As filed with the Securities and Exchange Commission on September 29, 1998
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
LEGATO SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-3077394
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
3210 Porter Drive
Palo Alto, CA 94304
(650) 812-6000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Stephen C. Wise
Chief Financial Officer
Legato Systems, Inc.
3210 Porter Drive
Palo Alto, CA 94304
(650) 812-6000
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for
Service) The Commission is requested to send
copies of all communications to:
Robert V. Gunderson, Jr., Esq.
Brian Beard, Esq.
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
(650) 321-2400
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
CALCULATION OF REGISTRATION FEE
- -------------------------------- --------------------- ------------------------ ------------------------ -----------------------
Title of each class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered(1) Offering Price per Aggregate Offering Registration Fee
Security(2) Price(2)
- -------------------------------- --------------------- ------------------------ ------------------------ -----------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value 249,999 shares $49.00 $49.00 $3,613.75
- -------------------------------- --------------------- ------------------------ ------------------------ -----------------------
</TABLE>
(1) Pursuant to Rule 416 of the Securities Act, this Registration Statement
also covers such indeterminable additional shares as may become issuable as
a result of any stock splits, stock dividends or similar transactions.
(2) The price of $49.00 per share, which was the average of the high and low
prices of the Common Stock on the Nasdaq National Market on September 18,
1998, is set forth solely for the purpose of calculating the registration
fee in accordance with Rule 457(c) of the Securities Act of 1933, as
amended.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Subject to Completion, dated September __, 1998
249,999 Shares
LEGATO SYSTEMS, INC.
Common Stock
-----------------
This Prospectus relates to the public offering, which is not being
underwritten, of 249,999 shares (the "Shares") of Common Stock, $0.0001 par
value (the "Common Stock") of Legato Systems, Inc. (the "Company", "Legato" or
the "Registrant").
The Shares may be offered by certain stockholders of the Company (the
"Selling Stockholders") from time to time in transactions on the Nasdaq National
Market, in privately negotiated transactions, or by a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Selling Stockholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the
symbol "LGTO." Application has been made to list the shares on the Nasdaq
National Market. On September __, 1998, the closing bid price of the Company's
Common Stock on the Nasdaq National Market was $____ per share.
------------------------------
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
No underwriting commissions or discounts will be paid by the Company in
connection with this offering. Estimated expenses payable by the Company in
connection with this offering are estimated to be $9,614. The aggregate price of
the Common Stock sold less the aggregate agents' commissions and underwriters'
discounts, if any, and other expenses of issuance and distribution not borne by
the Company. See "Plan of Distribution."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 8.
------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES EXCHANGE AND COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
------------------------------
The date of this Prospectus is September___, 1998
<PAGE>
----------------------------
TABLE OF CONTENTS
Page
Available Information 4
Information Incorporated by Reference 4
Forward-Looking Statements 6
The Company 7
Recent Developments 7
Risk Factors 8
Use of Proceeds 14
Selling Stockholders 15
Plan of Distribution 16
Legal Matters 17
Experts 17
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and the following regional offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, New York, New York 10048;
and Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The
Commission also makes electronic filings publicly available on the Internet
within 24 hours of acceptance. The Commission's Internet address is
http://www.sec.gov. The Commission web site also contains reports, proxy and
information statements, and other information regarding registrants that file
electronically with the Commission. The Common Stock of the Company is quoted on
the Nasdaq National Market. Reports, proxy and information statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments, exhibits and schedules, referred
to as the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with the Commission, with respect to the Shares offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission, and to
which reference is hereby made. Statements contained in this Prospectus
regarding the contents of any contract or other document to which reference is
made are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such material may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
upon the payment of the fees prescribed by the Commission.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the
Commission (File No. 0-26130) pursuant to the 1934 Act are hereby incorporated
by reference in this Prospectus and made a part hereof:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
2. The Company's Quarterly Report on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998;
3. The description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A filed under Section 12 of the Exchange Act on
May 24, 1995, including any amendment or report updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus but prior
to the termination of the offering to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated herein modifies,
supersedes or replaces such statement. Any statement so modified or superseded
shall not be deemed, except as so modified, superseded or replaced, to
constitute a part of this Prospectus.
The information relating to the Company contained in this Prospectus
does not purport to be comprehensive and should be read together with the
information contained in the documents incorporated by reference herein.
Upon written or oral request, the Company will provide without charge
to each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
herein). Requests should be submitted in writing or by telephone at (650)
812-6000 to Chief Financial Officer, Legato Systems, Inc., at the headquarters
of the Company, 3210 Porter Drive, Palo Alto, California 94304.
------------------------------
This Prospectus includes trademarks of the Company
and other corporations.
------------------------------
<PAGE>
FORWARD - LOOKING STATEMENTS
This Prospectus, including the documents incorporated by reference
herein, contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus or incorporated by
reference herein that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
1934 Act, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth in this Prospectus under "Risk Factors." In evaluating the Company's
business, prospective investors should consider carefully the factors set forth
in this Prospectus under "Risk Factors" in addition to the other information set
forth in this Prospectus and incorporated by reference herein.
<PAGE>
THE COMPANY
The Company develops, markets and supports network storage management
software products for heterogeneous client/server computing environments. The
Company believes it is currently a technology leader in the network storage
management software market because of the scalability, heterogeneity,
performance, ease of use and central administration of its software products.
The Company's NetWorker family of products and Global Enterprise Management
Systems ("G.E.M.S.") software supports many storage management server platforms
and can accommodate a variety of clients, servers, applications, databases and
storage devices. The Company utilizes multiple distribution channels, including
resellers, OEMs and direct sales. The Company licenses its source code to
leading computer system and software suppliers, including Amdahl, Banyan, Data
General, Digital, ICL, Nihon-Unisys, NEC, Siemens Nixdorf, Silicon Graphics,
Sony, Sun Microsystems, Tandem and Unisys, which port the products to their
proprietary platforms, sell the products through their direct and indirect
distribution channels and provide primary support for the products after
installation. These relationships enable the Company to reach a broad customer
base, while reducing development, support and product costs. The Company also
has established strategic partnerships with Hewlett-Packard, Informix, Netscape
and Oracle.
The Company was incorporated in Delaware in 1988. The Company's principle
executive offices are located at 3210 Porter Drive, Palo Alto, California 94304.
Its telephone number is (650) 812-6000. The Company's home page can be located
on the world wide web at http://www.legato.com. As used in this Prospectus, the
"Company" and "Legato" refer to Legato Systems, Inc. and its subsidiaries.
RECENT DEVELOPMENTS
Acquisition of Software Moguls, Inc.
On August 6, 1998, the Company acquired the net assets of Software Moguls,
Inc., a developer of advanced backup-retrieval products for the Windows NT and
UNIX environments, in exchange for 249,999 shares (inclusive of fractional
shares paid in cash) of the Company's Common Stock pursuant to the Agreement and
Plan of Reorganization, dated July 30, 1998, by and among Legato Systems, Inc.,
Aspen Acquisition Corp., Software Moguls, Inc., Sunil Khadilkar (as
Shareholders' Representative), Louis C. Cole (as Escrow Agent) and the Selling
Stockholders, who were parties thereto (the "Reorganization Agreement"). The
combination was accounted for as a pooling of interests. The historical
operating results and net assets of Software Moguls, Inc. are not material to
the Company's historical consolidated financial statements.
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus and in the
documents incorporated by reference herein, the following risk factors should be
carefully considered in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus.
Fluctuations in Quarterly Operating Results; Future Operating Results Uncertain
The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on a number of factors, including,
but not limited to, the size and timing of significant orders; increased
competition; market acceptance of new products, applications and product
enhancements; changes in pricing policies by the Company and its competitors;
the ability of the Company to timely develop, introduce and market new products,
applications and product enhancements and to control costs; the Company's
success in expanding its sales and marketing programs; technological changes in
the network storage management market; the mix of sales among the Company's
channels; deferrals of customer orders in anticipation of new products,
applications or product enhancements; changes in Company strategy; personnel
changes; and general economic factors.
The Company's future revenues are difficult to predict. The Company
operates with virtually no order backlog because its software products typically
are shipped shortly after orders are received. In addition, the Company does not
recognize revenues on sales to domestic distributors until the products are sold
through to end-users. As a result, product license revenues in any quarter are
substantially dependent on orders booked and shipped and on sell-through to
end-users in that quarter. Revenues for any future quarter are not predictable
with any significant degree of certainty. Product licenses and software services
and support revenues are difficult to forecast because the network storage
management market is rapidly evolving and the Company's sales cycle varies
substantially from customer to customer. The Company has become increasingly
dependent upon the larger enterprise license transactions to corporate
customers, which often include product license, service and support components.
The Company's operating results are sensitive to the timing of such orders and
are subject to purchasing cycles and budgetary constraints of the customer,
which are difficult to predict. Due to the lengthier sales cycle and the larger
size of enterprise license transactions, if orders forecasted for a particular
quarter are not realized in that quarter, the Company's operating results for
that quarter may be adversely affected. Royalty revenues are substantially
dependent upon product license sales by OEMs of their products that incorporate
the Company's software. Accordingly, royalty revenues are subject to OEMs'
product cycles, which are also difficult to predict. Royalty revenues are
further impacted by fluctuations in licensing activity from quarter-to-quarter,
because initial license fees generally are non-recurring and recognized upon the
signing of the license agreement. The Company's expense levels are based, in
part, on its expectations as to future revenues. If revenue levels are below
expectations, operating results are likely to be adversely affected. Net income
may be disproportionately affected by a reduction in revenues because a
proportionately smaller amount of the Company's expenses varies with its
revenues. As a result, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to all of the foregoing
factors, it is possible that in some future quarters the Company's operating
results may be below the expectations of public market analysts and investors.
In such event, the price of the Company's common stock would likely be
materially adversely affected.
Product Concentration
The Company currently derives a substantial majority of its revenues from
its NetWorker software products and related services, and the Company expects
that revenues from NetWorker will continue to account for a majority of the
Company's revenues for the foreseeable future. Broad market acceptance of
NetWorker is, therefore, critical to the Company's future success. As a result,
a decline in unit prices of or demand for NetWorker, or failure to achieve broad
market acceptance of NetWorker, as a result of competition, technological change
or otherwise, would have a material adverse effect on the business, operating
results and financial condition of the Company. The life cycle of NetWorker is
difficult to estimate due in large measure to the recent emergence of the
Company's market, the effect of new products, applications or product
enhancements, technological changes in the network storage management
environment in which NetWorker operates and future competition. The Company's
future financial performance will depend in part on the successful development,
introduction and market acceptance of new products, applications and product
enhancements. There can be no assurance that the Company will continue to be
successful in marketing and licensing NetWorker or any new products,
applications, product enhancements and related services.
Competition
The network storage management market is intensely competitive, highly
fragmented and characterized by rapidly changing technology and evolving
standards. Competitors vary in size and in the scope and breadth of the products
and services offered. The Company's major competitors on the Novell NetWare and
Windows NT platforms include Computer Associates (Cheyenne Software) and Seagate
(Palindrome and Arcada); on the Sun Solaris/SunOS platform include Computer
Associates (Legent/Lachman), EMC2 (Epoch), Peripheral Devices (Delta
Microsystems), Spectra Logic and Veritas; on the AIX platform include IBM; and
on the HP-UX platform include Hewlett Packard. In the future, as the Company
enters new markets, the Company expects that such markets will have additional,
market-specific competitors. In addition, many of the Company's existing
competitors are broadening their platform coverage. The Company also expects
increased competition from systems and network management companies, especially
those that have historically focused on the mainframe market and are broadening
their focus to include the client/server market. In addition, because there are
relatively low barriers to entry in the software market, the Company expects
additional competition from other established and emerging companies. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, operating results and financial condition.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing and other resources than the Company. As
a result, they may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion, sale and support of their products than
the Company. The Company also expects that competition will increase as a result
of future software industry consolidations, which have occurred in the network
storage management market in the past and are expected to occur in the future.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. In addition, network operating
system vendors could introduce new or upgrade existing operating systems or
environments that include storage management functionality offered by the
Company's products, which could render the Company's products obsolete and
unmarketable. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
faced by the Company will not materially adversely affect its business,
operating results and financial condition.
Dependence on New Software Products; Rapid Technological Change
The network storage management market is characterized by rapid
technological change, changing customer needs, frequent new software product
introductions and evolving industry standards. The introduction of products
embodying new technologies and the emergence of new industry standards could
render the Company's existing products obsolete and unmarketable. The Company's
future success will depend upon its ability to develop and introduce new
software products (including new releases, applications and enhancements) on a
timely basis that keep pace with technological developments and emerging
industry standards and address the increasingly sophisticated needs of its
customers. There can be no assurance that the Company will be successful in
developing and marketing new products that respond to technological changes or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these new products, or that its new products will adequately meet
the requirements of the marketplace or achieve market acceptance. If the Company
is unable, for technological or other reasons, to develop and introduce new
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will be materially adversely affected. The Company currently has plans
to introduce and market several potential new products in the next twelve
months. Some of the Company's competitors currently offer certain of these
potential new products. Due to the complexity of client/server software and the
difficulty in gauging the engineering effort required to produce these potential
new products, such potential new products are subject to significant technical
risks. There can be no assurance that such potential new products will be
introduced on a timely basis or at all. In the past, the Company has experienced
delays in the commencement of commercial shipments of its new products,
resulting in customer frustrations and delay or loss of product revenues. If
potential new products are delayed or do not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected. The Company has also, in the past, experienced delays in
purchases of its products by customers anticipating the launch of new products
by the Company. There can be no assurance that material order deferrals in
anticipation of new product introductions will not occur, which could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Software products as complex as those offered by the Company may contain
undetected errors or failures when first introduced or as new versions are
released. The Company has in the past discovered software errors in certain of
its new products after their introduction and has experienced delays or lost
revenues during the period required to correct these errors. Although the
Company has not experienced material adverse effects resulting from any such
errors to date, there can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new products
after commencement of commercial shipments, resulting in loss of or delay in
market acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
Risks Associated with Reliance on Enterprise License Transactions;
Resellers; Strategy of Expanding OEM Channel
An integral part of the Company's strategy is to pursue larger enterprise
license transactions with corporate customers. As there has been an increasing
number of larger enterprise license transactions, which may often include
product license, service and support components, the Company's operating results
are sensitive to the timing of such orders. These transactions are typically
difficult to manage and predict. The execution of such larger enterprise license
transactions typically involves significant technical evaluation and commitment
of capital and other resources, with the delays frequently associated with
customers' internal procedures, including delays to approve large capital
expenditures, to implement the deployment of new technologies within their
networks, and to test and accept new technologies that affect key operations.
For these and other reasons, the sales cycle associated with the completing an
enterprise license transaction is typically lengthy, generally lasting three to
six months, is subject to a number of significant risks, including customers'
budgetary constraints and internal acceptance reviews, that are beyond the
Company's control, and varies substantially from transaction to transaction. Due
to the lengthy sales cycle and the large size of certain transactions, if orders
forecasted for a specific transaction for a particular quarter are not realized
in that quarter, the Company's operating results for that quarter may be
adversely affected. There can be no assurance that the Company will continue to
complete or increase the number of such larger enterprise license transactions,
and the inability to do so could materially adversely affect the Company's
business, operating results and financial condition.
The Company relies significantly on its distributors, systems integrators
and value added resellers (collectively, "resellers") for the marketing and
distribution of its products. The Company's agreements with resellers are
generally not exclusive and in many cases may be terminated by either party
without cause. Many of the Company's resellers carry product lines that are
competitive with those of the Company. There can be no assurance that these
resellers will give a high priority to the marketing of the Company's products
(they may, in fact, give a higher priority to other products, including the
products of competitors) or that they will continue to carry the Company's
products. Events or occurrences of this nature could materially adversely affect
the Company's business, operating results and financial condition. The Company's
results of operations could also be materially adversely affected by changes in
reseller inventory strategies, which could occur rapidly, and in many cases, may
not be related to end user demand. There can be no assurance that the Company
will retain any of its current resellers, nor can there be any assurance that
the Company will be successful in recruiting replacement or new organizations to
represent it. Any such changes in the Company's distribution channels could
materially adversely affect the Company's business, operating results and
financial condition.
The Company's strategy is also to increase the proportion of the Company's
customers licensed through OEMs. The Company is currently investing, and intends
to continue to invest, resources to develop this channel, which could materially
adversely affect the Company's operating margins. There can be no assurance that
the Company will be successful in its efforts to increase the revenues
represented by this channel. The Company is dependent upon its OEMs' ability to
develop new products, applications and product enhancements on a timely and
cost-effective basis that will meet changing customer needs and respond to
emerging industry standards and other technological changes. There is no
assurance that the Company's OEMs will effectively meet these technological
challenges. These OEMs are not within the control of the Company, may
incorporate into their products the technologies of other companies in addition
to those of the Company and are not obligated to purchase products from the
Company. In addition, the Company's OEMs generally have exclusive rights to the
Company's technology on their respective platforms, subject to certain minimum
royalty obligations. There can be no assurance that any OEM will continue to
carry the Company's products, and the inability to recruit, or the loss of,
important OEMs could materially adversely affect the Company's business,
operating results and financial condition.
International Operations; Risks Associated with International Sales
The Company believes that its continued growth and profitability will
require further expansion of its international operations. In order to
successfully expand international sales, the Company must establish additional
foreign operations, hire additional personnel and recruit additional
international resellers. This will require significant management attention and
financial resources and could materially adversely affect the Company's
operating margins. To the extent that the Company is unable to effect these
additions in a timely manner, the Company's growth, if any, in international
sales will be limited, and the Company's business, operating results and
financial condition could be materially adversely affected. In addition, there
can be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products. The Company's
international sales are currently denominated in U.S. dollars. An increase in
the value of the U.S. dollar relative to foreign currencies could make the
Company's products more expensive and, therefore, potentially less competitive
in those markets. In some markets, localization of the Company's products is
essential to achieve market penetration. The Company may incur substantial costs
and experience delays in localizing its products, and there can be no assurance
that any localized product will ever generate significant revenues. In addition,
the Company relies significantly on its distributors and other resellers in
international sales efforts. Since these distributors and other resellers are
not employees of the Company and typically do not offer the Company's products
exclusively, there can be no assurance that they will continue to market the
Company's products. Additional risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, lack of acceptance of localized
products, if any, in foreign countries, longer accounts receivable payment
cycles, difficulties in managing international operations, potentially adverse
tax consequences including restrictions on the repatriation of earnings, and the
burdens of complying with a wide variety of foreign laws. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and, consequently, the Company's business,
operating results and financial condition.
Management of Expanding Operations
The Company has recently experienced a period of significant expansion of
its operations that has placed a significant strain upon its management systems
and resources. In addition, the Company has recently hired a significant number
of employees, and plans to further increase its total headcount. The Company
also plans to expand the geographic scope of its customer base and operations.
This expansion has resulted and will continue to result in substantial demands
on the Company's management resources. From time to time, the Company receives
customer complaints about the timeliness and accuracy of customer support.
Although the Company plans to add customer support personnel in order to address
current customer support needs and intends to closely monitor progress in this
area, there can be no assurance that these efforts will be successful. If the
Company's efforts are not successful, the Company's business, operating results
and financial condition could be materially adversely affected. The Company's
ability to compete effectively and to manage future expansion of its operations,
if any, will require the Company to continue to improve its financial and
management controls, reporting systems and procedures on a timely basis and
expand, train and manage its employee work force. There can be no assurance that
the Company will be able to do so successfully. The Company's failure to do so
could have a material adverse effect upon the Company's business, operating
results and financial condition.
In addition, on August 6, 1998, the Company consummated its acquisition of
Software Moguls, Inc. ("SMI"), a developer of advanced backup-retrieval products
for the Windows NT and UNIX environments based in Eden Prairie, Minnesota with
32 employees. The Company expects that it will face numerous challenges in
integrating the SMI operations and employees into the Company. If such
integration is not successful, the Company's business, operating results and
financial condition could be materially adversely affected.
<PAGE>
Dependence Upon Key Personnel
The Company's future performance also depends in significant part upon the
continued service of its key technical and senior management personnel, none of
whom is bound by an employment agreement. The loss of the services of one or
more of the Company's officers or other key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's future success also depends on its continuing ability
to attract and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company can retain its key technical and managerial employees or that it can
attract, assimilate or retain other highly qualified technical and managerial
personnel in the future.
Dependence on Growth in the Network Storage Management Market;
General Economic and Market Conditions
All of the Company's business is in the network storage management market,
which is still an emerging market. The Company's future financial performance
will depend in large part on continued growth in the number of organizations
adopting network storage management solutions for their client/server computing
environments. There can be no assurance that the market for network storage
management will continue to grow. If the network storage management market fails
to grow or grows more slowly than the Company currently anticipates, the
Company's business, operating results and financial condition would be
materially adversely affected. During recent years, segments of the computer
industry have experienced significant economic downturns characterized by
decreased product demand, production overcapacity, price erosion, work slowdowns
and layoffs. The Company's operations may in the future experience substantial
fluctuations from period-to-period as a consequence of such industry patterns,
general economic conditions affecting the timing of orders from major customers,
and other factors affecting capital spending. There can be no assurance that
such factors will not have a material adverse effect on the Company's business,
operating results or financial condition.
Dependence on Proprietary Technology; Risks of Infringement
The Company depends significantly upon proprietary technology. The Company
relies on a combination of patent, copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights. The Company seeks to protect its software, documentation and other
written materials under patent, trade secret and copyright laws, which afford
only limited protection. There can be no assurance that the Company will develop
proprietary products or technologies that are patentable, that any issued patent
will provide the Company with any competitive advantages or will not be
challenged by third parties, or that the patents of others will not have a
material adverse effect on the Company's ability to do business. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and although the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. In licensing its products
(other than in enterprise license transactions), the Company relies primarily on
"shrink wrap" licenses that are not signed by licensees, and, therefore, such
licenses may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology, duplicate the Company's products or design around
patents issued to the Company or other intellectual property rights of the
Company.
There have also been substantial amounts of litigation in the software
industry regarding intellectual property rights. The Company has from time to
time received claims that it is infringing third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company or at all,
which could have a material adverse effect upon the Company's business,
operating results and financial condition.
Product Liability
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. In licensing its products (other than in enterprise license
transactions), the Company relies primarily on "shrink wrap" licenses that are
not signed by licensees, and, therefore, such licenses may be unenforceable
under the laws of certain jurisdictions. As a result of these and other factors,
the limitation of liability provisions contained in the Company's license
agreements may not be effective. The Company's products can be used to manage
data critical to organizations, and, as a result, the sale and support of
products by the Company may entail the risk of product liability claims. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and/or
software used by many companies will need to be upgraded to comply with such
"Year 2000" requirements. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance.
The Company has conducted Year 2000 compliance reviews for current versions
of the Company's products. The review includes assessment, implementation,
validation testing and contingency planning. The Company continues to respond to
customer concerns about prior versions of the Company's products on a
case-by-case basis. Although the Company believes its software products are Year
2000 compliant, there can be no assurance that the Company's software products
contain all the necessary software routines and programs for the accurate
calculation, display, storage and manipulation of data involving dates. If the
Company's software products do not contain all the necessary software routines
and programs for the accurate calculation, display, storage and manipulation of
data involving dates, it would have a material adverse effect on the Company's
business, operating results and financial condition.
The Company has tested software obtained from third parties that is
incorporated into the Company's products, and is seeking assurances from vendors
that licensed software is Year 2000 compliant. Despite testing by the Company
and by current and potential customers, and assurances from developers of
products incorporated into the Company's products, such products may contain
undetected errors or defects associated with Year 2000 date functions. Known or
unknown errors or defects in our products may result in delay or loss of
revenue, diversion of development resources, damage to the Company's reputation,
or increased service and warranty costs, any of which could materially adversely
affect the Company's business, operating results, or financial condition.
The Company does not currently have any information concerning the Year
2000 compliance status of our customers. As is the case with other similarly
situated software companies, if our current or future customers fail to achieve
Year 2000 compliance or if they divert technology expenditures to address Year
2000 compliance problems, the Company's business, results of operations, or
financial condition could be materially adversely affected.
The Company has initiated an assessment of material internal systems.
Although the Company believes the software and hardware it uses internally
comply with Year 2000 requirements and is not aware of any material operational
issues or costs associated with preparing its internally used software and
hardware for the Year 2000, there can be no assurances that the Company will not
experience serious, unanticipated negative consequences and/or material costs
caused by undetected errors or defects in the technology used in its internal
systems. The occurrence of any of the foregoing could have a material adverse
effect on the Company's business, operating results or financial condition.
The Company has funded its Year 2000 compliance review from operating cash
flows and has not separately accounted for these costs in the past. The Company
will incur additional amounts related to the Year 2000 compliance review for
administrative personnel to manage the review, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. However, management does not anticipate that the Company will
incur significant operating expenses or be required to invest heavily in
computer systems improvements to be Year 2000 compliant.
Possible Volatility of Stock Price
The trading price of the Company's common stock has been subject to wide
fluctuations. The trading price of the Company's common stock could be subject
to wide fluctuations in the future in response to quarterly variations in
operating results, announcements of technological innovations or new products,
applications or product enhancements by the Company or its competitors, changes
in financial estimates by securities analysts and other events or factors. In
addition, the stock market has experienced volatility that has particularly
affected the market prices of equity securities of many high technology
companies and that often has been unrelated to the operating performance of such
companies. These broad market fluctuations may adversely affect the market price
of the Company's common stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares by
the Selling Stockholders.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information, as of September __,
1998, with respect to the number of shares of Common Stock owned by the Selling
Stockholders and as adjusted to give effect to the sale of the Shares offered
hereby. The Shares are being registered to permit public secondary trading of
the Shares, and the Selling Stockholders may offer the Shares for resale from
time to time. See "Plan of Distribution."
The Shares being offered by the Selling Stockholders were acquired from
the Company in the Company's acquisition of Software Moguls, Inc., pursuant to
the Reorganization Agreement on August 6, 1998. The Common Stock was issued
pursuant to an exemption from the registration requirements of the Securities
Act. The Selling Stockholders represented to the Company that they were
acquiring the Shares for investment and with no present intention of
distributing the Shares.
The Company has filed with the Commission, under the Securities Act, a
Registration Statement on Form S-3, of which this Prospectus forms a part, with
respect to the resale of the Shares from time to time on the Nasdaq National
Market or in privately-negotiated transactions. The Company has agreed to use
commercially reasonable efforts to keep such Registration Statement effective
until the earlier of such time as (i) all the shares have been sold or (ii) all
the Shares may be sold under Rule 144 of the Securities Act in any three-month
period.
The Shares offered by this Prospectus may be offered from time to time
by the Selling Stockholders named below:
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to Offering After the Offering
Name and Address of Number of Number of Shares Number of
Selling Stockholders Shares Percent(1) Being Offered Shares Percent(1)
- --------------------- ------ ------- ------------- ------ -------
<S> <C> <C> <C> <C> <C>
Estate of Vinod Gupta 90,036 * 90,036 0 -
(Pratibha Gupta, Personal
Representative)
14835 Cherry Lane
Minnetonka, MN 55345
Charu Gupta 30,012 * 30,012 0 -
14835 Cherry Lane
Minnetonka, MN 55345
Shalini Gupta 30,012 * 30,012 0 -
14835 Cherry Lane
Minnetonka, MN 55345
Sunil S. and Vashuda 69,927 * 69,927 0 -
Khadilkar JTWROS
17205 Vantage Court
Eden Prairie, MN 55347
Sunil Khadilkar as Custodian 15,006 * 15,006 0 -
for Harshad S. Khadilkar
under MN UTMA
17205 Vantage Court
Eden Prairie, MN 55347
Sunil Khadilkar, as Custodian 15,006 * 15,006 0 -
for Himanshu Khadilkar under
MN UTMA
17205 Vantage Court
Eden Prairie, MN 55347
TOTAL 249,999 * % 249,999 0 - %
======= == ======= ==== ==
<FN>
- -----------------
* Less than 1%
(1) Applicable percentage ownership is based upon 37,278,126 shares of Common
Stock outstanding on September 18, 1998 and option shares outstanding
immediately prior to and immediately following the completion of this
offering. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities, subject to community property
laws, where applicable. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days of September 18, 1998 are deemed
to be beneficially owned by the person holding such options or warrants for
the purpose of computing the percentage ownership of such person but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person. This Registration Statement shall also cover
any additional shares of Common Stock which become issuable in connection
with the shares registered for sale hereby by reason of any stock dividend,
stock split, recapitalization or other similar transaction effected without
the receipt of consideration which results in an increase in the number of
the Company's outstanding shares of Common Stock.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The Company is registering the Shares offered by the Selling
Stockholders hereunder pursuant to contractual registration rights contained in
the Registration Rights Agreement, dated July 30, 1998, by and among the Company
and the Selling Stockholders (the "Registration Rights Agreement"). The Company
has filed with the Commission, under the Securities Act, a Registration
Statement on Form S-3, of which this Prospectus forms a part, with respect to
the resale of the Shares from time to time as described below. The Company has
agreed to use commercially reasonable efforts to keep such Registration
Statement effective until the earlier of such time as (i) all the Shares have
been sold or (ii) all the Shares may be sold under Rule 144 of the Securities
Act in any three-month period.
The Company will receive no proceeds from this offering. The Shares
offered hereby may be sold by the Selling Stockholders from time to time in
transactions in the over-the-counter market, on the Nasdaq National Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom such broker-dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the Shares may
under certain circumstances be deemed to be "underwriters" within the meaning of
the Securities Act, and any commissions received by them and any profit realized
on the resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholders may
agree to indemnify such broker-dealers against certain liabilities, including
liabilities under Securities Act.
Any broker-dealer participating in such transactions as agent may
receive commissions from the Selling Stockholders (and, if it acts as agent for
the purchase of such Shares, from such purchaser). Broker-dealers may agree with
the Selling Stockholders to sell a specified number of Shares at a stipulated
price per share, and, to the extent such a broker-dealer is unable to do so
acting as agent for the Selling Stockholders, to purchase as principal any
unsold Shares. Brokers-dealers who acquire Shares as principal may thereafter
resell such Shares from time to time in transactions (which may involve crosses
and block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices, and in
connection with such resales may pay to or receive from the purchasers of such
Shares commissions computed as described above.
Under applicable rules and regulations under the 1934 Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling Stockholders will be
subject to applicable provisions of the 1934 Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholders.
The Selling Stockholders will pay all commissions and other expenses
associated with the sale of Shares by them. The Shares offered hereby are being
registered pursuant to contractual obligations of the Company under the
Registration Rights Agreement, and the Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholders. The Company has not made any underwriting
arrangements with respect to the sale of Shares offered hereby.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
Menlo Park, California.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1997,
and 1996 and the consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three year period ended December 31,
1997 incorporated by reference in this Prospectus, have been incorporated herein
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
<PAGE>
No dealer, salesperson, Selling Stockholders or any other person has been
authorized to give any information or make any representations in connection
with this offering other than those contained in this Prospectus and, if given
or made, such information or representations must not be relied upon as having
been authorized by the Company, the Selling Stockholders or any other person.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any of the securities offered hereby by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that the information contained herein is correct as of
any time subsequent to the date of the Prospectus.
249,999 Shares
LEGATO SYSTEMS, INC.
Common Stock
-------------
September ___, 1998
--------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All the amounts shown are
estimates except for the registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.................. $3,614
Legal Fees and Expenses.............................................. 4,000
Accounting Fees and Expenses......................................... 1,000
Transfer Agent and Registrar Fees.................................... 500
Miscellaneous........................................................ 500
----------
Total........................................................... $9,614
======
</TABLE>
Item 15. Indemnification of Officers and Directors.
Section 145 of the Delaware General Corporation law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than action by or in the right of such corporation), by reason of the fact that
such person was an officer or director of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation in the
performance of his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
In accordance with the DGCL, the Company's Certificate of Incorporation
("Certificate") contains a provision to limit the personal liability of the
directors of the Company for violations of their fiduciary duty as a director.
This provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL providing for liability of directors
for unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability of
directors for monetary damages for actions involving a breach of their fiduciary
duty of care, including any such actions involving gross negligence.
Article XI of the Company's Certificate and Article VII, Section 6 of
the Company's Bylaws provide for indemnification of the officers and directors
of the Company to the fullest extent permitted by applicable law.
The Company has entered into indemnification agreements with each
director and executive officer which provide indemnification to such directors
and executive officers under certain circumstances for acts or omissions which
may not be covered by directors' and officers' liability insurance.
Item 16. Exhibits.
The exhibits listed in the Exhibit Index as filed as part of this
Registration Statement.
(a) Exhibits
<TABLE>
Exhibit
Number Description
<S> <C>
2.1 Agreement and Plan of Reorganization dated July 30, 1998, by and
among Legato Systems, Inc., Aspen Acquisition Corp., Software
Moguls, Inc., Sunil Khadilkar (as Shareholder Representative), Louis
C.
Cole (as Escrow Agent) and the Selling Stockholders.
3.1 (1) Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date
3.2 (2) Amended and Restated Bylaws of the Registrant adopted on May 23,1997
3.3 (3) Form of Certificate of Designation filed in connection with Rights
Agreement, dated May 23, 1997
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2 (4) Specimen Common Stock Certificate
4.6 (4) Restated Investor Rights Agreement, dated September 8, 1993, among
the Registrant and the investors and the founders named therein, as
amended January 28, 1994 and February 13, 1995
4.7 (3) Rights Agreement, dated May 23, 1997 between the Company and Harris
Trust and Savings Bank, including the Certificate of Designation of
Series A Junior Participating Preferred Stock, Form of Right
Certificate and Summary of Rights to Purchase Preferred Shares
attached thereto as Exhibit A, B and C, respectively.
4.8 Registration Rights Agreement dated September 29, 1998
4.9 Affiliates Agreement dated July 30, 1998
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP (included in the opinion filed as Exhibit 5.1).
24.1 Power of Attorney (reference is made to the signature page
of this Registrant Statement).
27.1 Financial Data Schedule
- -------------------
<FN>
(1) Incorporated by reference to the registrant's definitive Proxy Statement
for Special Meeting of Stockholders, dated May 31, 1996 and definitive
Proxy Statement for Annual Meeting of Stockholders, dated April 6, 1998.
(2) Incorporated by reference to the registrant's Current Report on Form 8-K,
dated June 6, 1997.
(3) Incorporated by reference to the registrant's Form 8-A, dated May 30, 1997.
(4) Incorporated by reference to the registrant's Registration Statement
on Form S-1, filed May 9, 1995 (File No. 33-92072).
</FN>
</TABLE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
1934 Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the 1934 Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palo Alto, State of California, on this 29th day of
September, 1998.
LEGATO SYSTEMS, INC.
By: /s/ Louis C. Cole
Louis C. Cole
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Louis C. Cole and
Stephen C. Wise, and each of them, the lawful attorneys and agents, with power
and authority to do any and all acts and things and to execute any and all
instruments which said attorneys and agents determine may be necessary or
advisable or required to enable Legato Systems, Inc., a Delaware corporation, to
comply with the Securities Act, and any rules or regulations or requirements of
the Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power and authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, both pre-effective and
post-effective, and supplements to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereof, and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents or
any of them shall do or cause to be done by virtue hereof. This Power of
Attorney may be signed in several counterparts.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Louis C. Cole Chairman of the Board, President and Chief September 29, 1998
- ----------------------------------------
Louis C. Cole Executive Officer (Principal Executive
Officer)
/s/ Stephen C. Wise Senior Vice President, Finance and September 29, 1998
- ----------------------------------------
Stephen C. Wise Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Eric A. Benhamou Director September 29, 1998
- ----------------------------------------
Eric A. Benhamou
/s/ Kevin A. Fong Director September 29, 1998
- ----------------------------------------
Kevin A. Fong
/s/ David N. Strohm Director September 29, 1998
- ----------------------------------------
David N. Strohm
/s/ Phillip E. White Director September 29, 1998
- ----------------------------------------
Phillip E. White
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
Exhibit
Number Description
<S> <C>
2.1 Agreement and Plan of Reorganization dated July 30, 1998, by and
among Legato Systems, Inc., Aspen Acquisition Corp., Software
Moguls, Inc., Sunil Khadilkar (as Shareholder Representative), Louis
C. Cole (as Escrow Agent) and the Selling Stockholders.
3.1 (1) Amended and Restated Certificate of Incorporation of the Registrant,
as amended to date
3.2 (2) Amended and Restated Bylaws of the Registrant adopted on May 23,1997
3.3 (3) Form of Certificate of Designation filed in connection with Rights
Agreement, dated May 23, 1997
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2 (4) Specimen Common Stock Certificate
4.6 (4) Restated Investor Rights Agreement, dated September 8, 1993, among
the Registrant and the investors and the founders named therein, as
amended January 28, 1994 and February 13, 1995
4.7 (3) Rights Agreement, dated May 23, 1997 between the Company and Harris
Trust and Savings Bank, including the Certificate of Designation of
Series A Junior Participating Preferred Stock, Form of Right
Certificate and Summary of Rights to Purchase Preferred Shares
attached thereto as Exhibit A, B and C, respectively.
4.8 Registration Rights Agreement dated September 29, 1998
4.9 Affiliates Agreement dated July 30, 1998
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP (included in the opinion filed as Exhibit 5.1).
24.1 Power of Attorney (reference is made to the signature page
of this Registrant Statement).
27.1 Financial Data Schedule
- -------------------
<FN>
(1) Incorporated by reference to the registrant's definitive Proxy Statement
for Special Meeting of Stockholders, dated May 31, 1996 and definitive
Proxy Statement for Annual Meeting of Stockholders, dated April 6, 1998.
(2) Incorporated by reference to the registrant's Current Report on Form 8-K,
dated June 6, 1997.
(3) Incorporated by reference to the registrant's Form 8-A, dated May 30, 1997.
(4) Incorporated by reference to the registrant's Registration Statement
on Form S-1, filed May 9, 1995 (File No. 33-92072).
</FN>
</TABLE>
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
LEGATO SYSTEMS, INC.,
ASPEN ACQUISITION CORP.,
SOFTWARE MOGULS, INC.,
SUNIL KHADILKAR (AS SHAREHOLDERS' REPRESENTATIVE),
LOUIS C. COLE (AS ESCROW AGENT) AND
THE UNDERSIGNED STOCKHOLDERS
July 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<CAPTION>
<S> <C>
ARTICLE I THE MERGER..................................................................2
1.1 The Merger...............................................................2
1.2 Closing; Effective Time..................................................2
1.3 Effect of the Merger.....................................................2
1.4 Articles of Incorporation; Bylaws........................................2
1.5 Directors and Officers...................................................2
1.6 Effect on Capital Stock..................................................3
1.7 Surrender of Certificates................................................4
1.8 No Further Ownership Rights in Target Capital Stock......................6
1.9 Lost, Stolen or Destroyed Certificates...................................6
1.10 Tax and Accounting Consequences.........................................6
1.11 Exemption from Registration.............................................6
1.12 Taking of Necessary Action; Further Action..............................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET...................................7
2.1 Organization, Standing and Power.........................................7
2.2 Capital Structure........................................................8
2.3 Authority................................................................8
2.4 Business Plan............................................................9
2.5 Financial Statements.....................................................9
2.6 Absence of Certain Changes..............................................10
2.7 Absence of Undisclosed Liabilities......................................10
2.8 Accounts Receivable.....................................................10
2.9 Litigation..............................................................11
2.10 Restrictions on Business Activities....................................11
2.11 Governmental Authorization.............................................11
2.12 Title to Property......................................................11
2.13 Intellectual Property..................................................12
2.14 Environmental Matters..................................................14
2.15 Taxes..................................................................14
2.16 Employee Benefit Plans.................................................16
2.17 Employees and Consultants..............................................18
2.18 Related-Party Transactions.............................................20
2.19 Insurance..............................................................20
2.20 Compliance with Laws...................................................20
2.21 Brokers' and Finders' Fees.............................................20
2.22 Stockholders Agreement; Irrevocable Proxies............................20
2.23 Vote Required..........................................................21
2.24 Inventory..............................................................21
2.25 Trade Relations........................................................21
2.26 Customers and Suppliers................................................21
2.27 Material Contracts.....................................................22
2.28 No Breach of Material Contracts........................................23
2.29 Third-Party Consents...................................................23
2.30 Minute Books...........................................................23
2.31 Complete Copies of Materials...........................................23
2.32 Representations Complete...............................................23
2.33 India Sub Material Liabilities.........................................24
2.34 Securities and Representations.........................................24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND MERGER SUB...........................................................25
3.1 Organization, Standing and Power........................................25
3.2 Capitalization and Voting Rights........................................25
3.3 Authority...............................................................26
3.4 SEC Documents; Financial Statements.....................................27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................................28
4.1 Conduct of Business of Target and Acquiror..............................28
4.2 Notices.................................................................30
ARTICLE V ADDITIONAL AGREEMENTS......................................................31
5.1 No Solicitation.........................................................31
5.2 Shareholders Meeting or Consent Solicitation............................31
5.3 Access to Information...................................................31
5.4 Confidentiality.........................................................32
5.5 Public Disclosure.......................................................32
5.6 Consents; Cooperation...................................................32
5.7 Pooling Accounting......................................................33
5.8 Update Disclosure; Breaches.............................................33
5.9 Stockholder Agreements..................................................33
5.10 Irrevocable Proxies....................................................33
5.11 Legal Requirements.....................................................34
5.12 Tax-Free Reorganization................................................34
5.13 Stock Options..........................................................34
5.14 Listing of Additional Shares...........................................34
5.15 Additional Agreements; Best Efforts....................................34
5.16 Employee Benefits......................................................34
5.17 Waiver of Preemptive Rights............................................35
5.18 Preparation of Tax Return..............................................35
ARTICLE VI CONDITIONS TO THE MERGER..................................................35
6.1 Conditions to Obligations of Each Party to Effect the Merger............35
6.2 Additional Conditions to Obligations of Target..........................36
6.3 Additional Conditions to the Obligations of Acquiror....................37
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER..............................39
7.1 Termination.............................................................39
7.2 Effect of Termination...................................................40
7.3 Expenses and Termination Fees...........................................41
7.4 Amendment...............................................................41
7.5 Extension; Waiver.......................................................41
ARTICLE VIII ESCROW AND INDEMNIFICATION..............................................42
8.1 Survival of Representations, Warranties and Covenants...................42
8.2 Indemnity...............................................................42
8.3 Escrow Fund.............................................................42
8.4 Limitations.............................................................43
8.5 Escrow Period...........................................................43
8.6 Claims upon Escrow Fund.................................................43
8.7 Objections to Claims....................................................44
8.8 Resolution of Conflicts; Arbitration....................................44
8.9 Shareholders' Representative............................................46
8.10 Distribution Upon Termination of Escrow Period.........................46
8.11 Actions of the Shareholders' Representative............................47
8.12 Third-Party Claims.....................................................47
8.13 Indemnity of Escrow Agent..............................................47
8.14 Successor to Escrow Agent..............................................48
ARTICLE IX GENERAL PROVISIONS........................................................48
9.1 Notices.................................................................48
9.2 Interpretation..........................................................49
9.3 Counterparts............................................................50
9.4 Entire Agreement; No Third Party Beneficiaries..........................50
9.5 Severability............................................................50
9.6 Remedies Cumulative.....................................................50
9.7 Governing Law...........................................................50
9.8 Assignment..............................................................51
9.9 Rules of Construction...................................................51
</TABLE>
SCHEDULES
Target Disclosure Schedule
Option Schedule
<PAGE>
EXHIBITS
Exhibit A......... - Articles of Merger
Exhibit B......... - Exchange Ratio
Exhibit C......... - Affiliates Agreement
Exhibit D......... - Irrevocable Proxy
Exhibit E......... - [Intentionally Omitted]
Exhibit F......... - Acquiror's Legal opinion
Exhibit G......... - [Intentionally Omitted]
Exhibit H......... - Target's Legal opinion
Exhibit I......... - FIRPTA Notice
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made and entered into as of July 30, 1998, by and among Legato Systems, Inc., a
Delaware corporation ("Acquiror"), Aspen Acquisition Corp., a Minnesota
corporation ("Merger Sub"), Software Moguls, Inc., a Minnesota corporation
("Target"), Sunil Khadilkar as "Shareholders' Representative," Louis C. Cole as
"Escrow Agent" and each of the undersigned stockholders of the Target (each a
"Signing Stockholder" and, collectively, the "Signing Stockholders"). Certain
other capitalized terms used in this Agreement are as defined herein.
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
shareholders and stockholders of their respective companies that Target and
Merger Sub combine into a single company through the statutory merger of Merger
Sub with and into Target (the "Merger") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, each
outstanding share of capital stock of Target, no par value ("Target Capital
Stock"), shall be converted into shares of common stock of Acquiror, $.0001 par
value ("Acquiror Common Stock"), at the rate set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
E. The parties intend for the Merger to be accounted for as a
pooling of interests.
F. Concurrent with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, all of the Affiliates (as
defined herein) of Target are delivering to Acquiror irrevocable proxies to vote
the shares of Target's Common Stock owned by such persons to approve the Merger
and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties 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, the Articles of
Merger attached hereto as Exhibit A (the "Articles of Merger") and the
applicable provisions of the Minnesota Business Corporation Act ("Minnesota
Law"), Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation. Target as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time as the parties hereto agree (the date on which the Closing
shall occur, the "Closing Date"). The Closing shall take place at the offices of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 155 Constitution
Drive, Menlo Park, California 94025, or at such other location as the parties
hereto agree. On the Closing Date, the parties hereto shall cause the Merger to
be consummated by filing the Articles of Merger, together with the required
officers' certificates, with the Secretary of State of the State of Minnesota,
in accordance with the relevant provisions of Minnesota Law (the time and date
of such filing being the "Effective Time" and the "Effective Date,"
respectively).
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Articles of Merger and the
applicable provisions of Minnesota Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by Minnesota Law and such Certificate of Incorporation; provided, however, that
Article I of the Articles of Incorporation shall be amended to read as follows:
"The name of the corporation is Software Moguls, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of Merger
Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, to hold office until such time as such directors resign,
are removed or their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to hold office until such
time as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any action
on the part of Acquiror, Merger Sub, Target or the holders of any of Target's
securities:
(a) Conversion of Target Capital Stock. The maximum number of shares of
Acquiror Common Stock to be issued or reserved for issuance in exchange for the
acquisition by Acquiror of all outstanding Target Capital Stock shall be 250,000
shares (the "Total Acquiror Shares"), reduced as a result of any Dissenting
Shares (as defined below). No adjustment shall be made in the number of shares
of Acquiror Common Stock issued in the Merger as a result of (x) any increase or
decrease in the market price of Acquiror Common Stock prior to the Effective
Time or (y) any cash proceeds received by Target from the date hereof to the
Closing Date pursuant to the exercise of currently outstanding options to
purchase shares of Target Common Stock ("Target Options"). Subject to the terms
and conditions of this Agreement and the Articles of Merger as of the Effective
Time, by virtue of the Merger and without any action on the part of the holder
of any shares of Target Capital Stock, at the Effective Time, each share of
Target Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be cancelled pursuant to Section 1.6(b) and shares,
if any, held by persons who have not voted such shares for approval of the
Merger and with respect to which such persons shall become entitled to exercise
dissenters' rights in accordance with the Minnesota Business Corporation Act,
Sections 302A.471 and 302A.473 ("Dissenting Shares")) shall be converted and
exchanged for such number of shares of Acquiror Common Stock as shall be
determined in accordance with item (i) of Exhibit B hereof (the "Exchange
Ratio").
(b) Cancellation of Target Capital Stock Owned by Acquiror or Target. At
the Effective Time, all shares of Target Capital Stock that are owned by Target
as treasury stock, each share of Target Capital Stock owned by Acquiror or any
direct or indirect wholly owned subsidiary of Acquiror or of Target immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(c) Capital Stock of Merger Sub. At the Effective Time, each share of
Common Stock, .0001 par value, of Merger Sub ("Merger Sub Common Stock"), issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
Common Stock, .0001 par value, of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Acquiror
Common Stock or Target Capital Stock), reorganization, recapitalization or other
like change with respect to Acquiror Common Stock or Target Capital Stock
occurring after the date hereof and prior to the Effective Time.
(e) Fractional Shares. No fraction of a share of Acquiror Common Stock
will be issued, but in lieu thereof each holder of shares of Target Capital
Stock who would otherwise be entitled to a fraction of a share of Acquiror
Common Stock (after aggregating all fractional shares of Acquiror Common Stock
to be received by such holder) shall receive from Acquiror an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the Closing Price.
(f) Dissenters' Rights. Any Dissenting Shares shall not be converted into
Acquiror Common Stock but shall instead be converted into the right to receive
such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to Minnesota Law. Target agrees that, except with the
prior written consent of Acquiror, or as required under Minnesota Law, it will
not voluntarily make any payment with respect to, or settle or offer to settle,
any such purchase demand. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of Minnesota law, becomes entitled
to payment of the fair value for shares of Target Capital Stock shall receive
payment therefor (but only after the value therefor shall have been agreed upon
or finally determined pursuant to such provisions). If, after the Effective
Time, any Dissenting Shares shall lose their status as Dissenting Shares,
Acquiror shall issue and deliver, upon surrender by such shareholder of
certificate or certificates representing shares of Target Capital Stock, the
number of shares of Acquiror Common Stock to which such shareholder would
otherwise be entitled under this Section 1.6 and the Articles of Merger less the
number of shares allocable to such shareholder that have been or will be
deposited in the Escrow Fund (as defined below) in respect of such shares of
Acquiror Common Stock pursuant to Section 1.7 and Article VIII hereof.
1.7 Surrender of Certificates.
(a) Exchange Agent. Harris Trust and Savings Bank shall act as exchange
agent (the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock. Promptly after the Effective Time,
Acquiror shall make available to the Exchange Agent for exchange in accordance
with this Article I, through such reasonable procedures as Acquiror may adopt,
the shares of Acquiror Common Stock issuable pursuant to Section 1.6(a) in
exchange for shares of Target Capital Stock outstanding immediately prior to the
Effective Time less the number of shares of Acquiror Common Stock to be
deposited into an escrow fund (the "Escrow Fund") pursuant to the requirements
of Article VIII hereof.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which immediately prior to the Effective
Time represented outstanding shares of Target Capital Stock, whose shares were
converted into the right to receive shares of Acquiror Common Stock (and cash in
lieu of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the
Exchange Agent, and shall be in such form and have such other provisions as
Acquiror may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Acquiror Common Stock (and cash in lieu of fractional shares). Upon surrender
of a Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Acquiror, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock less the number of shares of Acquiror Common
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VIII hereof and payment in lieu of fractional shares which such holder
has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that, prior to the Effective Time, represented shares of Target
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 Acquiror Common Stock into which such
shares of Target Capital Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6. As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Section 8.3 hereof,
Acquiror shall cause to be delivered to the Escrow Agent (as defined in Section
8.3 hereof) a certificate or certificates representing ten percent (10%) of the
Total Acquiror Shares which shall be registered in the name of the Escrow Agent
as nominee for the holders of Certificates cancelled pursuant to this Section
1.7. Such shares shall be beneficially owned by such holders and shall be held
in escrow and shall be available to compensate Acquiror for certain damages as
provided in Article VIII. To the extent not used for such purposes, such shares
shall be released, all as provided in Article VIII hereof.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Acquiror Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Acquiror Common Stock represented thereby until the
holder of record of such Certificate surrenders 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 Acquiror
Common Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of any such dividends or other distributions with a record
date after the Effective Time which would have been previously payable (but for
the provisions of this Section 1.7(d)) with respect to such shares of Acquiror
Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Acquiror
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the Certificate so surrendered is properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Acquiror or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares of
Acquiror Common Stock in any name other than that of the registered holder of
the Certificate surrendered, or established to the satisfaction of Acquiror or
any agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
1.7, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) Dissenting Shares. The provisions of this Section 1.7 shall also apply
to Dissenting Shares that lose their status as such, except that the obligations
of Acquiror under this Section 1.7 shall commence on the date of loss of such
status and the holder of such shares shall be entitled to receive in exchange
for such shares the number of shares of Acquiror Common Stock to which such
holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Target Capital Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Capital Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Acquiror Common
Stock (and cash in lieu of fractional shares) as may be required pursuant to
Section 1.6; provided, however, that Acquiror may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Acquiror, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368 of the Code and (ii) qualify for accounting treatment as a pooling
of interests. No party shall take any action which would, to such party's
knowledge, cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368 of the Code or to qualify for accounting treatment as a
pooling of interests.
1.11 Exemption from Registration. The shares of Acquiror Common Stock to be
issued in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The registration of the shares with the Securities and Exchange
Commission (the "SEC") and their resale shall be subject to the terms and
conditions of a Affiliates Agreement attached hereto as Exhibit C (the
"Affiliates Agreement").
1.2 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target, the officers and directors of Target and Merger Sub
are fully authorized in the name of their respective corporations or otherwise
to take, and shall take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
Target and the Signing Stockholders each jointly and severally
represent and warrant to Acquiror and Merger Sub that the statements contained
in this Article II are true and correct, except as set forth in the disclosure
schedule delivered by Target to Acquiror prior to the execution and delivery of
this Agreement (the "Target Disclosure Schedule"). The Target Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II, and the disclosure in any
paragraph shall qualify only the corresponding paragraph in this Article II. Any
reference in this Article II to an agreement being "enforceable" shall be deemed
to be qualified to the extent such enforceability is subject to (i) laws of
general application relating to bankruptcy, insolvency, moratorium and the
relief of debtors, and (ii) the availability of specific performance, injunctive
relief and other equitable remedies. In the remainder of this Article II,
"Target" will be deemed to include (and each representation and warranty will
apply separately and collectively to) Target and any and each of Target's
subsidiaries (excluding India Sub), unless otherwise specifically set forth
below or unless the context otherwise requires.
2.1 Organization, Standing and Power. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Target. Target has delivered to Acquiror
a true and correct copy of the Certificate of Incorporation and Bylaws or other
charter documents, as applicable, of Target, each as amended to date. Target is
not in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent organizational documents. Target is the owner of all
outstanding shares of capital stock of each of its subsidiaries and all such
shares are duly authorized, validly issued, fully paid and nonassessable. All of
the outstanding shares of capital stock of each such subsidiary are owned by
Target free and clear of any liens, charges, claims or encumbrances or rights of
others. There are no outstanding subscriptions, options, warrants, puts, calls,
rights, exchangeable or convertible securities or other commitments or
agreements of any character relating to the issued or unissued capital stock or
other securities of any such subsidiary, or otherwise obligating Target or any
such subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire
any such securities. Except for Aspen India, , a subsidiary of Target located in
Dehli, India ("India Sub"), Target does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
2.2 Capital Structure. The authorized capital stock of Target consists of
500,000 shares of Common Stock, of which there were issued and outstanding as of
the date of this Agreement, 150,000 shares of Common Stock. There are no other
outstanding shares of capital stock or voting securities and no outstanding
commitments to issue any shares of capital stock or voting securities after the
date of this Agreement other than pursuant to the exercise of an option
outstanding as of the date of this Agreement under the Target Stock Option Plan.
All outstanding shares of Target Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof, and are not subject to preemptive rights, rights of first refusal,
rights of first offer or similar rights created by statute, the Articles of
Incorporation or Bylaws of Target or any agreement to which Target is a party or
by which it is bound. As of the date of this Agreement, Target has reserved (i)
16,600 shares of Common Stock for issuance to Sunil Khadilkar upon exercise of
his option. Except for the rights created pursuant to this Agreement, there are
no other options, warrants, calls, rights, commitments or agreements of any
character to which Target is a party or by which it is bound obligating Target
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of Target Capital Stock or obligating
Target to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. There are no contracts, commitments or agreements relating to the
voting, purchase or sale of Target Capital Stock (i) between or among Target and
any of its shareholders and (ii) to the best of Target's knowledge, among any of
Target's shareholders or between any of Target's shareholders and any third
party, except for the shareholders delivering Irrevocable Proxies (as defined
below). True and complete copies of all agreements and instruments relating to
or issued under the option granted to Sunil Khadilkar have been made available
to Acquiror, and such agreements and instruments have not been amended, modified
or supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments from the form made available to Acquiror. All
outstanding Common Stock was issued in compliance with all applicable federal
and state securities laws.
2.3 Authority.
(a) Target has all requisite corporate power and authority to enter into
this Agreement, the Articles of Merger, the Stockholders Agreement and the
Escrow Agreement (collectively, the "Transaction Documents") and to consummate
the transactions contemplated hereby the thereby. The execution and delivery
this Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Target, subject only to the approval
of the Merger by Target's shareholders as contemplated by Section 6.1(a). This
Agreement and other Transaction Documents have been duly executed and delivered
by Target, India Sub, Aspen India and the Signing Stockholders and constitute
the valid and binding obligations of Target enforceable against Target in
accordance with their terms.
(b) Each of the Signing Stockholders has full power and authority to enter
into this Agreement, the Stockholders Agreement and any Transaction Document, if
applicable, and to consummate the transactions contemplated hereby and thereby,
and each of such agreements or documents constitutes the valid and legally
binding obligation of such Signing Stockholder, enforceable in accordance with
their respective terms.
(c) The execution and delivery of this Agreement, the Stockholders
Agreement and the other Transaction Documents by Target do not, and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (i)
any provision of the Articles of Incorporation or Bylaws of Target, as amended,
or (ii) to the extent that it does not have a Material Adverse Effect on Target,
any Material Contract (as defined in Section 2.27), permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Target or any of its properties or assets.
(d) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Target in connection with the execution and
delivery of this Agreement and the other Transaction Documents or the
consummation of the transactions contemplated hereby or thereby, except for (i)
the filing of the Articles of Merger, together with the required officers'
certificates, as provided in Section 1.2; (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Target and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.
2.4 Offering Memorandum. The Offering Memorandum prepared by the Platinum
Group, Inc. previously delivered to each Acquiror has been prepared in good
faith by the Target and does not contain any untrue statement of a material fact
nor does it omit to state a material fact necessary to make the statements made
therein not misleading.
2.5 Financial Statements. Target has delivered to Acquiror its unaudited
financial statements (balance sheet and statement of operations) for the fiscal
years ended December 31, 1997, December 31, 1996 and December 31, 1995 and its
unaudited financial statements (balance sheet and statement of operations) on a
consolidated basis as at, and for the six-month period ended June 30, 1998
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
(except that the unaudited financial statements do not have notes thereto)
applied on a consistent basis throughout the periods indicated and with each
other. The Financial Statements fairly present the financial condition and
operating results of Target as of the dates, and for the periods, indicated
therein, subject; in the case of the unaudited financing statements, to normal
year-end audit adjustments which are, not material in the aggregate. Target
maintains a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.6 Absence of Certain Changes. Since June 30, 1998, (the "Target Balance
Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect on Target;
(ii) any acquisition, sale or transfer of any material asset of Target; (iii)
any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any revaluation by
Target of any of its assets; (iv) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Target, or any
direct or indirect redemption, purchase or other acquisition by Target of any of
its shares of capital stock; (v) any Material Contract entered into by Target,
other than as provided to Acquiror, or any material amendment or termination of,
or default under, any Material Contract to which Target is a party or by which
it is bound; (vi) any amendment or change to the Articles of Incorporation or
Bylaws of Target; (vii) any material increase in or modification of the
compensation or benefits payable or to become payable by Target to any of its
directors, employees or consultants (viii) any agreement by Target to do any of
the things described in the preceding clauses (i) through (vii) (other than
negotiations with Acquiror and its representatives regarding the transactions
contemplated by this Agreement).
2.7 Absence of Undisclosed Liabilities. Target has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the Balance Sheet for the
period ended June 30, 1998 (the "Target Balance Sheet"), (ii) those incurred in
the ordinary course of business prior to the Target Balance Sheet Date and not
required to be set forth in the Target Balance Sheet under GAAP (iii) those
incurred in the ordinary course of business since the Target Balance Sheet Date
in amounts consistent with prior periods, and (iv) those incurred in connection
with the execution of this Agreement.
2.8 Accounts Receivable. The accounts receivable shown on the Target
Balance Sheet arose in the ordinary course of business and have been collected
or are collectible in the book amounts thereof, less the allowance for doubtful
accounts and returns provided for in such balance sheet. Allowances for doubtful
accounts and returns are adequate and have been prepared in accordance with the
past practices of Target. The accounts receivable of Target arising after the
date of the Target Balance Sheet and prior to the date hereof arose, and the
accounts receivable arising prior to the Effective Time will arise, in the
ordinary course of business and have been collected or, to the best of our
knowledge, are collectible in the book amounts thereof, less allowances for
doubtful accounts and returns determined in accordance with the past practices
of Target. None of the accounts receivable are subject to any material claim of
offset or recoupment, or counterclaim and Target has no knowledge of any
specific facts that would be reasonably likely to give rise to any such claim.
No material amount of accounts receivable are contingent upon the performance by
Target of any obligation. No agreement for deduction or discount has been made
with respect to any accounts receivable.
2.9 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
(including allegations that could form the basis for future action) against
Target or any of its properties or officers or directors (in their capacities as
such), nor does Target have any reason to expect that any such activity, threat
or allegation will be forthcoming. There is no judgment, decree or order against
Target, or, to the knowledge of Target, any of its directors or officers (in
their capacities as such), that could prevent, enjoin, or materially alter or
delay any of the transactions contemplated by this Agreement, or that could
reasonably be expected to have a Material Adverse Effect on Target. All
litigation to which Target is a party (or, to the knowledge of Target,
threatened to become a party) is disclosed in the Target Disclosure Schedule.
Target does not have any plans to initiate any litigation, arbitration or other
proceeding against any third party.
2.10 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Target that has or could reasonably be
expected to have the effect of prohibiting or impairing any current or future
business practice of Target, any acquisition of property by Target or the
conduct of business by Target as currently conducted or as proposed to be
conducted by Target.
2.11 Governmental Authorization. Target has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental Entity (i) pursuant to which Target currently
operates or holds any interest in any of its properties or (ii) that is required
for the operation of Target's business or the holding of any such interest ((i)
and (ii) herein collectively called "Target Authorizations"), and all of such
Target Authorizations are in full force and effect, except where the failure to
obtain or have any such Target Authorizations could not reasonably be expected
to have a Material Adverse Effect on Target.
2.12 Title to Property. Target has good and marketable title to all of its
properties, interests in properties and assets, real and personal, necessary for
the conduct of its business as presently conducted or which are reflected in the
Target Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of in
the ordinary course of business since the Target Balance Sheet Date), or with
respect to leased properties and assets, valid leasehold interests therein, in
each case free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt that
are reflected on the Target Balance Sheet. The plants, property and equipment of
Target that are used in the operations of its business are in good operating
condition and repair. All properties used in the operations of Target are
reflected in the Target Balance Sheet to the extent generally accepted
accounting principles require the same to be reflected. Target owns no real
property.
2.13 Intellectual Property. For purposes of this Section only, Target shall
mean only Software Moguls, Inc. and not any of its subsidiaries; each of its
subsidiaries, to the extent necessary, shall be identified specifically.
(a)
(i) Target owns or is licensed for, and in any event possesses sufficient
and legally enforceable rights with respect to, all Intellectual Property
(defined below) that is used, exercised, or exploited ("Used") in, or that may
be necessary for, its business as currently conducted ("Target Intellectual
Property," which term will also include all other Intellectual Property owned by
or licensed to Target now or in the past) without any conflict with or
infringement, violation, or misappropriation of any rights or property of others
("Infringement"). Such ownership, licenses and rights are exclusive.
(ii) No Target Intellectual Property was conceived or developed directly or
indirectly with or pursuant to government funding or a government contract.
"Intellectual Property" means (A) inventions (whether or not patentable); trade
names, trade marks, service marks, logos and other designations ("Marks"); works
of authorship; mask works; data; technology, know-how, trade secrets, ideas and
information; designs; formulas; algorithms; processes; schematics; computer
software (in source code and/or object code form); and all other intellectual
and industrial property of any sort ("Inventions") and (B) patent rights; Mark
rights; copyrights; mask work rights; sui generis database rights; trade secret
rights; moral rights; and all other intellectual and industrial property rights
of any sort throughout the world, and all applications, registrations, issuances
and the like with respect thereto ("IP Rights").
(iii) All copyrightable matter within Target Intellectual Property has been
created by persons who were employees of Target at the time of creation and no
third party has or will have "moral rights" or rights to terminate any
assignment or license with respect thereto.
(iv) Neither Target nor its India Sub have received any communication
alleging or suggesting that or questioning whether Target has been or may be
(whether in its current or proposed business or otherwise) engaged in, liable
for or contributing to any Infringement, nor does Target have any reason to
expect that any such communication will be forthcoming.
(b) To the extent included in Target Intellectual Property, Schedule
2.13(b) lists (by name, number, jurisdiction, owner and, where applicable, the
name and address of each inventor),
(i) all patents and patent applications;
(ii) all registered and unregistered Marks; and
(iii ) all registered and unregistered copyrights and mask works; and all
other issuances, registrations, applications and the like with respect to those
or any other IP Rights. No cancellation, termination, expiration or abandonment
of any of the foregoing (except natural expiration or termination at the end of
the full possible term, including extensions and renewals) is anticipated by
Target. Except as expressly identified in written documentation previously
provided to Acquiror (including without limitation file wrappers), Target is not
aware of any questions or challenges (or any specific basis therefor) with
respect to the validity of any of the foregoing issued or registered IP Rights
(or any part or claim thereof) or with respect to the patentability of any claim
of any of the foregoing patent applications.
(c) There is, to the knowledge of Target, no unauthorized Use, disclosure,
infringement or misappropriation of any Target Intellectual Property by any
third party, including, without limitation, any employee or former employee of
Target.
(d) Target has taken all steps to protect and preserve the confidentiality
of all Target Intellectual Property that is not otherwise disclosed in published
patents or patent applications or registered copyrights ("Target Confidential
Information"). All use by and disclosure to employees or others of Target
Confidential Information has been pursuant to the terms of valid and binding
written confidentiality and nonuse/restricted-use agreements. Except as set
forth in Schedule 2.13(d), Target has not disclosed or delivered to any third
party, or permitted the disclosure or delivery to any escrow holder or other
person any part of any Source Materials (defined in Section 2.27).
(e) Each current and former employee and contractor of Target has executed
and delivered (and to the knowledge of Target is in compliance with) an
enforceable agreement in substantially the form of Target's standard Proprietary
Information and Inventions Agreement (in the case of an employee) or Target's
standard Consulting Agreement (in the case of a contractor) (which agreement
provides valid written assignments of all title and rights to any Target
Intellectual Property conceived or developed thereunder, or otherwise in
connection with his or her consulting or employment, but not already owned by
Target by operation of law) (copies of such agreements are included in the
Schedules hereto).
(f) To Target's knowledge, Target is not Using and it will not be necessary
to Use, (i) any Inventions of any of its past or present employees or
contractors (or people currently intended to be hired) made prior to or outside
the scope of their employment by Target or (ii) any confidential information or
trade secrets of any former employer of any such person.
2.14 Environmental Matters. Target is and has at all times operated its
business in material compliance with all Environmental Laws and to the best of
Target's knowledge, no material expenditures are or will be required in order to
comply with such Environmental Laws. "Environmental Laws" means all applicable
statutes, rules, regulations, ordinances, orders, decrees, judgments, permits,
licenses, consents, approvals, authorizations, and governmental requirements or
directives or other obligations lawfully imposed by governmental authority under
federal, state or local law pertaining to the protection of the environment,
protection of public health, protection of worker health and safety, the
treatment, emission and/or discharge of gaseous, particulate and/or effluent
pollutants, and/or the handling of hazardous materials, including without
limitation, the Clean Air Act, 42 U.S.C. Section 7401, et seq., the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Section 9601, et seq., the Federal Water Pollution Control
Act, 33 U.S.C. Section 1321, et seq., the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq. ("RCRA"), and the Toxic Substances Control
Act, 15 U.S.C. Section 2601, et seq.
2.15 Taxes.
(a) All Tax returns, statements, reports, declarations and other forms and
documents (including without limitation estimated Tax returns and reports and
material information returns and reports) required to be filed with any Tax
authority with respect to any Taxable period ending on or before the Closing, by
or on behalf of Target (collectively, "Tax Returns" and individually a "Tax
Return"), have been or will be completed and filed when due (including any
extensions of such due date) except where the failure to file would not have a
Material Adverse Effect on Target and all amounts shown due on such Tax Returns
on or before the Effective Time (and all other material Taxes due and payable on
or before the Effective Time) have been or will be paid on or before such date.
The Target Financial Statements (i) fully accrue all actual and contingent
liabilities for Taxes with respect to all periods through the Target Balance
Sheet Date and Target has not and will not incur any Tax liability in excess of
the amount reflected on the Target Balance Sheet included in the Target
Financial Statements with respect to such periods, other than Taxes incurred in
the ordinary course of its business following the Target Balance Sheet, and (ii)
properly accrues in accordance with GAAP all material liabilities for Taxes
payable after June 30, 1998 with respect to all transactions and events
occurring on or prior to such date. All information set forth in the notes to
the Target Financial Statements relating to Tax matters is true, complete and
accurate in all material respects. No material Tax liability since June 30, 1998
has been incurred by Target other than in the ordinary course of business, and
adequate provision has been made by Target for all Taxes since that date in
accordance with GAAP on at least a quarterly basis.
(b) Target has previously provided or made available to Acquiror true and
correct copies of all income, franchise, and sales Tax Returns for the periods
beginning on or after January 1, 1991. Target has withheld and paid to the
applicable financial institution or Tax authority all amounts required to be
withheld. No Tax Returns filed with respect to Taxable years of Target through
the Taxable year ended December 31, 1994. in the case of the United States have
been examined and such Taxable years are now closed. Target (or any member of
any affiliated or combined group of which Target has been a member) has not
granted any extension or waiver of the limitation period applicable to any Tax
Returns that is still in effect. There is no material claim, audit, action,
suit, proceeding, or (to the knowledge of Target) investigation now pending or
(to the knowledge of Target) threatened against or with respect to Target in
respect of any Tax or assessment. No notice of deficiency or similar document of
any Tax authority has been received by Target, and there are no liabilities for
Taxes (including liabilities for interest, additions to Tax and penalties
thereon and related expenses) with respect to the issues that have been raised
(and are currently pending) by any Tax authority that could, if determined
adversely to Target, materially and adversely affect the liability of Target for
Taxes. There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Target. Target has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code. Target is in full compliance with all the terms and conditions of any Tax
exemptions or other Tax-sharing agreement or order of a foreign government and
the consummation of the Merger will not have any adverse effect on the continued
validity and effectiveness of any such Tax exemption or other Tax-sharing
agreement or order. Neither Target nor any person on behalf of Target has
entered into or will enter into any agreement or consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income tax law) apply to any disposition of any asset owned by
Target. None of the assets of Target is property that Target is required to
treat as being owned by any other person pursuant to the so-called "safe harbor
lease" provisions of former Section 168(f)(8) of the Code. None of the assets of
Target directly or indirectly secures any debt the interest on which is
tax-exempt under Section 103(a) of the Code. None of the assets of Target is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
Target has not made and will not make a deemed dividend election under Treas.
Reg. Section1.1502-32(f)(2) or a consent dividend election under Section 565 of
the Code. Target has never been a party to any transaction intended to qualify
under Section 355 of the Internal Revenue Code or any corresponding provision of
state law. Target has not participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code. No Target
shareholder is other than a United States person within the meaning of the Code.
Target does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States of America and such foreign country and Target has not engaged in
a trade or business within any foreign country. Target has elected pursuant to
Section 1362 of the Code to be treated as an "S" corporation (the "Subchapter S
Election"), commencing January 1, 1987, and the Target and the shareholders of
the Target have reported income and filed tax returns consistently therewith
since that date. The Target's Subchapter S Election shall remain in effect until
terminated by the Merger. The Target has not had and does not expect to have
liability or any potential or deferred liability for Taxes pursuant to Section
1371(d)(2), Section 1374 or Section 1375 of the Code, nor has the Target been
subjected to any other taxes (other than state income taxes) imposed pursuant to
or resulting from its Subchapter S Election. Apart from thereafter subjecting
the Target to income taxation, termination of the Subchapter S Election will not
have a Material Adverse Effect on the Target, its financial condition, or its
business as presently conducted or proposed to be conducted or any of its
properties or material assets. All material elections with respect to Target's
Taxes made during the fiscal years ending, December 31, 1995, 1996 and 1997 are
reflected on the Target Tax Returns for such periods, copies of which have been
provided or made available to Acquiror. After the date of this Agreement, no
material election with respect to Taxes will be made without the prior written
consent of Acquiror, which consent will not be unreasonably withheld or delayed.
Target is not party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes. Target is not currently and never has been subject to the reporting
requirements of Section 6038A of the Code. There is no agreement, contract or
arrangement to which Target is a party that could, individually or collectively,
result in the payment of any amount that would not be deductible by reason of
Sections 280G (as determined without regard to Section 280G(b)(4), 162 (other
than 162(a) and (b)) or 404 of the Code. Target is not a party to or bound by
any Tax indemnity, Tax sharing or Tax allocation agreement (whether written or
unwritten or arising under operation of federal law as a result of being a
member of a group filing consolidated Tax returns, under operation of certain
state laws as a result of being a member of a unitary group, or under comparable
laws of other states or foreign jurisdictions) which includes a party other than
Target nor does Target owe any amount under any such Agreement. Target is not,
and has not been, a United States real property holding corporation (as defined
in Section 897(c)(2) of the Code) during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code. Other than by reason of the Merger, Target
has not been and will not be required to include any material adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions, events or accounting methods employed prior to the
Merger.
(c) For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
and all taxes including, without limitation, (i) any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, value added, net worth, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other person. As used in
this Section 2.15, the term "Target" means Target and any entity included in, or
required under GAAP to be included in, any of the Target Financial Statements.
2.16 Employee Benefit Plans.
(a) For all purposes under this Section 2.16 "ERISA Affiliate" shall mean
each person (as defined in Section 3(9) of ERISA) that, together with Target, is
treated as a single employer under Section 4001(b) of ERISA or Section 414 of
the Code. Except for the plans and agreements listed in Schedule 2.16
(collectively, the "Plans"), Target and its ERISA Affiliates do not maintain,
are not a party to, do not contribute to and are not obligated to contribute to,
and employees or former employees of Target and its ERISA Affiliates and their
dependents or survivors do not receive benefits under, any of the following
(whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
(ii) Any bonus, deferred compensation, incentive, restricted stock, stock
purchase, stock option, stock appreciation right, pension, executive
compensation, cafeteria benefit, dependent care, director or employee loan,
fringe benefit, sabbatical, severance, termination pay or similar plan, program,
policy, agreement or arrangement; or
(iii) Any plan, program, agreement, policy, commitment or other arrangement
relating to the provision of any benefit described in section 3(1) of ERISA to
former employees or directors or to their survivors, other than procedures
intended to comply with the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA").
(b) Neither Target nor any ERISA Affiliate has, since January 1, 1992,
terminated, suspended, discontinued contributions to or withdrawn from any
employee pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) Target has provided to Acquiror complete, accurate and current copies
of each of the following:
(i) The text (including amendments) of each of the Plans, to the extent
reduced to writing;
(ii) A summary of each of the Plans, to the extent not previously reduced
to writing;
(iii) With respect to each Plan that is an employee benefit plan (as
defined in section 3(3) of ERISA), the following:
(1) The most recent summary plan description, as described in section 102
of ERISA;
(2) Any summary of material modifications that has been distributed to
participants but has not been incorporated in an updated summary plan
description furnished under Subparagraph (1) above; and
(3) The annual report, as described in section 103 of ERISA, and (where
applicable) actuarial reports, for the three most recent plan years for which an
annual report or actuarial report has been prepared and filed; and
(iv) With respect to each Plan that is intended to qualify under section
401(a) of the Code the most recent determination letter concerning the plan's
qualification under section 401(a) of the Code, as issued by the Internal
Revenue Service, and any subsequent determination letter application.
(d) With respect to each Plan that is an employee benefit plan (as defined
in section 3(3) of ERISA), the requirements of ERISA applicable to such Plan
have been satisfied in all material respects.
(e) With respect to each Plan that is subject to COBRA, the requirements of
COBRA applicable to such Plan have been satisfied in all material respects.
(f) With respect to each Plan that is subject to the Family Medical Leave
Act of 1993, as amended, the requirements of such Act applicable to such Plan
have been satisfied in all material respects.
(g) Each Plan that is intended to qualify under section 401(a) of the Code
meets the requirements for qualification under section 401(a) of the Code and
the regulations thereunder, except to the (i) extent that such requirements may
be satisfied by adopting retroactive amendments under section 401(b) of the Code
and the regulations thereunder; or (ii) operational or other defects which may
be corrected under applicable procedures provided by the Internal Revenue Code
that would not have a Material Adverse Effect. Each such Plan has been
administered in accordance with its terms (or, if applicable, such terms as will
be adopted pursuant to a retroactive amendment under section 401(b) of the Code)
in all material respects and the applicable provisions of ERISA and the Code and
the regulations thereunder except such operational or other defects which may be
corrected under applicable procedures provided under ERISA or by the Internal
Revenue Service that would not have a Material Adverse Effect.
(h) Neither Target nor any ERISA Affiliate has any accumulated funding
deficiency under section 412 of the Code or any termination or withdrawal
liability under Title IV of ERISA.
(i) All contributions, premiums or other payments due from the Target to
(or under) any Plan have been fully paid or adequately provided for on the books
and financial statements of Target. All accruals (including, where appropriate,
proportional accruals for partial periods) have been made in accordance with
prior practices.
2.17 Employees and Consultants.
(a) Target has provided Acquiror with a true and complete list of all
individuals employed by the Company as of the date hereof and the position and
base compensation payable to each such individual and of all consultants engaged
by the Company and the consulting fee payable to each such individual. The
Target Disclosure Schedule contains a description of any written or oral
employment agreements, consulting agreements or termination or severance
agreements to which Target is a party.
(b) Target is not a party to or subject to a labor union or a collective
bargaining agreement or arrangement and is not a party to any labor dispute.
Target does not have any pending or threatened litigation with any of its
employees.
(c) The consummation of the transactions contemplated herein will not
result in (i) any amount becoming payable to any employee, director or
independent contractor of Target, (ii) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director or independent
contractor of Target may be entitled, (iii) the forgiveness of any indebtedness
of any employee, director or independent contractor of Target or (iv) any cost
becoming due or accruing to Target or the Acquiror with respect to any employee,
director or independent contractor of Target.
(d) Target is not obligated and upon consummation of the Merger will not be
obligated to make any payment or transfer any property that would be considered
a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Target, no employee of Target has been injured in
the work place or in the course of his or her employment except for injuries
which are covered by insurance or for which a claim has been made under workers'
compensation or similar laws.
(f) Target has complied in all material respects with the verification
requirements and the record-keeping requirements of the Immigration Reform and
Control Act of 1986 ("IRCA"); to the best knowledge of Target, the information
and documents on which Target relied to comply with IRCA are true and correct;
and there have not been any discrimination complaints filed against Target
pursuant to IRCA, and to the knowledge of Target, there is no basis for the
filing of such a complaint.
(g) Target has not received or been notified of any complaint by any
employee, applicant, union or other party of any discrimination or other conduct
forbidden by law or contract, nor to the knowledge of Target, is there a basis
for any complaint.
(h) Target's action in complying with the terms of this Agreement will not
violate any agreements with any of Target's employees.
(i) Except to the extent it would not have a Material Adverse Effect,
Target has filed all required reports and information with respect to its
employees that are due prior to the Closing Date and otherwise has complied in
its hiring, employment, promotion, termination and other labor practices with
all applicable federal and state law and regulations, including without
limitation those within the jurisdiction of the United States Equal Employment
Opportunity Commission, United States Department of Labor and state and local
human rights or civil rights agencies. Target has filed and shall file any such
reports and information that are required to be filed prior to the Closing Date.
(j) Target is not aware that any of its employees or contractors is
obligated under any agreement, commitments, judgment, decree, order or otherwise
(an "Employee Obligation") that could reasonably be expected to interfere with
the use of his or her best efforts to promote the interests of Target or that
could reasonably be expected to conflict with any of Target's business as
conducted or proposed to be conducted. Neither the execution nor delivery of
this Agreement nor the conduct of Target's business as conducted or proposed,
will, to Target's knowledge, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any Employee
Obligation.
2.18 Related-Party Transactions. No employee, officer, or director of
Target or member of his or her immediate family is indebted to Target, nor is
Target indebted (or committed to make loans or extend or guarantee credit) to
any of them. To the best of Target's knowledge, none of such persons has any
direct or indirect ownership interest in any firm or corporation with which
Target is affiliated or with which Target has a business relationship, or any
firm or corporation that competes with Target, except to the extent that
employees, officers, or directors of Target and members of their immediate
families own stock in publicly traded companies that may compete with the
Company. No member of the immediate family of any officer or director of Target
is directly or indirectly interested in any material contract with Target.
2.19 Insurance. Target has policies of insurance and bonds of the type and
in amounts customarily carried by persons conducting businesses or owning assets
similar to those of Target. There is no material claim 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 Target is otherwise in
compliance with the terms of such policies and bonds. Target has no knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
2.20 Compliance with Laws. Target has complied with, are not in violation
of, and have not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for such
violations or failures to comply as could not be reasonably expected to have a
Material Adverse Effect on Target.
2.21 Brokers' and Finders' Fees. Target has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.22 Stockholders Agreement; Irrevocable Proxies. All of the persons and/or
entities deemed "Affiliates" of Target within the meaning of Rule 145
promulgated under the Securities Act, and holders of more than 90% of all shares
of Target Common Stock issued and outstanding have agreed in writing to vote for
approval of the Merger pursuant to voting agreements attached hereto as Exhibit
C ("Affiliates Agreement"), and all of the persons and/or entities deemed
"Affiliates" of Target within the meaning of Rule 145 promulgated under the
Securities Act have agreed in writing to vote for approval of the Merger
pursuant to the Irrevocable Proxies attached hereto as Exhibit D ("Irrevocable
Proxies").
2.23 Vote Required. The affirmative vote of the holders of 90% of each
class of the shares of Target Capital Stock outstanding on the record date set
for the Target Shareholders Meeting is the only vote of the holders of any of
Target's Capital Stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.24 Inventory. The inventories shown on the Target Balance Sheet or
thereafter acquired by Target, consisted of items of a quantity and quality
usable or salable in the ordinary course of business. Since June 30, 1998,
Target has continued to replenish inventories in a normal and customary manner
consistent with past practices. The values at which inventories are carried
reflect the inventory valuation policy of Target, which is consistent with its
past practice and in accordance with generally accepted accounting principles
applied on a consistent basis. Since June 30, 1998, due provision was made on
the books of Target in the ordinary course of business consistent with past
practices to provide for all slow-moving, obsolete, or unusable inventories to
their estimated useful or scrap values and such inventory reserves are adequate
to provide for June 30, 1998, the inventory of Target in the distribution
channel does not exceed an aggregate of $10,000.
2.25 Trade Relations. Target has not within the past three years terminated
its relationship with or refused to ship products to any dealer, distributor,
OEM, third party marketing entity or customer which had theretofore paid or been
obligated to pay Target in excess of Ten Thousand Dollars ($10,000) over any
consecutive twelve (12) month period. All of the prices charged by Target in
connection with the marketing or sale of any products or services have been in
compliance with all applicable laws and regulations. No claims have been
communicated or, to Target's knowledge, threatened against Target with respect
to wrongful termination of any dealer, distributor or any other marketing
entity, discriminatory pricing, price fixing, unfair competition, false
advertising, or any other material violation of any laws or regulations relating
to anti-competitive practices or unfair trade practices of any kind, and, to
Target's knowledge, no specific situation, set of facts, or occurrence provides
any valid basis for any such claim.
2.26 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 5% of Target's gross revenues during the 12
month period preceding the date hereof, and no supplier of Target, has canceled
or otherwise terminated, or made any threat to Target to cancel or otherwise
terminate its relationship with Target for any reason including, without
limitation the consummation of the transactions contemplated hereby, or has at
any time on or after January 1, 1998 decreased materially its services or
supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target's
knowledge, no such supplier or customer intends to cancel or otherwise terminate
its relationship with Target or to decrease materially its services or supplies
to Target or its usage of the services or products of Target, as the case may
be. Target has not knowingly breached, so as to provide a benefit to Target that
was not intended by the parties, any agreement with, or engaged in any
fraudulent conduct with respect to, any customer or supplier of Target.
2.27 Material Contracts. Except for the material contracts described in
Schedule 2.27 (collectively, the "Material Contracts") Target is not a party to
or bound by any material contract, including without limitation:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contact more than
$10,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option of any person
other than the Target so as to expire more than one year after the date of this
Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement or other
contract for the borrowing of money, any currency exchange, commodities or other
hedging arrangement or any leasing transaction of the type required to be
capitalized in accordance with GAAP;
(d) any contract for capital expenditures in excess of $10,000 in the
aggregate;
(e) any contract limiting the freedom of the Target to engage in any line
of business or to compete with any other Person as that term is defined in the
Exchange Act, as defined herein, or any confidentiality, secrecy or
non-disclosure contract;
(g) any contract pursuant to which Target leases any real property;
(h) any contract pursuant to which the Target is a lessor of any machinery,
equipment, motor vehicles, office furniture, fixtures or other personal
property;
(i) any contract with any person with whom the Target does not deal at
arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other Person;
(k) any license, sublicense or other agreement to which Target is a party
(or by which it or any Target Intellectual Property is bound or subject) and
pursuant to which any person has been or may be assigned, authorized to Use, or
given access to any Target Intellectual Property;
(l) any license, sublicense or other agreement pursuant to which Target has
been or may be assigned or authorized to Use, or has or may incurred any
obligation in connection with, (A) any third party Intellectual Property or (B)
any Target Intellectual Property;
(m) any agreement pursuant to which Target has deposited or is required to
deposit with an escrow holder or any other person or entity, all or part of the
source code (or any algorithm or documentation contained in or relating to any
source code) of any Target Intellectual Property ("Source Materials"); and
(n) any agreement to indemnify, hold harmless or defend any other person
with respect to any assertion of personal injury, damage to property or
Intellectual Property infringement, misappropriation or violation or warranting
the lack thereof.
2.28 No Breach of Material Contracts. The Target has performed all of the
obligations required to be performed by it and is entitled to all benefits
under, and is not alleged to be in default in respect of any Material Contract.
Each of the Material Contracts is in full force and effect, unamended, and there
exists no default or event of default or event, occurrence, condition or act,
with respect to Target or to Target's knowledge with respect to the other
contracting party, or otherwise that, with or without the giving of notice, the
lapse of the time or the happening of any other event or conditions, could
reasonably be expected to (A) become a default or event of default under any
Material Contract, which default or event of default could reasonably be
expected to have a Material Adverse Effect on Target or (B) result in the loss
or expiration of any right or option by Target (or the gain thereof by any third
party) under any Material Contract or (C) the release, disclosure or delivery to
any third party of any part of the Source Materials (as defined in Section
2.26(m)). True, correct and complete copies of all Material Contracts have been
delivered to the Acquiror.
2.29 Third-Party Consents. Schedule 2.29 lists all contracts that require a
novation or consent to assignment, as the case may be, prior to the Effective
Time so that Acquiror shall be made a party in place of Target or as assignee
(the "Contracts Requiring Novation or Consent to Assignment"). Such list is
complete and accurate.
2.30 Minute Books. The minute books of Target made available to Acquiror
contain a complete and accurate summary of all meetings of directors and
shareholders or actions by written consent since the time of incorporation of
Target through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
2.31 Complete Copies of Materials. Target has delivered or made available
true and complete copies of each document which has been requested by Acquiror
or its counsel in connection with their legal and accounting review of Target.
2.32 Representations Complete. None of the representations or warranties
made by Target herein or in any Schedule hereto, including the Target Disclosure
Schedule, or certificate furnished by Target pursuant to this Agreement, when
all such documents are read together in their entirety, 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.
2.33 India Sub Material Liabilities. Target has no liability or obligation,
absolute or contingent (individually or in the aggregate) as a result of
Target's ownership of stock of, or relationship to, the India Sub, except
obligations and liabilities to India Sub incurred in the ordinary course of
business.
2.34 Securities and Representations. The Signing Stockholders hereby
represent and warrant that:
(a) Authorization. Such Stockholder has full power and authority to enter
into this Agreement and such Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
(b) Purchase Entirely for Own Account. This Agreement is made with such
Stockholder in reliance upon such Stockholder's representation to the Target,
which by such Stockholder's execution of this Agreement such Stockholder hereby
confirms, that the Acquiror Stock to be received by such Stockholder (the
"Securities") will be acquired for investment for such Stockholder's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Stockholder has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Stockholder further represents that
such Stockholder does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
(c) Investment Experience. Such Stockholder is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. If other than an
individual, Stockholder also represents it has not been organized for the
purpose of acquiring the Securities.
(d) Accredited Investor. Such Stockholder is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
(e) Restricted Securities. Such Stockholder understands that the Securities
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Target in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Stockholder represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
(f) Further Representations by Foreign Stockholders. If a Stockholder is
not a United States person, such Stockholder hereby represents that he or she
has satisfied himself or herself as to the full observance of the laws of his or
her jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (i) the legal requirements
within his jurisdiction for the purchase of the Securities, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained, and (iv) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale, or transfer of the Securities. Such Stockholder's subscription
and payment for, and his or her continued beneficial ownership of the
Securities, will not violate any applicable securities or other laws of his or
her jurisdiction.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub represent and warrant to Target that
the statements contained in this Article III are true and correct, [except as
set forth in the disclosure schedule delivered by Acquiror to Target to prior to
the execution and delivery of this Agreement (the "Acquiror Disclosure
Schedule"). The Acquiror Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
III, and the disclosure in any paragraph shall qualify only the corresponding
paragraph in this Article III.] Any reference in this Article III to an
agreement being "enforceable" shall be deemed to be qualified to the extent such
enforceability is subject to (i) laws of general application relating to
bankruptcy, insolvency, moratorium and the relief of debtors, and (ii) the
availability of specific performance, injunctive relief and other equitable
remedies.
3.1 Organization, Standing and Power. Each of Acquiror and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Acquiror and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on Acquiror and Merger Sub, respectively.
Acquiror has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Acquiror
and Merger Sub, each as amended to date, to Target.
3.2 Capitalization and Voting Rights. As of June 30, 1998, the authorized
capital of Acquiror consists of:
(a) Preferred Stock. 5,000,000 shares of Preferred Stock, par value $0.0001
(the "Preferred Stock"), none of which shares are issued and outstanding.
(b) Common Stock. 100,000,000 shares of common stock, par value $0.0001
("Common Stock"), of which 36,613,735 shares are issued and outstanding.
(c) The outstanding shares of Common Stock are all duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act") and any relevant state securities laws, or
pursuant to valid exemptions therefrom.
(d) Except for currently outstanding options to purchase 5,631,681 shares
of Common Stock granted to employees and other service providers pursuant to
Acquiror's 1995 Stock Option Plan (the "Option Plan"), there are not outstanding
any options, warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from Acquiror of any shares of its
capital stock. In addition to the aforementioned options, Acquiror has reserved
an additional 2,549,080 shares of its Common Stock for purchase upon exercise of
options to be granted in the future under the Option Plan. Acquiror is not a
party or subject to any agreement or understanding, and, to the best of
Acquiror's knowledge, there is no agreement or understanding between any persons
and/or entities, which affects or relates to the voting or giving of written
consents with respect to any security or by a director of Acquiror.
3.3 Authority.
(a) Each of Acquiror and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of each of Acquiror and
Merger Sub. This Agreement and the other Transaction Documents have been duly
executed and delivered by each of Acquiror and Merger Sub and constitute the
valid and binding obligations of each of Acquiror and Merger Sub.
(b) The execution and delivery of this Agreement and the other Transaction
Documents do not, and the consummation of the transactions contemplated hereby
and thereby will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
a benefit under (i) any provision of the Certificate of Incorporation or Bylaws
of Acquiror or Aspen Acquisition Corp., as amended, or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or Aspen Acquisition Corp.
or their properties or assets.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Acquiror or Aspen Acquisition Corp. in connection with the execution
and delivery of this Agreement or the other Transaction Documents by Acquiror or
the consummation by Acquiror of the transactions contemplated hereby or thereby,
except for (i) the filing of the Articles of Merger, together with the required
officers' certificates, as provided in Section 1.2, (ii) the filing of a
registration statement on Form S-3 or other applicable form, (iii) the filing of
a Form 8-K with the SEC and National Association of Securities Dealers ("NASD")
within 15 days after the Closing Date, (iv) any filings as may be required under
applicable state securities laws and the securities laws of any foreign country,
(v) the filing with the Nasdaq National Market of a Notification Form for
Listing of Additional Shares with respect to the shares of Acquiror Common Stock
issuable upon conversion of the Target Capital Stock in the Merger and upon
exercise of the options under the Target Stock Option Plan assumed by Acquiror,
and (vi) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Acquiror and would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement or the other Transaction Documents.
3.4 SEC Documents; Financial Statements. Acquiror has furnished to Target a
true and complete copy of each statement, report, registration statement (with
the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act),
definitive proxy statement, and other filing filed with the SEC by Acquiror
since June 30, 1996, and, prior to the Effective Time, Acquiror will have
furnished Target with true and complete copies of any additional documents filed
with the SEC by Acquiror prior to the Effective Time (collectively, the
"Acquiror SEC Documents"). In addition, Acquiror has made available to Target
all exhibits to the Acquiror SEC Documents filed prior to the date hereof, and
will promptly make available to Target all exhibits to any additional Acquiror
SEC Documents filed prior to the Effective Time. All documents required to be
filed as exhibits to the Target SEC Documents have been so filed, and all
material contracts so filed as exhibits are in full force and effect, except
those which have expired in accordance with their terms, and neither Acquiror
nor Aspen Acquisition Corp. is in default thereunder. As of their respective
filing dates, the Acquiror SEC Documents complied in all material respects with
the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the Securities Act, and none of the Acquiror 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 subsequently filed Acquiror SEC Document.
The financial statements of Acquiror, including the notes thereto, included in
the Acquiror SEC Documents (the "Acquiror Financial Statements") were complete
and correct in all material respects as of their respective dates, complied as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto as of
their respective dates, and have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The Acquiror
Financial Statements fairly present the consolidated financial condition and
operating results of Acquiror and Aspen Acquisition Corp. at the dates and
during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments).
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Target agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by the Acquiror),
to carry on its and its subsidiaries' business in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted. Target
further agrees to (i) pay and to cause its subsidiaries to pay debts and Taxes
when due subject to good faith disputes over such debts or Taxes, (ii) subject
to Acquiror's consent to the filing of material Tax Returns if applicable, to
pay or perform other obligations when due, and (iii) to use all reasonable
efforts consistent with past practice and policies to preserve intact its and
its subsidiaries' present business organizations, keep available the services of
its and its subsidiaries' present officers and key employees and preserve its
and its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Target agrees to promptly
notify Acquiror of any event or occurrence not in the ordinary course of its or
its subsidiaries' business, and of any event which could have a Material Adverse
Effect on Target. Without limiting the foregoing, except as expressly
contemplated by this Agreement, Target shall not, cause or permit any of the
following, or allow, cause or permit any of its subsidiaries to do, cause or
permit any of the following, without the prior written consent of the other:
(a) Charter Documents. Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare 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 its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to it or its subsidiaries;
(c) Material Contracts. Enter into any material contract, agreement,
license or commitment, or violate, amend or otherwise modify or waive any of the
terms of any of its material contracts, agreements or licenses other than in the
ordinary course of business consistent with past practice;
(d) Stock Option Plans, etc. Accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its stock
plans or authorize cash payments in exchange for any options or other rights
granted under any of such plans; or
(e) Issuance of Securities. Issue, deliver or sell or authorize or propose
the issuance, delivery or sale of, or purchase or propose the purchase of, any
shares of its capital stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such shares or other convertible
securities, other than the issuance of shares of its Common Stock pursuant to
the exercise of stock options, warrants or other rights therefor outstanding as
of the date of this Agreement;
(f) Intellectual Property. Transfer to or license any person or entity or
otherwise extend, amend or modify any rights to its Intellectual Property other
than the grant of non-exclusive licenses in the ordinary course of business
consistent with past practice;
(g) Exclusive Rights. Enter into or amend any agreements pursuant to which
any other party is granted exclusive marketing, manufacturing or other exclusive
rights of any type or scope with respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or encumber
any of its properties or assets which are material, individually or in the
aggregate, to its business, taken as a whole, other than the closing of the sale
of the [India Sub] stock in accordance with the Stock Purchase Agreement dated
April 21, 1998;
(i) Indebtedness. Incur or commit to incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) Leases. Enter into any operating lease requiring payments in excess of
$10,000;
(k) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $10,000 in any one case or $25,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted, contingent
or otherwise) arising other than in the ordinary course of business, other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in the Target Financial Statements;
(l) Capital Expenditures. Incur or commit to incur any capital expenditures
in excess of $10,000 in the aggregate;
(m) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of substantial
value, other than in the ordinary course of business;
(o) Employee Benefits; Severance. Take any of the following actions: (i)
increase or agree to increase the compensation payable or to become payable to
its officers or employees, except for increases in salary or wages of
non-officer employees in the ordinary course of business and in accordance with
past practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any officer or employee,
(iii) enter into any collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, trust, fund,
policy or arrangement for the benefit of any directors, officers or employees;
provided, however, that the foregoing provisions of this subsection shall not
apply to any amendments to employee benefit plans described in ERISA Section
3(3) that may be required by law;
(p) Lawsuits. Commence a lawsuit or arbitration proceeding other than (i)
for the routine collection of bills, or (ii) for a breach of this Agreement;
(q) Acquisitions. Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its
and its subsidiaries' business, taken as a whole;
(r) Taxes. Make any material Tax election other than in the ordinary course
of business and consistent with past practice, change any material Tax election,
adopt any Tax accounting method other than in the ordinary course of business
and consistent with past practice, change any Tax accounting method, file any
Tax return (other than any estimated tax returns, immaterial information
returns, payroll tax returns or sales tax returns) or any amendment to a Tax
return, enter into any closing agreement, settle any Tax claim or assessment or
consent to any Tax claim or assessment provided that Acquiror shall not
unreasonably withhold or delay approval of any of the foregoing actions;
(s) Pooling. Take any action, that would be reasonably expected to
interfere with Acquiror's ability to account for the Merger as a pooling of
interests under generally accepted accounting principles; (t) Revaluation.
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; or (u) Other. Take or agree in writing or otherwise
to take, any of the actions described in Sections 4.1(a) through
(t) above, or any action which would make any of its representations or
warranties contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
4.2 Notices. Target shall give all notices and other information required
to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time,
Target shall not, directly or indirectly, through any officer, director,
employee, representative or agent, (i) solicit, initiate, or encourage any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, business combination, sale
of all or substantially all of the assets, sale of shares of capital stock
(including without limitation by way of a tender offer) or similar transactions
involving Target, other than the transactions contemplated by this Agreement
(any of the foregoing inquiries or proposals being referred to in this Agreement
as a "Takeover Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Takeover Proposal, or (iii) agree to, approve or recommend any
Takeover Proposal.
(b) Target shall notify Acquiror immediately (and no later than 24 hours)
after receipt by Target (or its advisors or agents) of any Takeover Proposal or
any request for information in connection with a Takeover Proposal or for access
to the properties, books or records of Target by any person or entity that
informs Target that it is considering making, or has made, a Takeover Proposal.
Such notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact.
5.2 Shareholders Meeting or Consent Solicitation. Target shall promptly
after the date hereof take all actions necessary to either (i) call a meeting of
its shareholders to be held for the purpose of voting upon this Agreement and
the Merger or (ii) commence a consent solicitation to obtain such approvals on
or prior to July 6, 1998. Target will, through its Board of Directors, recommend
to its shareholders approval of such matters as soon as practicable after the
date hereof. Target shall use all reasonable efforts to solicit from its
shareholders proxies or consents in favor of such matters.
5.3 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Target's and its subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of Target and its
subsidiaries as Acquiror may reasonably request. Target agrees to provide to
Acquiror and its accountants, counsel and other representatives copies of
internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof until
the Effective Time, each of Acquiror and Target shall confer on a regular and
frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant to
this Section 5.3 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Acquiror and Target have
previously executed a non-disclosure agreement dated June __, 1998 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by Acquiror to comply with the
rules and regulations of the SEC or any obligations pursuant to any listing
agreement with any national securities exchange or with the NASD. All nonpublic
information provided by Acquiror and Target will not be disclosed by either
party or their representatives to any third party (other than accountants,
counsel and authorized representatives of each party) without the prior written
consent of the other, except as may be required by law.
5.6 Consents; Cooperation.
(a) Each of Acquiror and Target shall promptly apply for or otherwise seek,
and use its best efforts to obtain, all consents and approvals required to be
obtained by it for the consummation of the Merger and shall use its best efforts
to obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the Merger for the assignment thereof or
otherwise. The parties hereto will consult and cooperate with one another, and
consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in connection
with proceedings under or relating to any federal or state antitrust or fair
trade law.
(b) Notwithstanding the foregoing, neither Acquiror nor Target shall be
required to agree, as a condition to any Approval, to divest itself of or hold
separate any subsidiary, division or business unit which is material to the
business of such party and its subsidiaries, taken as a whole, or the
divestiture or holding separate of which would be reasonably likely to have a
Material Adverse Effect on (A) the business, properties, assets, liabilities,
financial condition or results of operations of such party and its subsidiaries,
taken as a whole or (B) the benefits intended to be derived as a result of the
Merger.
5.7 Pooling Accounting. Acquiror and Target shall each use its best efforts
to cause the business combination to be effected by the Merger to be accounted
for as a pooling of interests and to take such action as may be reasonably
necessary to permit such treatment. Each of Acquiror and Target shall use its
best efforts (i) to cause its respective "Affiliates" (as defined in Section
5.9) not to take any action that would adversely affect the ability of Acquiror
to account for the business combination to be effected by the Merger as a
pooling of interests and (ii) to cause Acquiror's auditors to deliver the letter
referred to in Section 6.3(g) of this Agreement.
5.8 Update Disclosure; Breaches. From and after the date of this Agreement
until the Effective Time, Target shall promptly notify Acquiror, by written
update to its Disclosure Schedule, of (i) the occurrence or non-occurrence of
any event which would be likely to cause any condition to the obligations of any
party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied, or (ii) the failure of Target to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it pursuant to this Agreement which would be likely to result in any condition
to the obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied. The delivery of any notice
pursuant to this Section 5.8 shall not cure any breach of any representation or
warranty requiring disclosure of such matter prior to the date of this Agreement
or otherwise limit or affect the remedies available hereunder to the party
receiving such notice, provided that such party, within ten days after receipt
of such notice, advises the other party of its objection to the matter disclosed
in such notice and the nature of such objection.
5.9 Affiliates Agreements. Prior to the execution of this Agreement, Target
will provide to the Acquiror a list of those persons who are, in Target's
reasonable judgment, "affiliates" of Target, within the meaning of Rule 145
under the Securities Act ("Rule 145"). Each such person who is an "affiliate" of
the Target within the meaning of Rule 145 is referred to herein as an
"Affiliate." Target shall provide to the Acquiror such information and documents
as Acquiror shall reasonably request for purposes of reviewing such list and
shall notify the Acquiror in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. Target shall, on behalf of Acquiror and
pursuant to the request of Acquiror, cause to be delivered to Acquiror,
concurrently with the execution of this Agreement, from each of the shareholders
of Target (including each of the Affiliates of Target), an executed agreement,
in the form attached hereto as Exhibit C ("Affiliates Agreement"). Acquiror
shall be entitled to place appropriate legends on the certificates evidencing
any Acquiror Common Stock to be received by Affiliates of Target pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions to
the transfer agent for the Acquiror Common Stock, consistent with the terms of
the Stockholders Agreement.
5.10 Irrevocable Proxies. Target shall, on behalf of Acquiror and pursuant
to the request of Acquiror, cause each of the Affiliates of Target to execute
and deliver to Acquiror an Irrevocable Proxy substantially in the form of
Exhibit D attached hereto concurrently with the execution of this Agreement.
5.11 Legal Requirements. Each of Acquiror and Target will, and will cause
their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.12 Tax-Free Reorganization. Neither Target, Acquiror nor Sub will, either
before or after consummation of the Merger, take any action which, to the
knowledge of such party, would cause the Merger to fail to constitute a
"reorganization" within the meaning of Code Section 368.
5.13 Stock Options. At the Effective Time, each outstanding option to
purchase shares of Target Common Stock, whether vested or unvested, shall have
been exercised, expired, or terminated. Target has delivered to Acquiror a
schedule (the "Option Schedule") which sets forth a true and complete list as of
the date hereof of all holders of outstanding options under the Target Stock
Option Plan including the number of shares of Target Capital Stock subject to
each such option, the exercise or vesting schedule, the exercise price per share
and the term of each such option. On the Closing Date, Target shall deliver to
Acquiror an updated Option Schedule current as of such date.
5.14 Listing of Additional Shares. Prior to the Effective Time, Acquiror
shall file with Nasdaq a Notification Form for Listing of Additional Shares with
respect to the Total Acquiror Shares.
5.15 Additional Agreements; Best Efforts. Each of the parties agrees to use
their best efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of shareholders of Target
described in Section 5.2, including cooperating fully with the other party,
including by provision of information. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
the constituent corporations, the proper officers and directors of each party to
this Agreement shall take all such necessary action.
5.16 Employee Benefits. Acquiror shall take such reasonable actions, to the
extent permitted by Acquiror's benefits program, as are necessary to allow
eligible employees of Target to participate in the benefit programs of Acquiror,
or alternative benefits programs in the aggregate substantially comparable to
those applicable to employees of Acquiror on similar terms, as soon as
practicable after the Effective Time of the Merger but, in any event, not before
January 1, 1999. For purposes of satisfying the terms and conditions of such
programs, to the extent permitted by Acquiror's benefit programs, Acquiror shall
use reasonable efforts to give full credit for eligibility or vesting for each
participant's period of service with Target. Prior to January 1, 1999, Acquiror
agrees to continue Target's existing benefit programs substantially as currently
provided, except that no commitment is made with respect to the 401(k) Plan and
Dental Plan.
5.17 Waiver of Preemptive Rights. The Signing Stockholders hereby agree to
waive all preemptive rights under Minnesota law and otherwise which may arise as
a result of the exercise by Sunil Khadilkar of his option to purchase 16,600
shares of Target.
5.18 Preparation of Tax Return. Acquiror agrees to cause Surviving
Corporation to timely prepare federal and state tax returns for the Target's tax
year ending as a result of the Merger. Acquiror agrees to provide the
Shareholders' Representative (as defined in Section 8.9) an opportunity to
review and comment upon such returns prior to filing. Acquiror agrees not to
cause Surviving Corporation to amend the federal and state tax returns of Target
without the consent of Shareholders' Representative.
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 consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by the holders of one hundred percent (100%) of the shares
of Target Capital Stock outstanding as of the record date set for the Target
Shareholders Meeting or solicitation of shareholder consents, and any agreements
or arrangements that may result in the payment of any amount that would not be
deductible by reason of Section 280G of the Code shall have been approved by
such number of shareholders of Target as is required by the terms of Section
280G(b)(5)(B).
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(c) Governmental Approval. Acquiror and Target and their respective
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act, under state Blue Sky laws.
(d) Tax Opinion. Each of Target and Acquiror shall have received a written
opinion from their respective counsel to the effect that the Merger should
constitute a reorganization within the meaning of Section 368 of the Code. In
preparing the Target and the Acquiror tax opinions, counsel may rely on
reasonable assumptions and may also rely on (and to the extent reasonably
required, the parties and Target's shareholders shall make) reasonable
representations related thereto in letters addressed to Target and Acquiror and
in the forms satisfactory to legal counsel for both Target and Acquiror.
(e) Listing of Additional Shares. The filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect to
the shares of Acquiror Common Stock issuable upon conversion of the Target
Common Stock in the Merger and upon exercise of the options under the Target
Stock Option Plan assumed by Acquiror shall have been made.
6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
(a) Representations, Warranties and Covenants. (i) The representations and
warranties of Acquiror in this Agreement shall be true and correct in all
material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality which representations and
warranties as so qualified shall be true in all respects) on and as of the
Effective Time as though such representations and warranties were made on and as
of such time and (ii) Acquiror shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.
(b) Certificate of Acquiror. Target shall have been provided with a
certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Acquiror under this
Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement to be
performed by Acquiror on or before such date have been so performed in all
material respects.
(c) Legal Opinion. Target shall have received a legal opinion from
Acquiror's legal counsel substantially in the form attached as Exhibit F hereto.
6.3 Additional Conditions to the Obligations of Acquiror. The obligations
of Acquiror to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Acquiror:
(a) Representations, Warranties and Covenants. (i) The representations and
warranties of Target in this Agreement shall be true and correct in all material
respects (except for such representations and warranties that are qualified by
their terms by a reference to materiality which representations and warranties
as so qualified shall be true in all respects) on and as of the Effective Time
as though such representations and warranties were made on and as of such time
and (ii) Target shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificate of Target. Acquiror shall have been provided with a
certificate executed on behalf of Target by its President and Chief Financial
Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Target under this Agreement
are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement to be
performed by Target on or before such date have been so performed in all
material respects.
(c) Third Party Consents. Acquiror shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose consent or
approval shall be required in connection with the Merger under the contracts of
Target set forth on Schedule 2.29 hereto, if failure to obtain such consents or
approvals would or would reasonably be expected to have a Material Adverse
Effect on Target.
(d) Injunctions or Restraints on Merger and Conduct of Business. No
proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking to
prevent the consummation of the Merger shall be pending. In addition, no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.
(e) Legal Opinion. Acquiror shall have received a legal opinion from
Target's legal counsel, in substantially the form attached hereto as Exhibit H.
(f) No Material Adverse Changes. There shall not have occurred any material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations, results of
operations or prospects of Target and its subsidiaries, taken as a whole.
(g) Pooling Letter from Acquiror's Accountants. Acquiror shall have
received a letter from Acquiror's auditors, dated as of the Closing Date,
reasonably satisfactory in form and substance to Acquiror, to the effect that
Acquiror may account for the Merger as a "pooling of interests" in accordance
with generally accepted accounting principles, Accounting Principles Board
Opinion No. 16 and all published rules, regulations and policies of the SEC.
(h) Affiliate Agreements. Acquiror shall have received from the Affiliates
of Target an executed Stockholders Agreement in substantially the form attached
hereto as Exhibit C.
(i) FIRPTA Certificate. Target shall, prior to the Closing Date, provide
Acquiror with a properly executed FIRPTA Notification Letter, substantially in
the form of Exhibit I attached hereto, which states that shares of capital stock
of Target do not constitute "United States real property interests" under
Section 897(c) of the Code, for purposes of satisfying Acquiror's obligations
under Treasury Regulation Section 1.1445-2(c)(3). In addition, simultaneously
with delivery of such Notification Letter, Target shall have provided to
Acquiror, as agent for Target, a form of notice to the Internal Revenue Service
in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2)
and substantially in the form of Exhibit I attached hereto along with written
authorization for Acquiror to deliver such notice form to the Internal Revenue
Service on behalf of Target upon the Closing of the Merger.
(j) Resignation of Directors. The directors of Target in office immediately
prior to the Effective Time shall have resigned as directors of Target effective
as of the Effective Time.
(k) Proprietary Information and Inventions Agreements. All of the employees
of Target shall have entered into a Proprietary Information and Inventions
Agreements in a form reasonably acceptable to Acquiror.
(l) Tax Free Transaction. The Merger shall qualify as a "tax free
transaction" in accordance with Section 368 of the Internal Revenue Code, as
amended, and the Treasury Regulations thereunder.
(m) Securities Exemption. The Acquiror shares to be issued in the Merger
shall be exempt from registration under the Securities Act of 1933, as amended.
(n) 401(k) Plan. By resolution of Target's board of directors, Target shall
terminate its 401(k) Profit Sharing Plan effective as of a date prior to the
Closing and shall take all necessary steps to effect such termination following
the Closing, in compliance with the requirements of ERISA.
(o) Khalidkar Employment Agreement. Sunil Khalidkar shall have entered into
an Employment Agreement in a form mutually acceptable to Acquiror and Sunil
Khadilkar.
(p) Share Exchange Spreadsheet. The Target shall have delivered to Acquiror
a schedule of the shares exchanged pursuant to the Merger Agreement with columns
including (i) the amount of Target shares held by each of the Signing
Shareholders immediately prior to the Merger, (ii) the amount of Acquiror shares
to be received by each of the Signing Shareholders upon the Closing of the
Merger and (iii) the amount of Acquiror shares to be held in Escrow for each of
the Signing Shareholders upon the Closing of the Merger.
(q) Consulting Agreements. All consultants retained by Target who
previously worked for India Sub shall have entered into Consulting Agreements
with the Target in a form reasonably acceptable to Acquiror.
(r) Technology Assignment Agreement. All current and former employees and
consultants of Target shall have assigned all right, title and interest in and
to any Target Intellectual Property to Target.
(s) Vaynerman Consultant Agreement. Mr. Vaynerman shall have entered into
an Amended Consulting Agreement with the Target in a form reasonably acceptable
to Acquiror.
(t) Wilson Employment Agreement. Mr. Wilson shall have entered into an
Employment Agreement with the Target in a form reasonably acceptable to
Acquiror.
(u) Offeree or Purchaser Representative. The Acquiror and any person acting
as an offeree or purchaser representative for one or more of the Signing
Stockholders shall have entered into an offeree or purchaser representative
agreement with the Acquiror in a form satisfactory to the Acquiror.
ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of Target, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Board of Directors of Acquiror
and Target;
(b) by either Acquiror or Target, if, without fault of the terminating
party, the Closing shall not have occurred on or before August 31, 1998
(provided, a later date may be agreed upon in writing by the parties hereto, and
provided further that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose action or failure to act has
been the cause or resulted in the failure of the Merger to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement);
(c) by Acquiror, if (i) Target shall breach any representation, warranty,
obligation or agreement hereunder and such breach shall not have been cured
within five (5) days following receipt by Target by written notice of such
breach, provided that the right to terminate this Agreement by Acquiror under
this Section 7.1(c) shall not be available to Acquiror where Acquiror is at that
time in material breach of this Agreement, (ii) the Board of Directors of Target
shall have withdrawn or modified its recommendation of this Agreement or the
Merger in a manner adverse to Acquiror or shall have resolved to do any of the
foregoing, or (iii) for any reason Target fails to call and hold the Target
Shareholders Meeting or commence solicitation of shareholder consents by July
31, 1998;
(d) by Target, if Acquiror shall breach any representation, warranty,
obligation or agreement hereunder and such breach shall not have been cured
within five (5) days following receipt by Acquiror of written notice of such
breach, provided that the right to terminate this Agreement by Target under this
Section 7.1(d) shall not be available to Target where Target is at that time in
material breach of this Agreement;
(e) by Acquiror if (i) any permanent injunction or other order of a court
or other competent authority preventing the consummation of the Merger shall
have become final and nonappealable or (ii) if any required approval of the
shareholders of Target shall not have been obtained by reason of the failure to
obtain the required or vote upon a vote held at a duly held meeting of
shareholders or at any adjournment thereof; or
(f) by Target if (i) any permanent injunction or other order of a court or
other competent authority preventing the consummation of the Merger shall have
become final and nonappealable or (ii) if any required approval of the
shareholders of Target shall not have been obtained by reason of the failure to
obtain the required or vote upon a vote held at a duly held meeting of
shareholders or at any adjournment thereof.
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Acquiror or Target or their
respective officers, directors, shareholders or affiliates, except to the extent
that such termination results from the breach by a party hereto of any of its
representations, warranties or covenants set forth in this Agreement; provided
that, the provisions of Section 5.5 (Confidentiality), Section 7.3 (Expenses and
Termination Fees) and this Section 7.2 shall remain in full force and effect and
survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to Sections 7.3(b), 7.3(c) and 7.3(d), whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense; provided, however,
that any out-of-pocket expenses incurred by Target in excess of $250,000 for
fees and expenses of legal counsel plus any other expenses, including, without
limitation, fees and expenses of financial advisors and accountants, if any,
shall remain an obligation of Target's shareholders on a pro-rata basis. If
Acquiror or Target receives any invoices for amounts in excess of said amounts
and the Closing has occurred, it may, with Acquiror's written approval, pay such
fees; provided, however, that such payment shall, if not promptly reimbursed by
the Target shareholders at Acquiror's request, constitute "Damages" recoverable
under the Escrow Agreement and such Damages shall not be subject to the Escrow
Basket nor shall the Escrow Agent be required to obtain written authorization
from the Shareholders' Representative in such instances before making a delivery
to Acquiror of Common Stock or other property of the Escrow Fund, subject only
to the limitations set forth in Section 8.7 below.
(b) (i) In the event that any Takeover Proposal is consummated (as defined
in Section 7.3(c) within six months of such termination of this Agreement,
Target shall promptly pay to Acquiror the additional sum of $1,000,000 or (ii)
in the event that Target shall terminate this Agreement (other than in
accordance with the terms set forth in this Agreement) for any reason except (i)
above, Target shall promptly pay to Acquiror the additional sum of $250,000. In
the event that Acquiror shall terminate this Agreement (other than in accordance
with the terms set forth in this Agreement), Acquiror shall promptly pay to
Target the sum of $250,000. For purposes of Section 7.3 above, "consummation" of
a Takeover Proposal shall occur on the date a written agreement is entered into
with respect to a merger or other business combination involving Target or the
acquisition of 20% or more of the outstanding shares of capital stock of Target,
or sale or transfer of any material assets (excluding the sale or disposition of
assets in the ordinary course of business) of Target or any of its subsidiaries.
7.4 Amendment. The boards of directors of the parties hereto may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto; provided that an amendment made
subsequent to adoption of the Agreement by the shareholders of Target shall not
(i) alter or change the amount or kind of consideration to be received on
conversion of the Target Capital Stock, (ii) alter or change any term of the
Articles of Incorporation of the Surviving Corporation to be effected by the
Merger, or (iii) alter or change any of the terms and conditions of the
Agreement if such alteration or change would adversely affect the holders of
Target Capital Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to 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 VIII
ESCROW AND INDEMNIFICATION
8.1 Survival of Representations, Warranties and Covenants. Notwithstanding
any investigation conducted before or after the Closing Date, and
notwithstanding any actual or implied knowledge or notice of any facts or
circumstances which Acquiror or Target may have as a result of such
investigation or otherwise, Acquiror and Target will be entitled to rely upon
the other party's representations, warranties and covenants set forth in this
Agreement. The representations and warranties of Acquiror will terminate upon
the Closing. The obligations of Target with respect to its representations,
warranties, agreements and covenants will survive the Closing and continue in
full force and effect until the date twelve (12) months following the Closing
Date (the "Termination Date"), at which time, subject to Section 8.5, the
representations, warranties and covenants Target set forth in this Agreement and
any liability of the holders of Target Capital Stock (collectively, the "Former
Target Shareholders") with respect to those representations, warranties and
covenants will terminate.
8.2 Indemnity. From and after the Effective Time of the Merger, and subject
to the provisions of Section 8.1, Acquiror and the Surviving Corporation (on or
after the Closing Date) shall be indemnified and held harmless by the Former
Target Shareholders against, and reimbursed for, any actual liability, damage,
loss, obligation, demand, judgment, fine, penalty, cost or expense, other than
any such damages resulting from injunctive relief granted as to an intellectual
property claim), but including reasonable attorneys' fees (excluding costs
relating to in-house attorneys) and expenses, and the costs of investigation
incurred in defending against or settling such liability, damage, loss, cost or
expense or claim therefor and any amounts paid in settlement thereof) imposed on
or reasonably incurred by Acquiror or the Surviving Corporation as a result of
any breach of any representation, warranty, agreement or covenant on the part of
Target under this Agreement (collectively the "Damages"). Damages in each case
shall be net of the amount of any insurance proceeds, indemnity and contribution
actually recovered by Acquiror or the Surviving Corporation. "Damages" as used
herein is not limited to matters asserted by third parties, but includes Damages
incurred or sustained by Acquiror in the absence of claims by a third party.
8.3 Escrow Fund. As security for the indemnity provided for in Section 8.2
hereof, ten percent (10%) of the Shares issuable pursuant to Section 1.6(a)
shall be deposited by Acquiror in an escrow account with Louis C. Cole (or other
mutually acceptable person or institution) as Escrow Agent (the "Escrow Agent"),
as of the Closing Date, such deposit to constitute an escrow fund (the "Escrow
Fund") to be governed by the terms set forth in this Agreement and the
provisions of an Escrow Agreement to be executed and delivered pursuant to
Section 5.16. The Escrow Fund shall be allocated among the Former Target
Shareholders on a pro-rata basis in accordance with the number of shares of
Target Capital Stock held by the Former Target Shareholders at the Effective
Time (excluding for purposes of this calculation any Dissenting Shares). Upon
compliance with the terms hereof and subject to the provisions of this Article
VIII, Acquiror and the Surviving Corporation shall be entitled to obtain
indemnity from the Escrow Fund for Damages covered by the indemnity provided for
in Section 8.2 of this Agreement.
8.4 Limitations. Notwithstanding anything in this Agreement to the
contrary, all claims for indemnification by Acquiror and Surviving Corporation
which may be made under or in connection with this Agreement and the Transaction
Documents are subject to the following conditions, limitations and restrictions:
(a) Acquiror may not receive any shares from the Escrow Fund unless and
until an Officer's Certificate (as defined in Section 8.6 below) identifying
Damages the aggregate amount of which exceeds $50,000 has been delivered to the
Escrow Agent as provided below and such amount is determined pursuant to this
Article VIII to be payable and then only for such individual damages or series
of related damages that exceed the amount of $15,000, in which case Acquiror
shall receive shares equal in value to the full amount of Damages.
(b) The sole remedy for the Acquiror and Surviving Corporation for claims
under this Agreement and the Transaction Documents is limited to return of the
shares held in the Escrow Fund.
8.5 Escrow Period. The Escrow Period shall terminate at the expiration of
twelve (12) months after the Effective Time. Half of the escrowed shares shall
be released from escrow six (6) months following the Closing date and the
balance of the escrowed shares shall be released from escrow twelve (12) months
following the Closing Date (or such shorter period as may be required under the
pooling rules and regulations); provided, however, that a portion of the Escrow
Shares, which are necessary to satisfy any unsatisfied claims specified in any
Officer's Certificate theretofore delivered to the Escrow Agent prior to
termination of the Escrow Period with respect to facts and circumstances
existing prior to expiration of the Escrow Period, shall remain in the Escrow
Fund until such claims have been finally resolved.
8.6 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the Termination Date of a
certificate signed by the chief financial or chief executive officer of Acquiror
(an "Officer's Certificate"):
(i) stating that Acquiror or the Surviving Corporation has incurred, paid
or properly accrued (in accordance with GAAP) or knows of facts giving rise to a
reasonable probability which will require it to incur, pay or accrue (in
accordance with GAAP) Damages in an aggregate stated amount with respect to
which Acquiror or the Surviving Corporation is entitled to payment from the
Escrow Fund pursuant to this Agreement; and
(ii) specifying in reasonable detail the individual items of Damages
included in the amount so stated, the date each such item was incurred, paid or
properly accrued (in accordance with GAAP), or the basis for such anticipated
liability, the specific nature of the breach to which such item is related, the
Escrow Agent shall, subject to the provisions of Section 8.7 of this Agreement,
deliver to Acquiror shares of Acquiror Common Stock in an amount necessary to
indemnify Acquiror for the Damages claimed. All shares of Acquiror Common Stock
subject to such claims shall remain in the Escrow Fund until Damages are
actually incurred or paid or the Acquiror determines in its reasonably good
faith judgment that no Damages will be required to be incurred or paid (in which
event such shares shall be distributed to the Former Target Shareholders in
accordance with Section 8.10 below).
(b) For the purpose of compensating Acquiror for its Damages pursuant to
this Agreement, the Acquiror Common Stock in the Escrow Fund shall be valued at
the Closing Price.
8.7 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Representative (defined in Section 8.9
below) and for a period of forty-five (45) days after such delivery to the
Escrow Agent, the Escrow Agent shall make no delivery of Acquiror Common Stock
or other property pursuant to Section 8.6 hereof unless the Escrow Agent shall
have received written authorization from the Shareholders' Representative to
make such delivery; provided, however, that if such Officer's Certificate sets
forth a claim for the recovery by Acquiror of expenses incurred in connection
with the Merger in excess of $250,000 for which the Target's Shareholders have
not promptly reimbursed Acquiror pursuant to the terms of Section 7.3 above (an
"Expense Recovery"), then the Escrow Agent may make such delivery without the
requirement of a written authorization from the Shareholders' Representative at
any time that is ten (10) days after the delivery of such Officer's Certificate
to the Escrow Agent. After the expiration of such ten (10) day or forty-five
(45) day period, as applicable, the Escrow Agent shall make delivery of the
Acquiror Common Stock or other property in the Escrow Fund in accordance with
Section 8.6 hereof, provided that, except in the case of an Expense Recovery
(where no objection may be made), no such payment or delivery may be made if the
Shareholders' Representative 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 and to Acquiror prior to the expiration of such forty-five
(45) day period.
8.8 Resolution of Conflicts; Arbitration.
(a) In case the Shareholders' Representative shall so object in writing to
any claim or claims by Acquiror made in any Officer's Certificate, the
Shareholders' Representative and Acquiror shall attempt in good faith for sixty
(60) days to agree upon the rights of the respective parties with respect to
each of such claims. If the Shareholders' Representative and Acquiror 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 shall distribute the Acquiror
Common Stock or other property from the Escrow Fund in accordance with the terms
thereof.
(b) If no such agreement can be reached after good faith negotiation,
either Acquiror or the Shareholders' Representative 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 Acquiror and the Shareholder's Agent
agree to arbitration; and in such event the matter shall be settled by
arbitration conducted by a single arbitrator. Acquiror and the Shareholder's
Agent shall jointly select an arbitrator. If Acquiror or the Shareholder's Agent
fail to agree upon an arbitrator within thirty (30) days, an arbitrator shall be
selected for them by the American Arbitration Association ("AAA"). The decision
of the arbitrator so selected as to the validity and amount of any claim in such
Officer's Certificate shall be binding and conclusive upon the parties to the
Agreement, and, notwithstanding anything in Section 8.6, the Escrow Agent shall
be entitled to act in accordance with such decision and make or withhold
payments or distributions out of the Escrow Fund in accordance with such
decision.
(c) 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 commercial rules then in effect of the American
Arbitration Association (the "AAA"). Such arbitration shall be conducted by one
(1) arbitrator chosen by mutual agreement of Acquiror and the Shareholders'
Representative, or failing such agreement, an arbitrator appointed by the AAA.
There shall be limited discovery prior to the arbitration hearing as follows:
(a) exchange of witness lists and copies of documentary evidence and documents
related to or arising out of the issues to be arbitrated, (b) depositions of all
party witnesses, and (c) such other depositions as may be allowed by the
arbitrator upon a showing of good cause. Depositions shall be conducted in
accordance with the California Code of Civil Procedure, the arbitrator shall be
required to provide in writing to the parties the basis for the award or order
of such arbitrator, and a court reporter shall record all hearings, with such
record constituting the official transcript of such proceedings. Any order or
award of the arbitrator in accordance with the foregoing shall be final, binding
and conclusive as to the parties to this Article VIII. For purposes of this
Section 8.8, in any arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue, Acquiror shall be
deemed to be the Non-Prevailing Party unless the arbitrators award Acquiror more
than one-half (1/2) of the amount in dispute, plus any amounts not in dispute;
otherwise, the Target shareholders for whom shares of Target Common Stock
otherwise issuable to them have been deposited in the Escrow Fund shall be
deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including without limitation, attorneys' fees and costs, reasonably incurred by
the other party to the arbitration.
8.9 Shareholders' Representative.
(a) Sunil Khadilkar shall be constituted and appointed as agent
("Shareholders' Representative") for and on behalf of the Target shareholders to
give and receive notices and communications, to authorize delivery to Acquiror
of the Acquiror Common Stock or other property from the Escrow Fund in
satisfaction of claims by Acquiror, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Shareholders' Representative for the accomplishment of the foregoing. Such
agency may be changed by the holders of a majority in interest of the Escrow
Fund from time to time upon not less than 10 days' prior written notice to
Acquiror. The Shareholder's Agent may resign upon thirty (30) days notice to the
parties to this Agreement and the Former Target Shareholders. No bond shall be
required of the Shareholders' Representative, and the Shareholders'
Representative shall receive no compensation for his services. Notices or
communications to or from the Shareholders' Representative shall constitute
notice to or from each of the Target shareholders.
(b) The Shareholders' Representative shall not be liable for any act done
or omitted hereunder as Shareholders' Representative 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. The
Target shareholders shall severally indemnify the Shareholders' Representative
and hold him harmless against any loss, liability or expense incurred without
gross negligence or bad faith on the part of the Shareholders' Representative
and arising out of or in connection with the acceptance or administration of his
duties hereunder.
(c) The Shareholders' Representative shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Shareholders' Representative shall treat
confidentially and not disclose any nonpublic information from or about Target
to anyone (except on a need to know basis to individuals who agree to treat such
information confidentially).
(d) The Shareholders' Representative shall be entitled to a distribution
from the Escrow Fund equal to any such indemnity claim which has not been
satisfied; provided, however, that no such distribution shall be made until all
claims of Acquiror set forth in any Officer's Certificate delivered to the
Escrow Agent on or prior to the Termination Date have been resolved.
8.10 Distribution Upon Termination of Escrow Period. Within five (5)
business days following the Termination Date, the Escrow Agent shall deliver to
the Former Target Shareholders all of the Shares in the Escrow Fund in excess of
any amount of such Shares reasonably necessary to satisfy any unsatisfied or
disputed claims for Damages specified in any Officer's Certificate delivered to
the Escrow Agent on or before the Termination Date and any unsatisfied or
disputed claims by the Shareholder's Agent under Section 8.9. As soon as all
such claims have been resolved, the Escrow Agent shall deliver to the Former
Target Shareholders all Shares remaining in the Escrow Fund and not required to
satisfy such claims. Deliveries of Shares to the Former Target Shareholders
pursuant to this section shall be made in proportion to the allocation set forth
in Section 8.3.
8.11 Actions of the Shareholders' Representative. A decision, act, consent
or instruction of the Shareholders' Representative shall constitute a decision
of all Target shareholders for whom shares of Acquiror Common Stock otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such Target shareholder, and the Escrow Agent and
Acquiror may rely upon any decision, act, consent or instruction of the
Shareholders' Representative as being the decision, act, consent or instruction
of each and every such Target shareholder. The Escrow Agent and Acquiror 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 Shareholders'
Representative.
8.12 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim which Acquiror believes may result in a demand against the
Escrow Fund, Acquiror shall notify the Shareholders' Representative of such
claim, and the Shareholders' Representative shall be entitled, at his expense,
to participate in any defense of such claim. Acquiror shall have the right in
its sole discretion to settle any such claim; provided, however, that Acquiror
may not effect the settlement of any such claim without the consent of the
Shareholders' Representative, which consent shall not be unreasonably withheld.
In the event that the Shareholders' Representative has consented to any such
settlement, the Shareholders' Representative shall have no power or authority to
object under Section 8.6 or any other provision of this Article VIII to the
amount of any claim by Acquiror against the Escrow Fund for indemnity with
respect to such settlement.
8.13 Indemnity of Escrow Agent. Acquiror, Target and Signing Stockholders
hereby individually and severally agree to indemnify Escrow Agent and hold it
harmless against any claim which may be made against it in connection with its
actions as Escrow Agent hereunder, including any loss to the extent of the
aggregate amount paid in settlement of any litigation commenced or threatened,
or for any claim whatsoever as set forth herein, including any expense or loss
incurred by it in connection with such claim, if such settlement is effected
with the written consent of Acquiror, Target and the Shareholders'
Representative; provided that Escrow Agent shall not be indemnified against any
such loss, damage, expense, liability or claim arising out of or based upon its
failure to perform in accordance with this Agreement or arising out of its bad
faith, negligence, or willful failure to perform its obligations; provided,
further, that the Signing Stockholders,' Target's and Acquiror's indemnification
obligations shall be limited to the Common Stock or other property in the Escrow
Fund at the time the Escrow Agent makes a claim for indemnity hereunder. In no
case shall the Acquiror, Target or the Signing Stockholders be liable under this
Escrow Agreement with respect to any lawsuit filed against Escrow Agent unless
the Acquiror, Target and the Signing Stockholders are notified by Escrow Agent,
by letter, telegram or telex confirmed by letter, of the commencement of any
such action within a reasonable time after such person shall have been served
with a summons or other first legal process giving information as to the nature
and basis of the lawsuit, but failure to so notify the Acquiror, Target and the
Signing Stockholders shall not relieve the Acquiror, Target and the Signing
Stockholders from any liability they may have otherwise than on account of this
Article VIII. Acquiror, Target and the Signing Stockholders shall each be
entitled to participate at their own expense in the defense of any such lawsuit,
and if one of the parties so elects within a reasonable time after receipt of
such notice, upon receiving consent from the other party, such party shall
assume the defense of any lawsuit. In the event that a party assumes the defense
of any lawsuit, such defense shall be conducted by counsel chosen by such party
and satisfactory to Escrow Agent. If counsel is so retained, the defendant or
defendants in the lawsuit shall bear the fees and expenses of any additional
counsel thereafter retained by it or them.
8.14 Successor to Escrow Agent. If Escrow Agent is for any reason unwilling
or unable to serve as Escrow Agent during the term of this Escrow Agreement,
Escrow Agent may resign as Escrow Agent by giving at least thirty (30) days
prior written notice to each of Acquiror, Target and the Shareholders'
Representative, such resignation to be effective thirty (30) days following the
date such notice is given. In addition, Acquiror, Target and the Shareholders'
Representative may jointly remove the Escrow Agent as escrow agent at any time
with or without cause, by an instrument (which may be executed in counterparts)
given to the Escrow Agent, which instrument shall designate the effective date
of such removal. In the event of any such resignation or removal, a successor
escrow agent shall be appointed by Acquiror with the approval of the
Shareholders' Representative, which approval shall not be unreasonably withheld.
Any such successor escrow agent shall deliver to Acquiror, Target and the
Shareholders' Representative a written instrument accepting such appointment,
and thereupon it shall succeed to all the rights and duties of the escrow agent
hereunder and shall be entitled to receive the assets in the Escrow Fund upon
five (5) days written notice to the parties.
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 confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Legato Systems, Inc.
3210 Porter Drive
Palo Alto, CA 94304
Attention: President
Facsimile No.: (650) 812-6246
Telephone No.: (650) 812-6000
with a copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
8911 Capital of Texas Highway, Suite 4240
Austin, TX 78759
Attention: Brian K. Beard
Facsimile No.: (512) 342-8181
Telephone No.: (512) 418-4800
(b) if to Target, to:
Software Moguls, Inc.
6400 Flying Cloud Drive
Eden Prairie, MN 55344
Attention: Sunil Khadilkar
Facsimile No.: (612) 944-1650
Telephone No.: (612) 944-0770
with a copy to:
Gray Plant Mooty
3400 City Center
33 South 6th Street
Minneapolis, MN 55402
Attention: J.C. Anderson
Facsimile No.: (612) 333-0066
Telephone No.: (612) 343-3958
9.2 Interpretation. When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without limitation."
In this Agreement, any reference to any event, change, condition or effect being
"material" with respect to any entity or group of entities means any material
event, change, condition or effect related to the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that is materially adverse to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole. In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party and its subsidiaries reasonably believed to
have knowledge of such matters. The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if requested
by the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to July __, 1998. 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 parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement, the
other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules, including the Target Disclosure Schedule
and the Acquiror Disclosure Schedule (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, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms; (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except for the rights of the Target Shareholders and optionholders to receive
the consideration set forth in Article I of this Agreement and as set forth in
Sections 5.10 and 5.18.
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 Remedies Cumulative. 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 without regard to applicable
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within the State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction and such process.
9.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation 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.
<PAGE>
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have
caused this Agreement to be executed and delivered by their respective officers
thereunto duly authorized and the Shareholders' Representative, the Escrow Agent
and the Signing Stockholders have executed this Agreement, all as of the date
first written above.
"TARGET":
SOFTWARE MOGULS, INC.
/s/ Sunil Khadilkar
------------------------
By: Sunil Khadilkar
President
"SHAREHOLDERS' REPRESENTATIVE":
/s/ Sunil Khadilkar
------------------------
SUNIL KHADILKAR
"ACQUIROR":
LEGATO SYSTEMS, INC.
/s/ Louis C. Cole
------------------------
By: Louis C. Cole
President and Chief Executive Officer
"MERGER SUB":
ASPEN ACQUISITION CORP.
/s/ Louis C. Cole
------------------------
By: Louis C. Cole
President and Chief Executive Officer
"ESCROW AGENT":
/s/ Louis C. Cole
------------------------
LOUIS C. COLE
<PAGE>
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
"SIGNING STOCKHOLDERS":
PRATIBHA GUPTA AS PERSONAL REPRESENTATIVE
OF THE ESTATE OF VINOD GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta
CHARU GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta,
as Attorney-in-Fact for Charu Gupta
SHALINI GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta,
as Attorney-in-Fact for Shalini Gupta
<PAGE>
SUNIL AND VASUDHA KHADILKAR, JTWROS
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
/s/ Vasudha Khadilkar
------------------------
Vasudha Khadilkar
SUNIL KHADILKAR AS CUSTODIAN FOR
HIMANSHU KHADILKAR UNDER THE MNUTMA
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
SUNIL KHADILKAR AS CUSTODIAN FOR
HARSHAD KHADILKAR UNDER THE MNUTMA
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
<PAGE>
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 30th day
of July, 1998, (this "Agreement") by and between Legato Systems, Inc., a
Delaware corporation (the "Acquiror"), and each of the persons listed on
Schedule A hereto (collectively, the "Stockholders").
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Reorganization
(the "Merger Agreement") dated as of July 30, 1998, by and among Acquiror, Aspen
Acquisition Corp., a Minnesota corporation and wholly owned subdivision of
Acquiror (the "Merger Sub"), Software Moguls, Inc., a Minnesota corporation (the
"Target"), Sunil Khadilkar (as "Shareholders' Agent,") and each of the
undersigned stockholders of the Target (each a "Signing Stockholder" and,
collectively, the "Signing Stockholders"), the parties thereto have agreed,
subject to the terms and conditions set forth therein, to merge the Target with
and into Merger Sub (the "Merger") and thereby to convert all shares of the
Target Common Stock (as such term is defined in the Merger Agreement) then
outstanding into shares of Acquiror Stock (as such term is defined in the Merger
Agreement);
WHEREAS, the Stockholders desire to have liquidity with
respect to the shares of Acquiror Stock they receive in the Merger;
WHEREAS, Acquiror desires to grant each of the Shareholders
registration rights as provided herein; and
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES AND THE
MUTUAL COVENANTS AND AGREEMENTS HEREIN CONTAINED, THE PARTIES HEREBY AGREE AS
FOLLOWS:
1. Registration Rights. The Acquiror covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
(c) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(d) The term "Registrable Securities" means the Common Stock of the
Acquiror issued to the Stockholders in the Merger, and any Common Stock of the
Acquiror issued as a dividend or other distribution with respect to such Common
Stock.
(e) The term "Rule 144" shall mean Rule 144 promulgated under the Act, as
amended, or any similar successor rule thereto that may be promulgated by the
SEC.
(f) The term "SEC" shall mean the Securities and Exchange Commission.
(g) Capitalized terms used, but not otherwise defined, in this Agreement
shall have the meanings given to them in the Merger Agreement.
1.2 Registration.
(a) The Acquiror shall use all commercially reasonable efforts to effect as
soon as practicable a registration statement on Form S-3 and any related
qualification or compliance with respect to all of the Registrable Securities
owned by Stockholders so as to permit or facilitate the sale and distribution of
the Stockholder's Registrable Securities as are specified by such Stockholder in
writing upon execution hereof, together with all or such portion of the
Registrable Securities of any other Stockholders who have also specified in
writing.
(b) Notwithstanding the foregoing, if the Acquiror shall furnish to the
Stockholders a certificate signed by the Chief Financial Officer of the Acquiror
stating that in the good faith judgment of the Acquiror, it would be detrimental
to the Acquiror and its stockholders for such registration statement to be
filed, and it is therefore essential to defer the filing of such registration
statement, the Acquiror shall have the right to defer filing the registration
statement referred to in Section 1.2(a) until such time as the Acquiror believes
in its good faith judgment that such filing would no longer be detrimental to
the Acquiror and its stockholders; provided, however, the Acquiror shall not be
obligated to effect any registration pursuant to this Section 1 if Form S-3 is
not available for such offering by the Stockholders or if the Acquiror has
already effected one registration statement on Form S-3 for the Stockholders.
1.3 Obligations of the Acquiror. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Acquiror shall:
(a) Prepare and file with the SEC, a registration statement with respect to
such Registrable Securities and use all commercially reasonable efforts to cause
such registration statement to become effective, and, subject to the provisions
below, use commercially reasonable efforts to, keep such registration statement
effective until the distribution contemplated in the registration statement has
been completed. If at any time after a registration statement becomes effective,
the Acquiror advises the Stockholders in writing that the registration statement
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any prospectus comprising a part of such registration
statement shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or the occurrence or existence of any pending corporate
development that, in the reasonable discretion of the Acquiror, makes it
appropriate to suspend the availability of the registration statement and the
related prospectus, the Acquiror shall give notice to the Stockholders that the
availability of the registration statement is suspended and the Stockholders
shall suspend any further sale of Registrable Securities pursuant to the
registration statement until the Stockholders have been informed in writing that
the registration statement is available. The Acquiror shall be entitled to
exercise its right to suspend the availability of the registration statement for
a period exceeding not more than sixty (60) days in any three (3) month period,
not to exceed in the aggregate ninety (90) days in any twelve (12) month period.
When selling Registrable Securities, a Stockholder shall follow the procedures
set forth in Section 1.9 and may presume that no suspension is in effect if a
trade is made in the manner described in that section.
(b) Subject to subsection 1.3(a), prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Stockholders requesting registration such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Stockholders; provided that the Acquiror shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Acquiror is already subject to service in such jurisdiction and
except as may be required by the Act.
1.4 Information from Stockholders. It shall be a condition precedent to the
obligations of the Acquiror to take any action pursuant to this Section 1 with
respect to the Registrable Securities of a Stockholder that such Stockholder
shall furnish to the Acquiror the information requested on Appendix 1.4 hereto,
which shall include such information regarding himself or herself, the
Registrable Securities held by him or her, and the intended method of
disposition of such securities, and such other information as shall be
reasonably requested by the Acquiror and required to effect the registration of
the Registrable Securities.
1.5 Expenses of Registration. All expenses of the Stockholders, except
underwriting discounts (if any) or commissions, including (without limitation)
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Acquiror shall be borne by the
Acquiror; provided, however, that the Acquiror shall not be required to pay any
professional fees incurred by any Stockholders.
1.6 No Assignment of Registration Rights. The registration rights provided
hereunder are not assignable.
1.7 Indemnification. In the event any Registrable Securities are included in a
registration statement under this Section 1:
(a) Each Stockholder will indemnify and hold harmless the Acquiror, each of
its directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Acquiror within the meaning of the Act,
any other Stockholder selling securities in such registration statement and any
controlling person of any such Stockholder, against any losses, claims, damages,
or liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Act, or the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Acquiror of the Act, the 1934 Act, or any rule or
regulation promulgated under the Act, or the 1934 Act or other federal or State
law, in each case to the extent that such Violation is contained in any written
information furnished by Stockholder for inclusion in such registration; and
Stockholder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this subsection
1.7(a), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of Stockholder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.7(a) exceed the net proceeds from the offering received
by Stockholder.
(b) Promptly after receipt by an indemnified party under this Section 1.7
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.7, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding.
(c) If the indemnification provided for in this Section 1.7 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(d) The obligations of each Stockholder under this Section 1.7 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in an underwriting agreement (if any)
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
1.8 Termination of Registration Rights. The registration rights provided in this
Section 1 shall terminate with respect to a particular Stockholder if the
Registrable Securities owned by such Stockholder have been held for the
necessary holding period under Rule 144 and all shares of Registrable Securities
held by such Stockholder may be sold pursuant to Rule 144 in any three (3) month
period. Upon the termination of registration rights pursuant to this Section
1.8, the Acquiror shall have the right to withdraw the registration statement,
or any portion thereof, covering the Registrable Securities.
1.9 Notice by Selling Stockholders. Each Stockholder who intends to sell any or
all of his shares of Registrable Securities pursuant to the provisions of this
Section 1 shall give advance written notice to the Chief Financial Officer of
Acquiror, of such intention and shall be free to sell any or all of his shares
of Registrable Securities if such Stockholder has not received notice to the
contrary within five (5) business days of the receipt by the Chief Financial
Officer of Acquiror of such written notice.
2. Miscellaneous.
2.1 General. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and construed under the
laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
2.3 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon facsimile (with confirmed receipt), or personal delivery to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
2.6 Expenses. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Acquiror and the Stockholders holding a majority of the
Registrable Securities.
2.8 Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
hereof.
IN WITNESS WHEREOF, the parties have caused this Affiliates
Agreement to be executed as of the date first above written.
"ACQUIROR":
LEGATO SYSTEMS, INC.
/s/ Louis C. Cole
------------------------
By: Louis C. Cole
President and Chief Executive Officer
<PAGE>
"STOCKHOLDER":
PRATIBHA GUPTA AS PERSONAL REPRESENTATIVE
OF THE ESTATE OF VINOD GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta
<PAGE>
"STOCKHOLDER":
CHARU GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta,
as Attorney-in-Fact for Charu Gupta
<PAGE>
"STOCKHOLDER":
SHALINI GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta,
as Attorney-in-Fact for Shalini Gupta
<PAGE>
"STOCKHOLDER":
SUNIL AND VASUDHA KHADILKAR, JTWROS
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
/s/ Vasudha Khadilkar
------------------------
Vasudha Khadilkar
<PAGE>
"STOCKHOLDER":
SUNIL KHADILKAR AS CUSTODIAN FOR
HIMANSHU KHADILKAR UNDER THE MNUTMA
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
<PAGE>
"STOCKHOLDER":
SUNIL KHADILKAR AS CUSTODIAN FOR
HARSHAD KHADILKAR UNDER THE MNUTMA
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
<PAGE>
SCHEDULE A
<PAGE>
APPENDIX 1.4
STOCKHOLDER INFORMATION:
All information furnished below by the undersigned for use in the Registration
Statement on Form S-3 is, and on the date such shares registered thereunder,
will be true, correct, and complete in all material respects, and does not, and
on the date on which the undersigned sells such shares, will not, contain any
untrue statement of a material fact or omit to state any material fact necessary
to make such information not misleading. By completing and returning this
information statement, the undersigned hereby consents to the use of his or her
name, address, and share ownership information in the Form S-3 of Acquisition
Corporation
A. Date.
Fill in Date: ______________________________
B. Name. Print:
Print and sign name or names ______________________________
exactly as name or names appear on
share certificate. If certificate ______________________________
is held in more than one name,
all must sign.
Sign:
------------------------------
------------------------------
C. Address.
Fill in your address: ______________________________
------------------------------
------------------------------
<PAGE>
D. Stock Owned.
Fill in number of shares Of Record Beneficially
of Common Stock owned of
record and beneficially.
--------------- ------------------
E. Aggregate Number of Shares of Common Stock to be sold:
_____________ Shares
F. Status.
The undersigned is an individual ( ), partnership ( ), corporation ( ),
or other, as more fully described below ( ). The undersigned is not acting in a
fiduciary capacity or as a nominee in selling shares in the public offering,
except as indicated below.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT 4.9
AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (the "Affiliates Agreement") is
entered into as of July 30, 1998 between LEGATO SYSTEMS, INC., a Delaware
corporation ("Acquiror"), and the undersigned Stockholder (the "Stockholder") of
SOFTWARE MOGULS, INC., a Minnesota corporation (the "Target").
RECITALS
A. The Target, Acquiror and Acquisition Sub, a Minnesota
corporation and a wholly owned subsidiary of Acquiror ("Merger Sub"), have
entered into an Agreement and Plan of Reorganization dated July 30, 1998 (the
"Merger Agreement"), pursuant to which Merger Sub will be merged into the Target
(the "Merger"), and the Target will become a wholly owned subsidiary of
Acquiror.
B. Upon the consummation of the Merger and in connection
therewith, the undersigned Stockholder will become the owner of shares of Common
Stock of Acquiror (the "Acquiror Shares").
C. The parties to the Merger Agreement intend to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code") and intend to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Code.
D. The parties to the Merger Agreement intend to cause the
Merger to be accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements, provisions and covenants set forth in the Merger Agreement
and in this Affiliates Agreement, it is hereby agreed as follows:
1. The undersigned Stockholder hereby agrees that:
(a) The undersigned Stockholder may be deemed to be (but does not hereby
admit to be) an "affiliate" of the Target within the meaning of Rule 145 under
the Securities Act of 1933, as amended (the "Securities Act"), and Accounting
Series Release No. 130, as amended, of the Securities and Exchange Commission
(the "SEC') ("Release No. 130").
(b) The undersigned Stockholder will not sell, exchange, transfer, pledge,
dispose of or otherwise reduce the undersigned Stockholder's risk relative to
the Acquiror Shares or any part thereof until such time after the Effective Time
of the Merger as financial results covering at least thirty (30) days of the
combined operations of Acquiror and the Target after the Effective Time of the
Merger have been, within the meaning of said Release No. 130, filed by Acquiror
with the SEC or published by Acquiror in an Annual Report on Form 10K, a
Quarterly Report on Form 10-Q, a Current Report on Form 8-K, a quarterly
earnings report, a press release or other public issuance that includes combined
sales and income of the Target and Acquiror. Acquiror agrees to make such filing
or publication as soon as practicable. The undersigned will not, during the
thirty (30) day period prior to the Effective Time of the Merger as determined
in Acquiror's reasonable discretion, sell, exchange, transfer, pledge, dispose
of or otherwise reduce the undersigned Stockholder's risk relative to the
Acquiror Shares or any part thereof (including any disposition, within such
period, of Stockholder's shares of the Target's Common Stock).
(c) Except with respect to the exchange of the Target Common Stock for
Acquiror Common Stock pursuant to the Merger, the undersigned has no current
plan or intent to engage in any sale of any Target capital stock (whether or not
acquired pursuant to the exercise of a stock option) on, or prior to, the
Merger. The undersigned shall immediately notify Acquiror and the Target in
writing via facsimile of any sale of Target capital stock by the undersigned on,
or prior to, the Merger.
(d) Subject to paragraphs (b) and (c) of this Section 1, the undersigned
Stockholder agrees not to offer, sell, exchange, transfer, pledge or otherwise
dispose of any of the Acquiror Shares unless at that time either:
(i) such transaction is permitted pursuant to the provisions of Rule 145(d)
under the Securities Act;
(ii) counsel representing the undersigned Stockholder, reasonably
satisfactory to Acquiror, shall have advised Acquiror in a written opinion
letter reasonably satisfactory to Acquiror and Acquiror's counsel and upon which
Acquiror and its counsel may rely, that no registration under the Securities Act
is required in connection with the proposed sale, transfer or other disposition;
(iii) a registration statement under the Securities Act covering the
Acquiror Shares proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus, is filed with the SEC and made
effective under the Securities Act; or
(iv) an authorized representative of the SEC shall have rendered written
advice to the undersigned Stockholder (sought by the undersigned Stockholder or
counsel to the undersigned Stockholder, with a copy thereof and of all other
related communications delivered to Acquiror) to the effect that the SEC will
take no action, or that the staff of the SEC will not recommend that the SEC
take action, with respect to the proposed offer, sale, exchange, transfer,
pledge or other disposition if consummated.
(e) All certificates representing the Acquiror Shares deliverable to the
undersigned Stockholder pursuant to the Merger Agreement and in connection with
the Merger and any certificates subsequently issued with respect thereto or in
substitution therefor shall, unless one or more of the alternative conditions
set forth in the subparagraphs of paragraph (d) of this Section 1 shall have
occurred, bear a legend substantially as follows:
"The shares represented by this certificate may not be
offered, sold, exchanged, transferred, pledged or otherwise
disposed of except in accordance with the requirements of the
Securities Act of 1933, as amended, and the other conditions
specified in that certain Affiliates Agreement dated July 30,
1998, a copy of which Affiliates Agreement may be inspected by
the holder of this certificate at the offices of Acquiror, or
Acquiror will furnish, without charge, a copy thereof to the
holder of this certificate upon written request therefor."
Acquiror, at its discretion, may cause stop transfer orders to be placed with
its transfer agent with respect to the certificates for the Acquiror Shares but
not as to the certificates for any part of the Acquiror Shares as to which said
legend is no longer appropriate when one or more of the alternative conditions
set forth in the subparagraphs of paragraph (d) of this Section 1 shall have
occurred.
(f) The undersigned Stockholder will observe and comply with the Securities
Act and the general rules and regulations thereunder, as now in effect and as
from time to time amended and including those hereafter enacted or promulgated,
in connection with any offer, sale, exchange, transfer, pledge or other
disposition of the Acquiror Shares or any part thereof.
2. The undersigned Stockholder hereby represents and warrants that:
(a) Authorization. Such Stockholder has full power and authority to enter
into this Agreement and such Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
(b) Purchase Entirely for Own Account. This Agreement is made with such
Stockholder in reliance upon such Stockholder's representation to the Target,
which by such Stockholder's execution of this Agreement such Stockholder hereby
confirms, that the Acquiror Stock to be received by such Stockholder (the
"Securities") will be acquired for investment for such Stockholder's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Stockholder has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Stockholder further represents that
such Stockholder does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to any of the Securities.
(c) Investment Experience. Such Stockholder is an investor in securities of
companies in the development stage and acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. If other than an
individual, Stockholder also represents it has not been organized for the
purpose of acquiring the Securities.
(d) Accredited Investor. Such Stockholder is an "accredited investor"
within the meaning of Securities and Exchange Commission ("SEC") Rule 501 of
Regulation D, as presently in effect.
(e) Restricted Securities. Such Stockholder understands that the Securities
it is purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Target in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Stockholder represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
(f) Further Representations by Foreign Stockholders. If a Stockholder is
not a United States person, such Stockholder hereby represents that he or she
has satisfied himself or herself as to the full observance of the laws of his or
her jurisdiction in connection with any invitation to subscribe for the
Securities or any use of this Agreement, including (i) the legal requirements
within his jurisdiction for the purchase of the Securities, (ii) any foreign
exchange restrictions applicable to such purchase, (iii) any governmental or
other consents that may need to be obtained, and (iv) the income tax and other
tax consequences, if any, that may be relevant to the purchase, holding,
redemption, sale, or transfer of the Securities. Such Stockholder's subscription
and payment for, and his or her continued beneficial ownership of the
Securities, will not violate any applicable securities or other laws of his or
her jurisdiction.
3. Reports. From and after the Effective Time of the Merger and for so long as
necessary in order to permit the undersigned Stockholder to sell the Acquiror
Shares pursuant to Rule 145 and, to the extent applicable, Rule 144 under the
Securities Act, Acquiror will file on a timely basis all reports required to be
filed by it pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, referred to in paragraph (c)(1) of Rule 144 under the Securities Act (or,
if applicable, Acquiror will make publicly available the information regarding
itself referred to in paragraph (c)(2) of Rule 144), in order to permit the
undersigned Stockholder to sell, pursuant to the terms and conditions of Rule
145 and the applicable provisions of Rule 144, the Acquiror Shares.
4. Waiver. No waiver by any party hereto of any condition or of any breach of
any provision of this Affiliates Agreement shall be effective unless in writing.
5. Notices. All notices, requests, demands or other communications that are
required or may be given pursuant to the terms of this Affiliates Agreement
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed by registered or certified mail, postage prepaid, as follows: (a)
If to the Stockholder, at the address set forth below the Stockholder's
signature at the end hereof.
(b) If to Acquiror:
Acquisition Corporation
3210 Porter Drive
Palo Alto, CA 94304
Attention: President
Fax: (650) 812-6111
Tel: (650) 812-6102
with a copy to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
8911 Capital of Texas Highway, Suite 4240
Austin, TX 78759
Attention: Brian K. Beard, Esq.
Fax: (512) 418-4800
Tel: (512) 342-8181
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
6. Counterparts. For the convenience of the parties hereto, this Affiliates
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.
7. Successors and Assigns. This Affiliates Agreement shall be enforceable by,
and shall inure to the benefit of and be binding upon, the parties hereto and
their respective successors and assigns. As used herein, the term "successors
and assigns" shall mean, where the context so permits, heirs, executors,
administrators, trustees and successor trustees, and personal and other
representatives.
8. Governing Law. This Affiliates Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of California,
without regard to the conflicts of law provisions thereof.
9. Effectiveness; Severability. This Affiliates Agreement shall become effective
at the Effective Time of the Merger. If a court of competent jurisdiction
determines that any provision of this Affiliates Agreement is unenforceable or
enforceable only if limited in time and/or scope, this Affiliates Agreement
shall continue in full force and effect with such provision stricken or so
limited.
10. Effect of Headings. The section headings herein are for convenience only and
shall not effect the construction or interpretation of this Affiliates
Agreement.
11. Definitions. All capitalized terms used herein shall have the meaning
defined in the Merger Agreement, unless otherwise defined herein.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Affiliates
Agreement to be executed as of the date first above written.
"ACQUIROR":
LEGATO SYSTEMS, INC.
/s/ Louis C. Cole
------------------------
By: Louis C. Cole
President and Chief Executive Officer
<PAGE>
"STOCKHOLDER":
PRATIBHA GUPTA AS PERSONAL REPRESENTATIVE
OF THE ESTATE OF VINOD GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta
<PAGE>
"STOCKHOLDER":
CHARU GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta,
as Attorney-in-Fact for Charu Gupta
<PAGE>
"STOCKHOLDER":
SHALINI GUPTA
/s/ Prahtibha Gupta
------------------------
Pratibha Gupta,
as Attorney-in-Fact for Shalini Gupta
<PAGE>
"STOCKHOLDER":
SUNIL AND VASUDHA KHADILKAR, JTWROS
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
/s/ Vasudha Khadilkar
------------------------
Vasudha Khadilkar
<PAGE>
"STOCKHOLDER":
SUNIL KHADILKAR AS CUSTODIAN FOR
HIMANSHU KHADILKAR UNDER THE MNUTMA
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
<PAGE>
"STOCKHOLDER":
SUNIL KHADILKAR AS CUSTODIAN FOR
HARSHAD KHADILKAR UNDER THE MNUTMA
/s/ Sunil Khadilkar
------------------------
Sunil Khadilkar
<PAGE>
EXHIBIT 5.1
September 29, 1998
Legato Systems, Inc.
3210 Porter Drive
Palo Alto, California 94304
Re: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 originally
filed by Legato Systems, Inc. (the "Company") with the Securities and Exchange
Commission (the "Commission") on September 29, 1998, as thereafter amended or
supplemented (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of up to 249,999 shares of the
Company's Common Stock of certain stockholders of the Company (the "Shares"). As
your counsel in connection with this transaction, we have examined the
proceedings taken and are familiar with the proceedings proposed to be taken by
you in connection with the sale and issuance of the Shares.
It is our opinion that the Shares are legally and validly issued, fully
paid and non-assessable.
We consent to the use of this opinion as an exhibit to the said
Registration Statement, and further consent to the use of our name wherever
appearing in said Registration Statement, including the prospectus constituting
a part thereof, and in any amendment or supplement thereto.
Very truly yours,
/s/ Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
GUNDERSON DETTMER STOUGH VILLENEUVE
FRANKLIN & HACHIGIAN, LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Legato Systems, Inc. (the "Company") for the registration of 249,999
shares of its common shares, of our reports dated January 19, 1998, on our
audits of the consolidated financial statements and financial statement schedule
of the Company as of December 31, 1997 and 1996, and for the years ended
December 31, 1997, 1996 and 1995 which reports are included in the Company's
1997 Annual Report on Form 10-K, filed with the Securities and Exchange
Commission. We also consent to the reference to our firm under the caption
"Experts".
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
September 29, 1998
