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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 20, 2000
LSI LOGIC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-11674 94-2712976
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1551 MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(408) 433-8000
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 5. OTHER EVENTS.
On May 20, 2000, Registrant entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Diamond Acquisition Corporation, a
California corporation and a wholly-owned subsidiary of Registrant, DataPath
Systems, Inc., a California corporation, ("DataPath") and certain individuals
named therein pursuant to which Registrant will acquire DataPath (the "Merger").
Pursuant to the Merger, the Registrant will issue no more than 9,062,968 shares
of its Common Stock for all of the outstanding capital stock and options to
purchase capital stock of DataPath.
The closing of the Merger is subject to a number of conditions,
including (a) approval by the shareholders of DataPath and (b) the expiration or
early termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvement Acts of 1976.
The foregoing summary is qualified in its entirety by reference to the
Merger Agreement, which is attached hereto as Exhibit 99.1.
The information that is set forth in the Registrant's Press Release
dated May 22, 2000, attached hereto as Exhibit 99.2, is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Agreement and Plan of Reorganization dated May 20, 2000,
among Registrant, Diamond Acquisition Corporation, DataPath
Systems, Inc. and certain individuals named therein.
99.2 Text of Press Release, dated as of May 22, 2000.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LSI LOGIC CORPORATION
A Delaware Corporation
Dated: May 24, 2000
By: /s/ R. Douglas Norby
------------------------------------
R. Douglas Norby
Executive Vice President, Finance and
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit
Number Description
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99.1 Agreement and Plan of Reorganization dated May 20, 2000 among
Registrant, Diamond Acquisition Corporation, DataPath Systems,
Inc. and certain individuals named therein.
99.2 Text of Press Release, dated May 22, 2000.
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EXHIBIT 99.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
LSI LOGIC CORPORATION,
DIAMOND ACQUISITION CORPORATION,
DATAPATH SYSTEMS, INC.,
SHIH-MING SHIH,
HEMANT THAPAR
AND
GREG YAMAMOTO
AND, WITH RESPECT TO ARTICLE VII AND ARTICLE IX ONLY,
U.S. BANK TRUST, NATIONAL ASSOCIATION, AS ESCROW AGENT
AND
GREG YAMAMOTO, AS SHAREHOLDER AGENT.
DATED AS OF MAY 20, 2000
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TABLE OF CONTENTS
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ARTICLE I THE MERGER............................................................................ 2
1.1 The Merger....................................................................... 2
1.2 Effective Time................................................................... 2
1.3 Effect of the Merger............................................................. 2
1.4 Articles of Incorporation and Bylaws............................................. 2
1.5 Directors and Officers........................................................... 3
1.6 Effect of Merger on the Capital Stock of the Constituent Corporations............ 3
1.7 Company Restricted Stock......................................................... 7
1.8 Dissenting Shares................................................................ 7
1.9 Surrender of Certificates........................................................ 8
1.10 No Further Ownership Rights in Company Common Stock.............................. 9
1.11 Lost, Stolen or Destroyed Certificates........................................... 9
1.12 Tax and Accounting Consequences.................................................. 10
1.13 Taking of Necessary Action; Further Action....................................... 10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS......... 10
2.1 Organization of the Company...................................................... 10
2.2 Company Capital Structure........................................................ 11
2.3 Authority........................................................................ 12
2.4 No Conflict...................................................................... 13
2.5 Consents......................................................................... 14
2.6 Company Financial Statements..................................................... 14
2.7 No Undisclosed Liabilities....................................................... 14
2.8 No Changes....................................................................... 15
2.9 Tax Matters...................................................................... 17
2.10 Restrictions on Business Activities.............................................. 20
2.11 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment........................................................................ 20
2.12 Intellectual Property............................................................ 21
2.13 Agreements, Contracts and Commitments............................................ 25
2.14 Interested Party Transactions.................................................... 26
2.15 Governmental Authorization....................................................... 27
2.16 Litigation....................................................................... 27
2.17 Accounts Receivable.............................................................. 27
2.18 Minute Books..................................................................... 27
2.19 Environmental Matters............................................................ 28
2.20 Brokers' and Finders' Fees; Third Party Expenses................................. 28
2.21 Employee Benefit Plans and Compensation.......................................... 29
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TABLE OF CONTENTS
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2.22 Insurance........................................................................ 32
2.23 Compliance with Laws............................................................. 32
2.24 Warranties; Indemnities.......................................................... 32
2.25 Complete Copies of Materials..................................................... 33
2.26 Representations Complete......................................................... 33
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.................................... 33
3.1 Organization, Standing and Power................................................. 33
3.2 Authority........................................................................ 34
3.3 Capital Structure................................................................ 34
3.4 No Conflict...................................................................... 34
3.5 Consents......................................................................... 35
3.6 SEC Documents; Parent Financial Statements....................................... 35
3.7 Interim Operations of Sub........................................................ 35
3.8 Tax-Free Reorganization.......................................................... 35
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.................................................. 37
4.1 Conduct of Business of the Company............................................... 37
4.2 No Solicitation.................................................................. 40
ARTICLE V ADDITIONAL AGREEMENTS................................................................. 40
5.1 Fairness Hearing; Shareholder Approval........................................... 40
5.2 Restrictions on Transfer......................................................... 42
5.3 Access to Information............................................................ 42
5.4 Confidentiality.................................................................. 42
5.5 Expenses; Statement of Expenses.................................................. 42
5.6 Public Disclosure................................................................ 43
5.7 Consents......................................................................... 43
5.8 FIRPTA Compliance................................................................ 43
5.9 Reasonable Efforts............................................................... 43
5.10 HSR Act.......................................................................... 43
5.11 Notification of Certain Matters.................................................. 44
5.12 Additional Documents and Further Assurances...................................... 44
5.13 S-8 Registration................................................................. 44
5.14 Affiliate Agreements............................................................. 45
5.15 New York Stock Exchange Listing.................................................. 45
5.16 Termination of Warrants.......................................................... 45
5.17 Termination of 401(k) Plan....................................................... 45
5.18 Employee Benefits................................................................ 45
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5.19 Employment Offers................................................................ 45
5.20 Purchase of Equipment............................................................ 46
5.21 Removal of Liens................................................................. 46
5.22 Shareholder List................................................................. 46
5.23 Statement of Equipment Expenditures.............................................. 46
5.24 Statement of Insurance Expenditures.............................................. 46
ARTICLE VI CONDITIONS TO THE MERGER............................................................. 46
6.1 Conditions to Obligations of Each Party to Effect the Merger..................... 46
6.2 Conditions to the Obligations of Parent and Sub.................................. 47
6.3 Conditions to Obligations of the Company and the Principal Shareholders.......... 49
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION......................... 51
7.1 Survival of Representations, Warranties and Covenants............................ 51
7.2 Recovery For Losses.............................................................. 51
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................. 58
8.1 Termination...................................................................... 58
8.2 Effect of Termination............................................................ 59
8.3 Amendment........................................................................ 59
8.4 Extension; Waiver................................................................ 60
ARTICLE IX GENERAL PROVISIONS................................................................... 60
9.1 Notices.......................................................................... 60
9.2 Interpretation................................................................... 61
9.3 Counterparts..................................................................... 62
9.4 Entire Agreement; Assignment..................................................... 62
9.5 Severability..................................................................... 62
9.6 Other Remedies................................................................... 62
9.7 Governing Law.................................................................... 62
9.8 Rules of Construction............................................................ 62
9.9 Waiver of Jury Trial............................................................. 63
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THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of May 20, 2000 by and among LSI Logic Corporation, a Delaware
corporation ("Parent"), Diamond Acquisition Corporation, a California
corporation and a wholly-owned subsidiary of Parent ("Sub"), DataPath Systems,
Inc., a California corporation (the "Company"), Shih-Ming Shih, Hemant Thapar
and Greg Yamamoto (collectively, the "Principal Shareholders"), and with respect
to Article VII and Article IX hereof only, U.S. Bank Trust, National
Association, the undersigned escrow agent (the "Escrow Agent") and Greg Yamamoto
as Shareholder Agent (the "Shareholder Agent").
RECITALS
A. The Boards of Directors of each of Parent, Sub and the Company
believe it is in the best interests of each company and its respective
shareholders that Parent acquire the Company through the statutory merger of Sub
with and into the Company (the "Merger") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, (i) all of the issued and
outstanding capital stock of the Company shall be converted into the right to
receive the consideration set forth herein, and (ii) all issued and outstanding
options to purchase capital stock of the Company shall be assumed by the Company
with options to purchase capital stock of Parent.
C. The Company and the Principal Shareholders, on the one hand, and
Parent and Sub, on the other hand, desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
D. Concurrent with the execution and delivery of this Agreement, as
material inducements to Parent and Sub to enter into this Agreement, (i) the
Principal Shareholders and certain other shareholders of the Company are
entering into a Voting Agreement, in the form attached hereto as Exhibit A (the
"Voting Agreement"), with Parent; (ii) NEC Electronics Inc.("NEC") is entering
into the Shareholder Agreement in the form attached hereto as Exhibit B (the
"Shareholder Agreement"), with Parent; and (iii) certain key employees of the
Company and the Principal Shareholders are entering into a Non-Competition,
Non-Solicitation and Non-Hire Agreements, each in the form attached hereto as
Exhibit C (the "Non-Competition Agreement").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
other promises set forth herein, the mutual benefits to be gained by the
performance thereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereby agree as follows:
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ARTICLE I THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the General Corporation Law of the State of California
("California Law"), Sub shall be merged with and into the Company, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The surviving
corporation after the Merger is sometimes referred to hereinafter as the
"Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1 hereof, the closing of the Merger (the "Closing") will take place
as promptly as practicable after the execution and delivery hereof by the
parties hereto, but no later than two (2) business days following satisfaction
or waiver of the conditions set forth in Article VI hereof, at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road,
Palo Alto, California, unless another time and/or place is mutually agreed upon
in writing by Parent and the Company. The date upon which the Closing actually
occurs shall be referred to herein as the "Closing Date." On the Closing Date,
the parties hereto shall cause the Merger to be consummated by filing an
Agreement of Merger (or like instrument) and the accompanying officers'
certificates, each in substantially the form attached hereto as Exhibit D, with
the Secretary of State of the State of California (the "Agreement of Merger"),
in accordance with the applicable provisions of California Law (the time of
acceptance by the Secretary of State of the State of California of such filing
shall be referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of California Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise agreed to pursuant to the terms of this
Agreement, all the property, rights, privileges, powers and franchises of the
Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation and Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, the articles of incorporation of Sub, as in effect immediately prior to
the Effective Time, shall be the articles of incorporation of the Surviving
Corporation at the Effective Time until thereafter amended in accordance with
California Law and as provided in such articles of incorporation; provided,
however, that at the Effective Time, Article I of the Articles of Incorporation
of the Surviving Corporation shall be amended and restated in its entirety to
read as follows: "The name of the corporation is DataPath Systems, Inc."
(b) Unless otherwise determined by Parent prior to the Effective
Time, the bylaws of Sub, as in effect immediately prior to the Effective Time,
shall be the bylaws of the Surviving
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Corporation at the Effective Time until thereafter amended in accordance with
California Law and as provided in the articles of incorporation of the Surviving
Corporation and such bylaws.
1.5 Directors and Officers.
(a) Unless otherwise determined by Parent prior to the
Effective Time, the directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation immediately after the
Effective Time, each to hold the office of a director of the Surviving
Corporation in accordance with the provisions of California Law and the articles
of incorporation and bylaws of the Surviving Corporation until their successors
are duly elected and qualified.
(b) Unless otherwise determined by Parent prior to the
Effective Time, the officers of Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation immediately after the
Effective Time, each to hold office in accordance with the provisions of the
bylaws of the Surviving Corporation.
1.6 Effect of Merger on the Capital Stock of the Constituent
Corporations.
(a) Definitions. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
"Company Capital Stock" shall mean the (i) shares of Company
Common Stock and (ii) the shares of Company Preferred Stock.
"Company Options" shall mean all issued and outstanding
options, warrants or other rights to purchase or otherwise acquire Company
Common Stock (whether or not vested) held by any person or entity.
"Company Common Stock" shall mean the shares of Common Stock
of the Company.
"Company Preferred Stock" shall mean the shares of Series A
Preferred Stock of the Company.
"Equipment Adjustment Shares" shall mean that number of
shares of Parent Common Stock that have a value (based on the Trading Price)
equal to Equipment Adjustment Amount.
"Equipment Adjustment Amount" shall mean the amount by which
the Estimated Equipment Expenditures exceeds $649,500.
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"Equipment Expenditures" shall mean the amount the Parent or
the Company has spent or committed to spend to purchase the equipment listed on
Schedule 2.11(e) to this Agreement.
"Estimated Equipment Expenditures" shall mean the amount the
Company has spent or committed to spend to purchase the equipment listed on
Schedule 2.11(e) to this Agreement as estimated in good faith and based upon
reasonable assumptions and as reflected on the Statement of Estimated Equipment
Expenditures (as defined in Section 5.23 hereof).
"Estimated Insurance Expenditures" shall mean the amount the
Company has spent or committed to spend on director's and officer's insurance
for directors and officers of the Company prior to the Closing as estimated in
good faith and based upon reasonable assumptions and as reflected on the
Statement of Estimated Insurance Expenditures (as defined in Section 5.24
hereof).
"Escrow Amount" shall mean 1,087,556 shares of Parent Common
Stock.
"Exchange Ratio" shall mean an amount equal to the quotient
obtained by dividing (x) the Merger Shares, by (y) the Total Outstanding Shares.
"GAAP" shall mean United States generally accepted
accounting principles consistently applied.
"Knowledge" shall mean (i) with respect to the Company,
actual knowledge of the Company's officers and directors and the knowledge that
such person would have obtained of the matter represented after reasonable
inquiry thereof under the circumstances, and (ii) with respect to the Principal
Shareholders, the actual knowledge of the Principal Shareholders.
"Insurance Adjustment Shares" shall mean that number of
shares of Parent Common Stock that have a value (based on the Trading Price)
equal to the Insurance Adjustment Amount.
"Insurance Adjustment Amount" shall mean the amount by which
the Estimated Insurance Expenditures exceeds $50,000 as of the Closing.
"Insurance Expenditures" shall mean amount the Company has
spent or committed to spend on director's and officer's insurance for directors
and officers of the Company prior to the Closing.
"Material Adverse Effect" shall mean any change, event or
effect that is materially adverse to the business, assets (including intangible
assets), financial condition, results of operations or capitalization of the
Company and its subsidiaries, taken as a whole, but shall not include (i) any
reduction in revenue which is proximately caused by the announcement or pendency
of this Agreement or the transactions contemplated thereby and (ii) any adverse
change in financial
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results proximately caused by the Company's change in relationship with NEC due
to the announcement or pendency of this Agreement.
"Merger Shares" shall mean 9,062,968 shares of Parent Common
Stock minus the sum of (i) the Insurance Adjustment Shares and (ii) the
Equipment Adjustment Shares and (iii) the Third Party Expense Adjustment Shares.
"Parent Option" shall mean any option to purchase shares of
Parent Common Stock issued pursuant to the terms of Section 1.6(c) hereof in
connection with the assumption of a Company Option.
"Parent Common Stock" shall mean shares of Common Stock of
Parent.
"Pro Rata Portion" shall mean with respect to each
Shareholder an amount equal to the quotient obtained by dividing (x) the number
of shares of Company Common Stock owned by such Shareholder as immediately prior
to the Effective Time by (y) the number of Total Outstanding Shares.
"Shareholder" shall mean each holder of any Company Capital
Stock immediately prior to the Closing Date.
"Third Party Expense Adjustment Shares" shall mean that
number of shares of Parent Common Stock that have a value (based on the Trading
Price) equal to Third Party Expense Adjustment Amount.
"Third Party Expense Adjustment Amount" shall mean the
amount by which the Estimated Third Party Expenses (as defined in Section 5.5
hereof) exceeds $3,000,000.
"Total Outstanding Shares" shall be the sum of (i) the
aggregate number of shares of Company Common Stock (including any other rights
(other than Company Options) convertible into, or exercisable or exchangeable
for, shares of Company Common Stock on an as-converted, exercised or exchanged
basis) issued and outstanding immediately prior to the Effective Time, and (ii)
the aggregate number of shares of Company Common Stock issued or issuable upon
the exercise of all Company Options outstanding immediately prior to the
Effective Time, whether vested or unvested.
"Trading Price" shall mean the average of the per share
closing sale price of Parent Common Stock as quoted on the New York Stock
Exchange for the thirty (30) consecutive trading days ending two trading days
immediately prior to the date hereof, that is $57.815.
(b) Conversion of Company Common Stock. At the Effective Time, each
outstanding share of the Company Common Stock (assuming conversion of all
Company Preferred Stock), upon the terms and subject to the conditions set forth
below and throughout this Agreement, will be canceled and extinguished and be
converted automatically into the right to receive such
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number of shares of Parent Common Stock equal to the Exchange Ratio, upon the
terms and subject to conditions set forth in this Section 1.6 and throughout
this Agreement. The Exchange Ratio shall be appropriately adjusted to reflect
fully the effect of any stock split, reverse stock split, stock dividend,
reorganization, recapitalization or like change with respect to Parent Common
Stock occurring after the date hereof and prior to the Effective Time.
(c) Assumption of Company Options. As soon as practicable following
the Closing but effective as of the Effective Time, each Company Option shall be
assumed by Parent. Each Company Option so assumed by Parent pursuant to this
Section 1.6(c) shall continue to have, and be subject to, the same terms and
conditions (including vesting terms) set forth in the Company's Amended and
Restated 1997 Stock Option Plan or Amended 1994 Stock Option Plan, as the case
may be, (collectively, the "Plans"), and the option agreements relating thereto,
or such other applicable agreement, as in effect immediately prior to the
Effective Time, except that (A) such assumed 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 issuable upon exercise of
such Company Option (whether or not then exercisable or vested) immediately
prior to the Effective Time multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of Parent Common Stock, and (B) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed Company Option shall be equal to the quotient obtained by dividing
the exercise price per share of Company Common Stock at which such assumed
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. It is the intention of the
parties that the Company Options assumed by Parent will remain incentive stock
options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options prior to the Effective Time. Promptly after
the Effective Time, Parent shall deliver to the holder of assumed Company
Options appropriate notices indicating Parent's assumption of the Company
Options. In addition, at or before the Effective Time, Parent shall take all
corporate action to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of Company Stock Options assumed in
accordance with this Section 1.6.
(d) Withholding Taxes. Any number of shares of Parent Common Stock
issuable pursuant to Section 1.6(b) shall be subject to, and reduced by, the
amount of any state, federal and foreign withholding taxes incurred (and not
previously paid by or on behalf of the Company) in connection with the
acquisition of capital stock upon the exercise of Company Options, the
acceleration of vesting of any Company Common Stock or Company Options, or the
payment of a bonus, if any.
(e) Shareholder Loans. In the event that any Shareholder has
outstanding loans from the Company as of the Effective Time, the consideration
payable to such Shareholder pursuant to this Section 1.6 shall be reduced by an
amount equal to the outstanding principal plus accrued interest of such
Shareholder's loans as of the Effective Time. For purposes of any such
reduction, a share of Parent Common Stock shall be valued at the Trading Price.
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(f) Capital Stock of Sub. Each share of Common Stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
Common Stock of the Surviving Corporation. Each stock certificate of Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Corporation.
(g) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, each holder of shares of Company
Common Stock (including Company Common Stock issuable upon exercise of
outstanding Company Options at the Effective Time) who would otherwise be
entitled to a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such holder) shall be
entitled to receive from Parent an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, multiplied by (ii) the Trading
Price.
1.7 Company Restricted Stock. If any shares of Company Common Stock
issued and outstanding immediately prior to the Effective Time are unvested and
subject to a repurchase option, risk of forfeiture or other condition under any
applicable stock restriction agreement or other agreement with the Company
("Company Restricted Stock"), then the shares of Parent Common Stock issued in
exchange for such shares of Company Restricted Stock shall also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition
(including any requirement that any unvested shares be held in escrow), and the
certificate representing such shares of Parent Common Stock may accordingly be
marked with appropriate legends in the discretion of Parent while such shares
are subject to such repurchase option, risk of forfeiture or other condition.
1.8 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Company Common Stock held by a holder who has exercised
and perfected appraisal rights for such shares in accordance with Chapter 13 of
California Law and who has not effectively withdrawn or lost such appraisal
rights ("Dissenting Shares"), shall not be converted into or represent a right
to receive the consideration for Company Common Stock set forth in Section 1.6
hereof, but the holder thereof shall only be entitled to such rights as are
provided by California Law.
(b) Notwithstanding the provisions of Section 1.8(a) hereof, if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) such holder's appraisal rights under California Law,
then, as of the later of the Effective Time and the occurrence of such event,
such holder's shares shall automatically be converted into and represent only
the right to receive the consideration for Company Common Stock set forth in
Section 1.6 hereof, without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demand for appraisal received by the Company pursuant to the applicable
provisions of California Law, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to such demands.
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The Company shall not, except with the prior written consent of Parent, make any
payment with respect to any such demands or offer to settle or settle any such
demands. To the extent that Parent or the Company makes any payment or payments
in respect of any Dissenting Shares, Parent shall be entitled to recover under
the terms of Article VII hereof the aggregate amount by which such payment or
payments exceed the aggregate consideration that otherwise would have been
payable in respect of such shares.
1.9 Surrender of Certificates.
(a) Exchange Agent. The Corporate Secretary of Parent shall serve
as the exchange agent (the "Exchange Agent") for the Merger.
(b) Parent to Provide Parent Common Stock. Promptly after the
Effective Time, but in any event not later than immediately following written
confirmation of approval of the Merger by the Secretary of State of the State of
California, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I the shares of Parent Common Stock issuable
pursuant to Section 1.6 in exchange for outstanding shares of Company Common
Stock; provided that, on behalf of the Shareholders, Parent shall deposit into
the Escrow Fund (as defined in Section 7.2(b) hereof) a number of shares of
Parent Common Stock equal to the Escrow Amount out of the aggregate number of
shares of Parent Common Stock otherwise issuable to the Shareholders pursuant to
Section 1.6. Each Shareholder shall be deemed to have contributed such
Shareholder's Pro Rata Portion of the Escrow Amount to the Escrow Fund. The
shares of Parent Common Stock deposited to the Escrow Fund shall be shares which
are vested and are not subject to a repurchase option, risk of forfeiture or
other condition under any applicable stock restriction agreement or other
agreement with the Company or Parent.
(c) Exchange Procedures. On the Closing Date, the Shareholders will
surrender the certificates representing their shares of Company Common Stock
(the "Company Stock Certificates") to the Exchange Agent for cancellation
together with a letter of transmittal in such form and having such provisions
that Parent may reasonably request. Upon surrender of a Company Stock
Certificate for cancellation to the Exchange Agent, or such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
subject to the terms of Section 1.9(e) hereof, the holder of such Company Stock
Certificate shall be entitled to receive from the Exchange Agent in exchange
therefor a certificate representing the number of whole shares of Parent Common
Stock (less the number of shares of Parent Common Stock to be deposited in the
Escrow Fund on such holder's behalf pursuant to Section 1.9(b) above and Article
VII hereof) to which such holder is entitled pursuant to Section 1.6, and the
Company Stock Certificate so surrendered shall be canceled. Until so
surrendered, each outstanding Company Stock Certificate will be deemed from and
for all corporate purposes, to evidence only the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted. Parent shall use reasonable best efforts to
provide payments to each Shareholder within three days after the later
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of (i) confirmation of filing of the Agreement of Merger from the California
Secretary of State and (ii) Parent's receipt of such Shareholder's Company Stock
Certificates pursuant to this Section 1.9.
(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of record of
such Company Stock Certificate shall surrender such Company Stock Certificate.
Subject to applicable law, following surrender of any such Company Stock
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.9, neither the Exchange Agent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Company Common Stock for any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.10 No Further Ownership Rights in Company Common Stock. The shares of
Parent Common Stock paid in respect of the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof, shall be deemed to be
full satisfaction of all rights pertaining to such shares of Company Common
Stock, and there shall be no further registration of transfers on the records of
the Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Company Stock Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
1.11 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such amount, if any, as may be required pursuant to
Section 1.6 hereof; provided, however, that Parent may, in its discretion and as
a condition precedent to the issuance thereof, require the Shareholder who is
the owner of such lost, stolen or destroyed
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<PAGE> 14
certificates to deliver a bond in such amount as it may reasonably direct
against any claim that may be made against Parent or the Exchange Agent with
respect to the certificates alleged to have been lost, stolen or destroyed.
1.12 Tax and Accounting ConsequencesTax Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) Parent shall treat the Merger as a reorganization under the
provision of Section 368 of the Code and shall comply with all reporting
requirements related thereto. Parent shall treat all shares of Parent Common
Stock issued pursuant to this Agreement as consideration given to the
Shareholders in exchange for their Company Common Stock.
(c) It is intended by the parties hereto that the Merger shall be
accounted for under the "purchase" method of accounting.
1.13 Taking of Necessary Action; Further Action. If at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company, Parent, Sub, and the officers and directors of
the Company, Parent and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
The Company and the Principal Shareholders hereby jointly and severally
represents and warrants to Parent and Sub, subject to such exceptions as are
specifically disclosed in the disclosure letter (referencing the appropriate
section and paragraph numbers) supplied by the Company and the Principal
Shareholders to Parent (the "Disclosure Schedule") and dated as of the date
hereof, that on the date hereof and as of the Effective Time as though made at
the Effective Time as follows; provided, that the representations and warranties
made as of a specified date will be true and correct as of such date.
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as currently conducted and as currently contemplated to be
conducted. The Company is duly qualified or licensed to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified or licensed would not reasonably be expected to have a Material
Adverse Effect on the
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<PAGE> 15
Company. The Company has delivered a true and correct copy of its articles of
incorporation and bylaws, each as amended to date and in full force and effect
on the date hereof, to Parent. Section 2.1 of the Disclosure Schedule lists the
directors and officers of the Company. The operations now being conducted by the
Company are not now and have never been conducted by the Company under any other
name. The Company does not have, and has never had, any subsidiaries and does
not otherwise own, and has not otherwise owned, any share in the capital of or
any interest in, or control of, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of (i)
25,000,000 shares of Company Common Stock, of which 13,763,661 shares are issued
and outstanding as of the date hereof and (ii) 2,500,000 shares of Company
Preferred Stock, of which 2,500,000 shares are designated Series A Preferred
Stock, of which 1,852,749 are issued and outstanding as of the date hereof. As
of the date hereof, the capitalization of the Company is as set forth in Section
2.2(a) of the Disclosure Schedule. Assuming the same total capitalization as on
the date hereof, the total number of shares of Company Common Stock outstanding
as of immediately prior to the Effective Time (assuming the conversion, exercise
or exchange of all securities convertible into, or exercisable or exchangeable
for, shares of Company Common Stock, and the exercise of all Company Options)
will be as set forth in Section 2.2(a) of the Disclosure Schedule. The Company
Capital Stock is held by the persons with the domicile addresses and in the
amounts set forth in Section 2.2(a) of the Disclosure Schedule. All outstanding
shares of Company Capital Stock are duly authorized, validly issued, fully paid
and non-assessable and not subject to preemptive rights created by statute, the
articles of incorporation or bylaws of the Company, or any agreement to which
the Company is a party or by which it is bound. All outstanding shares of
Company Capital Stock and Company Options have been issued or repurchased (in
the case of shares that were outstanding and repurchased by the Company) in
compliance with all applicable federal, state, foreign or local statutes, laws,
rules or regulations, including federal and state securities laws. The Company
has not, and will not have, suffer or incur any, liability (contingent or
otherwise) or Loss (as defined in Section 7.2(a)) relating to or arising out of
the issuance or repurchase of any Company Capital Stock or Company Options. The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of the Company Preferred Stock are as set forth in the
Company's Articles of Incorporation. There are not outstanding any adjustments
made or required to be made to the conversion rates applicable to Company
Preferred Stock set forth in the Company's Articles of Incorporation. There are
no declared or accrued but unpaid dividends with respect to any shares of
Company Common Stock. The Company has no other capital stock authorized, issued
or outstanding. The requisite vote required to approve the Merger under
applicable law, the Company's Articles of Incorporation, the Company's Bylaws,
and any other agreement to which the Company or any other shareholder of the
Company is bound is as follows: the affirmative vote of a majority of the
outstanding shares of Company Common Stock and a majority of the outstanding
shares of Company Preferred Stock, each voting as a separate class. Each share
of Company
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<PAGE> 16
Preferred Stock is convertible to Company Common Stock on a one-to-two basis and
as of the Effective Time, each share of Company Preferred Stock will be
converted to Company Common Stock. Holders of Company Common Stock and Company
Preferred Stock sufficient to approve the Merger, each of whom is an "affiliate"
of the Company as defined in Rule 12b-2 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), have each executed a
Voting Agreement or, in the case of NEC, the Shareholder Agreement.
(b) Except for the Plans, the Company has never adopted or
maintained any stock option plan or other plan providing for equity compensation
of any person. The Company has reserved 17,966,000 shares of Company Common
Stock for issuance to employees and directors of, and consultants to, the
Company upon the exercise of options granted under the Plans, of which (i)
3,676,765 shares are issuable, as of the date hereof, upon the exercise of
outstanding, unexercised options granted under the Plans, and (ii) 13,886,883
shares have been issued, as of the date hereof, upon the exercise of options
granted under the Plans. Section 2.2(b) of the Disclosure Schedule sets forth
(i) for each outstanding Company Option, the name of the holder of such option,
the domicile address of such holder, the number of shares of Company Common
Stock issuable upon the exercise of such option, the exercise price of such
option, the vesting schedule for such option, including the extent vested to
date and whether the vesting of such option will be accelerated by the
transactions contemplated by this Agreement, and whether such option is intended
to qualify as an incentive stock option as defined in Section 422 of the Code
and (ii) for each right to repurchase shares in favor of the Company, the name
of Shareholder, the number of shares of Company Common Stock subject to
repurchase by the Company, the price at which such shares may be repurchased,
the schedule by which such repurchase right lapses, including the extent such
repurchase right has lapsed to date and whether the lapsing of the repurchase
right will be accelerated by the transactions contemplated by this Agreement.
Except for the Company Options, there are no options, warrants, calls, rights,
commitments or agreements of any character, written or oral, to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to the Company. Except as contemplated hereby, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting stock of the Company. As a result of the Merger, Parent will be the sole
record and beneficial holder of all issued and outstanding Company Common Stock
and all rights to acquire or receive any shares of Company Common Stock, whether
or not such shares of Company Common Stock are outstanding.
2.3 Authority. The Company and each of the Principal Shareholders have
all requisite power and authority to enter into this Agreement and any Related
Agreements (as hereinafter defined in this Section 2.3) to which it or he or she
is a party and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
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<PAGE> 17
corporate action on the part of the Company, and no further action is required
on the part of the Company to authorize the Agreement and any Related Agreements
to which it is a party and the transactions contemplated hereby and thereby,
subject only to the approval of this Agreement and the transactions contemplated
hereby by the Shareholders. This Agreement and the Merger have been unanimously
approved by the Board of Directors of the Company. This Agreement and each of
the Related Agreements to which the Company and/or the Principal Shareholders is
a party has been duly executed and delivered by the Company and the Principal
Shareholders, as the case may be, and assuming the due authorization, execution
and delivery by the other parties hereto and thereto, constitute the valid and
binding obligations of the Company and each of the Principal Shareholders,
enforceable against each such party in accordance with their respective terms,
except as such enforceability may be subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
For all purposes of this Agreement, the term "Related Agreements" shall mean the
Voting Agreements, the Agreement of Merger, the Noncompetition Agreements and
any other agreements to which the Company is a party that it enters into in
order to consummate the transactions contemplated thereby.
2.4 No Conflict. The execution and delivery by the Company and the
Principal Shareholders of this Agreement and any Related Agreement to which the
Company and/or any Principal Shareholders is a party, and the consummation of
the transactions contemplated hereby and thereby, will not conflict with or
result in any violation of or default under (with or without notice or lapse of
time, or both) or give rise to a right of termination, cancellation,
modification or acceleration of any material obligation or loss of any material
benefit under (any such event, a "Conflict") (i) any provision of the articles
of incorporation or bylaws of the Company, (ii) any material mortgage,
indenture, lease, contract, covenant or other agreement, instrument or
commitment, permit, concession, franchise or license (each a "Contract" and
collectively the "Contracts") to which the Company or any of its properties or
assets (including intangible assets), or to which any of the Principal
Shareholders, is subject, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its properties
(tangible and intangible) or assets, or applicable to the Principal
Shareholders. The Company is in compliance with and has not breached, violated
or defaulted under, or received notice that it has breached, violated or
defaulted under, any of the terms or conditions of any Contract, nor is the
Company or any of the Principal Shareholders aware of any event that would
constitute such a breach, violation or default with the lapse of time, giving of
notice or both. Each Contract is in full force and effect and the Company is not
subject to any default thereunder, nor to the Knowledge of the Company and the
Principal Shareholders is any party obligated to the Company pursuant to any
such Contract subject to any default thereunder. The Company has obtained, or
will obtain prior to the Effective Time, all necessary consents, waivers and
approvals of parties to any Contract as are required thereunder in connection
with the Merger, or for any such Contract to remain in full force and effect
without limitation, modification or alteration after the Effective Time.
Following the Effective Time, the Company will be permitted to exercise all of
its rights under the Contracts without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which the Company
would otherwise be required to
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<PAGE> 18
pay pursuant to the terms of such Contracts had the transactions contemplated by
this Agreement not occurred.
2.5 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission (each, a "Governmental Entity")
or any third party, including a party to any agreement with the Company (so as
not to trigger any Conflict), is required by or with respect to the Company
and/or the Principal Shareholders in connection with the execution and delivery
of this Agreement and any of the Related Agreements or the consummation of the
transactions contemplated hereby, except for (i) the receipt of the California
Permit (as defined in Section 5.1 hereof) by Parent or the effectiveness of the
Registration Statement (as defined in Section 5.1 hereof); (ii) such other
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws and
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (iii) the filing of the Agreement of Merger with the Secretary of State
of the State of California, and (iv) the approval of this Agreement and the
transactions contemplated hereby by the Shareholders; and (v) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a material impact on the Surviving Corporation
following the Effective Time and would not prevent, or materially alter or
delay, any of the transactions contemplated by this Agreement.
2.6 Company Financial Statements. Section 2.6 of the Disclosure Schedule
sets forth (i) the Company's audited financial statements as of January 31,
2000, and the related statements of income, cash flow and shareholders' equity
for the twelve (12) month period ended January 31, 2000 (the "Year-End
Financials"), and (ii) the Company's unaudited financial statements as of April
30, 2000, and the related unaudited statements of income for the three (3)
months ended April 30, 2000 (collectively, the "Interim Financials," and,
together with the Year-End Financials, collectively, the "Financials"). The
Financials are correct in all material respects and have been prepared in
accordance with GAAP consistently applied on a basis consistent throughout the
periods indicated and consistent with each other (except that the Interim
Financials do not contain footnotes and other presentation items that may be
required by GAAP). The Financials present fairly the financial condition,
operating results and cash flows of the Company as of the dates and during the
periods indicated therein, subject in the case of the Interim Financials to
normal year-end adjustments, which are not material in amount or significance in
any individual case or in the aggregate. The Company's unaudited balance sheet
as of April 30, 2000 is referred to hereinafter as the "Current Balance Sheet."
2.7 No Undisclosed Liabilities. The Company has no liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP), which individually or in the aggregate (i) has not been reflected in
the Current Balance Sheet, (ii) has not arisen in the ordinary course of
business consistent with past practices since April 30, 2000 and which is not
material to the business, results
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<PAGE> 19
or operations or financial condition of the Company; and (iii) those Third Party
Expenses (as defined in Section 5.5 hereof) incurred in connection with the
execution of this Agreement which do not exceed $3,000,000 in the aggregate.
2.8 No Changes. From April 30, 2000 there has not been, occurred or
arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date and consistent with past practices;
(b) amendments or changes to the articles of incorporation or
bylaws of the Company;
(c) capital expenditure or capital expenditure commitment by the
Company exceeding $25,000 individually or $100,000 in the aggregate;
(d) payment, discharge or satisfaction, in any amount in excess of
$25,000 in any one case, or $100,000 in the aggregate, of any claim, liability
or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than payment, discharge or satisfaction in the ordinary course
of business of liabilities reflected or reserved against in the Current Balance
Sheet;
(e) destruction of, damage to or loss of any material assets or
material business or loss of any material customer of the Company (whether or
not covered by insurance);
(f) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
(g) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company other than as
required by GAAP;
(h) change in any election in respect of Taxes (as defined below),
adoption or change in any accounting method in respect of Taxes, agreement or
settlement of any claim or assessment in respect of Taxes, or extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes;
(i) revaluation by the Company of any of its assets;
(j) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
Common Stock or Company Preferred Stock, or any split, combination or
reclassification in respect of any shares of Company Common Stock or Company
Preferred Stock, or any issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Company
Common Stock or Company Preferred Stock, or any direct or indirect repurchase,
redemption, or other acquisition by the Company of any shares of Company Common
Stock or Company Preferred Stock (or options,
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warrants or other rights convertible into, exercisable or exchangeable
therefor), except in accordance with the agreements evidencing Company Options;
(k) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment by the Company of a severance payment, termination payment,
bonus or other additional salary or compensation to any such person other than
normal cost-of-living and normal merit increases of not more than 5% per annum
in the ordinary course of business consistent with past practices;
(l) other than (x) non-exclusive licenses of object code relating
to the sale of the Company's currently shipping products entered into in the
ordinary course of business consistent with past practice and (y) any other
contract not involving the license, purchase or sale of Intellectual Property or
Intellectual Property Rights (each as defined in Section 2.12 hereof) entered
into in the ordinary course of business consistent with past practice involving
an amount not in excess of $25,000 individually or $100,000 in the aggregate,
any agreement, contract, covenant, instrument, lease, license or commitment to
which the Company is a party or by which it or any of its assets (including
intangible assets) are bound or any termination, extension, amendment or
modification of the terms of any agreement, contract, covenant, instrument,
lease, license or commitment to which the Company is a party or by which it or
any of its assets are bound;
(m) sale, lease or other disposition of any of the material assets
or material properties of the Company or any creation of any security interest
in such material assets or material properties;
(n) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business consistent with past
practices;
(o) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(p) the commencement, settlement, notice or, to the Knowledge of
the Company, or the Principal Shareholders, threat of any lawsuit or proceeding
or other investigation against the Company or its affairs, or any reasonable
basis for any of the foregoing;
(q) notice of any claim or potential claim of ownership by any
person other than the Company of the Company Intellectual Property (as defined
in Section 2.12 hereof) owned by or developed or created by the Company or of
infringement by the Company of any other person's Intellectual Property (as
defined in Section 2.12 hereof);
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<PAGE> 21
(r) issuance or sale, or contract to issue or sell, by the Company
of any shares of Company Common Stock or securities convertible into, or
exercisable or exchangeable for, shares of Company Common Stock, or any
securities, warrants, options or rights to purchase any of the foregoing, except
for issuances of Company Common Stock upon the exercise thereof;
(s) except for the granting of non-exclusive licenses of object
code relating to the sale of the Company's currently shipping products entered
into in the ordinary course of business consistent with past practice, (i) sale
or license of any Company Intellectual Property or entering into of any
agreement with respect to the Company Intellectual Property with any person or
entity or with respect to the Intellectual Property of any person or entity, or
(ii) purchase or license of any Intellectual Property or entering into of any
agreement with respect to the Intellectual Property of any person or entity,
(iii) agreement with respect to the development of any Intellectual Property
with a third party, or (iv) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Intellectual Property to the Company;
(t) agreement or modification to agreement pursuant to which any
other party was granted marketing, distribution, development or similar rights
of any type or scope with respect to any products or technology of the Company;
(u) any hiring or termination of employees of the Company, except
in the ordinary course of business consistent with past practices or pursuant to
existing employment agreements;
(v) any event or condition of any character that has had or is
reasonably likely to have a Material Adverse Effect on the Company; or
(w) agreement by the Company or any officer or employees on behalf
of the Company to do any of the things described in the preceding clauses (a)
through (v) of this Section 2.8 (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
2.9 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement, the
term "Tax" or, collectively, "Taxes" shall mean (i) any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts, (ii) any liability for the payment of any
amounts of the type described in clause (i) of this Section 2.9(a) as a result
of being a member of an affiliated, consolidated, combined or unitary group for
any period, and (iii) any liability for the payment of any amounts of the type
described in clauses (i) or (ii) of this
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<PAGE> 22
Section 2.9(a) as a result of any express or implied obligation to indemnify any
other person or as a result of any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) As of the Effective Time, the Company will have prepared
and timely filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to the Company or its operations and such
Returns are true and correct and have been completed in accordance with
applicable law.
(ii) As of the Effective Time, the Company (A) will have
timely paid all Taxes it is required to pay and withheld with respect to its
employees all federal and state income taxes, Federal Insurance Contribution Act
("FICA"), Federal Unemployment Tax Act ("FUTA") and other Taxes required to be
withheld, and (B) will have accrued on the Current Balance Sheet all Taxes
attributable to the periods preceding the Current Balance Sheet and will not
have incurred any liability for Taxes for the period commencing after the date
of the Current Balance Sheet and ending immediately prior to the Effective Time,
other than in the ordinary course of business.
(iii) The Company has not been delinquent in the payment of
any Tax, nor is there any Tax deficiency outstanding, assessed or proposed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v)The Company has no liabilities for unpaid federal, state,
local and foreign Taxes which have not been accrued or reserved on the Current
Balance Sheet, whether asserted or unasserted, contingent or otherwise, and the
Company has not incurred any liability for Taxes since the date of the Current
Balance Sheet other than in the ordinary course of business.
(vi) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal, state and local income and all state
and local sales and use Returns for the Company filed for all periods since its
inception.
(vii) There are (and immediately following the Effective
Time there will be) no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "Liens") on the assets of the Company relating to or attributable
to Taxes other than Liens for Taxes not yet due and payable.
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<PAGE> 23
(viii) None of the Company's assets is treated as
"tax-exempt use property," within the meaning of Section 168(h) of the Code.
(ix) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(x)The Company is not a party to any tax sharing,
indemnification or allocation agreement nor does the Company owe any amount
under any such agreement.
(xi) The Company is not, and has not been at any time, a
"United States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code.
(xii) No adjustment relating to any Return filed by the
Company has been proposed formally or, to the Knowledge of the Company and the
Principal Shareholder, informally by any tax authority to the Company or any
representative thereof.
(xiii) The Company has (a) never been a member of an
affiliated group (within the meaning of Code Section 1504(a)) filing a
consolidated federal income Tax Return (other than a group the common parent of
which was Company), (b) no liability for the Taxes of any person (other than
Company or any of its Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or successor,
by contract, or otherwise and (c) never been a party to any joint venture,
partnership or other agreement that could be treated as a partnership for Tax
purposes.
(xiv) The Company has not constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock qualifying
for tax-free treatment under Section 355 of the Code (x) in the two years prior
to the date of this Agreement or (y) in a distribution which could otherwise
constitute part of a "plan" or "Series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction with the Merger.
(c) Executive Compensation Tax. There is no contract, agreement,
plan or arrangement to which the Company is a party, including, without
limitation, the provisions of this Agreement, covering any employee or former
employee of the Company, which, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to Sections
280G, 404 or 162(m) of the Code.
(d) Tax Free Reorganization.
(i) The Company has not taken or agreed to take any action
that would prevent the Merger from constituting a reorganization qualifying
under the provisions of Section 368(a) of the Code. Prior to and in connection
with the Merger, the Company will not have redeemed, and related persons with
respect to the Company, as such term is defined by Treasury Regulation Section
1.368-1(e)(3), (without regard to Section 1.368-1(e)(3)(i)(a)), will not have
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purchased any Company stock, and the Company will not have made any
extraordinary distributions within the meaning of Temporary Treasury Regulation
Section 1.368-1T(e) with respect to its stock.
(ii) Immediately following the Merger, the Company will hold
at least 90% of the fair market value of its net assets and at least 70% of the
fair market value of its gross assets held immediately prior to the Merger. For
purposes of this representation, amounts paid by the Company to dissenters,
amounts paid by the Company to Shareholders who receive cash or other property,
amounts used by the Company to pay reorganization expenses, and all redemptions
and distributions (except for regular, normal dividends) made by the Company
will be included as assets of the Company immediately prior to the Merger.
(iii) At the Effective Time, the Company will not have any
outstanding warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in the Company that, if
exercised or converted, would affect Parent's acquisition or retention of
control of the Company, as defined in Section 368(c)(1) of the Code.
(iv) The Company is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(v) At the Effective Time, the fair market value of the
assets of the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(vi) The Company is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
2.10 Restrictions on Business Activities. There is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
may reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company, the conduct of business by the Company or otherwise
limiting the freedom of the Company to engage in any line of business or to
compete with any person. Without limiting the generality of the foregoing, the
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its technology or
products to or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
2.11 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) The Company owns no real property, nor has it ever owned any
real property. Section 2.11(a) of the Disclosure Schedule sets forth a list of
all real property currently leased by the Company, the name of the lessor, the
date of the lease and each amendment thereto and, with respect
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to any current lease, the aggregate annual rental payable under any such lease.
All such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default) by the Company or, to the
Knowledge of the Company and the Principal Shareholders, by any other party.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except (i) as reflected in the Current
Balance Sheet, (ii) Liens for Taxes not yet due and payable, and (iii) such
imperfections of title and encumbrances, if any, which do not detract materially
from the value or interfere materially with the present use of the property
subject thereto or affected thereby.
(c) Section 2.11(c) of the Disclosure Schedule lists all material
items of equipment (the "Equipment") owned or leased by the Company and such
Equipment is (i) adequate for the conduct of the business of the Company as
currently conducted and as currently contemplated to be conducted, and (ii) to
the Knowledge of the Company and the Principal Shareholders, in good operating
condition, regularly and properly maintained, subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of
any Liens, of all customer lists, customer contact information, customer
correspondence and customer licensing and purchasing histories relating to its
current and former customers (the "Customer Information"), except for the rights
of such customers in the Customer Information not granted by the Company. No
person other than the Company possesses any claims or rights with respect to use
of the Customer Information, except for the rights of such customers in the
Customer Information not granted by the Company.
(e) At the Closing, the Company will have obtained exclusive
ownership of the equipment listed in Schedule 2.11(e) to this Agreement.
2.12 Intellectual Property.
(a) Definitions. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
"Intellectual Property" shall mean any or all of the following (i) works
of authorship including, without limitation, computer programs, source code and
executable code, whether embodied in software, firmware or otherwise,
development tools, documentation, designs, files, records, data and all media on
which any of the foregoing is recorded, all Web addresses, sites and domain
names, and mask works, (ii) inventions (whether or not patentable), invention
disclosures, improvements, and technology, (iii) proprietary and confidential
information, trade secrets and know how, (iv) databases, data compilations and
collections, customers lists and technical data, (v) logos, trade names, trade
dress, trademarks and service marks, (vi) domain names, web addresses and sites,
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(vii) tools, methods and processes, and (viii) all instantiations and
disclosures of the foregoing in any form and embodied in any media and all
documentation relating to the foregoing.
"Intellectual Property Rights" shall mean common law and statutory
rights worldwide associated with (i) patents and patent applications, (ii)
copyrights, copyrights registrations and copyrights applications and "moral"
rights, (iii) the protection of trade and industrial secrets and confidential
information, (iv) trademarks, trade names and service marks, logos, common law
trademarks and service marks, trademark and servicemark registrations and
applications and application therefor and all goodwill associated therewith
throughout the world, (v) divisions, continuations, continuations-in-part,
renewals, reissuances, provisionals and extensions of the foregoing (as
applicable), all mask works, mask work registrations and applications therefore
throughout the world.
"Company Intellectual Property" shall mean any Intellectual Property and
Intellectual Property Rights that are owned by or exclusively licensed to the
Company.
"Registered Intellectual Property Rights" shall mean Intellectual
Property Rights that have been registered, filed, certified or otherwise
perfected by recordation with any state, government or other public legal
authority anywhere in the world.
(b) Section 2.12(b) of the Disclosure Schedule lists all Registered
Intellectual Property owned or in whole or in part by, or filed in the name of,
the Company (the "Company Registered Intellectual Property") and lists any
proceedings or actions before any court, tribunal (including the United States
Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the
world) related to any of the Company Registered Intellectual Property Rights.
(c) Each item of Company Intellectual Property, including all
Company Registered Intellectual, is free and clear of any Liens or other
encumbrances. The Company is the exclusive owner or exclusive licensee of all
Company Intellectual Property.
(d) Other than (i) "shrink-wrap" and similar widely available
binary code and commercial end-user licenses and (ii) as set forth on Section
2.12(g) of the Disclosure Schedule, to the extent that any Intellectual Property
has been developed or created independently or jointly by any person other than
the Company for which the Company has, directly or indirectly, paid or otherwise
sought to obtain rights thereon, the Company has a written agreement with such
person with respect thereto, and the Company thereby has obtained ownership of,
and is the exclusive owner of, all such Intellectual Property therein and
associated Intellectual Property Rights by operation of law or by valid
assignment.
(e) The Company has not transferred ownership of, or granted any
exclusive license of or exclusive right to use, or authorized the retention of
any exclusive rights to use or joint ownership of, any Intellectual Property or
Intellectual Property Rights that is or was Company Intellectual Property, to
any other person.
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(f) Other than (i) "shrink-wrap" and similar widely available
binary code and commercial end-user licenses, (ii) as set forth in Section
2.12(g) of the Disclosure Schedule, the Company Intellectual Property
constitutes all the Intellectual Property and Intellectual Property Rights used
in and/or necessary to the conduct of the business of the Company as it
currently is conducted or is currently contemplated to be conducted by the
Company, including, without limitation, the design, development, manufacture,
use, import and sale of products, technology and services (including products,
technology or services currently under development). Consummation of the
transactions contemplated by this Agreement will not result in the loss of, or
otherwise adversely affect, any ownership rights of the Company in any Company
Intellectual Property.
(g) Other than "shrink-wrap" and similar widely distributed binary
code and commercial end-user licenses, Section 2.12(g) of the Disclosure
Schedule lists all contracts, licenses and agreements to which the Company is a
party with respect to any Intellectual Property and Intellectual Property
Rights. No person who has licensed Intellectual Property or Intellectual
Property Rights to the Company has ownership rights or license rights to
improvements made by the Company in such Intellectual Property which has been
licensed to the Company.
(h) Other than "shrink-wrap" and similar widely distributed binary
code and commercial end-user licenses, Section 2.12(h) of the Disclosure
Schedule lists all contracts, licenses and agreements between the Company and
any other person wherein or whereby the Company has agreed to, or assumed, any
obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or
otherwise assume or incur any obligation or liability or provide a right of
rescission with respect to the infringement or misappropriation by the Company
or such other person of the Intellectual Property Rights of any person other
than the Company.
(i) The operation of the business of the Company as it currently is
conducted or is currently contemplated to be conducted by the Company, including
but not limited to the design, development, use, import, manufacture and sale of
the products, technology or services (including products, technology or services
currently under development) of the Company has not, does not and, to the
Knowledge of the Company and the Principal Shareholders, will not infringe or
misappropriate the Intellectual Property Rights of any person, violate the
rights of any person (including rights to privacy or publicity), or constitute
unfair competition or trade practices under the laws of any jurisdiction, and
the Company has received no notice from any person claiming that such operation
or any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction (nor is
the Company or the Principal Shareholder aware of any basis therefor).
(j) Each item of Company Registered Intellectual Property is
currently valid and subsisting, and all necessary registration, maintenance and
renewal fees in connection with such Company Registered Intellectual Property
have been paid and all necessary documents and certificates in connection with
such Company Registered Intellectual Property have been filed with the relevant
patent, copyright, trademark or other authorities in the United States or
foreign
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jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property. There are no actions that must be taken by the
Company within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Company Intellectual Property Rights. In each case in
which the Company has acquired any Intellectual Property rights from any person,
the Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property and the associated
Intellectual Property Rights to the Company and, to the maximum extent provided
for by, and in accordance with, applicable laws and regulations, the Company has
recorded each such assignment with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company or the Principal Shareholder
regarding the scope of such agreement, or performance under such agreement
including with respect to any payments to be made or received by the Company
thereunder.
(l) Neither this Agreement nor the transactions contemplated by
this Agreement, including the assignment to Parent by operation of law or
otherwise (to the extent that such transactions are deemed to effect such
assignment) of any contracts or agreements to which the Company is a party, will
result in: (i) Parent, Sub or the Company granting to any third party any right
to or with respect to any Intellectual Property or Intellectual Property Rights
owned by, or licensed to, any of them, (ii) Parent, Sub or the Company being
bound by, or subject to, any non-compete or other material restriction on the
operation or scope or their respective businesses, or (iii) Parent, Sub or the
Company being obligated to pay any royalties or other material amounts to any
third party in excess of those payable by any of them, respectively, in the
absence of this Agreement or the transactions contemplated hereby.
(m) To the Knowledge of the Company and the Principal Shareholders,
no person is infringing or misappropriating any Company Intellectual Property.
(n) The Company has taken all reasonable steps that are required to
protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person to the Company. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee and
consultant to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms, and all current and
former employees and consultants of the Company have executed such an agreement
in substantially the Company's standard form.
(o) No Company Intellectual Property or, to the Knowledge of the
Company and the Principal Shareholder, Intellectual Property Rights or service
of the Company is subject to any proceeding or outstanding decree, order,
judgment or settlement agreement or stipulation that
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restricts in any manner the use, transfer or licensing thereof by the Company or
may affect the validity, use or enforceability of such Company Intellectual
Property.
(p) To the Knowledge of the Company and the Principal Shareholders,
no (i) product, technology, service or publication of the Company, (ii) material
published or distributed by the Company, or (iii) conduct or statement of
Company constitutes obscene material, a defamatory statement or material, false
advertising or otherwise violates any law or regulation.
(q) None of the Company Intellectual Property was developed by or
on behalf of or using grants or any other subsidies of any governmental entity.
(r) All of the Company's products (including products currently
under development) (i) will record, store, process, calculate and present
calendar dates falling on and after (and if applicable, spans of time including)
January 1, 2000, and will calculate any information dependent on or relating to
such dates in the same manner, and with the same functionality, data integrity
and performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant"),
and (ii) will lose no functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. To the Knowledge of the
Company and the Principal Shareholders, all of the Company's Information
Technology (as defined below) is Year 2000 Compliant, and will not cause an
interruption in the ongoing operations of the Company's business on or after
January 1, 2000. For purposes of the foregoing, the term "Information
Technology" shall mean and include all software, hardware, firmware,
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Company in the
conduct of its business, or purchased by the Company from third party suppliers.
2.13 Agreements, Contracts and Commitments.
(a) Except as set forth in or excepted from (by virtue of the
specific exclusions contained in Section 2.12(g) or Section 2.12(h) of the
Disclosure Schedule) Sections 2.12(g) and 2.12(h) of the Disclosure Schedule, or
as set forth in Section 2.13(a) of the Disclosure Schedule, the Company is not a
party to nor is it bound by:
(i)any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization;
(ii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the
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transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property having a value in excess
of $25,000 individually or $100,000 in the aggregate;
(v) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000
individually or $100,000 in the aggregate;
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(vii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(viii) any purchase order or contract for the purchase of
materials involving in excess of $25,000 individually or $100,000 in the
aggregate;
(ix) any construction contracts;
(x) any dealer, distribution, joint marketing or development
agreement;
(xi) any sales representative, original equipment
manufacturer, value added, remarketer, reseller or independent software vendor
or other agreement for use or distribution of the Company's products, technology
or services; or
(xii) any other agreement, contract or commitment that
involves $25,000 individually or $100,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days.
2.14 Interested Party Transactions. No officer, director or, to the
Knowledge of the Company and the Principal Shareholders, shareholder of the
Company (nor any ancestor, sibling, descendant or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has or has
had an interest), has or has had, directly or indirectly, (i) an interest in any
entity which furnished or sold, or furnishes or sells, services, products or
technology that the Company furnishes or sells, or proposes to furnish or sell,
or (ii) any interest in any entity that purchases from or sells or furnishes to
the Company, any goods or services, or (iii) a beneficial interest in any
Contract to which the Company is a party; provided, however, that ownership of
no
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more than five percent (5%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed to be an "interest in any entity" for purposes
of this Section 2.14.
2.15 Governmental Authorization. To the Knowledge of the Company and the
Principal Shareholders, each consent, license, permit, grant or other
authorization (i) pursuant to which the Company currently operates or holds any
interest in any of its properties, or (ii) which is required for the operation
of the Company's business as currently conducted or currently contemplated to be
conducted or the holding of any such interest (collectively, "Company
Authorizations") has been issued or granted to the Company. The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets.
2.16 Litigation. There is no action, suit, claim or proceeding of any
nature pending, or to the Knowledge of the Company or the Principal Shareholders
threatened, against the Company, its properties (tangible or intangible) or any
of its officers or directors, nor to the Knowledge of the Company and the
Principal Shareholders is there any reasonable basis therefor. There is no
investigation or other proceeding pending or to the Knowledge of the Company or
the Principal Shareholders threatened, against the Company, any of its
properties (tangible or intangible) or any of their officers or directors by or
before any Governmental Entity, nor to the Knowledge of the Company or the
Principal Shareholders is there any reasonable basis therefor. No Governmental
Entity has at any time challenged or questioned the legal right of the Company
to conduct its operations as presently or previously conducted or as presently
contemplated to be conducted.
2.17 Accounts Receivable.
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of April 30, 2000, together with a range of days
elapsed since invoice.
(b) All of the Company's accounts receivable arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied and, are collectible except to the extent of reserves
therefor set forth in the Current Balance Sheet or, for receivables arising
subsequent to April 30, 2000, as reflected on the books and records of the
Company (which are prepared in accordance with GAAP). No person has any Lien on
any of the Company's accounts receivable and no request or agreement for
deduction or discount has been made with respect to any of the Company's
accounts receivable.
2.18 Minute Books. The minutes of the Company made available to counsel
for Parent are the only minutes of the Company and contain accurate summaries of
all meetings of the Board of Directors (or committees thereof) of the Company
and its shareholders or actions by written consent since the time of
incorporation of the Company.
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2.19 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased, or (ii) illegally released any amount of
any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
safely maintained. No Hazardous Materials are present in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Effective Time, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all of
the foregoing being collectively referred to herein as "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities, respectively, and other businesses of the Company as such activities
and businesses are currently being conducted and as currently contemplated to be
conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Knowledge of the Company and the Principal Shareholders threatened, concerning
any Environmental Permit, Hazardous Material or any Hazardous Materials Activity
of the Company. Neither the Company nor the Principal Shareholders has any
Knowledge of any fact or circumstance which is reasonably likely to involve the
Company in any environmental litigation or impose upon the Company any
environmental liability.
2.20 Brokers' and Finders' Fees; Third Party Expenses. The Company has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby. Section
2.20 of the Disclosure Schedule sets forth the principal terms and conditions of
any agreement, written or oral, with respect to such fees.
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2.21 Employee Benefit Plans and Compensation.
(a) Definitions. For all purposes of this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" shall mean any other person or entity under common control
with the Company within the meaning of Section 414(b), (c), (m) or (o) of the
Code, and the regulations issued thereunder.
"Company Employee Plan" shall mean any plan, program, policy, practice,
contract, agreement or other material arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"DOL" shall mean the United States Department of Labor.
"Employee" shall mean any current or former employee, consultant or
director of the Company or any Affiliate.
"Employee Agreement" shall mean each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, or contract between the Company or any Affiliate and any Employee.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
"IRS" shall mean the United States Internal Revenue Service.
"PBGC" shall mean the United States Pension Benefit Guaranty
Corporation.
"Pension Plan" shall mean each Company Employee Plan which is an
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Section 2.21(b) of the Disclosure Schedule contains
an accurate and complete list of each Company Employee Plan and each Employee
Agreement under each Company Employee Plan or Employee Agreement. The Company
has no plan or commitment to
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establish any new Company Employee Plan or Employee Agreement, to modify any
Company Employee Plan or Employee Agreement (except to the extent required by
law or to conform any such Company Employee Plan or Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any
Company Employee Plan or Employee Agreement. Schedule 2.21(b) of the Disclosure
Schedule also sets forth a table setting forth the name and salary of each
employee of the Company.
(c) Documents. The Company has made available to Parent (i) correct
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related trust documents, (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan, (iii) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets, (iv) the most
recent summary plan description together with the summary(is) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan, (v) all material written agreements and contracts relating to
each Company Employee Plan, including, without limitation, administrative
service agreements and group insurance contracts, (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
liability to the Company, (vii) all correspondence to or from any governmental
agency relating to any Company Employee Plan, (viii) all COBRA forms and related
notices, (ix) all policies pertaining to fiduciary liability insurance covering
the fiduciaries for each Company Employee Plan, (x) all discrimination tests for
each Company Employee Plan for the most recent plan year, and (xi) all
registration statements, annual reports (Form 11-K and all attachments thereto)
and prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. The Company has performed all
obligations required to be performed by it under, is not in default or violation
of, and has no Knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in accordance with its terms and in material compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code. No "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Company
Employee Plan. There are no actions, suits or claims pending, or to the
Knowledge of the Company and the Principal Shareholders threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan. Each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent, the
Company or any Affiliate (other than ordinary administration expenses). There
are no audits, inquiries or proceedings pending or to the Knowledge of the
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Company and the Principal Shareholders or any Affiliates, threatened by the IRS
or DOL with respect to any Company Employee Plan. Neither the Company nor any
Affiliate is subject to any penalty or tax with respect to any Company Employee
Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.
(e) No Pension Plans. Neither the Company nor any other Affiliate
has ever maintained, established, sponsored, participated in, or contributed to,
any (i) Pension Plans subject to Title IV of ERISA, or (ii) "multiemployer plan"
within the meaning of Section (3)(37) of ERISA.
(f) No Post-Employment Obligations. No Company Employee Plan
provides, or reflects or represents any liability to provide, retiree life
insurance, retiree health or other retiree employee welfare benefits to any
person for any reason, except as may be required by COBRA or other applicable
statute, and the Company has never represented, promised or contracted (whether
in oral or written form) to any Employee (either individually or to Employees as
a group) or any other person that such Employee(s) or other person would be
provided with retiree life insurance, retiree health or other retiree employee
welfare benefit, except to the extent required by statute.
(g) COBRA. The Company and each Affiliate has, prior to the
Effective Time, complied with the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee, except as expressly
required by this Agreement (unless Parent causes partial or full plan
termination of any Company Employee Plan pursuant to Section 401(a) of the
Code).
(i) Employment Matters. The Company: (i) is in compliance with all
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees, (ii) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees, (iii)
is not liable for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing, and (iv) is not liable for any payment to
any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending or to the Knowledge of the Company and the
Principal Shareholders threatened, or reasonably anticipated claims or actions
against the Company under any worker's compensation policy or long-term
disability policy.
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(j) Labor. No work stoppage or labor strike against the Company is
pending or to the Knowledge of the Company and the Principal Shareholders
threatened, or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending or to the
Knowledge of the Company and the Principal Shareholders threatened, or
reasonably anticipated relating to any labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints. The Company has not engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
The Company is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Company.
(k) No Interference or Conflict. To the Knowledge of the Company
and the Principal Shareholders, no shareholder, officer, employee or consultant
of the Company is obligated under any contract or agreement subject to any
judgment, decree or order of any court or administrative agency that would
interfere with such person's efforts to promote the interests of the Company or
that would interfere with the Company's business. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business as
presently conducted or proposed to be conducted nor any activity of such
officers, directors, employees or consultants in connection with the carrying on
of the Company's business as presently conducted or currently proposed to be
conducted, will to the Knowledge of the Company and the Principal Shareholders
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract or agreement under which any of such
officers, directors, employees or consultants is now bound.
2.22 Insurance. Section 2.22 of the Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company or any
Affiliate. There is no claim by the Company or any Affiliate pending under any
of such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid, and the Company and
its Affiliates are otherwise in material compliance with the terms of such
policies and bonds (or other policies and bonds providing substantially similar
insurance coverage). Neither the Company nor the Principal Shareholders have any
Knowledge of threatened termination of, or premium increase with respect to, any
of such policies.
2.23 Compliance with Laws. (i) To the Knowledge of the Company and the
Principal Shareholders, the Company has complied with, is not in violation of,
and has not received any notices of violation with respect to, any foreign,
federal, state or local statute, law or regulation, and (ii) the Company has not
received any notices of violation with respect to same.
2.24 Warranties; Indemnities. Except for the warranties and indemnities
contained in those contracts and agreements set forth in Section 2.12(h) of the
Disclosure Schedule and warranties
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implied by law, the Company has not given any warranties or indemnities relating
to products or technology sold or services rendered by the Company.
2.25 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
2.26 Representations Complete. Neither any of the representations or
warranties made by the Company or the Principal Shareholders (as modified by the
Disclosure Schedule) in this Agreement, nor any statements made in any exhibit,
schedule or certificate furnished by the Company or the Principal Shareholders
pursuant to this Agreement contains or will contain at the Effective Time any
untrue statement of a material fact or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading. The information furnished on or in any documents mailed, delivered
or otherwise furnished to Shareholders in connection with the solicitation of
their consent to this Agreement and the Merger, will not contain, at or prior to
the Effective Time any untrue statement of a material fact and will not omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, Company makes no representation or warranty with
respect to any information supplied by Parent which is contained in any of the
foregoing documents.
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub hereby represent and warrant to the Company that on the
date hereof and as of the Effective Time as though made at the Effective Time as
follows; provided, that the representations and warranties made as of a
specified date will be true and correct as of such date:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sub is a corporation duly organized, validly existing and in good
standing under the laws of California. Each of Parent and Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
material adverse effect on the business, assets (including intangible assets),
financial condition, results of operations or capitalization of Parent (a
"Parent Material Adverse Effect"); provided however, changes in the trading
prices of Parent Common Stock (in and of itself) shall not be deemed a Parent
Material Adverse Effect.
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3.2 Authority. Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and any Related Agreements to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Parent and Sub. This Agreement to
which Parent and Sub are parties have been duly executed and delivered by Parent
and Sub and constitute the valid and binding obligations of Parent and Sub,
enforceable in accordance with their terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 450,000,000 shares
of Common Stock, $.01 par value, of which 299,571,254 shares were issued and
outstanding as of December 31, 1999, and 2,000,000 shares of undesignated
Preferred Stock, $.01 par value. No shares of Preferred Stock are issued or
outstanding. The authorized capital stock of Sub consists of 1,000 shares of
Common Stock, $.001 par value, 1,000 shares of which, as of the date hereof, are
issued and outstanding and are held by Parent. All such shares of Parent and Sub
have been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable, are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, are not subject to preemptive rights created by statute, the
charter documents or Bylaws of Parent as currently in effect or any agreement to
which Parent is a party or by which it is bound, and have been issued in
compliance with federal and state securities laws. As of December 31, 1999,
Parent has reserved 68,860,000 shares of Common Stock for issuance pursuant to
its employee and director stock and option plans.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, non-assessable, free
of any liens or encumbrances and not subject to any preemptive rights or rights
of first refusal created by statute or the charter documents or Bylaws of Parent
or Sub or any agreement to which Parent or Sub is a party or is bound and will
be issued in compliance with federal and state securities laws.
3.4 No Conflict. The execution and delivery of this Agreement does not,
and, the consummation of the transactions contemplated hereby will not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a Conflict under (i) any provision of the
Certificate of Incorporation, as amended, and Bylaws of Parent or Sub, (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which Parent or any of its respective
properties or assets are subject and which has been filed as an exhibit to
Parent's filings under the Securities Act or the Exchange Act, as amended (the
"Exchange Act") or (iii) any judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to Parent or Sub or their respective properties or
assets, except in each case where such
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Conflict will not have a Parent Material Adverse Effect or will not affect on
the legality, validity or enforceability of this Agreement.
3.5 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity, or any
third party is required by or with respect to Parent or Sub in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the receipt of the California
Permit by Parent or the effectiveness of the Registration Statement; (ii) the
approval for listing of the Parent Common Stock on the New York Stock Exchange;
(iii) the filing of a Registration Statement on Form S-8 with the SEC (as
defined in Section 3.6 hereof) relating to the Company Options assumed by
Parent; (ii) such other consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
securities laws and the HSR Act, (iii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Parent Material Adverse Effect, and (iv) the
filing of the Agreement of Merger with the Secretary of State of the State of
California.
3.6 SEC Documents; Parent Financial Statements. Parent has made
available to the Company a true and complete copy of each annual, quarterly and
other reports, registration statements (without exhibits) and definitive proxy
statement filed by Parent with the Securities and Exchange Commission (the
"SEC") since December 31, 1999 (the "Parent SEC Documents"). As of their
respective filing dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents contained on their filing dates
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a subsequently filed Parent SEC Document. The financial
statements of Parent included in the Parent SEC Documents (the "Parent Financial
Statements") complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case of
unaudited financial statements, as permitted under Form 10-Q under the Exchange
Act) and fairly presented the consolidated financial position of Parent and its
consolidated subsidiaries as of the respective dates thereof and the
consolidated results of Parent's operations and cash flows for the periods
indicated (subject to, in the case of unaudited statements, to normal and
recurring year-end audit adjustments).
3.7 Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, having engaged in
no other business activities and has conducted its operations only as
contemplated by this Agreement.
3.8 Tax-Free Reorganization.
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(i) Neither Parent, Sub, nor, to the Knowledge of Parent,
any of its affiliates, has taken, proposes to take, or have agreed to take any
action that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code.
(ii) Parent has no plan or intention and has no knowledge
that any person related to Parent (within the meaning of Treas. Reg. Section
1.368-1(e)(3)) has any plan or intention, in connection with the Merger,
directly or indirectly, to redeem or acquire any of the Parent Common Stock
issued in the Merger, other than in exchange for Parent stock. For purposes of
this representation, repurchases in the ordinary course of business of unvested
shares, if any, acquired from terminating employees of Parent or the Company and
repurchases in the open market pursuant to an ongoing stock repurchase program
which was not created or modified in connection with a plan or intent formed
subsequent to the initiation of negotiations concerning the Merger and for which
there is a reasonable business purpose, will be disregarded. In addition, for
purposes of the foregoing representation, the payment of cash in lieu of the
issuance of fractional shares of Parent Common Stock will be disregarded
provided the fractional share interests of each the Company shareholder are
aggregated, no Company shareholder will receive cash in an amount greater to or
greater than the value of one full share of Parent Common Stock and the total
cash consideration that will be paid in the transaction to the Company
shareholders instead of issuing fractional shares of Parent Common Stock will
not exceed 1% of the total consideration that will be issued in the transaction
to the Shareholders in exchange for their shares of the Company stock.
(iii) Parent has no plan or intention to cause the Company,
after the Merger, to issue additional shares of Company capital stock that would
result in Parent losing control of the Company within the meaning of Section
368(c)(1) of the Code.
(iv) Except for transfers of stock and assets described in
Treas. Reg. Section 1.368-2(k)(2), Parent has no plan or intention to liquidate
the Company; to merge the Company with or into another corporation other than
Parent; to sell or otherwise dispose of the stock of the Company; or, except for
dispositions made in the ordinary course of business, to cause the Company to
sell or otherwise dispose of any of its assets or of any of the assets acquired
from Sub.
(v) Parent intends to cause the Company to continue its
historic business or use a significant portion of its historic business assets
in a business. For purposes of this representation, Parent will be deemed to
satisfy the foregoing representation if (a) the members of Parent's qualified
group (as defined in Treas. Reg. Section 1.368-1(d)(4)(ii)), in the aggregate,
continue the historic business of the Company or use a significant portion of
the Company's historic business assets in a business, or (b) the foregoing
activities are undertaken by a partnership as contemplated by Treas. Reg.
Section 1.368-1(d)(4).
(vi) There is no intercorporate indebtedness existing
between Parent and the Company or between Sub and the Company that was issued,
acquired, or will be settled at a discount.
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(vii) Parent does not own, nor has it owned during the past
five years, any shares of the stock of the Company.
(viii) Parent is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees, and the Principal
Shareholders agree to use their best efforts to cause the Company, except to the
extent that Parent shall otherwise consent in writing, to carry on the Company's
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay the debts and Taxes of the Company when
due, to pay or perform other obligations when due, and, to the extent consistent
with such business, use its reasonable best efforts consistent with past
practice and policies to preserve intact the Company's present business
organizations, keep available the services of the Company's present officers and
key employees and preserve the Company's relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired the Company's
goodwill and ongoing businesses at the Effective Time. The Company and the
Principal Shareholders shall promptly notify Parent of any event or occurrence
or emergency not in the ordinary course of business of the Company and any
material event involving the Company. Except as expressly contemplated by this
Agreement and as set forth in Section 4.1 of the Disclosure Schedule, the
Company shall not, without the prior written consent of Parent:
(a) make any expenditures or enter into any capital expenditure
commitment or transaction exceeding $25,000 individually or $100,000 in the
aggregate or any commitment or transaction of the type described in Section
2.8(c) hereof;
(b) (i) except for the granting of non-exclusive licenses of object
code relating to the sale of the Company's products shipping on the date hereof
entered into in the ordinary course of business, sell, license or transfer to
any person or entity any rights to any Company Intellectual Property or enter
into any agreement with respect to any Company Intellectual Property with any
person or entity or with respect to any Intellectual Property of any person or
entity, (ii) buy or license any Intellectual Property or enter into any
agreement with respect to the Intellectual Property of any person or entity,
(iii) enter into any agreement with respect to the development of any
Intellectual Property with a third party, (iv) or change pricing or royalties
charged by the Company to its customers or licensees, or the pricing or
royalties set or charged by persons who have licensed Intellectual Property to
the Company;
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(c) enter into or amend any Contract pursuant to which any other
party is granted marketing, distribution, development or similar rights of any
type or scope with respect to any products or technology of the Company;
(d) amend or otherwise modify (or agree to do so), or violate the
terms of, any of the Contracts set forth or described in the Disclosure
Schedule;
(e) commence or settle any litigation;
(f) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Common Stock or Company Preferred Stock, or split, combine or reclassify any
Company Common Stock or Company Preferred Stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Company Common Stock or Company Preferred Stock, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of Company
Common Stock or Company Preferred Stock (or options, warrants or other rights
exercisable therefor) except in accordance with the agreements evidencing
Company Options;
(g) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of capital stock of the Company or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities, except for the issuance of shares of Company
capital stock upon the exercise of outstanding options;
(h) cause or permit any amendments to its articles of
incorporation, bylaws or other organizational documents of the Company;
(i) acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(j) except as allowed pursuant to Section 4.1(b) hereof, sell,
lease, license or otherwise dispose of any of its properties or assets, except
properties or assets which are not Intellectual Property and only in the
ordinary course of business and consistent with past practices and except for
non-exclusive object code licenses of Company Intellectual Property in the
ordinary course of business;
(k) incur any indebtedness or guarantee any indebtedness or issue
or sell any debt securities or guarantee any debt securities of others;
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(l) grant any loans to others or purchase debt securities of others
or amend the terms of any outstanding loan agreement;
(m) grant any severance or termination pay (i) to any director or
officer, or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof and disclosed in the
Disclosure Schedule;
(n) adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries, wage rates
or other compensation of its employees except payments made pursuant to standard
written agreements in place on the date hereof and disclosed in the Disclosure
Schedule;
(o) revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) pay, discharge or satisfy, in an amount in excess of $25,000 in
any one case, or $100,000 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 Current Balance Sheet or
incurred after March 31, 2000 in the ordinary course of business and not
otherwise in violation of this Agreement;
(q) make or change any election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(r) enter into any strategic alliance or joint marketing
arrangement or agreement;
(s) take any action to accelerate the vesting schedule of any of
the outstanding Company Options or Company Common Stock or amend, modify or
waive any term or provision of any stock restriction or repurchase agreement to
which the Company is party;
(t) hire or terminate any employees, or encourage any employees to
resign from the Company, other than terminations for cause and hiring pursuant
to the hiring plan attached hereto as Schedule 4.1(t) to this Agreement; or
(u) make any purchases, or enter into any Contract to purchase, any
inventory, except any inventory purchased in accordance with a written inventory
purchase plan previously approved by Parent.
(v) take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through 4.1(u) hereof, or any other action
that would prevent the Company or any of
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the Principal Shareholders from performing or cause the Company or any of the
Principal Shareholders not to perform their respective covenants hereunder.
4.2 No Solicitation. Until the earlier of (i) the Effective Time, or
(ii) the date of termination of this Agreement pursuant to the provisions of
Section 8.1 hereof, neither the Company nor the Principal Shareholders shall
(nor shall the Company or the Principal Shareholders permit, as applicable, any
of the Company's officers, directors, employees, shareholders, agents,
representatives or affiliates to), directly or indirectly, take any of the
following actions with any party other than Parent and its designees: (a)
solicit, encourage, initiate or participate in any inquiry, negotiations or
discussions, or enter into any agreement, with respect to any offer or proposal
to acquire all or any material part of the Company's business, properties or
technologies, or any amount of the Company Common Stock (whether or not
outstanding), whether by merger, purchase of assets, tender offer, license or
otherwise, or effect any such transaction, (b) disclose any information not
customarily disclosed to any person concerning the Company's business,
technologies or properties, or afford to any person or entity access to its
properties, technologies, books or records, not customarily afforded such
access, (c) assist or cooperate with any person to make any proposal to purchase
all or any part of the Company Common Stock or assets of the Company, other than
inventory in the ordinary course of business, or (d) enter into any agreement
with any person providing for the acquisition of the Company, whether by merger,
purchase of assets, license, tender offer or otherwise. In the event that the
Company, the Principal Shareholders or any of the Company's affiliates shall
receive, prior to the Effective Time or the termination of this Agreement, any
offer, proposal, or request, directly or indirectly, of the type referenced in
clause (a) or (c) above, or any request for disclosure or access pursuant to
clause (b) above, the Company or such Principal Shareholder, as applicable,
shall immediately notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Parent may reasonably request . The parties
hereto agree that irreparable damage would occur in the event that the
provisions of this Section 4.2 were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed by the
parties hereto that Parent shall be entitled to seek an injunction or
injunctions to prevent breaches of the provisions of this Section 4.2 and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which Parent may be entitled at law or in equity.
ARTICLE V ADDITIONAL AGREEMENTS
5.1 Fairness Hearing; Shareholder Approval.
(a) As soon as reasonably practicable following the execution of
this Agreement, Parent shall prepare and file, with the full cooperation of the
Company, an application to obtain a
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permit (a "California Permit") from the Commissioner of Corporations of the
State of California (after a hearing before such Commissioner (the "Fairness
Hearing") pursuant to Section 25121 of the California Corporate Securities Law
of 1968, 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 the 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 Permit Application and
any solicitation material sent to Shareholders of the Company to comply with the
securities and blue sky laws.
(b) In the event 90 days shall have elapsed since the filing of the
application for the California Permit and Parent shall have not received the
California Permit, as promptly as practicable thereafter, Parent shall prepare
and file, with the full cooperation of the Company, with the SEC a Registration
Statement on Form S-4 (the "Registration Statement"), which will contain a proxy
statement to be sent to the Shareholders of the Company (the "Proxy Statement").
The 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 the Company Parent or its counsel may reasonably request
for purposes of preparing the Registration Statement. Each of Parent and the
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 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 the 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 receipt of a California
Permit or the effectiveness of the Registration Statement, as the case may be,
the Company shall submit this Agreement and the transactions contemplated hereby
to its shareholders for approval and adoption as provided by California Law and
its Articles of Incorporation and Bylaws. Such submission shall also include a
solicitation of approval of (i) the escrow and indemnification obligations of
the shareholders set forth in Article VII hereof and the deposit of Parent
Common Stock equal to the Escrow Amount into the Escrow Fund and (ii) in favor
of the appointment of Greg Yamamoto as Shareholder Agent, under and as defined
in the Merger Agreement. The Company shall use its reasonable best efforts to
solicit and obtain the consent of its shareholders sufficient to approve the
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Merger and this Agreement and to enable the Closing to occur as promptly as
practicable following the date hereof and, in any event, within 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 the
Company's Shareholders shall be subject to reasonable review and approval by
Parent and include information regarding the Company, the terms of the Merger
and this Agreement and the unanimous recommendation of the Board of Directors of
the Company in favor of the Merger and this Agreement, 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.
5.2 Restrictions on Transfer. Each share of Parent Common Stock to be
issued hereunder shall be issued without any legend restricting transfer of such
shares except (i) as relates to restrictions on the transfer by Affiliates of
the Company pursuant to Rule 144 or Rule 145 of the Securities Act, as
applicable, and (ii) any legend relating to Company Restricted Stock while such
shares are subject to any repurchase option, risk of forfeiture or other
condition.
5.3 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during the
period prior to the Effective Time to (i) all of the Company's properties,
books, contracts, commitments and records, including the Company's source code,
(ii) all other information concerning the business, properties and personnel
(subject to restrictions imposed by applicable law) of the Company as Parent may
reasonably request, and (iii) all employees of the Company as identified by
Parent. The Company agrees to provide to Parent and its accountants, counsel and
other representatives copies of internal financial statements (including Tax
returns and supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger in
accordance with the terms and provisions hereof.
5.4 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.3 hereof, or
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Mutual NonDisclosure Agreement effective as of March 24, 2000 (the "Confidential
Disclosure Agreement") among the Company and Parent.
5.5 Expenses; Statement of Expenses. Whether or not the Merger is
consummated, all fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties ("Third Party
Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby, shall be the obligation of the respective party incurring
such fees and expenses. The Company shall provide Parent with a statement of an
estimate of Third Party Expenses ("Estimated Third Party Expenses") incurred by
the Company three (3) business days prior to the Closing Date (the "Statement of
Expenses"). Notwithstanding the foregoing, Third Party Expenses of the Company
in excess of the sum of (i)
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$3,000,000 and (ii) the amount by which Estimated Third Party Expenses exceeds
$3,000,000 shall be Losses for which Parent is entitled to indemnification
pursuant to Section 7.2 hereof, without regard to the Basket Amount (as defined
below).
5.6 Public Disclosure. Neither party shall issue any statement or
communication to any third party (other than their respective agents) regarding
the subject matter of this Agreement or the transactions contemplated hereby,
including, if applicable, the termination of this Agreement and the reasons
therefor, without the consent of the other party, which consent shall not be
unreasonably withheld, except that this restriction shall be subject to Parent's
obligation to comply with applicable securities laws or by obligations pursuant
to any listing agreement with any national securities exchange. Notwithstanding
the foregoing, the Company shall not be prohibited from indicating in response
to inquires concerning a matter that is prohibited by Section 4.2 hereof that
the Company is contractually obligated to refrain from discussing such matter.
5.7 Consents. The Company shall use commercially reasonable efforts to
obtain the consents, waivers and approvals under any of the Contracts to which
the Company is a party deemed appropriate or necessary by any party in
connection with the Merger, including all consents, waivers and approvals set
forth in the Disclosure Schedule, so as to preserve all rights of, and benefits
to, the Company thereunder from and after the Effective Time.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement (a "FIRPTA Compliance Certificate") in a
form reasonably acceptable to Parent for purposes of satisfying Parent's
obligations under Treasury Regulation Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided, however, that Parent shall not be required to agree to any divestiture
by Parent or the Company or any of Parent's subsidiaries or affiliates of shares
of capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.10 HSR Act. As soon as may be reasonably practicable, to the extent
applicable, Company and Parent each shall file, and the Company shall use best
efforts to cause any applicable Shareholder of the Company to file, with the
United States Federal Trade Commission (the "FTC") and the Antitrust Division of
the United States Department of Justice ("DOJ") Notification and
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Report Forms relating to the transactions contemplated herein as required by the
HSR Act as well as comparable pre-merger notification forms required by the
merger notification or control laws and regulations of any applicable
jurisdiction, as agreed to by the parties. Company and Parent (and/or any
applicable Shareholder) each shall, the Company shall use best efforts to cause
any applicable shareholder of the Company to promptly (a) supply the others with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate; provided,
however, that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.11 Notification of Certain Matters. The Company or any of the
Principal Shareholders, as the case may be, shall give prompt notice to Parent
of: (i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or warranty of the
Company or the Principal Shareholders, respectively and as the case may be,
contained in this Agreement to be untrue or inaccurate at or prior to the
Effective Time, and (ii) any failure of the Company or the Principal
Shareholders, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 5.11
shall not (a) limit or otherwise affect any remedies available to the party
receiving such notice or (b) constitute an acknowledgment or admission of a
breach of this Agreement. No disclosure by the Company or the Principal
Shareholders pursuant to this Section 5.11, however, shall be deemed to amend or
supplement the Disclosure Schedule or prevent or cure any misrepresentations,
breach of warranty or breach of covenant.
5.12 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the Merger and the
transactions contemplated hereby.
5.13 S-8 Registration. Not later than thirty (30) days after the Closing
Date, Parent agrees to file with the Securities and Exchange Commission a
registration statement on Form S-8 registering a number of shares of Parent
Common Stock equal to the number of shares of Parent Common Stock issuable upon
the exercise of all Company Options held by person for whom registration on Form
S-8 is available that were assumed by Parent pursuant to Section 1.6(c) hereof.
Parent shall use commercially reasonable efforts to maintain the effectiveness
of such registration statement (and to maintain the current status of the
prospectus or prospectuses contained therein) while Parent Options remain
outstanding.
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5.14 Affiliate Agreements. Section 5.14 of the Disclosure Schedule sets
forth those persons who, in the Company's reasonable judgment, are or may be
"affiliates" of the Company within the meaning of Rule 145 (each such person, an
"Affiliate") promulgated under the Securities Act ("Rule 145"). The Company
shall provide Parent such information and documents as Parent shall reasonably
request for purposes of reviewing such list. The Company shall deliver or cause
to be delivered to Parent, concurrently with the execution of this Agreement
(and in any case prior to the Closing Date) from each of the Affiliates of the
Company, an executed Affiliate Agreement in the form attached hereto as Exhibit
E. Parent and Sub shall be entitled to place appropriate legends 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 Parent Common Stock,
consistent with the terms of such Affiliate Agreements.
5.15 New York Stock Exchange Listing. Parent shall use commercially
reasonable efforts to ensure that at the Effective Time, the shares of Parent
Common Stock to be delivered to the Company Shareholders pursuant to this
Agreement shall have been accepted for quotation on the New York Stock Exchange,
subject to notice of issuance.
5.16 Termination of Warrants. The Company shall use its best efforts to
terminate all unexercised warrants to purchase Company Common Stock outstanding
as of the Effective Time, if any.
5.17 Termination of 401(k) Plan. At Parent's request, the Company agrees
to cause its 401(k) plan to terminate as of two days preceding the Closing Date
by taking such actions as Parent determines to be reasonably necessary or
appropriate. Parent shall, consistent with the terms of its 401(k) plan, use
commercially reasonable efforts to allow employees of the Company to participate
in its 401(k) plan and to accept the rollover contributions funds (to the extent
requested by the Company's employees and to the extent Parent is reasonably
satisfied that the Company's 401(k) plan was tax qualified) held in employee's
accounts in the Company's 401(k) plan to Parent's 401(k) plan.
5.18 Employee Benefits. Employees of the Company who continue in service
with the Parent or the Surviving Corporation following the Effective Time shall
be eligible to receive benefits consistent with Parent's standard human
resources policies. Parent will or will cause the Surviving Corporation to give
full credit under such policies for prior service at the Company for purposes of
eligibility, vesting, benefit accrual, and determination of the level benefits,
except that in the case of Parent's sabbatical program, credit shall only be
extended with respect to one-half of the total period of employment of such
employee with the Company.
5.19 Employment Offers. The Company shall use best efforts to cause each
of its employees to accept the offer of employment made by Parent, including
without limitation executing and delivering Parent's standard confidentiality
and assignment of inventions agreement.
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5.20 Purchase of Equipment. Prior to the Closing, the Company shall
purchase exclusive ownership of the equipment listed in Schedule 2.11(e) to this
Agreement.
5.21 Removal of Liens. The Company shall remove all Liens pursuant to
the Uniform Commercial Code on the property of the Company prior to Closing.
5.22 Shareholder List. Immediately prior to the Closing, the Company
shall provide Parent a statement certified by any officer of the Company setting
forth any changes which would have been required to be set forth on Section
2.2(a) and Section 2.2(b) of the Disclosure Schedule as if such sections of
Disclosure Schedules had been made and delivered as of Closing.
5.23 Statement of Equipment Expenditures. Three days prior to Closing,
the Company shall deliver to Parent a written statement setting forth the
Estimated Equipment Expenditures, in form reasonably satisfactory to Parent,
validly executed and certified by a duly authorized officer of the Company.
5.24 Statement of Insurance Expenditures. Three days prior to Closing,
the Company shall deliver to Parent a written statement setting forth the
Estimated Insurance Expenditures, in form reasonably satisfactory to Parent,
validly executed and certified by a duly authorized officer of the Company.
ARTICLE VI CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of the Company and Parent to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) California Permit or Registration Statement. The Commissioner
of Corporations for the State of California shall have approved the terms and
conditions of the transactions contemplated by this Agreement, and the fairness
of such terms and conditions following a hearing for such purpose, and shall
have issued a California Permit or the Registration Statement shall have been
declared effective by the SEC and no stop order shall be pending or issued with
respect to the Registration Statement.
(b) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or
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other legal restraint or prohibition preventing the consummation of the Merger
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending.
(d) HSR Act. All waiting periods, if any, under the HSR Act
relating to the transactions contemplated hereby will have expired or terminated
early and all material foreign antitrust approvals required to be obtained prior
to the Merger in connection with the transactions contemplated hereby shall have
been obtained.
(e) NYSE Listing. The shares of Parent Common Stock to be issued in
the Merger shall have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.
6.2 Conditions to the Obligations of Parent and Sub. The obligation of
Parent and Sub to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent and Sub:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of the Company and the Principal Shareholders set
forth in this Agreement shall be true and correct in each case as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of a specific date which shall be true and correct as of such date) as
of the Closing Date as though made on and as of the Closing Date, except where
the failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect and the representations and warranties set forth
in Section 2.2 hereof (under the heading "Company Capital Structure") shall be
true and correct in all respects (other than an inaccuracy in the aggregate
amount of no greater than that number of shares of Company Common Stock when
multiplied by the Exchange Ratio would exceed 100,000 shares of Parent Common
Stock), and (ii) the Company and the Principal Shareholders shall have performed
and complied in all material respects with all covenants and obligations under
this Agreement required to be performed and complied with by such parties as of
the Closing.
(b) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained all consents, waivers,
approvals, and assignments listed in Schedule 6.2(b) to this Agreement.
(c) Termination of Agreements. The Company shall have terminated
each of those agreements listed on Schedule 6.2(c) to this Agreement and each
such agreement shall be of no further force or effect.
(d) Continuation of Agreements. Those agreements listed on Schedule
6.2(d) to this Agreement shall be unmodified in any manner from the date of this
Agreement and be in full force and effect.
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(e) Resignation of Directors. Parent shall have received a written
resignation from each of the directors of the Company effective as of the
Effective Time.
(f) No Material Adverse Change. There shall not have occurred any
event or condition of any character that has had or is substantially likely to
have a Material Adverse Effect on the Company since the date of this Agreement.
(g) Non-Competition Agreements. Each of the individuals set forth
on Schedule 6.2(g) to this Agreement shall have executed and delivered to Parent
a Non-Competition Agreement in the form attached hereto as Exhibit C, and all of
such Non-Competition Agreements shall be in full force and effect.
(h) Shareholder Approval. The Shareholders holding (i) at least
ninety-two percent (92%) of the Company Common Stock and Company Preferred
Stock, and (ii) a sufficient number of shares of Company Common Stock and
Company Preferred Stock as required under the Company's articles of
incorporation and California Law, shall have approved this Agreement, the Merger
and the transactions contemplated hereby and thereby.
(i) Legal Opinion. Parent shall have received a legal opinion from
legal counsel to the Company, substantially in the form attached hereto as
Exhibit F.
(j) Termination of 401(k) Plan. Parent shall have received from the
Company evidence that the Company's 401(k) plan has been terminated pursuant to
resolution of the Company's Board of Directors (the form and substance of which
shall have been subject to review and approval of Parent), effective as of two
days preceding the Closing Date.
(k) Certificate of the Company and the Principal Shareholders.
Parent shall have received a certificate, validly executed by the Principal
Shareholders and the Chief Executive Officer of the Company for and on its
behalf, to the effect that, as of the Closing:
(i) The representations and warranties of the Company and
the Principal Shareholders set forth in this Agreement are true and correct in
each case as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specific date which shall be true
and correct as of such date) as of the Closing Date as though made on and as of
the Closing Date, except where the failure of such representations and
warranties to be so true and correct (without giving effect to any limitation as
to "materiality" or "Material Adverse Effect" set forth therein) would not
individually or in the aggregate have a Material Adverse Effect and the
representations and warranties set forth in Section 2.2 hereof (under the
heading "Company Capital Structure") are true and correct in all respects (other
than an inaccuracy in the aggregate amount of no greater than that number of
shares of Company Common Stock when multiplied by the Exchange Ratio would
exceed 100,000 shares of Parent Common Stock);
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(ii) all covenants and obligations under this Agreement to
be performed by the Company or the Principal Shareholders on or before the
Closing have been so performed in all material respects; and
(iii) the conditions to the obligations of Parent and Sub
set forth in this Section 6.2 have been satisfied (unless otherwise waived in
accordance with the terms hereof).
(l) Certificate of Secretary of Company. Parent shall have received
a certificate, validly executed by the Secretary of the Company, certifying as
to (i) the terms and effectiveness the articles of incorporation and the bylaws
of the Company, and (ii) the valid adoption of resolutions of the Board of
Directors of the Company and the Shareholders approving this Agreement and the
consummation of the transactions contemplated hereby.
(m) Certificate of Good Standing. Parent shall have received
certificates of good standing of the Company from (i) the Secretary of State of
the State of California, and (ii) the Franchise Tax Board of the State of
California, each dated within a reasonable period prior to the Closing.
(n) FIRPTA Certificate. Parent shall have received a copy of the
FIRPTA Compliance Certificate, validly executed by a duly authorized officer of
the Company.
(o) Affiliate Agreements. Each of the persons listed in Section
5.14 of the Disclosure Schedule shall have executed an Affiliate Agreement
substantially in the form attached hereto as Exhibit E and such Affiliates
Agreements shall be in full force and effect.
(p) Continued Employment. Eighty-five percent (85%) of the
employees of the Company as of the date hereof, 21 of the 22 employees of the
Company listed on Schedule 6.2(q) to this Agreement and each of the Principal
Shareholders shall have accepted Parent's offers of employment and executed and
delivered Parent's standard employment documentation, including without
limitation a confidentiality and assignment of inventions agreement, and such
employees shall be employees of the Company as of the Effective Time.
(q) Conversion of Preferred Stock. Each shares of Company Preferred
Stock shall have been converted into shares of Company Common Stock in
accordance with the Company's Articles of Incorporation
(r) Removal of Liens. The Company shall have removed all Liens
pursuant to the Uniform Commercial Code on the property of the Company.
(s) Purchase of Equipment. Prior to the Closing, the Company shall
have purchased exclusive ownership of the equipment listed in Schedule 2.11(e)
to this Agreement.
6.3 Conditions to Obligations of the Company and the Principal
Shareholders. The obligations of the Company and the Principal Shareholders to
consummate and effect this
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Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. (i) The
representations and warranties of the Parent and Sub set forth in this Agreement
shall be true and correct in each case as of the date of this Agreement and
(except to the extent such representations and warranties speak as of a specific
date which shall be true and correct as of such date) as of the Closing Date as
though made on and as of the Closing Date, except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Parent Material Adverse Effect" set
forth therein) would not individually or in the aggregate have a Parent Material
Adverse Effect, and (ii) the Parent and Sub shall have performed and complied in
all material respects with all covenants and obligations under this Agreement
required to be performed and complied with by such parties as of the Closing.
(b) Shareholder Approval. The Shareholders holding a sufficient
number of shares of Company Common Stock and Company Preferred Stock as required
under the Company's articles of incorporation and California Law, shall have
approved this Agreement, the Merger and the transactions contemplated hereby.
(c) Certificate of Parent. Company shall have received a
certificate executed on behalf of Parent by a Vice President to the effect that,
as of the Closing:
(i) The representations and warranties of the Parent and Sub
set forth in this Agreement were true and correct in each case as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of a specific date which shall be true and correct as of such date) as
of the Closing Date as though made on and as of the Closing Date, except where
the failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Parent Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Parent Material Adverse Effect;
(ii) all covenants and obligations under this Agreement to
be performed by Parent and Sub on or before the Closing have been so performed
in all material respects; and
(iii) the conditions to the obligations of the Company and
the Principal Shareholder set forth in this Section 6.3 have been satisfied
(unless otherwise waived in accordance with the terms hereof).
(d) No Material Adverse Change. There shall not have occurred any
event or condition of any character that has had or is substantially likely to
have a Parent Material Adverse Effect since the date of this Agreement.
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ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
7.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of the Company and the Principal Shareholders
contained in this Agreement, or in any certificate or other instrument delivered
pursuant to this Agreement, shall terminate on the first anniversary of the
Closing Date (the "Termination Date"); provided, however, that the
representations and warranties of the Company and the Principal Shareholders
contained in Section 2.2 (under the heading "Company Capital Structure") and
Section 2.9 (and the heading "Tax Matters") hereof shall survive indefinitely
and until the expiration of the applicable statute of limitations, respectively.
The representations and warranties of Parent and Sub contained in this
Agreement, or in any certificate or other instrument delivered pursuant to this
Agreement, shall terminate at the Closing.
7.2 Recovery For Losses.
(a) Indemnification. The Shareholders (including the Principal
Shareholders) agree to jointly and severally indemnify and hold Parent and its
officers, directors and affiliates harmless against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses of investigation and defense (hereinafter
individually a "Loss" and collectively "Losses") incurred by Parent, its
officers, directors, or affiliates (including the Surviving Corporation)
(collectively, the "Indemnified Parties") directly or indirectly as a result of
(i) any inaccuracy or breach of a representation or warranty of the Company or
Principal Shareholders contained in this Agreement or in any certificate,
instrument or other document delivered by Company or the Principal Shareholders
pursuant to the terms of this Agreement, any failure by the Company or Principal
Shareholders to perform or comply with any covenant contained herein; (ii) any
Dissenting Shares; (iii) the amount by Equipment Expenditures exceeds the sum of
(x) $649,500 and (y) the Equipment Adjustment Amount; (iv) the amount by which
Insurance Expenditures exceeds the sum of (a) $50,000 and (b) the Insurance
Adjustment Amount; and (v) the amount by which Third Party Expenses exceeds the
sum of (A) $3,000,000 and (B) the Third Party Expenses Adjustment Amount.
Nothing herein shall limit the liability of the Parent, the Company or Principal
Shareholders for any breach of any representation, warranty or covenant if the
Merger does not close. The Shareholders (including the Principal Shareholders)
shall not have any right of contribution from the Company or Parent with respect
to any Loss pursuant to this Article VII.
(b) Escrow Fund. As partial security for the indemnity provided for
in Section 7.2(a) hereof and by virtue of this Agreement, the Shareholders will
be deemed to have received and deposited with the Escrow Agent the Escrow Amount
(plus any additional shares as may be issued in respect of any stock split,
stock dividend or recapitalization effected by Parent after the Effective Time)
without any act of the Shareholders. The Escrow Amount shall be available to
compensate Parent, its officers, directors, or affiliates (including the
Surviving Corporation) for any claims by
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such parties for any Losses suffered or incurred by them and for which they are
entitled to recovery under this Article VII. As promptly as practicable after
the Closing, the Escrow Amount, without any act of the Shareholders, will be
deposited with the Escrow Agent, such deposit of the Escrow Amount to constitute
an escrow fund (the "Escrow Fund") to be governed by the terms set forth herein.
The Escrow Agent may execute this Agreement following the date hereof and prior
to the Closing, and such later execution, if so executed after the date hereof,
shall not affect the binding nature of this Agreement as of the date hereof
between the other signatories hereto. Notwithstanding any provision of this
Agreement to the contrary, after the Effective Time no party shall be entitled
to indemnification or to obtain any proceeds from the Escrow Fund or to
otherwise recover any amount unless and until one or more Officer's Certificates
(as defined in Section 7.2(e) hereof) identifying Losses in excess of $100,000
in the aggregate (the "Basket Amount") has or have been delivered to the Escrow
Agent as provided in Section 7.2(e) hereof, in which case an Indemnified Parties
shall be entitled to recover all Losses so identified in excess of the Basket
Amount; notwithstanding the foregoing Indemnified Parties shall be entitled to
recover all Losses incurred pursuant to clauses (iii), (iv) and (v) of Section
7.2(a) hereof pursuant to this Section 7.2(b) irrespective of whether Officer's
Certificates identifying Losses in excess of the Basket Amount have been
delivered to Parent, provided further, for avoidance of doubt, Officer's
Certificates for Losses incurred pursuant to clauses (iii), (iv) and (v) shall
be included for purposes of determining whether Officer's Certificates
identifying Losses in excess of the Basket Amount have been delivered to the
Escrow Agent. Notwithstanding anything to the contrary in the foregoing, except
(i) as to any inaccuracy or breach of a representation or warranty contained in
Section 2.2 and Section 2.9 hereof and (ii) for claims based on fraud, in the
event the Merger is consummated the maximum amount that the Indemnified Parties
may recover for Losses under this Agreement shall be the Escrow Amount and such
Losses shall be recovered solely from such Escrow Amount from the Escrow Fund.
(c) Escrow Period; Distribution upon Termination of Escrow Periods.
Subject to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
P.S.T., on the first anniversary of the Closing Date (the "Escrow Period");
provided, however, that the Escrow Period shall not terminate with respect to
any amount which, in the reasonable judgment of Parent, subject to the objection
of the Shareholder Agent and the subsequent arbitration of the matter in the
manner provided in Section 7.2(g) hereof, is necessary to satisfy any then
pending and unsatisfied claims specified in any Officer's Certificate delivered
to the Escrow Agent pursuant to Section 7.2(e) below prior to the thirtieth
(30th) calendar day following the termination of the Escrow Period with respect
to facts and circumstances existing prior to the termination of such Escrow
Period. As soon as all such claims have been resolved, the Escrow Agent shall
deliver to the Shareholder the remaining portion of the Escrow Fund, if any, not
required to satisfy such claims. Deliveries of Escrow Amounts to the
Shareholders pursuant to this Section 7.2(c) shall be made in proportion to
their respective original contributions to the Escrow Fund as determined
pursuant to Section 1.9(b).
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(d) Protection of Escrow Fund; Distribution of Interest from Escrow
Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the record holders thereof.
(iii) The Shareholders shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by such
Shareholder (and on any voting securities added to the Escrow Fund in respect of
such shares of Parent Common Stock).
(e) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or
before the date 30 days after the end of the Escrow Period of a certificate
signed by any officer of Parent (an "Officer's Certificate"): (A) stating that
an Indemnified Party has paid, sustained or properly accrued or reasonably
anticipates that it will have to pay, sustain or accrue Losses, and (B)
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid, sustained or properly
accrued, or the basis for such anticipated liability, and the nature of the
misrepresentation, breach of warranty or covenant or other indemnity to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.2(f) hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, shares of Parent Common Stock held in the Escrow Fund in an amount
equal to such Losses. Shares of the Shareholders contributed to the Escrow Fund
in accordance with Section 1.9(b) hereof shall be delivered to Parent out of the
Escrow Fund pro rata based on each Shareholder's contribution to the Escrow
Fund.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
this Article VII, the shares of Parent Common Stock shall be valued at the
Trading Price.
(f) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholder Agent (as defined in Section 7.2(h) hereof) and for
a period of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any Escrow Amounts pursuant to Section 7.2(e)(i)
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hereof unless the Escrow Agent shall have received written authorization from
the Shareholder Agent to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of shares of Parent Common
Stock from the Escrow Fund in accordance with Section 7.2(e) hereof, provided
that no such payment or delivery may be made if the Shareholder Agent shall
object in a written statement to the claim made in the Officer's Certificate,
and such statement shall have been delivered to the Escrow Agent prior to the
expiration of such thirty (30) day period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Shareholder Agent shall object in writing to
any claim or claims made in any Officer's Certificate within 30 days after
delivery of such Certificate, the Shareholder Agent and Parent shall attempt in
good faith to agree upon the rights of the respective parties with respect to
each of such claims. If the Shareholder Agent and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by all
parties.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Shareholder Agent may demand arbitration of
the matter unless the amount of the Loss is at issue in pending litigation with
a third party, in which event arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration, and in either such
event the matter shall be settled by arbitration conducted by one arbitrator
mutually agreeable to Parent and the Shareholder Agent. In the event that within
forty-five (45) days after submission of any dispute to arbitration, Parent and
the Shareholder Agent cannot mutually agree on one arbitrator, within fifteen
(15) days after the end of such forty-five (45) day period Parent and the
Shareholder Agent shall each select one arbitrator. The two arbitrators so
selected shall select a third arbitrator. If the Shareholder Agent does not
select an arbitrator during this fifteen (15) day period, then the parties agree
that there shall be one arbitrator selected by Parent. If Parent does not select
an arbitrator during this fifteen (15) day period, then the parties agree that
there shall be one arbitrator selected by the Shareholder Agent. The arbitrator
or arbitrators shall set a limited time period and establish procedures designed
to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgement of the arbitrator or a majority of
the three arbitrators, as the case may be, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrator or
a majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a court of competent
law or equity, should the arbitrator or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the validity and amount of any claim in such Officer's
Certificate shall be binding and conclusive upon the parties to the Shareholders
and Parent. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s). The arbitrator(s) shall have the
authority to award Parent more than that requested in the Officer's Certificate.
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(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Clara, California under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of the arbitrator and the
administrative fee of the American Arbitration Association.
(h) Shareholder Agent of the Shareholders; Power of Attorney.
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any Shareholder, Greg Yamamoto shall be
appointed as agent and attorney-in-fact (the "Shareholder Agent") for each
Shareholder (except such Shareholders, if any, as shall have perfected their
appraisal or dissenters' rights under California Law), for and on behalf of the
Shareholders, to give and receive notices and communications, to authorize
delivery to Parent of shares of Parent Common Stock from the Escrow Fund in
satisfaction of claims by Parent, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of
Shareholder Agent for the accomplishment of the foregoing. Such agency may be
changed by the Shareholders from time to time upon not less than thirty (30)
days prior written notice to Parent; provided that the Shareholder Agent may not
be removed unless holders of a two-thirds interest of the Escrow Fund agree to
such removal and to the identity of the substituted agent. Any vacancy in the
position of Shareholder Agent may be filled by approval of the holders of a
majority in interest of the Escrow Fund. No bond shall be required of the
Shareholder Agent, and the Shareholder Agent shall not receive compensation for
his or her services; provided, however, that, subject to the Indemnified
Parties' claims for indemnification against the Escrow Fund prior to the
distribution of the Escrow Fund pursuant to Section 7.2(c) hereof, the
Shareholder Agent shall be entitled to all reasonable and documented
out-of-pocket expenses incurred in service in his capacity from the Escrow Fund
prior to any payments to the Shareholders. Notices or communications to or from
the Shareholder Agent shall constitute notice to or from each of the
Shareholders.
(ii) The Shareholder Agent shall not be liable for any act
done or omitted hereunder as Shareholder Agent while acting in good faith and in
the exercise of reasonable judgment. The Shareholders on whose behalf the Escrow
Amount was contributed to the Escrow Fund shall severally indemnify the
Shareholder Agent and hold the Shareholder Agent harmless against any loss,
liability or expense incurred without negligence or bad faith on the part of the
Shareholder Agent and arising out of or in connection with the acceptance or
administration of the Shareholder Agent's duties hereunder, including the
reasonable fees and expenses of any legal counsel retained by the Shareholder
Agent.
(i) Actions of the Shareholder Agent. A decision, act, consent or
instruction of the Shareholder Agent, including but not limited to an amendment,
extension or waiver of this Agreement pursuant to Section 8.3 and Section 8.4
hereof, shall constitute a decision of all the
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Shareholders and shall be final, binding and conclusive upon each of such
Shareholder, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Shareholder Agent as being the decision, act,
consent or instruction of each and every such Shareholder. The Escrow Agent and
Parent are hereby relieved from any liability to any person for any acts done by
them in accordance with such decision, act, consent or instruction of the
Shareholder Agent.
(j) 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 Shareholder Agent of such claim, and the
Shareholder Agent, as representative for the Shareholders, 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 Shareholder Agent, no settlement of any such claim with third
party claimants shall alone be determinative of the amount of Losses relating to
such matter; and provided, further, that Parent shall pay up to $500,000 of
Losses prior to claiming against the Escrow Fund for any Losses related to the
third party matter discussed and set forth in Schedule 7.2(j) to this Agreement.
In the event that the Shareholder Agent has consented to any such settlement,
the Shareholders shall have no power or authority to object under any provision
of this Article VII to the amount of any claim by Parent against the Escrow Fund
with respect to such settlement.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Shareholder Agent, and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed to be genuine
and to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warnings or other communications from any party or
any other person to the contrary. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
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(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon initiating
such action, the Escrow Agent shall be fully released and discharged of and from
all obligations and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter.
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(viii) The Escrow Agent may resign at any time upon giving
at least thirty (30) days written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: Parent and the Shareholder
Agent shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business in
the State of California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. The Escrow
Agent shall be discharged from any further duties and liability under this
Agreement.
(l) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent. It is understood that the fees and usual charges
agreed upon for services of the Escrow Agent shall be considered compensation
for ordinary services as contemplated by this Agreement. In the event that the
conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the parties
request a substantial modification of its terms, or if any controversy arises,
or if the Escrow Agent is made a party to, or intervenes in, any litigation
pertaining to this escrow or its subject matter, the Escrow Agent shall be
reasonably compensated for such extraordinary services and reimbursed for all
costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation.
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 hereof, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Closing:
(a) by mutual agreement of the Company and Parent;
(b) by Parent or the Company if the Closing Date shall not have
occurred by September 30, 2000 (the "End Date"); provided, however, that the
right to terminate this Agreement under this Section 8.1(b) shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement; provided,
further, that if Parent files the Registration Statement, the End Date shall be
December 31, 2001;
(c) by Parent or the Company if: (i) there shall be a final
non-appealable order of a federal or state court in effect preventing
consummation of the Merger, or (ii) there shall be any
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statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Closing by any Governmental Entity that would make
consummation of the Closing illegal;
(d) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's
ownership or operation of any portion of the business of the Company or (ii)
compel Parent or the Company to dispose of or hold separate all or any portion
of the business or assets of the Company or Parent as a result of the Merger;
(e) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement of the Company or the Principal Shareholders
contained in this Agreement such that the conditions set forth in Section 6.2(a)
would not be satisfied and such breach has not been cured within ten (10)
calendar days after written notice thereof to the Company and the applicable
Principal Shareholder; provided, however, that no cure period shall be required
for a breach which by its nature cannot be cured; or
(f) by the Company if neither the Company nor the Principal
Shareholders is in material breach of their respective obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement such that the conditions set forth in
Section 6.3(a) would not be satisfied and such breach has not been cured within
ten (10) calendar days after written notice thereof to Parent; provided,
however, that no cure period shall be required for a breach which by its nature
cannot be cured.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1 hereof, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Parent, Sub, the
Company or the Principal Shareholders, or their respective officers, directors
or shareholders, if applicable; provided, however, that each party hereto shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further, however, that, the provisions of Sections 5.4, 5.5 and 5.6
hereof, Article IX hereof and this Section 8.2 shall remain in full force and
effect and survive any termination of this Agreement pursuant to the terms of
this Article VIII.
8.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto. For purposes of this Section 8.3, the Shareholders agree
that any amendment of this Agreement signed by the Shareholder Agent shall be
binding upon and effective against the Shareholders whether or not they have
signed such amendment.
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8.4 Extension; Waiver. At any time prior to the Closing, Parent, on the
one hand, and the Company and the Shareholder Agent, on the other hand, may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. For purposes of this Section 8.4, the Shareholders agree that any
extension or waiver signed by the Shareholder Agent shall be binding upon and
effective against all Shareholders whether or not they have signed such
extension or waiver.
ARTICLE IX GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Parent, to:
LSI Logic Corporation
1551 McCarthy Boulevard
Milpitas, California 95035
Attn: Vice President and General Counsel
Telephone No.: (408) 433-7189
Facsimile No.: (408) 433-6896
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Daniel R. Mitz, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
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(b) if to the Company or the Principal Shareholders, to:
DataPath Systems, Inc.
5883 Rue Ferrari,
Suite #10
San Jose, California 95138
Attention: Greg Yamamoto
Telephone No.: (408) 365-6077
Facsimile No.: (408) 365-0457
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: David A. Hubb, Esq.
Telephone No.: (650) 833-2000
Facsimile No.: (650) 327-3699
(c) if to the Shareholder Agent:
Greg Yamamoto
c/o DataPath Systems, Inc.
5883 Rue Ferrari,
Suite #10
San Jose, California 95138
Telephone No.: (408) 365-6077
Facsimile No.: (408) 365-0457
(d) if to the Escrow Agent:
U.S. Bank Trust, National Association
Corporate Trust Services
One California Street
San Francisco, California 94111
Attention: Ann Gadsby
Telephone No.: (415) 273-4532
Facsimile No.: (415) 273-4593
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto,
the Disclosure Schedule, the Confidential Disclosure Agreement, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof, (ii) are not intended to confer upon any other person any
rights or remedies hereunder, and (iii) shall not be assigned by operation of
law or otherwise, except that Parent may assign its rights and delegate its
obligations hereunder to its affiliates as long as Parent remains ultimately
liable for all of Parent's obligations hereunder.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Any and all remedies herein expressly conferred upon
a party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Santa Clara County, State of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process. Each of the parties
hereto irrevocably waives such person's right to a jury trial of any claim or
cause of action arising out of this Agreement or any of the transactions
contemplated hereby and waives and covenants not to assert or plead any
objection which such person might otherwise have to such waiver of jury trial.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application
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of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
9.9 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY FOR ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Parent, Sub, the Company and the Principal
Shareholders, and with respect to Article VII and Article IX, the Shareholder
Agent and the Escrow Agent, have caused this Agreement to be signed, all as of
the date first written above.
LSI LOGIC CORPORATION DIAMOND ACQUISITION
CORPORATION
By: /s/ John Daane By: /s/ Bryon Look
------------------------------ --------------------------------
Name: John Daane Name: Bryon Look
Title: Executive Vice President, Title: Vice President
Communications
SHAREHOLDER AGENT DATAPATH SYSTEMS, INC.
By: /s/ Greg Yamamoto By: /s/ Hemant K. Thapar
------------------------------ --------------------------------
Greg Yamamoto Name: Hemant K. Thapar
Title: President
ESCROW AGENT.. PRINCIPAL SHAREHOLDERS
U.S. BANK TRUST,
NATIONAL ASSOCIATION /s/ Shih-Ming Shih
-----------------------------------
Shih-Ming Shih
By:
------------------------------
Name: Ann P. Gadsby
Title: Vice President /s/ Hemant Thapar
-----------------------------------
Hemant Thapar
/s/ Greg Yamamoto
-----------------------------------
Greg Yamamoto
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE> 1
EXHIBIT 99.2
FOR IMMEDIATE RELEASE
Contacts: Media Relations Investor Relations
Kevin Brett Diana Matley
408-433-7150 408-433-4365
[email protected] [email protected]
CC00-34
May 22, 2000
LSI LOGIC TO PURCHASE DATAPATH SYSTEMS
IN $420 MILLION ACQUISITION
LSI gains ADSL solution, cable modem and
standard products pipeline for high-growth
communications markets
MILPITAS, CA - LSI Logic Corporation (NYSE:LSI) and DataPath Systems, Inc. today
announced an agreement in which LSI Logic will acquire DataPath in a stock
transaction valued at approximately $420 million.
DataPath Systems is a communications chip company with a full pipeline of
standard product offerings in the fastest-growing areas of the broadband
communications market: ADSL (Asynchronous Digital Subscriber Line), cable modems
and high-performance tranceivers. DataPath, a San Jose, Ca.-based company, has
approximately 115 employees.
The acquisition of DataPath will be a purchase accounting transaction and is
subject to regulatory review. The acquisition is expected to become accretive to
LSI Logic's earnings before goodwill amortization (EBG) during 2001. The
transaction is anticipated to close during LSI Logic's third quarter ending
September 30.
<PAGE> 2
"The DataPath acquisition will immediately bolster LSI Logic's portfolio of
communications standard products as well as its library of
communications-specific building blocks to enable the integration of single-chip
CMOS solutions for customers in the global communications market," said John
Daane, executive vice president of LSI's Communications Products Group.
"The acquisition of DataPath is consistent with LSI Logic's strategy of amassing
standard products, intellectual property and engineering talent focused on our
target communications markets."
In a separate announcement made today, LSI Logic announced it has licensed the
discrete multitone (DMT) technology from Alcatel's Carrier Data Division. By
combining DataPath's Analog Front End (AFE) and the DMT engine, LSI now offers a
complete ADSL solution to customers.
Commenting on the acquisition, DataPath's president Hemant Thapar, said: "The
DataPath team is looking forward to bringing to LSI Logic our expertise in the
design of high-performance analog and mixed-signal devices for high-speed
Internet and communications applications. LSI Logic is clearly focused on
extending its leadership position in broadband and other rapidly growing
communications markets. We are excited about the prospects of undertaking key
responsibilities in furthering LSI Logic's success in these markets."
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS: Statements made in this news release
include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of
<PAGE> 3
the Securities and Exchange Act of 1934, as amended. The company's actual
results in future periods may be materially different from any performance
suggested in this news release. Risks and uncertainties to which the company is
subject by virtue of the announced transaction may include, but may not
necessarily be limited to factors associated with completion of regulatory
reviews, integration of DataPath products and technologies with the company's,
unforeseen market reactions and successful and timely completion of customary
pre-closing conditions for a transaction of this nature. In addition, expected
financial benefits from the transaction reflect growth assumptions in broadband
market applications, which may not necessarily occur as anticipated. The company
operates in an industry sector where securities values are highly volatile and
may be influenced by economic and other factors beyond the company's control. In
the context of forward-looking information provided in this news release,
reference is made to the discussion of risk factors detailed in the company's
filings with the Securities and Exchange Commission during the past 12 months.
LSI Logic Corporation (NYSE:LSI) is a leading supplier of communications chips
for broadband, data networking, wireless and set-top box applications. In
addition, the company provides chips and boards for network computing and
supplies storage network solutions for the enterprise. LSI Logic is
headquartered at 1551 McCarthy Blvd., Milpitas, CA 95035, www.lsilogic.com
DataPath Systems, Inc. founded in 1994, designs, develops and manufactures
complex mixed analog/digital ICs for the Communications and Storage industries.
Headquartered in San Jose, DataPath Systems' team of world-class engineers has
developed leading edge, `best-of-class' performance solutions for the ADSL and
mass storage markets.
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