policies and on terms and conditions at least as favorable as those in effect
for each such employee as of the Closing Date, provided that Assumed Options
shall be dealt with in accordance with Section 1.6. Company shall cooperate with
Acquiror to assist Acquiror in retaining such employees.
(b) If required by Acquiror in writing delivered to Company not
less than five (5) days before the Closing Date, Company shall, immediately
prior to the Closing Date, terminate any 401(k) Plan maintained by Company (the
"401(k) Plan") and no further contributions shall
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be made to the 401(k) Plan. Company shall provide to Acquiror (i) executed
resolutions by the Board of Directors of Company authorizing the termination and
(ii) an executed amendment to the 401(k) Plan sufficient to assure compliance
with all applicable requirements of the Internal Revenue Code and regulations
thereunder so that the tax-qualified status of the 401(k) Plan will be
maintained at the time of termination.
(c) As soon as practicable after the Closing, Acquiror shall
offer additional options to purchase, in the aggregate, at least 300,000 shares
of Acquiror Common Stock to the employees of Company hired by Acquiror. Such
options shall be in the form typical for Acquiror's option plan, with an
exercise price equal to the closing price as reported by Nasdaq on the Closing
Date (or the close the employee's first day as an Acquiror employee, if such
date is different).
5.11 EXPENSES. Whether or not the Merger is consummated, all reasonable
and actual costs and expenses incurred by Company solely in connection with the
Merger shall be paid by Acquiror; provided, however, Acquiror's obligations
under this Section 5.11 shall not exceed $50,0000.
5.12 REASONABLE EFFORTS AND FURTHER ASSURANCES. Each of the parties to
this Agreement shall use its commercially reasonable efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement; provided, however, that Acquiror
shall not be obligated to consent to or accept any divestiture or operational
limitation in connection with the Merger or to make any payment or commercial
concession to any third party as a condition to obtaining any required consent
or approval of any third party. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.13 TAX TREATMENT. Acquiror and Company shall each use reasonable
commercial efforts to cause the Merger to qualify, and shall not take any
actions or cause any actions to be taken which could reasonably be expected to
prevent the Merger from qualifying, as a "reorganization" under Section 368(a)
of the Internal Revenue Code.
5.14 CERTAIN TAX MATTERS.
(a) Pre-Closing Tax Returns. Acquiror and the Surviving
Corporation shall prepare (or cause to be prepared), and the Surviving
Corporation shall timely file, all Tax Returns for Company that are required to
be filed after the Closing Date and that relate to any Taxable period (or
portion thereof) ending on or before the Closing Date ("Pre-Closing Tax
Returns"). The Shareholders' Agent shall have the right to review and comment on
each Pre-Closing Tax Return and shall be furnished with a preliminary copy of
each Pre-Closing Tax Return, in draft form, at least ten (10) business days
prior to the filing thereof.
(b) Cooperation. Acquiror, the Surviving Corporation, Company,
the Shareholders' Agent and the Shareholders shall cooperate fully, as and to
the extent reasonably requested by the other parties, in connection with the
filing of Pre-Closing Tax Returns pursuant
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to Section 5.15(a) and any audit, litigation or other proceeding with respect to
Taxes relating to Company, the Surviving Corporation or the transactions
contemplated by this Agreement. Neither the Shareholders' Agent nor any of the
Shareholders shall take any position at any time, in any litigation, arbitration
or claim, any Tax Return, any filing with or submission to or statement before
any Governmental Entity, any financial statement or any other writing, that is
inconsistent with the Pre-Closing Tax Returns filed by Acquiror and the
Surviving Corporation for Company pursuant to Section 5.15(a) or any valuation
established by this Agreement or the Escrow Agreement.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO CONSUMMATE THE MERGER.
The respective obligations of each party to this Agreement to consummate the
Merger shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
agreement of all the parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall
have been approved and adopted by the holders of a majority of the shares of
Company Capital Stock outstanding as of the record date set for the solicitation
of Shareholder written consents.
(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, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
(c) Governmental Approval. All waiting periods (if any)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated, and Acquiror, Merger Sub and Company shall have
obtained from each Governmental Entity all approvals, waivers and consents, if
any, necessary for the consummation of the Merger and the transactions
contemplated hereby, including such approvals, waivers and consents as may be
required under the Securities Act and state Blue Sky laws.
(d) Escrow Agreement. Acquiror, Company, Escrow Agent, the
Shareholders and the Shareholders' Agent (as defined in Article VIII) shall have
entered into an Escrow Agreement substantially in the form attached hereto as
Exhibit F.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligation of
Company to consummate the Merger shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Company:
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(a) Representations, Warranties and Covenants. Except as
disclosed in the Acquiror Disclosure Schedule dated the date of this Agreement,
(i) the representations and warranties of Acquiror and Merger Sub in this
Agreement shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality, which representations and warranties as so qualified shall be
true and correct in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them prior to the Effective Time.
(b) No Material Adverse Changes. Since the filing of the most
recent Acquiror Report, there shall not have occurred any material adverse
change in the business condition (financial or otherwise), properties, assets
(including intangible assets), results of operations or prospects of Acquiror.
(c) Certificate of Acquiror and Merger Sub. Company shall have
received a certificate executed on behalf of Acquiror and Merger Sub by its
President and its Chief Financial Officer that the conditions set forth in
Section 6.2(a) are satisfied.
(d) Employment. Acquiror shall have offered in writing to
continue the employment of all persons who are employees of Company as of the
Closing Date in accordance with the terms and conditions set forth in Section
5.10(a).
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND MERGER SUB. The
obligation of Acquiror to consummate the Merger and the other transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Effective Time of each of the following conditions, any of which may be
waived, in writing, by Acquiror and Merger Sub:
(a) Representations, Warranties and Covenants. Except as
disclosed in the Company Disclosure Schedule dated the date of this Agreement
(i) the representations and warranties of Company its subsidiaries and the
Shareholders in this Agreement shall be true and correct in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality, which representations and warranties
as so qualified shall be true in all respects) on and as of the Effective Time
as though such representations and warranties were made on and as of such time,
without giving effect to any supplement or amendment to the Company Disclosure
Schedule, and (ii) Company and the Shareholders shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by them prior to
the Effective Time.
(b) No Material Adverse Changes. Since the Balance Sheet Date,
there shall have occurred no material adverse change in the business condition
(financial or otherwise) properties, assets (including intangible assets),
results of operation or prospects of Company.
(c) Certificate of Company and the Shareholders. Acquiror shall
have received a certificate executed on behalf of Company by its President and
Chief Financial Officer and by the Shareholders that the conditions set forth in
Section 6.3(a) are satisfied.
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(d) Third Party Consents. Acquiror shall have received evidence
reasonably satisfactory to it of the consent or approval of those persons and
entities whose consent or approval shall be required in connection with the
Merger under the Material Contracts of Company set forth or required to be set
forth on Section 2.15 of the Company Disclosure Schedule and its subsidiaries.
(e) Injunctions or Restraints on Merger and Conduct of Business.
No proceeding by any administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, or by any other person,
public or private, seeking to prevent the consummation of the Merger or to limit
or restrict Acquiror's conduct or operation of the business of Company or its
subsidiaries following the Merger or claiming damages in connection with any of
the matters covered by this Agreement shall be pending or threatened, and no
temporary restraining order, preliminary or permanent injunction or other order
by any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Acquiror's conduct or operation of the
business of Company or its subsidiaries following the Merger shall be in effect.
(f) Shareholder Representation Agreements. Acquiror shall have
received from each of the Shareholder a Shareholder Representation Agreement,
executed by such shareholder, in substantially the form attached hereto as
Exhibit E and each such agreement shall be in full force and effect.
(g) FIRPTA Certificate. Company shall, prior to the Closing Date,
provide Acquiror with a properly executed FIRPTA Notification Letter, in a form
reasonable acceptable to Acquiror, which states that shares of capital stock of
Company do not constitute "United States real property interests" under Section
897(c) of the Internal Revenue Code, for purposes of satisfying Acquiror's
obligations under Treasury Regulation Section 1.1445-2(c)(3). In addition,
simultaneously with delivery of such Notification Letter, Company shall have
provided to Acquiror, as agent for Company, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2) and in form of reasonably acceptable to Acquiror attached
hereto along with written authorization for Acquiror to deliver such notice form
to the Internal Revenue Service on behalf of Company upon the Closing of the
Merger.
(h) Resignation of Directors and Officers. The directors and
officers of Company in office immediately prior to the Effective Time shall have
resigned as directors and officers, as applicable, of Company effective as of
the Effective Time.
(i) Non-Competition Agreements; Continuation of Employees. Each
of the Shareholders shall have entered into an Employment Agreement and a
Non-Competition Agreement in the forms of Exhibit H and Exhibit G hereto. Each
of the eight (8) employees listed on Section 6.3(i) of the Company Disclosure
Schedule shall continue to be employed (or, in the case of any such individual
who is a contractor, engaged) by the Company at the Closing, and shall not have
given any notice or other indication that they are not willing to be employed by
Acquiror or a subsidiary or Acquiror (as Acquiror shall designate), following
the Merger. In addition, at least seventy-five percent (75%) of the balance of
Company's employees employed as of September 30, 2000 (excluding the employees
listed on Section 6.3(i) of the Company
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Disclosure Schedule) shall continue to be employed by Company as of the Closing
and shall not have given any notice of other indication, that they will not
continue to be willing to be employed by Acquiror (or a subsidiary of Acquiror
as Acquiror shall designate) following the Merger; and provided, that the death
or permanent disability of any such employee shall not cause the condition set
forth in this sentence not to be satisfied.
(j) Certificates of Good Standing. Company shall, prior to the
Closing Date, provide Acquiror a certificate from the Secretary of State of
California and the Franchise Tax Board of California as to Company's good
standing and payment of all applicable taxes.
(k) Company Intellectual Property. Arrangements reasonably
satisfactory to Acquiror shall have been made (and shall be in full force and
effect) (i) to effect the assignment to Company of all Company Intellectual
Property (if any) created for or on behalf of Company by any of the founders or
employees (including former employees) of Company or consultants (including
former consultants) to Company, including Company Intellectual Property created
by any of the founders prior to the creation of Company, and (ii) to obtain the
full cooperation of such founders, employees and consultants to complete and
prosecute all domestic and foreign patent filings that could reasonably be made
with respect thereto.
(l) Absence of Certain Claims. No person shall have (i) notified
either Acquiror or Company that it intends to commence an action or proceeding
or (ii) provided Acquiror or Company with notice, in either case which allege(s)
that any of the intellectual property presently embodied, or proposed to be
embodied, in Company's products or utilized in Company-designated or modified
development tools or design environments infringes or otherwise violates the
intellectual property rights of such person, or otherwise alleges that Company
does not otherwise own or have the right to exploit such intellectual property.
(m) Dissenting Shares. Dissenting Shares, if any, shall not
represent more than 10% of the outstanding Company Capital Stock.
(n) Acquisition of Xedoc. Xedoc Software Development, Pty. Ltd.
of Australia ("Xedoc") shall have become a wholly owned subsidiary of Company.
(o) Stock Option Schedule. Company shall have delivered to
Acquiror the updated Section 2.3 of the Company Disclosure Schedule required by
Section 2.3 hereof.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of Company, this Agreement may be terminated:
(a) by mutual agreement in writing, duly authorized by the Board
of Directors of Acquiror and Company;
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(b) by either Acquiror or Company, by written notice to the other
party, if the Closing shall not have occurred on or before December 31, 2000
(provided that a later date may be agreed upon in writing by the parties hereto,
and provided further that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure to
act has been the cause or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a breach of this
Agreement);
(c) by Acquiror, by written notice to Company, if Company shall
breach in any material respect any representation, warranty, obligation or
agreement hereunder (except for such representations and warranties that are
qualified by their terms by reference to materiality, which representations and
warranties as so qualified shall have been breached in any respect) and such
breach is incapable of being cured on or before the date set forth in Section
7.1(b); provided that the right to terminate this Agreement by Acquiror under
this Section 7.1(c) shall not be available to Acquiror where Acquiror is at that
time in breach of this Agreement;
(d) by Company, by written notice to Acquiror, if Acquiror shall
breach in any material respect any representation, warranty, obligation or
agreement hereunder (except for such representations and warranties that are
qualified by their terms by reference to materiality, which representations and
warranties as so qualified shall have been breached in any respect) and such
breach is incapable of being cured on or before the date set forth in Section
7.1(b); provided that the right to terminate this Agreement by Company under
this Section 7.1(d) shall not be available to Company where Company is at that
time in breach of this Agreement;
(e) by Acquiror, by written notice to Company, if, at any time,
any condition to the obligations of Acquiror set forth in Section 6.1 or Section
6.3 shall have become incapable of being satisfied on or before the date set
forth in Section 7.1(b);
(f) by Company by written notice to Acquiror if, at any time, any
condition to the obligations of Company set forth in Section 6.1 or Section 6.2
shall have become incapable of being satisfied on or before the date set forth
in Section 7.1(b).
7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Acquiror or Company or their
respective officers, directors, shareholders or affiliates, except to the extent
that such termination results from the breach by a party hereto of any of its
representations, warranties or covenants set forth in this Agreement; provided
that the provisions of Section 5.4 (Confidentiality), Section 7.3 (Expenses and
Termination Fees) and this Section 7.2 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 EXPENSES AND TERMINATION FEES. Except as described in Section 5.11,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisers, accountants and legal counsel) shall be paid by the
party incurring such expense if the Merger is not consummated.
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ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 ESCROW FUND.
(a) As soon as practicable after the Effective Time, the
Shareholders shall register the Escrow Shares in the name of (as nominee for the
Shareholders otherwise entitled to such shares), and deposit such Escrow Shares
with U.S. Bank Corporation, (or another institution selected by Acquiror with
the reasonable consent of Company) as escrow agent (the "Escrow Agent"), such
deposits (together with dividends and distributions with respect thereto) to
constitute an escrow fund (the "Escrow Fund") and to be governed by the terms
set forth herein and in the Escrow Agreement attached hereto as Exhibit F. The
Escrow Shares shall be segregated and held in the Escrow Fund as follows:
(i) Twenty percent (20%) of the Initial Shares (or the
Adjusted Initial Shares, if applicable) shall be segregated and held in a one
year indemnification escrow (the "One Year Escrow");
(ii) Ten percent (10%) of the Initial Shares (or the
Adjusted Initial Shares, if applicable) shall be segregated and held in a two
year indemnification escrow (the "Two Year Escrow").
(b) The One Year Escrow and the Two Year Escrow shall be
available to satisfy, and to compensate Acquiror for amounts recoverable by
Acquiror pursuant to, the indemnification obligations of the Shareholders.
8.2 INDEMNIFICATION.
(a) Subject to the limitations set forth in this Article VIII,
the Shareholders will indemnify and hold harmless Acquiror and its officers,
directors, agents and employees, and each person, if any, who controls or may
control Acquiror within the meaning of the Securities Act (hereinafter referred
to individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against any and all losses (including lost profits or
diminution in value), costs, damages, fines, fees, liabilities, penalties,
deficiencies and expenses arising from claims, demands, actions, causes of
action, including reasonable fees of attorneys, accountants, investigators and
experts, and court costs, less the amount of any tax benefit actually received
by Acquiror as a result of such losses, costs, damages, amounts actually
recovered by Acquiror under existing insurance policies of Acquiror or Company
(net of any related increase in premiums paid by Acquiror or Company) or
indemnities from third parties or, in the case of third party claims, any amount
actually recovered by Acquiror pursuant to counterclaims made by Acquiror
directly relating to the facts giving rise to such third party claims
(collectively, "Losses") arising out of or resulting from (i) any inaccuracies
in the representations, warranties, covenants and agreements given or made by
Company or any Shareholder in this Agreement, the Company Disclosure Schedule,
or any certificate, instrument or document delivered by Company or any
Shareholder of Company pursuant to this Agreement; [*]
* Confidential treatment requested for redacted portion.
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(b) The Escrow Fund shall be security for this indemnity
obligation, subject to the limitations in this Agreement; provided, however,
that no claim for indemnification shall be made in excess of an amount that is
equal to the aggregate of the Escrow Fund; and provided further, that the
limitations set forth in the immediately preceding clauses shall not apply to
limit the liability of Shareholders or the rights of Acquiror or any other
Indemnified Person with respect to (x) Losses resulting from or attributable to
fraud or willful misconduct by Company or any Shareholder or (y) Taxes pursuant
to Section 8.2(c).
(c) In addition to the indemnification provided by Section
8.2(a), the Shareholders will indemnify and hold harmless, from and after the
Effective Time, each Indemnified Person from and against (A) all liability for
Taxes of Company for the periods ending on or prior to the Closing Date (each
such period a "Pre-Closing Tax Period"); (B) all liability for Taxes (as a
result of Treasury Regulation Section 1.1502-6 or any comparable provision of
state, local or foreign Tax law) of any person which at any time prior to the
Closing is or has ever been affiliated with Company or with which at any time
prior to the Closing Company joins or has ever joined or is or has ever been
required to join in filing any affiliated, consolidated, combined, unitary or
aggregate Tax Return; (C) all liability for Taxes that result from Company's
failure to withhold from amounts paid by Company prior to the Closing Date; (D)
all liability for Taxes of Company for any tax period beginning and ending after
the Closing Date (each such period, a "Post-Closing Tax Period") that result by
reason of the application in a Pre-Closing Tax Period of Section 481 of the Code
or any comparable provisions of state, local, domestic or foreign Tax law; (E)
all liability for Taxes of Company as a result of a breach of a representation
or warranty set forth in Section 2.13; (F) all liability for Taxes required to
be paid after the Closing Date by Company under any Tax sharing, Tax indemnity,
Tax allocation or similar contract (whether or not written) to which Company is
or was a party prior to the Closing; and (G) all liability for reasonable legal
and accounting fees and expenses for or with respect to any item in clause (A),
(B), (C), (D), (E) or (F) above; provided, however, that the aggregate
indemnification obligation in respect of Taxes described in each of clauses (A)
through (F) above shall be reduced to the extent that, in accordance with GAAP,
amounts in respect of such Taxes have otherwise been adequately reserved for on
the Company Balance Sheet. In the case of any taxable period that includes (but
does not end on) the Closing Date (a "Straddle Period"): (A) real, personal and
intangible property Taxes ("Property Taxes") of Company with respect to which
the Indemnified Persons shall be indemnified shall be equal to
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the amount of such Property Taxes for the entire Straddle Period multiplied by a
fraction, the numerator of which is the number of days during the Straddle
Period that are in the Pre-Closing Tax Period and the denominator of which is
the number of days in the Straddle Period; and (B) the Taxes of Company (other
than Property Taxes) for the Pre-Closing Tax Period shall be computed as if such
Taxable period ended as of the close of business on the Closing Date, and, in
the case of any Taxes of Company attributable to the ownership by Company of any
equity interest in any partnership or other "flowthrough" entity, as if a
Taxable period of such partnership or other "flowthrough" entity ended as of the
close of business on the Closing Date. All indemnification payments hereunder
shall be due on the later of (i) the date on which the relevant Taxes are
required to be paid to the relevant Taxing Authority (including with respect to
estimated Taxes) and (ii) five business days after Acquiror notifies Company
that such Taxes are due (and the amount thereof).
(d) Acquiror, Company and the Shareholders each acknowledge that
the Losses and Taxes indemnifiable pursuant to this Article VIII, if any, would
relate to unresolved contingencies existing at the Effective Time, which if
resolved at the Effective Time would have led to a reduction in the cash and the
total number of shares Acquiror would have agreed to issue in connection with
the Merger and the assumption of the Assumed Options. Nothing in this Agreement
shall limit the liability (i) of Company for any breach of any representation,
warranty or covenant, or (ii) of any Shareholder in connection with any breach
by such Shareholder of the Shareholder Representation Agreement or the Support
Agreement.
(e) Acquiror shall indemnify, defend and hold harmless the
Shareholders from and against any and all losses arising out of or resulting
from any misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Acquiror
in this Agreement, or any certificate, instrument or document delivered by
Acquiror pursuant to this Agreement (excluding the Employment Agreements and the
Stock Option Agreements); provided however, that no claim for indemnification
shall be made in excess of an amount that is equal to twenty percent (20%) of
the dollar value of the Aggregate Merger Consideration.
8.3 ESCROW PERIODS.
(a) The One Year Escrow shall terminate on the first anniversary
of the Effective Time (the "One Year Escrow Period"); provided, however, that a
portion of the One Year Escrow, which in the reasonable judgment of Acquiror, is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the One Year Escrow with respect to facts and circumstances existing prior to
expiration of the One Year Escrow, shall remain in the Escrow Fund until such
claims have been resolved.
(b) The Two Year Escrow shall terminate on the second anniversary
of the Effective Time (the "Two Year Escrow Period"); provided, however, that a
portion of the Two Year Escrow, which in the reasonable judgment of Acquiror, is
necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the Two Year Escrow with respect to facts and circumstances
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existing prior to expiration of the Two Year Escrow, shall remain in the Escrow
Fund until such claims have been resolved.
(c) Acquiror shall deliver to the Escrow Agent a certificate
specifying the Effective Time.
8.4 CLAIMS UPON THE ESCROW FUND.
(a) Upon receipt by the Escrow Agent on or before the last day of
the One Year Escrow Period of a certificate signed by any officer of Acquiror
(an "Officer's Certificate") specifying in reasonable detail the individual
items of indemnifiable Losses or Taxes included in the amount so stated, the
date each such item was paid, or properly accrued or arose, and the basis for
indemnification, the Escrow Agent shall deliver to Acquiror out of the Escrow
Fund, as promptly as practicable, cash in satisfaction of such Losses, and if
there is then no cash available, Acquiror Common Stock or other assets held in
the Escrow Fund having a value equal to such Losses.
(b) Upon receipt by the Escrow Agent on or before the last day of
the Two Year Escrow Period of an Officer's Certificate specifying in reasonable
detail the individual items of indemnifiable Losses or Taxes included in the
amount so stated, the date each such item was paid, or properly accrued or
arose, and the basis for indemnification, the Escrow Agent shall deliver to
Acquiror out of the Escrow Fund, as promptly as practicable, cash in
satisfaction of such Losses, and if there is then no cash available, Acquiror
Common Stock or other assets held in the Escrow Fund having a value equal to
such Losses.
(c) For the purpose of compensating Acquiror for its Losses
pursuant to this Agreement, the Acquiror Common Stock in the Escrow Fund shall
be valued at $37, unless the Trailing Five Day Price at Closing is outside of
the Price Range, in which case an adjustment pursuant to Section 1.6(a)(iii)
shall be made to calculate such value. By way of example, if the Trailing Five
Day Price at Closing was $52.00, and 249,039 Adjusted Initial Shares were issued
at Closing, then the calculation is ($52/$51.80)($37) = $37.14. If the Trailing
Five Day Price at Closing was $20, and 285,000 Adjusted Initial Shares were
issued at Closing, then the calculation is ($20/$22.80)($37) = $32.46.
Notwithstanding the foregoing, if the Trailing Five Day Price at Closing was
below $11.40 or above $103.60, no change to arrive at the value of the Acquiror
Common Stock in Escrow shall be made beyond such adjustment as would be made at
either of the endpoints of the Price Range. In lieu of a transfer of Acquiror
Common Stock from the Escrow Fund, the Shareholders may elect to compensate
Acquiror for its Losses pursuant to this Agreement by compensating the Acquiror
with an equivalent amount of cash by certified cashier's check prior to the date
the Escrow Agent distributes such Acquiror Common Stock to compensate for
Losses.
(d) 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 Shareholders' Agent and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to Acquiror of
any Escrow Amounts unless the Escrow Agent shall have received written
authorization from the Shareholders' Agent to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make delivery
of shares of Acquiror
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Common Stock from the Escrow Fund, provided that no such payment or delivery may
be made if the Shareholders' Agent shall object in a written statement to the
claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
(e) Resolution of Conflicts; Arbitration. In case the
Shareholders' Agent shall object in writing to any claim or claims made in any
Officer's Certificate, the Shareholders' Agent and Acquiror shall attempt in
good faith to agree upon the rights of the respective parties with respect to
each of such claims. If the Shareholders' Agent and Acquiror 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 Acquiror Common
Stock from the Escrow Fund in accordance with the terms thereof. If no such
agreement can be reached after good faith negotiation within fifteen (15)
business days of such objection, either Acquiror or the Shareholders' Agent may
demand arbitration of the dispute unless the amount of the damage or loss is at
issue in a pending action or proceeding involving a third party claim, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either event the matter shall be
settled by arbitration conducted by three (3) arbitrators, one (1) selected by
Acquiror, such selection to be made within fifteen (15) business days of the
commencement of arbitration or be deemed waived, one (1) selected by the
Shareholders' Agent, such selection to be made within fifteen (15) business days
of the commencement of arbitration or be deemed waived and one (1) selected by
the two (2) arbitrators selected by Acquiror and the Shareholders' Agent, such
selection to be made within fifteen (15) business days of the appointment of the
Acquiror's selection of arbitrator and, if not so made, thereafter by the
Charter Institute of Arbitrators. The arbitrators shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery of information relating to any dispute while allowing the parties an
opportunity, adequate as determined in the sole judgment of the arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute; provided, however, that in no event shall discovery be conducted
for more than three (3) months after the appointment of the third arbitrator.
The arbitrators shall rule upon motions to compel, limit or allow discovery as
they shall deem appropriate given the nature and extent of the disputed claim.
The arbitrators shall also have the authority to impose sanctions, including
attorneys' fees and other costs incurred by the parties, to the same extent as a
court of law or equity, should the arbitrators determine that discovery was
sought without substantial justification or that discovery was refused or
objected to by a party without substantial justification. The decision of a
majority of the three (3) 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 this Article VIII, 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 regarding the dispute which shall set forth the award, judgment,
decree or order awarded by the arbitrators; provided, however, that the
discretion of the arbitrators to fashion remedies hereunder shall be no broader
than the legal and equitable remedies available to a court. Judgment upon any
award rendered by the arbitrators may be entered in any court having competent
jurisdiction. Any such arbitration shall be held in the city and county of San
Francisco, California under the commercial rules of arbitration then in effect
of the American Arbitration Association. In any arbitration
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pursuant to this Section 8.4 to resolve a claim for indemnification, each party
shall pay its own expenses. Shareholders shall pay (out of the Escrow Fund) a
portion of the fees of the arbitrators and the administrative costs of the
arbitration equal to the quotient obtained by dividing (i) the amount awarded by
the arbitrators with respect to such claim (or agreed in settlement of such
claim) by (ii) the portion of the indemnification claim disputed by the
Shareholders' Agent; and the balance of such fees and administrative costs shall
be paid by Acquiror.
8.5 SHAREHOLDERS' AGENT.
(a) Prior to the Closing, the Shareholders shall constitute and
appoint J. Matthew Pryor as agent ("Shareholders' Agent") for and on behalf of
the Shareholders to give and receive notices and communications, to authorize
delivery to Acquiror of the Acquiror Common Stock or other property from the
Escrow Fund in satisfaction of claims by Acquiror, to object to such deliveries,
to agree to, negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims, and to take all actions necessary or appropriate in the
judgment of the Shareholders' Agent for the accomplishment of the foregoing.
Such agency may be changed by the holders of a majority in interest of the
Escrow Fund from time to time upon not less than ten (10) days' prior written
notice to Acquiror. No bond shall be required of the Shareholders' Agent.
Notices or communications to or from the Shareholders' Agent shall constitute
notice to or from each of the Shareholders.
(b) The Shareholders' Agent shall not be liable for any act done
or omitted hereunder as Shareholders' 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. The
Shareholders shall severally indemnify the Shareholders' Agent and hold him
harmless against any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Shareholders' Agent and arising out
of or in connection with the acceptance or administration of his duties
hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about the Surviving Corporation and the reasonable assistance of
officers and employees of the Surviving Corporation for purposes of performing
its duties and exercising its rights hereunder, provided that the Shareholders'
Agent shall treat confidentially and not disclose any nonpublic information from
or about Company to anyone (except on a need to know basis to individuals who
agree to treat such information confidentially).
8.6 ACTIONS OF THE SHAREHOLDERS' AGENT. A decision, act, consent or
instruction of the Shareholders' Agent shall constitute a decision of all
Shareholders for whom shares of Acquiror Common Stock otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Company shareholder, and the Escrow Agent and Acquiror may rely upon
any decision, act, consent or instruction of the Shareholders' Agent as being
the decision, act, consent or instruction of each and every such Company
shareholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person or entity for any acts done by them in accordance with
such decision, act, consent or instruction of the Shareholders' Agent.
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8.7 THIRD-PARTY CLAIMS.
(a) In the event Acquiror becomes aware of a third-party claim
which Acquiror believes may result in a demand against the Escrow Fund, Acquiror
shall promptly notify the Shareholders' Agent of such claim; provided, however,
that no delay in notifying the Shareholders' Agent shall affect the rights of
any Indemnified Person to indemnification hereunder unless (and then solely to
the extent that) the interests of Shareholders in the Escrow Fund are prejudiced
or damaged thereby. By written notice to Acquiror within twenty (20) days after
delivery of notice of such a claim, the Shareholders' Agent and the Shareholders
for whom shares of Acquiror Common Stock otherwise issuable to them are
deposited in the Escrow Fund shall be entitled, at their expense, to participate
in any defense of such claim by Acquiror, which (subject to the provisions of
Section 8.7(b) with respect to certain third-party claims) shall direct the
defense and settlement of such claims. Acquiror shall have the right in its sole
discretion to settle any such claim; provided however, that Acquiror may not
effect the settlement of any such claim without notifying and requesting consent
from the Shareholders' Agent, which consent shall not be unreasonably withheld.
In the event that the Shareholders' Agent has consented to any such settlement,
the Shareholders' Agent have no power or authority to object under Section 8.5
or any other provision of this Article VIII to the amount of any claim by
Acquiror against the Escrow Fund for indemnity with respect to the such
settlement. In the event the Shareholders' Agent does not consent, Acquiror may
nevertheless settle such claim, but may recover from the Escrow Fund any such
amount of such settlement that is reasonable under the circumstances.
(b) Except in the case of claims for or including equitable
relief and claims for money damages which may exceed the amounts then remaining
and available in the Escrow Fund for indemnification under this Article VIII,
the Shareholders' Agent shall be entitled to assume the defense of such claim,
by written notice to Acquiror within twenty (20) days after delivery of notice
of a third-party claim pursuant to Section 8.7(a). If the Shareholders' Agent
Assumes the defense of such a claim, (i) the Shareholders' Agent shall defend
the Indemnified Person against the matter with counsel reasonably satisfactory
to the Indemnified Person; (ii) the Indemnified Person may retain separate
co-counsel at its sole cost and expense (except that the Shareholders' Agent
shall be responsible for the fees and expenses of the separate co-counsel to the
extent that the counsel the Shareholders' Agent has selected has a conflict of
interest); (iii) the Indemnified Person will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Shareholders' Agent (not to be withheld unreasonably);
and (iv) the Shareholders' Agent will not consent to the entry of any judgment
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases Acquiror
and the Indemnified Person from all liability with respect thereto, without the
written consent of Acquiror and the Indemnified Person. In the event the
Shareholders' Agent does not timely assume the defense of such third-party claim
as provided herein, then Acquiror and the Indemnified Person may defend against,
or enter into any settlement with respect to, the matter in any manner they
reasonably may deem appropriate. At any time after commencement of any such
action, the Shareholders' Agent may request an Indemnified Person to accept a
bona fide offer from the other parties to the action for a monetary settlement
payable solely by Shareholders (which does not burden or restrict the Acquiror
or Indemnified Person nor otherwise prejudice the Acquiror or Indemnified
Person) whereupon such settlement shall be accepted unless the Acquiror or
Indemnified Person determines that the dispute should be continued. In the event
such settlement is rejected by the
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Acquiror or Indemnified Person, Shareholders shall be liable for indemnity
hereunder only to the extent of the lesser of (i) the amount of the settlement
offer or (ii) the amount for which the Acquiror or Indemnified Person is liable
with respect to such action and, if the settlement offer represents the lesser
amount of liability for the Acquiror or Indemnified Person (but does not burden
or restrict the Acquiror or Indemnified Person nor otherwise prejudice the
Acquiror or Indemnified Person), the Shareholders' Agent shall be entitled to
reimbursement of all costs and legal fees incurred in connection with the
applicable matter after the date of rejection of such settlement by the Acquiror
or Indemnified Person. The party controlling the defense of any third party
claim shall deliver, or cause to be delivered, to the other party copies of all
correspondence, pleadings, motions, briefs, appeals or other written statements
relating to or submitted in connection with the defense of the third party
claim, and timely notices of, and the right to participate in (as an observer)
any hearing or other court proceeding relating to the third party claim.
ARTICLE IX
GENERAL PROVISIONS
9.1 NON-SURVIVAL AT EFFECTIVE TIME. The representations and warranties
set forth in Articles II and III will survive until the expiration of the Two
Year Escrow Period, other than the representations and warranties in Sections
2.10 (Litigation), 2.13 (Title to Property), 2.14 (Intellectual Property), 2.16
(Environmental Matters) and 2.17 (Taxes) and the representations and warranties
in the Shareholder Representation Agreement, which shall survive until the
expiration of the statute of limitations applicable to claims with respect to
the matters covered thereby. The agreements set forth in this Agreement shall
terminate at the Effective Time, except that the agreements set forth in Article
I, Section 5.3 (Confidentiality), Section 5.6 (Shareholder Representation
Agreements), Section 5.7 (Escrow Agreement), Section 5.10 (Employees), Section
5.13 (Reasonable Efforts and Further Assurances), Section 7.3 (Expenses and
Termination Fees), Article VIII and this Article IX, and any other agreement
which by its terms is to be performed after the Effective Time, shall survive
the Effective Time and the Closing.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Versata, Inc.
2101 Webster Street, Eighth Floor
Oakland, CA 94612
Attention: General Counsel
Facsimile No.: (510) 238-4101
Telephone No.: (510) 238-4100
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with a copy to:
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: John W. Larson, Esq.
Facsimile No.: (415) 442-1010
Telephone No.: (415) 442-0900
(b) if to Company, to:
Verve, Inc.
999 Brannan Street, Suite 203
San Francisco, CA 94105
Attention: General Counsel
Facsimile No.: (415) 449-3566
Telephone No.: (888) 327-8085
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, LLP
One Embarcadero Center, Suite 400
San Francisco, CA 94111
Attention: Graham R. Taylor, Esq.
Facsimile No.: (415) 951-1180
Telephone No.: (415) 951-1121
(c) if to the Shareholders:
Verve, Inc.
999 Brannan Street, Suite 203
San Francisco, CA 94105
Attention: General Counsel
Facsimile No.: (415) 449-3566
Telephone No.: (888) 327-8085
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, LLP
One Embarcadero Center, Suite 400
San Francisco, CA 94111
Attention: Graham R. Taylor, Esq.
Facsimile No.: (415) 951-1180
Telephone No.: (415) 951-1121
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9.3 CERTAIN DEFINITIONS; INTERPRETATION. In this Agreement, any
reference to a "Material Adverse Effect" with respect to any entity or group of
entities means any event, change or effect that is materially adverse to the
condition (financial or otherwise), properties, assets (including intangible
assets), liabilities, business, prospects, operations or results of operations
of such entity and its subsidiaries, taking such entity together with such
subsidiaries as a whole. In this Agreement, any reference to a party's
"knowledge" means actual knowledge of such party's officers and directors. When
a reference is made in this Agreement to a Section, an Article or an Exhibit,
such reference shall be to a Section or Article of this Agreement or 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 "but are not limited to," "but is not limited to" and "but not limited
to," respectively. The phrase "made available" in this Agreement shall mean that
the information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to October 18, 2000. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.4 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 parties, it being understood that all
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT; PARTIES IN INTEREST; NONASSIGNABILITY. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits and
Schedules, the Company Disclosure Schedule and the Acquiror Disclosure Schedule
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,
except for the Confidentiality Agreement, which shall continue in full force and
effect, and shall survive any termination of this Agreement or the Closing, in
accordance with its terms. Neither this Agreement nor any right, interest or
obligation hereunder may be assigned (by operation of law or otherwise) by any
party without the prior written consent of the other party and any attempt to do
so will be void. Subject to the preceding sentence, this Agreement is binding
upon, inures to the benefit of and is enforceable by the parties hereto and
their respective successors and assigns.
9.6 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
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9.7 REMEDIES CUMULATIVE. 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.
9.8 GOVERNING LAW; FORUM. This Agreement and any other ancillary
agreements to be entered into pursuant hereto shall be governed by and construed
in accordance with the laws of the State of California without reference to such
state's principles of conflicts of law. Each of the parties hereto irrevocably
(i) consents to the exclusive jurisdiction of any court of the United States or
the State of California located within the County of San Francisco in the State
of California in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, (ii) agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons, and (iii) waives and covenants not to assert or plead any
objection which they might otherwise have (including any objection on the basis
of inconvenient forum) to such jurisdiction, venue and such process.
9.9 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and therefore waive the application of any law, regulation, holding or
rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.10 EXTENSION; WAIVER. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties 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.
9.11 NO THIRD-PARTY BENEFICIARY. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors and permitted assigns, and it is not the intention of the
parties to confer upon any other person or entity any rights or remedies, except
the right of Shareholders to receive the applicable consideration set forth in
Section 1.6, and the right of Company Option holders to have their Company
Options assumed by Acquiror pursuant to Section 1.6(f).
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IN WITNESS WHEREOF, Versata, Inc., VATA Acquisition Corp. and
Verve, Inc. have each caused this Agreement to be executed and delivered by
their respective officers thereunto duly authorized, and each of Brett Adam, an
individual, Cameron Bromley, an individual and Matthew Pryor, an individual has
executed and delivered this Agreement, all as of the date first written above.
VERSATA, INC.
By: /s/ John A. Hewitt, Jr.
-------------------------------------
Name: John A. Hewitt, Jr.
Title: President and Chief Executive Officer
VATA ACQUISITION CORP.
By: /s/ John A. Hewitt, Jr.
-------------------------------------
Name: John A. Hewitt, Jr.
Title: President and Chief Executive Officer
VERVE, INC.
By: /s/ Brett Adam
-------------------------------------
Name: Brett Adam
Title: President and Chief Executive Officer
IN WITNESS WHEREOF, Versata, Inc., VATA Acquisition Corp. and Verve,
Inc. have each caused this Agreement to be executed and delivered by their
respective officers thereunto duly authorized, and each of Brett Adam, an
individual, Cameron Bromley, an individual and Matthew Pryor, an individual has
executed and delivered this Agreement, all as of the date first written above.
SHAREHOLDERS:
/s/ Brett Adam
-------------------------------------
Brett Adam
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE> 63
/s/ Cameron Bromley
-------------------------------------
Cameron Bromley
/s/ J. Matthew Pryor
-------------------------------------
J. Matthew Pryor
AGREEMENT AND PLAN OF REORGANIZATION
among:
VERSATA, INC.
a Delaware corporation;
VATA ACQUISITION CORP.
a Delaware Corporation;
VERVE, INC.
a California Corporation
and
CERTAIN SHAREHOLDERS OF VERVE, INC.
----------------------------
Dated as of October 18, 2000
----------------------------
EXHIBIT A Delaware Certificate of Merger
EXHIBIT B California Agreement of Merger
EXHIBIT C Amended and Restated Articles of Incorporation
EXHIBIT D Support Agreement
EXHIBIT E Shareholder Representation Agreement
EXHIBIT F Escrow Agreement
EXHIBIT G Non-Competition Agreement
EXHIBIT H Employment Agreement
EXHIBIT I Form of Shareholder Certificate
Versata, Inc. agrees to furnish supplementally a copy of any of the foregoing
exhibits to the SEC upon request.
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
