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Exhibit 99.1
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
RATIONAL SOFTWARE CORPORATION,
CATAPULSE INC.,
REINDEER ACQUISITION CORPORATION,
PAUL LEVY,
MICHAEL DEVLIN,
U.S. BANK TRUST, NATIONAL ASSOCIATION, AS ESCROW AGENT
AND
PAUL LEVY, AS SECURITYHOLDER AGENT
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TABLE OF CONTENTS
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ARTICLE I THE MERGER...................................................... A-2
1.1 The Merger....................................................... A-2
1.2 Effective Time................................................... A-2
1.3 Effect of the Merger............................................. A-2
1.4 Certificate of Incorporation; Bylaws............................. A-2
1.5 Directors and Officers........................................... A-2
1.6 Merger Consideration............................................. A-2
1.7 Dissenting Shares for Holders of Company Capital Stock........... A-5
1.8 Surrender of Certificates........................................ A-5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL
STOCKHOLDERS............................................................. A-7
2.1 Organization of the Company...................................... A-7
2.2 Company Capital Structure........................................ A-7
2.3 Subsidiaries..................................................... A-8
2.4 Authority........................................................ A-8
2.5 Company Financial Statements..................................... A-9
2.6 No Undisclosed Liabilities....................................... A-9
2.7 No Changes....................................................... A-9
2.8 Tax Matters...................................................... A-10
2.9 Restrictions on Business Activities.............................. A-12
2.10 Title to Properties; Absence of Liens and Encumbrances........... A-12
2.11 Intellectual Property............................................ A-12
2.12 Agreements, Contracts and Commitments............................ A-14
2.13 Interested Party Transactions.................................... A-15
2.14 Compliance with Laws............................................. A-15
2.15 Litigation....................................................... A-15
2.16 Insurance........................................................ A-15
2.17 Minute Books..................................................... A-16
2.18 Environmental Matters............................................ A-16
2.19 Brokers' and Finders' Fees; Third Party Expenses................. A-16
2.20 Employee Matters and Benefit Plans............................... A-17
2.21 Opinion of Financial Advisor..................................... A-19
2.22 Registration Statement; Proxy Statement; Other Filings........... A-20
2.23 Representations Complete......................................... A-20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT...................... A-20
3.1 Organization, Standing and Power................................. A-20
3.2 Authority........................................................ A-20
3.3 Capital Structure................................................ A-21
3.4 SEC Documents; Parent Financial Statements....................... A-21
3.5 Registration Statement; Proxy Statement; Other Filings........... A-21
3.6 No Litigation.................................................... A-22
3.7 Compliance with Laws............................................. A-22
3.8 Opinion of Financial Advisor..................................... A-22
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................ A-22
4.1 Conduct of Business of the Company............................... A-22
4.2 No Solicitation.................................................. A-24
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TABLE OF CONTENTS
(continued)
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ARTICLE V ADDITIONAL AGREEMENTS......................................... A-25
5.1 Proxy Statement/Prospectus; Registration Statement............. A-25
5.2 Meetings of Stockholders....................................... A-26
5.3 Access to Information.......................................... A-26
5.4 Confidentiality................................................ A-26
5.5 Expenses....................................................... A-27
5.6 Public Disclosure.............................................. A-27
5.7 Consents....................................................... A-27
5.8 Amendment of Vesting Period for Principal Stockholders......... A-27
5.9 FIRPTA Compliance.............................................. A-27
5.10 Termination of Benefits Plans.................................. A-28
5.11 Reasonable Best Efforts........................................ A-28
5.12 Notification of Certain Matters................................ A-28
5.13 Affiliate Agreements........................................... A-28
5.14 Form S-8....................................................... A-28
5.15 Nasdaq National Market Listing................................. A-28
5.16 Directors' and Officers' Indemnification....................... A-28
Parent Agreement to Vote Shares of Company Preferred Stock;
5.17 Restriction on Transfer........................................ A-29
5.18 Additional Documents and Further Assurances.................... A-29
5.19 Reorganization Treatment....................................... A-29
Employment; Parent or Surviving Corporation Employee Benefit
5.20 Plans.......................................................... A-29
ARTICLE VI CONDITIONS TO THE MERGER..................................... A-30
6.1 Conditions to Obligations of Each Party to Effect the Merger... A-30
6.2 Additional Conditions to Obligations of the Company............ A-30
6.3 Additional Conditions to the Obligations of Parent............. A-31
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.......... A-32
7.1 Survival of Representations and Warranties..................... A-32
7.2 Escrow Arrangements............................................ A-32
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................... A-37
8.1 Termination.................................................... A-37
8.2 Effect of Termination.......................................... A-38
8.3 Amendment...................................................... A-38
8.4 Extension; Waiver.............................................. A-39
ARTICLE IX GENERAL PROVISIONS........................................... A-39
9.1 Notices........................................................ A-39
9.2 Interpretation................................................. A-40
9.3 Counterparts................................................... A-40
9.4 Entire Agreement; Assignment................................... A-41
9.5 Severability................................................... A-41
9.6 Other Remedies................................................. A-41
9.7 Governing Law.................................................. A-41
9.8 Rules of Construction.......................................... A-41
9.9 Specific Performance........................................... A-41
9.10 Release of Merger Sub.......................................... A-41
9.11 Waiver of Certain Inaccuracies................................. A-41
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made and entered into as of November 27, 2000 by and among
Rational Software Corporation, a Delaware corporation, ("Parent"), Catapulse
Inc., a Delaware corporation (the "Company"), Reindeer Acquisition Corporation,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"),
Paul Levy and Michael Devlin (together, the "Principal Stockholders"), U.S.
Bank Trust, National Association (the "Escrow Agent") and Paul Levy as the
securityholder agent (the "Securityholder Agent").
RECITALS
A. The parties hereto entered into an Agreement and Plan of Reorganization
dated November 27, 2000 (the "Original Agreement") which provided for, among
other things, a business combination transaction to be effected by the merger
of the Company with and into Merger Sub, upon the terms and conditions set
forth therein.
B. The parties desire to amend and restate the Original Agreement to provide
for the business combination transaction contemplated by the Original Agreement
to be effected by a merger of the Company with and into Parent (the "Merger"),
upon the terms and conditions set forth herein, with Parent as the surviving
corporation, and to release Merger Sub from its role and obligations under the
Original Agreement.
C. The Special Committee of the Board of Directors of Parent and the Board
of Directors of the Company, acting on the recommendation of a special
committee of its Board of Directors, believe it is in the best interests of
each company and their respective stockholders that Parent acquire the Company
through a business combination transaction and, in furtherance thereof, have
approved the Merger.
D. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") shall be converted into
the right to receive shares of Common Stock of Parent ("Parent Common Stock")
and all outstanding options, warrants or other rights to acquire or receive
shares of Company Capital Stock shall be assumed by Parent and shall become
exercisable for shares of Parent Common Stock.
E. A portion of the shares of Parent Common Stock otherwise issuable in
connection with the Merger to the Principal Stockholders shall be placed in
escrow by Parent, the release of which amount shall be contingent upon certain
events and conditions, all as set forth in Article VII hereof.
F. It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
G. It is intended by the parties hereto to account for the Merger as a
purchase for financial reporting purposes.
H. Concurrent with the execution and delivery of the Original Agreement, as
a material inducement to Parent to enter into the Original Agreement Agreement,
the Principal Stockholders and Benchmark (as defined below) executed and
delivered to Parent stockholder support agreements (the "Company Support
Agreements"), substantially in the form attached hereto as Exhibit A.
I. The Company, the Principal Stockholders, and Parent desire to make
certain representations and warranties and other agreements in connection with
the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties hereby amend
and
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restate the Original Agreement in its entirety to provide as set forth in this
Agreement and hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware General Corporation Law ("Delaware Law"), the
Company shall be merged with and into Parent, whereupon the separate existence
of the Company shall cease, and Parent shall continue as the surviving
corporation (sometimes referred to herein as the "Surviving Corporation").
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than three (3) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the
offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California, unless another place or time is agreed to in writing by Parent and
the Company. The date upon which the Closing actually occurs is herein referred
to as the "Closing Date." On the Closing Date, the parties hereto shall cause
the Merger to be consummated by filing a Certificate of Merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware,
in accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of Delaware of such filing being referred
to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the
Company and Parent shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Parent shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time,
at the Effective Time, the Certificate of Incorporation of Parent as in
effect immediately prior to the Effective Time shall, from and after the
Effective Time, be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended in accordance with Delaware Law and as
provided in such Certificate of Incorporation.
(b) Unless otherwise determined by Parent prior to the Effective Time,
the Bylaws of Parent as in effect immediately prior to the Effective Time
shall, from and after the Effective Time be the Bylaws of the Surviving
Corporation, until thereafter amended in accordance with Delaware Law and
as provided in the Certificate of Incorporation of the Surviving
Corporation and such Bylaws.
1.5 Directors and Officers. Unless otherwise determined by Parent prior to
the Effective Time, the directors of Parent immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each to hold the
office of a director of the Surviving Corporation in accordance with the
provisions of Delaware Law and the Certificate of Incorporation and Bylaws of
the Surviving Corporation until their successors are duly elected and
qualified. The officers of Parent immediately prior to the Effective Time shall
be the officers of the Surviving Corporation, each to hold office in accordance
with the provisions of the Bylaws of the Surviving Corporation.
1.6 Merger Consideration.
(a) Certain Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
"Benchmark" shall mean Benchmark Capital Partners IV, L.P.
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"Company Common Stock" shall mean shares of common stock of the Company.
"Company Convertible Securities" shall mean the Company Options and
other rights (other than Company Preferred Stock) to acquire or receive
shares of Company Capital Stock.
"Company Options" shall mean all issued and outstanding options to
purchase or otherwise acquire Company Capital Stock (whether or not
vested).
"Company Preferred Stock" shall mean shares of Company Series A
Preferred Stock, Company Series A-1 Preferred Stock, Company Series B
Preferred Stock and Company Series C Preferred Stock.
"Company Series A Preferred Stock" shall mean shares of Series A
Preferred Stock of the Company.
"Company Series A-1 Preferred Stock" shall mean shares of Series A-1
Preferred Stock of the Company.
"Company Series B Preferred Stock" shall mean shares of Series B
Preferred Stock of the Company.
"Company Series C Preferred Stock" shall mean shares of Series C
Preferred Stock of the Company.
"Company Stockholders" shall mean holders of any shares of Company
Capital Stock immediately prior to the Effective Time.
"Escrow Amount" shall mean forty percent (40%) of the aggregate number
of shares of Parent Common Stock issuable to the Principal Stockholders in
the Merger in exchange for all of the Company Capital Stock held by them or
their affiliates as of the date of this Agreement, which Escrow Amount
shall be comprised of a pro rata portion of the vested and unvested shares
of Parent Common Stock issuable to the Principal Stockholders in the
Merger.
"Knowledge" shall mean, with respect to the Company or Parent, what is
within the actual knowledge of any of the officers or directors of the
Company or Parent, as the case may be; provided that such officers and
directors shall have made inquiry of those employees of the Company or
Parent, respectively, whom such officers and directors reasonably believe
would have actual knowledge of the relevant matter.
"Parent Stockholders" shall mean holders of any shares of Parent Common
Stock.
"Total Outstanding Shares" shall mean the aggregate number of shares of
Company Common Stock outstanding immediately prior to the Effective Time,
including the aggregate number of shares of Company Common Stock issuable,
with or without the passage of time or satisfaction of other conditions,
upon exercise or conversion of all Company Convertible Securities and
Company Preferred Stock outstanding immediately prior to the Effective
Time; provided, that the Total Outstanding Shares shall not include any and
all shares of Company Capital Stock held by Parent or the Company or any
direct or indirect wholly owned subsidiary thereof, all of which shall be
cancelled immediately prior to the Effective Time.
(b) Shares to be Issued; Effect on Capital Stock. The maximum number of
shares of Parent Common Stock to be issued (including Parent Common Stock
to be reserved for issuance upon exercise of any of the Company's options
and warrants to be assumed by Parent) in exchange for the acquisition by
Parent of all outstanding Company Capital Stock and all unexpired and
unexercised options, warrants or other rights to acquire Company Capital
Stock shall be determined immediately prior to the Effective Time and shall
be equal to the number of Total Outstanding Shares multiplied by the
Exchange Ratio (as defined below). Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of the Company or the holder of any shares of
Company Capital Stock, each share of Company Capital Stock issued and
outstanding immediately prior to the Effective Time (other than any
Dissenting Shares, as defined in Section 1.7 hereof and any shares owned by
Parent or the Company or any direct or indirect wholly owned subsidiary
thereof) shall be converted into the right to receive 0.0825 validly
issued, fully paid and nonassessable shares of Parent Common Stock (the
"Exchange Ratio"), assuming the conversion of all Company Preferred Stock
into Company
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Common Stock in accordance with the terms and provisions of Article Fourth,
Section 3 of the Company's Amended and Restated Certificate of
Incorporation and as provided in this Agreement.
(c) Assumption of Company Options. At the Effective Time, each
outstanding Company Option issued pursuant to the Company's 1999 Stock Plan
(the "Option Plan") or otherwise, whether vested or unvested, will be
assumed by Parent in connection with the Merger. Subject to Section 5.8,
each Company Option so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set
forth in the Option Plan and/or as provided in the respective option
agreements immediately prior to the Effective Time (including, without
limitation, any vesting schedule or repurchase rights), except that (i)
each 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
Capital Stock that were issuable upon exercise of such Company Option
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 (ii) the per share exercise price for the shares of Parent Common Stock
issuable upon exercise of such assumed Company Option will be equal to the
quotient determined by dividing the exercise price per share of Company
Capital Stock at which such Company Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. Parent shall take all corporate actions necessary to
reserve for issuance a sufficient number of shares of Parent Common Stock
for delivery following the exercise of the Company Options assumed by
Parent.
(d) Assumption of Company Warrants. Parent shall treat warrants to
purchase Company Capital Stock as granting the holder thereof an equivalent
right to purchase or receive for each share of Company Capital Stock
subject to such warrants immediately prior to the Effective Time, the right
to receive a number of validly issued, fully paid and nonassessable shares
of Parent Common Stock equal to the Exchange Ratio (the "Assumed
Warrants"). After the Effective Time, the Assumed Warrants shall be
exercisable upon the same terms and conditions as were applicable to the
Company Warrants immediately prior to the Effective Time, except that (i)
each Assumed Warrant will be exercisable for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Capital Stock that were issuable upon exercise of such Assumed Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded to the nearest whole number of shares of Parent Common Stock (with
.5 being rounded down), and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such Assumed
Warrant will be equal to the quotient determined by dividing the exercise
price per share of Company Capital Stock at which such Assumed Warrant was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded to the nearest whole cent (with .5 being rounded down). Parent
shall take all corporate actions necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery following
the exercise of the Assumed Warrants.
(e) Option Status. It is the intention of the parties hereto that
Company Options assumed by Parent following the Closing pursuant to this
Section 1.6, to the extent permitted by applicable law, will qualify as
incentive stock options as defined in Section 422 of the Code, but only to
the extent any such Company Options qualified as incentive stock options
immediately prior to the Effective Time.
(f) Withholding Taxes. Any number of shares of Parent Common Stock
issuable pursuant to Section 1.6(b) to any holder of Company Options shall
be subject to, and reduced by, the amount of the applicable minimum
statutory withholding rates for federal and state tax purposes with respect
to any state, federal and foreign withholding taxes incurred (and not
previously paid by or on behalf of the Company or such holder) in
connection with the acquisition of capital stock by each holder upon the
exercise of Company Options, or the payment of a bonus, if any.
(g) Fractional Shares. No fractional share of Parent Common Stock shall
be issued in the Merger. In lieu thereof, each holder of Company Capital
Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of Parent Common Stock (after
taking into account all Certificates delivered by such holder) shall
receive cash (without interest) in an amount equal
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to such fractional part of a share of Parent Common Stock multiplied by the
Average Stock Price (as defined in Section 7.2(d)(ii)).
(h) Cancellation of Parent-Owned and Company-Owned Stock. Immediately
prior to the Effective Time, by virtue of the Merger and without any action
on the part of any of the parties hereto, each share of Company Capital
Stock owned by Parent, the Company or any direct or indirect wholly owned
subsidiary thereof immediately prior to the Effective Time, including, but
not limited to, Company Series A Preferred Stock, shall be cancelled and
extinguished without any conversion thereof.
1.7 Dissenting Shares for Holders of Company Capital Stock. Notwithstanding
any provision of this Agreement to the contrary, any shares of Company Capital
Stock held by a holder who has demanded and perfected dissenters' rights for
such shares in accordance with Delaware Law and who, as of the Effective Time,
has not effectively withdrawn or lost such appraisal rights ("Dissenting
Shares"), shall not be converted into or represent a right to receive Parent
Common Stock pursuant to Section 1.6, but the holder thereof shall only be
entitled to such rights as are granted by Delaware Law.
(a) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Capital Stock who demands purchase of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect
or otherwise) the right to appraisal, 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
Parent Common Stock as provided in Section 1.6, without interest thereon,
upon surrender of the certificate representing such shares.
(b) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals
of such demands, and any other instruments served pursuant to Delaware Law
and received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent
of Parent, voluntarily make any payment with respect to any demands for
appraisal of capital stock of the Company or offer to settle or settle any
such demands. Parent shall have full recourse to the Escrow Fund (as
defined in Section 7.2(a)) for the amount, if any, paid by the Company or
Parent in respect of Dissenting Shares in excess of the consideration that
otherwise would have been payable in respect of such Dissenting Shares
pursuant to Section 1.6 hereof if such Dissenting Shares were not the
subject of an appraisal demand.
1.8 Surrender of Certificates.
(a) Exchange Agent. The transfer agent of Parent (or another entity
reasonably acceptable to Parent and the Company) shall serve as exchange
agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Parent Common Stock. Prior to the Closing, Parent
shall make available to the Exchange Agent for exchange in accordance with
this Article I the shares of Parent Common Stock issuable to the Company
Stockholders pursuant to Section 1.6 in exchange for outstanding shares of
Company Capital Stock, less the Escrow Amount which Parent shall deposit
into the Escrow Fund (as defined in Section 7.2(a) hereof) on behalf of the
Principal Stockholders. The portion of the Escrow Amount contributed on
behalf of each of the Principal Stockholders shall be in proportion to the
aggregate number of shares of Parent Common Stock issuable in the Merger in
exchange for all of the shares of Company Capital Stock held by them or
their affiliates as of the date of this Agreement.
(c) Exchange Procedures. In connection with the mailing of the Proxy
Statement (as defined in Section 5.1 below) to the Company Stockholders,
Parent shall cause to be mailed to each Company Stockholder (i) a letter of
transmittal (which shall be in such form and contain such provisions as
Parent may reasonably specify and shall specify that delivery shall be
effected, and risk of loss and title to the certificates (the
"Certificates") which immediately prior to the Effective Time represent
outstanding shares of Company Capital Stock whose shares are converted into
the right to receive such Company Stockholder's portion of the
consideration pursuant to Section 1.6 hereof, shall pass, only upon
delivery of
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the Certificates to the Exchange Agent at the Closing) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing the shares of Parent Common Stock to
which such holder is entitled in the Merger. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to 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, a Company Stockholder shall be entitled to receive,
and the Exchange Agent shall promptly deliver in exchange therefor, (A) a
certificate representing the number of whole shares of Parent Common Stock
(less the allocable portion of the Escrow Amount, as applicable) to which
such holder is entitled pursuant to Section 1.6(b), (B) the amount of cash
payable, if any, in lieu of a fractional share of Parent Common Stock to
which the holder is entitled pursuant to Section 1.6(f) and (C) the amount
of any dividends or other distributions to which such holder is entitled
pursuant to Section 1.8(d), and the Certificate so surrendered shall
forthwith be canceled. Parent shall use reasonable efforts to have
available at the Closing stock certificates representing the appropriate
number of shares of Parent Common Stock for each Company Stockholder who
shall have properly completed such stockholder's letter of transmittal and
delivered such stockholder's Certificate or Certificates to Parent at least
five business days prior to the Closing Date. As soon as practicable after
the Effective Time, and subject to and in accordance with the provisions of
Article VII hereof, Parent shall cause to be distributed to the Escrow
Agent (as defined in Article VII) a certificate or certificates
representing that number of shares of Parent Common Stock equal to the
Escrow Amount which shall be registered in the name of the Escrow Agent.
Such shares shall be beneficially owned by the Principal Stockholders on
whose behalf such shares were deposited in the Escrow Fund and shall be
available to compensate Parent as provided in Article VII. Until so
surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Company Capital Stock will be deemed from and
after the Effective Time, for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number of full
shares of Parent Common Stock into which such shares of Company Capital
Stock shall have been so converted.
(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 Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, plus the amount of
dividends or other distributions (without interest) 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.
(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Capital Stock shall have been
lost, stolen or destroyed, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed certificates, upon the delivery by the
holder thereof of an affidavit of that fact by the holder thereof
containing customary indemnification provisions, the shares of Parent
Common Stock issuable in exchange therefor pursuant to the provisions of
Article I of this Agreement.
(g) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, neither Parent nor any party hereto shall be liable to a
holder of shares of Parent Common Stock or Company Capital Stock for any
amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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(h) No Further Ownership Rights in Company Capital Stock. The shares of
Parent Common Stock issued in accordance with the terms hereof shall be
deemed to be full satisfaction of all rights pertaining to shares of
Company Capital Stock outstanding prior to the Effective Time, and there
shall be no further registration of transfers on the records of the Company
of shares of Company Capital Stock that were outstanding prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
Parent for any reason, they shall be canceled and exchanged as provided in
this Article I.
(i) 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 Surviving Corporation with
full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company and Parent, the officers
and directors of the Company and Parent 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 STOCKHOLDERS
As of the date hereof and as of the Closing Date, the Company and the
Principal Stockholders represent and warrant to Parent, subject to such
exceptions as are clearly disclosed in the disclosure letter (referencing the
appropriate section number) supplied by the Company and the Principal
Stockholders to Parent (the "Company Schedules") in connection with the
execution of the Original Agreement and deemed redelivered in connection with
the execution of this Agreement and dated as of the date hereof, as follows:
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
Delaware. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would be material. The Company has
delivered a true and correct copy of its Certificate of Incorporation and
Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 262,000,000
shares of authorized Common Stock, par value $0.001 per share, of which
89,059,231 shares are issued and outstanding as of the date hereof, and
216,368,717 shares of authorized Preferred Stock, par value $0.001 per
share, of which 80,000,000 are designated Series A Preferred Stock, of
which 80,000,000 shares are issued and outstanding as of the date hereof,
80,000,000 of which are designated Series A-1 Preferred Stock, of which no
shares are issued and outstanding as of the date hereof, 45,168,717 of
which are designated Series B Preferred Stock, of which 45,168,717 shares
are issued and outstanding as of the date hereof, and 11,200,000 of which
are designated Series C Preferred Stock, of which no shares are issued and
outstanding as of the date hereof. As of the date hereof, the Company
Capital Stock is held of record by the persons, with the addresses of
record and in the amounts set forth on Schedule 2.2(a). 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 Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound.
(b) The Company has reserved 50,000,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
6,001,367 shares are subject to outstanding, unexercised options as of the
date hereof and 17,242,369 shares remain available for future grant as of
the date hereof. The Company has reserved no shares of Common Stock for
issuance upon exercise of Company Options outstanding on the date hereof
and granted outside the Option Plan and 25,000 shares of Common Stock and
11,133,506 shares of Series C Preferred Stock for issuance upon exercise of
warrants outstanding on
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the date hereof (the "Warrants"). Schedule 2.2(b) sets forth for each
outstanding Company Option or Warrant, the name of the holder of such
option or Warrant, the domicile address of such holder, the number of
shares of Common Stock subject to such option or Warrant, the exercise
price of such option or Warrant and the vesting schedule for such option or
Warrant, including the exercisability of such option or Warrant will be
accelerated and become exercisable by reason of the transactions
contemplated by this Agreement, each as of the date hereof. Except for
Company Options and Warrants described in Schedule 2.2(b), 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. The holders of Company Options and Warrants have been or will be
given, or shall have properly waived, any required notice prior to the
Effective Time. As a result of the Merger, Parent will be the record and
sole beneficial owner of all capital stock of the Company and rights to
acquire or receive such capital stock.
2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries and does not otherwise own and has never otherwise owned any
shares of capital stock or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other
business entity.
2.4 Authority. Subject only to the requisite approval of the Merger and this
Agreement by the Company Stockholders, the Company has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Company Stockholders
to duly approve the Merger and this Agreement is approval by stockholders
holding at least a majority of the outstanding shares of Company Capital Stock,
a majority of the outstanding shares of Company Series A Preferred Stock, and
seventy percent (70%) of the outstanding shares of Company Series B Preferred
Stock. In addition, the Company's Board of Directors has determined that it
shall be a condition to the consummation of the Merger that the Company shall
obtain the approval of holders of a majority of the outstanding shares of
Company Capital Stock other than those shares of Company Capital Stock held by
Parent or the Principal Stockholders. The Company's Board of Directors has,
based upon the recommendation of a committee of the Board comprised of the
disinterested member of the Board of Directors formed for the purpose of
considering the proposed terms and conditions of the Merger (the "Company
Special Committee"), unanimously approved the Merger and this Agreement. This
Agreement has been duly executed and delivered by the Company and constitutes,
assuming the due authorization, execution and delivery by the other parties
hereto, the valid and binding obligation of the Company, enforceable in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity. Except as set forth on
Schedule 2.4, subject only to the approval of the Merger and this Agreement by
the Company Stockholders, the execution and delivery of this Agreement by the
Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict")
(i) any provision of the Certificate of Incorporation or Bylaws of the Company
or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or assets. 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 foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
third party (so as not to trigger any Conflict) is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger with the Delaware Secretary of State, (ii)
such consents, waivers, approvals, orders, authorizations,
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registrations, declarations and filings as may be required under applicable
federal and state securities laws, (iii) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and
the rules and regulations thereunder (the "HSR Act") and (iv) such other
consents, waivers, authorizations, filings, approvals and registrations which
are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's (i)
unaudited balance sheet as of September 30, 2000 and the related unaudited
statements of income, operations, and cash flows for the period from inception
then ended, and (ii) unaudited balance sheet as of October 31, 2000 (the
"Current Balance Sheet") and the related unaudited statements of income,
operations and cash flows for the one-month period then ended (collectively,
the "Company Financials"). The Company Financials are correct in all material
respects and have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other, provided that the unaudited
financial statements may not contain footnotes required by GAAP. The Company
Financials present fairly the financial condition and operating results of the
Company as of the dates and during the periods indicated therein, subject, in
the case of the unaudited financial statements, to normal year-end adjustments,
which such adjustments will not be material in amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
Company does not have any 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,
or (ii) has not arisen in the ordinary course of the Company's business since
the date of the Current Balance Sheet, consistent with past practices.
2.7 No Changes. Except as set forth in Schedule 2.7, since the date of the
Current Balance Sheet and through the date of this Agreement, there has not
been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of business
as conducted on the date of the Current Balance Sheet and consistent with
past practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) event or condition that has or would be reasonably expected to have
a Company Material Adverse Effect (as defined in Section 8.2 hereof);
(g) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(h) revaluation by the Company of any of its assets;
(i) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any
direct or indirect redemption, purchase or other acquisition by the Company
of any of its capital stock;
(j) increase in the salary or other compensation payable or to become
payable to any of its officers or directors, or the declaration, payment or
commitment or obligation of any kind for the payment of a bonus or other
additional salary or compensation to any such person except as otherwise
contemplated by this Agreement or in the ordinary course of business
consistent with past practice;
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(k) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(l) amendment or termination (other than pursuant to its terms) of any
material contract, agreement or license to which the Company is a party or
by which it is bound;
(m) 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;
(n) 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;
(o) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or
of any other of its securities;
(p) 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 (as defined in Section 2.11) to the
Company; or
(q) negotiation or agreement by the Company or any officer or employees
thereof to do any of the things described in the preceding clauses (a)
through (p) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 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 similar 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 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") required to be
filed by it at or prior to the Effective Time 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 (other than Taxes for which adequate
accruals have been established in the Company Financials), and (B) will
have accrued on the Current Balance Sheet all unpaid 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.
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(iii) The Company has not been delinquent in the payment of any Tax
(other than Taxes for which adequate accruals have been established in
the Company Financials), 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.
(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 (S)1504(a)) filing a consolidated federal
income Tax Return (other than a group the common Parent of which was the
Company), (b) no liability for the Taxes of any person (other than the
Company or any of its Subsidiaries) under Treas. Reg. (S) 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.
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2.9 Restrictions on Business Activities. There is no agreement (noncompete
or otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or
reasonably would 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 or the conduct of business by the Company. Without
limiting 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 products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property. Schedule 2.10(a) sets forth a
list of all real property leased by the Company, the name of the lessor,
the date of the lease and each amendment thereto and the aggregate annual
rental and/or other fees payable under any such lease. All such 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 on the part of the Company (or event which with
notice or lapse of time, or both, would constitute a default on the part of
the Company).
(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 (as defined in Section
2.8(b)(vii)), except as reflected in the Company Financials or in Schedule
2.10(b) and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the
value, or materially interfere with the present use, of the property
subject thereto or affected thereby.
2.11 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (iii) all copyrights,
copyright registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) all industrial designs and
any registrations and applications therefor throughout the world; (v) all
trade names, logos, URLs, common law trademarks and service marks, trademark
and service mark registrations and applications therefor throughout the
world; (vi) all databases and data collections and all rights therein
throughout the world; (vii) all moral and economic rights of authors and
inventors, however denominated, throughout the world and (viii) any similar
or equivalent rights to any of the foregoing anywhere in the world.
"Company Intellectual Property" shall mean any Intellectual Property that is
owned by, or exclusively licensed to, the Company.
"Registered Intellectual Property" means all United States,
international and foreign: (i) patents and patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any state,
government or other public legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company.
(a) No material Company Intellectual Property or product or service of
the Company is subject to any proceeding or outstanding decree, order,
judgment, agreement or stipulation restricting in any manner
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the use, transfer, or licensing thereof by the Company, or which may affect
the validity, use or enforceability of such Company Intellectual Property.
(b) Schedule 2.11(b) is a complete and accurate list of all Company
Registered Intellectual Property and specifies, where applicable, the
jurisdictions in which each such item of Company Registered Intellectual
Property has been issued or registered or in which an application for such
issuance and registration has been filed, including the respective
registration or application numbers. Each material item of Company
Registered Intellectual Property is valid and subsisting, all necessary
registration, maintenance and renewal fees currently due in connection with
such Registered Intellectual Property have been made and all necessary
documents, recordations and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
Registered Intellectual Property.
(c) The Company owns and has good and exclusive title to, or has license
(sufficient for the conduct of its business as currently conducted and as
currently proposed to be conducted) to, each material item of Company
Intellectual Property or other Intellectual Property used by the Company
free and clear of any lien or encumbrance (excluding licenses and related
restrictions); and the Company is the exclusive owner of all trademarks and
trade names used in connection with the operation or conduct of the
business of the Company, including the sale of any products or the
provision of any services by the Company.
(d) The Company owns exclusively, and has good title to, all copyrighted
works that are the Company products or which the Company otherwise
expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for the Company, the Company has a
written agreement with such third party with respect thereto and the
Company thereby either (i) has obtained ownership of, and is the exclusive
owner of or (ii) has obtained a license (sufficient for the conduct of its
business as currently conducted and as currently proposed to be conducted)
to all such third party's Intellectual Property in such work, material or
invention by operation of law or by valid assignment, to the fullest extent
it is legally possible to do so.
(f) The Company has not transferred ownership of, or granted any
exclusive license with respect to, any Intellectual Property that is or was
material to the Company Intellectual Property, to any third party.
(g) Schedule 2.11(g) list all material contracts, licenses and
agreements to which the Company is a party (i) with respect to the Company
Intellectual Property licensed or transferred to any third party (other
than end-user licenses in the ordinary course); or (ii) pursuant to which a
third party has licensed or transferred any material Intellectual Property
to the Company.
(h) All material contracts, licenses and agreements relating to Company
Intellectual Property are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination or suspension of
such contracts, licenses and agreements. The Company is in material
compliance with, and has not materially breached any term any of such
contracts, licenses and agreements and, to the knowledge of the Company,
all other parties to such contracts, licenses and agreements are in
compliance with, and have not materially breached any term of, such
contracts, licenses and agreements. Subject to receipt of those consents
set forth in Schedule 2.11(h), following the Closing Date, the Surviving
Corporation will be permitted to exercise all of the Company's rights under
such contracts, licenses and agreements to the same extent the Company
would have been able to had the transactions contemplated by this Agreement
not occurred and without the payment of any additional material amounts or
consideration other than ongoing fees, royalties or payments which the
Company would otherwise be required to pay.
(i) To the Knowledge of the Company, the operation of the business of
the Company as such business currently is conducted, including the
Company's design, development, manufacture, marketing and sale of the
products or services of the Company (including with respect to products and
services currently under development) has not, does not and will not
infringe or misappropriate the Intellectual
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Property of any third party or constitute unfair competition or trade
practices under the laws of any jurisdiction.
(j) The Company has not received notice from any third party that the
operation of the business of the Company or any act, product or service of
the Company, infringes or misappropriates the Intellectual Property of any
such third party or constitutes unfair competition or trade practices under
the laws of any jurisdiction.
(k) To the Knowledge of the Company, no person has or is infringing or
misappropriating, in any respect materially adverse to the Company, any
Company Intellectual Property.
(l) The Company has taken reasonable steps to protect the Company's
rights in the Company's confidential information and trade secrets that it
wishes to protect or any trade secrets or confidential information of third
parties provided to the Company, and, without limiting the foregoing, the
Company has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality and invention assignment
agreement and all current and former employees and contractors of the
Company have executed such an agreement, except where the failure to do so
is not reasonably expected to be material to the Company.
2.12 Agreements, Contracts and Commitments.
(a) Except as set forth on Schedule 2.12(a), the Company does not have,
is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or any
consulting or sales agreement, contract or commitment under which any
firm or other organization provides services to the Company,
(v) 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 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,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or
to compete with any person,
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000,
(xi) 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 consistent with
past practice,
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in
clause (viii) hereof,
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(xiii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or may
grant in the future, to any party, a source-code license or option or
other right to use or acquire source-code, or
(xvii) any other agreement, contract or commitment that involves
$25,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) Except for such alleged breaches, violations and defaults, and
events that would constitute a breach, violation or default with the lapse
of time, giving of notice, or both, as are noted in Schedule 2.12(b), the
Company 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 agreement, contract or commitment required to be set
forth on Schedule 2.12(a) or Schedule 2.11(g) (any such agreement, contract
or commitment, a "Contract"). Each Contract is in full force and effect
and, except as otherwise disclosed in Schedule 2.12(b), is not subject to
any default thereunder of which the Company has Knowledge by any party
obligated to the Company pursuant thereto.
2.13 Interested Party Transactions. To the Knowledge of the Company, except
as set forth on Schedule 2.13, no officer, director or stockholder 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
economic interest in any entity which furnished or sold, or furnishes or
sells, services or products that the Company furnishes or sells, or proposes
to furnish or sell, (ii) an economic 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 or agreement set forth in Schedule 2.12(a)
or Schedule 2.11(g); provided, that ownership of no more than one percent (1%)
of the outstanding voting stock of a publicly traded corporation shall not be
deemed an "economic interest in any entity" for purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all respects with,
is not in violation of, and has not received any notices of violation with
respect to, any foreign, federal, state or local statute, law or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or to the Company's Knowledge
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, to the Company's Knowledge, there is no investigation pending
or threatened against the Company, its properties or any of its officers or
directors by or before any governmental entity. Schedule 2.15 sets forth, with
respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claimed or other remedy requested. To the Company's
Knowledge, no governmental entity has at any time challenged or questioned the
legal right of the Company to manufacture, offer or sell any of its products
in the present manner or style thereof.
2.16 Insurance. With respect to the Company's insurance policies and
fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors, there is no claim by the
Company 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 is otherwise in material compliance with the terms
of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any
of such policies.
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2.17 Minute Books. The minute books of the Company made available to counsel
for Parent are the only minute books of the Company and contain a reasonably
accurate summary of all meetings of directors (or committees thereof) and
stockholders or actions by written consent since the time of incorporation of
the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not operated any underground
storage tanks, and has no knowledge of the existence, at any time, of any
underground storage tank (or related piping or pumps), at any property that
the Company has at any time owned, operated, occupied or leased. The
Company has not 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,
oil and petroleum products, urea-formaldehyde and all substances listed as
a "hazardous substance," "hazardous waste," "hazardous material" or "toxic
substance" or words of similar import, under any law, including but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery
Act of 1976, as amended; the Federal Water Pollution Control Act, as
amended; the Clean Air Act, as amended, and the regulations promulgated
pursuant to said laws (a "Hazardous Material"). No Hazardous Materials are
present as a result of the actions or omissions of the Company, or, to the
Company's Knowledge, as a result of any actions of any third party or
otherwise, 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 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
and other businesses of the Company as such activities and businesses are
currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or
to the Company's Knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company. The
Company is not aware of any fact or circumstance which could involve the
Company in any environmental litigation or impose upon the Company any
environmental liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth
on Schedule 2.19, 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 this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth the principal terms and
conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.19 also sets forth the Company's current reasonable estimate of all
Third Party Expenses (as defined in Section 5.5) expected to be incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
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2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.20 (a)(i) below (which definition shall apply only to
this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "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;
(ii) "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iii) "Code" shall mean the Internal Revenue Code of 1986, as amended;
(iv) "Company Employee Plan" shall mean any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation,
performance awards, stock or stock-related awards, fringe benefits or
other employee benefits or remuneration of any kind, whether written or
unwritten or otherwise, funded or unfunded, including without limitation,
each "employee benefit plan," within the meaning of Section 3(3) of ERISA
which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any 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;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former or retired employee,
consultant or director of the Company or any Affiliate;
(vii) "Employment Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas,
work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(xii) "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. Schedule 2.20(b) contains an accurate and complete list of
each Company Employee Plan and each Employment Agreement. The Company does
not have any plan or commitment to establish any new Company Employee Plan
or Employment Agreement, to modify any Company Employee Plan or Employment
Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employment Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing,
or as required by this Agreement), or to adopt or enter into any Company
Employee Plan, International Employee Plan, or Employment Agreement.
(c) Documents. The Company has provided to Parent correct and complete
copies of: (i) all documents embodying each Company Employee Plan,
International Employee Plan, and each Employment Agreement including
(without limitation) all amendments thereto and all related trust
documents, administrative service agreements, group annuity contracts,
group insurance contracts, and policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Plan; (ii) the most recent
annual actuarial valuations, if any, prepared for each Company Employee
Plan; (iii) all annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under
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ERISA or the Code in connection with each Company Employee Plan; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary
plan description together with the summary(ies) of material modifications
thereto, if any, required under ERISA with respect to each Company Employee
Plan; (vi) all IRS determination, opinion, notification and advisory
letters, and all applications and correspondence to or from the IRS or the
DOL with respect to any such application or letter; (vii) all
communications material to any 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 material liability to the Company;
(viii) all correspondence to or from any governmental agency relating to
any Company Employee Plan; (ix) all COBRA forms and related notices (or
such forms and notices as required under comparable law); (x) all plan
years discrimination tests for each Company Employee Plan, if any; 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. Except as set forth on Schedule 2.20(d),
(i) the Company has performed in all material respects all obligations
required to be performed by it under, is not in default or violation of,
and has no knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established
and maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code has
either received a favorable determination, opinion, notification or
advisory letter from the IRS with respect to each such Company Employee
Plan as to its qualified status under the Code, including all amendments to
the Code effected by the Tax Reform Act of 1986 and subsequent legislation,
or has remaining a period of time under applicable Treasury regulations or
IRS pronouncements in which to apply for such a letter and make any
amendments necessary to obtain a favorable determination as to the
qualified status of each such Company Employee Plan, or if the Company
Employee Plan is a standardized prototype plan that has not been altered by
the Company, it may rely on an opinion letter issued with respect to a
standardized prototype plan adopted in accordance with the requirements for
such reliance; (iii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 4975 of the Code or Section 408 of ERISA (or
any administrative class exemption issued thereunder), has occurred with
respect to any Company Employee Plan; (iv) there are no actions, suits or
claims pending, or, to the knowledge of the Company, threatened or
reasonably anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan;
(v) each Company Employee Plan (other than any stock option plan) can be
amended, terminated or otherwise discontinued after the Effective Time,
without material liability to the Parent, Company or any of its Affiliates
(other than ordinary administration expenses); (vi) there are no audits,
inquiries or proceedings pending or, to the knowledge of the Company or any
Affiliates, threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) 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) Pension Plan. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) Collectively Bargained, Multiemployer and Multiple Employer
Plans. At no time has the Company or any Affiliate contributed to or been
obligated to contribute to any Multiemployer Plan. To the Knowledge of the
Company, neither the Company, nor any Affiliate has at any time ever
maintained, established, sponsored, participated in, or contributed to any
multiple employer plan, or to any plan described in Section 413 of the
Code.
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(g) No Post-Employment Obligations. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or reflects or represents any
liability to provide retiree health to any person for any reason, except as
may be required by COBRA or other applicable statute, and the Company has
never represented, promised or contracted (whether in oral or written form)
to any 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 health, except to the extent required by statute.
(h) Health Care Compliance. Neither the Company nor any Affiliate has,
prior to the Effective Time and in any material respect, violated any of
the health care continuation requirements of COBRA, the requirements of
FMLA, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and
Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers'
Health Protection Act of 1996, or any amendment to each such act, or any
similar provisions of state law applicable to its Employees.
(i) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby
will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any Company Employee Plan,
Employment Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting (other than as required under Code
Section 411(d)(3)), distribution (other than as required upon termination
of a qualified plan), increase in benefits or obligation to fund benefits
with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(i), no payment or benefit
which will or may be made by the Company or its Affiliates with respect
to any Employee will be characterized as a "parachute payment," within
the meaning of Section 280G(b)(2) of the Code.
(j) Employment Matters. The Company: (i) is in compliance in all
respects with all applicable foreign, federal, state and local laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
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, threatened or reasonably anticipated
claims or actions against the Company under any worker's compensation
policy or long-term disability policy.
(k) Labor. No work stoppage or labor strike against the Company is
pending, threatened or reasonably anticipated. The Company does not have
Knowledge of any activities or proceedings of any labor union to organize
any Employees. Except as set forth in Schedule 2.20(k), there are no
actions, suits, claims, labor disputes or grievances pending, or, to the
Knowledge of the Company, threatened or reasonably anticipated relating to
any labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations
Act. Except as set forth in Schedule 2.20(k), 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.
2.21 Opinion of Financial Advisor. Credit Suisse First Boston Corporation
("CSFB") has delivered to the Company Special Committee its oral opinion to the
effect that, as of the date of this Agreement, the
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Exchange Ratio is fair, from a financial point of view, to the holders of
Company Capital Stock other than Parent and its affiliates and the Principal
Stockholders, which opinion was or will promptly after the date of this
Agreement be confirmed in writing.
2.22 Registration Statement; Proxy Statement; Other Filings. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in (i) Parent's Registration Statement (as defined
in Section 5.1 hereof) will at the time it is declared or ordered effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading; and (ii) the Proxy Statement (as defined in
Section 5.1 hereof) shall not, on the date the Proxy Statement is first mailed
to the Parent Stockholders and the Company Stockholders, at the time of the
Parent Stockholders' Meeting (as defined in Section 5.1 hereof) or the Company
Stockholders' Meeting (as defined in Section 5.1 hereof) and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Parent Stockholders' Meeting or the Company
Stockholders' Meeting which has become false or misleading. If at any time
prior to the Effective Time any event relating to the Company or any of its
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment or a supplement to the Proxy Statement or
Parent's Registration Statement, the Company shall promptly inform Parent. The
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder that are applicable by reason of the Proxy Statement constituting a
proxy statement of Parent and the Company. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to any information
supplied by Parent which is contained in any of the foregoing documents.
2.23 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the stockholders of the Company in connection with soliciting their consent
to this Agreement and the Merger, contains or will contain at the Effective
Time, any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
As of the date hereof and as of the Closing Date, Parent represents and
warrants to the Company and the Principal Stockholders as follows:
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. Parent has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would be material to Parent.
3.2 Authority. Subject only to the requisite approval of the issuance of
shares of Parent Common Stock in the Merger by the Parent Stockholders, Parent
has all requisite corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. A special committeee of
the Board of Directors of Parent formed for the purpose of considering the
proposed terms and conditions of the Merger (the "Parent Special Committee")
has unanimously approved this Agreement and the issuance of Parent Common Stock
in connection with the Merger. This Agreement has been duly executed and
delivered by Parent and
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constitutes, assuming the due authorization, execution and delivery by the
other parties hereto, the valid and binding obligations of Parent, enforceable
in accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, proceeding at law or in equity. Subject only to
the approval of the issuance of Parent Common Stock in the Merger by the Parent
Stockholders, the execution and delivery of this Agreement by Parent does not,
and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, Conflict with (i) any provision of the
Certificate of Incorporation or Bylaws of Parent or (ii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity or any
third party (so as not to trigger any Conflict) is required by or with respect
to Parent in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger with the Delaware Secretary of State, (ii)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iii) compliance with any applicable requirements of the HSR
Act.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 500,000,000 shares of
Common Stock, of which 188,933,510 shares were issued and outstanding as of
October 31, 2000, and no shares of Preferred Stock. All such shares have
been duly authorized, and all such issued and outstanding shares have been
validly issued, are fully paid and nonassessable and are free of any liens
or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger, when issued, will be duly authorized, validly issued, fully paid,
non-assessable and issued in compliance with applicable federal and state
securities laws.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or made
available to the Company true and complete copies of all reports or
registration statements filed by it with the Securities and Exchange Commission
(the "SEC") since January 1, 2000, all in the form so filed (all of the
foregoing being collectively referred to as the "SEC Documents"). As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933 (the "Securities Act") or
the Securities Exchange Act of 1934 (the "Exchange Act") as the case may be,
and none of the SEC Documents contained 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 made therein, in light of the circumstances in which
they were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC. The financial statements of Parent, including
the notes thereto, included in the SEC Documents (the "Parent Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form 10-
Q of the SEC) and present fairly the consolidated financial position of Parent
at the dates thereof and the consolidated results of its operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal audit adjustments). There has been no change in Parent accounting
policies except as described in the notes to the Parent Financial Statements;
provided, however, the Parent may have restated or may restate one or more of
the Parent Financial Statements to reflect acquisitions entered into subsequent
to the respective dates thereof. No Parent Material Adverse Effect has occurred
since the date of the balance sheet included in the Parent Financial Statements
and prior to the date hereof.
3.5 Registration Statement; Proxy Statement; Other Filings. None of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in (i) Parent's Registration Statement (as defined in Section 5.1
hereof) will at the time it is declared or ordered effective under the
Securities Act, contain any
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untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading; and (ii)
the Proxy Statement (as defined in Section 5.1 hereof) shall not, on the date
the Proxy Statement is first mailed to the Parent Stockholders and the Company
Stockholders, at the time of the Parent Stockholders' Meeting (as defined in
Section 5.1 hereof) or the Company Stockholders' Meeting (as defined in Section
5.1 hereof) and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Parent
Stockholders' Meeting or the Company Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to Parent or any of its affiliates, officers or directors should be
discovered by Parent, which Parent reasonably believes should be set forth in
an amendment or a supplement to the Proxy Statement or Parent Registration
Statement, Parent shall promptly inform the Company. The Proxy Statement will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations promulgated thereunder that are applicable by
reason of the Proxy Statement constituting a proxy statement of Parent and the
Company. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by Company which is contained
in any of the foregoing documents.
3.6 No Litigation. There is no action, investigation or proceeding pending
against, and to the knowledge of Parent, threatened against or effecting Parent
before any court or Governmental Entity which in any manner challenges or seeks
to prevent, enjoin, alter or delay any of the transactions contemplated by this
Agreement.
3.7 Compliance with Laws. Parent has complied with, is not in violation of,
and has not received any notices of violation with respect to, any federal,
state or local statute, law or regulation with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which would not have a Parent Material Adverse Effect.
3.8 Opinion of Financial Advisor. Chase H&Q has delivered to the Parent
Special Committee its oral opinion to the effect that, as of the date of this
Agreement, the Exchange Ratio is fair to Parent from a financial point of view,
which opinion was or will promptly after the date of this Agreement be
confirmed in writing.
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 (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business,
to use all reasonable best efforts consistent with past practice and policies
to preserve intact its present business organization, keep available the
services of its 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 its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of its business, and any material event involving or
adversely affecting the Company or its business. Except as expressly
contemplated by this Agreement, the Company shall not, without the prior
written consent of Parent:
(a) Enter into any commitment, activity or transaction other than in the
ordinary course of business consistent with past practice;
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(b) Transfer to any person or entity any rights to any Company
Intellectual Property (other than pursuant to end-user licenses in the
ordinary course of business) or enter into any agreement with respect to
Company Intellectual Property with any person or entity other than in the
ordinary course of business consistent with past practice;
(c) Hire any employees or terminate any employees other than for cause
or encourage any employees to resign from the Company other than in the
ordinary course of business consistent with past practice;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(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 of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of the Company, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock (or options, warrants or other rights exercisable
therefor) except for (i) repurchases of Company Capital Stock upon the
termination of service of any service providers of the Company in
accordance with the standard terms set forth in the agreements governing
such repurchases, all of which agreements have been provided or made
available to Parent, (ii) conversion of Company Preferred Stock and (iii)
exercises or conversion of Company Convertible Securities;
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options or
Warrants, and except for the issuance of Company Options to new and current
employees in the ordinary course of business exercisable for an amount of
shares of Company Common Stock not in excess of 4,000,000 and with an
exercise price equal to the then fair market value of the Company Common
Stock (taking into account the Exchange Ratio in the Merger), issue, sell,
grant, contract to issue, grant or sell, or authorize the issuance,
delivery, sale or purchase of any shares of Company Capital Stock or
securities convertible into, or exercisable or exchangeable for, shares of
Company Capital Stock, or any securities, warrants, options or rights to
purchase any of the foregoing, except for issuances of Company Capital
Stock upon the exercise thereof or upon exercise or conversion of Company
Convertible Securities or Company Preferred Stock outstanding as of the
date of this Agreement;
(h) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
(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
business of the Company;
(j) Sell, lease, license or otherwise dispose of any of the assets or
properties of the Company which are not Company Intellectual Property other
than in the ordinary course of business and consistent with past practices,
including but not limited to the performance of obligations under
contractual arrangements listed on the Company Schedules existing as of the
date hereof, or create any security interest in such assets or properties;
(k) Grant any loan to any person or entity, incur any indebtedness or
guarantee any indebtedness, issue or sell any debt securities, guarantee
any debt securities of others, purchase any debt securities of others or
amend the terms of any outstanding agreements related to borrowed money,
except for advances to employees for travel and business expenses in the
ordinary course of business consistent with past practices;
(l) Grant any severance or termination pay (cash, equity or otherwise)
to any officer or employee except pursuant to written agreements
outstanding, or policies existing, on the date hereof and as previously
disclosed in writing or made available to Parent, or adopt any new
severance plan, or amend or
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modify or alter in any respect any severance plan, agreement or arrangement
existing on the date hereof, or grant any equity-based compensation;
(m) 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 and consistent with past practice;
(n) Take any action to accelerate the vesting schedule of any of the
outstanding Company Options or Company Capital Stock;
(o) 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 Company
Financial Statements or incurred by the Company following the date of the
Current Balance Sheet in the ordinary course of business;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent
to any extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes;
(q) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement other than in the ordinary course of
business consistent with past practice;
(r) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith;
(s) Waive or commit to waive any rights with a value in excess of
$25,000 (in any one case) or $100,000 (in the aggregate);
(t) Cancel, materially amend or renew any insurance policy other than in
the ordinary course of business;
(u) Alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in
which the Company directly or indirectly holds any interest on the date
hereof;
(v) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(w) Adopt or amend any employee benefit plan, policy or arrangement, or
employee stock purchase or stock option plan, or enter into any employment
contract or collective bargaining agreement (other than offer letters and
letter agreements entered into, in the ordinary course of business and
consistent with past practice, with newly hired employees who are
terminable "at will" and who are not officers of the Company), pay any
special bonus or special remuneration (cash, equity or otherwise) to any
director or employee, grant any equity-based compensation award, or
increase the salaries or wage rates or fringe benefits (cash, equity or
otherwise) (including rights to severance or indemnification) of its
directors, officers, employees or consultants other than in the ordinary
course of business consistent with past practice; or
(x) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (w) above, or any other action that
would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the date of
termination of this Agreement pursuant to the provisions of Section 8.1 hereof,
the Principal Stockholders and the Company will not (nor will the Company
permit any of the Company's officers, directors, agents, representatives or
affiliates or authorize or direct its stockholders to) directly or indirectly,
take any of the following actions with any party
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other than Parent and its designees: (a) solicit, initiate, entertain, or
encourage any proposals or offers from, or conduct discussions with or engage
in negotiations with, any person relating to any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its
capital stock or assets or any equity interest in the Company or any of its
subsidiaries, (b) provide information with respect to it to any person, other
than Parent, relating to, or otherwise cooperate with, facilitate or encourage
any effort or attempt by any such person with regard to, any possible
acquisition of the Company (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise), any material portion of its capital
stock or assets or any equity interest in the Company or any of its
subsidiaries, (c) enter into an agreement with any person, other than Parent,
providing for the acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any material
portion of its capital stock or assets or any equity interest in the Company,
or (d) make or authorize any statement, recommendation or solicitation in
support of any possible acquisition of the Company or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company or any of its subsidiaries by any person, other than by
Parent. The Company shall immediately cease and cause to be terminated any such
contacts or negotiations with third parties relating to any such transaction or
proposed transaction. In addition to the foregoing, if the Company receives
prior to the Effective Time or the termination of this Agreement any offer or
proposal relating to any of the above, the Company shall immediately notify
Parent thereof, including information as to the identity of the offeror or the
party making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request. Except as contemplated by this Agreement,
disclosure by the Company of the terms hereof (other than the prohibition of
this Section 4.2) shall be deemed to be a violation of this Section 4.2.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, the Company and Parent shall
prepare and file with the SEC a registration statement on Form S-4 (the
"Registration Statement"), in which a joint proxy statement (the "Proxy
Statement") to be sent to the Company Stockholders in connection with the
meeting of the Company Stockholders to consider the adoption of this Agreement
(the "Company Stockholders' Meeting") and in connection with the meeting of the
Parent Stockholders to consider the approval of the issuance of shares of
Parent Common Stock in the Merger (the "Parent Stockholders' Meeting") will be
included, to register under the Securities Act the issuance of shares of Parent
Common Stock in connection with the Merger. Each of the Company and Parent
shall respond to any comments of the SEC, use its respective reasonable best
efforts to have the Registration Statement declared or ordered effective under
the Securities Act as promptly as practicable after such filing, and cause the
Proxy Statement to be mailed to its respective stockholders at the earliest
practicable time. As promptly as practicable after the date hereof, the Company
and Parent shall prepare and file any other filings required under the Exchange
Act or the Securities Act. Each party hereto shall notify the other promptly
upon the receipt of any comments from the SEC or its staff and of any request
by the SEC or its staff for amendments or supplements to the Proxy Statement or
the Registration Statement or for additional information, and shall supply the
other party or parties hereto 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 hand, with respect to the Proxy Statement or the Registration
Statement. Each party hereto shall comply in all material respects with all
requirements of law applicable to such party in connection with the Proxy
Statement and the Registration Statement. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Proxy Statement
or the Registration Statement, the Company or Parent, as the case may be, shall
promptly inform the other party hereto of such occurrence and cooperate in
filing with the SEC or its staff, and/or mailing to the Company Stockholders or
Parent Stockholders, such amendment or supplement. As promptly as practicable
after the Registration Statement shall have become effective, each of Parent
and the Company shall mail the Proxy Statement to their respective
stockholders.
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5.2 Meetings of Stockholders. The Company shall take all action necessary in
accordance with Delaware Law and its Certificate of Incorporation and Bylaws to
convene the Company Stockholders' Meeting, to be held as promptly as
practicable after the Registration Statement is declared effective under the
Securities Act, for the purpose of voting upon the adoption of the Merger
Agreement and shall use its commercially reasonable efforts to convene and hold
the Company Stockholders' Meeting on the same day and immediately subsequent to
the Parent Stockholders' Meeting. In connection therewith, (i) the Board of
Directors of the Company shall unanimously recommend that the Company's
stockholders vote in favor of and adopt and approve this Agreement at the
Company Stockholders' Meeting, and (ii) the Proxy Statement shall include a
statement to the effect that the Board of Directors of the Company has
unanimously recommended that the Company Stockholders vote in favor of and
adopt and approve this Agreement at the Company Stockholders' Meeting;
provided, however, that until the date on which this Agreement is approved and
adopted by the Company Stockholders, this Section 5.2 shall not prohibit the
Board of Directors of the Company or the Company Special Committee from
withdrawing, amending or modifying such recommendation or proposing to do any
of the foregoing if such Company Special Committee concludes in good faith,
after consultation with its legal and/or financial advisors, as such Company
Special Committee in its sole discretion deems appropriate, that such action is
advisable in connection with the Company Special Committee's fiduciary
obligations to the Company Stockholders under applicable law. Parent shall take
all action necessary in accordance with Delaware Law, its Certificate of
Incorporation and its Bylaws to convene the Parent Stockholders' Meeting, to be
held as promptly as practicable after the Registration Statement is declared
effective under the Securities Act, for the purpose of voting upon the approval
of the issuance of shares of Parent Common Stock in the Merger and shall use
its commercially reasonable efforts to hold the Parent Stockholders' Meeting on
the same day and immediately preceding the Company Stockholders' Meeting. In
connection therewith, (i) the Parent Special Committee shall unanimously
recommend that Parent's stockholders vote in favor of the issuance of shares of
Parent Common Stock at the Parent Stockholders' Meeting, and (ii) the Proxy
Statement shall include a statement to the effect that the Parent Special
Committee has unanimously recommended that the Parent Stockholders vote in
favor of and adopt and approve this Agreement at the Parent Stockholders'
Meeting; provided, however, that until the date on which this Agreement is
approved and adopted by the Parent Stockholders, this Section 5.2 shall not
prohibit the Parent Special Committee from withdrawing, amending or modifying
such recommendation or proposing to do any of the foregoing if such Parent
Special Committee concludes in good faith, after consultation with its legal
and/or financial advisors, as such Parent Special Committee in its sole
discretion deems appropriate, that such action is advisable in connection with
the Parent Special Committee's fiduciary obligations to the Parent Stockholders
under applicable law.
5.3 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.4 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. All such access shall be subject to the terms of the
Mutual Nondisclosure Agreement dated (the "Mutual NDA") between Parent and the
Company.
5.4 Confidentiality. The Principal Stockholders and the Escrow Agent hereby
agree to keep the terms of this Agreement (except to the extent contemplated
hereby) and such information or knowledge obtained in any investigation
pursuant to Section 5.4, or pursuant to the negotiation and execution of this
Agreement or the effectuation of the transactions contemplated hereby,
confidential; provided, however, that the foregoing shall not apply to
information or knowledge which (a) a party can demonstrate was already lawfully
in its possession prior to the disclosure thereof by the other party, (b) is
generally known to the public and did not become so known through any violation
of law, (c) became known to the public through no fault of such party, (d) is
later lawfully acquired by such party without confidentiality restrictions from
other sources, (e) is required to be disclosed by law (including, without
limitation, federal and state securities laws) or by order of court or
government agency with subpoena powers (provided that such party shall have
provided the other party with
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prior notice of such order and an opportunity to object or take other available
action) or (f) which is disclosed in the course of any litigation between any
of the parties hereto. The Company and Parent agree that the Mutual NDA remain
in full force and effect and that the terms of this Agreement (except to the
extent contemplated hereby) and such information or knowledge obtained in any
investigation pursuant to Section 5.4, or pursuant to the negotiation and
execution of this Agreement or the effectuation of the transactions
contemplated hereby shall be deemed "Evaluation Material" thereunder.
5.5 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.
5.6 Public Disclosure. Unless otherwise required by law (including, without
limitation, federal and state securities laws) or, as to Parent, by the rules
and regulations of the National Association of Securities Dealers, Inc., prior
to the Effective Time, no disclosure (whether or not in response to an inquiry)
of the subject matter of this Agreement shall be made by any party hereto
unless approved by Parent and the Company prior to release, provided that such
approval shall not be unreasonably withheld. The parties have agreed upon the
form of a joint press release announcing the proposed Merger and the execution
of this Agreement.
5.7 Consents. The Company shall use its reasonable best efforts to obtain
the consents, waivers and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Company Schedules) so as to preserve all rights
of and benefits to the Company thereunder.
5.8 Amendment of Vesting Period for Principal Stockholders. On or
immediately prior to the Closing Date, the Principal Stockholders shall each
enter into a restricted stock agreement (a "Restricted Stock and Lock-Up
Agreement") in the form attached hereto as Exhibit B, pursuant to which all
shares of Parent Common Stock to be received by the Principal Stockholders in
exchange for their Company Capital Stock and any outstanding options, warrants
or other rights to acquire or receive shares of Company Capital Stock in the
Merger shall be subject to vesting or lock-up for a period of five (5) years
from the Effective Time as set forth in such Restricted Stock and Lock-Up
Agreement.
5.9 FIRPTA Compliance. On or prior to the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.10 Termination of Benefits Plans. The Company shall terminate, effective
at least as of the day immediately preceding the Effective Time: (i) any and
all group severance, separation or salary continuation plans, programs, or
arrangements, and (ii) any and all 401(k) plans, unless Parent provides written
notice to the Company at least five (5) days prior to the Effective Time that
such 401(k) plan(s) shall not be terminated. Parent shall receive from the
Company evidence that the Company's plan(s) and/or program(s) have been
terminated pursuant to resolutions of each such entity's Board of Directors
(the form and substance of such resolutions shall be subject to review and
approval of Parent), effective at least as of the day immediately preceding the
Effective Time. In the event that distribution or rollover of assets from the
trust of a 401(k) plan which is terminated is reasonably anticipated to trigger
liquidation charges, surrender charges, or other fees to be imposed upon the
account of any participant or beneficiary of such terminated plan or upon the
Company or plan sponsor, then the Company shall take such actions as are
necessary to reasonably estimate the amount of such charges and/or fees and
provide such estimate in writing to Parent prior to the Effective Time and
Parent shall pay any such amounts that would be imposed on the account of any
participant or beneficiary directly to the service provider imposing such
amounts, if permitted by such service provider, or if payment by Parent is not
permitted by such service provider, Parent shall reimburse the participant or
beneficiary directly for such amounts.
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5.11 Reasonable Best Efforts. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its reasonable best
efforts to ensure that its representations and warranties remain true and
correct in all material respects, and 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, 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 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 the
Company or its affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise
control of such assets, properties and stock.
5.12 Notification of Certain Matters. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent,
as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; such that the
conditions set forth in Section 6.2(a) or (b) or Section 6.3(a) or (b) would
not be satisfied; provided, however, that the delivery of any notice pursuant
to this Section 5.12 shall not limit or otherwise affect any remedies available
to the party receiving such notice.
5.13 Affiliate Agreements. The Company shall deliver or cause to be
delivered to Parent, at or prior to the Closing, from each of the Company
affiliates as set forth on Schedule 5.13 hereto, including, but not limited to,
the Principal Stockholders and Benchmark (the "Company Affiliates"), an
executed Affiliate Agreement in the form attached hereto as Exhibit C (the
"Affiliate Agreement"). Parent shall be entitled to place appropriate legends
on the certificates evidencing any Parent Common Stock to be received by such
Company 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.
5.14 Form S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Options as soon as is reasonably practicable following the Effective Time, but
in no event later than thirty (30) days following the Effective Time. Parent
shall use its commercially reasonable efforts to maintain the effectiveness of
such registration statement (and maintain the current status of the prospectus
contained therein), for so long as such Company Options remain outstanding.
5.15 Nasdaq National Market Listing. Parent shall, prior to the Effective
Time, cause the shares of Parent Common Stock issuable to the stockholders of
the Company in the Merger to be authorized for listing on the Nasdaq National
Market, subject to official notice of issuance.
5.16 Directors' and Officers' Indemnification.
(a) Parent agrees that all rights to indemnification now existing in
favor of any director or officer of the Company (the "Indemnified Parties")
as provided in the Company's certificate of incorporation and bylaws, in an
agreement between an Indemnified Party and the Company, or otherwise in
effect on the date of this Agreement shall be maintained by the Surviving
Corporation and shall survive the Merger and shall continue in full force
and effect for a period of not less than six (6) years from the Effective
Time; provided that in the event any claim or claims are asserted or made
within such six (6) -year period, all rights to indemnification in respect
of any such claim or claims shall continue until final disposition of any
and all such claims.
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(b) In the event that the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other person and is not
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, in each such case, Parent shall
cause proper provision to be made so that the successors or assigns of the
Surviving Corporation assume the obligations set forth in this Section
5.16.
5.17 Parent Agreement to Vote Shares of Company Preferred Stock; Restriction
on Transfer. Parent agrees that, during the period from the date of this
Agreement through the earlier to occur of the Effective Time of the Merger or
the Termination of this Agreement: (a) at any meeting of the Company
Stockholders at which matters relating to the Merger, this Agreement or any
actions contemplated hereby, however called, Parent shall (unless otherwise
directed in writing by the Company ) cause all outstanding shares of the
Company Series A Preferred Stock that are owned by Parent as of the record date
fixed for such meeting to be voted in favor of the approval and adoption of
this Agreement and the approval of the Merger, and in favor of each of the
other actions contemplated by this Agreement; and (b) in the event written
consents are solicited or otherwise sought from stockholders of the Company
with respect to the approval or adoption of this Agreement, with respect to the
approval of the Merger or with respect to any of the other actions contemplated
by this Agreement, Parent shall (unless otherwise directed by the Company)
cause to be executed, with respect to all shares of Company Series A Preferred
Stock that are owned by Parent as of the record date fixed for the consent to
the proposed action, a written consent or written consents to such proposed
action. Parent agrees, during the period from the date of this Agreement
through the earlier to occur of the Effective Time of the Merger or the
Termination of this Agreement, not to transfer ("Transfer") any of the shares
of Company Capital Stock held by Parent, without the prior written consent of
the Company; provided that Parent may effect a Transfer to any person or entity
where as a pre-condition to such Transfer the transferee agrees to be bound by
all of the terms and conditions of this Section 5.17 and delivers a duly
executed agreement to the Company as evidence of such agreement. This Section
5.17 is intended to bind Parent only with respect to the specific matters set
forth herein.
5.18 Additional Documents and Further Assurances. Each party hereto, at the
request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.19 Reorganization Treatment. Neither Parent nor the Company has taken or
will take any action, or has failed to take or will fail to take any action,
either before or after the Closing which could reasonably be expected to cause
the Merger to fail to qualify as a reorganization under Section 368(a) of the
Code. Parent and the Company shall report the Merger for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
5.20 Employment; Parent or Surviving Corporation Employee Benefit Plans.
(a) Individuals who become employed by Parent or the Surviving
Corporation from and after the Effective Time shall be referred to herein
as "Affected Employees." Each Affected Employee will be eligible to
participate in the benefit programs, plans, arrangements, payroll practices
(including vacation or paid time off entitlement) offered to employees of
Parent or established by the Surviving Corporation from time to time (the
"Parent Employee Benefit Plans") pursuant to the terms of each such Plan,
or in the absence of plan terms or provisions, in accordance with the
regularly established policies or procedures of either Parent or the
Surviving Corporation.
(b) Parent will, or will cause the Surviving Corporation to, recognize
the employment service of each Affected Employee with the Company for
purposes of eligibility and vesting (but not benefit accrual) under any
Parent Employee Benefit Plan. Each Affected Employee's years of service
with the Company shall be otherwise recognized for all general employment
purposes including, without limitation, seniority, vacation, personal time
and similar general employment purposes, provided, that any vacation time
offered by Parent or Surviving Corporation in the calendar year of the
Effective Time to any Affected Employee
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shall be offset by any vacation time used by or paid to an Affected
Employee by the Company in the calendar year of the Effective Time.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Stockholder Approval. This Agreement, the Merger and the issuance of
shares of Parent Common Stock in the Merger shall have been approved and
adopted by the stockholders of the Parent and the Company, as applicable,
by the requisite vote under applicable law, requirements of the Nasdaq
National Market and the Company's and Parent's Certificate of
Incorporation, as applicable. In addition, the Company Stockholders shall
have approved by the requisite vote any payments contemplated by this
Agreement or any other agreements that may be deemed to constitute
"parachute payments" pursuant to Section 280G of the Code, such that all
such payments, sales and purchases resulting from the transactions
contemplated hereby or thereby shall not be deemed to be "parachute
payments" pursuant to Section 280G of the Code or shall be exempt from such
treatment under such Section 280G.
(b) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the Registration Statement effective in accordance with the
provisions of the Securities Act; and no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued by the SEC and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement, shall have been initiated or
threatened in writing by the SEC.
(c) HSR Act and Comparable Laws. All waiting periods, if any, under the
HSR Act relating to the transactions contemplated hereby shall have expired
or been terminated and clearance for such transactions shall have been
obtained under the comparable laws of any foreign countries where
consummation of such transactions prior to such clearance would have a
material impact on the Company.
(d) Nasdaq Listing. The shares of Parent Common Stock issuable to
Company Stockholders in connection with the Merger and such other shares
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the Nasdaq National Market upon
official notice of issuance.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
6.2 Additional Conditions to Obligations of the Company. The obligations of
the Company to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent contained in this Agreement shall have been true and correct as
of the date of this Agreement and shall be true and correct as of the
Closing Date, except where the failure to be so true and correct does not
constitute a Parent Material Adverse Effect (without giving effect to any
qualifiers and exceptions therein relating to materiality), except for
those representations and warranties which address matters only as of a
particular date (which shall remain true and correct in all material
respects as of such date, except where the failure to be so true and
correct does not constitute a Parent Material Adverse Effect (without
giving effect to any qualifiers and exceptions therein relating to
materiality)), with the same force and effect as if made on and as of the
Closing Date; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
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(b) Agreements and Covenants. Parent shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, and the Company shall have received a certificate to such
effect signed by a duly authorized officer of Parent.
(c) Tax Opinion. The Company shall have received an opinion of Venture
Law Group, A Professional Corporation, its special tax counsel, in form and
substance reasonably satisfactory to it, dated the Closing Date, to the
effect that the Merger will constitute a tax-free reorganization for United
States federal income tax purposes within the meaning of Section 368(a) of
the Code. Parent and the Company agree to make such representations and
warranties as may be requested by tax counsel in connection with the
opinion referred to above.
(d) No Parent Material Adverse Effect. There shall not have occurred any
action or event that has had a Parent Material Adverse Effect.
(e) Secretary's Certificate. The Company shall have received at the
Closing from Parent's corporate secretary, a Certificate dated the Closing
Date, in form and substance substantially as set forth in Exhibit D.
(f) Stockholder Vote. This Agreement and the Merger shall have been
approved and adopted by holders of a majority of the outstanding shares of
Company Capital Stock that are not owned by Parent or the Principal
Stockholders.
6.3 Additional Conditions to the Obligations of Parent. The obligations of
Parent to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Representations and Warranties. The representations and warranties
of the Company and the Principal Stockholders contained in this Agreement
shall have been true and correct as of the date of this Agreement and shall
be true and correct as of the Closing Date, except where the failure to be
so true and correct does not constitute a Company Material Adverse Effect
(without giving effect to any qualifiers and exceptions therein relating to
materiality), except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct
in all material respects as of such date, except where the failure to be so
true and correct does not constitute a Company Material Adverse Effect
(without giving effect to any qualifiers and exceptions therein relating to
materiality)), with the same force and effect as if made on and as of the
Closing Date; and Parent shall have received a certificate to such effect
signed on behalf of the Company by a duly authorized officer of the Company
and by the Principal Stockholders.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent shall have received a certificate
to such effect signed by a duly authorized officer of the Company.
(c) Third Party Consents Parent shall have been furnished with evidence
reasonably satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) Secretary's Certificate. Parent shall have received at the Closing
from the Company's corporate secretary, a Certificate dated the Closing
Date, in form and substance substantially as set forth in Exhibit E.
(e) Affiliate Agreements. Each Company Affiliate shall have delivered to
Parent an executed Affiliate Agreement which shall be in full force and
effect.
(f) Tax Opinion Parent shall have received an opinion of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, its tax counsel, in form and
substance reasonably satisfactory to it, dated the Closing Date, to the
effect that the Merger will constitute a tax-free reorganization for United
States
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federal income tax purposes within the meaning of Section 368(a) of the
Code. Parent and the Company agree to make such representations as may be
requested by tax counsel in connection with the opinion referred to above.
(g) Conversion of Preferred Stock. As of immediately prior to the
Effective Time, all shares of Company Preferred Stock shall have been
converted into Company Common Stock, and the holders of Company Preferred
Stock shall have waived any and all rights that may exist under the
Company's Certificate of Incorporation or otherwise with respect to the
Company Preferred Stock.
(h) Waiver of Acceleration. Each of the Principal Stockholders shall
have executed a waiver of the rights to acceleration of vesting of such
Principal Stockholder's Company Capital Stock as a result of the Merger,
and such waiver shall be in full force and effect.
(i) No Company Material Adverse Effect. There shall not have occurred
any action or event that has had a Company Material Adverse Effect.
(j) Resignation of Officers and Directors. Parent shall have received a
written resignation from each of the officers and directors of Company
effective as of the Effective Time.
(k) Amendment of Vesting Period for Principal Stockholders. The
Principal Stockholders shall have each entered into a Restricted Stock and
Lock-Up Agreement as set forth above.
(l) Termination or Amendment of Amended and Restated Investor Rights
Agreement. At or immediately prior to the Closing Date, the Amended and
Restated Investor Rights Agreement by and among the Company and certain
stockholders of the Company shall have been terminated.
(m) Stockholder Vote. The issuance of Parent Common Stock in connection
with the Merger shall have been approved by holders of a majority of the
disinterested shares of Parent Common Stock voting at the Parent
Stockholders Meeting.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's and the
Principal Stockholders' representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement (each as modified by the
Company Schedules) shall survive the Merger and continue until 5:00 p.m.,
California time, on the date which is one year following the Closing Date (the
"Expiration Date").
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time, the Principal Stockholders will
be deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon
any stock split, stock dividend or recapitalization effected by Parent
after the Effective Time) without any act of any Principal Stockholder. As
soon as practicable after the Effective Time, the Escrow Amount, without
any act of any Company Stockholder, will be deposited with U.S. Bank Trust,
National Association (or other institution acceptable to Parent and the
Securityholder Agent (as defined in Section 7.2(g) below)), as Escrow Agent
(the "Escrow Agent"), such deposit to constitute an escrow fund (the
"Escrow Fund") to be governed by the terms set forth herein and at Parent's
cost and expense. Subject to the provisions of this Section 7.2, the Escrow
Fund shall be available to compensate Parent and its affiliates for any
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) directly or indirectly as a result of any inaccuracy
or breach of a representation or warranty of the Company and the Principal
Stockholders (as modified by the Company Schedules) or any failure by the
Company to perform or comply with any covenant contained herein. Parent and
the
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Company each acknowledge that such Losses, if any, would relate to
unresolved contingencies existing at the Effective Time, which if resolved
at the Effective Time would have led to a change in the Exchange Ratio.
Nothing herein shall limit the liability of the Company, the Principal
Stockholders or Parent for any breach of any representation, warranty or
covenant if the Merger does not close.
(b) 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., California time, on the Expiration Date (the "Escrow Period");
provided that the Escrow Period shall not terminate with respect to such
amount (or some portion thereof) of the Escrow Fund that is specified in
any Officer's Certificate delivered to the Escrow Agent prior to the
termination of such Escrow Period, subject to the objection of the
Securityholder Agent and the subsequent resolution of the matter in the
manner provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of
such Escrow Period specified in any such Officer's Certificate delivered to
the Escrow Agent prior to termination of such Escrow Period. As soon as all
such claims have been resolved, the Escrow Agent shall deliver to the
Principal Stockholders the remaining portion of the Escrow Fund not
required to satisfy such claims. Deliveries of Escrow Amounts to the
Principal Stockholders pursuant to this Section 7.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund as
determined pursuant to Section 1.8(b).
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and
shall hold and dispose of the Escrow Fund only in accordance with the
terms hereof.
(ii) 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 recordholders thereof. Cash dividends on Parent Common Stock shall
not be added to the Escrow Fund but shall be distributed to the
recordholders thereof.
(iii) Each Principal Stockholder shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by
such Company Stockholder (and on any voting securities added to the
Escrow Fund in respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before the last
day of the Escrow Period of a certificate signed by any officer of Parent
(an "Officer's Certificate"): (A) stating that Parent has paid or
properly accrued or reasonably anticipates that it will have to pay 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 or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related, the Escrow Agent shall, subject
to the provisions of Section 7.2 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.
(ii) For purposes of determining the number of shares of Parent Common
Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be
valued at the average closing price per share of Parent Common Stock on
the Nasdaq National Market for the five trading days immediately
preceding the Closing Date (the "Average Stock Price").
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall
be delivered to the Securityholder Agent (as defined in
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Section 7.2(g)) and for a period of thirty (30) days after such delivery to
the Escrow Agent and the Securityholder Agent, the Escrow Agent shall make
no delivery to Parent of any Escrow Amounts pursuant to Section 7.2(d)
hereof unless the Escrow Agent shall have received written authorization
from the Securityholder 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(d) hereof, provided that no such payment or delivery may be
made if the Securityholder 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.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall so object in writing to any
claim or claims made in any Officer's Certificate, the Securityholder
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
Securityholder Agent and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and distribute shares of Parent
Common Stock from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Securityholder Agent may demand arbitration of the
matter unless the amount of the damage or 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 three arbitrators. Parent and the Securityholder
Agent shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The 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 judgment of the arbitrators, to discover relevant
information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought
without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of a majority
of the three arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in Section 7.2(e)
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set
forth the award, judgment, decree or order awarded by the arbitrators.
(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 County, California under the rules then in effect of
the American Arbitration Association. For purposes of this Section
7.2(f), in any arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue, the Non-
Prevailing Party, if any, shall be determined by the arbitrators. The
Non-Prevailing Party to an arbitration shall pay its own expenses, the
fees of each arbitrator, the administrative costs of the arbitration and
the expenses, including without limitation, reasonable attorneys' fees
and costs, incurred by the other party to the arbitration.
(g) Securityholder Agent of the Stockholders; Power of Attorney.
(i) Paul Levy is hereby appointed as agent and attorney-in-fact (the
"Securityholder Agent") for each Principal Stockholder, 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
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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 Securityholder Agent for the
accomplishment of the foregoing. Such agency may be changed by the
Principal Stockholders from time to time upon not less than thirty (30)
days prior written notice to Parent; provided that the Securityholder
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 Securityholder 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 Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her
services. Notices or communications to or from the Securityholder Agent
shall constitute notice to or from each of the Principal Stockholders for
purposes of this Section 7.2.
(ii) The Securityholder Agent shall not be liable for any act done or
omitted hereunder as Securityholder Agent while acting in good faith and
in the exercise of reasonable judgment. The Principal Stockholders on
whose behalf the Escrow Amount was contributed to the Escrow Fund shall
severally indemnify the Securityholder Agent and hold the Securityholder
Agent harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of the Securityholder Agent and
arising out of or in connection with the acceptance or administration of
the Securityholder Agent's duties hereunder, including the reasonable
fees and expenses of any legal counsel retained by the Securityholder
Agent.
(iii) The Securityholder Agent shall have reasonable access to
information about the Company and the reasonable assistance of the
Company's officers and employees for purposes of performing his duties
and exercising his rights hereunder; provided, that the Securityholder
Agent shall treat confidentially and not disclose any nonpublic
information from or about the Company to anyone (except on a need to know
basis to individuals who agree to treat such information confidentially).
(h) Actions of the Securityholder Agent. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of the
Principal Stockholders for whom a portion of the Escrow Amount otherwise
issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each of such Principal Stockholder, and the
Escrow Agent and Parent may rely upon any such decision, act, consent or
instruction of the Securityholder Agent as being the decision, act, consent
or instruction of each every such Principal Stockholder. 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 Securityholder Agent.
(i) 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 Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the Principal Stockholders,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any
such claim; provided, however, that except with the consent of the
Securityholder Agent, no settlement of any such claim with third party
claimants shall alone be determinative of the amount of any claim against
the Escrow Fund. In the event that the Securityholder Agent has consented
to any such settlement, the Securityholder Agent 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.
(j) 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 Securityholder 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
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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.
(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.
(viii) 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.
(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: the
parties shall use their
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reasonable 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.
(k) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. 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.
Parent promises to pay these sums upon demand.
(l) Maximum Payments; Remedy. Notwithstanding anything to the contrary
set forth in this Article VII or elsewhere in this Agreement, except with
respect to fraudulent breaches of the representations, warranties or
covenants of the Company and/or the Principal Stockholders contained in
this Agreement ("Fraudulent Breach") the maximum amount the Parent may
recover pursuant to the indemnity obligations set forth in Section 7.2
hereof shall be limited to the Escrow Amount and, subject to the following
sentence, Parent shall not be entitled to pursue any claims for
indemnification under this Article VII or otherwise against the Principal
Stockholders directly or personally. The Principal Stockholders'
indemnification obligations with respect to any Fraudulent Breach shall be
unlimited.
(m) Deductible. The Principal Stockholders shall not be required to make
any indemnification payment pursuant to this Section 7.2 until such time as
the total amount of all Losses that have been directly or indirectly
incurred by the Parent, or to which the Parent has otherwise become
subject, exceeds $1,000,000 (the "Deductible") in the aggregate. If the
total amount of such Losses exceeds $1,000,000, then the Parent shall be
entitled to be indemnified against and compensated and reimbursed only for
the portion of such Losses exceeding $1,000,000.
(n) Obligation to Mitigate Losses. Parent shall use its commercially
reasonable efforts to mitigate any Losses in connection with an indemnity
claim made pursuant to this Section 7.2 with the scope to be as required by
applicable law.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement may
be terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or Company if: (i) the Effective Time has not occurred
before 5:00 p.m. (Pacific time) on June 30, 2001 (the "Termination Date")
(provided that the right to terminate this Agreement under this Section
8.1(b)(i) shall not be available to any party whose willful failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date); (ii) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the Merger; or (iii) there shall be any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity that would make
consummation of the Merger illegal;
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(c) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's
or the Company's ownership or operation of all or any portion of the
business of the Company or (ii) compel Parent or the Company to dispose of
or hold separate all or a portion of the business or assets of the Company
or Parent as a result of the Merger;
(d) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided
that if such inaccuracy in the Company's representations and warranties or
breach by the Company is curable by the Company through the exercise of its
reasonable best efforts, then Parent may not terminate this Agreement under
this Section 8.1(d) prior to the Termination Date, provided the Company
continues to exercise reasonable best efforts to cure such breach (it being
understood that Parent may not terminate this Agreement pursuant to this
Section 8.1(d) if it shall have materially breached this Agreement or if
such breach by the Company is cured prior to the Termination Date);
(e) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in Parent's representations and warranties or
breach by Parent is curable by Parent through the exercise of its
reasonable best efforts, then the Company may not terminate this Agreement
under this Section 8.1(e) prior to the Termination Date, provided Parent
continues to exercise reasonable best efforts to cure such breach (it being
understood that the Company may not terminate this Agreement pursuant to
this Section 8.1(e) if it shall have materially breached this Agreement or
if such breach by the Company is cured prior to the Termination Date);
(f) by Parent or the Company if Parent fails to obtain the requisite
vote necessary to approve the issuance of shares of Parent Common Stock in
the Merger at the Parent Stockholders' Meeting (or at any adjournment or
postponement thereof); provided, however, that the right to terminate this
Agreement shall not be available to Parent or the Company where the failure
to obtain Parent Stockholder approval shall have been caused by the action
or failure to act of Parent or the Company, respectively, and such action
or failure to act constitutes a material breach of this Agreement;
(g) by Parent, if an event or change having a Company Material Adverse
Effect shall have occurred after the date of this Agreement; and
(h) by the Company, if an event or change having a Parent Material
Adverse Effect shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officers, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Section 5.5 and
Section 7.2 of this Agreement shall remain in full force and effect and survive
any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after the
stockholders of Parent and the Company approve this Agreement, 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; provided that the
consent of Merger Sub shall not be required to effect any further amendment of
this Agreement.
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8.4 Extension; Waiver. At any time prior to the Effective Time, Parent, on
the one hand, and the Company and Principal Stockholders, on the other, 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.
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
delivery 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):
if to Parent, to:
Rational Software Corporation
18880 Homestead Road
Cupertino, CA 95014
Attention: President
Telephone No.: 408-863-9900
Facsimile No.: 408-863-4120
with a copy to:
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
Attention: Jesse Finkelstein
Telephone No.: (302) 658-6541
Facsimile No.: (302) 658-6548
and with a copy to:
650 Page Mill Road
Wilson Sonsini Goodrich & Rosati, Professional Corporation
Palo Alto, California 94304
Attention: Larry W. Sonsini, Esq.
Katharine A. Martin, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(ii) if to the Company, to:
Catapulse Inc.
5 Results Way
Cupertino, CA 95014
Attention: President
Telephone No.: 408-342-4616
Facsimile No.: 408-342-3805
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with a copy to:
Venture Law Group, A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Joshua L. Green, Esq.
Steven J. Tonsfeldt, Esq.
Telephone No.: (650) 854-4488
Facsimile No.: (650) 233-8386
(iii) if to the Principal Stockholders or the Securityholder Agent, to:
Paul Levy and/or Mike Devlin
C/o Catapulse Inc.
5 Results Way
Cupertino, CA 95014
Telephone No.: 408-342-4616
Facsimile No.: 408-342-3805
with a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
Attention: Bill Kelly, Esq.
Telephone No.: (650) 752-2000
Facsimile No.: (650) 752-2111
(iii) if to the Escrow Agent, to:
U.S. Bank Trust, National Association
One California Street, 4th floor
San Francisco, CA 94111
Telephone No.: 415-273-4590
Facsimile No.: 415-273-4532
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." As used herein, the term "Company Material Adverse Effect" shall
mean a material adverse effect on the business, assets (including intangible
assets), financial condition, capitalization or results of operations of the
Company, except that none of the following shall be deemed in themselves to
constitute a Company Material Adverse Effect: (i) any change in general
economic conditions, (ii) any adverse change affecting Company's industry
generally, or (iii) transaction costs, taxes, accounting changes and other
adverse effects that result from the announcement, pendancy or consummation of
the Merger. The term "Parent Material Adverse Effect" shall mean any change
that has had a material adverse effect on the business, assets (including
intangible assets), financial condition, capitalization or results of
operations of Parent and its subsidiaries, taken as a whole, except that none
of the following shall be deemed in themselves to constitute a Parent Material
Adverse Effect: (i) any change in the market price or trading volume of Parent
Common Stock, (ii) any change in general economic conditions, (iii) any adverse
change affecting Parent's industry generally, or (iv) transaction costs, taxes,
accounting changes, integration costs and other adverse effects that result
from the announcement, pendency or consummation of the Merger. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.3 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.
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9.4 Entire Agreement; Assignment. This Agreement, the Schedules and Exhibits
hereto, and the documents and instruments and other agreements among the
parties hereto referenced herein: (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder (except for the intended
beneficiaries under Sections 1.6(b), 1.6(c), 5.17, 5.19 and 5.20; and (c) shall
not be assigned by operation of law or otherwise except as otherwise
specifically provided, except that Parent may assign its rights to any of its
wholly owned subsidiaries; provided that such an assignment of rights shall in
no way relieve Parent of any of its 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. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
9.7 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, except that matters related to the Merger and matters related to the
corporate governance of each of the Company and Parent shall be governed by the
laws of the State of Delaware. Each of the parties hereto 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 and such
process.
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, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
9.9 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement 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 they
are entitled at law or in equity.
9.10 Release of Merger Sub. Merger Sub is hereby forever unconditionally and
irrevocably released and discharged from the Original Agreement and from all of
its obligations and liabilities thereunder and shall cease for all purposes to
be a party to this Agreement.
9.11 Waiver of Certain Inaccuracies. Notwithstanding any other provision of
this Agreement, any failure of any of the representations and warranties made
by any party in this Agreement to be true and correct in all material respects
solely due to the fact that the Original Agreement provided for the merger of
the Company with and into Merger Sub, whereas this Agreement provides for the
merger of the Company with and into Parent, shall not constitute a breach of,
or constitute a failure of a condition under, this Agreement.
(Remainder of page intentionally left blank.)
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Principal
Stockholders and, with respect to Article VII only, the Escrow Agent and the
Securityholder Agent, have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
RATIONAL SOFTWARE CORPORATION
CATAPULSE INC.
By: /s/ Tom Bogan
--------------------------------- By: /s/ Dan Shiffman
--------------------------------
Name: Tom Bogan
-------------------------------- Name: Dan Shiffman
--------------------------------
Title: President
------------------------------- Title: Chief Operating Officer
------------------------------
REINDEER ACQUISITION CORPORATION
U.S. BANK TRUST, NATIONAL
By: /s/ Tim Breenan ASSOCIATION
----------------------------------
Name: Tim Breenan
--------------------------------
By: /s/ Ann Gadsby
Title: Secretary --------------------------------
-------------------------------- Name: Ann Gadsby
-------------------------------
Title: Vice President
-----------------------------
SECURITYHOLDER AGENT
/s/ Paul Levy
------------------------------------
Paul Levy
PRINCIPAL STOCKHOLDERS
/s/ Paul Levy
-----------------------------------
Paul Levy
/s/ Michael Devlin
-----------------------------------
Michael Devlin
***REORGANIZATION AGREEMENT***
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