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EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
HI/FN, INC.,
APPTITUDE ACQUISITION CORPORATION
AND
APPTITUDE, INC.
DATED AS OF MAY 12, 2000
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TABLE OF CONTENTS
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ARTICLE I THE MERGER..............................................................................................1
1.1 The Merger..........................................................................................1
1.2 Effective Time......................................................................................2
1.3 Effect of the Merger................................................................................2
1.4 Certificate of Incorporation; Bylaws................................................................2
1.5 Directors and Officers..............................................................................2
1.6 Effect of Merger on Capital Stock of the Constituent Corporations...................................3
1.7 Dissenting Shares...................................................................................5
1.8 Surrender of Certificates...........................................................................6
1.9 No Further Ownership Rights in Company Capital Stock................................................7
1.10 Lost, Stolen or Destroyed Certificates..............................................................7
1.11 Tax and Accounting Treatment........................................................................7
1.12 Taking of Necessary Action; Further Action..........................................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................7
2.1 Organization and Authority of the Company...........................................................8
2.2 Company Capital Structure...........................................................................8
2.3 Subsidiaries........................................................................................9
2.4 Authority...........................................................................................9
2.5 No Conflict........................................................................................10
2.6 Consents...........................................................................................10
2.7 Company Financial Statements.......................................................................11
2.8 Accounts Receivable................................................................................11
2.9 Inventory..........................................................................................11
2.10 No Undisclosed Liabilities.........................................................................11
2.11 No Changes.........................................................................................12
2.12 Tax and Other Returns and Reports..................................................................14
2.13 Restrictions on Business Activities................................................................15
2.14 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment.....................16
2.15 Intellectual Property..............................................................................16
2.16 Agreements, Contracts and Commitments..............................................................17
2.17 Interested Party Transactions......................................................................19
2.18 Year 2000 Compliance...............................................................................19
2.19 Litigation.........................................................................................19
2.20 Environmental Matters..............................................................................20
2.21 Brokers' and Finders' Fees; Third Party Expenses...................................................21
2.22 Employee Matters and Benefit Plans.................................................................21
2.23 Compliance with Legal Requirements.................................................................24
2.24 Insurance..........................................................................................24
2.25 Employees..........................................................................................24
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2.26 Product Warranty..................................................................................24
2.27 Product Liability; Product Recalls, etc...........................................................25
2.28 Books and Records.................................................................................25
2.29 Customers and Suppliers...........................................................................25
2.30 Complete Copies of Materials......................................................................25
2.31 Representations Complete..........................................................................26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..............................................26
3.1 Organization, Standing and Power...................................................................26
3.2 Authority..........................................................................................26
3.3 Capital Resources..................................................................................26
3.4 Consents...........................................................................................26
3.5 Capital Structure..................................................................................27
3.6 SEC Filings; Parent Financial Statements...........................................................27
3.7 Litigation.........................................................................................28
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME...................................................................28
4.1 Conduct of Business of the Company.................................................................28
4.2 No Solicitation....................................................................................30
ARTICLE V ADDITIONAL AGREEMENTS..................................................................................31
5.1 Shareholder Approval...............................................................................31
5.2 Access to Information..............................................................................31
5.3 Confidentiality....................................................................................32
5.4 Expenses...........................................................................................32
5.5 Public Disclosure..................................................................................32
5.6 Consents...........................................................................................32
5.7 FIRPTA Compliance..................................................................................32
5.8 Reasonable Efforts.................................................................................32
5.9 Securities Laws Compliance.........................................................................33
5.10 Notification of Certain Matters; Financial Statements..............................................34
5.11 Additional Documents and Further Assurances........................................................34
5.12 S-3 Registration Rights............................................................................34
5.13 Notice to Holders of Company Options and Company Warrants..........................................38
5.14 Conversion of Company Preferred....................................................................39
5.15 S-8 Registration Rights............................................................................39
5.16 Termination of Company Employee Plans..............................................................39
5.17 Satisfaction of Conditions Precedent...............................................................39
5.18 Issuance of Additional Options.....................................................................39
5.19 Audited Financial Statements.......................................................................39
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ARTICLE VI CONDITIONS TO THE MERGER..............................................................................40
6.1 Conditions to Obligations of Each Party to Effect the Merger.......................................40
6.2 Additional Conditions to Obligations of Company....................................................40
6.3 Additional Conditions to the Obligations of Parent and Merger Sub..................................41
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW...................................................43
7.1 Survival of Representations, Warranties and Covenants..............................................43
7.2 Indemnification....................................................................................43
7.3 Escrow Arrangements................................................................................44
7.4 Shareholder Representative.........................................................................47
7.5 Escrow Agent.......................................................................................48
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...................................................................50
8.1 Termination........................................................................................50
8.2 Effect of Termination..............................................................................51
8.3 Amendment..........................................................................................51
8.4 Extension; Waiver..................................................................................51
ARTICLE IX DEFINITIONS...........................................................................................52
9.1 Defined Terms......................................................................................52
ARTICLE X GENERAL PROVISIONS.....................................................................................60
10.1 Notices...........................................................................................60
10.2 Interpretation....................................................................................61
10.3 Counterparts......................................................................................61
10.4 Entire Agreement; Assignment......................................................................61
10.5 Severability......................................................................................61
10.6 Other Remedies....................................................................................61
10.7 Governing Law.....................................................................................61
10.8 Rules of Construction.............................................................................62
10.9 No Third Party Beneficiary........................................................................62
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of May 12, 2000 by and among Apptitude, Inc., a California
corporation (the "Company"), Hi/fn, Inc., a Delaware corporation ("Parent"),
Apptitude Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and, with respect to the matters set forth
in Articles VII and X hereof only, the Shareholder Representative and the Escrow
Agent. Capitalized terms used herein and not otherwise defined herein shall have
the meanings given to such terms in Article IX hereof.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger
Sub believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of the
Company with and into Merger Sub or the statutory merger of Merger Sub with and
into the Company (the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, (i) all of the issued
and outstanding shares of capital stock of the Company (other than Dissenting
Shares) shall be converted into the right to receive consideration from Parent,
(ii) all of the issued and outstanding options to acquire any shares of Company
Common shall be assumed by Parent at the Effective Time, and (iii) all of the
issued and outstanding warrants and other rights to acquire any shares of
capital stock of the Company shall terminate on the Closing Date if not
exercised prior thereto.
C. Prior to the closing of the Merger, as a material inducement to
Parent and Merger Sub to enter into this Agreement, certain employees of the
Company are entering into employment and non-competition agreements with Parent
(the "Employment and Non-Competition Agreements") in the form of Exhibit B
attached hereto.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
1
THE MERGER
1.1 The Merger. Except as otherwise contemplated by Section 1.11
hereof, at the Effective Time and subject to and upon the terms and conditions
of this Agreement and the applicable provisions of the General Corporation Law
of the State of California ("California Law") and the Delaware General
Corporation Law ("Delaware Law"), the Company shall be merged with and into
Merger Sub, the separate corporate existence of the Company shall cease and
Merger Sub shall
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continue as the surviving corporation and as a wholly-owned subsidiary of
Parent. The surviving corporation after the Merger is sometimes referred to
hereinafter as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing") will take
place as promptly as practicable, but no later than five (5) business days,
following satisfaction or waiver of the conditions set forth in Article VI, at
the offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California, unless another place or time is agreed to in writing by Parent
and the Company. The date upon which the Closing actually occurs is herein
referred to as the "Closing Date." On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing an Agreement of Merger (or like
instrument) and the accompanying officers' certificates, each in the form of
Exhibit A, with the Secretary of State of the States of California and Delaware,
respectively (the "Agreement of Merger"), in accordance with the relevant
provisions of California Law and Delaware Law (the time of acceptance by the
Secretary of State of the States of California and Delaware of such filing being
referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law and
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the
Effective Time, the certificate of incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation at the Effective Time until
thereafter amended in accordance with Delaware Law and as provided in such
certificate of incorporation; provided, however, that Article I of the
certificate of incorporation of the Surviving Corporation shall be amended to
read as follows: "The name of the corporation is Apptitude, Inc."
(b) Unless otherwise determined by Parent prior to the
Effective Time, the bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation at the
Effective Time until thereafter amended in accordance with Delaware Law and as
provided in such bylaws.
1.5 Directors and Officers. Unless otherwise determined by Parent prior
to the Effective Time, the director(s) of Merger Sub immediately prior to the
Effective Time shall be the initial director(s) of the Surviving Corporation
immediately after the Effective Time, each to hold the office of a director of
the surviving corporation in accordance with the provisions of Delaware Law and
the certificate of incorporation and bylaws of the Surviving Corporation until
his or her successor is duly qualified and elected. Unless otherwise determined
by Parent prior to the Effective Time, the officers of Merger Sub immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation immediately after the Effective Time, each to hold office in
accordance with the bylaws of the Surviving Corporation.
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1.6 Effect of Merger on Capital Stock of the Constituent Corporations.
(a) Company Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the Shareholders, each share of Company Capital Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares) will be
canceled and extinguished and be converted automatically into the right to
receive, upon surrender of the certificate representing such share of Company
Capital Stock and upon the terms and subject to the conditions set forth below
and throughout this Agreement, including without limitation, this Section 1.6,
Section 1.8 hereof and the provisions of Article VII hereof, the sum of (i) the
cash amount equal to the Cash Exchange Ratio and (ii) the number of shares of
Parent Common Stock equal to the Share Exchange Ratio.
(b) Company Options. At the Effective Time, each issued and
outstanding Company Option not yet exercised, whether vested or unvested, will
be assumed or replaced by Parent in connection with the Merger. No cash will be
paid in lieu of fractional shares which are rounded down pursuant to this
Section 1.6(b). It is the intention of the parties hereto that the Company
Options assumed by Parent pursuant to this Section 1.6(b) will, to the extent
permitted by applicable law, qualify as incentive stock options as defined in
Section 422 of the Code, to the extent any such Company Options qualified as
incentive stock options immediately prior to the Effective Time.
(i) Vested Company Options. Each vested Company
Option so assumed by Parent under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Option Plan[s] and/or
as provided in the respective option agreements immediately prior to the
Effective Time (including, without limitation, any vesting schedule or
repurchase rights), except that (A) each vested Company Option will also be
automatically converted into the right to receive a cash amount equal to the
product obtained by multiplying the Cash Exchange Ratio by the number of shares
of Company Common that were issuable upon exercise of such vested Company Option
immediately prior to the Effective Time; and (B) (1) each vested Company Option
will be exercisable for that number of whole shares of Parent Common Stock equal
to the product of the number of shares of Company Common that were issuable upon
exercise of such vested Company Option immediately prior to the Effective Time
multiplied by the Share Exchange Ratio, rounded down to the nearest whole number
of shares of Parent Common Stock, and (2) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed vested
Company Option will be equal to the quotient determined by dividing the exercise
price per share of Company Capital Stock at which such vested Company Option was
exercisable immediately prior to the Effective Time by the Share Exchange Ratio,
rounded up to the nearest whole cent.
(ii) Unvested Company Options. Each unvested
Company Option so assumed by Parent under this Agreement shall continue to have,
and be subject to, the same terms and conditions set forth in the Option Plan[s]
and/or as provided in the respective option agreements immediately prior to the
Effective Time (including, without limitation, any vesting schedule or
repurchase rights), except that (A) each unvested Company Option will be
exercisable for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common that were issuable upon
exercise of such unvested Company Option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio, rounded down to the nearest
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whole number of shares of Parent Common Stock, and (B) the per share exercise
price for the shares of Parent Common Stock issuable upon exercise of such
assumed unvested Company Option will be equal to the quotient determined by
dividing the exercise price per share of Company Capital Stock at which such
unvested Company Option was exercisable immediately prior to the Effective Time
by the Option Exchange Ratio, rounded up to the nearest whole cent.
(c) Assumption Agreement. As soon as practicable following the
Closing, Parent shall issue to each holder of a Company Option to be assumed or
replaced by Parent a document evidencing the assumption or replacement of such
Company Option by Parent, and each former holder of a Company Option so assumed
or replaced by Parent shall acknowledge the receipt of the same in exchange for
the assumption or replacement of such holder's Company Option.
(d) Company Warrants. Parent shall not assume any Company
Warrants in connection with the Merger, and all Company Warrants shall terminate
at the Effective Time. The Company shall take all actions necessary to effect
the purpose of this Section 1.6(d), including, without limitation, taking all
actions necessary to cause all Company Warrants to expire at the Effective Time.
(e) Capital Stock of Merger Sub. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger Sub or
the Company, each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation, then comprising all of the issued and outstanding
capital stock of the Surviving Corporation.
(f) Shareholder Loans. In the event that any Shareholder has
outstanding loans from the Company as of the Effective Time, the number of
shares of Parent Common Stock issuable pursuant to Section 1.6(a) hereof shall
be reduced by an amount equal to the outstanding principal plus accrued interest
of such Shareholder loans as of the Effective Time.
(g) Cancellation of Treasury Stock. Each share of Company
Capital Stock held in the treasury of the Company shall be cancelled and
extinguished without any conversion thereof.
(h) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued in the Merger. In lieu thereof, any fractional share
resulting from the conversion pursuant to Section 1.6(a) hereof shall be rounded
to the nearest whole share of Parent Common Stock (with a fraction greater than
.5 being rounded up).
(i) Adjustments to Parent Common Stock. The number of shares
of Parent Common Stock issuable pursuant to Section 1.6(a) hereof shall be
adjusted to reflect fully the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock or Company Capital Stock), reorganization,
recapitalization or the other like change with respect to Parent Common Stock or
Company Capital Stock after the date hereof.
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(j) Special Merger Consideration. Notwithstanding anything to
the contrary set forth in this Agreement, the parties acknowledge and agree
that, at the Effective Time and upon the terms and subject to the conditions set
forth in this Agreement, including without limitation, this Section 1.6, Section
1.8 hereof and the provisions of Article VII hereof, (i) each share of Company
Capital Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Shares) will also be automatically converted into the
right to receive an additional number of shares of Parent Common Stock equal to
the Special Merger Exchange Ratio; and (ii) each vested Company Option issued
and outstanding immediately prior to the Effective Time will also be
automatically converted into the right to receive, upon the terms and subject to
the conditions set forth in this Agreement, including without limitation, this
Section 1.6, Section 1.8 hereof and the provisions of Article VII hereof, an
additional number of shares of Parent Common Stock equal to the number of shares
of Company Common subject to such vested Company Option multiplied by the
Special Merger Exchange Ratio.
(k) Bonus Pool. Notwithstanding anything to the contrary set
forth in this Agreement, the parties acknowledge and agree that, at the
Effective Time and upon the terms and subject to the conditions set forth in
this Agreement, including without limitation, this Section 1.6, Section 1.8
hereof and the provisions of Article VII hereof, Five Hundred Fifty Thousand
Dollars (USD$550,000) (the "Bonus Cash Pool") and Thirty-Three Thousand (33,000)
shares of Parent Common Stock (the "Bonus Share Pool") will be deducted from the
Cash Amount and the Merger Shares, respectively, immediately prior to any
distribution of the Aggregate Merger Consideration pursuant to the terms of this
Agreement. At the Effective Time and upon the terms and subject to the
conditions set forth in this Agreement, including without limitation, this
Section 1.6, Section 1.8 hereof and the provisions of Article VII hereof, the
Bonus Cash Pool and the Bonus Share Pool will be distributed to those persons
and in those amounts as determined by the Board of Directors of the Company and
set forth on Schedule 1.6(k) hereto, which shall be attached hereto no later
than five (5) days prior to the Closing.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has exercised
and perfected dissenters' rights for such shares in accordance with California
Law and who, as of the Effective Time, has not effectively withdrawn or lost
such dissenters' rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive the consideration for Company Capital Stock set
forth in Section 1.6(a) hereof, but the holder thereof shall only be entitled to
such rights as are provided by California Law.
(b) Notwithstanding the provisions of Section 1.7(a) hereof,
if any holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) such holder's dissenters' rights under
California Law, then, as of the later of the Effective Time and the occurrence
of such event, such holder's shares shall automatically be converted into and
represent only the right to receive the consideration for Company Capital Stock
set forth in Section 1.6(a) hereof, without interest thereon, upon surrender of
the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the applicable
provisions of California Law and
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(ii) the opportunity to participate in all negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to any such demands
or offer to settle or settle any such demands. To the extent that Parent or the
Company makes any payment or payments in respect of any Dissenting Shares,
Parent shall be entitled to recover under the terms of Article VII hereof the
aggregate amount by which such payment or payments exceed the aggregate
consideration that otherwise would have been payable in respect of such shares
pursuant to Section 1.6(a) hereof.
1.8 Surrender of Certificates.
(a) Exchange Agent. A designee of Parent shall serve as the
exchange agent ("Exchange Agent") for the Merger.
(b) Parent to Provide Common Stock and Cash; Escrow Amount. At
the Effective Time, Parent shall deposit with the Exchange Agent for exchange in
accordance with this Article I, the Aggregate Merger Consideration issuable (in
the case of the Merger Shares, the Special Merger Consideration and the
Additional Parent Shares) and payable (in the case of the Cash Amount) pursuant
to Section 1.6(a) hereof in exchange for all of the outstanding shares of
Company Capital Stock, less a cash amount equal to ten percent (10%) of the sum
of (A) the Cash Amount and (B) the product obtained by multiplying the Merger
Shares by the Trading Price (the "Escrow Amount"), which shall be deducted from
the Cash Amount and shall be available to Parent to set off any Losses in
accordance with Article VII.
(c) Exchange Procedures. Promptly after the Effective Time,
the Exchange Agent shall cause to be mailed to each holder of record of a
certificate or certificates (each a "Certificate" and collectively, the
"Certificates") representing shares of Company Capital Stock that were
outstanding immediately prior to the Effective Time, (i) a letter of transmittal
in such form and having such provisions as Parent may reasonably request
(including but not limited to provisions whereby such holder agrees to be bound
by the provisions of Article VII of this Agreement, consents to the appointment
of the Shareholder's Representative, and agrees to terminate and waive any
further rights that such holder may have under any Shareholder Agreement) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Aggregate Merger Consideration. Upon surrender of a Certificate
for cancellation to the Exchange Agent, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor that portion of the Aggregate Merger Consideration
pursuant to Section 1.6(a) hereof represented by such Certificate and the
Certificate so surrendered shall be canceled. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
Company Capital Stock, will be deemed from and after the Effective Time to
evidence only the right to receive the Aggregate Merger Consideration in respect
of each such share.
(d) Transfers of Ownership. If any Parent Common Stock is to
be issued to a person other than the holder in whose name the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and accompanied by all documents required to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid.
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1.9 No Further Ownership Rights in Company Capital Stock. The right to
receive Aggregate Merger Consideration upon the surrender for exchange of shares
of Company Capital Stock in accordance with the terms hereof shall be deemed to
be full satisfaction of all rights pertaining to such shares of Company Capital
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates evidencing shares of Company Capital Stock are presented to
the Surviving Corporation for any reason, they shall be cancelled and the right
of the holder or holders of such certificates shall be limited to the right to
receive that portion of the Aggregate Merger Consideration represented by such
certificate, which portion shall be delivered to the person entitled thereto.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, Parent shall, in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, issue such Parent Common Stock as may be required pursuant to
Section 1.6(a) hereof; provided, however, that Parent may, in its sole
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates to deliver an agreement (in
form and substance satisfactory to it) to indemnify Parent against any claim
that may be made against Parent with respect to the certificates alleged to have
been lost, stolen or destroyed.
1.11 Tax and Accounting Treatment. The parties intend for the Merger to
constitute a tax-free forward triangular reorganization within the meaning of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code; provided, however,
that if the value of the number of shares of Parent Common Stock equal to the
Share Exchange Ratio is less than the value of the cash amount equal to the Cash
Exchange Ratio, as determined by Parent in its sole discretion, the parties
agree that the Merger will be structured as a taxable reverse triangular merger
whereby Merger Sub will be merged with and into the Company, with the Company as
the surviving corporation in the merger. If the Merger is restructured as a
taxable reverse triangular merger in accordance with this Section 1.11, then all
references in this Agreement to the "Merger" shall be deemed to refer to the
merger described in this Section 1.11; all references in this Agreement to the
"Agreement of Merger" shall be deemed to refer to an agreement of merger which
reflects the merger described in this Section 1.11; and all references in this
Agreement to the "Surviving Corporation" shall be deemed to refer to the
Company. The Merger will be treated as a purchase for financial accounting
purposes.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, Parent and the Surviving
Corporation are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary and/or desirable
action.
2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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The Company represents and warrants to Parent and Merger Sub, subject
to such exceptions as are specifically disclosed in the disclosure letter
(referencing the appropriate section and paragraph numbers) supplied by the
Company to Parent (the "Company Schedules") and dated as of the date hereof,
that on the date hereof and as of the Effective Time as though made at the
Effective Time as follows; provided, that the representations and warranties
made as of a specified date will be true and correct as of such date:
2.1 Organization and Authority of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all necessary corporate power and authority
to own, operate or lease the properties and assets now owned, operated or leased
by it and to carry on its business as it has been and is currently being
conducted. The Company is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified or
licensed would have, or could reasonably be expected to have, a Company Material
Adverse Effect. The term "Material Adverse Effect" when used in connection with
an entity means any change, event, violation, inaccuracy, circumstance or effect
that is, or could reasonably be expected to be, materially adverse to (a) the
business, assets (including intangible assets), capitalization, financial
condition or results of operations of such entity, and (b) the ability of such
person to perform its obligations under this Agreement and to consummate the
transactions provided for hereunder, or (c) the ability of such entity to
conduct its business as presently conducted. "Company Material Adverse Effect"
means a Material Adverse Effect with respect to the Company, and "Parent
Material Adverse Effect" means a Material Adverse Effect with respect to Parent.
All jurisdictions in which the Company conducts its business are set forth on
Company Schedule 2.1. The Company has not taken any action that in any respect
conflicts with, constitutes a default under or results in a violation of any
provision of its Organizational Documents. Company Schedule 2.1 sets forth (i)
true and correct copies of the Organizational Documents of the Company, each as
in effect on the date hereof, and (ii) the directors and officers of the
Company. The operations now being conducted by the Company are not now and have
never been conducted by the Company under any other name.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of:
(i) 47,000,000 shares of Common Stock, 7,565,211 shares of which are issued and
outstanding as of the date hereof; (ii) 3,000,000 shares of Series A Preferred
Stock, 3,000,000 shares of which are issued and outstanding as of the date
hereof; (iii) 5,000,000 shares of Series B Preferred Stock, 3,200,004 shares of
which are issued and outstanding as of the date hereof; (iv) 2,600,000 shares of
Series C Preferred Stock, 2,500,000 shares of which are issued and outstanding
as of the date hereof; (v) 4,083,660 shares of Series D Preferred Stock,
4,083,660 shares of which are issued and outstanding as of the date hereof; (vi)
3,333,333 shares of Series E Preferred Stock, 2,140,617 shares of which are
issued and outstanding as of the date hereof; (vii) 5,000,000 shares of Series F
Preferred Stock, 3,834,477 shares of which are issued and outstanding as of the
date hereof; and (viii) 2,000,000 shares of Series G Preferred Stock, none of
which are issued and outstanding as of the date hereof. The Company has no other
capital stock authorized, issued or outstanding. The Company Capital Stock is
held by the persons with the domicile addresses and in the amounts set forth on
Company Schedule 2.2(a). Company Schedule 2.2(a) sets forth, as of the date
hereof, the total number of
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<PAGE> 13
shares of Company Common Stock outstanding as of immediately prior to the
Effective Time assuming the conversion, exercise or exchange of all securities
convertible into, or exercisable or exchangeable for, shares of Company Common
Stock, and the exercise of all Company Options and Company Warrants. All
outstanding shares of Company Capital Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights created by
statute, the Organizational Documents of the Company, or any agreement to which
the Company is a party or by which it is bound, and have been issued in
compliance with the registration or qualification requirements of applicable
securities laws. Except as set forth on Company Schedule 2.2(a), there are no
declared or accrued but unpaid dividends with respect to any shares of Company
Capital Stock.
(b) Except for the Option Plan[s], the Company has never
adopted or maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has reserved 10,985,762 shares of
Company Common Stock for issuance to employees and directors of, and consultants
to, the Company upon the exercise of options granted under the Option Plans,
6,628,261 shares of which are issuable, as of the date hereof, upon the exercise
of outstanding, unexercised options granted under the Option Plan[s]. No shares
have been issued, as of the date hereof, upon the exercise of options granted
under the Option Plan[s]. Company Schedule 2.2(a) sets forth for each
outstanding Company Option and Company Warrant, the name of the holder of such
security, the domicile address of such holder, the number of shares of Company
Capital Stock issuable upon the exercise of such option, the exercise price of
such option, the vesting schedule for such option, including the extent vested
to date and whether the vesting of such option will be accelerated by the
transactions contemplated by this Agreement and whether such option is intended
to qualify as an incentive stock option as defined in Section 422 of the Code.
Except for the Company Options and the Company Warrants, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of the
Company or obligating the Company to grant, extend, accelerate the vesting of,
change the price of, otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or other similar rights
with respect to the Company. Except as contemplated hereby, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting stock of the Company. As a result of the Merger, and assuming Parent owns
all outstanding shares of Merger Sub and all rights to acquire any shares of
Merger Sub, Parent will be the sole record and beneficial holder of all issued
and outstanding Company Capital Stock and all rights to acquire or receive any
shares of Company Capital Stock, whether or not such shares of Company Capital
Stock are outstanding.
2.3 Subsidiaries. Except as set forth on Company Schedule 2.3, the
Company does not have, and has never had, any subsidiaries or affiliated
companies and does not otherwise own, and has not otherwise owned, any shares of
capital stock or any interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
2.4 Authority. The Company has all requisite power and authority to
enter into this Agreement and any Related Agreements (as hereinafter defined in
this Section 2.4) to which it is a
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<PAGE> 14
party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related Agreements to which the
Company is a party and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of the Company, and no further action is required on the part of the
Company to authorize the Agreement and any Related Agreements to which it is a
party and the transactions contemplated hereby and thereby, subject only to the
approval of this Agreement by the Shareholders. This Agreement and the Merger
have been unanimously approved by the Board of Directors of the Company. This
Agreement and each of the Related Agreements to which the Company is a party has
been duly executed and delivered by the Company, and assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by principles of public policy and laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
For all purposes of this Agreement, the term "Related Agreements" shall mean the
Agreement of Merger.
2.5 No Conflict. The execution and delivery by the Company of this
Agreement and any Related Agreement to which the Company is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
conflict with or result in any violation of or default under (with or without
notice or lapse of time, or both) or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the
Organizational Documents of the Company, (ii) any Contract, or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or any of its properties (tangible and intangible) or assets. The
Company is in material compliance with and has not materially breached, violated
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any Contract, nor is the
Company aware of any event that would constitute such a material breach,
violation or default with the lapse of time, giving of notice or both. Each
Contract is in full force and effect and the Company is not in default
thereunder nor, to the Company's knowledge, is any party obligated to the
Company pursuant to any such Contract in material default thereunder. The
Company has obtained, or will obtain prior to the Effective Time, all necessary
consents, waivers and approvals of parties to any Contract as are required (i)
thereunder in connection with the Merger, (ii) and for any such Contract to
remain in full force and effect without limitation, modification or alteration
after the Effective Time. After the Effective Time, Parent will be permitted to
exercise all of the rights under the Contracts that were vested in the Company
prior to the Effective Time without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
would otherwise be required to pay pursuant to the terms of such Contracts had
the transactions contemplated by this Agreement not occurred.
2.6 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with any Governmental Entity or any third
party, including a party to any agreement with the Company (so as not to trigger
any Conflict), is required by or with respect to the Company in connection with
the execution and delivery of this Agreement and any Related Agreement to which
the Company is a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) such consents, waivers, approvals, orders,
authorizations,
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<PAGE> 15
registrations, declarations and filings as may be required under applicable
securities laws and the HSR Act; (ii) the filing of the Agreement of Merger with
the Secretaries of State of the States of California and Delaware, respectively;
and (iii) such other consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings that are not material.
2.7 Company Financial Statements. Company Schedule 2.7 sets forth the
Company's (i) audited balance sheets as of December 31, 1998 and as of December
31, 1997, and the related audited statements of income, cash flow and
stockholders' equity for the twelve (12) month periods ended December 31, 1998
and December 31, 1997, respectively, and an unaudited balance sheet as of
December 31, 1999, and the related unaudited statements of income, cash flow and
stockholders' equity for the twelve (12) month period ended December 31, 1999
(collectively, the "Year-End Financials"), and (ii) unaudited balance sheet as
of March 31, 2000, and the related unaudited statements of income, cash flow and
stockholders' equity for the three-month period then ended (the "Interim
Financials"). The Year-End Financials and the Interim Financials have been
prepared in accordance with GAAP consistently applied on a basis consistent
throughout the periods indicated and consistent with each other. The Year-End
Financials and Interim Financials present fairly the financial condition,
operating results and cash flows of the Company as of the dates and during the
periods indicated therein, subject in the case of the Interim Financials to
normal year-end adjustments, which are not material in amount in any individual
case or in the aggregate. The Company's unaudited balance sheet as of March 31,
2000 is referred to hereinafter as the "Current Balance Sheet."
2.8 Accounts Receivable. Company Schedule 2.8 sets forth a list of all
accounts receivable of the Company (collectively the "Accounts Receivable") as
of March 31, 2000 along with a range of days elapsed since invoice. Except as
set forth on Company Schedule 2.8, the Accounts Receivable (net of allowances
for doubtful accounts as reflected on the Current Balance Sheet and as
determined in accordance with GAAP consistently applied or, for Accounts
Receivable arising subsequent to March 31, 2000, as reflected on the books and
records of the Company, which are prepared in accordance with GAAP) are or shall
be valid Accounts Receivable arising in the ordinary course of business, and, to
the Company's knowledge, are or shall be collectible within ninety (90) days
after the day on which each Account Receivable first becomes due and payable,
subject to no counterclaims or set-offs. No third party has any Lien on the
Accounts Receivable or any part thereof, and no agreement for deduction, free
goods, discount or other deferred price or quantity adjustment has been made
with respect to any of the Accounts Receivable.
2.9 Inventory. Except as set forth on Company Schedule 2.9 and subject
to any reserve as reflected on the Current Balance Sheet, all inventory
(including raw materials, work-in-process, and finished goods) of the Company
consists of a quality and quantity usable and salable in the ordinary course of
business, and is not excess, obsolete or damaged. The presentation of inventory
on the Current Balance Sheet conforms to GAAP and such inventory is stated at
the lower of cost (determined using the first-in, first-out method) or net
realizable value.
2.10 No Undisclosed Liabilities. The Company does not have any material
liability, indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type, whether accrued, absolute, contingent, matured,
unmatured or other (whether or not required to be reflected in financial
statements in accordance with GAAP), which has not been reflected on the Current
Balance
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<PAGE> 16
Sheet. Company Schedule 2.10 sets forth a schedule of all Company Indebtedness
(including the amounts of Company Indebtedness, names of creditors, and a
summary of the pertinent terms of such Company Indebtedness) as of the date of
this Agreement. The parties shall mutually agree upon any changes made to
Company Schedule 2.10 after the date of this Agreement.
2.11 No Changes. Except as set forth on Company Schedule 2.11, since
December 31, 1999, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course
of business as conducted on that date and consistent with past practices;
(b) capital expenditure or commitment by the Company in excess
of USD $25,000 individually or USD $50,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(d) claim of wrongful discharge or other unlawful labor
practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company, except
as may be required by GAAP;
(f) amendments or changes to the Organizational Documents of
the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of the Company, or any
direct or indirect redemption, purchase or other acquisition by the Company of
any of its Company Capital Stock;
(i) acquisition, sale, license or other disposition or
transfer of any of the assets or properties of the Company or any creation of
any security interest in such assets or properties, except for sales of
inventory in the ordinary course of business as conducted on that date and
consistent with past practices;
(j) amendment or termination of any material contract,
agreement or license to which the Company is a party or by which it or its
properties or assets is bound;
(k) loan by the Company to any person or entity, incurring by
the Company of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(l) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company other than in accordance with the Company's allowance for doubtful
accounts as reflected on the Current Balance Sheet;
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<PAGE> 17
(m) the commencement, settlement, notice or, to the knowledge
of the Company threat of, any lawsuit or proceeding by or against the Company or
investigation of the Company or its affairs;
(n) notice of any claim (i) of ownership by a third party of
any of the Company's Intellectual Property Rights or (ii) of infringement by the
Company of any third party's Intellectual Property Rights;
(o) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities, or acceleration of vesting of any option or
other security of the Company;
(p) sales returns, notice of product deficiency, obsolescence
or other indication that any product sold by the Company did not perform as
expected or was defective in some manner;
(q) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, shareholders,
employees or advisors (other than normal annual raises for non-officers in
accordance with past practice), or the declaration, payment or commitment or
obligation of any kind for the payment, by the Company, of a bonus or other
additional salary or compensation to any such person;
(r) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
the Company;
(s) change in any material election in respect of Taxes,
adoption or change in any accounting method in respect of Taxes, agreement or
settlement of any claim or assessment in respect of Taxes, or extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes;
(t) entry into, termination, modification or extension of, or
receipt of notice of termination of (i) any license, lease, distributorship,
dealer, sales representative, joint venture, credit, customer, supplier or
similar agreement, or (ii) any contract or transaction involving a total
remaining commitment by or to the Company of at least USD $25,000; or
(u) agreement, whether oral or written, by the Company or any
officer or employee thereof to do any of the foregoing (other than negotiations
with Parent and its representatives regarding the transactions contemplated by
this Agreement).
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<PAGE> 18
2.12 Tax and Other Returns and Reports.
(a) Tax Returns and Audits. Except as set forth on Company
Schedule 2.12(a):
(i) As of the Effective Time, the Company will
have prepared and timely filed all required federal, state, local and foreign
returns, estimates, information statements and reports ("Returns") relating to
any and all Taxes concerning or attributable to the Company or its operations,
including the calculations of net operating losses for purposes of such Returns,
and such Returns are true and correct in all material respects and have been
completed in accordance with applicable law.
(ii) As of the Effective Time, the Company (A)
will have paid all Taxes it is required to pay and will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, and (B) will have accrued on the Current
Balance Sheet all Taxes attributable to the periods preceding the Current
Balance Sheet and will not have incurred any liability for Taxes for the period
commencing after the date of the Current Balance Sheet and ending immediately
prior to the Effective Time, other than in the ordinary course of business.
(iii) The Company has not been delinquent in the
payment of any Tax, nor is there any Tax deficiency outstanding, assessed or
proposed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return
of the Company is presently in progress, nor has the Company been notified of
any request for such an audit or other examination.
(v) The Company does not have any material
liabilities for unpaid Taxes which have not been accrued or reserved on the
Current Balance Sheet, whether asserted or unasserted, contingent or otherwise,
and the Company has not incurred any liability for Taxes since the date of the
Current Balance Sheet other than in the ordinary course of business.
(vi) The Company has made available to Parent or
its legal counsel, copies of all foreign, federal, state and local income and
all state and local sales and use Returns for the Company filed for all periods
since its inception.
(vii) There are (and immediately following the
Effective Time there will be) no Liens on the assets of the Company relating to
or attributable to Taxes other than Liens for Taxes not yet due and payable.
(viii) The Company has no knowledge of any basis
for the assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any material Lien on the assets of the
Company.
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<PAGE> 19
(ix) None of the Company's assets is treated as
"tax-exempt use property," within the meaning of Section 168(h) of the Code.
(x) The Company has not filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(4)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by the Company.
(xi) The Company is not a party to any tax
sharing, indemnification or allocation agreement nor does the Company owe any
amount under any such agreement.
(xii) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and other federal
income Tax deductions is accurately reflected on the Company's tax books and
records.
(xiii) The Company is not, and has not been at
any time, a "United States Real Property Holding Corporation" within the meaning
of Section 897(c)(2) of the Code.
(xiv) No adjustment relating to any Return filed
by the Company has been proposed formally or, to the Company's knowledge,
informally by any tax authority to the Company or any representative thereof.
(xv) The Company has not constituted either a
"distributing corporation" or a "controlled corporation" in a distribution of
stock qualifying for tax-free treatment under Section 355 of the Code (i) in the
two years prior to the date of this Agreement or (ii) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
Merger
(xvi) The Company has not taken any action nor
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization under Section
368(a) of the Code.
(b) Executive Compensation Tax. There is no contract,
agreement, plan or arrangement to which the Company is a party, including,
without limitation, the provisions of this Agreement, covering any employee or
former employee of the Company, which, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
2.13 Restrictions on Business Activities. There is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or, to the Company's knowledge, is otherwise
binding upon the Company which has or may reasonably be expected to have the
effect of prohibiting or impairing any business practice of the Company, any
acquisition of property (tangible or intangible) by the Company, the conduct of
business by the Company or otherwise limiting the freedom of the Company to
engage in any line of business or to compete with any person.
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2.14 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) The Company does not own any real property, nor has it
ever owned any real property. Company Schedule 2.14(a) sets forth a list of all
real property currently leased by the Company, the name of the lessor, the date
of the lease and each amendment thereto and, with respect to any current lease,
the aggregate annual rental and/or other fees payable under any such lease. All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in, all of its
tangible properties and assets used or held for use in its business, free and
clear of any Liens, except as reflected on the Current Balance Sheet and except
for Liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
(c) Company Schedule 2.14(c) lists all material items of
equipment owned or leased by the Company and such equipment is (i) adequate for
the conduct of the business of the Company as currently conducted and (ii) in
good operating condition, regularly and properly maintained, subject to normal
wear and tear.
2.15 Intellectual Property.
(a) Company Schedule 2.15(a) lists all of Company's United
States and foreign: (i) patents, patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations related to trademarks; (iii)
registered copyrights and applications for copyright registration; (iv) any
other Intellectual Property Rights of the Company that is the subject of an
application, certificate or registration filed with, issued by, or recorded by,
any state, government or other public legal authority (all of the foregoing, the
"Registered Intellectual Property").
(b) Each item of Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property.
(c) (i) No third party has any rights to use any of the
Company's Intellectual Property Rights; and (ii) the Company has not granted to
any third party, nor authorized any third party to retain, any of the Company's
Intellectual Property Rights.
(d) (i) The Company owns and has good and exclusive title to
each item of Registered Intellectual Property listed on Company Schedule
2.15(a), free and clear of any Liens; and (ii) the
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Company owns, or has the right, pursuant to a valid Contract to use or operate
under, all other Intellectual Property Rights of the Company.
(e) The operation of the business of the Company as it
currently is conducted does not infringe or misappropriate the Intellectual
Property Rights of any other third party, violate the rights of any third party
(including rights to privacy or publicity), or constitute unfair competition nor
has the Company received notice from any third party claiming that such
operation constitutes any such infringement, misappropriation, violation or
unfair competition.
(f) The Company owns or has the right to all Intellectual
Property Rights necessary to the conduct of its business as it currently is
conducted.
(g) There are no Contracts between the Company and any other
third party with respect to Intellectual Property Rights of the Company under
which there is any dispute, to the Company's knowledge, regarding the scope of
such agreement, or performance under such agreement including with respect to
any payments to be made or received by the Company thereunder.
(h) To the Company's knowledge, no third party is infringing
or misappropriating any of the Company's Intellectual Property Rights.
(i) No Intellectual Property Right of the Company or product
or service of the Company is subject to any outstanding decree, order, judgment,
or stipulation restricting in any manner the licensing or use thereof by the
Company.
2.16 Agreements, Contracts and Commitments.
(a) Except as set forth on Company Schedule 2.16(a), the
Company does not have, is not a party to nor is it bound by:
(i) any employment or consulting agreement,
contract or commitment with an employee or individual consultant or salesperson
or consulting or sales agreement, contract or commitment with a firm or other
organization;
(ii) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or stock
purchase plan, any of the benefits of which will be increased by, or the vesting
of benefits of which will be accelerated by, or which would require the consent
of any party thereto as a result of, the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(iii) any fidelity or surety bond or completion
bond;
(iv) any lease of personal property having a
value in excess of USD $25,000 individually or USD $50,000 in the aggregate;
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<PAGE> 22
(v) any agreement, contract or commitment
relating to capital expenditures and involving future payments in excess of USD
$25,000 individually or USD $50,000 in the aggregate;
(vi) any agreement, contract or commitment
relating to the disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of the Company's business;
(vii) any licensing agreement or other contract
with respect to Intellectual Property Rights;
(viii) any joint venture, partnership, and other
contract involving a sharing of profits, losses, costs, or liabilities by the
Company with any third party;
(ix) any contract containing covenants that in
any way purport to restrict the business activity of the Company or any
affiliate or limit the freedom of the Company or any affiliate of the Company to
engage in any line of business or to compete with any third party;
(x) any power of attorney or other similar
agreement or grant of agency;
(xi) any contract entered into other than in the
ordinary course of business that contains or provides for an express undertaking
by the Company to be responsible for consequential damages;
(xii) any oral or written warranty, guaranty, and
or other similar undertaking with respect to product or contractual performance
sold or extended by the Company other than in the ordinary course of business;
or
(xiii) any amendment, supplement, and
modification (whether oral or written) in respect of any of the foregoing.
(b) All of the Contracts set forth or required to be set forth
on Company Schedule 2.16(a) ("Contracts") are valid, binding and enforceable in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and other laws of
general application effecting enforcement of creditors' rights generally, rules
of law governing specific performance, injunctive relief or other equitable
remedies, and limitations of public policy; and shall be in full force and
effect without penalty in accordance with their terms upon consummation of the
transactions contemplated hereby. The Company has performed all material
obligations required to be performed by it and is not in default in any material
respect under or in breach in any material respect of nor in receipt of any
claim of default or breach under any Contract set forth or required to be set
forth on Company Schedule 2.16(a); no event has occurred which, with the passage
of time or the giving of notice or both, would result in a default, breach or
event of noncompliance by the Company in any material respect under any such
Contract; the Company does not have any present expectation or intention of not
fully performing on a timely basis all such obligations required to be performed
by the Company under any Contract set forth or required to be set forth on
Company Schedule 2.16(a); no partially-filled or unfilled material
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<PAGE> 23
customer purchase order or sales order is subject to cancellation or any other
material modification by the other party thereto or is subject to any penalty,
right of set-off or other charge by the other party thereto for late performance
or delivery; and the Company does not have any knowledge of any cancellation or
anticipated cancellation or any breach by the other parties to any Contract set
forth or required to be set forth on Company Schedule 2.16(a). The Company is
not a party to any Contract the performance of which could reasonably be
expected to have a Company Material Adverse Effect.
(c) Parent has been supplied with a true and correct copy of
each of the written Contracts that are set forth on Company Schedule 2.16(a),
together with all amendments, waivers or other changes thereto.
2.17 Interested Party Transactions. No officer, director or, to the
Company's knowledge, shareholder of the Company (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an interest), has or has
had, directly or indirectly, (i) an interest in any entity which furnished or
sold, or furnishes or sells, services or products that the Company furnishes or
sells, or proposes to furnish or sell, or (ii) any interest in any entity that
purchases from or sells or furnishes to the Company, any goods or services, or
(iii) a beneficial interest in any Contract to which the Company is a party;
provided, however, that ownership of no more than five percent (5%) of the
outstanding voting stock of a publicly traded corporation shall not be deemed to
be an "interest in any entity" for purposes of this Section 2.17.
2.18 Year 2000 Compliance. Except as set forth on Company Schedule
2.18, all of the Company's products (including products currently under
development) (a) record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000, and calculate any information dependent on or relating to such dates in
the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant");
(b) have lost no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000; and (c) are interoperable
with other products used and distributed by the Company that may reasonably
deliver records to the Company's products or receive records from the Company's
products, or interact with the Company's products, including but not limited to
back-up and archived data. The Company's Information Technology is Year 2000
Compliant, and has not caused a material interruption in the ongoing operations
of the Company's business. To the Company's knowledge, the Information
Technology of the Company's customers and suppliers is Year 2000 Compliant and
has not caused an interruption in the ongoing operations of the Company's
business.
2.19 Litigation. There is no action, suit, investigation, claim,
arbitration or proceeding ("Action") of any nature pending, or to the Company's
knowledge threatened, against the Company, its properties (tangible or
intangible) or any of its officers or directors by or before any third party,
nor to the Company's knowledge is there any reasonable basis therefor. No third
party has at any time challenged or questioned the legal right of the Company to
conduct its operations as previously or presently conducted.
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<PAGE> 24
2.20 Environmental Matters.
(a) Condition of Property. As of the Closing, except in
compliance with Environmental Laws in a manner that could not reasonably be
expected to subject the Company to liability, to the knowledge of the Company
after reasonable inquiry, no Hazardous Materials are present on any Business
Facility currently owned, operated, occupied, controlled or leased by the
Company or were present on any other Business Facility at the time it ceased to
be owned, operated, occupied, controlled or leased by the Company. Except as set
forth on Company Schedule 2.20(a), there are no underground storage tanks,
asbestos which is friable or likely to become friable or PCBs present on any
Business Facility currently owned, operated, occupied, controlled or leased by
the Company or as a consequence of the acts of the Company or its agents.
(b) Hazardous Materials Activities. The Company has conducted
all Hazardous Material Activities relating to its business in compliance in all
material respects with all applicable Environmental Laws. The Hazardous
Materials Activities of the Company prior to the Closing have not resulted in
the exposure of any person to a Hazardous Material in a manner which has caused
or could reasonably be expected to cause an adverse health effect to any such
person.
(c) Permits. Company Schedule 2.20(c) accurately describes all
of the Environmental Permits currently held by the Company and relating to its
business and the listed Environmental Permits are all of the Environmental
Permits necessary for the continued conduct of any Hazardous Material Activity
of the Company relating to its business as such activities are currently being
conducted. All such Environmental Permits are valid and in full force and
effect. The Company has complied in all material respects with all covenants and
conditions of any Environmental Permit which is or has been in force with
respect to its Hazardous Materials Activities. No circumstances exist which
could cause any Environmental Permit to be revoked, modified, or rendered
non-renewable upon payment of the permit fee. All Environmental Permits and all
other consent and clearances required by any Environmental Law or any agreement
to which the Company is bound as a condition to the performance and enforcement
of this Agreement, have been obtained or will be obtained prior to the Closing
at no cost to Parent or Merger Sub.
(d) Environmental Litigation. Except as set forth on Company
Schedule 2.20(d), no Action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to the best of the Company's
knowledge, threatened, concerning or relating to any Environmental Permit or any
Hazardous Materials Activity of the Company relating to its business, or any
Business Facility.
(e) Offsite Hazardous Material Disposal. The Company has
transferred or released Hazardous Materials only to those Disposal Sites set
forth on Company Schedule 2.20(e); and no Action, proceeding, liability or claim
exists or is threatened against any Disposal Site or against the Company with
respect to any transfer or release of Hazardous Materials relating to the
business of the Company to a Disposal Site which could reasonably be expected to
subject the Company to liability.
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<PAGE> 25
(f) Environmental Liabilities. The Company is not aware of any
fact or circumstance, which could result in any environmental liability which
could reasonably be expected to result in a material adverse effect on the
business or financial status of the Company.
(g) Reports and Records: The Company has delivered to Parent
or made available for inspection by Parent and its agents, representatives and
employees all records in the Company's possession concerning the Hazardous
Materials Activities of the Company relating to its business and all
environmental audits and environmental assessments of any Business Facility
conducted at the request of, or otherwise in the possession of the Company. The
Company has complied with all environmental disclosure obligations imposed by
applicable law with respect to this transaction.
2.21 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth on Company Schedule 2.21, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with the Agreement or any
transaction contemplated hereby. Company Schedule 2.21 sets forth the principal
terms and conditions of any agreement, written or oral, with respect to such
fees. Company Schedule 2.21 sets forth the Company's current reasonable estimate
of all Third Party Expenses expected to be incurred by the Company in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.22 Employee Matters and Benefit Plans.
(a) Schedule. Company Schedule 2.22(a) contains an accurate
and complete list of each Company Employee Plan, International Employee Plan,
and each Employment Agreement. The Company does not have any plan or commitment
to establish any new Company Employee Plan, International Employee Plan, or
Employment Agreement, to modify any Company Employee Plan or Employment
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employment Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to adopt or enter into any Company Employee Plan,
International Employee Plan, or Employment Agreement.
(b) Documents. The Company has provided to Parent correct and
complete copies of: (i) all documents embodying each Company Employee Plan,
International Employee Plan, and each Employment Agreement including (without
limitation) all amendments thereto and all related trust documents,
administrative service agreements, group annuity contracts, group insurance
contracts, and policies pertaining to fiduciary liability insurance covering the
fiduciaries for each Plan; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan; (iv) if the Company Employee Plan is funded, the
most recent annual and periodic accounting of Company Employee Plan assets; (v)
the most recent summary plan description together with the summary(ies) of
material modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and all applications and correspondence to or from the IRS
or the DOL with respect to any such application or letter; (vii) all
communications material to any Company Group Employee or Company Group Employees
relating to any Company Employee Plan and any proposed Company
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<PAGE> 26
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company; (viii) all correspondence to or from any governmental agency
relating to any Company Employee Plan; (ix) all COBRA forms and related notices
(or such forms and notices as required under comparable law); (x) the three (3)
most recent plan years discrimination tests for each Company Employee Plan; and
(xi) all registration statements, annual reports (Form 11-K and all attachments
thereto) and prospectuses prepared in connection with each Company Employee
Plan.
(c) Employee Plan Compliance. Except as set forth on Company
Schedule 2.22(c), (i) the Company has performed in all material respects all
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS with
respect to each such Company Employee Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which to apply for such
a letter and make any amendments necessary to obtain a favorable determination
as to the qualified status of each such Company Employee Plan; (iii) no
"prohibited transaction", within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of
the Code or Section 408 of ERISA (or any administrative class exemption issued
thereunder), has occurred with respect to any Company Employee Plan; (iv) there
are no actions, suits or claims pending, or, to the knowledge of the Company,
threatened or reasonably anticipated (other than routine claims for benefits)
against any Company Employee Plan or against the assets of any Company Employee
Plan; (v) each Company Employee Plan (other than any stock option plan) can be
amended, terminated or otherwise discontinued after the Effective Time, without
material liability to the Parent, the Company or any of its Related Parties
(other than ordinary administration expenses); (vi) there are no audits,
inquiries or proceedings pending or, to the knowledge of the Company or any
Related Parties, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) neither the Company nor any Related Party is subject to
any penalty or tax with respect to any Company Employee Plan under Section
502(i) of ERISA or Sections 4975 through 4980 of the Code.
(d) Pension Plan. Neither the Company nor any Related Party
has ever maintained, established, sponsored, participated in, or contributed to,
any Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(e) Collectively Bargained, Multiemployer and Multiple
Employer Plans. At no time has the Company or any Related Party contributed to
or been obligated to contribute to any Multiemployer Plan. Neither the Company,
nor any Related Party has at any time ever maintained,
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<PAGE> 27
established, sponsored, participated in, or contributed to any multiple employer
plan, or to any plan described in Section 413 of the Code.
(f) No Post-Employment Obligations. Except as set forth on
Company Schedule 2.22(f), no Company Employee Plan provides, or reflects or
represents any liability to provide retiree health to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Company Group Employee (either individually or to Company Group Employees
as a group) or any other person that such Company Group Employee(s) or other
person would be provided with retiree health, except to the extent required by
statute.
(g) Health Care Compliance. Neither the Company nor any
Related Party has, prior to the Effective Time and in any material respect,
violated any of the health care continuation requirements of COBRA, the
requirements of FMLA, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and Cancer
Rights Act of 1998, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, or any amendment to each such act, or any similar
provisions of state law applicable to its Company Group Employees.
(h) Effect of Transaction.
(i) Except as set forth on Company Schedule
2.22(h), the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employment Agreement, trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Company Group Employee.
(ii) Except as set forth on Company Schedule
2.22(h), no payment or benefit which will or may be made by the Company or its
Related Parties with respect to any Company Group Employee will be characterized
as a "parachute payment", within the meaning of Section 280G(b)(2) of the Code.
(i) Employment Matters. The Company: (i) is in compliance in
all respects with all applicable foreign, federal, state and local laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Company Group Employees; (ii) has withheld and reported all amounts required by
law or by agreement to be withheld and reported with respect to wages, salaries
and other payments to Company Group Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Company Group Employees (other than routine payments to be
made in the normal course of business and consistent with past practice). There
are no pending, threatened or reasonably anticipated claims or actions against
the Company under any worker's compensation policy or long-term disability
policy.
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<PAGE> 28
(j) Labor. No work stoppage or labor strike against the
Company is pending, threatened or reasonably anticipated. The Company does not
know of any activities or proceedings of any labor union to organize any Company
Group Employees. Except as set forth on Company Schedule 2.22(j), there are no
actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Company Group Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in any material liability to the Company. Neither
the Company nor any of its subsidiaries has engaged in any unfair labor
practices within the meaning of the National Labor Relations Act. Except as set
forth on Company Company Schedule 2.22(j), the Company is not presently, nor has
it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Company Group Employees and no
collective bargaining agreement is being negotiated by the Company.
(k) International Employee Plan. The Company does not now, nor
has it ever had the obligation to, maintain, establish, sponsor, participate in,
or contribute to any International Employee Plan.
2.23 Compliance with Legal Requirements. The Company has complied in
all material respects with, is not in violation of, and has not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation.
2.24 Insurance. Company Schedule 2.24 sets forth a list of all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company or any
affiliate. There is no claim by the Company or any affiliate pending under any
of such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid, and the Company and
its affiliates are otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). The Company has no knowledge of threatened termination of,
or premium increase with respect to, any of such policies.
2.25 Employees. Company Schedule 2.25 contains a complete and accurate
list of the following information for each employee (including full-time,
part-time and contract employees) and director of the Company, including each
employee on leave of absence; employer (for contract employees); name; job
title; age; race; gender; current compensation paid or payable and any change in
compensation since January 1, 1999; vacation accrued; number of options held (if
any); and service credited for purposes of vesting and eligibility to
participate under the Company's various benefit plans. To the Company's
knowledge, except as set forth on Company Schedule 2.25, no employee of the
Company has the immediate intention to terminate his or her employment with the
Company.
2.26 Product Warranty. All products and equipment manufactured, sold,
leased or delivered by the Company and all services rendered by the Company have
been in conformity with all applicable contractual commitments and all express
and implied warranties, and the Company does not have any liability for
replacement or repair thereof or other damages in connection
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<PAGE> 29
therewith in excess of any warranty reserve established with respect thereto and
included on the Current Balance Sheet. Except as set forth on Company Schedule
2.26, no products or equipment manufactured, sold, leased or delivered by the
Company and no services rendered by the Company are subject to any guaranty,
warranty or other indemnity beyond the applicable standard terms and conditions
of such sale, lease or service (including as a result of any course of conduct
between the Company and any third party or as a result of any statements in any
of the Company's product or promotional literature). Company Schedule 2.26
includes copies of such standard terms and conditions of sale, lease and service
for the Company (containing applicable guaranty, warranty and indemnity
provisions). The Company has not been notified in writing of any claims for (and
the Company has no knowledge of any threatened claims for) any extraordinary
product returns, warranty obligations or product services relating to any of its
products or services.
2.27 Product Liability; Product Recalls, etc. To the Company's
knowledge, except as set forth on Company Schedule 2.27, the Company does not
have any liability arising out of any injury to individuals or property as a
result of the ownership, possession or use of any products or equipment
manufactured, sold, leased or delivered by the Company or with respect to any
services rendered by the Company. Except as set forth on Company Schedule 2.27,
there have been no product or equipment recalls, withdrawals or seizures with
respect to any products or equipment manufactured, sold, leased or delivered by
the Company or with respect to any services rendered by the Company.
2.28 Books and Records. The minute books of the Company contain
accurate and complete records of all meetings held of, and material corporate
action taken by, the shareholders and the Board of Directors. No material action
has been taken by a committee of the Board of Directors of the Company for which
minutes have not been prepared and are not contained in such minute books. As of
the Closing, no meeting of the Boards of Directors or the shareholders will have
been held for which minutes have not been prepared and are not contained in such
minute books. At the Closing, all of the minute books will be in the possession
of the Company.
2.29 Customers and Suppliers. Company Schedule 2.29 sets forth the
names and addresses of the ten (10) most significant customers and suppliers of
the Company by dollar volume of sale and purchases, respectively for each of the
fiscal years ended December 31, 1998 and December 31, 1999. Except as set forth
on Company Schedule 2.29, the Company has not received any notice that any of
such customers of the Company has ceased, or will cease, to use the products,
equipment, goods or services of the Company, or has substantially reduced, or
will substantially reduce, the use of such products, equipment, goods or
services at any time. Except as set forth on Company Schedule 2.29, the Company
has not received any notice from any of such suppliers of the Company to the
effect that such supplier will stop, materially decrease the rate of, or
materially change the terms (whether related to payment, price or otherwise)
with respect to, supplying materials, products or services to the Company
(whether as a result of the consummation of the transactions contemplated hereby
or otherwise).
2.30 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
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<PAGE> 30
2.31 Representations Complete. Neither any of the representations or
warranties made by the Company (as modified by the Company Schedules) in this
Agreement, nor any statements made in any exhibit, schedule or certificate
furnished by the Company pursuant to this Agreement taken as a whole contains or
will contain at the Effective Time, any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading. The information regarding the
Company furnished on or in any documents mailed, delivered or otherwise
furnished to Shareholders in connection with the solicitation of their consent
to this Agreement and the Merger, will not contain, at or prior to the Effective
Time, any untrue statement of a material fact and will not omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which made, not misleading with respect to the
Company.
3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company that
on the date hereof and as of the Effective Time as though made at the Effective
Time as follows:
3.1 Organization, Standing and Power. Each of Parent and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Parent and Merger Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Parent Material Adverse Effect.
3.2 Authority. Each of Parent and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and any Related
Agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Merger Sub. This Agreement
and any Related Agreements to which Parent and Merger Sub are parties have been
duly executed and delivered by Parent and Merger Sub and constitute the valid
and binding obligations of Parent and Merger Sub, enforceable in accordance with
their terms, except as such enforceability may be limited by principles of
public policy and laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.3 Capital Resources. Parent has sufficient capital resources to
perform its obligations with respect to the Aggregate Merger Consideration and
to consummate all of the transactions contemplated by the Agreement and the
Related Agreements.
3.4 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, or any
third party is required by or with respect
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<PAGE> 31
to Parent or Merger Sub in connection with the execution and delivery of this
Agreement and any Related Agreements to which Parent or Merger Sub is a party or
the consummation of the transactions contemplated hereby and thereby, except for
(i) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws and
the HSR Act; (ii) the filing of the Agreement of Merger with the Secretaries of
State of the States of California and Delaware, respectively; and (iii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings which, if not obtained or made, would not have a Parent
Material Adverse Effect.
3.5 Capital Structure.
(a) The authorized stock of Parent consists of 100,000,000
shares of Common Stock, USD $.001 par value, of which approximately 8,846,458
shares were issued and outstanding as of February 4, 2000, and 10,000,000 shares
of undesignated Preferred Stock, USD $.001 par value. No shares of Preferred
Stock are issued or outstanding. All such shares have been duly authorized, and
all such issued and outstanding shares have been validly issued, are fully paid
and nonassessable and are free of any liens or encumbrances other than any liens
or encumbrances created by or imposed upon the holders thereof. Parent has also
reserved approximately 3,874,900 shares of Common Stock for issuance pursuant to
its employee and director stock and option plans. There are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Parent is a party or by which it is bound obligating Parent to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of the capital stock of Parent or obligating Parent to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
(b) The shares of Parent Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid, non-assessable,
free of any liens or encumbrances and not subject to any preemptive rights or
rights of first refusal created by statute or the certificate of incorporation
or bylaws of Parent or any agreement to which Parent is a party or is bound
except as provided in this Agreement.
3.6 SEC Filings; Parent Financial Statements. Parent has filed all
forms, reports and documents required to be filed with the SEC since January 1,
1999 (collectively, the "Parent SEC Reports"), and has heretofore made available
to the Company, in the form filed with the SEC, the Parent SEC Reports. The
Parent SEC Reports (i) were, as of their respective dates, prepared in
accordance with, in all material respects, the requirements of the Securities
Exchange Act of 1934, as amended, and (ii) to Parent's knowledge, did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except to the
extent corrected prior to the date hereof by a subsequently filed Parent SEC
Report. The financial statements of Parent, including the notes thereto,
included in the Parent SEC Reports (the "Parent Financial Statements") comply as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with United States generally accepted accounting
principles consistently applied (except as may be indicated in the notes
thereto) and
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<PAGE> 32
present fairly in all material respects the consolidated financial position of
Parent at the dates thereof and of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal audit
adjustments).
3.7 Litigation. There is no Action: (a) against Parent, its properties
or assets or, to Parent's knowledge, against any officer, director or employee
of Parent in connection with such officer's, director's or employee's
relationship with, or actions taken on behalf of, Parent which Parent believes
is reasonably likely to have a Parent Material Adverse Effect, or (b) that seeks
to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement. No Action by Parent is currently pending nor does Parent intend to
initiate any Action which is reasonably likely to have a Parent Material Adverse
Effect.
4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees, except to the extent that
Parent shall otherwise consent in writing, to carry on the Company's business in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of the Company when due, to pay
or perform other obligations when due, and, to the extent consistent with such
business, use commercially reasonable efforts consistent with past practice and
policies to preserve intact the Company's present business organizations, keep
available the services of the Company's present officers and key employees and
preserve the Company's relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, all with the
goal of preserving unimpaired the Company's goodwill and ongoing business at the
Effective Time. The Company shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of business of the Company
and any material event involving the Company. From and after the date hereof,
the Company will use commercially reasonable efforts to collect any and all
appropriate and necessary reseller certificates on a timely basis from any
reseller to whom sales are made. Except as expressly contemplated by this
Agreement as set forth on Schedule 4.1 hereto, the Company shall not without the
prior written consent of Parent:
(a) make any expenditures or enter into (i) any commitment or
transaction exceeding USD $25,000 individually or in the aggregate or (ii) any
commitment or transaction of the type described in Section 2.11 hereof;
(b) except in the ordinary course of business or as previously
disclosed in writing to Parent, (i) sell, license or transfer to any person or
entity any rights to any of the Company's Intellectual Property Rights or enter
into any agreement with respect to any of the Company's Intellectual Property
Rights with any third party or with respect to any Intellectual Property Right
of any third party, (ii) buy or license any Intellectual Property Rights or
enter into any agreement with respect to the Intellectual Property Rights of any
third party, (iii) enter into any agreement with respect to the development of
any Intellectual Property Rights with a third party, (iv) or change
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<PAGE> 33
pricing or royalties charged by the Company to its customers or licensees, or
the pricing or royalties set or charged by third parties who have licensed
Intellectual Property Rights to the Company;
(c) enter into or amend any Contract pursuant to which any
other party is granted marketing, distribution, development or similar rights of
any type or scope with respect to any products or technology of the Company,
except in the ordinary course of business consistent with past practice;
(d) amend, modify or terminate (or agree to do so), except in
the ordinary course of business, or violate the terms of, any of the Contracts;
(e) commence or settle any litigation;
(f) declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of Company Capital Stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of Company
Capital Stock (or options, warrants or other rights exercisable therefor) except
for (i) repurchases of Company Capital Stock upon the termination of service of
any service providers of the Company in accordance with the standard terms set
forth in the agreements governing such repurchases, all of which agreements have
been provided or made available to Parent, and (ii) the exercise of Company
Warrants;
(g) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of Company Capital Stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities, except for the issuance of Additional Options
or the exercise of Company Warrants, or accelerate the vesting of any
outstanding option or other security;
(h) cause or permit any amendments to the Organizational
Documents of the Company;
(i) acquire or agree to acquire by merging or consolidating
with, or by purchasing any assets or equity securities of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to the
Company's business;
(j) sell, lease, license or otherwise dispose of any of its
properties or assets, except properties or assets which are not Intellectual
Property Rights and only in the ordinary course of business and consistent with
past practices;
(k) incur any indebtedness or guarantee any indebtedness or
issue or sell any debt securities or guarantee any debt securities of others
except for borrowings under existing credit facilities;
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(l) grant any loans to others or purchase debt securities of
others or amend the terms of any outstanding loan agreement;
(m) grant any severance or termination pay to any director or
officer, or to any other employee, except for obligations under existing
agreements which have been previously delivered to Parent's legal counsel;
(n) adopt or amend any employee benefit plan, or enter into
any employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(o) revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or Accounts Receivable
other than in the ordinary course of business;
(p) pay, waive, discharge or satisfy, in an amount in excess
of USD $25,000 in any one case, or USD $50,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than the payment, discharge or satisfaction of liabilities
incurred in the ordinary course of business;
(q) make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(r) enter into any strategic alliance or joint marketing
arrangement or agreement;
(s) hire any employee, except to replace a terminated employee
or except as reasonably necessary consistent with the needs of the business of
the Company; not terminate the employment of any employee other than for
"cause";
(t) engage in any action that could reasonably be expected to
cause the Merger to fail to qualify as a "reorganization" under Section 368(a)
of the Code whether or not otherwise permitted by the provisions of this Article
4.1; or
(u) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through 4.1(t) hereof, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of (i) the Effective Time, or
(ii) the date of termination of this Agreement pursuant to the provisions of
Section 8.1 hereof, the Company shall not (nor shall the Company permit, as
applicable, any of the Company's officers, directors, employees, agents, or
representatives to), directly or indirectly, take any of the following actions
with any party other than Parent and its designees: (a) solicit, encourage,
initiate or participate in any inquiry, negotiations or discussions, or enter
into any agreement, with respect to any offer or proposal to acquire all or any
material part of the Company's business, properties or technologies, or any
material amount of the Company Capital Stock (whether or not outstanding),
whether by merger, purchase of assets, tender
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offer or otherwise, or effect any such transaction, (b) disclose any information
not customarily disclosed to any third party concerning the Company's business,
technologies or properties, or afford to any person or entity access to its
properties, technologies, books or records, not customarily afforded such
access, (c) assist or cooperate with any third party to make any proposal to
purchase all or any material part of the Company Capital Stock or assets of the
Company other than inventory in the ordinary course of business, or (d) enter
into any agreement with any third party providing for the acquisition of the
Company, whether by merger, purchase of assets, tender offer or otherwise.
Without limiting the generality of the preceding sentence, the preceding
sentence shall not prohibit any officer or director of the Company from
furnishing any information to the Shareholders which, based on the written
advice of the Company's outside legal counsel, is required to be furnished in
order to prevent such officer or director from breaching his or her fiduciary
duties to the Shareholders under California Law; provided, however, to the
extent permitted by applicable law, the Company shall concurrently furnish such
information to the Parent. In the event that the Company or any of the Company's
affiliates shall receive, prior to the Effective Time or the termination of this
Agreement, any offer, proposal, or request, directly or indirectly, of the type
referenced in clause (a) or (c) above, or any request for disclosure or access
pursuant to clause (b) above, the Company shall immediately notify Parent
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request. The parties hereto agree that irreparable damage
would occur in the event that the provisions of this Section 4.2 were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed by the parties hereto that Parent shall be entitled to
seek an injunction or injunctions to prevent breaches of the provisions of this
Section 4.2 and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which Parent may be entitled at law or in
equity.
5
ADDITIONAL AGREEMENTS
5.1 Shareholder Approval. The Company shall promptly submit this
Agreement and the transactions contemplated hereby to the Shareholders for
approval and adoption as provided by California Law and the Organizational
Documents of the Company. The Company shall use its commercially reasonable
efforts to obtain the consent of the Shareholders sufficient to approve the
Merger and this Agreement and to enable the Closing to occur as promptly as
practicable. The materials to be submitted to the Shareholders in connection
with the solicitation of their approval of the Merger and this Agreement shall
be subject to review and approval by Parent and shall include information
regarding the Company, Parent, the terms of the Merger and this Agreement and
the recommendation of the Board of Directors of the Company in favor of the
Merger and this Agreement.
5.2 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during the
period prior to the Effective Time to (i) all of the
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Company's properties, books, contracts, commitments and records, (ii) all other
information concerning the business, properties and personnel of the Company as
Parent may reasonably request, and (iii) all employees of the Company as
identified by Parent. The Company agrees to provide to Parent and its
accountants, counsel and other representatives copies of internal financial
statements (including Returns and supporting documentation) promptly upon
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger in accordance with the terms and provisions hereof.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.2 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidentiality Agreement.
5.4 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses. Notwithstanding the
foregoing, in the event the Merger is consummated, the Shareholders shall pay,
on behalf of the Company, the fees and expenses of the Company out of available
cash reserves of the Company; provided, however, that the Company acknowledges
and agrees that Parent shall have full recourse to the Escrow Fund for payment
of all Third Party Expenses of the Company that exceed the available cash
reserves of the Company immediately prior to the Closing Date.
5.5 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) shall
be made by any party hereto regarding the subject matter of this Agreement
unless approved by the other party hereto prior to release.
5.6 Consents. The Company shall use commercially reasonable efforts to
obtain the consents, waivers, assignments and approvals under any of the
Contracts as may be required in connection with the Merger so as to preserve all
rights of, and benefits to, the Company thereunder.
5.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver
to Parent a properly executed statement in a form reasonably acceptable to
Parent for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this
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Agreement; provided that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or of any business, assets or property of
Parent or its subsidiaries or affiliates or of the Company or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
5.9 Securities Laws Compliance.
(a) Preparation of Permit Application, Hearing Request,
Hearing Notice and Information Statement. As promptly as practicable after the
date hereof, Parent and the Company shall prepare and file with the California
Commissioner of Corporations the documents required by the California Corporate
Securities Law of 1968, as amended (the "CCSL") including, but not limited to,
any required "Permit Application," "Hearing Request," and "Hearing Notice,"
pursuant to Sections 25121 and 25142 of the CCSL (collectively, the "Notice
Materials"), in connection with the Merger in order to obtain a permit to issue
securities (the "Permit") and perfect the exemption from registration provided
in Section 3(a)(10) of the Securities Act. Each of Parent and the Company shall
use all reasonable efforts to have the Permit Application, Hearing Request and
Hearing Notice declared effective under the CCSL as promptly as practicable
after such filing. In addition, the Company and Parent will prepare and the
Company will distribute an information statement (the "Information Statement")
along with the Notice Materials, as may be required by California Law, at the
earliest practicable date to submit this Agreement, the Merger and related
matters for the consideration and approval of the Shareholders, which approval
will be recommended by the Company's Board of Directors and management. Such
Information Statement will contain information, and will be solicited, in
compliance with applicable law. Each of Parent and the Company will promptly
provide all information relating to their respective business and operations
necessary for inclusion in the Notice Materials to satisfy all requirements of
applicable state and federal securities laws. Each of Parent and the Company
shall be solely responsible for any statement, information or omission in the
Notice Materials relating to it or its affiliates based upon written information
furnished by it.
(b) S-4 Registration Statement. If Parent determines, in its
sole discretion, that the Permit is not available or that obtaining the Permit
is not practical, the Company will assist Parent and cooperate fully with Parent
in connection with preparation and filing of a Registration Statement on Form
S-4 to register the offer and sale of securities by Parent in connection with
the Merger and the solicitation of proxies or written consents for the approval
of this Agreement and the Merger by the Shareholders (the "S-4") which Parent
will prepare and file with the SEC. Each of Parent and the Company shall use
reasonable efforts to cause the S-4 to become effective as promptly as
practicable. The S-4, including the proxy statement/prospectus used in
connection therewith and all related materials will contain information, and all
related materials will contain information, and such proxies will be solicited,
in accordance with applicable law. Each of Parent and the Company will promptly
provide all information relating to Parent or the Company, as applicable, for
inclusion in the S-4 and such proxy statement/prospectus to satisfy the
requirements of all applicable state and federal securities laws. Each of Parent
and the Company shall be solely responsible for any statement, information or
omission in the S-4 and such proxy statement/ prospectus relating to it or its
affiliates based upon written information furnished by it.
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5.10 Notification of Certain Matters; Financial Statements.
(a) The Company shall give prompt notice to Parent of (i) any
Action initiated by or against the Company or threatened against the Company,
(ii) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of the
Company contained in this Agreement to be untrue or inaccurate at or prior to
the Effective Time and (iii) any failure of the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder in each case such that the conditions contained in Section 6.3(a)
would not be satisfied; provided, however, that the delivery of any notice
pursuant to this Section 5.10 shall not (x) limit or otherwise affect any
remedies available to the party receiving such notice or (y) constitute an
acknowledgment or admission of a breach of this Agreement by the Company. No
disclosure by the Company pursuant to this Section 5.10, however, shall be
deemed to amend or supplement the Company Schedules or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
(b) Parent shall give prompt notice to the Company of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of Parent contained in
this Agreement to be untrue or inaccurate at or prior to the Effective Time and
(ii) any failure of Parent to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in each case such
that the conditions contained in Section 6.2(a) would not be satisfied;
provided, however, that the delivery of any notice pursuant to this Section 5.10
shall not limit or otherwise affect any remedies available to the party
receiving such notice or constitute an acknowledgment or admission of a breach
of this Agreement by Parent. No disclosure by Parent pursuant to this Section
5.10, however, shall be deemed to prevent or cure any misrepresentations, breach
of warranty or breach of covenant.
(c) The Company shall deliver to Parent as soon as practicable
but in any event within fifteen (15) calendar days after the end of each monthly
accounting period beginning with the month ended May 31, 2000 and ending with
the monthly accounting period occurring before the earlier of the Closing Date
or the termination of this Agreement in accordance with its terms, an unaudited
consolidated balance sheet and a statement of operations for the Company, which
financial statements shall be prepared in the ordinary course of business, in
accordance with the Company's books and records and shall fairly present the
consolidated financial position of the Company as of their respective dates and
the results of the Company's operations for the periods then ended.
5.11 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby
5.12 S-3 Registration Rights. The parties hereby agree as follows with
respect to S-3 registration rights, provided that this Section 5.12 shall be
automatically null and void and have no further force or effect upon the
effectiveness of the S-4 filed (if at all) by Parent pursuant to Section 5.9(b)
hereof:
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(a) Restricted Securities. Except as contemplated by Section
5.9 hereof, the parties hereto acknowledge and agree that the shares of Parent
Common Stock issuable to the Shareholders pursuant to Section 1.6 hereof shall
constitute "restricted securities" within the meaning of the 1933 Act. The
certificates for shares of Parent Common Stock to be issued in the Merger shall
bear appropriate legends to identify such privately placed shares as being
restricted under the 1933 Act, to comply with applicable state securities laws.
It is acknowledged and understood that Parent is relying upon certain written
representations made by each Shareholder.
(b) Registration. Parent hereby agrees that, as soon as
reasonably practicable but in any event within ninety (90) days after the
Closing, Parent shall file a Registration Statement on Form S-3, or such other
form that the Parent may be eligible to use, under the 1933 Act (the "S-3
Registration") to register the shares of Parent Common Stock issued to the
Shareholders at the Effective Time pursuant to Section 1.6 hereof for resale by
such Shareholders and shall use its best efforts to have such S-3 Registration
declared effective by the SEC as soon as practicable thereafter. The S-3
Registration shall remain effective for no more than one hundred twenty (120)
days. The offering made pursuant to the S-3 Registration shall not be
underwritten.
(c) Postponement of Registration. Notwithstanding Section
5.12(b) hereof, Parent shall be entitled to postpone the declaration of
effectiveness of the S-3 Registration for a reasonable period of time (not to
exceed ninety (90) calendar days) if the Board of Directors of Parent, acting in
good faith, determines that there exists material non-public information about
Parent. In addition, if the Board of Directors of Parent, acting in good faith,
determines that material non-public information regarding Parent exists, the
immediate disclosure of which would be detrimental to Parent, or an offering of
Registrable Securities would materially interfere with a proposed material
acquisition, disposition or similar corporate transaction, Parent may suspend
sales under or delay the effectiveness of the S-3 Registration. In either case,
Parent's obligation to maintain the effectiveness of the S-3 Registration for
one hundred twenty (120) days pursuant to Section 5.12(c) hereof shall be
extended by the period of time for which the S-3 Registration is suspended or
delayed.
(d) Daily Trading Volume Limits. As a material inducement for
Parent to grant the S-3 Registration in accordance with Section 5.12(b) hereof,
each Shareholder agrees not to sell more than the greater of 50,000 shares or
fifty percent (50%) of such Shareholder's Registrable Securities on all
securities exchanges upon which such Registrable Securities are currently or
hereafter listed in any twenty-four (24) hour period. The foregoing daily
trading volume limit is in addition to any limits that may be imposed by Rule
144 or Rule 145 under the 1933 Act.
(e) Obligations of Parent. Parent shall (i) prepare and file
with the SEC the S-3 Registration in accordance with Section 5.12(b) hereof with
respect to the shares of Registrable Securities; (ii) prepare and file with the
SEC such amendments and supplements to the S-3 Registration and the prospectus
used in connection therewith, as may be necessary to comply with the provisions
of the 1933 Act with respect to the sale or other disposition of all securities
proposed to be registered under the S-3 Registration; (iii) furnish to each
Holder such number of copies of any prospectus (including any preliminary
prospectus and any amended or supplemented prospectus) in conformity with the
requirements of the 1933 Act, and such other documents, as each Holder may
reasonably request in order to effect the offering and sale of the shares of the
Registrable Securities to be offered and sold, but only while Parent shall be
required under the provisions hereof to cause
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the S-3 Registration to remain current; (iv) use its best efforts to register or
qualify the shares of the Registrable Securities covered by the S-3 Registration
under the securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request (provided that Parent shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such jurisdiction where it has not
been qualified), and do any and all other acts or things which may be necessary
or advisable to enable each Holder to consummate the public sale or other
disposition of such stock in such jurisdictions; (v) notify each Holder upon the
happening of any event as a result of which a prospectus included in the S-3
Registration, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing; (vi) so long as the S-3 Registration remains effective, promptly
prepare, file and furnish to each Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of the Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(vii) notify each Holder, promptly after it shall receive notice thereof, of the
date and time the S-3 Registration and each post-effective amendment thereto has
become effective or a supplement to any prospectus forming a part of the S-3
Registration has been filed; (viii) notify each Holder promptly of any request
by the SEC for the amending or supplementing of the S-3 Registration or
prospectus or for additional information; and (ix) advise each Holder, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the SEC suspending the effectiveness of the S-3 Registration
or the initiation or threatening of any proceeding for that purpose, and
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
(f) Expenses. Parent shall pay all of the out-of-pocket
expenses incurred, in connection with the S-3 Registration, including, without
limitation, all SEC, NASD and blue sky registration and filing fees, printing
expenses, transfer agents' and registrars' fees, and the reasonable fees and
disbursements of Parent's outside counsel and independent accountants and a
single counsel for all of the Holders who shall be selected by a
majority-in-interest of the Holders and whose fees and expenses shall not exceed
$7,500.
(g) Indemnification. In the event of any offering registered
pursuant to the S-3 Registration:
(i) Parent will indemnify each Holder and each
person controlling such Holder within the meaning of Section 15 of the 1933 Act,
with respect to all expenses, claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in the S-3 Registration (or any related prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance), or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or any violation by Parent of any rule or
regulation promulgated under the 1933 Act, or state securities laws,
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or common law, applicable to Parent in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, and each
person controlling such Holder, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that Parent will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based in any untrue statement or
omission or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to Parent for
use therein in an instrument duly executed by such Holder.
(ii) Each Holder will, if Registrable Securities
held by such Holder are included in the securities as to which the S-3
Registration, qualification or compliance is being effected, indemnify Parent,
each of its directors and officers, each person who controls Parent within the
meaning of Section 15 of the 1933 Act, and each other such Holder, and each
person controlling such Holder within the meaning of Section 15 of the 1933 Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) or a material fact contained in the S-3
Registration, or any related prospectus, offering circular or other document, or
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and will reimburse
Parent, such Holders and control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to Parent for use therein in an
instrument duly executed by such Holder; provided, however, that the obligations
of each such Holder hereunder and under subsection (iv) below shall be limited
to an amount equal to the gross proceeds before expenses and commissions of each
such Holder from the sale of Registrable Securities pursuant to the S-3
Registration.
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(iii) Each party entitled to indemnification
under this Section 5.12(g) (the "S-3 Indemnified Party") shall give notice to
the party required to provide indemnification (the "S-3 Indemnifying Party")
promptly after such S-3 Indemnified Party has written notice of any claim as to
which indemnity may be sought, and shall permit the S-3 Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the S-3 Indemnifying Party, who shall conduct the
defense of such claim or litigation, shall be approved by the S-3 Indemnified
Party (whose approval shall not be unreasonably withheld), and the S-3
Indemnified Party may participate in such defense at such S-3 Indemnified
Party's expense, and provided further that the failure of any S-3 Indemnified
Party to give notice as provided herein shall not relieve the S-3 Indemnifying
Party of its obligations under this Agreement, except to the extent, but only to
the extent, that the S-3 Indemnifying Party's ability to defend against such
claim or litigation is impaired as a result of such failure to give notice. In
no event shall the S-3 Indemnifying Party be liable in respect of any amounts
paid in settlement of any action unless the S-3 Indemnifying Party shall have
approved the terms of such settlement; provided that such consent shall not be
unreasonably withheld. No S-3 Indemnifying Party shall, without the prior
written consent of the S-3 Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any S-3 Indemnified Party
is or could have been a party and indemnification could have been sought
hereunder by such S-3 Indemnified Party, unless such settlement includes an
unconditional release of such S-3 Indemnified Party from all liability on claims
that are the subject matter of such proceeding. If any such S-3 Indemnified
Party shall have been advised by counsel chosen by it that there may be one or
more legal defenses available to such S-3 Indemnified Party which are different
from or additional to those available to the S-3 Indemnifying Party, the S-3
Indemnifying Party shall not have the right to assume the defense of such action
on behalf of such S-3 Indemnified Party and will promptly reimburse such S-3
Indemnified Party and any person controlling such S-3 Indemnified Party for the
reasonable fees and expenses of any counsel retained by the S-3 Indemnified
Party, it being understood that the S-3 Indemnifying Party shall not, in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys for such S-3 Indemnified Party or controlling person, which firm shall
be designated in writing by the S-3 Indemnified Party to the S-3 Indemnifying
Party.
(iv) If the indemnification provided for above in
this Section 5.12(g) is held by a court of competent jurisdiction to be
unavailable to an S-3 Indemnified Party, then each of the Parent and the Holders
hereby agrees to contribute to the amount paid or payable by such party in such
proportion as is appropriate to reflect the relative fault of the Parent or the
Holders, as the case may be.
(v) The obligations of Parent and each Holder
under this Section 5.12(g) shall survive the completion of any offering of stock
in the S-3 Registration under this Agreement or the termination of the
registration rights granted hereunder.
5.13 Notice to Holders of Company Options and Company Warrants. The
Company shall give notice of the transactions contemplated hereby to holders of
Company Options and Company Warrants in accordance with the terms of such
Company Options and Company Warrants or
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otherwise obtain the written waiver of such notice obligations. The Company
shall enter into a Warrant Termination Agreement with each holder of a Company
Warrant.
5.14 Conversion of Company Preferred. The Company shall use its best
efforts to cause all of the outstanding shares of Company Preferred to be
converted into shares of Company Common as of immediately prior to the Closing.
5.15 S-8 Registration Rights. If available for use by Parent, Parent
shall file a registration statement on Form S-8 to register shares of Parent
Common Stock issuable upon exercise of assumed Company Options within thirty
(30) days after the Effective Time, and shall use its reasonable efforts to
maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as the options remain outstanding.
5.16 Termination of Company Employee Plans. The Company agrees (i) to
cause its 401(k) plan to terminate effective as of the day immediately preceding
the Closing Date and (ii) to cause all of its other Company Employee Plans to
terminate as soon as practicable following the Closing.
5.17 Satisfaction of Conditions Precedent. Each party will use all
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Section 6 hereof, and each party
will use all commercially reasonable efforts to cause the transactions provided
for in this Agreement to be consummated.
5.18 Issuance of Additional Options. Prior to the Closing Date, the
Company agrees to issue the Additional Options to the service providers of the
Company identified by Parent at an exercise price of not less than one-hundred
percent (100%) of the quotient obtained by dividing (i) the per share exercise
price of Company Capital Stock at which such Company Option was exercisable
immediately prior to the Effective Time by (ii) the Option Exchange Ratio.
5.19 Audited Financial Statements. The Company shall use all reasonable
efforts to generate and deliver to Parent as soon as practicable (and in no
event later than May 31, 2000) an audited balance sheet, income statement and
statement of cash flows, and related footnotes, together with the report of the
Company's independent accountants, prepared in accordance with generally
accepted accounting principles, for each fiscal year since the Company's
inception (including but not limited to fiscal year 1999) (collectively, the
"Company Financial Statements").
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6
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of the Company and Parent to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) HSR Act. All applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or otherwise been
terminated.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect; provided, that
Parent, Merger Sub and the Company have used reasonable efforts to remove such
injunction, order, restraint or prohibition; nor shall any proceeding brought by
a Governmental Entity, domestic or foreign, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule, regulation
or order enacted, entered, enforced or deemed applicable to the Merger, which
makes the consummation of the Merger illegal.
(c) Permit. The California Commissioner of Corporations shall
have issued a permit declaring the Permit Application, Hearing Request and
Hearing Notice with respect to the Merger effective, or the issuance of the
Parent Common Stock in connection with the Merger shall have been registered
pursuant to an S-4 Registration Statement declared effective by the SEC.
6.2 Additional Conditions to Obligations of Company. The obligations of
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of Parent and Merger Sub in this Agreement shall
be true and correct as of the date hereof and shall be true and correct in all
material respects on and as of the Closing Date as though made on and as of the
Closing Date, except that, to the extent such representations and warranties
address matters only as of a particular date, such representations and
warranties shall, to such extent, be true and correct on and as of such
particular date as if made on and as of such particular date, and (ii) Parent
shall have performed and complied with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Effective Time.
(b) Certificate of Parent. Company shall have been provided
with a certificate executed on behalf of Parent by an authorized officer to the
effect that, as of the Effective Time:
(i) All representations and warranties of Parent
and Merger Sub in this Agreement (other than the representations and warranties
of Parent and Merger Sub as of a specified date, which will be true and correct
as of such date) shall be true and correct in all material respects
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on and as of the Effective Time as though such representations and warranties
were made on and as of such time; and
(ii) all covenants, obligations and conditions of
this Agreement to be performed by Parent on or before such date have been so
performed.
(iii) the condition set forth in Section 6.2(c)
has been satisfied.
(c) No Material Adverse Changes. There shall not have occurred
any change in the business, assets, prospects, financial condition or results of
operations of Parent that would cause a Parent Material Adverse Effect.
(d) Legal Opinion. The Company shall have received a legal
opinion from Wilson Sonsini Goodrich & Rosati, legal counsel to Parent, in the
form attached as Exhibit C hereto.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of the Company in this Agreement shall be true
and correct as of the date hereof and shall be true and correct in all material
respects on and as of the Closing Date as though made on and as of the Closing
Date, except that, to the extent such representations and warranties address
matters only as of a particular date, such representations and warranties shall,
to such extent, be true and correct on and as of such particular date as if made
on and as of such particular date, and (ii) the Company shall have performed and
complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Effective Time.
(b) Certificate of the Company. Parent shall have been
provided with a certificate executed on behalf of the Company by its President
to the effect that, as of the Effective Time:
(i) All representations and warranties of the
Company in this Agreement (other than the representations and warranties of the
Company as of a specified date, which will be true and correct as of such date)
shall be true and correct in all material respects on and as of the Effective
Time as though such representations and warranties were made on and as of such
time;
(ii) all covenants, obligations and conditions of
this Agreement to be performed by the Company on or before such date have been
so performed;
(iii) the conditions set forth in Sections
6.3(b), (d), (e), (f) and (g) have been satisfied.
(c) Employment and Non-Competition Agreements. Each of the
persons set forth on Schedule 6.3(c) to be attached hereto no later than five
(5) days prior to the Closing (collectively, the "Key Employees") shall have
executed and delivered to Parent an Employment and Non-Competition Agreement in
the form attached as Exhibit B hereto, each such Employment and Non-
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Competition Agreement shall be in full force and effect, and each of the Key
Employees shall be employed by the Company immediately prior to the Effective
Time.
(d) Employment Offers. Each person listed on Company Schedule
2.25 who shall have received an offer of employment from Parent, as mutually
determined by the Company and Parent, shall have accepted such offer of
employment from Parent on the terms and subject to the conditions set forth in
such offer; and each such person shall be employed by the Company immediately
prior to the Effective Time.
(e) Third Party Consents. The consents, waivers, assignments
and approvals listed on Schedule 6.3(e) hereto shall have been obtained.
(f) Shareholder Approval; Dissenters' Rights. Shareholders
holding at least ninety-five percent (95%) of the Company Capital Stock,
including not less than the requisite vote of outstanding shares of each series
or class of Company Capital Stock necessary to approve this Agreement, the
Merger and the transactions contemplated hereby and thereby, shall have approved
this Agreement, the Merger and the transactions contemplated hereby and thereby.
(g) No Material Adverse Changes. There shall not have occurred
any change in the business, assets, prospects, financial condition or results of
operations of the Company that would cause a Company Material Adverse Effect.
(h) Company Warrants. Parent shall have received the Warrant
Termination Agreements contemplated by Section 5.13 hereof, which shall be duly
executed by each party thereto.
(i) Litigation. No Action shall have been initiated by or
against the Company.
(j) Due Diligence. Parent shall have completed, and shall be
reasonably satisfied with, its due diligence review of the Company.
(k) Conversion of Company Preferred. Each share of Company
Preferred shall have been converted into shares of Company Common and there
shall be no shares of Company Capital Stock outstanding other than shares of
Company Common.
(l) Termination of 401(k) Plan. Parent shall be reasonably
satisfied that the Company has taken all steps necessary to terminate the
Company's 401(k) plan effective as of the day immediately preceding the Closing
Date.
(m) Termination of Rights. Any registration rights, rights of
first refusal, rights to any liquidation preference, redemption rights or any
other right of any Shareholder held pursuant to any Shareholder Agreement or
otherwise shall have been terminated or waived as of the Closing.
(n) Issuance of Additional Options. The Company shall have
issued the Additional Options to the service providers of the Company identified
by Parent at an exercise price of not less than one-hundred percent (100%) of
the quotient obtained by dividing (i) the per share exercise price
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of Company Capital Stock at which such Company Option was exercisable
immediately prior to the Effective Time by (ii) the Option Exchange Ratio.
(o) Audited Financial Statements. The Company shall have
furnished Parent with the Company Financial Statements and Parent shall be
reasonably satisfied with the Company Financial Statements that incorporate the
Company's fiscal year 1999.
(p) Legal Opinion. Parent shall have received a legal opinion
from Gagen, McCoy, McMahon & Armstrong, legal counsel to the Company, in the
form attached as Exhibit D hereto.
7
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of the Company in this Agreement or in
any instrument delivered pursuant hereto shall terminate on the one (1) year
anniversary of the Closing Date; provided, however, that the representations,
warranties and covenants relating or pertaining to any Tax or Returns related to
such Tax, shall survive until ninety (90) days following the expiration of all
applicable statutes of limitations, or extensions thereof, governing each Tax or
Returns related to such Tax (the "Escrow Termination Date"). The
representations, warranties and covenants of Parent and Merger Sub in this
Agreement or in any instrument delivered pursuant hereto shall terminate as of
the Closing.
7.2 Indemnification.
(a) The Company and the Shareholders agree to indemnify and
hold Parent and its officers, directors and affiliates (including the Surviving
Corporation) (each, an "Indemnified Party" and collectively, the "Indemnified
Parties") harmless against all claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation and defense (hereinafter individually, a "Loss" and
collectively, "Losses") incurred by an Indemnified Party directly or indirectly
as a result of: (i) any inaccuracy or breach of a representation or warranty of
the Company contained in this Agreement; (ii) any failure by the Company to
perform or comply with any covenant contained in this Agreement; (iii) the
failure of the Company to pay prior to the Effective Time the Third Party
Expenses incurred by the Company; (iv) any Action initiated by or against the
Company (including any Action described in the Company Schedules); (v) any
revised Company Schedules; or (vi) any undisclosed liabilities. The Shareholders
shall not have any right of contribution from the Company with respect to any
Loss claimed by an Indemnified Party after the Effective Time.
(b) Parent agrees to indemnify and hold the Company and its
officers, directors and affiliates (in all cases, only prior to the Effective
Time if this Agreement is terminated for any reason) and the Shareholders (each,
a "Company Indemnified Party" and collectively, the "Company Indemnified
Parties") harmless against all Losses (up to an amount not to exceed the Escrow
Amount) incurred by a Company Indemnified Party directly or indirectly as a
result of (i) any inaccuracy or breach of a representation or warranty of Parent
contained in this Agreement or (ii) any
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failure by Parent to perform or comply with any covenant contained in this
Agreement. Notwithstanding any other provision of this Agreement to the
contrary, this Section 7.2(b) sets forth the sole and exclusive remedy of the
Company Indemnified parties for all Losses arising out of this Agreement and the
transactions contemplated hereby, other than Losses resulting from fraud by
Parent.
7.3 Escrow Arrangements.
(a) Escrow Fund. As security for the indemnity provided for in
Section 7.2 hereof and by virtue of this Agreement and the Agreement of Merger,
at the Effective Time and without any act of the Company or the Shareholders,
the Company and the Shareholders will be deemed to have received and deposited
with a person or entity to be mutually determined by Parent and the Company (the
"Escrow Agent") the Escrow Amount, such deposit to constitute an escrow fund
(the "Escrow Fund") to be governed by the terms set forth herein. The portion of
the Escrow Amount contributed on behalf of each Shareholder shall be in
proportion to the Cash Amount and Merger Shares such Shareholder is otherwise
entitled to receive in the Merger by virtue of ownership of shares of Company
Capital Stock issued and outstanding immediately prior to the Effective Time.
The Escrow Agent may execute this Agreement following the date hereof and prior
to the Effective Time, and such latter execution shall not affect the binding
nature of this Agreement as of the date hereof among the signatories hereto. The
Escrow Fund shall be the sole and exclusive remedy of Parent for all Losses
incurred by Parent, except with respect to any Losses resulting from fraud by
the Company. Notwithstanding the preceding sentence, nothing herein shall limit
the liability of Parent or the Company for any breach of any representation,
warranty or covenant contained in this Agreement if the Merger does not close.
Parent may not receive any cash from the Escrow Fund unless and until one or
more Officer's Certificates identifying Losses in excess of Fifty Thousand
Dollars (USD $50,000) in the aggregate (the "Basket Amount") has or have been
delivered to the Escrow Agent as provided in Section 7.3(d) hereof, in which
case Parent shall be entitled to recover all Losses so identified, including
without limitation the Basket Amount. Notwithstanding the foregoing, Parent
shall be entitled to immediately receive cash out of the Escrow Fund for, and
the Basket Amount shall not apply as a threshold to, any and all claims or
payments made with respect to the failure of the Company to pay prior to the
Effective Time Third Party Expenses incurred by the Company.
(b) Escrow Period; Distribution upon Termination of Escrow
Period. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5:00
p.m. (San Francisco Time) on the Escrow Termination Date (the "Escrow Period");
provided, however, that the Escrow Period shall not terminate with respect to
any portion of the Escrow Fund which, in the reasonable judgment of Parent,
subject to the objection of the Shareholder Representative, is necessary to
satisfy any then pending and unsatisfied claims specified in any Officer's
Certificate delivered to the Escrow Agent prior to the termination of the Escrow
Period with respect to facts and circumstances existing prior to the termination
of such Escrow Period. As soon as all such claims have been resolved and all
Third Party Expenses have been paid pursuant to Section 5.4 hereof, the Escrow
Agent shall deliver to the Shareholders the remaining portion of the Escrow
Fund, if any, not required to satisfy such claims and Third Party
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Expenses. Deliveries of Escrow Amounts to the Shareholders shall be made in
proportion to their respective contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) The Escrow Amount shall be invested in U.S.
Treasury bills with maturities of not more than thirty (30) days and any
interest paid on such Escrow Amount shall be added to the Escrow Fund and deemed
part thereof. For any period of time before such U.S. Treasury bills can be
purchased by the Escrow Agent or after such bills mature, the Escrow Amount
shall be invested in a business money market account of the Escrow Agent and any
interest paid on such Escrow Amount during such time shall be added to the
Escrow Fund and deemed part thereof. Each Shareholder shall be liable for any
Taxes with respect to income earned on such Shareholder's portion of the Escrow
Fund.
(d) Claims Against the Escrow Fund. Upon receipt by the Escrow
Agent at any time on or before the last day of the Escrow Period of an Officer's
Certificate, the Escrow Agent shall, subject to the provision of Section 7.3(e)
hereof, deliver to Parent out of the Escrow Fund as promptly as possible, cash
held in the Escrow Fund in an amount equal to the Losses specified in the
Officer's Certificate. For purposes hereof, "Officer's Certificate" shall mean a
certificate signed by any officer of Parent: (A) stating that Parent has paid,
incurred or properly accrued or reasonably anticipates that it will have to pay,
incur or accrue Losses; (B) specifying in reasonable detail the individual items
of Losses included in the amount so stated, the date each such item was paid,
incurred or properly accrued, or the basis for such anticipated liability, and
the nature of the misrepresentation, breach of warranty or covenant to which
such item is related; (C) specifying whether the Losses are subject to the
Basket Amount as provided in Section 7.3(a) hereof; and (D) specifying the
amount of cash to be delivered to Parent.
(e) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Shareholder Representative and for a period of thirty
(30) days after such delivery, the Escrow Agent shall make no delivery to Parent
of any Escrow Amounts pursuant to Section 7.3(d) unless the Escrow Agent shall
have received written authorization from the Shareholder Representative to make
such delivery. After the expiration of such thirty (30) day period, the Escrow
Agent shall make delivery of cash from the Escrow Fund in accordance with
Section 7.3(d) hereof; provided, however, that no such delivery may be made if
the Shareholder Representative shall object in a written statement to the claim
made in the Officer's Certificate, and such statement shall contain specific
bases upon which such objection is being made and shall have been delivered to
the Escrow Agent prior to the expiration of such thirty (30) day period.
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(f) Resolution of Conflicts; Arbitration.
(i) In case the Shareholder Representative shall
object in writing to any claim or claims made in any Officer's Certificate, the
Shareholder Representative and Parent shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Shareholder Representative and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by Parent and the Shareholder
Representative and shall be furnished to the Escrow Agent. The Escrow Agent
shall be entitled to rely on any such memorandum and distribute cash from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after
good faith negotiation, either Parent or the Shareholder Representative may
demand arbitration of the matter unless the amount of the Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration,
and in either such event the matter shall be settled by arbitration conducted by
one arbitrator mutually agreeable to Parent and the Shareholder Representative.
In the event that within forty-five (45) days after submission of any dispute to
arbitration, Parent and the Shareholder Representative cannot mutually agree on
one arbitrator, Parent and the Shareholder Representative shall each select one
arbitrator, and the two arbitrators so selected shall select a third arbitrator.
The arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator or majority of the three arbitrators, as the case may
be, to discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrator or a majority of the three arbitrators, as
the case may be, shall rule upon motions to compel or limit discovery and shall
have the authority to impose sanctions, including attorneys' fees and costs, to
the same extent as a competent court of law or equity, should the arbitrator or
a majority of the three arbitrators, as the case may be, determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial justification. The decision of the
arbitrator or a majority of the three arbitrators, as the case may be, as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.3(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold delivery of cash from the
Escrow Fund in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa Clara County, California, USA under the rules
then in effect of the American Arbitration Association. The arbitrator(s) shall
determine how all expenses relating to the arbitration shall be paid, including
without limitation, the respective expenses of each party, the fees of each
arbitrator and the administrative fee of the American Arbitration Association.
(g) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent reasonably believes may result in a demand
against the Escrow Fund, Parent shall notify the Shareholder Representative of
such claim, and the Shareholder Representative and the
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Shareholders of the Company shall be entitled, at their expense, to participate
in, but not to determine or conduct, the defense of such claim. Parent shall
have the right in its sole discretion to conduct the defense of and settle any
such claim; provided, however, that except with the consent of the Shareholder
Representative, no settlement of any such claim with third-party claimants shall
be determinative of the amount of any claim for Losses relating to such matter.
In the event that the Shareholder Representative has consented to any such
settlement, neither the Shareholder Representative nor the Shareholders shall
have any power or authority to object under any provision of this Article VII to
the amount of any claim by Parent against the Escrow Fund with respect to such
settlement.
7.4 Shareholder Representative.
(a) Concurrently with approving this Agreement and the Merger,
the Shareholders shall appoint an individual or entity as their agent and
attorney-in-fact, as the shareholder representative for and on behalf of the
Shareholders (the "Shareholder Representative"), to give and receive notices and
communications, to object to such retention, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
other actions that are either (i) necessary or appropriate in the judgment of
the Shareholder Representative for the accomplishment of the foregoing or (ii)
specifically mandated by the terms of this Agreement. Such agency may be changed
by the Shareholders from time to time upon not less than thirty (30) days prior
written notice to Parent; provided, however, that the Shareholder Representative
may not be removed unless holders of a majority interest of the Shareholders
agree to such removal and to the identity of the substituted agent. The
Shareholder Representative may resign at any time upon written notice to Parent
and the Shareholders. Any vacancy in the position of Shareholder Representative
may be filled by the holders of a simple majority interest of the Escrow Fund.
No bond shall be required of the Shareholder Representative, and the Shareholder
Representative shall not receive compensation for its services. Notices or
communications to or from the Shareholder Representative shall constitute notice
to or from the Shareholders.
(b) The Shareholder Representative shall not be liable for any
act done or omitted hereunder as the Shareholder Representative while acting in
good faith and in the exercise of reasonable judgment. The Shareholders on whose
behalf the Escrow Amount is contributed to the Escrow Fund shall indemnify the
Shareholder Representative and hold the Shareholder Representative harmless
against any loss, liability or expense incurred without negligence or bad faith
on the part of the Shareholder Representative and arising out of or in
connection with the acceptance or administration of the Shareholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Shareholder Representative.
(c) A decision, act, consent or instruction of the Shareholder
Representative, including but not limited to an amendment, extension or waiver
of this Agreement pursuant to Section 8.3 and Section 8.4 hereof, shall
constitute a decision of the Shareholders and shall be final, binding and
conclusive upon the Shareholders; and Parent may rely upon any such decision,
act, consent or instruction of the Shareholder Representative as being the
decision, act, consent or instruction of the Shareholders. The Parent is hereby
relieved from any liability to any person for
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any acts done by them in accordance with such decision, act, consent or
instruction of the Shareholder Representative.
(d) Subject to Parent's prior claims for indemnification
against the Escrow Fund, the Shareholder Representative shall be entitled to
receive payment for its reasonable and documented expenses therefrom, prior to
any payments to the Shareholders.
7.5 Escrow Agent.
(a) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Shareholder Representative, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be charged with any knowledge of any agreements referred
to herein, including this Agreement, except for Articles VII and X hereof. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of legal counsel shall be
conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of law, and
is hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under this
Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for negligence or willful misconduct on the part of
the Escrow Agent. The Escrow Agent shall not incur any such liability for (A)
any act or failure to act made or omitted in good faith, or (B) any action taken
or omitted in reliance upon any instrument, including any written statement of
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow
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Agent be liable or responsible for forgeries, fraud, impersonations, or
determining the scope of any representative authority. In addition, the Escrow
Agent may consult with legal counsel in connection with performing the Escrow
Agent's duties under this Agreement and shall be fully protected in any act
taken, suffered, or permitted by the Escrow Agent in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the
parties to this Agreement, or with any other party, concerning the subject
matter of this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it. The
Escrow Agent may hold all documents and the Escrow Amount and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, may be required, despite what
may be set forth elsewhere in this Agreement. In such event, the Escrow Agent
will not be liable for damages. Furthermore, the Escrow Agent may at its option,
file an action of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized to deposit
with the clerk of the court all documents and the Escrow Amounts held in escrow,
except all costs, expenses, charges and reasonable attorney fees incurred by the
Escrow Agent due to the interpleader action and which the parties jointly and
severally agree to pay. Upon initiating such action, the Escrow Agent shall be
fully released and discharged of and from all obligations and liability imposed
by the terms of this Agreement.
(vii) The parties and their respective successors
and assigns agree jointly and severally to indemnify and hold the Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by the Escrow Agent in connection with the execution and delivery
of, and the performance of its duties under, this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter, other than those arising out of the negligence or willful misconduct of
the Escrow Agent.
(viii) The Escrow Agent may resign at any time
upon giving at least thirty (30) days written notice to the Parent and the
Shareholder Representative; provided, however, that no such resignation shall
become effective until the appointment of a successor escrow agent which shall
be accomplished as follows: Parent and the Shareholder Representative shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent authorized to do business in the State of
California. The successor escrow agent shall execute and deliver an instrument
accepting such appointment and it shall, without further acts, be vested with
all the estates, properties, rights, powers, and duties of the predecessor
escrow agent as if originally named as escrow agent. Upon appointment of a
successor escrow agent, the Escrow Agent shall be discharged from any further
duties and liability under this Agreement.
(b) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is
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understood that the fees and usual charges agreed upon for services of the
Escrow Agent shall be considered compensation for ordinary services as
contemplated by this Agreement. In the event that the conditions of this
Agreement are not promptly fulfilled, or if the Escrow Agent renders any service
not provided for in this Agreement, or if the parties request a substantial
modification of its terms, or if any controversy arises, or if the Escrow Agent
is made a party to, or intervenes in, any litigation pertaining to the Escrow
Fund or its subject matter, the Escrow Agent shall be reasonably compensated for
such extraordinary services and reimbursed for all costs, attorney's fees,
including allocated costs of in-house counsel, and expenses occasioned by such
default, delay, controversy or litigation.
(c) Consequential Damages. In no event shall the Escrow Agent
be liable for special, indirect, punitive or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.
(d) Successor Escrow Agents. Any corporation into which the
Escrow Agent in its individual capacity may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Closing:
(a) by mutual agreement of the Company and Parent;
(b) by the Company or Parent if: (i) the Closing has not
occurred by July 15, 2000; provided, however, that the right to terminate this
Agreement under this Section 8.1(b) shall not be available to any party whose
action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement; (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity that would make consummation of the Merger
illegal;
(c) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
Parent's ownership or operation of all or a portion of the business of the
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Parent as a result of
the Merger;
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(d) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
provision contained in this Agreement on the part of the Company and such breach
has not been cured within thirty (30) business days after written notice to the
Company; provided, however, no cure period shall be required for a breach which
by its nature cannot be cured; or
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
provision contained in this Agreement on the part of Parent or Merger Sub and
such breach has not been cured within thirty (30) business days after written
notice to Parent, provided, however, no cure period shall be required for a
breach which by its nature cannot be cured.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Merger Sub
or the Company, or their respective officers, directors or shareholders;
provided, however, each party shall remain liable for any breaches of this
Agreement prior to its termination; and provided further, however, that, the
provisions of Sections 5.3, 5.4 and 5.5, Articles VII, IX and X hereof and this
Section 8.2 shall remain in full force and effect and survive any termination of
this Agreement pursuant to the terms of this Article VIII.
8.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto. For purposes of this Section 8.3, the Shareholders agree
that any amendment of this Agreement signed by the Shareholder Representative
shall be binding upon and effective against the Shareholders whether or not they
have signed such amendment.
8.4 Extension; Waiver. At any time prior to the Closing, Parent, on the
one hand, and the Company and the Shareholder Representative, on the other hand,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. For purposes of this Section 8.4, the Shareholders agree that any
extension or waiver signed by the Shareholder Representative shall be binding
upon and effective against all Shareholders whether or not they have signed such
extension or waiver.
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9
DEFINITIONS
9.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Accounts Receivable" shall have the meaning set forth in Section 2.8
of this Agreement.
"Action" shall have the meaning set forth in Section 2.19 of this
Agreement.
"Additional Options" shall mean the number of Company Options
determined by Parent to be issued by the Company prior to the Closing Date to
those service providers of the Company identified by Parent.
"Additional Parent Shares" shall mean the number of shares of Parent
Common Stock (if any) issuable in respect of Additional Options and determined
by dividing (i) the number determined by subtracting the Initial Merger
Consideration from the product of (A) the Total Fully Diluted Outstanding Shares
and (B) the Initial Merger Consideration divided by the sum of the Total
Outstanding Shares and the aggregate number of shares of Company Common Stock
issuable, with or without the passage of time or satisfaction of other
conditions, upon exercise or conversion of any unvested Company Options
outstanding immediately prior to the Effective Time, by (ii) the Trading Price.
"Aggregate Merger Consideration" shall mean the sum of the Cash Amount,
the Merger Shares, the Special Merger Consideration and the Additional Parent
Shares; provided, however, that if no Additional Options are issued by the
Company prior to the Closing, "Aggregate Merger Consideration" shall mean the
sum of the Cash Amount, the Merger Shares and the Special Merger Consideration.
"Agreement" shall mean this Agreement and Plan of Reorganization, dated
as of May 12, 2000, among the Company, Parent, Merger Sub, and, with respect to
the matters set forth in Articles VII and X only, the Shareholder Representative
and the Escrow Agent (including the Exhibits and Schedules hereto) and all
amendments hereto made in accordance with the provisions of Section 8.3 hereof.
"Basket Amount" shall have the meaning set forth in Section 7.3 of this
Agreement.
"Bonus Cash Pool" shall have the meaning set forth in Section 1.6 of
this Agreement.
"Bonus Share Pool" shall have the meaning set forth in Section 1.6 of
this Agreement.
"Business Facility" shall mean any property including the land, the
improvements thereon, the groundwater thereunder and the surface water thereon,
that is or at any time has been owned,
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operated, occupied, controlled or leased by the Company in connection with the
operation of its business.
"CCSL" shall have the meaning set forth in Section 5.9 of this
Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended.
"California Law" shall have the meaning set forth in Section 1.1 of
this Agreement.
"Cash Amount" shall mean Twenty Million Dollars (USD$20,000,000).
"Cash Exchange Ratio" shall mean the number determined by dividing (i)
the Cash Amount by (ii) the Total Outstanding Shares.
"Certificate" shall have the meaning set forth in Section 1.8 of this
Agreement.
"Closing" shall have the meaning set forth in Section 1.2 of this
Agreement.
"Closing Date" shall have the meaning set forth in Section 1.2 of this
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the first paragraph of
this Agreement.
"Company Capital Stock" shall mean shares of Company Common, Company
Preferred and shares of any other capital stock of the Company, including any
shares of capital stock of the Company issuable upon exercise or conversion of
any Company Convertible Indebtedness outstanding immediately prior to the
Effective Time.
"Company Common" shall mean shares of Common Stock of the Company.
"Company Employee Plan" shall mean any plan, program, policy, practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written or unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan", within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Related Party for the
benefit of any Company Group Employee, or with respect to which the Company or
any Related Party has or may have any liability or obligation.
"Company Financial Statements" shall have the meaning set forth in
Section 5.19 of this Agreement.
"Company Group Employee" shall mean any current or former or retired
employee, consultant or director of the Company or any Related Party.
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"Company Indemnified Party" shall have the meaning set forth in Section
7.2 of this Agreement.
"Company Material Adverse Effect" shall have the meaning set forth in
Section 2.1 of this Agreement.
"Company Option" shall mean each issued and outstanding option granted
under the Option Plans to purchase or otherwise acquire Company Capital Stock.
"Company Preferred" shall mean shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
of the Company.
"Company Schedules" shall have the meaning set forth in the
introductory paragraph of Article II.
"Company Warrant" shall mean each issued and outstanding right to
purchase or otherwise acquire Company Capital Stock, excluding Company Options
and Company Preferred Stock.
"Confidentiality Agreement" shall mean the Confidentiality Agreement
dated as of December 2, 1999 and entered into by and between the Company and
Parent.
"Conflict" shall have the meaning set forth in Section 2.5 of this
Agreement.
"Contract" shall have the meaning set forth in Section 2.16 of this
Agreement.
"Current Balance Sheet" shall have the meaning set forth in Section 2.7
of this Agreement.
"DOL" shall mean the Department of Labor.
"Delaware Law" shall have the meaning set forth in Section 1.1 of this
Agreement.
"Disposal Site" shall mean a landfill, disposal agent, waste hauler or
recycler of Hazardous Materials.
"Dissenting Shares" shall have the meaning set forth in Section 1.7 of
this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Employment Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement, contract or understanding between the Company or any
Related Party and any Company Group Employee.
"Employment and Non-Competition Agreements" shall have the meaning set
forth in the recitals of this Agreement.
"Environmental Laws" shall mean all applicable laws, rules,
regulations, orders, treaties, statutes, and codes promulgated by any
Governmental Entity which prohibit, regulate or control any
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Hazardous Material or any Hazardous Material Activity, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, the Resource Recovery and Conservation Act of 1976, the
Federal Water Pollution Control Act, the Clean Air Act, the Hazardous Materials
Transportation Act, the Clean Water Act, comparable laws, rules, regulations,
ordinances, orders, treaties, statutes, and codes of other Governmental
Entities, the regulations promulgated pursuant to any of the foregoing, and all
amendments and modifications of any of the foregoing, all as amended to date.
"Environmental Permit" shall mean any approval, permit, license,
clearance or consent required to be obtained from any private person or any
Governmental Entity with respect to a Hazardous Materials Activity which is or
was conducted by the Company.
"Escrow Agent" shall have the meaning set forth in Section 7.3 of this
Agreement.
"Escrow Amount" shall have the meaning set forth in Section 1.8 of this
Agreement.
"Escrow Fund" shall have the meaning set forth in Section 7.3 of this
Agreement.
"Escrow Period" shall have the meaning set forth in Section 7.3 of this
Agreement.
"Escrow Termination Date" shall have the meaning set forth in Section
7.1 of this Agreement.
"Exchange Agent" shall have the meaning set forth in Section 1.8 of
this Agreement.
"FICA" shall mean the Federal Insurance Contribution Act.
"FUTA" shall mean the Federal Unemployment Tax Act.
"FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
"GAAP" shall mean U.S. generally accepted accounting principles.
"Governmental Entity" shall mean any local, state, provincial, federal,
or international governmental authority or agency which has had or now has
jurisdiction over any portion of the subject matter of this Agreement, any
Business Facility or the Company.
"Hazardous Material" shall mean any material or substance that is
prohibited or regulated by any Environmental Law or that has been designated by
any Governmental Entity to be radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment.
"Hazardous Materials Activity" shall mean the transportation, transfer,
recycling, storage, use, treatment, manufacture, removal, remediation, release,
exposure of others to, sale, or distribution of any Hazardous Material or any
product containing a Hazardous Material.
"Hearing Notice" shall have the meaning set forth in Section 5.9 of
this Agreement.
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"Hearing Request" shall have the meaning set forth in Section 5.9 of
this Agreement.
"Holder" shall mean (i) a Shareholder, (ii) the Escrow Agent, or (iii)
a transferee.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"IRS" shall mean the Internal Revenue Service.
"Indemnified Party" shall have the meaning set forth in Section 7.2 of
this Agreement.
"Information Statement" shall have the meaning set forth in Section 5.9
of this Agreement.
"Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services (other than general utility services
including gas, electric, telephone and postal) that are owned or used in the
conduct of business, or purchased from third party suppliers.
"Initial Merger Consideration" shall mean the sum of (i) the Cash
Amount and (ii) the product obtained by multiplying the Merger Shares by the
Trading Price.
"Intellectual Property Rights" shall mean any or all of the following
and all rights in, arising out of, or associated therewith: (i) all United
States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks; trademark and service mark registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; and (vii) all computer software including
all source code, object code, firmware, development tools, files, records and
data, all media on which any of the foregoing is recorded, and all documentation
related to any of the foregoing throughout the world.
"International Employee Plan" shall mean each Company Employee Plan
that has been adopted or maintained by the Company or any Related Party, whether
informally or formally, or with respect to which the Company or any Related
Party will or may have any liability, for the benefit of Company Group Employees
who perform services outside the United States.
"Interim Financials" shall have the meaning set forth in Section 2.7 of
this Agreement.
"Key Employees" shall have the meaning set forth in Section 6.3 of this
Agreement.
"Lien" means any security interest, pledge, mortgage, lien (including,
without limitation, environmental and tax liens), charge, encumbrance, adverse
claim, preferential arrangement or
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restriction of any kind, including, without limitation, any restriction on the
use, voting, transfer, receipt of income or other exercise of any attributes of
ownership.
"Loss" shall have the meaning set forth in Section 7.2 of this
Agreement.
"Material Adverse Effect" shall have the meaning set forth in Section
2.1 of this Agreement.
"Merger" shall have the meaning set forth in the recitals of this
Agreement.
"Merger Shares" shall mean One Million Two Hundred Thousand (1,200,000)
shares of Parent Common Stock.
"Merger Sub" shall have the meaning set forth in the first paragraph of
this Agreement.
"Multiemployer Plan" shall mean any Pension Plan which is a
"multiemployer plan", as defined in Section 3(37) of ERISA.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Notice Materials" shall have the meaning set forth in Section 5.9 of
this Agreement.
"Officer's Certificate" shall have the meaning set forth in Section 7.3
of this Agreement.
"Option Exchange Ratio" shall mean the number determined by dividing
(i) the quotient obtained by dividing (A) the Initial Merger Consideration by
(B) the sum of the Total Outstanding Shares and the aggregate number of shares
of Company Common Stock issuable, with or without the passage of time or
satisfaction of other conditions, upon exercise or conversion of any unvested
Company Options outstanding immediately prior to the Effective Time, by (ii) the
Trading Price.
"Option Plans[s]" shall mean the Company's 1995 Stock Option Plan.
"Organizational Documents" shall mean the Company's Articles of
Incorporation and Bylaws, each as amended to date.
"Parent" shall have the meaning set forth in the first paragraph of
this Agreement.
"Parent Common Stock" shall mean shares of common stock of Parent.
"Parent Financial Statements" shall have the meaning set forth in
Section 3.6 of this Agreement.
"Parent Material Adverse Effect" shall have the meaning set forth in
Section 2.1 of this Agreement.
"Parent SEC Reports" shall have the meaning set forth in Section 3.6 of
this Agreement.
"Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan", within the meaning of Section 3(2) of ERISA.
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"Permit Application" shall have the meaning set forth in Section 5.9 of
this Agreement.
"Registered Intellectual Property" shall have the meaning set forth in
Section 2.15 of this Agreement.
"Registrable Securities" shall mean for each Holder the number of
shares of Parent Common Stock issued to such Holder pursuant to the terms
hereof.
"Related Agreement" shall have the meaning set forth in Section 2.4 of
this Agreement.
"Related Party" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations issued thereunder.
"Returns" shall have the meaning set forth in Section 2.12 of this
Agreement.
"S-3 Indemnified Party" shall have the meaning set forth in Section
5.12 of this Agreement.
"S-3 Indemnifying Party" shall have the meaning set forth in Section
5.12 of this Agreement.
"S-3 Registration" shall have the meaning set forth in Section 5.12 of
this Agreement.
"S-4" shall have the meaning set forth in Section 5.9 of this
Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Share Exchange Ratio" shall mean the number equal to the Option
Exchange Ratio less the quotient obtained by dividing the Cash Exchange Ratio by
the Trading Price.
"Shareholder" shall mean each holder of any Company Capital Stock
issued and outstanding immediately prior to the Effective Time.
"Shareholder Agreement" shall mean each of the Company's Third Amended
and Restated Shareholders Agreement and any other agreement between the Company
and any of its Shareholders pursuant to which any such Shareholder is granted
preemptive rights, registration rights or any similar rights.
"Shareholder Representative" shall have the meaning set forth in
Section 7.4 of this Agreement.
"Special Merger Consideration" shall mean the number of shares of
Parent Common Stock determined by multiplying (i) the Special Merger Exchange
Ratio by (ii) the Total Outstanding Shares.
"Special Merger Exchange Ratio" shall mean the number determined by
dividing (i) the number obtained by multiplying (A) the Option Exchange Ratio by
(B) ten percent (10%) of the number of shares of Company Common subject to
unvested Company Options issued and
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outstanding immediately prior to the Effective Time and held by non-officers of
the Company, by (ii) the Total Outstanding Shares.
"Surviving Corporation" shall have the meaning set forth in Section 1.1
of this Agreement.
"Taxes" shall mean (i) any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with respect
to such amounts; (ii) any liability for the payment of any amounts of the type
described in clause (i) of this definition as a result of being a member of an
affiliated, consolidated, combined or unitary group for any period; and (iii)
any liability for the payment of any amounts of the type described in clauses
(i) or (ii) of this definition as a result of any express or implied obligation
to indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
"Third Party Expenses" shall have the meaning set forth in Section 5.4
of this Agreement.
"Total Fully Diluted Outstanding Shares" shall mean the sum of (i) the
Total Outstanding Shares and (ii) the aggregate number of shares of Company
Common Stock issuable, with or without the passage of time or satisfaction of
other conditions, upon exercise or conversion of (i) any unvested Company
Options outstanding immediately prior to the Effective Time, and (ii) any
Additional Options outstanding immediately prior to the Effective Time.
"Total Outstanding Shares" shall mean the aggregate number of shares of
Company Common Stock outstanding immediately prior to the Effective Time plus
the aggregate number of shares of Company Common Stock issuable, with or without
the passage of time or satisfaction of other conditions, upon exercise or
conversion of all options, warrants and other rights to acquire or receive
shares of Company Common Stock outstanding immediately prior to the Effective
Time; provided, however, "Total Outstanding Shares" shall not include the
aggregate number of shares of Company Common Stock issuable, with or without the
passage of time or satisfaction of other conditions, upon exercise or conversion
of (i) any unvested Company Options outstanding immediately prior to the
Effective Time, or (ii) any Additional Options outstanding immediately prior to
the Effective Time.
"Trading Price" shall mean the twenty (20) day average closing sales
price of the Parent Common Stock as reported on the NASDAQ National Market
System for the period ending five (5) days prior to the Closing.
"Warrant Termination Agreement" shall mean the agreement between the
Company and each holder of a Company Warrant terminating the Company Warrant
prior to the Effective Time if not exercised prior thereto.
"Year 2000 Compliant" shall have the meaning set forth in Section 2.18
of this Agreement.
"Year-End Financials" shall have the meaning set forth in Section 2.7
of this Agreement.
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10
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgement of complete
transmission), or sent via electronic transmission (with such electronic notice
to be effective immediately upon transmission provided that a written notice is
mailed contemporaneously, postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
hi/fn, inc.
750 University Avenue
Las Gatos, California 95032
Attention: William R. Walker
Facsimile No.: (408) 399-3501
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Nevan C. Elam
Facsimile No.: (650) 461-5375
(b) if to the Company, to:
Apptitude, Inc.
6330 San Ignacio Avenue
San Jose, California 95119
Attention: Chris Kenber
Facsimile No.: (408) 629-8300
with a copy to:
Gagen, McCoy, McMahon & Armstrong, P.C.
279 Front Street
P.O. Box 218
Danville, California 94526-0218
Attention: Gregory L. McCoy
Facsimile No.: (925) 838-5985
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(c) if to the Shareholder Representative or the Escrow Agent,
to such address as such party shall have furnished to all of the parties hereto
in writing.
10.2 Interpretation. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.4 Entire Agreement; Assignment. This Agreement (including the
recitals), the Exhibits hereto, the Company Schedules and the documents and
instruments and other agreements among the parties hereto referenced herein: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or otherwise except
as otherwise specifically provided in this Agreement; provided, however, that
Parent may assign all, but not less than all of its rights and obligations under
this Agreement, either before or after the Effective Time, to its parent or to
any subsidiary or affiliate provided that the assignee agrees to be bound by the
provisions of this Agreement to the same extent as Parent is bound prior to the
assignment.
10.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
10.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within Santa Clara County, State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the
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State of California for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction, venue
and such process.
10.8 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
10.9 No Third Party Beneficiary. This Agreement is for the sole benefit
of the parties and their permitted successors and assigns and nothing herein
expressed or implied shall give or be construed to give any third party, other
than the parties hereto and such permitted successors and assigns, any legal or
equitable rights hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Shareholder
Representative and the Escrow Agent have caused this Agreement and Plan of
Reorganization to be duly signed, all as of the date first written above.
HI/FN, INC. APPTITUDE, INC.
By: /s/ RAY FARNHAM By: /s/ CHRIS KENBER
------------------------------ -------------------------------------
Name: Ray Farnham Name: Chris Kenber
---------------------------- -----------------------------------
Title: President & CEO Title: CEO
--------------------------- ----------------------------------
APPTITUDE ACQUISITION CORPORATION
Print: /s/ RAY FARNHAM
---------------------------
Name: Ray Farnham
----------------------------
Title: President
---------------------------
<PAGE> 68
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
Exhibit A Form of Agreement of Merger
Exhibit B Form of Employment and Non-Competition Agreement
Exhibit C Form of Legal Opinion of Wilson Sonsini Goodrich & Rosati
Exhibit D Form of Legal Opinion of Gagen, McCoy, McMahon & Armstrong
</TABLE>
