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Exhibit 2.2
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
Terayon Communication Systems, Inc.,
a Delaware corporation;
MN Acquisition Corp.,
a Delaware corporation;
Mainsail Networks, Inc.,
a Delaware corporation;
and
Certain Stockholders of Mainsail Networks, Inc.
______________________________
Dated as of August 1, 2000
______________________________
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EXHIBITS
Exhibit A - Designated Stockholders
Exhibit B - Certain definitions
Exhibit C - Form of Amended and Restated Certificate of Incorporation of
Surviving Corporation
Exhibit D - Directors and officers of Surviving Corporation
Exhibit E - Form of Indemnification Escrow Agreement
Exhibit F - Designated Stockholders to sign Employment and Noncompetition
Agreements
Exhibit G - Other Employees to sign Employment and Noncompetition Agreements
Exhibit H - Form of Employment Agreement
Exhibit I - Form of Noncompetition Agreement
Exhibit J - Form of Release
Exhibit K - Form of legal opinion of Venture Law Group
Exhibit L - Form of tax representation letters
Exhibit M - Form of legal opinion of Cooley Godward LLP
Exhibit N - Form of Retention Agreement
Exhibit O - Form of Stockholder Agreement
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SECTION 1. Description of Transaction..................................................... 1
1.1 Merger of Merger Sub into the Company.......................................... 1
1.2 Effect of the Merger........................................................... 1
1.3 Closing; Effective Time........................................................ 2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers................ 2
1.5 Conversion of Shares........................................................... 2
1.6 Indemnification Escrow......................................................... 4
1.7 Employee Stock Options......................................................... 4
1.8 Closing of the Company's Transfer Books........................................ 5
1.9 Exchange of Certificates....................................................... 5
1.10 Appraisal Rights............................................................... 6
1.11 Tax Consequences............................................................... 7
1.12 Accounting Treatment........................................................... 7
1.13 Further Action................................................................. 7
SECTION 2. Representations and Warranties of the Company and the Designated Stockholders.. 7
2.1 Due Organization; No Subsidiaries; Etc......................................... 7
2.2 Certificate of Incorporation and Bylaws; Records............................... 8
2.3 Capitalization, Etc............................................................ 8
2.4 Financial Statements........................................................... 10
2.5 Absence of Changes............................................................. 10
2.6 Title to Assets................................................................ 12
2.7 Bank Accounts; Receivables..................................................... 12
2.8 Equipment; Leasehold........................................................... 12
2.9 Proprietary Assets............................................................. 13
2.10 Contracts...................................................................... 14
2.11 Liabilities.................................................................... 16
2.12 Compliance with Legal Requirements............................................. 17
2.13 Governmental Authorizations.................................................... 17
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2.14 Tax Matters.................................................................... 17
2.15 Employee and Labor Matters; Benefit Plans...................................... 18
2.16 Environmental Matters.......................................................... 21
2.17 Insurance...................................................................... 21
2.18 Related Party Transactions..................................................... 21
2.19 Legal Proceedings; Orders...................................................... 22
2.20 Authority; Binding Nature of Agreement......................................... 22
2.21 Non-Contravention; Consents.................................................... 22
2.22 Notice Period.................................................................. 23
2.23 Financial Advisor.............................................................. 23
2.24 Full Disclosure................................................................ 24
SECTION 3. Representations and Warranties of Parent and Merger Sub........................ 24
3.1 SEC Filings; Financial Statements.............................................. 24
3.2 Authority; Binding Nature of Agreement......................................... 25
3.3 Valid Issuance................................................................. 25
3.4 Due Organization............................................................... 25
3.5 No Knowledge of Claims for Indemnification..................................... 25
SECTION 4. Certain Covenants of the Company and the Designated Stockholders............... 25
4.1 Access and Investigation....................................................... 25
4.2 Operation of the Company's Business............................................ 26
4.3 Notification; Updates to Disclosure Schedule................................... 27
4.4 No Negotiation................................................................. 28
SECTION 5. Additional Covenants of the Parties............................................ 29
5.1 Filings and Consents........................................................... 29
5.2 Information Statement; Company Stockholder Approval............................ 29
5.4 Public Announcements........................................................... 30
5.5 Best Efforts................................................................... 30
5.6 Tax Matters.................................................................... 30
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5.7 Employment and Noncompetition Agreements.......................................... 30
5.8 Termination of Agreements......................................................... 30
5.9 FIRPTA Matters.................................................................... 31
5.10 Release........................................................................... 31
5.11 Termination of Employee Plans..................................................... 31
5.12 Filing of Form S-8................................................................ 31
SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub...................... 32
6.1 Accuracy of Representations....................................................... 32
6.2 Performance of Covenants.......................................................... 32
6.3 Stockholder Approval.............................................................. 32
6.4 Consents.......................................................................... 32
6.5 Agreements and Documents.......................................................... 32
6.6 FIRPTA Compliance................................................................. 33
6.7 No Restraints..................................................................... 33
6.8 No Legal Proceedings.............................................................. 34
6.9 Employees......................................................................... 34
6.10 Termination of Employee Plans..................................................... 34
6.11 Stockholder Approval of Parachute Payments........................................ 34
6.12 Tax Opinion....................................................................... 34
6.13 Financial Statements.............................................................. 34
SECTION 7. Conditions Precedent to Obligations of the Company................................ 34
7.1 Accuracy of Representations....................................................... 34
7.2 Performance of Covenants.......................................................... 34
7.3 Tax Opinion....................................................................... 35
7.4 No Restraints..................................................................... 35
7.5 Agreements and Documents.......................................................... 35
7.6 No Legal Proceedings.............................................................. 35
SECTION 8. Termination....................................................................... 35
8.1 Termination Events................................................................ 35
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8.2 Termination Procedures......................................................... 36
8.3 Effect of Termination.......................................................... 36
8.4 Termination Fee................................................................ 36
SECTION 9. Indemnification, Etc........................................................... 37
9.1 Survival of Representations, Etc............................................... 37
9.2 Indemnification................................................................ 37
9.3 Threshold; Ceiling............................................................. 38
9.4 Administration of Claims....................................................... 39
9.5 Satisfaction of Indemnification Claim.......................................... 40
9.6 No Contribution................................................................ 40
9.7 Interest....................................................................... 40
9.8 Defense of Third Party Claims.................................................. 40
9.9 Exercise of Remedies by Indemnitees Other Than Parent.......................... 41
9.10 Exclusive Remedy............................................................... 41
SECTION 10. Miscellaneous Provisions....................................................... 41
10.1 Company Stockholders' Agent.................................................... 41
10.2 Further Assurances............................................................. 41
10.3 Fees and Expenses.............................................................. 41
10.4 Attorneys' Fees................................................................ 42
10.5 Notices........................................................................ 42
10.6 Confidentiality................................................................ 43
10.7 Legal Representation........................................................... 43
10.8 Time of the Essence............................................................ 43
10.9 Headings....................................................................... 43
10.10 Counterparts................................................................... 43
10.11 Governing Law.................................................................. 43
10.12 Successors and Assigns......................................................... 43
10.13 Remedies Cumulative; Specific Performance...................................... 44
10.14 Waiver......................................................................... 44
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10.15 Amendments..................................................................... 44
10.16 Severability................................................................... 44
10.17 Parties in Interest............................................................ 44
10.18 Entire Agreement............................................................... 45
10.19 Construction................................................................... 45
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (the "Agreement") is
made and entered into as of August 1, 2000 (the "Execution Date"), by and among:
Terayon Communication Systems, Inc., a Delaware corporation ("Parent"); MN
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub"); Mainsail Networks, Inc., a Delaware corporation (the
"Company"); and the parties identified on Exhibit A (the "Designated
Stockholders"). Certain other capitalized terms used in this Agreement are
defined in Exhibit B.
Recitals
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub into the Company in accordance with this Agreement and the Delaware General
Corporation Law (the "Merger"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger be
treated as a "purchase."
C. This Agreement has been approved by the respective boards of directors
of Parent, Merger Sub and the Company.
D. As set forth opposite each party's name on Exhibit A, the Designated
Stockholders own a total of 12,000,000 shares of the Common Stock (par value
$0.0001 per share) of the Company ("Company Common Stock"); 300,000 shares of
the Series A Preferred Stock (par value $0.0001 per share) of the Company
("Series A Preferred Stock"); and warrants to purchase 286,458 shares of Company
Common Stock ("Company Warrants"). Contemporaneously with the execution and
delivery of this Agreement, each Designated Stockholder is executing and
delivering to Parent a Stockholder Agreement of even date herewith in the Form
of Exhibit O.
Agreement
The parties to this Agreement agree as follows:
SECTION 1. Description of Transaction
1.1 Merger of Merger Sub into the Company. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law.
1.
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1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward llp, One Maritime Plaza, 20/th/ Floor, San Francisco,
California 94111 at 10:00 a.m. on a date to be designated by Parent (the
"Closing Date"), which shall be no later than the fifth business day after which
the last condition set forth in Sections 6 and 7 has been fulfilled or waived.
Contemporaneously with or as promptly as practicable after the Closing, a
properly executed certificate of merger conforming to the requirements of the
Delaware General Corporation Law shall be filed with the Secretary of State of
the State of Delaware. The Merger shall become effective at the time such
certificate of merger is filed with the Secretary of State of the State of
Delaware (the "Effective Time").
1.4 Certificate of Incorporation and Bylaws; Directors and Officers.
Unless otherwise determined by Parent and the Company prior to the Effective
Time:
(a) the Certificate of Incorporation of the Surviving Corporation
shall be amended and restated as of the Effective Time to conform to Exhibit C;
(b) the Bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the Bylaws of Merger Sub as in
effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit D.
1.5 Conversion of Shares.
(a) Subject to Sections 1.9(c) and 1.10, at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any stockholder of the Company (the "Company
Stockholders"):
(i) each share of Company Common Stock outstanding
immediately prior to the Effective Time (other than Appraisal Shares (as
defined in Section 1.10(c)) shall be converted into the right to receive
the "Applicable Fraction" (as defined in Section 1.5(b)(i)) of a share of
the common stock (par value $0.01 per share) of Parent ("Parent Common
Stock");
(ii) each share of Series A Preferred Stock (if any)
outstanding immediately prior to the Effective Time (other than Appraisal
Shares) shall be converted into the right to receive the fraction of a
share of Parent Common Stock (A) having a numerator equal to $0.1666666
(representing the "Liquidation Preference" of each share of Series A
Preferred Stock under the Company's Certificate of Incorporation), and (B)
having a denominator equal to the Designated Parent Stock Price (as defined
in Section 1.5(b)(iv));
(iii) each share of Series B Preferred Stock (par value $0.0001
per share) of the Company ("Series B Preferred Stock") (if any) outstanding
immediately prior to the Effective Time (other than Appraisal Shares) shall
be converted into the right to receive the fraction of a share of Parent
Common Stock (A) having a numerator equal to $0.3333333 (representing the
"Liquidation Preference" of each share of Series B
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Preferred Stock under the Company's Certificate of Incorporation), and (B)
having a denominator equal to the Designated Parent Stock Price (as defined
in Section 1.5(b)(iv));
(iv) each share of Series C Preferred Stock (par value
$0.0001) of the Company ("Series C Preferred Stock") (if any) outstanding
immediately prior to the Effective Time (other than Appraisal Shares) shall
be converted into the right to receive the fraction of a share of Parent
Common Stock (A) having a numerator equal to $4.32 (representing the
maximum amount payable in respect of a share of Series C Preferred Stock
under the liquidation provisions of the Company's Certificate of
Incorporation), and (B) having a denominator equal to the Designated Parent
Stock Price (as defined in Section 1.5(b)(iv)); and
(v) each share of the common stock (par value $0.0001) of
Merger Sub outstanding immediately prior to the Effective Time shall be
converted into one share of common stock of the Surviving Corporation.
(b) For purposes of this Agreement:
(i) The "Applicable Fraction" shall be the fraction: (A)
having a numerator equal to the amount by which the Aggregate Merger Amount
(as defined in Section 1.5(b)(ii)) exceeds the Aggregate Preferred Stock
Liquidation Preference (as defined in Section 1.5(b)(iii)); and (B) having
a denominator equal to the amount determined by multiplying (1) the
Adjusted Fully Diluted Company Share Amount (as defined in Section
1.5(b)(iv)) by (2) the Designated Parent Stock Price (as defined in Section
1.5(b)(v)).
(ii) The "Aggregate Merger Amount" shall be the amount by
which Two Hundred Million Dollars ($200,000,000) exceeds the Identified
Stockholder Expenses (as defined in Section 10.3).
(iii) The "Aggregate Preferred Stock Liquidation Preference"
shall be the sum of the following three items:
(1) $0.1666666 (representing the "Liquidation
Preference" of each share of Series A Preferred Stock under the
Company's Certificate of Incorporation) multiplied by the aggregate
number of shares of Series A Preferred Stock outstanding immediately
prior to the Effective Time;
(2) $0.3333333 (representing the "Liquidation
Preference" of each share of Series B Preferred Stock under the
Company's Certificate of Incorporation) multiplied by the aggregate
number of shares of Series B Preferred Stock outstanding immediately
prior to the Effective Time; and
(3) $4.32 (representing the maximum amount payable in
respect of a share of Series C Preferred Stock under the liquidation
provisions of the Company's Certificate of Incorporation) multiplied
by the aggregate number of shares of Series C Preferred Stock
outstanding immediately prior to the Effective Time.
3.
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(iv) The "Adjusted Fully Diluted Company Share Amount" shall be
the sum of (A) the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (including any such
shares that are subject to a repurchase option or risk of forfeiture under
any restricted stock purchase agreement or other agreement), and (B) the
aggregate number of shares of Company Common Stock purchasable under or
otherwise subject to all Company Options (as defined in Section 1.7(a))
outstanding immediately prior to the Effective Time (including all shares
of Company Common Stock that may ultimately be purchased under Company
Options that are unvested or are otherwise not then exercisable).
(v) The "Designated Parent Stock Price" shall be Sixty-Two
Dollars and Fifty Cents ($62.50).
(c) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common Stock
will also be unvested and subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates representing such shares of
Parent Common Stock may accordingly be marked with appropriate legends.
1.6 Indemnification Escrow. At the Effective Time, a number of shares of
Parent Common Stock equivalent to ten percent (10%) of the number resulting from
the division of the Aggregate Merger Amount by the Designated Parent Stock Price
(such shares being the "Indemnification Escrow Shares") shall be deposited into
escrow pursuant to an Escrow Agreement in the form of Exhibit E (the
"Indemnification Escrow Agreement"). The Indemnification Escrow Shares so
deposited shall be referred to herein as the "Indemnification Escrow Fund." The
Indemnification Escrow Shares shall be deducted from each Company Stockholder's
proportionate share of the shares of Parent Common Stock issuable in the Merger
on a pro rata basis at or immediately following the Effective Time. The
Indemnification Escrow Shares will be paid out to the extent and upon the terms
set forth in the Indemnification Escrow Agreement.
1.7 Employee Stock Options.
(a) At the Effective Time, each stock option that is then
outstanding under the Company's 1997 Stock Option Plan, whether vested or
unvested (a "Company Option"), shall be assumed by Parent in accordance with the
terms (as in effect as of the date of this Agreement) of the Company's 1997
Stock Option Plan and the stock option agreement by which such Company Option is
evidenced. All rights with respect to Company Common Stock under outstanding
Company Options shall thereupon be converted into rights with respect to Parent
Common Stock. Accordingly, from and after the Effective Time,
(i) each Company Option assumed by Parent may be exercised solely
for shares of Parent Common Stock,
(ii) the number of shares of Parent Common Stock subject to each such
assumed Company Option shall be equal to the number of shares of Company
Common Stock that were subject to such Company Option immediately prior to
the
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Effective Time multiplied by the Applicable Fraction, rounded down to the
nearest whole number of shares of Parent Common Stock,
(iii) the per share exercise price for the Parent Common Stock
issuable upon exercise of each such assumed Company Option shall be
determined by dividing the exercise price per share of Company Common Stock
subject to such Company Option, as in effect immediately prior to the
Effective Time, by the Applicable Fraction, and rounding the resulting
exercise price up to the nearest whole cent,
(iv) and all restrictions on the exercise of each such assumed
Company Option shall continue in full force and effect, and the term,
exercisability, vesting schedule and other provisions of such Company
Option shall otherwise remain unchanged; provided, however, that each such
assumed Company Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, reverse stock
split, stock dividend, recapitalization or other similar transaction
effected by Parent after the Effective Time.
(b) The Company and Parent shall take all action that may be
necessary (under the Company's 1997 Stock Option Plan and otherwise) to
effectuate the provisions of this Section 1.7.
(c) Following the Closing, Parent will send to each holder of an
assumed Company Option a written notice setting forth (i) the number of shares
of Parent Common Stock subject to such assumed Company Option and (ii) the
exercise price per share of Parent Common Stock issuable upon exercise of such
assumed Company Option.
1.8 Closing of the Company's Transfer Books. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.9.
1.9 Exchange of Certificates.
(a) At or as soon as practicable after the Effective Time, Parent
will send to the holders of Company Stock Certificates (i) a letter of
transmittal in customary form and containing such provisions as Parent may
reasonably specify, and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates representing Parent
Common Stock. Upon surrender of a Company Stock Certificate to Parent for
exchange, together with a duly executed letter of transmittal and such other
documents as may be reasonably required by Parent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common Stock that
such holder has the right to receive pursuant to the provisions of this Section
1, and the Company Stock Certificate so surrendered shall be canceled. Until
surrendered as
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contemplated by this Section 1.9, each Company Stock Certificate shall be
deemed, from and after the Effective Time, to represent only the right to
receive upon such surrender a certificate representing shares of Parent Common
Stock (and cash in lieu of any fractional share of Parent Common Stock) as
contemplated by this Section 1. If any Company Stock Certificate shall have been
lost, stolen or destroyed, Parent may, in its discretion and as a condition
precedent to the issuance of any certificate representing Parent Common Stock,
require the owner of such lost, stolen or destroyed Company Stock Certificate to
provide an appropriate affidavit and to deliver a bond (in such sum as Parent
may reasonably direct) as indemnity against any claim that may be made against
Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(b) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock represented thereby, and no cash
payment in lieu of any fractional share shall be paid to any such holder, until
such holder surrenders such Company Stock Certificate in accordance with this
Section 1.9 (at which time such holder shall be entitled to receive all such
dividends and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
of the Company who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock issuable to such holder) shall, upon surrender of such holder's Company
Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
whole cent), without interest, determined by multiplying such fraction by the
Designated Parent Stock Price.
(d) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(e) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
1.10 Appraisal Rights.
(a) Notwithstanding anything to the contrary contained in this
Agreement, any shares of capital stock of the Company (the "Company Shares")
that constitute Appraisal Shares (as defined in Section 1.10(c)) shall not be
converted into or represent the right to receive Parent Common Stock in
accordance with Section 1.5, and each holder of Appraisal Shares shall be
entitled only to such rights with respect to such Appraisal Shares as may be
granted to such
6.
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holder in Section 262 of the Delaware General Corporation Law. From and after
the Effective Time, a holder of Appraisal Shares shall not have and shall not be
entitled to exercise any of the voting rights or other rights of a stockholder
of Parent. If any holder of Appraisal Shares shall fail to perfect or shall
otherwise lose such holder's right of appraisal under Section 262 of the
Delaware General Corporation Law, then (i) any right of such holder to require
Parent to purchase the Appraisal Shares for cash shall be extinguished, and (ii)
such Appraisal Shares shall automatically be converted into and shall represent
only the right to receive (upon the surrender of the certificate or certificates
representing such Appraisal Shares) Parent Common Stock in accordance with
Section 1.5.
(b) The Company (i) shall give Parent written notice of any demand
by any stockholder of the Company for appraisal of such stockholder's Company
Shares pursuant to the Delaware General Corporation Law, and (ii) shall give
Parent the opportunity to participate in all negotiations and proceedings with
respect to any such demand.
(c) For purposes of this Agreement, "Appraisal Shares" shall refer
to any Company Shares outstanding immediately prior to the Effective Time that
are held by stockholders who are entitled to demand and who properly demand
appraisal of such Company Shares pursuant to, and who comply with the applicable
provisions of, Section 262 of the Delaware General Corporation Law.
1.11 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.12 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a "purchase."
1.13 Further Action. If, at any time after the Effective Time, any further
action is reasonably determined by Parent to be necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation or
Parent with full right, title and possession of and to all rights and property
of Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of Merger Sub, in
the name of the Company and otherwise) to take such action.
SECTION 2. Representations and Warranties of the Company and the Designated
Stockholders
The Company and the Designated Stockholders jointly and severally
represent and warrant, to and for the benefit of the Indemnitees, as follows:
2.1 Due Organization; No Subsidiaries; Etc.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all
necessary power and authority: (i) to conduct its business in the manner in
which its business is currently being conducted; (ii) to
7.
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own and use its assets in the manner in which its assets are currently owned and
used; and (iii) to perform its obligations under all Company Contracts.
(b) Except as set forth in Part 2.1 of the Disclosure Schedule, the
Company has not conducted any business under or otherwise used, for any purpose
or in any jurisdiction, any fictitious name, assumed name, trade name or other
name, other than the name "Private Corporation."
(c) The Company is not and has not been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1 of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and is not reasonably likely to have a
Material Adverse Effect on the Company. The Company is in good standing as a
foreign corporation in each of the jurisdictions identified in Part 2.1 of the
Disclosure Schedule.
(d) Part 2.1 of the Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, (ii) the names of
the members of each committee of the Company's board of directors, and (iii) the
names and titles of the Company's officers.
(e) The Company does not own any controlling interest in any Entity
and, except for the equity interests identified in Part 2.1 of the Disclosure
Schedule, the Company has never owned, beneficially or otherwise, any shares or
other securities of, or any direct or indirect equity interest in, any Entity.
The Company has not agreed and is not obligated to make any future investment in
or capital contribution to any Entity. The Company has not guaranteed and is not
responsible or liable for any obligation of any of the Entities in which it owns
or has owned any equity interest.
2.2 Certificate of Incorporation and Bylaws; Records. The Company has
delivered to Parent accurate and complete copies of: (1) the Company's
certificate of incorporation and bylaws, including all amendments thereto; (2)
the stock records of the Company; and (3) except as set forth in Part 2.2 of the
Disclosure Schedule, the minutes and other records of the meetings and other
proceedings (including any actions taken by written consent or otherwise without
a meeting) of the stockholders of the Company, the board of directors of the
Company and all committees of the board of directors of the Company. There have
been no formal meetings or other proceedings of the stockholders of the Company,
the board of directors of the Company or any committee of the board of directors
of the Company that are not accurately reflected in such minutes or other
records. There has not been any violation of any of the provisions of the
Company's certificate of incorporation or bylaws, and the Company has not taken
any action that is inconsistent in any material respect with any resolution
adopted by the Company's stockholders, the Company's board of directors or any
committee of the Company's board of directors. The books of account, stock
records, minute books and other records of the Company are accurate, up-to-date
and complete in all material respects, and have been maintained in accordance
with prudent business practices.
2.3 Capitalization, Etc.
(a) The authorized capital stock of the Company consists of: (i)
40,000,000 shares of Common Stock (par value $0.0001 per share), of which
13,338,332 shares have been
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issued and are outstanding as of the date of this Agreement; and (ii) 16,653,402
shares of Preferred Stock (par value $0.0001 per share). As of the date of this
Agreement, the Preferred Stock has been designated into three series: 6,000,000
shares have been designated "Series A Preferred Stock," of which 6,000,000
shares have been issued and are outstanding; 4,994,448 shares have been
designated "Series B Preferred Stock," of which 4,994,448 shares have been
issued and are outstanding; and 5,658,954 shares have been designated "Series C
Preferred Stock," of which 4,519,653 shares have been issued and are
outstanding. Each outstanding share of Preferred Stock is convertible into one
share of Company Common Stock. All of the outstanding shares of Company Common
Stock and Preferred Stock have been duly authorized and validly issued, and are
fully paid and non-assessable. Part 2.3 of the Disclosure Schedule provides an
accurate and complete description of the terms of each repurchase option which
is held by the Company and to which any of such shares is subject.
(b) The Company has reserved 6,000,000 shares of Company Common
Stock for issuance under its 1997 Stock Option Plan, of which options to
purchase 1,721,602 shares are outstanding as of the date of this Agreement, and
2,016,659 shares of Company Common Stock for issuance upon exercise of Company
Warrants. Part 2.3 of the Disclosure Schedule accurately sets forth, with
respect to each Company Option and Company Warrant that is outstanding as of the
date of this Agreement: (i) the name of the holder of such Company Option or
Company Warrant; (ii) the total number of shares of Company Common Stock that
are subject to such Company Option or Company Warrant and the number of shares
of Company Common Stock with respect to which such Company Option or Company
Warrant is immediately exercisable; (iii) the date on which such Company Option
or Company Warrant was granted and the term of such Company Option or Company
Warrant; (iv) the vesting schedule for such Company Option or Company Warrant;
(v) the exercise price per share of Company Common Stock purchasable under such
Company Option or Company Warrant; and (vi) whether such Company Option has been
designated an "incentive stock option" as defined in Section 422 of the Code.
Except as set forth in Part 2.3 of the Disclosure Schedule, there is no: (i)
outstanding subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital stock or other
securities of the Company; (ii) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; (iii) Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (iv) to the knowledge of the Company
and the Designated Stockholders, condition or circumstance that may give rise to
or provide a basis for the assertion of a claim by any Person to the effect that
such Person is entitled to acquire or receive any shares of capital stock or
other securities of the Company.
(c) All outstanding shares of Company Common Stock and Preferred
Stock, and all outstanding Company Options and Company Warrants, have been
issued and granted in compliance with (i) all applicable securities laws and
other applicable Legal Requirements, and (ii) all requirements set forth in
applicable Contracts.
(d) Except as set forth in Part 2.3 of the Disclosure Schedule, the
Company has never repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities of the Company. All securities so reacquired
by the Company were reacquired in compliance with (i) the applicable provisions
of the Delaware General Corporation Law and all
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other applicable Legal Requirements, and (ii) all requirements set forth in
applicable restricted stock purchase agreements and other applicable Contracts.
2.4 Financial Statements.
(a) The Company has delivered to Parent the unaudited balance sheets
of the Company as of June 30, 2000, 1999 and 1998, and the related unaudited
income statements, statements of stockholders' equity and statements of cash
flows of the Company for the years then ended, together with the notes thereto
(collectively, the "Company Financial Statements").
(b) The Company Financial Statements are accurate and complete in
all material respects and present fairly the financial position of the Company
as of the respective dates thereof and the results of operations (and, in the
case of the financial statements referred to in Section 2.4(a)(i), cash flows)
of the Company for the periods covered thereby. The Company Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except that the
financial statements referred to in Section 2.4(a)(ii) do not contain footnotes
and are subject to normal and recurring year-end audit adjustments, which will
not, individually or in the aggregate, be material in magnitude).
2.5 Absence of Changes. Except as set forth in Part 2.5 of the Disclosure
Schedule, since June 30, 2000:
(a) there has not been any material adverse change in the Company's
business, condition, assets, liabilities, operations, financial performance or
prospects, and, to the knowledge of the Company and the Designated Stockholders,
no event has occurred that will, or could reasonably be expected to, have a
Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the Company's assets (whether
or not covered by insurance);
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, and has not repurchased, redeemed or otherwise reacquired any shares of
capital stock or other securities;
(d) the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security (except for Company Common Stock issued
upon the exercise of outstanding Company Options or Company Warrants), (ii) any
option or right to acquire any capital stock or any other security (except for
Company Options and Company Warrants described in Part 2.3 of the Disclosure
Schedule), or (iii) any instrument convertible into or exchangeable for any
capital stock or other security;
(e) the Company has not amended or waived any of its rights under,
or permitted the acceleration of vesting under, (i) any provision of its 1997
Stock Option Plan, (ii) any provision of any agreement evidencing any
outstanding Company Option, or (iii) any restricted stock purchase agreement;
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(f) there has been no amendment to the Company's certificate of
incorporation or bylaws, and the Company has not effected or been a party to any
Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction;
(g) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(h) the Company has not made any capital expenditure which, when
added to all other capital expenditures made on behalf of the Company since June
30, 2000, exceeds $25,000;
(i) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined in Section 2.10(a)), or (ii) amended
or prematurely terminated, or waived any material right or remedy under, any
such Contract;
(j) except for immaterial rights or other immaterial assets
acquired, leased, licensed or disposed of in the ordinary course of business and
consistent with the Company's past practices, the Company has not (i) acquired,
leased or licensed any right or other asset from any other Person, (ii) sold or
otherwise disposed of, or leased or licensed, any right or other asset to any
other Person, or (iii) waived or relinquished any right;
(k) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(l) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of business
and consistent with the Company's past practices;
(m) the Company has not (i) lent money to any Person (other than
pursuant to routine travel advances made to employees in the ordinary course of
business), or (ii) incurred or guaranteed any indebtedness for borrowed money;
(n) the Company has not (i) established or adopted any Plan (as
defined in Section 2.15), (ii) paid any bonus or made any profit-sharing or
similar payment to, or increased the amount of the wages, salary, commissions,
fringe benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, or (iii) hired any new employee;
(o) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(p) the Company has not made any Tax election;
(q) the Company has not commenced or settled any Legal Proceeding;
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(r) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(s) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(r)" above.
2.6 Title to Assets.
(a) The Company owns, and has good, valid and marketable title to,
all assets purported to be owned by it, including: (i) all assets reflected on
the Unaudited Interim Balance Sheet; (ii) all assets referred to in Parts 2.1,
2.7(b) and 2.9 of the Disclosure Schedule and all of the Company's rights under
the Contracts identified in Part 2.10 of the Disclosure Schedule; and (iii) all
other assets reflected in the Company's books and records as being owned by the
Company. Except as set forth in Part 2.6 of the Disclosure Schedule, all of said
assets are owned by the Company free and clear of any liens or other
Encumbrances, except for (x) any lien for current taxes not yet due and payable,
and (y) minor liens that have arisen in the ordinary course of business and that
do not (in any case or in the aggregate) materially detract from the value of
the assets subject thereto or materially impair the operations of the Company.
(b) Part 2.6 of the Disclosure Schedule identifies all assets that
are material to the business of the Company and that are being leased or
licensed to the Company.
2.7 Bank Accounts; Receivables.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate
information with respect to each account maintained by or for the benefit of the
Company at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company as of June 30, 2000. Except as set forth in
Part 2.7(b) of the Disclosure Schedule, all existing accounts receivable of the
Company (including those accounts receivable reflected on the Unaudited Interim
Balance Sheet that have not yet been collected and those accounts receivable
that have arisen since June 30, 2000 and have not yet been collected) (i)
represent valid obligations of customers of the Company arising from bona fide
transactions entered into in the ordinary course of business, (ii) are current
and will be collected in full when due, without any counterclaim or set off (net
of an allowance for doubtful accounts not to exceed $25,000 in the aggregate).
2.8 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good condition and repair (ordinary wear and tear excepted) and are
adequate for the conduct of the Company's business in the manner in which such
business is currently being conducted.
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(b) The Company does not own any real property or any interest in
real property, except for the leasehold created under the real property lease
identified in Part 2.10 of the Disclosure Schedule.
2.9 Proprietary Assets.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth, with
respect to each Company Proprietary Asset registered with any Governmental Body
or for which an application has been filed with any Governmental Body, (i) a
brief description of such Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Part
2.9(a)(ii) of the Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company. Part
2.9(a)(iii) of the Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to the Company by any Person
(except for any Proprietary Asset that is licensed to the Company under any
third party software license generally available to the public at a cost of less
than $10,000), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. Except as set forth in Part 2.9(a)(iv)
of the Disclosure Schedule, the Company has good and marketable title to all of
the Company Proprietary Assets identified in Parts 2.9(a)(i) and 2.9(a)(ii) of
the Disclosure Schedule, free and clear of all liens and other Encumbrances, and
has a valid right to use all Proprietary Assets identified in Part 2.9(a)(iii)
of the Disclosure Schedule. Except as set forth in Part 2.9(a)(v) of the
Disclosure Schedule, the Company is not obligated to make any payment to any
Person for the use of any Company Proprietary Asset. Except as set forth in Part
2.9(a)(vi) of the Disclosure Schedule, the Company has not developed jointly
with any other Person any Company Proprietary Asset with respect to which such
other Person has any rights.
(b) The Company has taken all measures and precautions necessary to
protect and maintain the confidentiality and secrecy of all Company Proprietary
Assets (except Company Proprietary Assets whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect the value of all
Company Proprietary Assets. Except as set forth in Part 2.9(b) of the Disclosure
Schedule, the Company has not (other than pursuant to license agreements
identified in Part 2.10 of the Disclosure Schedule) disclosed or delivered to
any Person, or permitted the disclosure or delivery to any Person of, (i) the
source code, or any portion or aspect of the source code, of any Company
Proprietary Asset, or (ii) the object code, or any portion or aspect of the
object code, of any Company Proprietary Asset.
(c) None of the Company Proprietary Assets infringes or conflicts
with any Proprietary Asset owned or used by any other Person. The Company is not
infringing, misappropriating or making any unlawful use of, and the Company has
not at any time infringed, misappropriated or made any unlawful use of, or
received any notice or other communication (in writing or otherwise) of any
actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person. To the
best of the knowledge of the Company and the Designated Stockholders, no other
Person is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts with,
any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Disclosure Schedule:
(i) each Company Proprietary Asset conforms in all material respects with any
specification,
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documentation, performance standard, representation or statement made or
provided with respect thereto by or on behalf of the Company; and (ii) there has
not been any claim by any customer or other Person alleging that any Company
Proprietary Asset (including each version thereof that has ever been licensed or
otherwise made available by the Company to any Person) does not conform in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company,
and, to the knowledge of the Company and the Designated Stockholders, there is
no basis for any such claim. The Company has established adequate reserves on
the Unaudited Interim Balance Sheet to cover all costs associated with any
obligations that the Company may have with respect to the correction or repair
of programming errors or other defects in the Company Proprietary Assets.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable the Company to conduct its business in the manner in
which such business has been and is being conducted. Except as set forth in Part
2.9(e) of the Disclosure Schedule, (i) the Company has not licensed any of the
Company Proprietary Assets to any Person on an exclusive basis, and (ii) the
Company has not entered into any covenant not to compete or Contract limiting
its ability to exploit fully any of its Proprietary Assets or to transact
business in any market or geographical area or with any Person.
(f) Except as set forth in Part 2.9(f) of the Disclosure Schedule,
(i) all current and former employees of the Company have executed and delivered
to the Company an agreement (containing no exceptions to or exclusions from the
scope of its coverage) that is substantially identical to the form of
Confidential Information and Invention Assignment Agreement previously delivered
to Parent, and (ii) all current and former consultants and independent
contractors to the Company have executed and delivered to the Company an
agreement (containing no exceptions to or exclusions from the scope of its
coverage) that is substantially identical to the form of Consultant Confidential
Information and Invention Assignment Agreement previously delivered to Parent.
(g) None of the Company's products have experienced fatal errors or
incorrect results as a result of the change from the year 1999 to the year 2000.
2.10 Contracts.
(a) Part 2.10 of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract relating to the acquisition,
transfer, use, development, sharing or license of any technology or any
Proprietary Asset ;
(iii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other
Person or to transact business or deal in any other manner with any other
Person, or (C) develop or distribute any technology;
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(iv) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(v) each Company Contract relating to the acquisition,
issuance or transfer of any securities;
(vi) each Company Contract relating to the creation of any
Encumbrance with respect to any asset of the Company;
(vii) each Company Contract involving or incorporating any
guaranty, any pledge, any performance or completion bond, any indemnity or
any surety arrangement;
(viii) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses,
costs or liabilities;
(ix) each Company Contract relating to the purchase or sale of
any product or other asset by or to, or the performance of any services by
or for, any Related Party (as defined in Section 2.18);
(x) each Company Contract constituting or relating to a
Government Contract or Government Bid;
(xi) any other Company Contract that was entered into outside
the ordinary course of business or was inconsistent with the Company's past
practices;
(xii) any other Company Contract that has a term of more than 60
days and that may not be terminated by the Company (without penalty) within
60 days after the delivery of a termination notice by the Company; and
(xiii) any other Company Contract that is currently in force or
effect and contemplates or involves (A) the current or future payment or
delivery of cash or other consideration in an amount or having a value in
excess of $25,000 in the aggregate, or (B) the current or future
performance of services having a value in excess of $25,000 in the
aggregate.
(Contracts in the respective categories described in clauses "(i)" through
"(xiii)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent accurate and complete copies
of all written Contracts identified in Part 2.10 of the Disclosure Schedule,
including all amendments thereto. Part 2.10 of the Disclosure Schedule provides
an accurate description of the terms of each Company Contract that is not in
written form. Each Contract identified in Part 2.10 of the Disclosure Schedule
is valid and in full force and effect, and, to the knowledge of the Company and
the Designated Stockholders, is enforceable by the Company in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
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(c) Except as set forth in Part 2.10 of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed
any default under, any material provision of any Company Contract, and, to
the knowledge of the Company and the Designated Stockholders, no other
Person has violated or breached, or committed any default under, any
material provision of any Company Contract;
(ii) to the knowledge of the Company and the Designated
Stockholders, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could
reasonably be expected to, (A) result in a violation or breach of any
material provision of any Company Contract, (B) give any Person the right
to declare a default or exercise any remedy under any Company Contract, (C)
give any Person the right to accelerate the maturity or performance of any
Company Contract, or (D) give any Person the right to cancel, terminate or
modify any Company Contract;
(iii) since December 31, 1998, the Company has not received any
notice or other communication regarding any actual or possible violation or
breach of, or default under, any Material Contract; and
(iv) the Company has not waived any of its material rights
under any Material Contract.
(d) No Person is renegotiating, or has a right pursuant to the terms
of any Company Contract to renegotiate, any amount paid or payable to the
Company under any Material Contract or any other material term or provision of
any Material Contract.
(e) The Contracts identified in Part 2.10 of the Disclosure Schedule
collectively constitute all of the Contracts necessary to enable the Company to
conduct its business in the manner in which its business is currently being
conducted.
(f) Part 2.10 of the Disclosure Schedule identifies and provides a
brief description of each proposed Company Contract in an amount or having a
value in excess of $25,000 as to which any bid, offer, award, written proposal,
term sheet or similar document has been submitted or received by the Company
since January 1, 2000, except for any bid, offer, award, written proposal, term
sheet or similar document that has resulted in a Company Contract.
(g) Part 2.10 of the Disclosure Schedule provides an accurate
description and breakdown of the Company's backlog under Company Contracts.
2.11 Liabilities. The Company has no accrued, contingent or other
liabilities of any nature, either matured or unmatured (whether or not required
to be reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (a)
liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (b) accounts payable or accrued salaries that have been
incurred by the Company since June 30, 2000 in the ordinary course of business
and consistent with the Company's past practices; (c) liabilities under the
Company Contracts identified in Part 2.10 of the Disclosure Schedule, to the
extent the nature and magnitude of such liabilities can be
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specifically ascertained by reference to the text of such Company Contracts; and
(d) the liabilities identified in Part 2.11 of the Disclosure Schedule.
2.12 Compliance with Legal Requirements. The Company is, and has at all
times since December 31, 1998 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company. Except
as set forth in Part 2.12 of the Disclosure Schedule, since December 31, 1998,
the Company has not received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted. The
Company is, and at all times since December 31, 1998 has been, in substantial
compliance with the terms and requirements of the respective Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. Since
December 31, 1998, the Company has not received any notice or other
communication from any Governmental Body regarding (a) any actual or possible
violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
Governmental Authorization.
2.14 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body on or before the Closing Date (the "Company
Returns") (i) have been or will be filed on or before the applicable due date
(including any extensions of such due date), and (ii) have been, or will be when
filed, accurately and completely prepared in all material respects in compliance
with all applicable Legal Requirements. All amounts shown on the Company Returns
to be due on or before the Closing Date have been or will be paid on or before
the Closing Date. The Company has delivered to Parent accurate and complete
copies of all Company Returns filed since the incorporation of the Company which
have been requested by Parent.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through the dates
thereof in accordance with generally accepted accounting principles. The Company
will establish, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes for the period from
June 30, 2000 through the Closing Date, and the Company will disclose the dollar
amount of such reserves to Parent on or prior to the Closing Date.
(c) Except as set forth in Part 2.14 of the Disclosure Schedule,
there have been no examinations or audits of any Company Return. The Company has
delivered to Parent accurate and complete copies of all audit reports and
similar documents (to which the Company
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has access) relating to the Company Returns. Except as set forth in Part 2.14 of
the Disclosure Schedule, no extension or waiver of the limitation period
applicable to any of the Company Returns has been granted (by the Company or any
other Person), and no such extension or waiver has been requested from the
Company.
(d) Except as set forth in Part 2.14 of the Disclosure Schedule, no
claim or proceeding is pending or has been threatened against or with respect to
the Company in respect of any Tax. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company with respect to any Tax (other than
liabilities for Taxes asserted under any such notice of deficiency or similar
document which are being contested in good faith by the Company and with respect
to which adequate reserves for payment have been established). There are no
liens for Taxes upon any of the assets of the Company except liens for current
Taxes not yet due and payable. The Company has not entered into or become bound
by any agreement or consent pursuant to Section 341(f) of the Code. The Company
has not been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the Closing. The Company has not made any distribution of stock of a
"controlled corporation" as defined by Section 355(a)(1) of the Code.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G of the Code. The Company
is not, and has never been, a party to or bound by any tax indemnity agreement,
tax sharing agreement, tax allocation agreement or similar Contract.
2.15 Employee and Labor Matters; Benefit Plans.
(a) Part 2.15(a) of the Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $25,000 in the aggregate.
(b) Except as set forth in Part 2.15(a) of the Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the best of the
knowledge of the Company and the Designated Stockholders, has not at any time in
the past maintained, sponsored or contributed to, any employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), whether or not excluded from coverage under
specific Titles or Merger Subtitles of ERISA) for the benefit of Employees or
former Employees (a "Pension Plan").
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(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans (as defined in Section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of Employees or former Employees which are described in Part
2.15(c) of the Disclosure Schedule (the "Welfare Plans"), none of which is a
multiemployer plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, the Company has delivered to Parent:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if
required under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary
plan description, together with each Summary of Material Modifications, if
required under ERISA, with respect to such Plan, and all material employee
communications relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and
complete copies of the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with
respect to such Plan (if such Plan is intended to be qualified under
Section 401(a) of the Code).
(e) The Company is not required to be, and, to the knowledge of the
Company and the Designated Stockholders, has never been required to be, treated
as a single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. The Company has never been a member
of an "affiliated service group" within the meaning of Section 414(m) of the
Code. To the knowledge of the Company and the Designated Stockholders, the
Company has never made a complete or partial withdrawal from a multiemployer
plan, as such term is defined in Section 3(37) of ERISA, resulting in
"withdrawal liability," as such term is defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any
additional Welfare Plan or any Pension Plan, or to modify or change any existing
Welfare Plan or Pension Plan (other than to comply with applicable law) in a
manner that would affect any Employee except as agreed hereunder.
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(g) Except as set forth in Part 2.15(g) of the Disclosure Schedule,
no Welfare Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law, including coverage provided pursuant to Section 4980B of the
Code or Part 6 of Title I of ERISA, (ii) deferred compensation benefits accrued
as liabilities on the Unaudited Interim Balance Sheet, and (iii) benefits the
full cost of which are borne by current or former Employees (or the Employees'
beneficiaries)) .
(h) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
applicable provisions of Section 4980B of the Code ("COBRA") have been complied
with in all material respects.
(i) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
but not limited to ERISA and the Code.
(j) Each of the Plans intended to be qualified under Section 401(a)
of the Code either (A) has received a favorable determination from the Internal
Revenue Service, or (B) may rely on an opinion letter issued to a prototype plan
sponsor with respect to a standardized plan adopted by the Company in accordance
with the requirements for such reliance, and neither the Company nor any of the
Designated Stockholders is aware of any reason why any such determination letter
should be revoked.
(k) Except as set forth in Part 2.15(k) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits (except as required under Section 411(d)(3) of the Code).
(l) Part 2.15(l) of the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
(m) Part 2.15(m) of the Disclosure Schedule identifies each Employee
who is not fully available to perform work because of disability or other leave
and sets forth the basis of such leave and the anticipated date of return to
full service.
(n) The Company is in compliance in all material respects with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters.
(o) Except as set forth in Part 2.15(o) of the Disclosure Schedule,
the Company has good labor relations, and none of the Designated Stockholders
has any reason to
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believe that any of the Company's employees intends to terminate his or her
employment with the Company.
2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the knowledge of the Company and
Designated Stockholders, there are no circumstances that may prevent or
interfere with the Company's compliance with any Environmental Law in the
future. To the knowledge of the Company and the Designated Stockholders, no
current or prior owner of any property leased or controlled by the Company has
received any notice or other communication (in writing or otherwise), whether
from a Government Body, citizens group, employee or otherwise, that alleges that
such current or prior owner or the Company is not in compliance with any
Environmental Law. All Governmental Authorizations currently held by the Company
pursuant to Environmental Laws are identified in Part 2.16 of the Disclosure
Schedule. (For purposes of this Section 2.16: (i) "Environmental Law" means any
federal, state, local or foreign Legal Requirement relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern; and (ii) "Materials of
Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance that
is now regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.)
2.17 Insurance. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company and identifies any material claims made thereunder, and the Company has
delivered to Parent accurate and complete copies of the insurance policies
identified on Part 2.17 of the Disclosure Schedule. Each of the insurance
policies identified in Part 2.17 of the Disclosure Schedule is in full force and
effect. Since December 31, 1998, the Company has not received any notice or
other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy.
2.18 Related Party Transactions. Except as set forth in Part 2.18 of the
Disclosure Schedule: (a) no Related Party has, and no Related Party has at any
time since December 31, 1998 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of the Company; (b)
no Related Party is, or has at any time since December 31, 1998 been, indebted
to the Company; (c) since December 31, 1998, no Related Party has entered into,
or has had any direct or indirect financial interest in, any material Contract,
transaction or business dealing involving the Company; (d) no Related Party is
competing, or has at any time since December 31, 1998 competed, directly or
indirectly, with the Company; and (e) no Related Party has any claim or right
against the Company (other than rights under Company Options and
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rights to receive compensation for services performed as an employee of the
Company). (For purposes of this Section 2.18 each of the following shall be
deemed to be a "Related Party": (i) each of the Designated Stockholders; (ii)
each individual who is, or who has at any time since December 31, 1998 been, an
officer of the Company; (iii) each member of the immediate family of each of the
individuals referred to in clauses "(i)" and "(ii)" above; and (iv) any trust or
other Entity (other than the Company) in which any one of the individuals
referred to in clauses "(i)", "(ii)" and "(iii)" above holds (or in which more
than one of such individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.)
2.19 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.19 of the Disclosure Schedule,
there is no pending Legal Proceeding, and (to the best of the knowledge of the
Company and the Designated Stockholders) no Person has threatened to commence
any Legal Proceeding: (i) that involves the Company or any of the assets owned
or used by the Company or any Person whose liability the Company has or may have
retained or assumed, either contractually or by operation of law; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the best of the knowledge of the Company and
the Designated Stockholders, except as set forth in Part 2.19 of the Disclosure
Schedule, no event has occurred, and no claim, dispute or other condition or
circumstance exists, that will, or that could reasonably be expected to, give
rise to or serve as a basis for the commencement of any such Legal Proceeding.
(b) Except as set forth in Part 2.19 of the Disclosure Schedule, no
Legal Proceeding has ever been commenced by or has ever been pending against the
Company.
(C) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. None of the Designated Stockholders is subject to any order, writ,
injunction, judgment or decree that relates to the Company's business or to any
of the assets owned or used by the Company. To the knowledge of the Company and
the Designated Stockholders, no officer or other employee of the Company is
subject to any order, writ, injunction, judgment or decree that prohibits such
officer or other employee from engaging in or continuing any conduct, activity
or practice relating to the Company's business.
2.20 Authority; Binding Nature of Agreement. The Company has the
absolute and unrestricted right, power and authority to enter into and to
perform its obligations under this Agreement; and the execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
necessary action on the part of the Company and its board of directors. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of
the Disclosure Schedule, neither (1) the execution, delivery or performance of
this Agreement or any of the other agreements referred to in this Agreement, nor
(2) the consummation of the Merger or any
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of the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the Company's certificate of incorporation or bylaws or
(ii) any resolution adopted by the Company's stockholders, the Company's board
of directors or any committee of the Company's board of directors;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or obtain
any relief under, any Legal Requirement or any order, writ, injunction, judgment
or decree to which the Company, or any of the assets owned or used by the
Company, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by the Company or that otherwise relates to the Company's business
or to any of the assets owned or used by the Company;
(d) contravene, conflict with or result in a violation or breach
of, or result in a default under, any provision of any Company Contract that is
or would constitute a Material Contract, or give any Person the right to (i)
declare a default or exercise any remedy under any such Company Contract, (ii)
accelerate the maturity or performance of any such Company Contract, or (iii)
cancel, terminate or modify any such Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company).
Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be required to make any filing with or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.22 Notice Period. The holders of Preferred Stock have duly acted to
shorten each notice period referenced in Section 2(c)(iii) of Article IV of the
Company's Certificate of Incorporation to five days.
2.23 Financial Advisor. Except as set forth in Part 2.23 of the
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger or
any of the other transactions contemplated by this Agreement based on
arrangements made by or on behalf of the Company. The total of all fees,
commissions and other amounts that have been paid by the Company to those
Persons set forth in Part 2.23 of the Disclosure Schedule and all fees,
commissions and other amounts that may become payable to those Persons set forth
in Part 2.23 of the Disclosure Schedule by the Company if the Merger is
consummated will not exceed the amount set forth in Part 2.23 of the
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Disclosure Schedule. The Company has furnished to Parent accurate and complete
copies of all agreements under which any such fees, commissions or other amounts
have been paid or may become payable and all indemnification and other
agreements related to the engagement of each of the Persons set forth in Part
2.23 of the Disclosure Schedule.
2.24 Full Disclosure.
(a) This Agreement (including the Disclosure Schedule) does not,
and the Designated Stockholders' Closing Certificate will not, (i) contain any
representation, warranty or information that is false or misleading with respect
to any material fact, or (ii) omit to state any material fact or information
necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
(b) The information supplied by the Company for inclusion in the
Information Statement (as defined in Section 5.2) will not, as of the date of
the Information Statement or as of the date on which the Information Statement
is mailed to Company Stockholders in connection with the Company's solicitation
of the approval of Company Stockholders of this Agreement and the Merger, (i)
contain any statement that is inaccurate or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in order to
make such information (in the light of the circumstances under which it is
provided) not false or misleading.
SECTION 3. Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub jointly and severally represent and warrant to
the Company and the Designated Stockholders as follows:
3.1 SEC Filings; Financial Statements.
(a) Parent has delivered to the Company accurate and complete
copies of each report, registration statement (on a form other than Form S-8)
and definitive proxy statement filed by Parent with the SEC between August 17,
1998 and the date of this Agreement (the "Parent SEC Documents"). Parent has
made all necessary filings with the SEC as required under the Exchange Act. As
of the time it was filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing): (i) each
of the Parent SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act (as the case
may be); and (ii) none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of the
date of this Agreement, none of the Company's Form 10-K for the year ended
December 31, 1999, as amended on April 28, 2000, Form 10-Q for the quarter ended
March 31, 2000 or Form 8-K filed on July 18, 2000 contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
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(b) The consolidated financial statements contained in the Parent
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered, except as may be indicated in
the notes to such financial statements and (in the case of unaudited statements)
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments; and (iii) fairly present the consolidated financial position of
Parent and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Parent and its subsidiaries for the
periods covered thereby.
3.2 Authority; Binding Nature of Agreement. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to perform their
obligations under this Agreement; and the execution, delivery and performance by
Parent and Merger Sub of this Agreement (including the contemplated issuance of
Parent Common Stock in the Merger in accordance with this Agreement) have been
duly authorized by all necessary action on the part of Parent and Merger Sub and
their respective boards of directors. No vote of Parent's stockholders is needed
to approve the Merger. This Agreement constitutes the legal, valid and binding
obligation of Parent and Merger Sub, enforceable against them in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
3.3 Valid Issuance. Subject to Section 1.5(c), the Parent Common Stock
to be issued in the Merger will, when issued in accordance with the provisions
of this Agreement, be validly issued, fully paid and nonassessable.
3.4 Due Organization. Each of the Parent and the Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of the Parent and the Merger Sub has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its businesses as now conducted.
3.5 No Knowledge of Claims for Indemnification. Neither Parent nor the
Merger Sub is aware of any information, situation or circumstance that is
reasonably likely to give rise to a claim for indemnification under the
provisions of Section 9 of this Agreement.
SECTION 4. Certain Covenants of the Company and the Designated Stockholders
4.1 Access and Investigation. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), the Company
shall, and shall cause its Representatives to: (a) provide Parent and Parent's
Representatives with reasonable access to the Company's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to the Company; and (b)
provide Parent and Parent's Representatives with copies of such existing books,
records, Tax Returns, work papers and other documents and information relating
to the Company, and with such additional financial, operating and other data and
information regarding the Company, as Parent may reasonably request.
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4.2 Operation of the Company's Business. During the Pre-Closing Period:
(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and maintain its relations and goodwill with all
suppliers, customers, landlords, creditors, employees and other Persons having
business relationships with the Company;
(c) the Company shall keep in full force all insurance policies
identified in Part 2.17 of the Disclosure Schedule;
(d) the Company shall cause its officers to report regularly (but in
no event less frequently than weekly) to Parent concerning the status of the
Company's business;
(e) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and shall not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities (except that the Company may repurchase
Company Common Stock from former employees and consultants pursuant to the terms
of existing restricted stock purchase agreements);
(f) the Company shall not sell, issue or authorize the issuance of
(i) any capital stock or other security, (ii) any option or right to acquire any
capital stock or other security, or (iii) any instrument convertible into or
exchangeable for any capital stock or other security (except that the Company
shall be permitted (x) to grant stock options to employees in accordance with
its past practices, (y) to issue Company Common Stock upon the exercise of
outstanding Company Options or Company Warrants, and (z) to issue shares of
Company Common Stock upon the conversion of shares of Preferred Stock);
(g) the Company shall not amend or waive any of its rights under, or
permit the acceleration of vesting under, (i) any provision of its 1997 Stock
Option Plan, (ii) any provision of any agreement evidencing any outstanding
Company Option or Company Warrant, or (iii) any provision of any restricted
stock purchase agreement;
(h) neither the Company nor any of the Designated Stockholders shall
amend or permit the adoption of any amendment to the Company's certificate of
incorporation or bylaws, or effect or permit the Company to become a party to
any Acquisition Transaction, recapitalization, reclassification of shares, stock
split, reverse stock split or similar transaction (except that the Company may
issue shares of Company Common Stock upon the conversion of shares of Preferred
Stock);
(i) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(j) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures made on
behalf of the Company during the Pre-Closing Period, do not exceed $25,000 per
month;
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(k) the Company shall not (i) enter into, or permit any of the assets
owned or used by it to become bound by, any Contract that is or would constitute
a Material Contract, or (ii) amend or prematurely terminate, or waive any
material right or remedy under, any such Material Contract;
(l) except for assets acquired, leased, licensed or disposed of by
the Company pursuant to Contracts that are not Material Contracts, the Company
shall not (i) acquire, lease or license any right or other asset from any other
Person, (ii) sell or otherwise dispose of, or lease or license, any right or
other asset to any other Person or (iii) waive or relinquish any right;
(m) the Company shall not (i) lend money to any Person (except that
the Company may make routine travel advances to employees in the ordinary course
of business), or (ii) incur or guarantee any indebtedness for borrowed money.
(n) the Company shall not (i) establish, adopt or amend any Plan
(except that the Company will adopt the employee retention program referred to
in Section 5.11), (ii) pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, or (iii) hire any new
employee;
(o) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(p) the Company shall not make any Tax election, except as required
pursuant to any Legal Requirement;
(q) the Company shall not commence or settle any material Legal
Proceeding;
(r) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(q)" above.
Notwithstanding the foregoing, the Company may take any action described in
clauses "(e)" through "(q)" above if Parent gives its prior written consent to
the taking of such action by the Company, which consent will not be unreasonably
withheld (it being understood that Parent's withholding of consent to any action
will not be deemed unreasonable if Parent determines in good faith that the
taking of such action would not be in the best interests of Parent or would not
be in the best interests of the Company).
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of:
(i) the discovery by the Company of any event, condition, fact
or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company or any of the Designated
Stockholders in this Agreement;
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(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty
made by the Company or any of the Designated Stockholders in this Agreement
if (A) such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (B) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of the Company or
any of the Designated Stockholders; and
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent an update to the
Disclosure Schedule specifying such change. No such update shall be deemed to
supplement or amend the Disclosure Schedule for the purpose of determining
whether any of the conditions set forth in Section 6 has been satisfied.
4.4 No Negotiation. Until the date on which Parent advises the Company in
writing that Parent is terminating all negotiations regarding this transaction,
neither the Company nor any of the Designated Stockholders shall, directly or
indirectly:
(a) Enter into any agreement, understanding or arrangement relating
to any Acquisition Proposal;
(b) Consider or engage in any discussions or negotiations relating to
any Acquisition Proposal;
(c) Provide any information regarding the Company or its business or
operations to any party (other than to representatives of Parent) which is in
relation to any Acquisition Proposal;
(d) Solicit or encourage the submission of any Acquisition Proposal;
or
(e) Permit any representative or affiliate of the Company or of any
of the Company's Stockholders to do any of the foregoing.
The Company and the Designated Stockholders shall promptly (and in no event
later than 24 hours after receipt by the Company or any Designated Stockholders
of any Acquisition Proposal, any inquiry or indication of interest that could
lead to an Acquisition Proposal or any request for nonpublic information) advise
Parent orally and in writing of any Acquisition Proposal, any inquiry or
indication of interest that could lead to an Acquisition Proposal or any request
for nonpublic information relating to the Company (including the identity of the
Person making or
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submitting such Acquisition Proposal, inquiry, indication of interest or
request, and the terms thereof) that is made or submitted by any Person prior to
receiving written notice from Parent that Parent is terminating all negotiations
regarding this transaction. The Company and the Designated Stockholders shall
keep Parent fully informed with respect to the status of any such Acquisition
Proposal, inquiry, indication of interest or request and any modification or
proposed modification thereto.
SECTION 5. Additional Covenants of the Parties
5.1 Filings and Consents. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use all commercially reasonable efforts to obtain all
Consents (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement. The Company
shall (upon request) promptly deliver to Parent a copy of each such filing made,
each such notice given and each such Consent obtained by the Company during the
Pre-Closing Period.
5.2 Information Statement; Company Stockholder Approval.
(a) Promptly after the execution of this Agreement, the Company
and Parent shall prepare an information statement that complies with Rule 502 of
the Securities Act (the "Information Statement"). The Information Statement
shall include the recommendation of the board of directors of the Company in
favor of the Merger.
(b) As promptly as practicable upon completion of the Information
Statement, the Company shall, in accordance with its certificate of
incorporation and bylaws and the applicable requirements of the Delaware General
Corporation Law, solicit the approval of its stockholders for the purpose of
permitting them to consider and to vote upon and approve the Merger and this
Agreement. The Company shall cause a copy of the Information Statement to be
delivered to each stockholder of the Company who is entitled to vote upon the
Merger and this Agreement. Without limiting the generality or the effect of
anything contained in the Stockholder Agreements being executed and delivered by
the Designated Stockholders to Parent contemporaneously with the execution and
delivery of this Agreement, each Designated Stockholder shall cause all shares
of the capital stock of the Company that are owned, beneficially or of record,
by such Designated Stockholder on the record date for such vote by the Company's
Stockholders to be voted in favor of the Merger and this Agreement.
5.3 Registration of Shares. Parent will, as promptly as practicable
following the Closing, but in no event later than ten (10) days following the
Closing, prepare and file with the SEC a registration statement on Form S-3
under the Securities Act with respect to the registration of the shares of
Common Stock issuable to the Company Stockholders in connection with the
transactions contemplated by this Agreement (the "Registration Statement").
Parent will, and will cause its accountants and lawyers to, cause the
Registration Statement to be declared effective as promptly as practicable after
filing with the SEC, and the Registration Statement shall be kept effective
continuously for a period of one year following the Closing
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Date. None of the information supplied or to be supplied by Parent for inclusion
or incorporation by reference in the Registration Statement will, at the time
the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If at any time prior to
the date on which the Registration Statement is declared effective by the SEC
any event in respect of Parent, its officers and directors, or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the Registration Statement, any such amendment or supplement
to the Registration Statement shall be promptly filed with the SEC. The
Registration Statement will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder.
5.4 Public Announcements. During the Pre-Closing Period, (a) neither the
Company nor any of the Designated Stockholders shall (and the Company shall not
permit any of its Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding any of the other
transactions contemplated by this Agreement, without Parent's prior written
consent, and (b) Parent will use reasonable efforts to consult with the Company
prior to issuing any press release or making any public statement regarding the
Merger. Immediately after this Agreement is signed, Parent will make a public
announcement regarding this Agreement and the Merger contemplated hereunder.
5.5 Best Efforts. During the Pre-Closing Period, (a) the Company and the
Designated Stockholders shall use their best efforts to cause the conditions set
forth in Section 6 to be satisfied on a timely basis, and (b) Parent and Merger
Sub shall use their best efforts to cause the conditions set forth in Section 7
to be satisfied on a timely basis.
5.6 Tax Matters. Prior to the Closing, Parent and the Company shall
execute and deliver to Cooley Godward LLP and to Venture Law Group, a
Professional Corporation, tax representation letters in substantially the form
of Exhibit L (which will be used in connection with the legal opinions
contemplated by Sections 6.12 and 7.3). Neither Parent, Merger Sub nor Company
has taken or will take any action, or will fail to take any action, either
before or after the Closing of the Merger, which could reasonably be expected to
cause the Merger to fail to qualify as a reorganization under Section 368(a) of
the Code. Parent shall report, and shall cause the Surviving Company to report,
the Merger for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
5.7 Employment and Noncompetition Agreements. At or prior to the Closing,
each of the Designated Stockholders identified on Exhibit F shall execute and
deliver to the Company and Parent an Employment Agreement in the form of Exhibit
H and a Noncompetition Agreement in the form of Exhibit I. The Company shall use
all commercially reasonable efforts to cause each of the other individuals
identified on Exhibit G to execute and deliver to the Company and Parent, at the
Closing, an Employment Agreement in the form of Exhibit H and a Noncompetition
Agreement in the form of Exhibit I.
5.8 Termination of Agreements. Prior to the Closing, the Company shall
enter into an agreement with the required majority of the holders of Company
Common Stock and Preferred Stock, reasonably satisfactory in form and content to
Parent (and conditioned and effective on the Closing), terminating all of the
rights of the holders of Company Common Stock
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and Preferred Stock under (i) the Right of First Refusal and Co-Sale Agreement
dated as of December 9, 1998 between the Company and certain Company
Stockholders, and (ii) the Amended and Restated Investors' Rights Agreement
dated as of December 9, 1998 between the Company and certain Company
Stockholders.
5.9 FIRPTA Matters. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by counsel to
Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897 - 2(h)(2)
of the United States Treasury Regulations.
5.10 Release. At the Closing, each of the Designated Stockholders shall
execute and deliver to the Company a Release in the form of Exhibit J.
5.11 Termination of Employee Plans. Following the Effective Time, Terayon
shall arrange for each employee of the Company or any Company subsidiary to
participate in any counterpart Terayon Plan (which shall mean all plans,
programs and arrangements that are maintained by Terayon or its subsidiaries at
the Effective Time) in accordance with eligibility criteria thereof, provided
that (i) such participants shall receive full credit for years of service with
the Company or any Company subsidiary (and service otherwise credited by the
Company or any Company subsidiary) prior to the Effective Time for all purposes
for which such service was recognized under Company Plans including, but not
limited to, eligibility to participate, vesting (except with respect to stock
options), and, to the extent not duplicative of benefits received under such
Company Plan, the amount of benefits, (ii) such participants and their
dependents (to the extent that the terms and conditions of each such Terayon
Plan provide for coverage and/or benefits of eligible employees' dependents)
shall participate in Terayon's Plans on terms no less favorable than those
offered by Terayon to employees of Terayon, and (iii) Terayon, to the extent
permitted by the relevant insurance carrier, shall cause any and all pre-
existing condition limitations, eligibility waiting periods and evidence of
insurability requirements under any group plans to be waived with respect to
such participants and their eligible dependents and shall provide each such
participant with credit for any co-payments and deductibles paid prior to the
Effective Time for purposes of satisfying any applicable deductible, out-of-
pocket, or similar requirements under all Terayon Plans in which such
participants are eligible to participate after the Effective Time.
Notwithstanding any of the foregoing to the contrary, none of the provisions
contained herein shall operate to duplicate any benefit provided to any employee
of the Company or the funding of any such benefit. The Company shall terminate
its 401(k) Plan immediately prior to and contingent on the Closing, in
accordance with the terms and provisions of such Plan. The Company shall
terminate all of its other employee benefit plans effective as of the Closing or
as soon as practicable thereafter, provided that no welfare plan shall be
terminated if, but for such termination, any former employee of the Company
would have continuation coverage rights under COBRA, unless and until the
expiration of such rights or such date as a Terayon Plan provides such COBRA
continuation coverage for such former employees of the Company.
5.12 Filing of Form S-8. As soon as practicable following the Effective
Time, Parent shall file a registration statement on Form S-8 (or any successor
or other appropriate form) with respect to the shares of Parent Common Stock
subject to Company Options assumed by Parent and shall use its reasonable
efforts to maintain the effectiveness of such registration statement
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(and maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Company Options remain outstanding. The parties
specifically contemplate that such Form S-8 may be either a new Form S-8 or an
amendment to an existing Form S-8, in Parent's sole discretion.
SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
6.1 Accuracy of Representations. Except as disclosed in the Disclosure
Schedule dated as of the date of this Agreement, each of the representations and
warranties made by the Company and the Designated Stockholders in this Agreement
and in each of the other agreements and instruments delivered to Parent in
connection with the transactions contemplated by this Agreement (i) shall have
been accurate 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) as
of the date of this Agreement, and (ii) shall be accurate 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) as of the Closing Date as if made
at the Closing Date, except (A) for changes contemplated by this Agreement, and
(B) for those representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct as of
such particular date).
6.2 Performance of Covenants. All of the covenants and obligations that
the Company and the Designated Stockholders are required to comply with or to
perform at or prior to the Closing shall have been complied with and performed
in all respects.
6.3 Stockholder Approval. The principal terms of the Merger shall have
been duly approved by the affirmative vote of at least (a) 90% of the shares of
Company Common Stock entitled to vote with respect thereto, and (b) 90% of the
shares of Preferred Stock entitled to vote with respect thereto.
6.4 Consents. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified in Part 2.21 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
6.5 Agreements and Documents. Parent and the Merger Sub shall have
received the following agreements and documents, each of which shall be in full
force and effect:
(a) Employment Agreements in the form of Exhibit H, executed by the
individuals identified on Exhibit F;
(b) Noncompetition Agreements in the form of Exhibit I, executed by
the individuals identified on Exhibit F;
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(c) a Release in the form of Exhibit J, executed by the Designated
Stockholders;
(d) the agreement referred to in Section 5.8, executed by certain
Company stockholders;
(e) Retention Agreements in the form of Exhibit N, executed by each
employee of the Company who holds either capital stock of the Company or a
Company Option;
(f) an Indemnification Escrow Agreement in the form of Exhibit E
executed by the Designated Stockholders and the Company Stockholders' Agent (as
defined in Section 10.1)
(g) confidential invention and assignment agreements, reasonably
satisfactory in form and content to Parent, executed by all employees and former
employees of the Company and by all consultants and independent contractors and
former consultants and former independent contractors to the Company who have
not already signed such agreements (including the individuals identified in Part
2.9(f) of the Disclosure Schedule);
(h) the statement referred to in Section 5.9(a), executed by the
Company;
(i) a legal opinion of Venture Law Group, A Professional Corporation,
dated as of the Closing Date, in the form of Exhibit K;
(j) a certificate executed by the Company's Chief Executive Officer
and Chief Financial Officer certifying that each of the representations and
warranties set forth in Section 2 is accurate in all respects as of the Closing
Date as if made on the Closing Date and that the conditions set forth in
Sections 6.1, 6.2, 6.3 and 6.4 have been duly satisfied (the "Company Closing
Certificate");
(k) a certificate executed by the Designated Stockholders and
containing the representation and warranty of each Designated Stockholder that
each of the representations and warranties set forth in Section 2 is accurate in
all respects as of the Closing Date as if made on the Closing Date and that the
conditions set forth in Sections 6.1, 6.2, 6.3 and 6.4 have been duly satisfied
(the "Designated Stockholders' Closing Certificate"); and
(l) written resignations of all directors of the Company, effective
as of the Effective Time.
6.6 FIRPTA Compliance. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 5.9(b).
6.7 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
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6.8 No Legal Proceedings. No Person shall have commenced or threatened to
commence any Legal Proceeding challenging or seeking the recovery of a material
amount of damages in connection with the Merger or seeking to prohibit or limit
the exercise by Parent of any material right pertaining to its ownership of
stock of the Surviving Corporation.
6.9 Employees. None of the individuals identified on Exhibit F and no
more than two of the individuals identified on Exhibit G shall have ceased to be
employed by, or expressed an intention to terminate their employment with, the
Company.
6.10 Termination of Employee Plans. The Company shall have provided Parent
with evidence, reasonably satisfactory to Parent, as to the termination of the
benefit plans referred to in Section 5.11.
6.11 Stockholder Approval of Parachute Payments. The Company shall have
obtained stockholder approval satisfying the requirements of Code Section
280G(b)(5) and the Proposed Regulations thereunder for any payments that would
otherwise be "parachute payments" (as defined in Section 280G of the Code)
related to the transactions contemplated by or related to this Agreement, such
that all of any such payments will not fail to be deductible by the Company or
its successor as a result of Section 280G of the Code.
6.12 Tax Opinion. Parent shall have received a legal opinion of Cooley
Godward LLP dated as of the Closing Date, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code (it
being understood that, in rendering such opinion, such counsel may rely upon the
tax representation letters referred to in Section 5.6).
6.13 Financial Statements. The Parent shall have received the financial
statements of the Company audited by a big five accounting firm and prepared in
conformity with GAAP and the published rules and regulations of the SEC for the
purposes of filing of a current report on Form 8-K promulgated under the
Exchange Act.
SECTION 7. Conditions Precedent to Obligations of the Company
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
7.1 Accuracy of Representations. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement shall have been
accurate in all material respects as of the date of this Agreement (without
giving effect to any materiality or similar qualifications contained in such
representations and warranties), and shall be accurate in all material respects
as of the Closing Date as if made at the Closing Date (without giving effect to
any materiality or similar qualifications contained in such representations and
warranties).
7.2 Performance of Covenants. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all respects.
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7.3 Tax Opinion. The Company shall have received a legal opinion of
Venture Law Group, A Professional Corporation, dated as of the Closing Date, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Code (it being understood that, in rendering such opinion,
such counsel may rely upon the tax representation letters referred to in Section
5.7).
7.4 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.5 Agreements and Documents. The Company shall have received the
following agreements and documents, each of which shall be in full force and
effect (except for item (e), which shall be executed and delivered by the
Parent, but need not be countersigned by the other parties thereto):
(a) a letter executed by Boston Equiserve, as Transfer Agent,
Registrar and Exchange Agent (the "Transfer Agent") of the Parent Common Stock,
stating that it has received irrevocable instructions from Parent to issue the
Parent Common Stock in the names of the Company Stockholders, and that it will
forward validly executed share certificates covering the Parent Common Stock in
the names of each of the Company Stockholders;
(b) an Indemnification Escrow Agreement;
(c) a certificate executed by an officer of Parent (but without
personal liability thereto) certifying that each of the representations and
warranties set forth in Section 3 is accurate in all material respects as of the
Closing Date as if made on the Closing Date and that the conditions set forth in
Sections 7.1, 7.2 and 7.5 have been duly satisfied (the "Parent Closing
Certificate");
(d) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, in the form of Exhibit M; and
(e) Employment Agreements.
7.6 No Legal Proceedings. No Person shall have commenced any Legal
Proceeding challenging or seeking the recovery of a material amount of damages
in connection with the transactions contemplated by this Agreement.
SECTION 8. Termination
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Parent if Parent reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become impossible
(other than as a result of any failure on the part of Parent or Merger Sub to
comply with or perform any covenant or obligation of Parent or Merger Sub set
forth in this Agreement);
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(b) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Section 7 has become
impossible (other than as a result of any failure on the part of the Company or
any of the Designated Stockholders to comply with or perform any covenant or
obligation set forth in this Agreement or in any other agreement or instrument
delivered to Parent);
(c) by Parent if a Company Material Adverse Effect has occurred;
(d) by Company if a Parent Material Adverse Effect has occurred;
(e) by Parent if the Closing has not taken place on or before
September 30, 2000 (other than as a result of any failure on the part of Parent
or Merger Sub to comply with or perform any covenant or obligation of Parent or
Merger Sub set forth in this Agreement);
(f) by the Company if the Closing has not taken place on or before
September 30, 2000 (other than as a result of the failure on the part of the
Company or any of the Designated Stockholders to comply with or perform any
covenant or obligation set forth in this Agreement or in any other agreement or
instrument delivered to Parent); or
(g) by the mutual consent of Parent and the Company and a majority in
interest of the Designated Stockholders.
8.2 Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a), Section 8.1(c) or Section 8.1(e), Parent shall
deliver to the Company a written notice stating that Parent is terminating this
Agreement and setting forth a brief description of the basis on which Parent is
terminating this Agreement. If the Company wishes to terminate this Agreement
pursuant to Section 8.1(b), Section 8.1(d) or Section 8.1(f), the Company shall
deliver to Parent a written notice stating that the Company is terminating this
Agreement and setting forth a brief description of the basis on which the
Company is terminating this Agreement.
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) neither the Company nor Parent shall be
relieved of any obligation or liability arising from any prior breach by such
party of any provision of this Agreement; (b) the parties shall, in all events,
remain bound by and continue to be subject to the provisions set forth in this
Section 8.3, Section 8.4 and Section 10; and (c) the Company shall, in all
events, remain bound by and continue to be subject to Section 5.4.
8.4 Termination Fee. The Company shall pay to Parent in cash an amount
equal to five percent (5%) of the Aggregate Merger Amount if either: (a) all
conditions to Closing set forth in Section 7 have been satisfied, but the
Company terminates the agreement or fails to Close the Merger, or (b) if the
Company or any of its Stockholders breaches Section 4.4, and, within twelve (12)
months after such breach, (i) the Company signs a letter of intent or other
agreement relating to the acquisition of a material portion of the capital stock
or assets of the Company, in whole or in part, whether directly or indirectly,
through purchase, merger, consolidation or otherwise, and such transaction is
ultimately consummated, or (ii) the Company otherwise consummates a transaction
that meets the definition of Acquisition Proposal as set
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forth in clauses (a), (b) or (c) of such definition, then. If all conditions to
Closing set forth in Section 6 have been satisfied, but Parent terminates the
agreement or fails to Close the Merger, Parent shall pay to the Company in cash
an amount equal to three percent (3%) of the Aggregate Merger Amount.
SECTION 9. Indemnification, Etc.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company and the
Designated Stockholders (including the representations and warranties set forth
in Section 2 and the representations and warranties set forth in the Company's
Closing Certificate and the Designated Stockholders' Closing Certificate) shall
survive the Closing and shall expire at 5:00 p.m. Pacific time on the date that
is 15 months after the Closing Date (the "Expiration Time"), except the
Identified Representations (as defined below) as to the Designated Stockholders
shall survive the Closing and shall expire at 5:00 p.m. Pacific time on the date
that is two years after the Closing Date (the "Designated Stockholders'
Expiration Time"); provided, however, that if, at any time prior to the
Expiration Time or the Designated Stockholders' Expiration Time, as the case may
be, any Indemnitee (acting in good faith) delivers to the Company Stockholders'
Agent a Claim Notice (as defined in the Indemnification Escrow Agreement)
pursuant to the terms of the Indemnification Escrow Agreement, then the claim
asserted in such Claim Notice shall survive beyond the Expiration Time or the
Designated Stockholders' Expiration Time, as the case may be, until such time as
such claim is fully and finally resolved. All representations and warranties
made by Parent and Merger Sub shall survive the Closing.
(b) The representations, warranties, covenants and obligations of the
Company and the Designated Stockholders, and the rights and remedies that may be
exercised by the Indemnitees, shall not be limited or otherwise affected by or
as a result of any information furnished to, or any investigation made by or
knowledge of, any of the Indemnitees or any of their Representatives.
(c) The representations, warranties, covenants and obligations of
Parent and Merger Sub, and the rights and remedies that may be exercised by the
Company and the Designated Stockholders, shall not be limited or otherwise
affected by or as a result of any information furnished to, or any investigation
made by or knowledge of, the Company, any of the Designated Stockholders or any
of their Representatives.
(d) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company and the Designated Stockholders in this Agreement.
9.2 Indemnification.
(a) From and after the Effective Time (but subject to Section
9.1(a)), the Indemnitees may seek indemnification to the fullest extent
permitted by law:
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(i) from the Indemnification Escrow Fund, for any Damages that
are directly or indirectly suffered or incurred by any of the Indemnitees or to
which any of the Indemnitees may otherwise become subject (regardless of whether
or not such Damages relate to any third-party claim) and which arise from or as
a result of, or are directly or indirectly connected with: (i) any inaccuracy in
or breach of any representation or warranty set forth in Section 2 or in the
Company's or the Designated Stockholders' Closing Certificates (without giving
effect to any "Material Adverse Effect" or other materiality qualification or
any similar qualification contained or incorporated directly or indirectly in
such representation or warranty with respect to the calculation of Damages, but
giving effect to any update to the Disclosure Schedule delivered by the Company
to Parent prior to the Closing); (ii) any breach of any covenant or obligation
of the Company or any of the Designated Stockholders (including the covenants
set forth in Sections 4 and 5); or (iii) any Legal Proceeding relating to any
inaccuracy or breach of the type referred to in clause "(i)" or "(ii)" above
(including any Legal Proceeding commenced by any Indemnitee for the purpose of
enforcing any of its rights under this Section 9)
(ii) from the Designated Stockholders and the Venture Capital
Funds (as defined in Section 9.3), for any Damages not fully satisfied first
from the Indemnification Escrow Fund and subject to the limitations set forth in
Section 9.3(b) that are directly or indirectly suffered or incurred by any of
the Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
which arise from or as a result of, or are directly or indirectly connected with
any inaccuracy in or breach of any representation or warranty set forth in
Section 2.6 (as such representation or warranty relates to title of assets which
are the subjection of Section 2.9) or 2.9 (collectively, the "Identified
Representations") (without giving effect to any "Material Adverse Effect" or
other materiality qualification or any similar qualification contained or
incorporated directly or indirectly in such representation or warranty with
respect to the calculation of Damages, but giving effect to any update to the
Disclosure Schedule delivered by the Company to Parent prior to the Closing).
(b) The Company and the Designated Stockholders acknowledge and agree
that, if the Surviving Corporation suffers, incurs or otherwise becomes subject
to any Damages as a result of or in connection with any inaccuracy in or breach
of any representation, warranty, covenant or obligation, then (without limiting
any of the rights of the Surviving Corporation as an Indemnitee) Parent shall
also be deemed, by virtue of its ownership of the stock of the Surviving
Corporation, to have incurred Damages as a result of and in connection with such
inaccuracy or breach.
9.3 Threshold; Ceiling.
(a) The Indemnitees shall not be entitled to seek any indemnification
payment pursuant to Section 9.2(a) until such time as the total amount of all
Damages (including the Damages arising from such inaccuracy or breach or any
cause of action relating thereto and all other Damages arising from any other
inaccuracies in or breaches of any representations or warranties or any causes
of action relating thereto) that have been directly or indirectly suffered or
incurred by any one or more of the Indemnitees, or to which any one or more of
the Indemnitees has or have otherwise become subject, exceeds $250,000 in the
aggregate. If the
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total amount of such Damages exceeds $250,000, then the Indemnitees shall be
entitled to be indemnified against and compensated and reimbursed for all such
Damages.
(b) The maximum liability under Section 9.2(a) shall be as follows:
(i) For each of the Designated Stockholders,
(1) the maximum liability for Damages incurred in
connection with any breach of or inaccuracy in any of the Identified
Representations shall be (x) 60% of the entire consideration received pursuant
to this Agreement by such Designated Stockholder (whether in the form of Parent
Common Stock or Company Options assumed pursuant to this Agreement) (the
"Designated Stockholder Additional Indemnity Amount") for claims made prior to
5:00 p.m. Pacific Time on the date one year after the Closing Date and (y)
thereafter until the Designated Stockholders' Expiration Time, 30% of the entire
consideration received pursuant to this Agreement by such Designated
Stockholder; and
(2) the maximum liability for Damages incurred in
connection with any breach of or inaccuracy in any other representation or
warranty, the pro rata share of such Designated Stockholder in the
Indemnification Escrow Fund;
provided, however, that the maximum liability under Section 9.2(a) for each
Designated Stockholder shall in no event exceed either 60% or 30%, as the case
may be, of the Designated Stockholder Additional Indemnity Amount.
(ii) For each of the venture capital funds associated with
Crosspoint Ventures, Lucent Technologies, Newbury, Nokia and Worldview
(each a "Venture Capital Fund," and collectively the "Venture Capital
Funds"),
(1) for Damages incurred in connection with any breach of
or inaccuracy in any of the Identified Representations, the maximum liability
shall be 15% of the entire consideration received pursuant to this Agreement by
such Venture Capital Fund; and
(2) for Damages incurred in connection with any breach of
or inaccuracy in any other representation or warranty, the pro rata share of
such Venture Capital Fund in the Indemnification Escrow Fund;
provided, however, that the maximum liability under Section 9.2(a) for each
Venture Capital Fund shall in no event exceed 15% of the entire consideration
received pursuant to this Agreement by such Venture Capital Fund; and
(iii) For all Company Stockholders who are neither Designated
Stockholders nor Venture Capital Funds, the maximum liability under Section
9.2(a) shall be the pro rata share of such Company Stockholder in the
Indemnification Escrow Fund.
9.4 Administration of Claims. All claims for indemnification by any
Indemnitee pursuant to this Section 9 shall be made in accordance with the
provisions of the Indemnification Escrow Agreement including, but not limited
to, any requirement for submission of claims to binding arbitration.
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9.5 Satisfaction of Indemnification Claim. In the event any Designated
Stockholder or Venture Capital Fund (collectively, the "Identified
Stockholders") shall have any liability to any Indemnitee under this Section 9
in excess of the value of such Identified Stockholder's pro rata share of the
Indemnification Escrow Fund, such Identified Stockholder shall satisfy such
liability by delivering to such Indemnitee the number of shares of Parent Common
Stock determined by dividing (a) the aggregate dollar amount of such liability
by (b) the Designated Parent Stock Price.
9.6 No Contribution. Each Designated Stockholder waives, and acknowledges
and agrees that he or she shall not have and shall not exercise or assert (or
attempt to exercise or assert), any right of contribution, right of indemnity or
other right or remedy against the Surviving Corporation in connection with any
indemnification obligation or any other liability to which he may become subject
under or in connection with this Agreement, the Company's Closing Certificate or
the Designated Stockholders' Closing Certificate.
9.7 Interest. Any Designated Stockholder who is required to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 9
with respect to any Damages shall also be liable to such Indemnitee for interest
on the amount of such Damages (for the period commencing as of the date on which
such Designated Stockholder first received notice of a claim for recovery by
such Indemnitee and ending on the date on which the liability of such Designated
Stockholder to such Indemnitee is fully satisfied by such Designated
Stockholder) at a floating rate equal to the rate of interest publicly announced
by Bank of America, N.T. & S.A. from time to time as its prime, base or
reference rate.
9.8 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against the
Surviving Corporation, against Parent or against any other Person) with respect
to which any of the Indemnitees shall have the right to seek indemnification
pursuant to this Section 9, Parent shall have the right, at its election, to
proceed with the defense of such claim or Legal Proceeding on its own. If
Parent so proceeds with the defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively out of the Indemnification
Escrow Fund or, with regards to any claim or Legal Proceeding related to the
Identified Representations, by the Designated Stockholders and the Venture
Capital Funds;
(b) each Designated Stockholder shall make available to Parent any
documents and materials in his possession or control that may be necessary to
the defense of such claim or Legal Proceeding; and
(c) Parent shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the consent of the Company Stockholders' Agent
(as defined in Section 10.1); provided, however, that such consent shall not be
unreasonably withheld.
Parent shall give the Company Stockholders' Agent prompt notice of the
commencement of any such Legal Proceeding against Parent or the Surviving
Corporation; provided, however, that any failure on the part of Parent to so
notify the Company Stockholders' Agent shall not limit any of the rights of the
Indemnitees under this Section 9 (except to the extent such failure materially
prejudices the defense of such Legal Proceeding).
40.
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9.9 Exercise of Remedies by Indemnitees Other Than Parent. No Indemnitee
(other than Parent or any successor thereto or assign thereof as permitted
pursuant to Section 10.11) shall be permitted to assert any indemnification
claim or exercise any other remedy under this Agreement unless Parent (or any
successor thereto or assign thereof as permitted pursuant to Section 10.11)
shall have consented to the assertion of such indemnification claim or the
exercise of such other remedy.
9.10 Exclusive Remedy. Remedies provided by this Section 9 and the
Indemnification Escrow Agreement shall be the exclusive remedies available to
Parent and any other Indemnitee for monetary damages for any inaccuracy in or
breach of any representation, warranty, covenant or other obligation contained
in this Agreement and any Legal Proceeding relating to the foregoing, except (i)
in the instance of fraud or (ii) as provided by Section 8.4
SECTION 10. Miscellaneous Provisions
10.1 Company Stockholders' Agent. Issie Rabinovitch is hereby designated
as the Company Stockholders' Agent for purposes of Section 9 (the "Company
Stockholders' Agent") and shall have the powers and duties set forth in the
Indemnification Escrow Agreement. Parent shall be entitled to deal exclusively
with the Company Stockholders' Agent on all matters relating to Section 9, and
shall be entitled to rely conclusively (without further evidence of any kind
whatsoever) on any document executed or purported to be executed on behalf of
any Company Stockholder (including any Designated Stockholder) by the Company
Stockholders' Agent, and on any other action taken or purported to be taken on
behalf of any Company Stockholder by the Company Stockholders' Agent, as fully
binding upon such Company Stockholder. If the Company Stockholders' Agent shall
die, become disabled or otherwise be unable to fulfill his responsibilities as
agent of the Company Stockholders, then the Company Stockholders holding a
majority in interest in the capital stock of the Company shall, within ten days
after such death or disability, appoint a successor agent and, promptly
thereafter, shall notify Parent of the identity of such successor. Any such
successor shall become the "Company Stockholders' Agent" for purposes of Section
9 and this Section 10.1. If for any reason there is no Company Stockholders'
Agent at any time, all references herein to the Company Stockholders' Agent
shall be deemed to refer to the Company Stockholders. For purposes of this
Section 10.1, all references to "Company Stockholders" shall be deemed to
include the Designated Stockholders.
10.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Fees and Expenses. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees, accounting fees, investment
banking fees and success fees) that have been incurred or that are incurred by
such party in connection with the transactions contemplated by this Agreement,
including all fees, costs and expenses incurred by such party in connection with
or by virtue of (a) the investigation and review conducted by Parent and its
Representatives with respect to the Company's business (and the furnishing of
information to Parent and its Representatives in connection with such
investigation and review),
41.
<PAGE>
(b) the negotiation, preparation and review of this Agreement (including the
Disclosure Schedule) and all agreements, certificates, opinions and other
instruments and documents delivered or to be delivered in connection with the
transactions contemplated by this Agreement, (c) the preparation and submission
of any filing or notice required to be made or given in connection with any of
the transactions contemplated by this Agreement, and the obtaining of any
Consent required to be obtained in connection with any of such transactions, and
(d) the consummation of the Merger; provided, however, that, if the Closing
hereunder occurs, then Parent shall pay all such fees, costs and expenses of the
Company (the aggregate of all such fees, costs and expenses of the Company shall
be referred to in this Agreement as the "Identified Stockholder Expenses") on or
before the Closing.
10.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to Parent:
Terayon Communication Systems, Inc.
2952 Bunker Hill Lane
Santa Clara, California 95954
Fax: (408) 727-6205
Attention: General Counsel
with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20/th/ Floor
San Francisco, California 94111
Fax: (415) 951-3699
Attention: Karyn S. Tucker
if to the Company:
Mainsail Networks, Inc.
47595 Seabridge Drive
Fremont, CA 94538
Fax: (510) 438-4545
Attention: Boris Zats
42.
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with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Fax: (650) 854-4488
Attention: Elias Blawie
if to any of the Designated Stockholders or Company Stockholders:
Issie Rabinovitch
Mainsail Networks, Inc.
47505 Seabridge Drive
Fremont, California 94538
Fax: (510) 438-4545
10.6 Confidentiality. Without limiting the generality of anything
contained in Section 5.4, on and at all times after the Closing Date, each
Designated Stockholder shall keep confidential, and shall not use or disclose to
any other Person, any non-public document or other non-public information in
such Designated Stockholder's possession that relates to the business of the
Company or Parent.
10.7 Legal Representation. For all transactions related to the Merger,
the Company is represented by its legal counsel Venture Law Group a Professional
Corporation and Parent and Merger Sub are represented by their legal counsel
Cooley Godward LLP. Each Designated Stockholder acknowledges that both the
Company and its legal counsel and Parent, the Merger Sub and their legal counsel
have advised such Designated Stockholder to seek legal counsel before executing
this Agreement.
10.8 Time of the Essence. Time is of the essence of this Agreement.
10.9 Headings. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.10 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.11 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
10.12 Successors and Assigns. This Agreement shall be binding upon: the
Company and its successors and assigns (if any); the Designated Stockholders and
their respective personal representatives, executors, administrators, estates,
heirs, successors and assigns (if any); Parent and its successors and assigns
(if any); and Merger Sub and its successors and assigns (if any). This
Agreement shall inure to the benefit of: the Company; the Company's stockholders
(to the
43.
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extent set forth in Section 1.5); the holders of assumed Company Options (to the
extent set forth in Section 1.7); Parent; Merger Sub; the other Indemnitees
(subject to Section 9.8); and the respective successors and assigns (if any) of
the foregoing. Following the Closing, Parent may freely assign any or all of its
rights under this Agreement (including its indemnification rights under Section
9), in whole to any other Person without obtaining the consent or approval of
any other party hereto or of any other Person, provided that such assignment
occurs in connection with Parent's sale of the capital stock, business or assets
of the Company that effectively constitute all or substantially all of the
capital stock or similar securities of the Company or all or substantially all
of the Company's business or assets as then conducted by Parent.
10.13 Remedies Cumulative; Specific Performance. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision and (b) an injunction restraining such breach or threatened breach.
10.14 Waiver.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
10.15 Amendments. This Agreement may not be amended, modified, altered or
supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.16 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.17 Parties in Interest. Except for the provisions of Sections 1.5, 1.6
and 9, none of the provisions of this Agreement is intended to provide any
rights or remedies to any Person other than the parties hereto and their
respective successors and assigns (if any).
44.
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10.18 Entire Agreement. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the parties relating to the subject
matter hereof and thereof; provided, however, that the Mutual Non-Disclosure
Agreement executed on behalf of Parent and the Company on May 1, 2000 shall not
be superseded by this Agreement and shall remain in effect in accordance with
its terms until the earlier of (a) the Effective Time, or (b) the date on which
such Mutual Non-Disclosure Agreement is terminated in accordance with its terms.
10.19 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
45.
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The parties hereto have caused this Agreement to be executed and delivered
as of August 1, 2000.
Terayon Communications Systems, Inc.,
a Delaware corporation
By: /s/ Zaki Rakib
-------------------------------------
MN Acquisition Corp.,
a Delaware corporation
By: /s/ Zaki Rakib
-------------------------------------
Mainsail Networks, Inc.,
a Delaware corporation
By: /s/ Boris Zats
-------------------------------------
Designated Stockholders
/s/ Vlad Cherednichenko
-----------------------------------------
Vlad Cherednichenko
/s/ Alex Lubivy
-----------------------------------------
Alex Lubivy
/s/ John Walsh
-----------------------------------------
John Walsh
46.
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/s/ Boris Zats
-----------------------------------------
Boris Zats
/s/ Lucy Zats
-----------------------------------------
Lucy Zats
/s/ Yuri Zats
-----------------------------------------
Yuri Zats
47.
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Exhibit A
DESIGNATED STOCKHOLDERS
Number of Shares and
Name Class of Stock Owned
----------------------------------------------- --------------------------
Vlad Cherednichenko............................ 1,500,000 (Common)
Alex Lubivy.................................... 1,500,000 (Common)
John Walsh..................................... 1,500,000 (Common)
Boris Zats..................................... 4,500,000 (Common)
300,000 (Series A)
286,458 (Warrants to
purchase Common)
Lucy Zats...................................... 1,500,000 (Common)
Yuri Zats...................................... 1,500,000 (Common)
--------------
TOTAL: 12,000,000 (Common)
300,000 (Series A)
286,458 (Warrants to
purchase Common)
----------------
48.
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Exhibit B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
Acquisition Transaction. "Acquisition Transaction" shall mean any
transaction involving:
(a) any merger, consolidation, reorganization, recapitalization (other
than the extension of the conversion or payment terms of outstanding convertible
securities or debt of the Company) or similar transaction involving the Company
or any of its affiliates;
(b) any transfer of more than fifty percent (50%) of the capital stock
of the Company or any of its affiliates or securities convertible into the
capital stock of the Company or any of its affiliates (other than upon the
exercise or conversion of outstanding options, warrants or other convertible
securities);
(c) any transfer of any asset of the Company or any of its affiliates
not in the ordinary course of business; or
(d) any transaction that may be inconsistent with or that may have an
adverse effect on the Merger.
Acquisition Proposal. "Acquisition Proposal" shall mean any proposal, plan,
agreement, understanding or arrangement contemplating:
(a) any merger, consolidation, reorganization, recapitalization (other
than the extension of the conversion or payment terms of outstanding convertible
securities or debt of the Company) or similar transaction involving the Company
or any of its affiliates;
(b) any transfer of more than fifty percent (50%) of the capital stock
of the Company or any of its affiliates or securities convertible into the
capital stock of the Company or any of its affiliates (other than upon the
exercise or conversion of outstanding options, warrants or other convertible
securities);
(c) any transfer of any asset of the Company or any of its affiliates
not in the ordinary course of business; or
(d) any transaction that may be inconsistent with or that may have an
adverse effect on the Merger.
Agreement. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit B is attached (including the Disclosure
Schedule), as it may be amended from time to time.
Company Contract. "Company Contract" shall mean any Contract: (a) to which
the Company is a party; (b) by which the Company or any of its assets is or may
become bound or
<PAGE>
under which the Company has, or may become subject to, any obligation; or (c)
under which the Company has or may acquire any right or interest.
Company Proprietary Asset. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
Consent. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
Contract. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
Damages. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
Disclosure Schedule. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Parent on behalf of the Company
and the Designated Stockholders.
Encumbrance. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
Entity. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
Governmental Authorization. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
Governmental Body. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department,
<PAGE>
agency, commission, instrumentality, official, organization, unit, body or
Entity and any court or other tribunal).
Indemnitees. "Indemnitees" shall mean the following Persons: (a) Parent;
(b) Parent's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the Persons referred to in clauses "(a)", "(b)" and "(c)" above; provided,
however, that the Designated Stockholders shall not be deemed to be
"Indemnitees."
Legal Proceeding. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
Legal Requirement. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
Material Adverse Effect. A violation or other matter will be deemed to have
a "Material Adverse Effect" on a Person if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the Agreement or, as regarding
the Company in the Company Closing Certificate or the Designated Stockholders'
Closing Certificate, but for the presence of "Material Adverse Effect" or other
materiality qualifications, or any similar qualifications, in such
representations and warranties) would have a material adverse effect on such
Person's business, condition, assets, liabilities, operations, or financial
performance or prospects; provided, that any change, circumstance or effect that
arises directly or indirectly out of, or results directly or indirectly from the
announcement of, the transactions contemplated by the Agreement shall not be
deemed to constitute a Material Adverse Effect on a Person; and provided further
that a decrease in the price of Parent's Common Stock that is not accompanied by
another event which would be deemed to have a Material Adverse Effect on Parent,
shall not be deemed to constitute a Material Adverse Effect on Parent.
Person. "Person" shall mean any individual, Entity or Governmental Body.
Proprietary Asset. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; or (b) right to use or exploit any of the
foregoing.
Representatives. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
<PAGE>
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended.
Tax. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
Tax Return. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
