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Exhibit 10.1
AGREEMENT AND PLAN OF MERGER
Among
VINA TECHNOLOGIES, INC.
WCS ACQUISITION SUBSIDIARY, INC.
and
WOODWIND COMMUNICATIONS SYSTEMS, INC.
October 30, 2000
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS............................................................................................ 2
1.1 Certain Definitions............................................................................ 2
1.2 Other Definitions.............................................................................. 3
ARTICLE 2 THE MERGER AND RELATED TRANSACTIONS.................................................................... 4
2.1 The Merger..................................................................................... 4
2.2 Effective Time of the Merger................................................................... 4
2.3 Certificate of Incorporation and Bylaws of Surviving Corporation; Board of Directors and
Officers of Surviving Corporation.............................................................. 4
2.4 Effect of Merger on Capital Stock.............................................................. 5
2.5 Issuance and Exchange of Certificates.......................................................... 8
2.6 No Further Ownership Rights in Stock........................................................... 9
2.7 Tax Treatment.................................................................................. 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COMPANY.............................................................. 9
3.1 Organization................................................................................... 10
3.2 Capital Structure.............................................................................. 10
3.3 Equity Investments............................................................................. 11
3.4 Authority...................................................................................... 12
3.5 Financial Statements........................................................................... 13
3.6 Business Changes............................................................................... 13
3.7 Properties..................................................................................... 15
3.8 Accounts Receivable............................................................................ 16
3.9 Taxes.......................................................................................... 17
3.10 Employees...................................................................................... 18
3.11 Compliance with Law............................................................................ 19
3.12 [Intentionally Omitted.]....................................................................... 19
3.13 Litigation..................................................................................... 19
3.14 Contracts...................................................................................... 19
3.15 No Default..................................................................................... 21
3.16 Customers...................................................................................... 21
3.17 Proprietary Rights............................................................................. 21
3.18 Insurance...................................................................................... 24
3.19 Bank Accounts.................................................................................. 25
3.20 Brokers or Finders............................................................................. 25
3.21 Certain Advances............................................................................... 25
3.22 Related Parties................................................................................ 25
3.23 Employee Benefit Plans; ERISA.................................................................. 26
3.24 Board Recommendation........................................................................... 27
3.25 Underlying Documents........................................................................... 27
3.26 Full Disclosure................................................................................ 28
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT............................................................... 28
4.1 Organization................................................................................... 28
4.2 Merger Sub Capital Structure................................................................... 28
4.3 Authority...................................................................................... 29
4.4 Capital Structure.............................................................................. 29
4.5 SEC Documents.................................................................................. 30
4.6 Absence of Certain Changes..................................................................... 31
4.7 Compliance with Laws........................................................................... 32
4.8 Litigation..................................................................................... 32
4.9 Proprietary Rights............................................................................. 32
4.10 Brokers or Finders............................................................................. 34
4.11 Full Disclosure................................................................................ 34
ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS.............................................................. 34
5.1 Covenants of Company........................................................................... 34
5.2 Benefit Plans, Etc............................................................................. 37
5.3 Other Actions.................................................................................. 37
5.4 Covenants of Parent............................................................................ 38
5.5 Advice of Changes; Government Filings.......................................................... 39
5.6 Accounting Methods............................................................................. 39
5.7 Intellectual Property Matters.................................................................. 39
5.8 Additional Options............................................................................. ..
5.9 Further Information............................................................................ 39
ARTICLE 6 ADDITIONAL AGREEMENTS.................................................................................. 40
6.1 Access to Information.......................................................................... 40
6.2 Legal Conditions to the Merger and Related Transactions........................................ 40
6.3 Communications; Confidentiality................................................................ 40
6.4 Update to Disclosures.......................................................................... 40
6.5 Certain Notifications.......................................................................... 41
6.6 Treatment of Plans, Agreements and Options..................................................... 41
6.7 Agreements by Affiliated Stockholders.......................................................... 41
6.8 Options........................................................................................ 42
6.9 Employees...................................................................................... 43
6.10 Treatment of Merger as Qualifying Reorganization............................................... 43
6.11 Tax Matters.................................................................................... 44
6.12 State Statutes................................................................................. 45
6.13 Fairness Hearing; Stockholder Approval......................................................... 45
6.14 Information Supplied........................................................................... 46
6.15 Nasdaq Listing................................................................................. 47
6.16 Indemnification of Company Directors and Officers.............................................. 48
6.17 Transfer Restriction Agreements................................................................ 48
ARTICLE 7 CONDITIONS PRECEDENT................................................................................... 48
7.1 Conditions to Obligations of Parent, Merger Sub and Company.................................... 48
7.2 Conditions to Obligations of Parent and Merger Sub............................................. 49
7.3 Conditions to Obligations of Company........................................................... 51
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ARTICLE 8 CLOSING 52
8.1 Closing Date................................................................................... 52
8.2 Filing Date.................................................................................... 53
8.3 Efforts........................................................................................ 53
ARTICLE 9 INDEMNIFICATION AND ESCROW............................................................................. 53
9.1 Survival of Representations and Warranties..................................................... 53
9.2 Indemnification by Company Stockholders........................................................ 53
9.3 Escrow Funds................................................................................... 54
9.4 Indemnification by Parent...................................................................... 54
9.5 Third Party Claims............................................................................. 55
9.6 Holders' Representative........................................................................ 55
ARTICLE 10 PAYMENT OF EXPENSES................................................................................... 57
10.1 Payment of Expenses............................................................................ 57
ARTICLE 11 TERMINATION, AMENDMENT AND WAIVER..................................................................... 57
11.1 Termination.................................................................................... 57
11.2 Effect of Termination.......................................................................... 58
11.3 Amendment...................................................................................... 59
11.4 Extension; Waiver.............................................................................. 59
ARTICLE 12 GENERAL............................................................................................... 60
12.1 Notices........................................................................................ 60
12.2 Headings; Construction......................................................................... 60
12.3 Counterparts................................................................................... 61
12.4 Binding Effect; Parties in Interest............................................................ 61
12.5 Entire Agreement; Assignment................................................................... 61
12.6 Schedules and Exhibits......................................................................... 61
12.7 Applicable Law; Venue; Waiver of Jury Trial.................................................... 61
12.8 Severability................................................................................... 62
12.9 Remedies Cumulative............................................................................ 62
12.10 Specific Performance........................................................................... 62
12.11 Commercially Reasonable Efforts; Further Assurances............................................ 63
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Exhibit A. Certificate of Merger
Exhibit B. Certificate of Incorporation
Exhibit C. Bylaws
Exhibit D. Form of Stockholders' Agreement
Exhibit E. Form of Affiliate Agreement
Exhibit F. [RESERVED]
Exhibit G. Form of Opinion of Shaw Pittman
Exhibit H. [RESERVED]
Exhibit I. Escrow Agreement
Exhibit J. Form of Noncompetition Agreement
Exhibit K. Form of Opinion of Pillsbury Madison & Sutro LLP
Exhibit L-1 Form of Employment Agreement of Richard Berger
Exhibit L-2 Form of Employment Agreement of Rajeev Agrawal
Exhibit L-3 Form of Employment Agreement of Richard Ruggeiro
Exhibit M Form of Transfer Restriction Agreement
Exhibit N Surviving Company Articles of Incorporation
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of October 30, 2000, between VINA TECHNOLOGIES, INC., a Delaware
corporation ("Parent"), WCS ACQUISITION SUBSIDIARY, INC., a Delaware corporation
("Merger Sub") and WOODWIND COMMUNICATIONS SYSTEMS, INC., a Delaware corporation
("Company").
WITNESSETH:
WHEREAS, the Boards of Directors of each of Parent, Merger Sub and
Company believe it is in the best interests of Parent, Merger Sub and Company
and their respective stockholders that Parent acquire Company through the merger
of Merger Sub with and into Company (the "Merger"), with Company as the
surviving corporation, and, in furtherance thereof, have approved the Merger in
accordance with the General Corporation Law of the State of Delaware (the
"Delaware Law") and subject to the terms and conditions set forth in this
Agreement; and
WHEREAS, the Merger is intended to qualify as a "reorganization" under
the provisions of Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code"); and
WHEREAS, following the Merger in accordance with the terms of this
Agreement, Company shall be a wholly-owned subsidiary of Parent, and all shares
of Common Stock, $0.01 par value per share, of Company ("Company Common Stock")
and all shares of Series A Preferred Stock, Series B Preferred Stock, and Series
C Preferred Stock, $0.01 par value per share, of Company (collectively, the
"Company Preferred Stock", and together with the Company Common Stock, the
"Company Capital Stock"), issued and outstanding will be converted into shares
of Common Stock, $.0001 par value per share, of Parent ("Parent Common Stock")
in accordance with this Agreement; and
WHEREAS, as a condition and inducement to Parent to enter into this
Agreement and incur the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent and certain holders ("Major
Holders") of shares of Company Capital Stock have entered into Stockholders'
Agreements in the form of Exhibit D attached hereto (the "Stockholders
Agreements"), pursuant to which, among other things, each such holder has agreed
to vote the shares of Company Capital Stock held by them in favor of approval
and adoption of this Agreement; and
WHEREAS, as a condition and inducement to Parent to enter into this
Agreement and incur the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent and each of Richard Berger,
Rajeev Agrawal and Richard Ruggeiro have entered into (i) an employment
agreement in the forms attached hereto as Exhibits L-1, L-2 and L-3,
respectively (the "Employment Agreements"), and (ii) an agreement not to compete
in the form of Exhibit K attached hereto (the "Noncompetition Agreements"); and
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of setting forth certain representations, warranties and covenants made
by each to the other as an
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inducement to the execution and delivery of this Agreement and the conditions
precedent to the consummation of the Merger and the transactions related
thereto,
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants herein contained, Parent, Company and
Merger Sub agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Certain Definitions. The terms defined in this Section 1.1 shall,
for all purposes of this Agreement, have the meanings herein specified:
(a) "Company Material Adverse Effect" shall mean any event, change,
circumstance, condition or effect which, when considered with all other events,
changes, circumstances, conditions and effects, has, or any development that
could be reasonably expected to have, a material adverse effect on the results
of operations, financial condition, assets, liabilities, business or prospects
of Company; provided, that Company Material Adverse Effect shall not include (i)
general changes in economic conditions or Company's industry, each considered
alone without regard to any other effects, changes, events, circumstances or
conditions, and (ii) any adverse change, event or effect that is demonstrated by
Company to be primarily caused by the pendency of the Merger or the transactions
contemplated hereby (including, without limitation, obligations contemplated by
this Agreement and the Merger).
(b) "Governmental Entity" shall mean any court, administrative agency
or commission or other governmental body, authority or instrumentality.
(c) "Holders' Representative" shall mean Stephen Fredrick.
(d) "knowledge" shall mean (i) with respect to Company, the actual
knowledge of Company's Chief Executive Officer and Chief Financial Officer and,
with respect to Sections 3.14, 3.13, 3.15 and 3.17, Mr. Rajeev Agrawal, after
reasonable investigation, and (ii) with respect to Parent or Merger Sub, the
actual knowledge of Parent's Chief Executive Officer and Chief Financial Officer
and, with respect to Sections 4.8 and 4.9 only, Mr. Josh Soske, after reasonable
investigation.
(e) "Legal Requirements" shall mean any law, statute, constitution,
principle of common law, ordinance, code, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any court or other Governmental Entity.
(f) "Merger Consideration" shall mean the Merger Shares and the Cash
Merger Consideration, if any.
(g) "Nasdaq" shall mean the Nasdaq National Market.
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(h) "Parent Material Adverse Effect" shall mean any event, change,
circumstance, condition or effect which, when considered with all other events,
changes, circumstances, conditions and effects, has, or any development that
could be reasonably expected to have, a material adverse effect on the results
of operations, financial condition, assets, liabilities, business or prospects
of Parent; provided, that Parent Material Adverse Effect shall not include (i)
general changes in economic conditions or Parent's industry, each considered
alone without regard to any other effects, changes, events, circumstances or
conditions; (ii) any adverse change, event or effect that is demonstrated by
Parent to be primarily caused by the pendency of the Merger or the transactions
contemplated hereby (including, without limitation, obligations contemplated by
this Agreement and the Merger); or (iii) any change in the price on Nasdaq of
the Parent Common Stock (provided that such change in price is not related to or
connected with, and does not arise out of any other effects, changes, events,
circumstances or conditions).
(i) The term "patent" shall mean any and all patents and patent
applications of any country, including any divisions, substitutions,
continuations continuations-in-part, reissues, reexaminations, or extensions
thereof, and all corresponding foreign patents and patent applications filed or
issued in any other country which are based upon or derived from such
first-mentioned patents or patent applications.
(j) "Permitted Liens" shall mean (a) liens for taxes, assessments, or
similar charges, incurred in the ordinary course of business that are not yet
due and payable or that are being diligently contested in good faith by
appropriate proceeding; (b) liens of mechanics, materialmen, warehousemen or
other like liens securing obligations incurred in the ordinary course of
business that are not yet due and payable; and (c) similar liens and
encumbrances which are incurred in the ordinary course of business, so long as
such liens or encumbrances set forth in clauses (a), (b) and (c) above do not in
the aggregate materially detract from the value of such assets or properties
subject thereto or materially impair the use thereof in the operation of such
business.
(k) "Person" or "person" shall mean any natural person, corporation,
trust, limited liability company, partnership, Governmental Entity or other
entity.
(l) "SEC" shall mean the Securities and Exchange Commission.
(m) "Subsidiary" of a specified entity means a corporation whose voting
securities are owned directly or indirectly by the specified entity in such
amounts as are sufficient to elect at least a majority of the Board of
Directors.
(n) The terms "contract" and "agreement" include every contract,
agreement, commitment, understanding and promise, whether written or oral.
1.2 Other Definitions. In addition to the terms defined in Section 1.1,
certain other terms are defined elsewhere in this Agreement, and, whenever such
terms are used in this Agreement, they shall have their respective defined
meanings, unless the context expressly or by necessary implication otherwise
requires.
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ARTICLE 2
THE MERGER AND RELATED TRANSACTIONS
2.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, at the Effective Time (as defined below), Merger Sub shall be
merged with and into Company, and the separate corporate existence of Merger Sub
shall cease. Company shall be the surviving corporation in the Merger (the
"Surviving Corporation"). Notwithstanding the foregoing, if the conditions to
Closing set forth in Section 7.3(e) are not satisfied because none of the
counsel referred to therein is able to opine that the Merger shall be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code due to the adjustments set forth in Section 2.4(d)
below, then the Company shall be merged with and into Merger Sub (such a merger
shall also be referred to as the "Merger") and the separate existence of the
Company shall cease, and in such an event, Merger Sub shall be the Surviving
Corporation, if such changed form of Merger would permit the conditions to
Closing set forth in Section 7.3(e) to be satisfied. The Merger shall have the
effects set forth in the applicable provisions of the General Corporation Law of
the State of Delaware ("Delaware Law"), and at the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises and
be subject to all of the restrictions, liabilities, and duties of Company and
Merger Sub, all as provided under Delaware Law.
2.2 Effective Time of the Merger. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date (as defined in
Article 8 of this Agreement), a certificate of merger (the "Certificate of
Merger") shall be duly prepared, executed and acknowledged by Company and Merger
Sub and thereafter delivered to the Secretary of State of the State of Delaware
for filing in accordance with Delaware Law. The Merger shall become effective
upon the later to occur of the acceptance of such filing by the Secretary of
State of the State of Delaware or such time thereafter as is provided by the
Certificate of Merger (the "Effective Time").
2.3 Certificate of Incorporation and Bylaws of Surviving Corporation;
Board of Directors and Officers of Surviving Corporation. Upon the Effective
Time:
(a) The certificate of incorporation of the Company in effect at the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation, as amended and restated by the form of Third Amended and Restated
Certificate of Incorporation attached hereto as Exhibit N, until thereafter
amended in accordance with applicable law;
(b) The bylaws of Merger Sub in effect at the Effective Time shall be
the bylaws of the Surviving Corporation until thereafter amended in accordance
with such bylaws, the certificate of incorporation of the Surviving Corporation
and applicable law;
(c) The directors of Merger Sub at the Effective Time shall be the
directors of the Surviving Corporation, each to hold office in accordance with
the certificate of incorporation and bylaws of the Surviving Corporation, until
the next annual meeting of stockholders (or the earlier of his or her
resignation or removal) and until his or her successor shall have been duly
elected and qualified; and
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(d) Except as may be specified by Parent pursuant to Schedule 2.3,
which shall be delivered to Company no later than three (3) business days prior
to the Closing Date, the officers of Merger Sub at the Effective Time shall be
the officers of the Surviving Corporation, each to hold office in accordance
with the bylaws of the Surviving Corporation, until the earlier of his or her
resignation or removal and until his or her successor shall have been appointed
and qualified.
2.4 Effect of Merger on Capital Stock .
(a) Capital Stock of Merger Sub. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder of any shares of
outstanding capital stock of Merger Sub, each share of common stock of Merger
Sub outstanding immediately prior to the Effective Time shall be converted into
and become one fully paid and nonassessable share of common stock of the
Surviving Corporation, and such shares shall constitute the only outstanding
shares of capital stock of the Surviving Corporation. Each stock certificate of
Merger Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(b) Cancellation of Company-Owned and Parent-Owned Stock. All shares of
Company Common Stock and Company Preferred Stock, if any, that are owned
directly or indirectly by Company, and all shares of Company Common Stock and
Company Preferred Stock, if any, that are owned directly or indirectly by Parent
or any of its Subsidiaries, shall be cancelled, and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Company Capital Stock. Subject to the terms and
conditions of this Agreement, and except as set forth in Section 2.4(d), at the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of Company Capital Stock, or the holder of any options, warrants or
other rights to acquire or receive shares of Company Capital Stock, the
following shall occur:
(1) Conversion of Company Common Stock. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other than
any shares of Company Common Stock to be cancelled pursuant to Section 2.4(b)
and any "Dissenting Shares" (as defined and to the extent provided in Section
2.4(h)) will be cancelled and extinguished and be converted automatically into
the right to receive 0.142636 shares of Parent Common Stock (the "Common
Exchange Ratio");
(2) Conversion of Company Preferred Stock.
(i) Series A Preferred Stock. Each share of Series A Preferred
Stock of Company ("Series A Preferred Stock") issued and outstanding
immediately prior to the Effective Time (other than any shares of
Series A Preferred Stock to be cancelled pursuant to Section 2.4(b) and
any Dissenting Shares) will be cancelled and extinguished and be
converted automatically into the right to receive 0.142636 shares of
Parent Common Stock (the "Series A Exchange Ratio").
(ii) Series B Preferred Stock. Each share of Series B
Preferred Stock of Company ("Series B Preferred Stock") issued and
outstanding immediately prior to the Effective Time (other than any
shares of Series B Preferred Stock to be cancelled
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pursuant to Section 2.4(b) and any Dissenting Shares) will be cancelled
and extinguished and be converted automatically into the right to
receive 0.148500 shares of Parent Common Stock (the "Series B Exchange
Ratio").
(iii) Series C Preferred Stock. Subject to Section 2.4(d),
each share of Series C Preferred Stock of Company ("Series C Preferred
Stock") issued and outstanding immediately prior to the Effective Time
(other than any shares of Series C Preferred Stock to be cancelled
pursuant to Section 2.4(b) and any Dissenting Shares) will be cancelled
and extinguished and be converted automatically into the right to
receive 0.221239 shares of Parent Common Stock (the "Series C Exchange
Ratio").
(3) Conversion of Company Options. At the Effective Time, all options
to purchase shares of Company Common Stock, whether or not vested, outstanding
immediately prior to the Effective Time (collectively, the "Company Options"),
shall be assumed by Parent and shall thereafter constitute options to purchase
shares of Parent Common Stock, in accordance with the provisions of Section 6.8
hereof.
(d) Adjustment of Merger Consideration. In the event that the average
of the daily closing sales prices of Parent Common Stock on Nasdaq for the ten
(10) trading day period ending on the third (3rd) trading day prior to the
Closing Date is less than ten dollars ($10.00) per share, each share of Series C
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than any shares of Series C Preferred Stock to be cancelled pursuant to
Section 2.4(b) and any Dissenting Shares) will be cancelled and extinguished and
be converted automatically into the right to receive (i) 0.173206 shares of
Parent Common Stock (the "Adjusted Series C Exchange Ratio") and (ii) $0.720500
(the "Cash Exchange Ratio"). The aggregate of any and all cash paid pursuant to
this Section 2.4(d) shall be known as the "Cash Merger Consideration."
(e) Adjustment of Exchange Ratios. If, between the date of this
Agreement and the Effective Time, the outstanding shares of Parent Common Stock,
Company Common Stock or Company Preferred Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, the number of shares of Parent Common Stock and amount of Cash
Merger Consideration, if any, to be delivered pursuant to this Agreement (or, in
the case of Company Options, reserved for issuance) shall be correspondingly
adjusted, and the exercise price for the assumed Company Options shall be
correspondingly adjusted. No adjustment shall be made in the respective Exchange
Ratios or the number of shares of Parent Common Stock and amount of Cash Merger
Consideration, if any, issued in the Merger as a result of any consideration (in
any form whatsoever) received by Company from the date hereof to the Effective
Time as a result of any exercise, conversion or exchange of Company Options or
Company Preferred Stock.
(f) Escrow. 7.2618% of the number of shares of Parent Common Stock
received by each former holder of capital stock of Company pursuant to Section
2.4(c) above (the "Merger Shares"), rounded up to the nearest whole share, shall
be issued in accordance with the terms of the Escrow Agreement in the names of
the stockholders of Company, but shall be delivered at the Effective Time to the
Escrow Agent (as defined in Section 9.3(a) hereof) to be held and
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distributed in accordance with the provisions of Article 9 hereof and the Escrow
Agreement; provided, however, that in the event the holders of Series C
Preferred Stock shall be entitled to receive Cash Merger Consideration as set
forth in Section 2.4(d) above, 9.275655% of the number of shares of Parent
Common Stock received by each former holder Series C Preferred Stock pursuant to
Section 2.4(d) above, and 7.261817% of the number of shares of Parent Common
Stock received by all other former holders of Company Capital Stock pursuant to
Section 2.4(c) above shall be issued in accordance with the terms of the Escrow
Agreement in the names of the former stockholders of Company, but shall be
delivered at the Effective Time to the Escrow Agent (as defined in Section
9.3(a) hereof) to be held and distributed in accordance with the provisions of
Article 9 hereof and the Escrow Agreement. All shares of Parent Common Stock
delivered to the Escrow Agent pursuant to this Section 2.4(f) shall be
collectively known as the "Escrow Shares."
(g) Fractional Shares. No fractional shares of Parent Common Stock
shall be issued, but in lieu thereof each holder of Company Capital Stock
("Holder") who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such Holder) shall receive from Parent an amount of cash
(rounded up to the nearest whole cent) equal to the product of (i) the fraction
of a share of Parent Common Stock to which such Holder would otherwise be
entitled, times (ii) the Closing Stock Price. The "Closing Stock Price" shall
mean the average closing price of the Parent Common Stock on Nasdaq for the five
(5) trading day period ending two (2) trading days prior to the Closing Date.
(h) Dissenting Shares; Dissenting Stockholders. Notwithstanding
anything in this Agreement to the contrary, no share of Company Common Stock or
Company Preferred Stock, the holder of which (a "Dissenting Stockholder") has
properly exercised and perfected dissenters' rights of appraisal under Section
262 of Delaware Law (a "Dissenting Share"), shall be converted into the right to
receive any Merger Shares and/or cash and/or cash in lieu of fractional Merger
Shares, but such Dissenting Stockholder shall be entitled to receive such
consideration as shall be determined pursuant to Section 262 of Delaware Law
with respect to such Dissenting Share; provided that if any such Dissenting
Stockholder shall fail to perfect or shall have effectively withdrawn or
otherwise lost his, her or its rights to appraisal under Delaware Law, each of
such Dissenting Stockholder's Dissenting Shares shall thereupon be deemed to
have been converted into the right to receive the number of Merger Shares and/or
cash, in accordance with Section 2.4(c) or 2.4(d), as the case may be (and
including cash in lieu of fractional shares, as provided in Section 2.4(g)),
applicable thereto as if such Dissenting Share had not been a Dissenting Share
at the Effective Time, without any interest thereon, and such share shall
thereupon no longer be a Dissenting Share. Company shall give Parent (i) prompt
notice of any written demands for appraisal in respect of any shares of Company
Common Stock or Company Preferred Stock, withdrawals of such demands, and any
other instruments served pursuant to Delaware Law (including, without
limitation, instruments concerning appraisal or dissenters' rights) and received
by Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. Company shall not, except with the
prior written consent of Parent, voluntarily make any payment with respect to
any demands for the exercise of dissenters' rights in respect of any shares of
Company Common Stock or Company Preferred Stock or offer to settle or settle any
such demands.
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2.5 Issuance and Exchange of Certificates
(a) Parent to Make Common Stock Available. At the Closing, Parent shall
irrevocably deposit (or cause to be deposited) with an exchange agent reasonably
satisfactory to the Holders' Representative (the "Exchange Agent"), for the
benefit of the Holders, for exchange in accordance with this Agreement, through
such reasonable procedures as Parent and the Holders' Representative may jointly
adopt, (i) the Merger Shares (less the Escrow Shares), (ii) cash in respect of
the Cash Merger Consideration (if any) and (iii) cash in lieu of any fractional
shares of Parent Common Stock to be paid pursuant to Section 2.4(g).
(b) Exchange Procedures. As soon as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of record of
a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock or Company Preferred
Stock (collectively, the "Certificates") whose shares are being converted into
the right to receive Merger Shares (excluding Dissenting Shares) and Cash Merger
Consideration (if any, and as applicable), (i) a letter of transmittal which
shall specify that delivery shall be effective, and risk of loss and title to
the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and have such other customary provisions (but including an
assignment in blank to be deposited into Escrow necessary to effect any transfer
of Escrow Shares to Parent in accordance with Article 9 and the Escrow
Agreement) as Parent may reasonably specify and (ii) instructions for effecting
the surrender of such Certificates in exchange for the Merger Shares and Cash
Merger Consideration (if any, and as applicable). Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such letter of
transmittal duly executed and completed in accordance with the instructions
thereto, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor the certificates representing the number of shares of Parent Common
Stock and/or Cash Merger Consideration, if any, and payments in lieu of
fractional shares to which such Holder is entitled pursuant to Section 2.4(f)
and is represented by the Certificate so surrendered. The Certificates so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of Company Capital Stock which is not registered in the transfer
records of Company, the stock certificates representing shares of Parent Common
Stock and/or Cash Merger Consideration, if any (and cash in lieu of fractional
shares) may be delivered to a transferee if the Certificate representing the
right to receive such Parent Common Stock and/or Cash Merger Consideration, if
any (and cash in lieu of fractional shares) is presented to the Exchange Agent
and accompanied by all documents required to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid. Parent
shall (and shall cause the Exchange Agent to) follow the same procedure with
respect to lost, stolen or mutilated Certificates as it follows with respect to
lost, stolen or mutilated Parent certificates. Unless and until any such
Certificate shall be so surrendered, or such procedures respecting lost, stolen
or mutilated Certificates are followed, the holders of the Certificate shall not
be entitled to receive certificates for the Parent Common Stock and/or Cash
Consideration, if any or cash for any fractional share of Parent Common Stock
and any dividends paid or other distributions made to holders of record of
Parent Common Stock after the Effective Time shall be paid to and retained by
the Exchange Agent and paid over to such holder when such Certificate is
surrendered or such procedures are implemented in accordance with this Section
2.5(b). Neither Parent nor the Surviving Corporation shall have any liability to
any holder or former holder of capital stock of Company for any shares of Parent
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<PAGE> 14
Common Stock (or dividends or distributions with respect thereto), or for any
cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
(c) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered in exchange for Parent Common Stock (and cash in lieu
of fractional shares) and/or Cash Consideration, if any, by any "Affiliate" (as
determined pursuant to Section 6.7) of Company shall not be exchanged for
certificates representing Parent Common Stock (and cash in lieu of fractional
shares) and/or Cash Consideration, if any, until Parent has received a written
Affiliate Agreement from such person as provided in Section 6.7 hereof.
2.6 No Further Ownership Rights in Stock. All Parent Common Stock
and/or Cash Consideration, if any, delivered upon the surrender for exchange of
shares of Company Common Stock and Company Preferred Stock in accordance with
the terms hereof (including any cash in lieu of fractional shares) shall be
deemed to have been delivered in full satisfaction of all rights pertaining to
such shares of stock. There shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock and Company Preferred Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or Parent, they shall be cancelled and
exchanged upon the terms and conditions provided in this Article 2.
2.7 Tax Treatment. The parties intend that the transactions
contemplated hereby will be a reorganization within the meaning of section 368
of the Code and hereby adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the Treasury Regulations.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as disclosed or otherwise referred to in the Disclosure
Schedules attached hereto, Company represents and warrants to Parent and Merger
Sub as of the date hereof (each such representation and warranty being a
material inducement to the execution of this Agreement by Parent and Merger Sub)
as follows:
3.1 Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Company
is duly qualified to do business and in good standing in its state of
incorporation and in each of the other jurisdictions in which it owns or leases
property or conducts business, except where the failure to be so qualified would
not have an Company Material Adverse Effect. Company has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and possesses all licenses, franchises, rights and
privileges material to the conduct of its respective business. Except as set
forth on Schedule 3.1, Company has delivered or made available to Parent true,
complete and correct copies of (i) its Second Restated Certificate of
Incorporation and Bylaws, including all amendments thereto, (ii) minutes of all
meetings of the board of directors (including all committees thereof) and
stockholders and copies of actions by written
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<PAGE> 15
consent of the foregoing, all of which are complete and accurate as of the date
hereof, (iii) stock certificate books and all other records that collectively
correctly set forth the record ownership of all outstanding shares of its
capital stock and all rights to purchase capital stock, and (iv) form of stock
certificates, option agreements and rights to purchase shares of its capital
stock. Except as set forth on Schedule 3.1, there have been no formal meetings
or other proceedings of the stockholders of Company, the board of directors of
Company or any committee of the board of directors of Company that are not fully
reflected in such minutes or other records. There has not been any violation of
any of the provisions of Company's Certificate of Incorporation or Bylaws, and
Company has not taken any action that is inconsistent in any material respect
with any resolution adopted by Company's stockholders, Company's board of
directors or any committee of Company's board of directors. The books of
account, stock records and other records of Company are accurate, up-to-date and
complete in all material respects, and have been maintained in accordance with
prudent business practices.
3.2 Capital Structure.
(a) As of the date hereof, the authorized capital stock of Company
consists of 50,037,410 shares of Company Common Stock and 19,962,590 shares of
Company Preferred Stock, of which 6,767,022 shares have been designated Series A
Preferred Stock, 2,786,090 shares have been designated Series B Preferred Stock,
and 10,409,478 shares have been designated Series C Preferred Stock, of which
2,415,327 shares of Company Common Stock, 6,767,022 shares of Series A Preferred
Stock, 2,786,090 shares of Series B Preferred Stock, and 10,409,478 shares of
Series C Preferred Stock were issued and outstanding. As of the date hereof,
each share of Preferred Stock converts into shares of Common Stock on a
one-to-one conversion ratio.
(b) All of the outstanding shares of Company Common Stock and Company
Preferred Stock and all of the outstanding Company Options (other than the
Additional Company Options, as defined below) were issued in compliance with
applicable federal and state securities laws. All of the outstanding shares of
Company Common Stock and Company Preferred Stock, and the shares of Company
Common Stock issuable upon conversion of Company Preferred Stock and issuable
upon exercise of Company Options in accordance their terms will be, are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Company's Certificate of Incorporation or
Bylaws or any agreement to which Company is a party or by which it is bound,
except as expressly set forth on Schedule 3.2(b).
(c) Except as set forth in Schedule 3.2(c) and except for or with
respect to the Additional Company Options, there are no equity securities of any
class of Company, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding, and there are
no options, warrants, calls, rights, commitments or agreements of any character
to which Company is a party or by which it is bound obligating Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of Company or obligating Company to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement.
(d) Schedule 3.2(d) contains complete and accurate lists of and the
number of shares (identified by class or series) owned of record by, the holders
of outstanding Company Common
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Stock and Company Preferred Stock and the number of shares subject to options,
and the holders of outstanding options to purchase Company Common Stock,
including in each case the domicile addresses of such holders in the books and
records of Company. Schedule 3.2(d) is complete and accurate on the date hereof
and, if requested by Parent, an updated Schedule 3.2(d) to be attached hereto
will be complete and accurate as of the Closing Date. Schedule 3.2(d) identifies
the vesting schedule, and repurchase rights or other similar rights of any
outstanding option or other security of Company, and identifies whether each
Company Option has been designated at the time of grant of such option an
"incentive stock option" as defined in Section 422 of the Code.
(e) Schedule 3.2(e) contains a complete and accurate list of each stock
option plan, stock purchase plan, stock appreciation rights or other
equity-related incentive plan of Company.
(f) Except as set forth in Schedule 3.2(f) and except for any
restrictions imposed by applicable state and federal securities laws, to the
knowledge of Company there is no (i) right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any shares of Company Common Stock or Company Preferred
Stock, or (ii) condition or circumstance that provides a reasonable basis for
the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of Company. Except as set forth in Schedule 3.2(f) and except for the
Accelerated Options (as defined below) there will not be accelerated vesting of
any Company Option, in whole or in part, as the result of or in connection with
the Merger.
(g) Except as set forth in Schedule 3.2(g), Company is not a party or
subject to any agreement or understanding, and to Company's knowledge there is
no voting trust, proxy, or other agreement or understanding between or among any
persons, that affects or relates to the voting or giving of written consent with
respect to any outstanding security of Company, the election of directors, the
appointment of officers or other actions of the board of directors or the
management of Company. Except as set forth in Schedule 3.2(g), to Company's
knowledge, no stockholder of Company is party or subject to any such agreement
or understanding.
3.3 Equity Investments. Company does not own any equity interest,
directly or indirectly, in any corporation, partnership, limited liability
company, joint venture, firm or other entity, except as disclosed on Schedule
3.3 hereto.
3.4 Authority. Company has all requisite corporate power and authority
to enter into this Agreement and the Certificate of Merger and, subject to
satisfaction of the conditions set forth herein, to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Certificate of Merger and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Company except that this Agreement and the
transactions contemplated hereby are subject to approval by the holders of a
majority of the shares of Company Capital Stock and the holders of a majority of
the shares of each series of Company Preferred Stock, in accordance with the
provisions of Company's Second Restated Certificate of Incorporation (the
"Required Stockholder Vote"). This Agreement has been duly executed and
delivered by Company and the Certificate of Merger will be duly executed and
delivered by Company, and constitutes (or in the case of the Certificate of
Merger, when executed will
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<PAGE> 17
constitute) valid and binding obligations of Company, enforceable against
Company in accordance with their terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other similar federal or
state laws affecting the rights of creditors ("Bankruptcy Laws") and the effect
or availability of rules of law governing specific performance, injunctive
relief or other equitable remedies (regardless of whether any such remedy is
considered in a proceeding at law or in equity) ("Equitable Principles").
Provided the conditions set forth in Article 7 are satisfied, and except as set
forth on Schedule 3.4, the execution and delivery of this Agreement and the
Certificate of Merger do not or will not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under (a) any
provision of the Certificate of Incorporation or Bylaws of Company or (b) any
agreement or instrument, permit, franchise, license, judgment or order,
applicable to Company or its properties or assets, other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which individually or in the aggregate would not have a Company Material Adverse
Effect.
Except for the Required Stockholder Vote and except as set forth in
Schedule 3.4, no consent, waiver, authorization, approval, order, registration,
declaration or filing (each, a "Consent") of or with any Person is required to
be obtained by Company in connection with the execution and delivery of this
Agreement or the Certificate of Merger by Company and the performance of
Company's obligations hereunder or thereunder, except where the failure to
obtain such Consents would not have a Company Material Adverse Effect. No
Consent of or with any Governmental Entity is required by or with respect to
Company in connection with the execution and delivery of this Agreement or the
Certificate of Merger by Company or the consummation by Company of the
transactions contemplated hereby or thereby, except for (a) the filing of the
Certificate of Merger and related certificates with the Delaware Secretary of
State, (b) such Consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws in connection with the transactions contemplated hereby, and (c)
Consents, which if not obtained, would not have a Company Material Adverse
Effect.
3.5 Financial Statements. Company has furnished to Parent its audited
statement of operations, statement of stockholders' equity and statement of cash
flows for the fiscal year ended December 31, 1999 and its unaudited statement of
operations, statement of stockholders' equity and statement of cash flows for
the nine-months ended September 30, 2000. The balance sheet at September 30,
2000, is hereinafter referred to as the "Company Balance Sheet," and all such
financial statements are hereinafter referred to collectively as the "Company
Financial Statements." Except as set forth in Schedule 3.5, the Company
Financial Statements are complete and accurate in all material respects, have
been prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved,
are in accordance with Company's books and records, and fairly present in all
material respects the financial position of Company and the results of its
operations as of the date and for the periods indicated thereon, subject in the
case of the unaudited portion of the Company Financial Statements to normal
year-end audit adjustments which will not be material individually and in the
aggregate, and the absence of footnote disclosure. As of the date of the Company
Balance Sheet (the "Company Balance Sheet Date") and the date hereof, Company
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<PAGE> 18
had no liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise and whether or not required to be reflected on
the Balance Sheet under GAAP) (collectively, "Liabilities") not reflected on or
reserved against the Company Balance Sheet or the accompanying notes thereto,
except for (i) Liabilities incurred in the ordinary course of business since the
Company Balance Sheet Date through the date hereof which are usual and normal in
amount, (ii) Liabilities which would not be required under GAAP to be set forth
on or reserved against the Company Balance Sheet or a balance sheet of the
Company as of the date hereof, (iii) Liabilities stated or adequately reserved
against on the Balance Sheet, (iv) Third Party Expenses, (v) Liabilities set
forth in the Disclosure Schedules or (vi) Liabilities which individually or in
the aggregate would not have a Company Material Adverse Effect. Company
maintains, and will maintain, a standard system of accounting established and
administered in accordance with GAAP.
3.6 Business Changes. Since the Company Balance Sheet Date, except as
otherwise contemplated by this Agreement or set forth in Schedule 3.6 (in each
case, in a paragraph thereof corresponding to the applicable paragraph of this
Section 3.6), Company has conducted its business only in the ordinary and usual
course and, without limiting the generality of the foregoing, since the Company
Balance Sheet Date and the date hereof:
(a) There has been no change, event or condition of any character
(whether or not covered by insurance) which, in the aggregate, has had or may be
expected to have a Company Material Adverse Effect.
(b) Other than issuance of shares of Company Common Stock pursuant to
outstanding Company Options, Company has not issued, or authorized for issuance,
or entered into any commitment to issue, any equity security, bond, note or
other security of Company.
(c) Company has not incurred additional debt for borrowed money, nor
incurred any obligation or liability except in the ordinary and usual course of
business and in any event not in excess of $25,000 for any single occurrence,
and except for legal and accounting fees incurred in connection with the
transactions contemplated by this Agreement.
(d) Company has not paid any obligation or liability, or discharged,
settled or satisfied any claim, lien or encumbrance, except for current
liabilities in the ordinary and usual course of business and in any event not in
excess of $25,000 for any single occurrence.
(e) Company has not declared or made any dividend, payment or other
distribution on or with respect to any share of capital stock of Company.
(f) Company has not purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any share or shares of
capital stock of Company.
(g) Company has not mortgaged, pledged, or otherwise, voluntarily or
involuntarily, encumbered any of its assets or properties, except for liens for
current taxes which are not yet delinquent and purchase-money liens arising out
of the purchase or sale of services or products made in the ordinary and usual
course of business and in any event not in excess of $25,000 for any single item
or $50,000 in the aggregate.
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<PAGE> 19
(h) Company has not disposed of, or agreed to dispose of, by sale,
lease, license or otherwise, any asset or property, tangible or intangible,
except in the ordinary and usual course of business and in each case for a
consideration believed to be at least equal to the fair value of such asset or
property and in any event not in excess of $25,000 for any single item or
$50,000 in the aggregate.
(i) Company has not purchased or agreed to purchase or otherwise
acquire any securities of any corporation, partnership, joint venture, firm or
other entity.
(j) Company has not made any expenditure or commitment for the
purchase, acquisition, construction or improvement of a capital asset, except in
the ordinary and usual course of business and in any event not in excess of
$25,000 for any single item or $50,000 in the aggregate.
(k) Company has not sold, assigned, licensed, transferred or conveyed,
or committed itself to sell, assign, license, transfer or convey, any
Proprietary Rights (as defined in Section 3.17), except pursuant to licenses in
the ordinary course of business.
(l) Company has not paid or committed itself to pay to or for the
benefit of any of its directors, officers, employees or stockholders any
compensation of any kind other than wages, salaries and benefits, at times and
rates in effect on the Company Balance Sheet Date, adopted or amended any bonus,
incentive, profit-sharing, stock option, stock purchase, pension, retirement,
deferred-compensation, severance, life insurance, medical or other benefit plan,
agreement, trust, fund or arrangement for the benefit of employees of any kind
whatsoever, nor entered into or amended any agreement relating to employment,
services as an independent contractor or consultant, or severance or termination
pay, nor agreed to do any of the foregoing.
(m) Company has not effected or agreed to effect any change in its
directors, officers or key employees.
(n) Company has not effected or committed itself to effect any
amendment or modification in its Certificate of Incorporation or Bylaws, except
as contemplated in this Agreement or the Certificate of Merger.
(o) Company has not entered into any transaction or contract, or made
any commitment to do the same, except in the ordinary and usual course of
business.
3.7 Properties.
(a) Company does not own and has never owned any real property. The
Company Balance Sheet reflects all of the real and personal property used by
Company in its business or otherwise held by Company, except for (i) property
acquired or disposed of in the ordinary and usual course of the business of
Company since the date of such balance sheet, and (ii) real and personal
property not required under GAAP to be reflected thereon. Except as set forth in
Schedule 3.7(a), Company has good title to all assets and properties listed on
the Company Balance Sheet and thereafter acquired, and to all assets referred to
in Schedules 3.7, free and clear of any imperfections of title, lien, claim,
encumbrance, restriction, charge or equity of any nature whatsoever, except for
Permitted Liens. All of the fixed assets and properties reflected on
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<PAGE> 20
the Company Balance Sheet or thereafter acquired are in good operating condition
and repair and are adequate for the requirements of the business as presently
conducted by Company, normal wear and tear excepted.
(b) Schedule 3.7(b) sets forth a full and complete list of all real
property leased by Company or under option to purchase by Company. All such
property leased by Company is held under valid, subsisting and enforceable
leases, except to the extent that enforceability may be limited by laws of
eminent domain and condemnation, Bankruptcy Laws, Equitable Principles and laws
of similar effect. To the knowledge of Company, neither any real property leased
by Company nor the operations of Company thereon violate any applicable material
building code, zoning requirement or classification, or pollution control
ordinance or statute relating to the property or to such operations, and such
non-violation is not dependent, in any instance, on so-called non-conforming use
exemptions.
(c) To the knowledge of Company, there are no Hazardous Substances in,
under or about the soil, sediment, surface water or groundwater on, under or
around any properties at any time owned, leased or occupied by Company. Company
has not disposed of any Hazardous Substances on or about such property. Company
has not disposed of any materials at any site being investigated or remediated
for contamination or possible contamination of the environment. "Hazardous
Substances" shall mean any pollutant, contaminant, material, substance or waste
regulated, restricted or prohibited by any law, regulation or ordinance or
designated by any governmental agency to be hazardous, toxic, radioactive,
biohazardous or otherwise a danger to health or the environment, including but
not limited to "hazardous substances" as defined under the Federal Comprehensive
Environmental Responsibility, Cleanup and Liability Act of 1980 or any
"hazardous wastes" as defined under the Federal Resource Conservation Recovery
Act of 1976.
(d) Company has conducted its business in compliance with all
applicable laws, regulations, orders and other requirements of governmental
authorities relating to Hazardous Substances and the use, storage, treatment,
disposal, transport, generation, release and exposure of others to Hazardous
Substances, except where such failure to act in compliance with such laws,
regulations, orders and other requirements would not have a Company Material
Adverse Effect. There have been no judicial or administrative proceedings or
other investigations against or, to the knowledge of Company, involving Company
and there are no judicial or administrative proceedings or other investigations
pending or, to the knowledge of Company, threatened alleging violation by
Company of any local, state or federal laws respecting land use, pollution or
protection of the environment including, without limitation, laws regulating the
use, storage, transportation or disposal of Hazardous Substances, and Company
has not received any notice of any investigation, claim or proceeding against
Company relating to Hazardous Substances. Company has no knowledge of any fact
or circumstance which could reasonably be expected to involve Company in any
environmental litigation, proceeding, investigation which would have a Company
Material Adverse Effect or claim or impose any environmental liability upon
Company which would have a Company Material Adverse Effect.
(e) Schedule 3.7(e) sets forth a complete list of all permits, consents
and approvals which Company is required to have under local, state or federal
laws respecting land use, pollution or protection of the environment for the
construction or occupation of its facilities and the operation
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<PAGE> 21
of its business. Company has obtained all such permits, consents and approvals
and is, and at all times has been, in material compliance with every term and
condition thereof. All of the permits, consents and approvals listed on Schedule
3.7(e) are in full force and effect, none have been modified, and there is no
proceeding pending which may result in the reversal, rescission, termination,
modification or suspension of any such permit, consent or approval.
(f) Company has kept all records and made all filings that it is
required to keep or make by all applicable local, state and federal laws
relating to land use, pollution and protection of the environment with respect
to all exposures, emissions, discharges and releases into the environment and
the proper use, storage, transportation and disposal of all Hazardous
Substances.
3.8 Accounts Receivable. All of the accounts receivable of Company
shown on the Company Balance Sheet or existing as of the date hereof (the
"Accounts Receivable") arose in the ordinary and usual course of its business.
Except as set forth on Schedule 3.8, the Accounts Receivable are or will be
collectible net of the respective reserves shown on the Company Balance Sheet or
on the accounting records of the Company as of the Closing Date (which reserves
are adequate and calculated consistent with past practice and, in the case of
the reserve as of the Closing Date, will not represent a materially greater
percentage of the Accounts Receivable as of the Closing Date than the reserve
reflected in the Company Balance Sheet represented of the Accounts Receivable
reflected therein. The values at which accounts receivable are carried reflect
the accounts receivable valuation policy of Company which is consistent with
Company's past practice and in accordance with GAAP applied on a consistent
basis.
3.9 Taxes. Company has prepared or caused to be prepared in good faith
and timely filed or caused to be timely filed (taking into account any
extensions of time within which to file) all Tax Returns (as defined below)
required to be filed by it ("Pre-Closing Tax Returns"), and all such filed
Pre-Closing Tax Returns are true, complete and accurate. Company has paid all
Taxes (as defined below) that are shown as due on such filed Pre-Closing Tax
Returns, or that it is required by law to have withheld and paid over to a
Governmental Entity from amounts owing to any employee, creditor or third party.
There are not pending nor, to the knowledge of Company, threatened any audits,
actions, suits, proceedings, investigations, examinations or other proceedings
in respect of Taxes or Tax matters by a Government Entity relating to Company or
its assets or business. Company has no liability with respect to Taxes for all
periods up to and including the Company Balance Sheet Date in excess of the
amounts accrued in respect thereof and reflected in the Company Balance Sheet.
Company has never been a member of a consolidated, combined or unitary group.
Company is not a party to any tax sharing, tax allocation, tax indemnity or
other similar agreement. Company has no liability for the Taxes of any Person
other than Company under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise, except Liabilities not reflected on or
reserved against the Company Balance Sheet or the accompanying notes thereto, or
Liabilities incurred in the ordinary course of business since the Company
Balance Sheet Date through the date hereof which are usual and normal in amount.
No extension of the statute of limitations for the assessment of Taxes has been
granted by Company that is currently in effect. Company is not required to file
a Tax Return in any jurisdiction where it does not currently file a Tax Return.
Neither Company nor any of its assets
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<PAGE> 22
or properties are subject to any liens for Taxes, other than liens for Taxes not
yet delinquent. Company is not a "consenting corporation" within the meaning of
Section 341(f) of the Code and none of the assets of Company are subject to an
election under Section 341(f) of the Code. Except as described in Schedule 3.23
or as provided in this Agreement, Company has not made any payments, is not
obligated to make any payments, nor is a party to any contract, agreement, or
arrangement covering any current or former employee or consultant of Company
that as a result of or in connection with the Merger will require it to make or
give rise to any payments that are not deductible as a result of the provisions
set forth in Section 280G of the Code or the Treasury Regulations thereunder.
Company is not nor has it ever been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Company has
never been a party to any transaction intended to qualify under Section 355 of
the Code.
As used in this Agreement: (i) the term "Tax" (including, with
correlative meaning, the term "Taxes") includes all federal, state, local and
foreign income, profits, franchise, gross receipts, environmental, customs duty,
capital stock, severance, stamp, payroll, sales, employment, unemployment,
disability, use, property, withholding, excise, production, value added, goods
and services, occupancy and other taxes, duties, imposts or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
by a Governmental Entity with respect to such amounts and any interest in
respect of such penalties and additions; and (ii) the term "Tax Return" includes
all returns and reports (including elections, declarations, disclosures,
schedules, estimates and information returns) required to be supplied to a Tax
authority relating to Taxes.
3.10 Employees.
(a) Schedule 3.10(a) sets forth a full and complete list of all
directors, officers, employees or consultants of Company as of the date hereof,
specifying their names and job designations, their dates of hire, the total
annual amount currently payable as wages, salaries and commissions.
(b) Except as set forth in Schedule 3.10(b), (i) Company has no
employment contract with any officer or employee or any other consultant or
person which is not terminable by Company at will without liability, except as
the right of Company to terminate its employees at will may be limited by
applicable federal or state law, (ii) Company has no bonus plan or obligations
to pay any bonuses, (iii) there are no amounts (whether currently payable or
payable in the future) payable as a result of a change in control of Company to
which current or former officers, directors or employees of Company are entitled
or would become entitled after the Merger and (iv) the consummation of the
transactions contemplated by this Agreement will not result in any payment in
the nature of severance pay or in any cost or benefit accelerating, becoming due
or accruing with respect to any director, officer, employee or consultant of
Company.
(c) There is no pending or, to Company's knowledge, threatened labor
dispute. None of the employees of Company is represented by any union or is a
party to any collective bargaining arrangement to which Company is a party, and
to the knowledge of Company no attempts are being made to organize or unionize
any of the Company employees. To the knowledge of
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Company, except as set forth on Schedule 3.10(c), Company has complied in all
material respects with all applicable foreign, state and federal equal
employment opportunity and other laws and regulations related to employment
practices, terms and conditions or employment and wages and hours.
(d) To the knowledge of Company or except as disclosed in Schedule
3.10(d), no employee of Company has been injured in the workplace or in the
course of his or her employment, except for injuries that are covered by
insurance or for which a claim has been made under worker's compensation or
similar laws. Except as disclosed on Schedule 3.10(d) no employees of Company
are absent from active employment on account of illness or injury, other than
those employees whose absence has lasted less than four weeks as of the date
hereof.
(e) To the knowledge of Company, (i) Company has complied in all
material respects with the verification requirements and the recordkeeping
requirements of the Immigration Reform and Control Act of 1986 or its successor
("IRCA"), except as set forth in Schedule 3.10(e), and (ii) the information and
documents upon which Company relied to comply with IRCA are true and correct.
3.11 Compliance with Law. Schedule 3.11 sets forth all material
licenses, franchises, permits, clearances, consents, certificates and other
evidences of authority of Company which are necessary to the conduct of
Company's business as conducted on the date hereof ("Permits"). All such Permits
are in full force and effect and Company is not in violation of any Permit
except for violations which would not, singly or in the aggregate, have a
Company Material Adverse Effect. The business of Company has been conducted in
accordance with all applicable laws, regulations, orders and other requirements
of governmental authorities, employment practices and procedures, the health and
safety of employees and export controls, except for possible noncompliance,
violations, or other possible exceptions that would not have a Company Material
Adverse Effect, and the Company has not received written notice of a violation
or alleged violation of any such laws, regulations, orders or requirements.
3.12 [Intentionally Omitted.]
3.13 Litigation. Except as set forth on Schedule 3.13, there are no
claims, disputes, actions, proceedings, notices, orders, suits, appeals or
investigations, at law or in equity, pending against Company, or involving any
of its assets or properties, before any court, agency, authority, arbitration
panel or other tribunal (other than those, if any, with respect to which service
of process or similar notice has not yet been made on Company), and to the
knowledge of Company none have been threatened. Company is not subject to any
order, writ, injunction or decree of any court, agency, authority, arbitration
panel or other tribunal, nor is Company in default with respect to any notice,
order, writ, injunction or decree.
3.14 Contracts. Schedule 3.14 sets forth a complete list of each oral
or written contract and agreement in the following categories to which Company
is a party, or by which it is bound in any respect (collectively, the "Material
Contracts"):
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(a) agreements for the purchase, sale, lease or other disposition of
equipment, goods, materials, research and development, supplies, studies or
capital assets, or for the performance of services, in any case involving more
than $25,000;
(b) contracts or agreements relating to the grant of rights to develop,
manufacture, produce, assemble, license, distribute, market or sell Company's
products to any person or otherwise affecting Company's exclusive right to
develop, manufacture, produce, assemble, license, distribute, market or sell its
products;
(c) contracts or agreements for the joint performance of work or
services or the sharing of revenues, profits, losses, costs or liabilities, and
all other joint venture and partnership agreements;
(d) management or employment contracts, consulting contracts,
independent contractor contracts, collective bargaining contracts, termination
and severance agreements;
(e) notes, mortgages, deeds of trust, loan agreements, security
agreements, guarantees, debentures, indentures, credit agreements and other
evidences of indebtedness;
(f) contracts or agreements with agents, brokers, consignees, sale
representatives or distributors;
(g) contracts or agreements with any director, officer, employee,
consultant or stockholder or other Related Party;
(h) pension, retirement, profit-sharing, deferred compensation, bonus,
incentive, life insurance, hospitalization or other employee benefit plans or
arrangements (including, without limitation, any contracts or agreements with
trustees, insurance companies or others relating to any such employee benefit
plan or arrangement);
(i) stock option, stock purchase, warrant, repurchase or other
contracts or similar agreements relating to any shares of capital stock of
Company;
(j) powers of attorney or similar authorizations granted by Company to
third parties;
(k) licenses, sublicenses, royalty agreements, development agreements
and other contracts or agreements to which Company is a party, or otherwise
subject, relating to technical assistance, technology development or Proprietary
Rights (as defined below);
(l) any agreement pursuant to which Company has granted or may be
requested to grant in the future, to any party, a source code license or option
or other right to use or acquire source code;
(m) each contract or agreement providing for payments or rights that
are triggered or accelerated upon a change in control of Company;
(n) each contract relating to the creation of any lien, pledge, charge
or other encumbrance (other than Permitted Liens) with respect to any material
asset of Company;
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(o) each contract involving or incorporating any guaranty, any pledge,
any performance or completion bond, any indemnity or any surety arrangement;
(p) each contract with a Governmental Entity;
(q) any other contract that was entered into outside the ordinary
course of business;
(r) any other material contract that has a term of more than sixty (60)
days (other than contracts under which the only obligation of Company following
such 60-day period is a non-disclosure obligation) and that may not be
terminated by Company (without penalty) within sixty (60) days after the
delivery of a termination notice by Company; and
(s) any other contract that contemplates or involves (A) the payment or
delivery of cash or other consideration in an amount or having a value in excess
of $25,000 in the aggregate, or (B) the performance of services having a value
in excess of $25,000 in the aggregate.
Except as set forth in Schedule 3.14, Company has not entered into (i)
any contract containing covenants limiting the right of Company to compete in
any business, in any market or geographic region or with any person, or (ii) any
agreement or arrangement relating to the issuance, sale or transfer of any
Company capital stock or of a significant portion of its stock or assets or
relating to any merger, consolidation or other business combination with a third
party. Company has not given any warranties or indemnities relating to products
or technology sold or services rendered by Company, except (A) as set forth in
Schedule 3.14, (B) warranties given by Company in connection with the sale or
licensing of Company's products in the ordinary course of business, (C)
warranties implied by law, and (D) warranties given in agreements entered into
after the date hereof in compliance with the terms and conditions of this
Agreement. Schedule 3.14 lists all pending warranty claims against the Company
involving more than $25,000.
3.15 No Default.
(a) Except as set forth in Schedule 3.15(a), each of the contracts,
agreements and other instruments referred to in Section 3.14 of this Agreement
is valid, binding and in full force and effect, and is enforceable by Company in
accordance with its terms, subject to the effect of applicable Bankruptcy Laws
and Equitable Principles. To the knowledge of Company, no party with whom
Company has an agreement or contract is in material default thereunder or has
breached any material terms or provisions thereof.
(b) Except as set forth in Schedule 3.15(b), Company in all material
respects has performed, or is now performing, the obligations of, and Company is
not in material default (or would by the lapse of time and/or the giving of
notice be in material default) in respect of, any Material Contract. No third
party has raised any claim, dispute or controversy with respect to any Material
Contract, nor has Company received notice, warning or other communication of
actual, alleged or potential nonperformance, delay in delivery or other
noncompliance by Company with respect to its obligations under any Material
Contract, nor are there any facts which exist indicating that any Material
Contract may be totally or partially terminated or suspended by the other party
or parties thereto.
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3.16 Customers. Schedule 3.16 sets forth all customers of Company from
whom more than $25,000 in revenues were received in the first, second and third
quarters of fiscal 2000. To the knowledge of Company, there are no circumstances
likely to result in termination or failure to renew any customer contract or
agreement with such customers.
3.17 Proprietary Rights.
(a) Schedule 3.17 (a) sets forth a complete and accurate list of all
patent, copyright, trademark, trade name and service mark applications or
registrations owned or applied for by Company. Such list specifies, as
applicable: (i) the title of the patent, trademark, trade name, service mark or
copyright application or registration; (ii) the jurisdiction by or in which such
patent, trademark, trade name, service mark or copyright has been issued or
registered or in which an application has been filed, including the registration
or application numbers; and (iii) material licenses, sublicenses and similar
agreements to which Company is a party or pursuant to which any other party is
authorized to use, exercise or receive any benefit from any intellectual
property referred to in such registrations or applications. Schedule 3.17(a)
sets forth a complete and accurate description of all agreements of Company with
each officer, employee, stockholder, director, contractor or consultant of
Company providing Company with title and ownership to patents, patent
applications, trade secrets and inventions developed or used by Company in its
business, all of which agreements are, to the Company's knowledge, valid,
enforceable and legally binding (subject to the effect or availability of
Bankruptcy Laws and Equitable Principles).
(b) Company owns, or possesses valid and enforceable licenses or other
rights to use, all computer software and hardware, source code, patents, patent
applications, trademarks, trademark applications, trade secrets, service marks,
trade names, logos, trade dress, copyrights, inventions, business and marketing
plans, industrial property rights, copyrights, trademarks, trade names, logos
and service marks (and all goodwill associated therewith), and applications
therefor, and all technical information, customer lists, management information
systems, drawings, designs, processes and quality control data and all similar
materials recording or evidencing proprietary expertise or information, or other
rights with respect thereto (collectively referred to as "Proprietary Rights"),
currently used in the business of Company, and the same are sufficient to
conduct Company's business as it has been and is now being conducted or as it is
currently proposed to be conducted. Schedule 3.17(b) describes which such
Proprietary Rights are owned by Company (the "Company Proprietary Rights") and
which such Proprietary Rights are third-party owned rights used by Company in
conduct of its business. Except as set forth in Schedule 3.17(b), Company is the
owner of all right, title, and interest in and to each of the Company
Proprietary Rights, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims (other than Permitted Liens),
and has the right to use, sell, license, sublicense, assign and dispose, in each
case without payment to a third party, all of the Company Proprietary Rights and
the products, processes and materials covered thereby. Company has licenses or
possesses other rights to use Proprietary Rights that are not Company
Proprietary Rights. Schedule 3.17(b) sets forth a complete and accurate list of
all material licenses, sublicenses and similar agreements to which Company is a
party pursuant to which any other person is authorized to use, exercise or
receive any material benefit from any Company Proprietary Rights. Except as set
forth in Schedule 3.17(b), there is no contract
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<PAGE> 27
pursuant to which any Person has any right (whether or not currently
exercisable) to use, license or otherwise exploit any Company Proprietary Right.
(c) Except as set forth in Schedule 3.17(c), (i) the operations of
Company as currently conducted do not conflict with or infringe, and no person
or entity has asserted to Company that such operations or past operations
conflict with or infringe, any Proprietary Rights owned, possessed or used by
any third party; (ii) there are no claims, disputes, actions, proceedings, suits
or appeals pending against Company with respect to any Proprietary Rights, and,
to the knowledge of Company, none has been threatened against Company; (iii) to
Company's knowledge, there are no facts which would reasonably serve as a basis
for any claim that Company does not have the right to use and to transfer the
right to use, free of any rights or claims of others, all Company Proprietary
Rights in the development, manufacture, use, sale or other disposition of any or
all products or services presently being used, furnished or sold in the conduct
of the business of Company as it has been and is now being conducted; (iv) to
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of such Proprietary Rights by any third party, including
any employee or former employee of Company, nor is there any breach of any
license, sublicense or other agreement authorizing another party to use such
Proprietary Rights; and (v) Company has not entered into any agreement (x)
granting any third party the right to bring infringement actions with respect
to, or otherwise to enforce rights with respect to, any such Proprietary Right,
or (y) agreeing to indemnify anyone or any entity for or against any
interference, infringement, misappropriation or other conflict with respect to
any Proprietary Right.
(d) Schedule 3.17(d) contains a complete and accurate list of any
proceedings before any patent or trademark authority to which Company is a
party, a description of the subject matter of each proceeding, and the current
status of each proceeding, including, without limitation, interferences,
priority contests, opposition, and protests. Such list includes any pending
applications for reissue or reexamination of a patent. Company has the exclusive
right to file, prosecute and maintain any such applications and the patents and
other registrations that issue therefrom.
(e) All patents, trademark, service mark, and copyright applications
and registrations held by Company are currently in compliance with formal legal
requirements and are not subject to any maintenance or renewal fees or taxes or
actions falling due within ninety (90) days after the date of Closing. To the
Company's knowledge, all patent, trade mark, service mark and copyright
registrations are valid and enforceable.
(f) All fees to maintain Company's rights in the Company Proprietary
Rights, including, without limitation, patent and trademark registration and
prosecution fees and all professional fees in connection therewith, which have
been presented for payment more than 5 business days before the Closing and are
due and payable, have been paid by Company or will be paid by Company before the
Closing Date.
(g) Except as set forth in Schedule 3.17(g), all disclosures of
Company's trade secrets to third parties have been pursuant to non-disclosure
agreements pursuant to which the confidentiality and use of such information has
been protected. Company has taken reasonable measures and precautions to
maintain the secrecy and confidentiality of the Proprietary Rights
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used or proposed to be used in the conduct of its business, the value of which
to Company is contingent upon maintenance of the confidentiality thereof.
(h) Company has secured valid and binding written assignments from all
persons who, in any capacity (including current and former consultants,
independent contractors, directors, officers and employees) contributed
materially to the creation or development of Company's Proprietary Rights of all
right, title and interest to such contributions that Company does not already
own by operation of law (other than rights that by their nature cannot be
assigned, such as moral rights). No current or former employee, officer,
director, stockholder, consultant or independent contractor of or to Company has
any right, claim or interest in or with respect to any Proprietary Right.
(i) Except as set forth in Schedule 3.17(i), each current and former
employee and officer of and consultant and independent contractor to Company has
executed a written confidentiality agreement and a written assignment of
inventions agreement that assign to Company all rights to any inventions,
improvements, discoveries, or information relating to the business conducted or
to be conducted by Company, and all such agreements are in the forms provided to
Parent with no exceptions or exclusions. To the knowledge of Company, no
employee, consultant or contractor of Company is in violation of any term of any
employment contract, proprietary information agreement, inventions agreement,
non-competition agreement, consulting agreement, or any other contract or
agreement relating to the relationship of any such employee with Company or any
previous employer. To the knowledge of Company, no employee of Company has
entered into any contract that restricts or limits in any way the scope or type
of work in which the employee may be engaged to anyone other than Company or
requires the employee to transfer, assign, or disclose information concerning
his work to anyone other than Company.
(j) No internally developed product, system, program or software module
designed, developed, sold, licensed or otherwise made available by Company to
any person, and to the knowledge of Company, no third-party product, system,
program or software module sold, licensed or otherwise made available by Company
to any person, contains any undisclosed "back door," "time bomb," "Trojan
horse," "worm," "drop dead device," "virus" or other software routine or
hardware component designed to permit unauthorized access or to disable or erase
software, hardware or data without the consent of the user.
(k) Except as set forth in Schedule 3.17(k), Company has not disclosed
or delivered to any Person, or permitted the disclosure or delivery to any
escrow agent or other Person, of any Company Source Code (as hereinafter
defined). No event has occurred, and no circumstance or condition exists, that
(with or without notice or lapse of time) will, or could reasonably be expected
to, result in the disclosure or delivery to any Person of any Company Source
Code. Schedule 3.17(k) identifies each contract pursuant to which Company has
deposited or is required to deposit with an escrowholder or any other Person any
Company Source Code, and further describes whether the execution of this
Agreement or the consummation of any of the transactions contemplated hereby may
be expected to result in the release or disclosure of any Company Source Code.
"Company Source Code" means any source code, or portion, aspect or segment of
any source code, relating to any Proprietary Right owned by or licensed to
Company or otherwise used by Company.
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3.18 Insurance. Schedule 3.18 sets forth a complete list of all
policies of insurance to which Company is a party or is a beneficiary or named
insured. Company has in full force and effect, with all premiums due thereon
paid, the policies of insurance set forth therein. There were no claims in
excess of $5,000 asserted under any of the insurance policies of Company in
respect of all motor vehicle, general liability, professional liability, errors
and omissions, and worker's compensation claims for the period from January 1,
2000 to the date of this Agreement. Company has not received any written notice
regarding any actual or threatened (i) cancellation or invalidation of any
insurance policy, (ii) refusal of any coverage or rejection of any claim under
any insurance policy or (iii) material adjustment in the amount of the premiums
payable with respect any insurance policy.
3.19 Bank Accounts. Schedule 3.19 sets forth a true and correct list of
the names and addresses of all banks, other institutions and state governmental
departments at which Company has accounts, deposits or safety deposit boxes, or
special deposits required to be held by such state governmental departments with
the nature of such account and the names of all persons authorized to draw on or
give instructions with respect to such accounts or deposits, or to have access
thereto, and the names and addresses of all persons, if any, holding a
power-of-attorney on behalf of Company with respect thereto. All cash in such
accounts is held in demand deposits and is not subject to any restriction or
limitation as to withdrawal.
3.20 Brokers or Finders. Neither Company nor any of its officers,
directors or employees nor any of Company's Subsidiaries or any of their
officers, directors or employees has engaged any broker or finder or incurred,
or will incur directly or indirectly, any liability for any brokerage, financial
advisory or finder's fees, agent's commissions or similar charges in connection
with the transactions contemplated by this Agreement.
3.21 Certain Advances. Except as set forth in Schedule 3.21, there are
no receivables of Company owing from directors, officers, employees, consultants
or stockholders of Company, or owing by any Affiliate of any director or officer
of Company, other than advances in the ordinary and usual course of business to
officers and employees for reimbursable business expenses which are not in
excess of $5,000 for any one individual.
3.22 Related Parties. Except as listed on Schedule 3.22 and other than
a director or stockholder that is or represents a venture capitalist investor,
no officer, director or greater than ten percent (10%) stockholder of Company,
or to the knowledge of Company any Affiliate of Company, or any trust or other
person in which Company holds, beneficially or otherwise, a material voting or
equity interest (collectively, the foregoing are referred to as "Related
Parties"), has, either directly or indirectly, (a) an interest in any person
which furnishes or sells services or products which are similar to those
furnished or sold by Company or which competes or potentially will compete,
directly or indirectly, with Company, (b) a beneficial interest in any contract
to which Company is a party or by which Company may be bound or (c) any claim or
right against Company (other than rights to receive compensation for services
performed as an employee of Company or for reimbursement of travel or business
expenses incurred in the ordinary course of business as an employee, consultant,
officer or director of Company, or the rights to receive Company Common Stock
pursuant to the exercise of any Company Option disclosed on Schedule 3.2, or
indemnification rights under Company's organizational documents). For purposes
of this Section 3.22, there shall be disregarded any interest which
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arose solely from the ownership of less than a five percent (5%) equity interest
in a corporation whose stock is regularly traded on any national securities
exchange or on Nasdaq.
3.23 Employee Benefit Plans; ERISA.
(a) Schedule 3.23 sets forth each "employee benefit plan," as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other plans, agreements, or arrangements involving
direct or indirect compensation (excluding workers' compensation, unemployment
compensation and similar government-mandated programs) currently or previously
maintained, contributed to or entered into by Company for the benefit of any
employee or former employee of Company under which Company has any present or
future obligation or liability (collectively, the "Employee Plans"). Copies of
all Employee Plans (and, if applicable, related trust agreements), and all
amendments thereto and material written interpretations thereof have been made
available to Parent. Company has no Employee Plan which, individually or
collectively, constitute(s) (i) an "employee pension benefit plan," as defined
in Section 3(2) of ERISA, that is subject to Title IV of ERISA or (ii) a
"multiemployer plan," as defined in Section 3(37) of ERISA.
(b) No other entity ("ERISA Affiliate") that is a member of a
"controlled group of corporations" with or under "common control" with Company,
as defined in Section 414(b) or 414(c) of the Code currently or previously
maintained, contributed or entered into an employee benefit plan, as defined in
Section 3(3) of ERISA.
(c) Except as set forth on Schedule 3.23(c), each Employee Plan that is
intended to be qualified under Section 401(a) of the Code is, to the knowledge
of Company, so qualified and has been so qualified during the period from its
adoption to the date of this Agreement.
(d) Company has furnished or made available to Parent copies or
descriptions of each severance or other similar contract, arrangement or policy
and each plan, agreement, policy or arrangement (written or oral) providing for
insurance coverage (including any self-insured arrangements), vacation benefits,
disability benefits, early retirement benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock purchase, phantom stock, stock appreciation or other forms
of compensation or post-retirement benefits that (i) is not an Employee Plan,
(ii) is entered into, maintained or contributed to, as the case may be, by
Company and (iii) covers any employee, former employee, director, consultant or
independent contractor of Company or any ERISA Affiliate of Company. Such
contracts, plans and arrangements as are described in this Section are herein
referred to collectively as the "Benefit Arrangements." Each Benefit Arrangement
has been maintained in substantial and material compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Benefit Arrangements.
(e) Except for continued "COBRA" health coverage required pursuant to
Code Section 4980B or as set forth in Schedule 3.23, Company is not a party to
any Employee Plan, Benefit Arrangement or other agreement, contract, arrangement
or policy, written or unwritten, that requires Company to provide, at any cost
to Company, any health or life insurance coverage to any former employee of
Company.
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(f) Except as described in Schedule 3.23, Company is not a party to any
contract, instrument, agreement or arrangement with a "disqualified individual"
(as defined in Section 280G(c) of the Code) other than this Agreement that could
in connection with the Merger result in a disallowance of the deduction for any
"excess parachute payment" (as defined in Section 280G(b)(i) of the Code) or
subject any such disqualified individual to the excise tax imposed under Section
4999 of the Code.
(g) Each Employee Plan and Benefit Arrangement complies in all material
respects with all applicable requirements of (i) the Age Discrimination in
Employment Act of 1967, as amended, and the regulations thereunder, (ii) Title
VII of the Civil Rights Act of 1964, as amended, and the regulations thereunder,
(iii) any applicable provisions of the Code, including Section 4980B thereof,
and (iv) any other applicable law, except where the failure to comply would not
have a Company Material Adverse Effect.
(h) There is no pending or, to the knowledge of Company, threatened
litigation relating to any Employee Plan or Benefit Arrangement. All
contributions due under each Employee Plan or Benefit Arrangement have been paid
or accrued on the books of Company.
3.24 Board Recommendation. As of the date hereof, the Board of
Directors of Company, at a meeting duly called and held, has by unanimous vote
of those directors present (who constituted 100% of the directors then in
office) (i) determined that this Agreement and the transactions contemplated
hereby, including the Merger, taken together are fair to and in the best
interests of the stockholders of Company, (ii) approved a new option plan
("Option Plan Increase") with a sufficient number of shares of Company Common
Stock reserved thereunder for issuance such that the Company may issue the
Additional Company Options as contemplated herein, (iii) resolved to recommend
that the holders of the shares of Company Capital Stock approve this Agreement
and the transactions contemplated herein, including the Merger, the Certificate
of Amendment and the Option Plan Increase.
3.25 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to Parent pursuant to this Agreement, if
requested by Parent, have been furnished or made available to Parent. All such
documents furnished or made available to Parent are true and correct copies, and
there are no amendments or modifications thereto, that have not been disclosed
to Parent.
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3.26 Full Disclosure. The representations and warranties and statements
of Company contained in this Agreement and in the exhibits and schedules hereto
do not contain any untrue statement of a material fact, and, when taken
together, do not omit to state a material fact required to be stated therein or
necessary in order to make such representations, warranties or statements not
misleading in light of the circumstances under which they were made. There are
no facts, including under any contract, which presently or, to the knowledge of
the Company, are reasonably likely in the future to have a Company Material
Adverse Effect.
3.27 Waiver of Liquidation Treatment. The holders of the Company
Preferred Stock by requisite consent set forth in Article 4 Section (A)(4)(d) of
the Second Restated Certificate of Incorporation have waived the treatment of
the Merger as a "Liquidation Event".
3.28 Stock Option Acknowledgement. The Company and each employee who
received Proposed Stock Option Amendments (as defined in Schedule 3.2(b)) has
executed a Stock Option Acknowledgement dated August 4, 2000, a copy of which is
attached to Schedule 3.28, whereby each such employee acknowledged that such
Proposed Stock Option Amendment had not taken effect and was null and void. The
Stock Option Acknowledgements are in full force and effect and valid and
binding.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed or otherwise referred to in the Disclosure
Schedules attached hereto, Parent and Merger Sub represent and warrant to
Company as of the date hereof (each such representation and warranty being a
material inducement to the execution of this Agreement by Company) as follows:
4.1 Organization. Parent and Merger Sub are each corporations duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Each of Parent and Merger Sub are duly qualified to do business and
in good standing in its state of incorporation and in each of the other
jurisdictions in which it owns or leases property or conducts business, except
where the failure to be so qualified would not have a Parent Material Adverse
Effect. Each of Parent and Merger Sub have all requisite power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted, and possesses all licenses, franchises, rights and privileges
material to the conduct of its respective business.
4.2 Merger Sub Capital Structure. On or before the Closing Date, the
authorized capital stock of Merger Sub will consist of 100 shares of Common
Stock, $.01 par value ("Merger Sub Common Stock"). On or before the Closing
Date, 100 shares of Merger Sub Common Stock will be validly issued and
outstanding and will be held by Parent of record and beneficially. Merger Sub is
a newly-formed single purpose entity which has been formed solely for the
purposes of the Merger and has not carried on any business or engaged in any
activities other than those reasonably related to the Merger.
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4.3 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and the Certificate of Merger and,
subject to satisfaction of the conditions set forth herein, to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and (when executed and delivered) Certificate of Merger 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 has been, and the Certificate of Merger will be, duly
executed and delivered by Parent and Merger Sub, and constitute (or in the case
of the Certificate of Merger, when executed will constitute) valid and binding
obligations of Parent and Merger Sub, enforceable against each of Parent and
Merger Sub in accordance with their terms, subject to the effect of Bankruptcy
Laws and the effect or availability Equitable Principles. Provided the
conditions set forth in Article 7 are satisfied, and except as set forth on
Schedule 4.3, the execution and delivery of this Agreement and the Certificate
of Merger do not or will not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a material benefit under (a) any provision of the
Certificate of Incorporation or Bylaws of Parent or (b) any agreement or
instrument, permit, franchise, license, judgment or order, applicable to Parent
or Merger Sub or their respective properties or assets, other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which individually or in the aggregate would not have a Parent Material Adverse
Effect.
Except as set forth in Schedule 4.3, no Consent of any Person is
required to be obtained by Parent or Merger Sub in connection with the execution
and delivery of this Agreement or the Certificate of Merger by each of them and
the performance of their respective obligations hereunder or thereunder, except
where the failure to obtain such Consents would not have a Parent Material
Adverse Effect. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the Certificate of Merger by Parent and Merger Sub
or the consummation by Parent and Merger Sub of the transactions contemplated
hereby or thereby, except for (a) the filing of the Certificate of Merger and
related certificates with the Delaware Secretary of State, and appropriate
documents with the relevant Governmental Entities of other states in which
Merger Sub is qualified to do business, (b) such Consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws in connection with the transactions
contemplated hereby, (c) filings contemplated by Sections 6.12 and 6.14 of this
Agreement, and (d) Consents, approvals, orders, authorizations which if not
obtained or made would not have a Parent Material Adverse Effect.
4.4 Capital Structure.
(a) The authorized capital stock of Parent consists of 125,000,000
shares of Parent Common Stock, and 5,000,000 shares of Preferred Stock, $0.0001
par value ("Parent Preferred Stock"). At the close of business on October 25,
2000: (i) 32,546,544 shares of Parent Common Stock were issued and outstanding;
and (ii) 10,510,240 shares of Parent Common Stock were reserved for issuance
upon exercise of options (the "Parent Options") under Parent's 2000 Stock
Incentive Plan, 1998 Stock Incentive Plan and 1996 Stock Option/Stock Issuance
Plan, of which
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options to purchase 9,624,247 shares were outstanding. No shares of Parent
Preferred Stock are outstanding.
(b) All of the outstanding shares of Parent Common Stock and all of the
outstanding Parent Options were issued in compliance with applicable federal and
state securities laws. All of the outstanding shares of Parent Common Stock are,
and the shares of Parent Common Stock issuable upon exercise of the assumed
Company Options in accordance with their terms will be, duly authorized, validly
issued, fully paid and nonassessable. The Merger Shares have been duly
authorized for issuance and, upon the Closing, will be validly issued, fully
paid and nonassessable and not subject to preemptive rights created by statute,
Parent's Certificate of Incorporation or Bylaws or any agreement to which Parent
is a party or by which it is bound, except as set forth on Schedule 4.4(b).
(c) Except for the Parent Options and the employee benefit plans set
forth above, employment agreements between Parent and certain of its employees,
or as otherwise disclosed in Schedule 4.4(c), there are no 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 or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Parent or obligating Parent to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement.
(d) All of the outstanding shares of Parent Common Stock and any shares
of Parent Common Stock issuable upon exercise of any Parent Option, when issued
pursuant to such exercise, will be duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights created by statute,
Parent's Certificate of Incorporation or Bylaws or any agreement to which Parent
is a party or by which it is bound.
(e) Except as set forth in Schedule 4.4(g), Parent is not a party or
subject to any agreement or understanding, and to Parent's knowledge there is no
voting trust, proxy, or other agreement or understanding between or among any
persons, that affects or relates to the voting or giving of written consent with
respect to any outstanding security of Parent, the election of directors, the
appointment of officers or other actions of Parent's board of directors or the
management of Parent. Except as set forth in Schedule 4.4(g), to Parent's
knowledge, no stockholder of Parent is party or subject to any such agreement or
understanding
4.5 SEC Documents. Parent has timely filed with the SEC and made
available to Company each statement, report, registration statement (with the
prospectus in the form filed pursuant to Rule 424(b) of the Securities Act of
1933, as amended (the "Securities Act")), definitive proxy statement, and other
filings required to be filed with the SEC by Parent since August 9, 2000, and
prior to the Effective Time, Parent will have furnished Company with true and
complete copies of any additional documents filed with the SEC by Parent after
the date hereof and prior to the Effective Time (collectively, the "SEC
Documents"). In addition, Parent has made available to Company all exhibits to
Parent SEC Documents filed prior to the date hereof, and will promptly make
available to Company all exhibits to any additional Parent SEC Documents filed
prior to the Effective Time. As of their respective filing dates, Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Parent SEC Documents
contained any untrue statement of a
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material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading. The financial statements of Parent,
including the notes and schedules thereto, included in Parent SEC Documents (the
"Parent Financial Statements") were complete and correct in all material
respects as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and with the rules and
regulations of the SEC with respect thereto as of their respective dates, and
have been prepared in accordance with U.S. GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto or, in the case of unaudited statements
included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the
SEC). The Parent Financial Statements fairly present the consolidated financial
condition and operating results of Parent at the dates and during the periods
indicated therein (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments which were not and are not expected to be,
individually or in the aggregate, material in amount). As of the date of the
most recent Parent balance sheet (the "Parent Balance Sheet") included in the
Parent Financial Statements included in the Parent SEC Documents filed prior to
the date hereof (the "Parent Balance Sheet Date") and as of the date hereof,
Parent had no liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise) not reflected on the Parent Balance Sheet or
the accompanying notes thereto, except for (i) Liabilities incurred in the
ordinary course of business since the Parent Balance Sheet Date through the date
hereof which are usual and normal in amount and (ii) Liabilities set forth or
reserved against on the Parent Balance Sheet, or which would not be required
under GAAP to be set forth or reserved against on the Parent Balance Sheet or a
balance sheet of Parent as of the date hereof, (iii) Third Party Expenses, (iv)
Liabilities set forth in Parent's Disclosure Schedules hereto, and (v)
Liabilities which individually or in the aggregate that would not have a Parent
Material Adverse Effect.
4.6 Absence of Certain Changes. Since August 9, 2000, through the date
hereof, there has not been a Parent Material Adverse Effect. Without limiting
the foregoing, during such period, except as disclosed in Parent SEC Documents
filed by Parent prior to the date hereof or as contemplated by this Agreement,
(i) Parent has conducted its business in the ordinary course of business and
(ii) there has not been:
(a) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Parent of any
outstanding shares of capital stock or other equity securities of, or other
ownership interests in, Parent;
(b) any amendment of any provision of the certificate of incorporation
or bylaws of, or of any material term of any outstanding security issued by,
Parent;
(c) any incurrence, assumption or guarantee by Parent of any
indebtedness for borrowed money other than borrowings under existing short term
credit facilities not in excess of $100,000 in the aggregate;
(d) any material change in any method of accounting or accounting
practice by Parent except for any such change required by reason of a change in
U.S. GAAP;
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(e) issuance of Parent Common Stock or other Parent securities other
than pursuant to options outstanding as of June 30, 2000, and the issuance of
options under Parent's benefit plans after such date in the ordinary course of
business (and the issuance of securities pursuant thereto); or
(f) any authorization of, or commitment or agreement to take any of,
the foregoing actions except as otherwise permitted by this Agreement.
4.7 Compliance with Laws. Schedule 4.7 sets forth all material
licenses, franchises, permits, clearances, consents, certificates and other
evidences of authority of Parent which are necessary to the conduct of Parent's
business as conducted on the date hereof ("Permits"). All such Permits are in
full force and effect and Parent is not in violation of any Permit except for
violations which would not, singly or in the aggregate, have a Parent Material
Adverse Effect. The business of Parent has been conducted in accordance with all
applicable laws, regulations, orders and other requirements of governmental
authorities, employment practices and procedures, the health and safety of
employees and export controls, except for possible noncompliance, violations, or
other possible exceptions that would not have a Parent Material Adverse Effect,
and Parent has not received written notice of a violation or alleged violation
of any such laws, regulations, orders or requirements.
4.8 Litigation. Other than as disclosed in the SEC Documents filed
prior to the date hereof and except as set forth on Schedule 4.8, there are no
claims, disputes, actions, proceedings, notices, orders, suits, appeals or
investigations, at law or in equity, pending against Parent, or involving any of
its assets or properties, before any court, agency, authority, arbitration panel
or other tribunal (other than those, if any, with respect to which service of
process or similar notice has not yet been made on Parent), and to the knowledge
of Parent none have been threatened. Parent is not subject to any order, writ,
injunction or decree of any court, agency, authority, arbitration panel or other
tribunal, nor is Parent in default with respect to any such notice, order, writ,
injunction or decree.
4.9 Proprietary Rights.
(a) Parent owns or possesses valid and enforceable licenses or other
rights to use all Proprietary Rights currently used in the business of Parent,
and the same are sufficient to conduct Parent's business as it has been and is
now being conducted. Schedule 4.9(b) describes which such Proprietary Rights are
owned by Parent (the "Parent Proprietary Rights") and which such Proprietary
Rights are third-party-owned rights used by Parent in the conduct of its
business. Except as set forth in Schedule 4.9(b), Parent is the owner of all
right, title, and interest in and to each of the Parent Proprietary Rights, free
and clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims (other than Permitted Liens), and has the right to use,
sell, license, sublicense, assign and dispose, in each case without payment to a
third party, all of the Parent Proprietary Rights and the products, processes
and materials covered thereby. Parent has licenses or possesses other rights to
use Proprietary Rights that are not Parent Proprietary Rights. Schedule 4.9(a)
sets forth a complete and accurate list of all material licenses, sublicenses
and similar agreements to which Parent is a party pursuant to which any other
person is authorized to use, exercise or receive any material benefit from any
Parent Proprietary Rights. Except as set forth in Schedule 4.9(b), there is no
contract pursuant to which
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any Person has any right (whether or not currently exercisable) to use, license
or otherwise exploit any Parent Proprietary Right.
(b) Except as set forth in Schedule 4.9(c), (i) the operations of Parent as
currently conducted do not conflict with or infringe, and no person or entity
has asserted to Parent that such operations or past operations conflict with or
infringe, any Proprietary Rights owned, possessed or used by any third party;
(ii) there are no claims, disputes, actions, proceedings, suits or appeals
pending against Parent with respect to any Proprietary Rights, and, to the
knowledge of Parent, none has been threatened against Parent; (iii) to Parent's
knowledge, there are no facts which would reasonably serve as a basis for any
bona fide claim that Parent does not have the right to use and to transfer the
right to use, free of any rights or claims of others, all Parent Proprietary
Rights in the development, manufacture, use, sale or other disposition of any or
all products or services presently being used, furnished or sold in the conduct
of the business of Parent as it has been and is now being conducted; (iv) to
Parent's knowledge, there is no unauthorized use, infringement or
misappropriation of any of such Parent Proprietary Rights by any third party,
including any employee or former employee of Parent, nor is there any breach of
any license, sublicense or other agreement authorizing another party to use such
Parent Proprietary Rights; and (v) Parent has not entered into any agreement (x)
granting any third party the right to bring infringement actions with respect
to, or otherwise to enforce rights with respect to, any such Proprietary Right,
or (y) other than in the ordinary course of business, agreeing to indemnify
anyone or any entity for or against any interference, infringement,
misappropriation or other conflict with respect to any Parent Proprietary Right.
(c) Schedule 4.9(d) contains a complete and accurate list of any
proceedings before any patent or trademark authority to which Parent is a party,
a description of the subject matter of each proceeding, and the current status
of each proceeding, including, without limitation, interferences, priority
contests, opposition, and protests. Such list includes any pending applications
for reissue or reexamination of a patent. Parent has the exclusive right to
file, prosecute and maintain any such applications and the patents and
registrations that issue therefrom.
(d) Parent has taken reasonable measures and precautions to maintain
the secrecy and confidentiality of the Parent Proprietary Rights used or
proposed to be used in the conduct of its business, the value of which to Parent
is contingent upon maintenance of the confidentiality thereof. Except as set
forth in Schedule 4.9(d), each current and former employee and officer of and
consultant and independent contractor to Parent has executed a written
confidentiality agreement and a written assignment of inventions agreement that
assign to Parent all rights to any inventions, improvements, discoveries, or
information relating to the business conducted or to be conducted by Parent. To
the knowledge of Parent, no employee, consultant or contractor of Parent is in
violation of any term of any employment contract, proprietary information
agreement, inventions agreement, non-competition agreement, consulting
agreement, or any other contract or agreement relating to the relationship of
any such employee with Parent or any previous employer.
4.10 Brokers or Finders. Parent has not dealt with any broker or finder
in connection with the transactions contemplated by this Agreement in a manner
which will cause Company to
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incur, directly or indirectly, any liability to such broker or finder for any
brokerage, financial advisory or finders' fees, agent's commissions or similar
charges.
4.11 Underlying Documents. Copies of any underlying documents listed or
described as having been disclosed to the Company pursuant to this Agreement, if
requested by the Company, have been furnished or made available to the Company.
All such documents furnished or made available to the Company are true and
correct copies, and there are no amendments or modifications thereto, that have
not been disclosed to the Company.
4.12 Full Disclosure. The representations and warranties and statements
of Parent contained in this Agreement and in the exhibits and in the schedules
hereto do not contain any untrue statements of a material fact, and, when taken
together, do not omit to state a material fact required to be stated therein or
necessary in order to make such representations, warranties or statements not
misleading in light of the circumstances under which they were made. There are
no facts, including under any contract, which presently or, to the knowledge of
Parent, are reasonably likely in the future to have a Parent Material Adverse
Effect.
ARTICLE 5
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of Company. During the period from the date of this
Agreement and continuing until the Effective Time, Company agrees to act as
follows, except as expressly contemplated by this Agreement or to the extent
that Parent shall otherwise consent in writing:
(a) Except in connection with the Assumed Company Options or subject to
any express limitation contained herein, Company shall carry on its business in
the usual, regular and ordinary course, including the payment when due of all
Taxes, debts and obligations, in substantially the same manner as heretofore
conducted and , without making any commitment on behalf of or which would be
binding upon Parent, shall use its commercially reasonable efforts to preserve
intact its present business organization and shall use its best efforts to keep
available to Parent the services of its present officers and employees and
preserve its relationships with present and potential customers, licensors,
licensees, suppliers, service providers and others having business dealings with
them, to the end that its goodwill and ongoing business shall be unimpaired at
the Effective Time.
(b) Company shall not and shall not propose to, directly or indirectly,
(i) make, declare or pay any dividends or other distribution on or in respect of
any of its capital stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of Company, or (iii)
except for repurchases under the terms of restricted stock awards, repurchase,
redeem or otherwise acquire any shares of its capital stock, options, warrants
or rights to acquire any shares of its capital stock.
(c) Except for (i) the issuance of Company Common Stock upon exercise
of presently outstanding Company Options disclosed on Schedule 3.2 in accordance
with the terms thereof, (ii) the issuance of the Additional Company Options or
Company Options in accordance with
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Section 5.2, and (iii) except for the conversion of any Company Preferred Stock,
Company shall not issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock of any class or securities convertible into, or rights, warrants
or options to acquire, any such shares or other convertible securities, or enter
into any agreement, understanding or arrangement with respect to the sale or
voting of any of its capital stock.
(d) Company shall not cause or permit any amendment of its Certificate
of Incorporation or Bylaws.
(e) Until the earlier of the Effective Time and the termination of this
Agreement pursuant to Section 11.1 hereof, Company will not take (and Company
will not permit any of its directors, officers, agents, Affiliates or
representatives, including investment bankers, financial advisors, attorneys and
accountants (collectively, Company's "Representatives") to take), directly or
indirectly, any of the following actions: (i) solicit, initiate, facilitate or
encourage, or furnish information with respect to Company or its subsidiaries in
connection with, any inquiry, proposal or offer with respect to any merger,
consolidation or other business combination or acquisition involving Company or
any of its subsidiaries or the acquisition of all or a substantial portion of
the assets of, or any securities of, Company or any of its subsidiaries, other
than the Merger (an "Acquisition Proposal"); (ii) negotiate, discuss, explore or
otherwise communicate or cooperate in any way with any third party with respect
to any Acquisition Proposal; (iii) enter into any agreement, arrangement or
understanding with respect to an Acquisition Proposal or requiring Company to
abandon, terminate or refrain from consummating the transactions contemplated
hereby with Parent; or (iv) make or authorize any statement, recommendation or
solicitation in support of any Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent Company or its board of
directors from (a) engaging in discussions or negotiations with, or providing
information to, any Person in response to an unsolicited bona fide written
Acquisition Proposal by such Person and (b) recommending such unsolicited bona
fide written Acquisition Proposal to the stockholders of Company, if and only to
the extent that (i) the board of directors of Company concludes in good faith
(after consultation with a nationally recognized financial advisory firm) that
such Acquisition Proposal is reasonably capable of being completed taking into
account the financial and other aspects of the Acquisition Proposal and the
Person making the Acquisition Proposal and would, if consummated, result in a
transaction more favorable to Company's stockholders from a financial point of
view than the transaction contemplated by this Agreement (any such more
favorable Acquisition Proposal being referred to in this Agreement as a
"Superior Proposal"), (ii) the board of directors of Company determines in good
faith after consultation with outside legal counsel that such action is required
for such board to comply with its fiduciary duties under applicable law and
(iii) prior to providing any information or data concerning Company or its
Subsidiaries to any Person in connection with an Acquisition Proposal by such
Person, Company receives from such Person an executed confidentiality agreement
similar to the letter agreement between Parent and Company dated as of September
5, 2000 executed in connection with their consideration of the Merger (the
"Confidentiality Letter").
Company shall, and shall cause each of Company's Representatives to,
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any person relating to an Acquisition Proposal.
Company shall, and Company shall use its best
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efforts to cause its Representatives to, notify Parent orally and in writing
immediately upon receipt of any inquiry, offer or proposal with respect to an
Acquisition Proposal, including information as to the identity of the party or
offeror making such inquiry, offer or proposal and stating the terms thereof,
and shall provide Parent with (i) copies of all written materials relating
thereto and (ii) such other information related thereto as Parent may reasonably
request, unless prohibited by an agreement entered into by Company prior to
September 9, 2000. Thereafter, Company shall keep Parent timely informed of the
status and any material changes in such Acquisition Proposal. Company will not
terminate or amend any agreement, arrangement or understanding to which it is a
party, to the extent that it governs the right of another party or such party's
Affiliates or agents to use or disclose nonpublic information relating to
Company, and Company will use its best efforts to enforce such agreements,
arrangements and understandings.
(f) Company shall not (a) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, (b) otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to Company except in the ordinary course of business consistent with
past practice, or (c) enter into any strategic alliance, joint venture, or joint
development, manufacturing or marketing agreement.
(g) Company shall not sell, lease, encumber, pledge or otherwise
dispose of any of its assets or properties, except (a) in the ordinary course of
business consistent with prior practice and in any event not in excess of
$10,000 in the aggregate, and (b) for sales of inventory and licenses in the
ordinary course of business consistent with prior practice.
(h) Company shall not shall assume, incur or guarantee any
indebtedness, enter into, extend or renew any credit agreement, line of credit
or similar arrangement, issue or sell any debt securities or warrants or rights
to purchase debt securities, enter into, extend or renew any lease, or enter
into, extend or renew any indemnity agreement or agreement to maintain the
financial condition of another person or entity.
5.2 Benefit Plans, Etc.
(a) Except as specifically contemplated hereunder, Company shall not
(i) adopt or amend in any material respect any Employee Plan, Benefit
Arrangement or any other agreement with any employee or employees, (ii) hire any
employee other than for such positions and with such salaries and option grants
as set forth on Schedule 5.2, (iii) increase in any manner the compensation or
benefits for its employees, directors, officers or consultants, (iv) pay any
bonuses or similar payments to its employees, consultants, directors or officers
(other than such payments required under existing policies, plans and
agreements), (v) grant any stock option, stock appreciation right or other
equity-related compensation right (except for the New Options), or (vi) pay or
accrue any benefit not required by existing policies, plans and agreements that
are described on Schedule 5.2. Company shall not take any action with respect to
(a) the grant of any severance pay, termination pay or any payment or right
triggered upon a change in control of Company, (b) any increase of benefits
payable under its severance pay, termination pay or change in control
arrangements in effect as of the date hereof or (c) accelerating the vesting
schedule of any outstanding options, warrants or stock purchase agreements of
Company.
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5.3 Other Actions. Except as expressly contemplated by this Agreement
or with the written consent of Parent, Company shall not:
(a) Enter into any material commitment or transaction not in the
ordinary course of business consistent with past practice;
(b) Transfer to any person or entity any material rights to the
Proprietary Rights, other than pursuant to licenses in the ordinary course of
business consistent with past practice;
(c) Enter into any material agreements (or material amendments thereto)
pursuant to which any third party is granted marketing, distribution,
manufacturing or similar rights of any type or scope with respect to any
products or services of Company other than in the ordinary course of business
consistent with past practice;
(d) Amend or otherwise modify or extend, except in the ordinary course
of business consistent with past practice, or violate the terms of, any of the
agreements set forth or described in the Schedules to this Agreement (including,
without limitation, modifying the policies regarding pricing or royalties set or
charged by Company to its customers or licensees or agreeing to a material
change in pricing or royalties set or charged by persons who have licensed any
intellectual property to Company);
(e) Commence or settle any litigation;
(f) 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 consistent with past practice;
(g) Pay, discharge or satisfy, in an amount in excess of $25,000 (in
any one case) or $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 in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements or
that arose in the ordinary course of business subsequent to September 30, 2000;
(h) 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;
(i) Enter into any contract with a Related Party except as expressly
permitted by this Agreement;
(j) Make any capital expenditures, capital additions or capital
improvements in excess of $25,000; or
(k) Take, or commit or agree to take, any of the actions described in
this Section or any other action that would prevent Company from performing or
cause Company not to perform its covenants hereunder or that would or reasonably
would be expected to result in any of its
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representations and warranties set forth in this Agreement being or becoming
untrue in any material respect or in any of the conditions set forth in Article
7 not being satisfied.
5.4 Covenants of Parent. During the period from the date of this
Agreement and continuing until the Effective Time, Parent agrees to act as
follows, except as expressly contemplated by this Agreement or to the extent
that Company shall otherwise consent in writing:
(a) Parent shall not cause or permit any amendment of its Certificate
of Incorporation or Bylaws.
(b) Parent shall not take any action that might reasonably be expected
to impede, interfere with, prevent or materially delay the Merger.
(c) Parent shall not take any action that could reasonably be expected
to prevent the Merger from qualifying as a reorganization within the meaning of
Section 368 of the Code.
(d) Parent shall not fail to make in a timely manner any filings with
the SEC required under the Securities Act or the Exchange Act or the rules and
regulations promulgated thereunder.
(e) Take, or commit or agree to take, any of the actions described in
this Section or any other action that would prevent Company from performing or
cause Company not to perform its covenants hereunder or that would or reasonably
would be expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material respect or in
any of the conditions set forth in Article 7 not being satisfied.
5.5 Advice of Changes; Government Filings. Each party shall confer on a
regular and frequent basis with the other, report to the other on operational
matters and promptly advise the other orally and in writing of any change or
event having, or, insofar as can reasonably be foreseen, could be expected to
have, a Company Material Adverse Effect, in the case of Company, or a Parent
Material Adverse Effect, in the case of Parent, or which would cause or
constitute a breach of any of the representations, warranties or covenants of
such party contained herein. Each party shall consult with the other before
filing, and shall promptly provide the other (or its counsel) with copies of,
any filings made by such party with any Governmental Entity in connection with
this Agreement or the transactions contemplated hereby. No such information
provided to a party (or its counsel) shall be deemed for any purpose to modify
or limit the representations, warranties and covenants of such party hereunder,
or the other party's indemnitees rights and remedies hereunder.
5.6 Accounting Methods. Company shall not change its methods of
accounting in effect at the Company Balance Sheet Date, except as required by
changes in GAAP as concurred in by Company's independent auditors. Company shall
notify Parent immediately of any such change and shall provide all details
thereof.
5.7 Intellectual Property Matters. Without limiting the generality of
the foregoing agreements, Company shall use its best efforts to preserve its
Proprietary Rights free and clear of any liens, claims or encumbrances and to
assert, contest and prosecute any infringement of any
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issued patent, trademark, service mark, tradename or copyright that is part of
the Proprietary Rights or any misappropriation or disclosure of any trade
secret, know-how or confidential information that is part of the Proprietary
Rights.
5.8 Further Information. As soon as such information becomes available,
and in any event not later than thirty (30) days after the end of each fiscal
month, Company shall provide to Parent its unaudited balance sheet as of the end
of such month and its related statements of results of operations and statements
of cash flows for such period together with a list of the ages and amounts of
all accounts and notes due and uncollected as of the end of such month.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Access to Information. Each party hereto shall afford to the other
party and shall cause its independent accountants to afford to the other party,
and such party's accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to such party's properties, books, contracts, commitments, Tax returns and
records and documents related to such party and its business, properties and
assets, and to the audit work papers and other records of such party's internal
and external accountants. Each party shall provide the other party and its
Representatives with copies of the foregoing upon request by the other party.
During the foregoing period, each party hereto shall furnish promptly to the
other party all other information concerning the business, finances, properties
and personnel of such party as the other party may reasonably request, including
such financial statements (including audited financial statements) as may be
required by the other party to comply with its financial reporting obligations,
including requirements under applicable securities laws.
6.2 Legal Conditions to the Merger and Related Transactions. Each party
will take all reasonable actions necessary to comply promptly with all Legal
Requirements which may be imposed on such party with respect to the Merger and
will promptly cooperate with and furnish information to the other party in
connection with any such requirements imposed upon such other party in
connection with the Merger. Each party will take all reasonable actions to
obtain any consent, authorization, order or approval of, or any exemption by,
any Governmental Entity, or other third party required to be obtained or made by
such party in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
6.3 Communications; Confidentiality. Each of the parties hereto hereby
agrees to and reaffirms the terms and provisions of the Confidentiality Letter
except to the extent expressly modified hereby. Between the date hereof and the
Effective Time, neither Company, on the one hand, nor Parent and Merger Sub, on
the other hand, will furnish any communication to its stockholders or to the
public generally (other than communications required pursuant to Section 6.2 or
otherwise required by law) if the subject matter thereof relates to the other
party or to the transactions contemplated by this Agreement without the prior
approval of the other party as to the content thereof, which approval shall not
be unreasonably withheld, and subject to each party's compliance with applicable
law. Notwithstanding the foregoing, Parent may make a
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public announcement concerning the existence of this Agreement following the
execution thereof subject to Company's prior approval, which shall not be
unreasonably conditioned, withheld or delayed.
6.4 Update to Disclosures. Without limiting or modifying a party's
representations or warranties or the other party's right to rely thereon and
without limiting the rights and remedies available to such party or its
indemnitees hereunder, each party shall provide the other party with updates to
the disclosures previously provided or made available to the other party, as to
material facts which arise between the date of this Agreement and the Closing
Date and which, had they occurred and been known prior to the date of this
Agreement, would have been required to have been disclosed in order to make the
representations and warranties contained in Article 3, Article 4 or Article 6
with respect to such party true and correct as of the date of this Agreement.
6.5 Certain Notifications. At all times from the date hereof and prior
to the Effective Time, each party shall promptly notify the other parties in
writing of the occurrence of any event known to such party which will or is
likely to result in the failure to satisfy any of the conditions specified in
Article 7 hereof.
6.6 Treatment of Plans, Agreements and Options. The Company and Parent
shall cooperate in good faith with respect to the termination, effective as of
the Effective Time, of certain Employee Plans or Benefit Arrangements of the
Company as reasonably requested by Parent. Company shall obtain all necessary
consents or releases from holders of options to purchase Company Common Stock
and take all such other lawful action as may be necessary to give effect to the
transactions contemplated hereby with respect to such options. Without limiting
the generality of the foregoing, prior to the Closing Date, the Board of
Directors of Company shall take all action necessary to terminate or cause to be
terminated each Employee Plan (as defined in Section 3.23(a)) that contains a
cash or deferred arrangement subject to Section 401(k) of the Code and each
Employee Plan or Benefit Arrangement that is a defined contribution retirement
plan or employee stock purchase plan. After the Closing Date, Parent may (in its
sole discretion) cause each terminated Employee Plan to be filed with the
Internal Revenue Service for a favorable determination letter and shall take
such other steps as it deems necessary in its sole discretion with respect to
each terminated Employee Plan.
6.7 Agreements by Affiliated Stockholders. Schedule 6.7 lists the names
and addresses of those persons who are, in Company's reasonable judgment,
"affiliates" of Company within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act ("Rule 145") (each such person,
an "Affiliate"). Company shall provide Parent such information and documents as
Parent shall reasonably request for purposes of reviewing such list. Company
shall use its best efforts to deliver or cause to be delivered to Parent, on or
prior to the tenth (10th) day after the date hereof, from each of the Affiliates
of Company identified in the foregoing list, a written Affiliate Agreement in
the form attached hereto as Exhibit E. Parent shall be entitled to place legends
as specified in such Affiliate Agreements on the certificates evidencing any
Parent Common Stock to be received by such Affiliates pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Common Stock, consistent with the terms of such
agreements.
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6.8 Options.
(a) Assumption. Consistent with the terms of the documents governing
each Company Option, and except for the Company Options set forth on Schedule
6.8(a) hereto (the "Accelerated Options") the terms and conditions of which
shall be amended prior to closing to provide for full acceleration of vesting
and exercisability, the Merger will not terminate or accelerate any Company
Option or any right of exercise, vesting or repurchase relating thereto with
respect to Parent Common Stock acquired upon exercise of such Company Option
assumed by Parent. Holders of Company Options will not be entitled to acquire
shares of the Surviving Corporation after the Merger. Subject to the provisions
of this Section, as of the Effective Time, Parent will assume each Company
Option and all obligations of Company under the Company 1999 Stock Incentive
Plan (the "Option Plan"). Each Company Option so assumed by Parent under this
Agreement (the "Assumed Options"), without any action on the part of the holder
thereof other than the requirement such holder execute and deliver to Parent a
Transfer Restriction Agreement with respect to the shares of common stock
issuable upon exercise of such options, will continue to have, and be subject
to, substantially the same terms and conditions set forth in the Option Plan and
in the other documents governing such Company Option immediately prior to the
Effective Time, except that (i) such 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 Stock that were purchasable under such Company
Option immediately prior to the Effective Time multiplied by the Common Stock
Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common Stock, and (ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such Company Option will be equal to the
quotient determined by dividing the exercise price per share of Company Common
Stock at which such Company Option was exercisable immediately prior to the
Effective Time by the Common Stock Exchange Ratio, and rounding the resulting
exercise price up to the nearest whole cent.
(b) Qualification as ISOs. It is the intention of the parties that each
Assumed Option qualify as an "incentive stock option" within the meaning of
Section 422 of the Code ("ISOs") to the extent that such Company Option
constituted an ISO immediately prior to the Effective Time; provided, however,
the assumption of each Company Option that is an ISO shall be adjusted to the
extent necessary to preserve its treatment as an ISO; provided further that ISO
treatment shall not be available to Accelerated Options to the extent they
exceed the $100,000 calendar year limit on ISOs described in Section 422(d) of
the Code. No assumed Company Option will entitle the holder thereof to any
additional benefits within the meaning of Section 424(a)(2) of the Code that
were not available prior to such assumption.
(c) Registration. Parent shall file a Registration Statement on Form
S-8 under the Securities Act no later than January 31, 2001, which registration
statement shall cover the shares of Parent Common Stock issuable upon the
exercise of the Assumed Options that can, in Parent's reasonable judgment, be
registered on a Form S-8, and Parent will use commercially reasonable efforts to
cause such Parent shares to be registered under the Securities Act and to
maintain such registration in effect until the exercise or termination of all
such Assumed Options; provided, however, the shares of Parent Common Stock
issuable pursuant to the Assumed Options shall be subject to transfer
restriction pursuant to the Transfer Restriction Agreements.
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(d) Option Documents. As soon as practicable after the Effective Time,
Parent shall issue to each holder of an assumed Company Option a document
evidencing the conversion of such option as provided above.
(e) Grant of Additional Options. Prior to the Closing, Company shall
issue, at the direction of Parent, nonstatutory options (which are not intended
to qualify as incentive stock options under Section 422 of the Code) to the
persons set forth on, and in such amounts and on the terms and conditions set
forth in Schedule 6.8(e) hereto (such options shall be referred to as
"Additional Company Options") to the extent permitted by state securities laws.
Company shall make all filings and applications required under applicable
federal securities laws and applicable state securities laws in connection with
the issuance of the Additional Company Options. Company and Parent acknowledge
that the Additional Company Options shall not constitute ISO's. Parent shall
account for the issuance of the Additional Company Options in accordance with
GAAP as deferred compensation amortizable over the vesting period of the
Additional Company Options.
6.9 Employees. Subject to Parent's employee benefit plans, all Company
employees who become employees of Parent or a subsidiary of Parent as of the
Effective Time shall receive the same or reasonably comparable benefits as such
Company employees currently receive (as and to the extent disclosed in writing
to Parent prior to the date hereof) and, to the extent not prohibited by law,
shall receive service credit (other than for benefit accrual under a defined
benefit pension plan) that includes their employment by Company prior to the
Effective Time. Any such employment of such former Company employees shall not
affect the "at will" employment status of any such employee or limit any right
of Parent or its applicable subsidiary to terminate any employee with or without
cause following the Effective Time. Company employees who become employees of
Parent or a subsidiary of Parent as of the Effective Time shall have their
accrued vacation balance transferred to their employment at Parent and shall
thereafter accrue vacation pursuant to Parent's policies.
6.10 Treatment of Merger as Qualifying Reorganization. Each of Company
and Parent shall (a) treat the Merger as a reorganization under Section 368 of
the Code, (b) report the Merger and all related transactions consistently
therewith in any and all Tax Returns filed by it, (c) take all such actions as
may be reasonably required to cause the Merger to be treated as a qualifying
reorganization, and (d) take no action which could disqualify the Merger from
reorganization status under Section 368 of the Code. Neither Company nor Parent,
as of the date of this Agreement and on the Closing Date, know of any reason (a)
that the transaction may not qualify as a reorganization within the meaning of
Section 368 of the Code, or (b) that the representations customarily required to
obtain a favorable tax opinion that the Merger will qualify the transaction as a
reorganization within the meaning of Section 368 of the Code may not be true.
Company shall use reasonable efforts to obtain an opinion from its counsel that
the Merger is a "reorganization" within the meaning of section 368 of the Code.
6.11 Tax Matters.
(a) Parent shall cause Company to prepare and file all Tax Returns
required to be filed by or with respect to Company for all periods ending on or
prior to the Closing Date which are filed on or after the Closing Date and for
all periods which begin prior to the Closing Date
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and end after the Closing Date. Without the prior consent of the Holder's
Representative and Parent, the Tax Returns referred to in this paragraph (a)
shall be prepared in a manner consistent in all material respects with such Tax
Returns previously filed in the relevant jurisdiction, unless the relevant
taxing authority has indicated that it will not accept a return filed on such
basis, and shall not reflect any new elections or the adoption of any new
accounting methods or conventions, except to the extent such particular election
or adoption is required to comply with any new law or regulation. Parent shall
timely pay or cause to be timely paid the Taxes attributable to such Tax
periods, subject only to Parent's rights under Section 9.2 of this Agreement to
the extent that the payment of such Taxes represents an item described therein.
The stockholders of Company shall not bear any responsibility for the Taxes of
Company attributable to such periods except as provided in Section 9.2 of this
Agreement.
(b) Cooperation and Access to Information. Provided that the rights
under this paragraph (b) lapse on the expiration of the Indemnity period or the
exhaustion of the Escrow Fund, the parties to this Agreement shall cooperate as
and to the extent reasonably requested by any other party hereto, in connection
with (i) the filing of Tax Returns pursuant to this Agreement and any audit,
litigation or other proceeding with respect to Taxes, and (ii) complying with
Section 6043 of the Code and all Treasury Regulations promulgated thereunder.
Such cooperation shall include the retention and (upon another party's request)
the provision of records and information which are reasonably relevant to any
such Tax Return, audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder.
(c) Retention of Books and Records. Provided that the rights under this
paragraph (c) lapse on the expiration of the Indemnity period or the exhaustion
of the Escrow Fund, the parties to this Agreement agree (i) to retain all books
and records with respect to Tax matters pertinent to Company relating to any
taxable period beginning before the Closing Date until the expiration of the
statute of limitations of the respective taxable periods, and (ii) to give the
other parties to this Agreement reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, Parent, the Surviving Corporation or the stockholders of Company, as
the case may be, shall allow the other party to take possession of such books
and records.
(d) Treatment of Indemnity Payment as Purchase Price Adjustment. In the
case of any claim for indemnity under this Agreement based on Taxes determined
to be payable by Company or a successor thereto, the indemnity obligation shall
be considered to be a purchase price adjustment under this Agreement.
6.12 State Statutes. If any state takeover law shall become applicable
to the transactions contemplated by this Agreement, Parent and its Board of
Directors or Company and its Board of Directors, as the case may be, shall use
their reasonable best efforts to obtain such approvals and take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement.
6.13 Fairness Hearing; Stockholder Approval.
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(a) As soon as reasonably practicable following the execution of this
Agreement, Parent shall prepare and file, with the full cooperation of Company,
an application to obtain a permit (a "California Permit") from the Commissioner
of Corporations of the State of California (the "Commissioner") after a hearing
before the Commissioner (the "Fairness Hearing") pursuant to Section 25121 of
the California Corporate Securities Law of 1968 ("CSL"), so that the issuance of
Parent Common Stock in the Merger shall be exempt from registration under
Section 3(a)(10) of the Securities Act. Parent, with the full cooperation of
Company, will use commercially reasonable efforts to respond to any comments
from the California Department of Corporations and use their commercially
reasonable efforts to have the California Permit granted as soon as practicable
after such filing, including without limitation, scheduling the Fairness Hearing
on the first practicable date after filing of the application. As promptly as
practical after the date of this Agreement, Parent and Company shall prepare and
make such filings as are required under applicable blue sky laws relating to the
transactions contemplated by this Agreement. Company shall use reasonable and
good faith efforts to assist Parent as may be necessary to cause the application
for the California Permit and any solicitation material sent to stockholders of
Company to comply with the securities and blue sky laws.
(b) In the event ninety (90) days shall have elapsed since the filing
of the application for the California Permit and Parent shall not have received
the California Permit, as promptly as practicable thereafter, Parent shall, with
the full cooperation of Company, prepare and file with the SEC a Registration
Statement on Form S-4 (the "Registration Statement"), which will contain a proxy
statement to be sent to the stockholders of Company (the "Proxy Statement").
Company shall provide to Parent and its counsel for inclusion in the Proxy
Statement, in form reasonably satisfactory to Parent and its counsel, such
information concerning Company that Parent or its counsel may reasonably request
for purposes of preparing the Registration Statement. Each of Parent and Company
shall use commercially reasonable efforts to respond to any comments of the SEC
and to have the Registration Statement declared effective by the SEC under the
Securities Act as promptly as practicable after such filing. Each party will
notify the other parties hereto promptly of the receipt of any comments from the
SEC or its staff for amendments or supplements to the Registration Statement and
will supply the other party with copies of all correspondence between such party
or any of its representatives, on the one hand, and the SEC or its staff, on the
other the hand, with respect to the Registration Statement or the Proxy
Statement. Whenever any event occurs which should be set forth in an amendment
or supplement to the Registration Statement and/or the Proxy Statement, Parent
or Company, as the case may be, shall promptly inform the other of such
occurrence and cooperate in filing such amendment or supplement with the SEC.
(c) As promptly as practicable after the date hereof, Company shall
submit the Option Plan Increase to its stockholders for approval and adoption as
provided by Delaware Law and its Second Restated Certificate of Incorporation
and Bylaws. Company shall use its reasonable best efforts to solicit and obtain
the consent of its stockholders sufficient to approve the Option Plan Increase.
The materials submitted to Company's stockholders shall be subject to reasonable
review and approval by Parent and include information regarding Company, the
terms of the Merger and this Agreement and the unanimous recommendation of the
board of directors of Company in favor of the Option Plan Increase.
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(d) As promptly as practicable after the receipt of a California Permit or the
effectiveness of the Registration Statement, as the case may be, Company shall
submit this Agreement and the transactions contemplated hereby to its
stockholders for approval and adoption as provided by Delaware Law and its
Second Restated Certificate of Incorporation and Bylaws. Company shall use its
reasonable best efforts to solicit and obtain the consent of its stockholders
sufficient to approve the Merger and this Agreement and to enable the Closing to
occur as promptly as practicable following the date hereof and, in any event,
within fifteen (15) days following the receipt of the California Permit or the
effectiveness of the Registration Statement, as the case may be. The materials
submitted to Company's stockholders shall be subject to reasonable review and
approval by Parent and include information regarding Company, the terms of the
Merger and this Agreement and the unanimous recommendation of the board of
directors of Company in favor of the Merger and this Agreement, and the
transactions contemplated hereby and, if Parent files the Registration
Statement, the materials shall be a Proxy Statement that complies with the rules
and regulations of the SEC.
6.14 Information Supplied.
(a) None of the information supplied in writing by Company for
inclusion or incorporation by reference in (i) the application for a California
Permit in connection with the issuance of shares of Parent Common Stock pursuant
to the transactions contemplated hereby, including the disclosure documents
relating thereto will, at the time the such application is filed with the
Commissioner and at the time the Fairness Hearing is held, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
the Information Statement provided to Company stockholders in connection with
obtaining stockholder approval of the Merger (the "Information Statement") will,
at the time it is mailed to the stockholders and at all times during which
stockholder consents are solicited in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading and (iii)
any materials or information provided to Company stockholders in connection with
an offer to purchase their shares of Company Common Stock as contemplated in the
Stockholders' Agreement will, at the time it is mailed to the stockholders and
at all times during which such stockholders may elect to sell their shares to
Parent, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The application for a California Permit will comply in all material
respects with the provisions of the CSL, and the rules and regulations
thereunder, except that no representation is made by Company with respect to
statements made therein based on information supplied by Parent or Merger Sub in
writing for inclusion or incorporation by reference therein.
(b) None of the information supplied in writing by Parent for inclusion
or incorporation by reference in (i) the application for a California Permit
will, at the time the such application is filed with the Commissioner and at the
time the Fairness Hearing is held, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the Information
Statement will, at the time it is mailed to stockholders of Company and at all
times that stockholder consents are
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being solicited in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The application for a
California Permit will comply in all material respects with the provisions of
the CSL and the rules and regulations thereunder, except that no representation
is made by Parent with respect to statements made therein based on information
supplied by Company in writing for inclusion or incorporation by reference in
such application or the Information Statement.
(c) The Company shall provide Parent with any and all information,
including stockholder lists and stockholder addresses, that Parent may require
to comply with Section 4(f) of the Stockholders' Agreement. None of the
materials or information supplied in writing by the Company to Parent in
connection with Parent's offer to purchase shares of Company Common Stock as
contemplated in the Stockholders' Agreement will contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Other than the
information and materials supplied in writing to Parent by the Company as set
forth in the immediately preceding sentence, none of the materials or
information provided to Company stockholders in connection with an offer to
purchase their shares of Company Common Stock as contemplated in the
Stockholders' Agreement will, at the time it is mailed to the stockholders and
at all times during which such stockholders may elect to sell their shares to
Parent, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
6.15 Nasdaq Listing. Parent shall use all commercially reasonable
efforts to authorize for listing on Nasdaq the shares of Parent Common Stock
issuable pursuant hereto, and those required to be reserved for issuance in
connection with the Assumed Options whose underlying shares are to be registered
on Form S-8 by Parent.
6.16 Indemnification of Company Directors and Officers.
(a) The provisions of this Section 6.16 are intended to be for the
benefit of, and will be enforceable by, each director and officer of Company
(the "Company Officers/Directors") entitled to indemnification from Company. Any
amendment, repeal, or modification of the provisions with respect to
indemnification that are set forth in Delaware Law or Company's Certificate of
Incorporation and Bylaws shall not in any manner affect adversely the rights
thereunder of individuals who at, or at any time prior to, the Effective Time,
were directors or officers of Company. From and after the Effective Time, Parent
shall, and shall cause the Surviving Corporation, for a period of four (4) years
after the Closing, to the fullest extent permitted by law, indemnify and hold
harmless, and provide advancement of expenses to all past and present directors
and officers of the Company under any indemnification agreements between Company
and its directors and officers and any indemnification provisions under Delaware
Law, Company's Certificate of Incorporation or Bylaws as in effect immediately
prior to the Effective Time.
(b) For a period of three (3) years after the Effective Time, Parent
shall, and shall cause the Surviving Corporation to, maintain in effect the
current policies of directors' and officers'
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liability insurance maintained by Company, or policies providing substantially
the same coverage, covering persons who are currently covered by Company's
officers' and directors' liability insurance policies with respect to actions or
omissions occurring at or prior to the Effective Time, to the extent that such
policies are available; provided, however, that policies of at least the same
coverage containing terms and conditions which are no less advantageous to the
insureds may be substituted therefor, but in no event shall the Surviving
Corporation be required to spend more than an amount per year equal to one
hundred fifty (150%) of the current annual premiums paid by Company for such
insurance.
6.17 Transfer Restriction Agreements. Company shall use all
commercially reasonable efforts to cause each holder of Company Capital Stock
and Company Options to execute a Transfer Restriction Agreement in the form of
Exhibit M ("Transfer Restriction Agreement").
ARTICLE 7
CONDITIONS PRECEDENT
7.1 Conditions to Obligations of Parent, Merger Sub and Company. The
obligations of Parent, Merger Sub and Company to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions unless waived in writing by each of Parent, Merger Sub and Company:
(a) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any federal or state court and remain in
effect, and no litigation seeking the issuance of such an order or injunction,
shall be pending which, in the good faith judgment of Company or Parent, has a
reasonable probability of resulting in such order, injunction or damages. In the
event any such order or injunction shall have been issued, each party agrees to
use its reasonable efforts to have any such injunction lifted.
(b) Statutes. There shall not be in effect any statute, rule or
regulation which would (i) make the consummation of the Merger illegal, (ii)
prohibit Parent's or Surviving Corporation's ownership or operation of all or a
material portion of the business or assets of Company, or compel Parent or
Surviving Corporation to dispose of or hold separate all or a material portion
of the business or assets of Company, as a result of the Merger, or (iii) render
Parent, Company or Merger Sub unable to consummate the Merger, except for any
waiting period provisions.
(c) Company Stockholder Approval. The stockholders of Company shall
have duly approved this Agreement and the transactions contemplated hereby and
thereby by the Required Stockholder Vote.
(d) Governmental Approval. Parent and Company shall have timely
obtained from any governmental entity all approvals, waivers and consents, if
any, necessary for consummation of, or in connection with, the several
transactions contemplated hereby, and the applicable waiting period, if any (and
any extension thereof) applicable to the Merger under the HSR Act shall have
expired or been terminated.
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(e) Escrow Agreement. The Escrow Agent shall have executed and
delivered the Escrow Agreement in the form attached hereto as Exhibit I.
(f) Permit to Issue Securities; Registration Statement. Either (i) the
Commissioner shall have issued the California Permit and the qualification
thereunder shall not be the subject of any stop order or proceedings seeking a
stop order and if not so issued or if issued and subject to a stop order or (ii)
Parent's Registration Statement on Form S-4 shall have been declared effective
by the SEC and the issuance of Parent Common Stock in the Merger shall not be
the subject of any stop order or proceedings seeking a stop order.
7.2 Conditions to Obligations of Parent and Merger Sub. The obligations
of Parent and Merger Sub to effect the Merger are subject to the satisfaction on
or prior to the Closing Date of the following additional conditions, unless
waived by Parent:
(a) Representations and Warranties. The representations and warranties
of Company set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and on and as of the Closing Date
(except for representations and warranties expressed as of a specified date,
which shall be true and correct as of such date), with the same force and effect
as if made on and as of the Closing, and Parent shall have received a
certificate signed by the chief executive officer and chief financial officer of
Company to such effect.
(b) Performance of Obligations of Company. Company shall have performed
in all material respects all obligations required to be performed by it under
this Agreement prior to the Closing Date, and Parent shall have received a
certificate signed by the chief executive officer and chief financial officer of
Company to such effect.
(c) Certificate of Secretary of Company. Parent shall have received a
certificate, validly executed by the Secretary of Company, certifying as to (i)
the terms and effectiveness of the Certificate of Incorporation and the Bylaws
of Company, (ii) the valid adoption of resolutions of the Board of Directors of
Company and the stockholders of Company approving this Agreement and
consummation of the transactions contemplated hereby and thereby and (iii) such
other matters as Parent or its counsel shall reasonably request.
(d) Opinions of Counsel. Parent shall have received an opinion dated
the Closing Date of Shaw Pittman, counsel to Company, in the form of Exhibit G.
(e) Receipt of Consents. Parent shall have been furnished with evidence
satisfactory to it that (i) Company has obtained the Consents, approvals and
waivers set forth in Schedule 3.4 and that such Consents do not alter materially
the terms of Company's obligations under the related licenses, permits or
agreements under which such Consent, approval or waiver is sought, and (ii) all
authorizations, consents, orders or approvals of, or declarations or filings
with, any Governmental Entity including the Delaware Secretary of State and
applicable federal or state securities law regulatory bodies, and all Consents
of any other third party under contracts or otherwise, in each case deemed
necessary or appropriate by Parent for the consummation of the Merger and the
other transactions contemplated by this Agreement or which is material to the
business of Company, shall have been filed, occurred or been obtained (in each
case subject to no term, condition or restriction unacceptable to Parent).
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(f) No Material Adverse Change. Since the date hereof, there shall have
been no Company Material Adverse Effect.
(g) Lien Release. Imperial Bank shall have filed all documents and
filings, including without limitation UCC-3s, in all local and state
jurisdictions releasing any and all liens such bank may have on the tangible and
intangible assets of the Company.
(h) Option Plan Increase and New Company Option Issuance. The
stockholders of Company shall have approved the Option Plan Increase and Company
have granted the Additional Company Options to the extent permitted by state
securities laws.
(i) Stockholders' Agreement. The Stockholders' Agreement described
herein shall have been executed and delivered to Parent, and shall be in full
force and effect.
(j) Affiliate Agreements. The Affiliate Agreements described herein
shall have been executed and delivered to Parent, and shall be in full force and
effect.
(k) Resignations. Each individual who serves as a member of the Board
of Directors or as an officer of Company shall have resigned from the Board of
Directors or from such office effective on or prior to the Effective Time.
(l) Good Standing Certificates. Parent shall have received certificates
of Company's good standing in the State of Delaware and in such other states as
Parent may reasonably request, each dated as of a recent date.
(m) Escrow Agreement. Company and the Holders' Representative shall
have executed and delivered the Escrow Agreement in the form attached hereto as
Exhibit I.
(n) Noncompetition Agreements. Each Noncompetition Agreement shall have
been executed and delivered to Parent and shall be in full force and effect.
(o) Dissenting Shares. Holders of Company Common Stock and Company
Preferred Stock representing ninety (90%) of the aggregate number of shares of
Company Common Stock on an as-converted basis (excluding shares issuable upon
the exercise of Company Options) shall have approved and adopted the Merger
Agreement and approved the Merger or waived their rights under Section 262 of
Delaware Law.
(p) Transfer Restriction Agreements. Each holder of Company Common
Stock, Company Preferred Stock and Company Options shall have executed and
delivered to Parent a Transfer Restriction Agreement and such agreements shall
be in full force and effect.
(q) Employment Agreements. The Employment Agreements with each of
Richard Berger, Rajeev Agrawal and Richard Ruggeiro shall have been executed and
delivered to Parent and shall be in full force and effect.
(r) Company Common Stockholder Approval. This Agreement, the Merger and
the transactions contemplated hereby shall have been approved and adopted by the
holders of a majority of the shares of Company Common Stock entitled to vote at
the stockholders' meeting
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of the Company to approve and adopt this Agreement, the Merger and the
transactions contemplated hereby.
7.3 Conditions to Obligations of Company. The obligations of Company to
effect the Merger are subject to the satisfaction on or prior to the Closing
Date of the following additional conditions unless waived by Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and on and as of the
Closing Date (except for representations and warranties expressed as of a
specified date, which shall be true and correct as of such date), with the same
force and effect as if made on and as of the Closing, and Company shall have
received a certificate signed by the Chief Executive Officer and Chief Financial
Officer of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement prior to the Closing Date,
and Company shall have received a certificate signed by the Chief Executive
Officer and Chief Financial Officer of Parent to such effect.
(c) Escrow Agreement. Parent shall have executed and delivered the
Escrow Agreement in the form attached hereto as Exhibit I. ---------
(d) Opinion of Counsel. Company shall have received an opinion dated
the Closing Date of Pillsbury Madison & Sutro LLP, counsel to Parent, in the
form of Exhibit K.
(e) Tax Opinion. Company shall have received a written opinion of its
counsel substantially to the effect that on the basis of facts, representations
and assumptions set forth in such opinion which are consistent with the state of
facts existing as of the Effective Time, for Federal income tax purposes, the
Merger will constitute a reorganization within the meaning of Section 368 of the
Code; provided, however, that if counsel to Company does not render such
opinion, this condition shall nonetheless be deemed satisfied with respect to
Company if counsel to Parent renders such opinion to such party. In preparing
such Company tax opinion, counsel may rely on reasonable assumptions and may
also rely on (and to the extent reasonably required, the parties shall make)
reasonable representations related thereto.
(f) No Material Adverse Change. Since the date hereof, there shall have
been no Parent Material Adverse Effects.
(g) Certificate of Secretary of Parent. Company shall have received a
certificate, validly executed by the Secretary of Parent, certifying as to (i)
the terms and effectiveness of the Certificate of Incorporation and the Bylaws
of Parent, (ii) the valid adoption of resolutions of the Board of Directors of
Parent approving this Agreement and consummation of the transactions
contemplated hereby and thereby and (iii) such other matters as Company or its
counsel shall reasonably request.
(h) Good Standing Certificates. Company shall have received (i)
certificates of Parent's good standing in the State of Delaware and in such
other states as Company may reasonably
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request, and (ii) certificate of Merger Sub's good standing in the State of
Delaware, each dated as of a recent date.
ARTICLE 8
CLOSING
8.1 Closing Date. The Closing under this Agreement (the "Closing")
shall be held not more than two (2) business days following the satisfaction of
all conditions precedent to the Merger specified in this Agreement (other than
the delivery of the documents and other items required by this Agreement to be
delivered at the Closing), unless duly waived by the party entitled to
satisfaction thereof. In any event, if the Closing has not occurred on or before
the Termination Date (as defined in Section 11.1), this Agreement may be
terminated as provided in Section 11.1(b). Such date on which the Closing is to
be held is herein referred to as the "Closing Date." The Closing shall be held
at the offices of Pillsbury Madison & Sutro LLP, San Francisco, California, at
10:00 A.M. on such date, or at such other time and place as Parent and Company
may agree upon in writing.
8.2 Filing Date. Subject to the provisions of this Agreement, on the
Closing Date fully executed and acknowledged copies of the Certificate of Merger
meeting the requirements of Delaware Law shall be filed with the Delaware
Secretary of State, all in accordance with the provisions of this Agreement.
8.3 Efforts. All the parties hereto shall use all commercially
reasonable efforts (subject to any limitations stated herein) to cause the
Closing Date to be not later than the Termination Date.
ARTICLE 9
INDEMNIFICATION AND ESCROW
9.1 Survival of Representations and Warranties. The representations and
warranties of Company and Parent contained in this Agreement or in any
agreement, instrument or document delivered pursuant to this Agreement shall
survive the Merger and continue until 5:00 p.m., California time, on the date
which is twelve (12) months after the Closing Date (the "Expiration Date");
provided, however, that if at any time prior to the Expiration Date, any Parent
Indemnitee delivers to the Holders' Representative or any Company Indemnitee
delivers to Parent a written notice asserting a claim for recovery under Section
9.2 hereof, then the claim asserted in such notice shall survive the Expiration
Date until such time as such claim is fully and finally resolved. The waiver of
any condition based on the accuracy of any representation or warranty, or the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification set forth in this Article 9 or the right to any
other remedy.
9.2 Indemnification by Company Stockholders. Subject to the limitations
set forth herein, from and after the Effective Time, the stockholders of
Company, to the extent of the Escrow Fund, will defend and indemnify Parent
(and, after the Closing, the Surviving Corporation), and its Affiliates,
directors, officers, stockholders, successors and assigns
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(collectively, the "Parent Indemnitees"), against and hold each of them harmless
from any and all losses, liabilities, Taxes, claims, suits, proceedings,
demands, judgments, damages, expenses and costs, including, without limitation,
reasonable counsel fees, costs and expenses incurred in the investigation,
defense or settlement of any claims covered by this indemnity which any such
Parent Indemnitee may suffer or incur by reason of or against (i) the inaccuracy
or breach of any of the representations, warranties or covenants of Company
contained in this Agreement or any document, certificate or agreement delivered
pursuant hereto, or (ii) (x) any Transaction Expenses incurred by Company in
excess of one hundred twenty-five thousand dollars ($125,000), (y) one-half
(1/2) of Informational Expenses incurred by Parent in excess of one hundred
thousand dollars ($100,000), or (z) one-half (1/2) of all Informational Expenses
incurred by Company (together with item (i), the "Indemnifiable Damages"). The
stockholders of Company acknowledge that such Parent Indemnifiable Damages would
relate to unresolved contingencies existing at the Effective Time, which if
resolved at the Effective Time would have led to a reduction in the aggregate
Merger Consideration. The Escrow Fund allocated shall be the sole and exclusive
security and remedy of Parent Indemnitees for the indemnity obligation of the
stockholders of Company. The right to obtain indemnification from the Escrow
Fund pursuant to the indemnification provision of this Section 9.2 and the
Escrow Agreement shall be Parent's exclusive remedy against the stockholders of
Company for any Indemnifiable Damages described in this Section 9.2(a).
9.3 Escrow Funds.
(a) As exclusive security and remedy for the indemnity provided for in
Section 9.2(a) and (b) of this Agreement, the Escrow Shares (defined in Section
2.4(f) hereof) shall be registered in the names of the securityholders of
Company but shall be deposited (together with assignments in blank executed by
the securityholders of Company in connection with the surrender of their
Certificates) with an institution selected by Parent with the reasonable consent
of the Holders' Representative as escrow agent (the "Escrow Agent"), such
deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the
terms set forth herein and in an Escrow Agreement among Parent, the Escrow Agent
and the Holders' Representative (the "Escrow Agreement") substantially in the
form attached hereto as Exhibit I. Subject to the terms of Section 9.3(b) of
this Agreement, upon compliance with the terms hereof and the terms of the
Escrow Agreement, the Parent Indemnitees shall be entitled to obtain
indemnification from the Escrow Fund for all Parent Indemnifiable Damages
covered by the indemnity provided for in Section 9.2 of this Agreement (it being
understood that each Company Indemnitor's liability under this Agreement shall
be limited to the Escrow Fund). The Escrow Agent, Parent, the Surviving
Corporation and Merger Sub may rely upon any decision, act, consent or
instruction of the Holders' Representative as being the decision, act, consent
or instruction of each and all of the stockholders of Company. The Escrow Agent,
Parent and Merger Sub are hereby relieved from any liability to any person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Holders' Representative.
(b) At any time until the earlier of the Expiration Date or the
termination of the Escrow Agreement as provided therein, if any Parent
Indemnitee makes a claim for Indemnifiable Damages and is entitled to
indemnification pursuant to Section 9.2 hereof, the Escrow Agent shall, upon
compliance with the procedures set forth in the Escrow Agreement, release to
Parent (or other applicable Parent Indemnitee) such amount from the Escrow Fund
which is equal in
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value to such Indemnifiable Damages. Escrow Shares so released shall be valued
pursuant to the terms and conditions of the Escrow Agreement. Upon a
distribution by the Escrow Agent to Parent (or other applicable Parent
Indemnitee) pursuant to this Section, the Escrow Fund will be correspondingly
reduced.
9.4 Indemnification by Parent.
(a) Subject to the limitations set forth herein, from and after the
Effective Time, Parent will defend and indemnify each of the stockholders of
Company immediately prior to the Effective Time and its Affiliates, directors,
officers, stockholders, successors and assigns (collectively, the "Company
Indemnitees"), against and hold each of them harmless from any and all losses,
liabilities, Taxes, claims, suits, proceedings, demands, judgments, damages,
expenses and costs, including, without limitation, reasonable counsel fees,
costs and expenses incurred in the investigation, defense or settlement of any
claims covered by this indemnity which any such Parent Indemnitee may suffer or
incur by reason of (i) the inaccuracy or breach of any of the representations,
warranties or covenants of Parent contained in this Agreement or any document,
certificate or agreement delivered pursuant hereto or (ii) the issuance of the
Additional Company Options in accordance with the terms hereof (items (i) and
(ii) collectively, the "Company Indemnifiable Damages"). Parent shall be
obligated to indemnify the Company Indemnities for Company Indemnifiable Damages
pursuant to this Section 9.4 only if a claim for indemnification is made by the
Holders' Representative on behalf of the Company Indemnitees prior to the
Expiration Date. Notwithstanding the foregoing, the aggregate liability of
Parent for all Company Indemnifiable Damages under this Section 9.4 shall not
exceed an amount equal to the product of (i) 334,442 multiplied by (ii) the
greater of the average of the closing sale prices of Parent Common Stock over
the ten day period ending on the day prior to (x) the date hereof or (y) the
date of the Closing.
9.5 Third Party Claims. In the event Parent becomes aware of a third
party claim which Parent believes may result in a demand against the Escrow
Fund, Parent shall notify the Holders' Representative of such claim, and the
Holders' Representative, as representative for the securityholders of Company,
shall be entitled, at its 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 Holders' Representative, no
settlement of any such claim with third party claimants shall alone be
determinative of the amount of Losses relating to such matter or whether such
amounts shall be payable from the Escrow Fund. In the event that the Holders'
Representative has consented to any such settlement, the securityholders of
Company shall have no power or authority to object under any provision of this
Article 9 to the amount of any claim by Parent against the Escrow Fund with
respect to such settlement.
9.6 Holders' Representative.
(a) The adoption and approval of this Agreement by the Company's
stockholders shall constitute approval of the Escrow Agreement and of all of the
arrangements relating thereto, including without limitation the placement of the
Escrow Shares in escrow, and the appointment of the Stephen Fredrick as Holders'
Representative to act for and on behalf of all stockholders of the Company, as
the attorney-in-fact and agent of all such persons, to give and receive notices
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and communications, to authorize delivery of any shares of Parent Common Stock
and cash, if any, from the Escrow Fund in satisfaction of claims by Parent
Indemnitees, to object to such deliveries, to agree to, negotiate and enter into
settlements and compromises of, and comply with orders and decrees with respect
to such claims, and to take all actions necessary or appropriate in the judgment
of such representative for the accomplishment of the foregoing. A decision, act,
consent or instruction of the Holders' Representative shall constitute a
decision of all the stockholders of Company and shall be final, binding and
conclusive upon each of the stockholders of Company. Without limiting the
generality of the foregoing, the Holders' Representative shall have full power
and authority, on behalf of all the Company Stockholders and their successors,
to interpret all the terms and provisions of this Agreement, to dispute or fail
to dispute any Claim of Indemnifiable Damages against the Escrow Shares made by
a Parent Indemnitee, to assert Claims of Indemnifiable Damages against any the
Escrow Fund, to negotiate and compromise any dispute which may arise under this
Agreement, to sign any releases or other documents with respect to any such
dispute, and to authorize delivery of Escrow Shares pursuant to the Escrow
Agreement or any other payments to be made with respect thereto.
(b) The Holders' Representative, or any successor hereafter appointed,
may resign and shall be discharged of his duties hereunder upon the appointment
of a successor Holders' Representative as hereinafter provided. In case of such
resignation, or in the event of the death or inability to act of the
Representative, a successor shall be named from among the Stockholders by a
majority of the members of the Board of Directors of who served on such board
prior to the Merger. Each such successor Holders' Representative shall have all
the power, authority, rights and privileges hereby conferred upon the original
Holders' Representative, and the term "Holders' Representative" as used herein
shall be deemed to include such successor Holders' Representative.
(c) In performing any of its duties under this Agreement, or upon the
claimed failure to perform his duties hereunder, the Holders' Representative
shall not be liable to the Company stockholders or anyone else for any
Indemnifiable Damages, losses or expenses which they may incur as a result of
any act, or failure to act under this Agreement or the Escrow Agreement;
provided, however, that the Representative shall be liable for Indemnifiable
Damages arising out of actions or omissions that both (i) were taken or omitted
not in good faith and (ii) constituted willful default or gross negligence under
this Agreement or the Escrow Agreement. Accordingly, the Representative shall
not incur any such Liability with respect to (i) any action taken or omitted to
be taken in good faith upon advice of his counsel given with respect to any
questions relating to the duties and responsibilities of the Holders'
Representative hereunder; or (ii) any action taken or omitted to be taken in
reliance upon any document, including any written notice or instructions
provided for in this Agreement or the Escrow Agreement, not only as to its due
execution and to the validity and effectiveness of its provisions, but also as
to the truth and accuracy of any information contained therein, which the
Holders' Representative shall in good faith believe to be genuine, to have been
signed or presented by the purported proper person or persons and to conform
with the provisions of this Agreement and the Escrow Agreement. The limitation
of liability provisions of this Section shall survive the termination of this
Agreement and the resignation of the Holders' Representative. The stockholders
of Company shall severally indemnify the Holders' Representative and hold him
harmless against any loss, liability or expense (including any expenses of legal
counsel retained by the Holders' Representative) incurred without willful
default, gross negligence or bad faith on the part of the Holders'
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Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder.
ARTICLE 10
PAYMENT OF EXPENSES
10.1 Payment of Expenses. Except as provided in Sections 2.3, 9, 11.1 or 11.2,
Parent and Company shall each pay its own fees and expenses incurred incident to
the Fairness Hearing, the Information Statement and the Registration Statement
(collectively, the "Informational Expenses"), and all fees and expenses, other
than Informational Expenses, incurred incident to the preparation and carrying
out of the negotiation, execution and delivery of this Agreement and the
performance of the transactions herein contemplated, including, without
limitation, legal, accounting, travel fees and expenses ("Transactional
Expenses").
ARTICLE 11
TERMINATION, AMENDMENT AND WAIVER
11.1 Termination.
(a) This Agreement may be terminated at any time prior to the Effective
Time, whether before or after Required Stockholder Vote has been obtained, by
mutual written consent of the parties hereto.
(b) This Agreement may be terminated at any time prior to the Effective
Time by either Company or Parent if (i) the Effective Time shall not have
occurred on or before January 30, 2001 (the "Termination Date"), whether before
or after the Required Stockholder Vote has been obtained, or, if the Merger
shall not have occurred by such date because of the failure of the condition set
forth in Section 7.1(f), March 31, 2001, or (ii) any order, decree or injunction
of a federal or state court preventing or restraining consummation of the Merger
shall have become final and non-appealable, whether before or after the Required
Stockholder Vote has been obtained, or (iii) there shall be any action taken, or
any Legal Requirement enacted, promulgated or issued or deemed applicable to the
Merger, by any Governmental Entity which would make consummation of the Merger
illegal or otherwise render Parent or Company unable to consummate the Merger;
or (iv) the Required Stockholder Vote shall not have been obtained pursuant to
Section 6.13 hereof; provided, that the right to terminate this Agreement shall
not be available to any party hereto that has breached in any material respect
its obligations under this Agreement in any manner that shall have proximately
contributed to the failure of the Merger to be consummated (including without
limitation the failure of the Required Stockholder Vote to have been obtained);
or
(c) This Agreement may be terminated at any time prior to the Effective
Time by Parent if there has been a material breach by Company of any
representation, warranty, covenant or agreement contained in this Agreement
(other than Section 5.1(e)) and, if such breach is curable through the exercise
of commercially reasonable efforts, such breach has not been cured within
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ten (10) business days after receipt by Company of written notice of such
breach; provided, however, that such material breach has resulted in or is
reasonably likely to result in a Company Material Adverse Effect; or
(d) This Agreement may be terminated at any time prior to the Effective
Time by Company if there has been a material breach by Parent of any
representation, warranty, covenant or agreement contained in this Agreement and,
if such breach is curable through the exercise of commercially reasonable
efforts, such breach has not been cured within ten (10) business days after
receipt by Company of written notice of such breach; provided, however, that
such material breach has resulted in or is reasonably likely to result in a
Parent Material Adverse Effect; or
(e) This Agreement may be terminated at any time prior to the Effective
Time by Parent if (i) the board of directors of Company shall have withdrawn or
modified in a manner adverse to Parent its approval or recommendation of this
Agreement (or any of its terms), or the transactions contemplated hereby (or
disclosed an intention to do so) or failed to reconfirm such recommendation
within five (5) business days after a written request by Parent to do so; or
(ii) Section 5.1(e) shall have been breached by Company in any material respect
and Company shall have failed to promptly terminate the activity giving rise to
such breach; or (iii) if Company shall take any of the actions that would be
proscribed by Section 5.1(e) but for the exception therein allowing certain
actions to be taken pursuant to clause (a) and (b); or
(f) If (i) Company is not in material breach of any of the terms of
this Agreement, (ii) the board of directors of Company approves entering into a
binding written agreement concerning a transaction that constitutes a Superior
Proposal and Company notifies Parent in writing that Company wishes to enter
into such agreement, (iii) Parent does not make, within ten business days of
receipt of Company's written notification of its desire to enter into a binding
agreement for a Superior Proposal, an offer that the board of directors of
Company believes, in good faith after consultation with a nationally recognized
financial advisory firm, is at least as favorable, from a financial point of
view, to the stockholders of Company as the Superior Proposal and (iv) Company
prior to such termination pays to Parent in immediately available funds any fees
required to be paid pursuant to Section 11.2. Company agrees to notify Parent
promptly if its wish to enter into a written agreement referred to in its
notification shall change at any time after giving such notification.
11.2 Effect of Termination.
(a) In the event of termination of this Agreement by Company or Parent
as provided in Section 11.1, this Agreement and the Certificate of Merger shall
forthwith become void, other than the obligations of Company pursuant to Section
6.14(c), which shall survive the termination of this Agreement, and there shall
be no liability or obligation on the part of the parties hereto or their
respective officers or directors; provided, however, that no such termination
will relieve any party from liability resulting from (i) the willful breach by a
party hereto of any of its representations or warranties, or (ii) the willful
breach by a party hereto of its covenants or agreements set forth in this
Agreement, or (iii) in the case of Company, any obligation of Company to pay the
amounts payable pursuant to Section 11.2(b).
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(b) In the event that this Agreement is terminated by Parent pursuant
to Section 11.1(b)(iv), Section 11.1(c) because of an intentional or willful
breach of a covenant by Company, Section 11.1(e)(i), (ii) or (iii), or Section
11.1(f), then Company shall pay promptly (but in no event later than two (2)
business days after the date of such termination) a termination payment
("Termination Payment") equal to five percent (5%) of an amount equal to
4,950,000 multiplied by the greater of the average closing sale prices of Parent
Common Stock over the ten day period ending on the day prior to (x) the date
hereof and (y) the date of termination of this Agreement, which amount shall be
exclusive of any expenses payable pursuant to Article 10 (Payment of Expenses)
and shall be payable by wire transfer of same-day U.S. funds. Company
acknowledges that the agreements contained in this Section 11.2(b) are an
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Parent would not enter into this Agreement;
accordingly, if Company fails promptly to pay any amount due pursuant to this
Section 11.2(b), and, in order to obtain such payment, Parent commences a suit
which results in a judgment against Company for the payment set forth in this
Section 11.2(b), Company shall pay to Parent all of Parent's costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
on the amount due from each date for payment until the date of such payment at
the prime rate of Citibank N.A. in effect on the date such payment was required
to be made plus two percent (2%). Parent and Company agree and acknowledge that
the Termination Payment shall be deemed liquidated damages in respect of any
breach or obligation hereunder. To the extent that Parent requests that Company
pay the Termination Payment and such payment is paid in accordance with the
terms of this Agreement, Parent shall not be entitled to exercise the Option
under the Stockholders' Agreement. In the event Company terminates this
Agreement pursuant to Section 11.1(d) because of an intentional or willful
breach of a covenant by Parent, Company and Parent agree that Company's damages
would be an amount equal to the Termination Payment and such amount shall be
deemed liquidated damages in respect of any breach or obligation hereunder.
11.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties hereto. After approval
of this Agreement and the transactions contemplated hereby by the stockholders
of Company, no amendment hereto shall be made which by law requires the further
approval of stockholders without obtaining such further approval.
11.4 Extension; Waiver. At any time prior to the Effective Time,
Parent, Merger Sub or Company, by such corporate action as shall be appropriate,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to Parent, Merger Sub or
Company contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit
thereof contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
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ARTICLE 12
GENERAL
12.1 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy, or by
courier service, as follows:
If to Parent:
VINA Technologies, Inc.
39745 Eureka Drive
Newark, CA 94560
Attention: Chief Financial Officer
Telecopier: (510) 492-0808-1200
with a copy to:
Pillsbury Madison & Sutro LLP
50 Fremont Street
San Francisco, CA 94105
Attention: Blair W. White, Esq.
Fax: (415) 983-1200
and if to Company:
Woodwind Communications Systems, Inc.
20300 Century Boulevard, Suite 200B
Germantown, MD 20874
Attention: Chief Executive Officer
Fax: (301)
with a copy to:
Shaw Pittman
1676 International Drive
McLean, Virginia 22102
Attention: Thomas J. Knox, Esq.
Fax: (703) 790-7901
or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
12.2 Headings; Construction. The descriptive headings of the several
sections of this Agreement are inserted for convenience of reference only and
are not intended to affect the meaning or interpretation of this Agreement. The
parties hereto agree that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not be applied
in the construction or interpretation of this Agreement.
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12.3 Counterparts. This Agreement may be executed in counterparts, and
when so executed each counterpart shall be deemed to be an original, and said
counterparts together shall constitute one and the same instrument.
12.4 Binding Effect; Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto and nothing in
this Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement; provided, however, that (i) the provisions of Article 9 shall be for
the benefit of, and enforceable by, the Company Indemnitees through the Holders'
Representative, (ii) the provisions of Article 2 shall be for the benefit of,
and enforceable by the stockholders of the Company and (iii) the provisions of
Section 6.4 shall be for the benefit of, and enforceable by the past and present
directors and officers of the Company.
12.5 Entire Agreement; Assignment. This Agreement along with each of
the exhibits and schedules hereto and the Confidentiality Letter (a) constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter hereof
and (b) may not be assigned by operation of law or otherwise.
12.6 Schedules and Exhibits. All Exhibits and Schedules attached hereto
are by this reference incorporated herein and made a part hereof for all
purposes as if fully set forth herein, and each disclosure in any Schedule shall
be deemed to be a representation and warranty made by the disclosing party. The
disclosures in any Schedule must relate only to the representations and
warranties in the Section of this Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement. In the event of
any inconsistency between the statements in the body of this Agreement and those
in the Schedules hereto (other than an exception expressly set forth as such in
the Schedules with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement will control.
12.7 Applicable Law; Venue; Waiver of Jury Trial. This Agreement shall
be governed by, construed and enforced in accordance with the laws of the State
of Delaware as applied to contracts entered into solely between residents of,
and to be performed entirely in, such state. The parties hereto do hereby
irrevocably submit to the jurisdiction of any state or federal court located in
the State of Delaware, solely in respect of the interpretation and enforcement
of the provisions of this Agreement and in respect of the transactions
contemplated hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a state or federal court. The
parties hereby consent to and grant any such court jurisdiction over the person
of such parties and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 12.1 (Notices) hereof, or in such
other manner as may be permitted by law, shall be valid and sufficient service
thereof.
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EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND WITH THE ADVICE OF COUNSEL HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (iii) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH
SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
12.8 Severability. If for any reason whatsoever, any one or more of the
provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid as applied to any particular case or in all cases, such
circumstances shall not have the effect of rendering such provision invalid in
any other case or of rendering any of the other provisions of this Agreement
inoperative, unenforceable or invalid.
12.9 Remedies Cumulative. Neither the failure nor any delay by any
party in exercising any right, power or privilege under this Agreement or the
documents referred to herein will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of any right, power or
privilege.
12.10 Specific Performance. The parties hereto agree and acknowledge
that, in the event of a breach of any provision of this Agreement, the aggrieved
party may be without an adequate remedy at law. The parties therefore agree that
in the event of a breach of any provision of this Agreement the aggrieved party
may elect to institute and prosecute proceedings in any court of competent
jurisdiction to obtain specific performance or to enjoin the continuing breach
of such provision, as well as to obtain damages for breach of this Agreement and
to obtain reasonable attorneys' fees. By seeking or obtaining any such relief,
the aggrieved party will not be precluded from seeking or obtaining any other
relief to which it may be entitled.
12.11 Commercially Reasonable Efforts; Further Assurances. Subject to
the terms and conditions of this Agreement, each party shall use all
commercially reasonable efforts to take, or cause to be taken, all action and to
do or cause to be done all things necessary, proper or advisable consistent with
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as promptly as possible, to obtain
all necessary approvals of any Governmental Entity in a manner that does not
materially alter the underlying obligations of the parties and, in any event, is
on terms equally favorable to Company, and to effect any required filings,
registrations and notifications. Subject to the terms and conditions of this
Agreement, the parties hereto shall do and perform or cause to be done and
performed all
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such further actions and things and shall execute and deliver all such other
agreements, certificates, instruments or documents as any other party hereby may
reasonably request in order to carry out the intent and purposes of this
Agreement and the consummation of the transactions contemplated hereby, and each
party hereto shall use commercially reasonable efforts to cause the conditions
set forth in Article 7 to be satisfied. Notwithstanding the foregoing, neither
Parent nor Merger Sub shall be required to agree to any divestiture by Parent or
Company or any of their respective subsidiaries or Affiliates of shares of
capital stock or of any business, assets or property of Parent or Company or
their respective subsidiaries or Affiliates, or to the imposition of any
material limitation on the ability of any of Parent or Company or their
respective subsidiaries and Affiliates to conduct their businesses or to own or
exercise control of such assets, properties and stock.
[Signatures Next Page]
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IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first above written.
VINA TECHNOLOGIES, INC.,
a Delaware corporation
By
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Title
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WOODWIND COMMUNICATIONS SYSTEMS, INC.,
a Delaware corporation
By
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Title
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WCS ACQUISITION SUBSIDIARY, INC.,
a Delaware corporation
By
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Title
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[SIGNATURE PAGE TO MERGER AGREEMENT]
