UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 18, 1999
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LEGATO SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-26130 94-3077394
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3210 Porter Drive, Palo Alto, California 94304
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(Address of Principal Executive Offices) (Zip Code)
Company's telephone number, including area code: (415) 812-6000
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(Former Name or Former Address, if Changed Since Last Report.)
<PAGE>
ITEM 5. OTHER EVENTS
Legato Systems, Inc. (the "Company"), entered into a definitive
agreement to acquire Ontrack Data International, Inc. ("Ontrack"), a provider of
data recovery software and service solutions. The transaction will be accounted
for under purchase accounting, and is expected to close in late January 2000,
subject to customary regulatory and shareholder approvals. The Company will
issue a combination of approximately 1.485 million shares of its common stock
(or 0.1491 shares for each issued and outstanding share of Ontrack's common
stock) and approximately $20 million in cash for all of the outstanding stock of
Ontrack Corporation, and will assume Ontrack employees' stock options. The value
of the transaction, based on the Company's closing price as of November 17, 1999
is approximately $134 million.
Further details regarding this announcement are contained in the
Company's press release dated November 18, 1999 attached as an exhibit hereto
and incorporated by reference herein.
<PAGE>
ITEM 7. EXHIBITS.
Exhibit
Number Description
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2.1 Agreement and Plan of Reorganization dated
as of November 18, 1999 by and among Legato
Systems, Inc., Ontrack International, Inc.,
and Lasso Acquisition Corp., including
certain exhibits thereto;
99.1 Press release, dated November 18, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
LEGATO SYSTEMS, INC.
Date: November 30, 1999 By: /s/ Stephen C. Wise
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Name: Stephen C. Wise
Title: Senior Vice President, Finance and
Administration and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
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2.1 Agreement and Plan of Reorganization dated
as of November 18, 1999 by and among Legato
Systems, Inc., Ontrack International, Inc.,
and Lasso Acquisition Corp., including
certain exhibits thereto;
99.1 Press release, dated November 18, 1999.
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
LEGATO SYSTEMS, INC.
LASSO ACQUISITION CORP.
AND
ONTRACK DATA INTERNATIONAL, INC.
NOVEMBER 18, 1999
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
ARTICLE I THE MERGER.............................................................................................1
1.1 The Merger.........................................................................................1
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............................................................................2
1.7 Surrender of Certificates..........................................................................4
1.8 No Further Ownership Rights in Target Capital Stock................................................5
1.9 Lost, Stolen or Destroyed Certificates.............................................................5
1.10 Tax Consequences...................................................................................6
1.11 Return of Exchange Fund............................................................................6
1.12 Taking of Necessary Action; Further Action.........................................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET..............................................................6
2.1 Organization, Standing and Power...................................................................7
2.2 Capital Structure..................................................................................7
2.3 Authority..........................................................................................8
2.4 SEC Documents; Financial Statements................................................................9
2.5 Absence of Certain Changes.........................................................................9
2.6 Absence of Undisclosed Liabilities................................................................10
2.7 Litigation........................................................................................10
2.8 Restrictions on Business Activities...............................................................10
2.9 Governmental Authorization........................................................................10
2.10 Title to Property.................................................................................11
2.11 Intellectual Property.............................................................................11
2.12 Environmental Matters.............................................................................13
2.13 Taxes.............................................................................................13
2.14 Employee Benefit Plans............................................................................15
2.15 Employees and Consultants.........................................................................17
2.16 Related-Party Transactions........................................................................18
2.17 Insurance.........................................................................................19
2.18 Compliance with Laws..............................................................................19
2.19 Brokers'and Finders'Fees..........................................................................19
2.20 Vote Required.....................................................................................19
2.21 No Breach of Material Contracts...................................................................19
2.22 Registration Statement; Proxy Statement/Prospectus................................................19
2.23 Complete Copies of Materials......................................................................20
2.24 Opinion of Financial Advisor......................................................................20
2.25 Board Approval....................................................................................20
2.26 Section 673 of Minnesota Law Not Applicable.......................................................20
2.27 Representations Complete..........................................................................20
<PAGE>
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB...........................................21
3.1 Organization, Standing and Power..................................................................21
3.2 Capital Structure.................................................................................21
3.3 Authority.........................................................................................22
3.4 SEC Documents; Financial Statements...............................................................23
3.5 Absence of Certain Changes........................................................................24
3.6 Absence of Undisclosed Liabilities................................................................24
3.7 Intellectual Property.............................................................................24
3.8 Environmental Matters.............................................................................24
3.9 Employee Benefit Plans............................................................................24
3.10 Litigation........................................................................................24
3.11 Compliance with Laws..............................................................................25
3.12 Proxy Statement...................................................................................25
3.13 Board Approval....................................................................................25
3.14 Representations Complete..........................................................................25
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................................................25
4.1 Conduct of Business of Target and Acquiror........................................................25
4.2 Conduct of Business of Target.....................................................................26
4.3 Notices...........................................................................................28
ARTICLE V ADDITIONAL AGREEMENTS.................................................................................29
5.1 No Solicitation...................................................................................29
5.2 Proxy Statement/Prospectus; Registration Statement................................................30
5.3 Shareholders Meeting..............................................................................30
5.4 Access to Information.............................................................................30
5.5 Confidentiality...................................................................................31
5.6 Public Disclosure.................................................................................31
5.7 Consents; Cooperation.............................................................................31
5.8 Update Disclosure; Breaches.......................................................................32
5.9 Stockholder Lists.................................................................................32
5.10 Indemnification...................................................................................32
5.11 Irrevocable Proxies...............................................................................33
5.12 Legal Requirements................................................................................33
5.13 Tax-Free Reorganization...........................................................................33
5.14 Stock Options.....................................................................................33
5.15 Listing of Additional Shares......................................................................35
5.16 Additional Agreements; Reasonable Efforts.........................................................35
5.17 Employee Benefits.................................................................................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 the Obligations of Target................................................36
6.3 Additional Conditions to the Obligations of Acquiror..............................................37
<PAGE>
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER.........................................................38
7.1 Termination.......................................................................................38
7.2 Effect of Termination.............................................................................40
7.3 Expenses and Termination Fees.....................................................................40
7.4 Amendment.........................................................................................40
7.5 Extension; Waiver.................................................................................41
ARTICLE IX GENERAL PROVISIONS...................................................................................41
8.1 Notices...........................................................................................41
8.2 Interpretation....................................................................................42
8.3 Counterparts......................................................................................42
8.4 Entire Agreement; No Third Party Beneficiaries....................................................42
8.5 Severability......................................................................................43
8.6 Remedies Cumulative...............................................................................43
8.7 Governing Law.....................................................................................43
8.8 Assignment........................................................................................43
8.9 Rules of Construction.............................................................................43
</TABLE>
SCHEDULES
Target Disclosure Letter
Acquiror Disclosure Letter
Option Schedule
EXHIBITS
Exhibit A Articles of Merger
Exhibit B Voting and Proxy Agreement
Exhibit C Employment and Non-Competition Agreement
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made and entered into as of November 18, 1999, by and among
Legato Systems, Inc., a Delaware corporation ("Acquiror"), Lasso Acquisition
Corp., a Minnesota corporation ("Merger Sub") and Ontrack Data
International, Inc. a Minnesota corporation ("Target").
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 stockholders of their respective companies that
Target and Merger Sub combine into a single company through the statutory
merger of Target with and into Merger Sub (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 ("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)(D) of the Code.
E. The parties intend for the Merger to be accounted
for as a purchase.
F. Concurrent with the execution of this
Agreement and as an inducement to Acquiror to enter into this Agreement,
certain of the affiliates of Target who are shareholders, officers or
directors are entering into an agreement 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
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1.1 The Merger. At the Effective Time (as defined
in Section 1.2) and subject to and upon the terms and conditions of this
Agreement and the Articles of Merger attached hereto as Exhibit A (the
"Articles of Merger") and the applicable provisions of the Minnesota Business
Corporation Act ("Minnesota Law"), Target shall be merged with and into
Merger Sub, the separate corporate existence of Target shall cease and
<PAGE>
Merger Sub shall continue as the surviving corporation under the name
"Ontrack Products Division, Inc." Merger Sub 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 and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Target and Merger Sub shall become the debts, liabilities and duties
of the Surviving Corporation.
1.4 Articles 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 Articles of
Incorporation except that as of the Effective Time, Article I of the Articles
of Incorporation shall be amended to read: "The name of the corporation shall
be Ontrack Products Division, 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. 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.
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. At
the Effective Time, each share of Target Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Target
Common Stock to be canceled pursuant to Section 1.6(b) or any shares of Target
<PAGE>
Capital Stock to which dissenters' rights have been exercised pursuant to
Section 1.6(f)) will be canceled and extinguished and be converted
automatically into the right to receive (i) .1491 of a share of Acquiror Common
Stock (the "Common Exchange Ratio") and (ii) two dollars ($2.00) in cash (the
"Cash Consideration").
At the Effective Time, and as more particularly set forth in
Section 5.14, each option to purchase Target Common Stock outstanding
immediately prior to the Effective Time will be canceled and extinguished and be
converted automatically into an option to purchase .1822 of a share of Acquiror
Common Stock (the "Option Exchange Ratio).
No adjustment shall be made in the number of shares of
Acquiror Common Stock issued in the Merger as a result of any cash proceeds
received by Target from the date hereof to the Closing Date pursuant to the
exercise of currently outstanding Target Options.
(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, and 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) Target Stock Option Plans. At the
Effective Time, the Non-Qualified Stock Option Plan and the 1996 Stock
Incentive Plan (collectively, the "Target Stock Option Plans") and all
options to purchase Target Common Stock then outstanding under the Target
Stock Option Plan shall be assumed by Acquiror in accordance with Section 5.14.
(d) Adjustments to Exchange Ratios. The
Common Exchange Ratio, the amount of Cash Consideration and the Option
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 average closing price
of a share of Acquiror Common Stock for the ten (10) most recent days that
Acquiror Common Stock has traded ending on the trading day immediately prior
to the Effective Time, as reported on the Nasdaq National Market.
(f) Dissenters' Rights. Notwithstanding
any provisions of this Agreement to the contrary, any Target Capital Stock
outstanding immediately prior to the Effective Time held by a holder who has
demanded and perfected the right, if any, to receive fair value for such
Target Capital Stock ("Dissenting Shares") in accordance with the provisions
of Sections 302A.471 and 302A.473 of the Minnesota Law and as of the Effective
Time has not withdrawn or lost such dissenter's rights shall not be converted
<PAGE>
into or represent a right to receive the consideration pursuant to Section
1.6(a) (the "Merger Consideration"), but the shareholder shall only be
entitled to such rights as are granted by the Minnesota Law. If a holder of
Target Capital Stock who asserts dissenter's rights under the Minnesota Law
withdraws or loses such rights (through failure to perfect or otherwise),
then, as of the Effective Time or the occurrence of such event, whichever last
occurs, those shares (the "Unperfected Shares") shall be converted into and
represent only the right to receive the Merger Consideration as provided
in Section 1.6(a), without interest, upon the surrender of the certificate
or certificates representing those Unperfected Shares. Target shall give
Acquiror (i) prompt notice of any written notice of intent to demand fair
value for any Unperfected Shares, attempted withdrawals of such demands, the
deposit of any shares for which payment is demanded, and any other instruments
served pursuant to the Minnesota Law received by the Target relating to
dissenters' rights and (ii) the opportunity to participate in all negotiations
and proceedings with respect to the assertion of dissenters' rights
under the Minnesota Law. The Target shall not, except with the prior written
consent of Acquiror, voluntarily make any payment with respect to any such
demands for payment of fair value, offer to settle or settle any such demands or
approve any withdrawal of any such demands.
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 and
Cash. 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, (i) 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, plus
cash in an amount sufficient to permit payment of the Cash Consideration
pursuant to Section 1.6(a), and cash in lieu of fractional shares pursuant
to Section 1.6(e) (such cash amounts and certificates being hereinafter
referred to as the "Exchange Fund").
(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") that
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, the Cash Consideration 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, the Cash Consideration 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 and payment
of the Cash Consideration and cash in lieu of fractional shares that 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
<PAGE>
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 the Cash Consideration and an amount in cash in lieu of the issuance
of any fractional shares in accordance with Section 1.6.
(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 that 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.
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), together with the Cash
Consideration, 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 that 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), together with the Cash Consideration, as may be required pursuant to
<PAGE>
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 Consequences. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Code. No party shall take any action that 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. In the event the
status of the Merger as a reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) is challenged by the IRS on a basis of a technical deficiency, this
Agreement will be deemed amended to the extent the amendment does not materially
change the position of the parties as of the date of its execution, to correct
any such technical deficiency.
1.11 Return of Exchange Fund. Any portion of the
Exchange Fund that remains unclaimed by shareholders of Target for six (6)
months after the Effective Time shall be returned to Acquiror, upon demand, and
any holder of Target Capital Stock who has not theretofore complied with
Section 1.7 shall thereafter look only to Acquiror for issuance of the number
of shares of Acquiror Common Stock and the Cash Consideration to which such
holder has become entitled, subject to Section 1.7(f).
1.12 Taking of Necessary Action; Further Action.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of Target and Merger Sub, 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 represents and warrants to Acquiror and
Merger Sub that the statements contained in this Article II are true and
correct, except as set forth in the disclosure letter delivered by Target to
Acquiror prior to the execution and delivery of this Agreement (the "Target
Disclosure Letter"). The Target Disclosure Letter 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 unless a cross-reference is made to
another paragraph which such disclosure also qualifies. 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 each of Target's subsidiaries, unless the
context otherwise requires.
<PAGE>
2.1 Organization, Standing and Power. Each of
Target and its subsidiaries 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 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 (as defined in Section 8.2) on
Target. Target has delivered to Acquiror a true and correct copy of the Articles
of Incorporation and Bylaws or other charter documents, as applicable, of Target
and each of its subsidiaries, each as amended to date. Target is not in
violation of any of the provisions of its Articles 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. 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 other than its subsidiaries.
2.2 Capital Structure. The authorized capital
stock of Target consists of 25,000,000 shares of Common Stock, $.01 par value,
and 1,000,000 shares of Preferred Stock, $.01 par value, of which there were
issued and outstanding as of the date of this Agreement, 9,961,944 shares of
Common Stock and no shares of Preferred 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 (i) options outstanding as of
the date of this Agreement under the Target Stock Option Plans, and (ii) the
exercise of subscription rights outstanding as of the date of this Agreement
under the Target ESPP. 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) 1,800,000 shares of Common Stock for issuance to employees,
directors and consultants pursuant to the Target Stock Option Plans, of which
254,072 shares have been issued pursuant to option exercises or direct stock
purchases, and 1,501,117 shares are subject to outstanding, unexercised options
and (ii) 250,000 shares of Common Stock for issuance to employees pursuant to
the Target ESPP, of which 110,833 shares have been issued and approximately
3,000 shares are subject to outstanding subscription rights based on
withholdings through November 15, 1999 and Target stock price as of October 1,
1999. Except for (i) the rights created pursuant to this Agreement and (ii)
Target's right to repurchase any unvested shares under the Target Stock Option
Plans, 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
<PAGE>
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 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 Voting
Agreements (as defined below). The terms of the Target Stock Option Plans permit
the assumption of such Target Stock Option Plans by Acquiror or the substitution
of options to purchase Acquiror Common Stock as provided in this Agreement,
without the consent or approval of the holders of the outstanding options, the
Target shareholders, or otherwise and without any acceleration of the exercise
schedule or vesting provisions in effect for such options. The current "Purchase
Period" (as defined in the Target ESPP) commenced under the Target ESPP on
October 1, 1999 and will end prior to the Effective Time, and except for the
purchase rights granted on such commencement date to participants in the current
Purchase Period, there are no other purchase rights or options outstanding under
the Target ESPP. True and complete copies of all agreements and instruments
relating to or issued under the Target Stock Option Plans and Target ESPP 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 and the
Option Agreement (collectively, the "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 Target, subject only to the
approval of the Merger by Target's shareholders as contemplated by Section
6.1. This Agreement and the other Transaction Documents have been duly executed
and delivered by Target and constitute the valid and binding obligations of
Target, enforceable against Target in accordance with their terms.
(b) The execution and delivery of this
Agreement and the other Transaction Documents by Target do not, and the
consummation and performance 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, or require a consent to assignment or a novation under
(i) any provision of the Articles of Incorporation or Bylaws of Target, as
amended, or (ii) any contract, agreement, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Target or any of its properties or assets, except in the case of
clause (ii) as would not individually or in the aggregate have a Material
Adverse Effect on Target.
(c) 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
<PAGE>
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) the filing of the Proxy Statement (as defined is
Section 2.23 hereof) with the SEC in accordance with the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and clearance thereof by the
SEC; (iii) the filing of a report on Form 8-K in accordance with the Exchange
Act; (iv) 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; (v) such filings as
may be required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR"); and (vi) such other consents, authorizations,
filings, approvals and registrations that, 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 SEC Documents; Financial Statements. Target
has furnished to Acquiror 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 Target since January 1, 1998, and, prior to the
Effective Time, Target will have furnished Acquiror with true and complete
copies of any additional documents filed with the SEC by Target prior to the
Effective Time (collectively, the "Target SEC Documents"). In addition, Target
has made available to Acquiror all exhibits to the Target SEC Documents filed
prior to the date hereof, and will promptly make available to Acquiror all
exhibits to any additional Target 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 that have expired in accordance
with their terms, and neither Target nor any of its subsidiaries is in
default thereunder except for any such default that individually or in the
aggregate would not or could not reasonably be expected to have a Material
Adverse Effect on Target. As of their respective filing dates, the Target SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Target 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 Target SEC Document. The
financial statements of Target, including the notes thereto, included in the
Target SEC Documents (the "Target Financial Statements") fairly present the
consolidated financial condition and the related consolidated statements of
operations, of shareholder's equity, and of cash flows of Target at the dates
and during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments), 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 and Regulations S-K and S-X of
the SEC).
2.5 Absence of Certain Changes. Since
September 30, 1999, (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
<PAGE>
Material Adverse Effect (as defined in Section 8.2) 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 increase in or modification of the compensation or
benefits payable or to become payable by Target to any of its directors,
employees or consultants other than with respect to non-officer employees and
consultants only, any increases in the ordinary course of business consistent
with past practice; or (viii) any negotiation or 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).
2.6 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 September 30, 1999 (the "Target
Balance Sheet"), (ii) those obligations or liabilities (including contractual
obligations) incurred in the ordinary course of business since the Target
Balance Sheet Date in amounts consistent with prior periods, and (iii) those
incurred in connection with the execution of this Agreement.
2.7 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), which, if adversely determined would or
could reasonably be expected to have a Material Adverse Effect on Target. 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 Letter. Target does not have any plans to initiate any
litigation, arbitration or other proceeding against any third party.
2.8 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 in any material respect any current business practice of Target, any
acquisition of property by Target or the conduct of business by Target as
currently conducted by Target.
2.9 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
<PAGE>
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.
2.10 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) liens for 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
(normal wear and tear excepted). 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. Except as
set forth in the Target Disclosure Letter, Target does not own or lease any
real property. For purposes of this Section 2.10, the term "property" or
"properties" does not include Intellectual Property.
2.11 Intellectual Property.
(a) Target owns or is licensed for, and in
any event possesses sufficient 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
material conflict with or infringement or misappropriation of any rights or
property of others ("Infringement"). Such ownership, licenses and rights are
exclusive (A) except with respect to Inventions (defined below) in the public
domain that are not important differentiators of Target's business and
(B) except with respect to standard, generally commercially available,
"off-the-shelf" third party products that are not part of any current product,
service or Intellectual Property offering of Target. No Target Intellectual
Property was conceived or developed directly or indirectly with or pursuant to
government funding or a government contract. "Intellectual Property" means (i)
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 (ii) 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"). With respect to patent rights, moral rights and Mark
rights, the representations and warranties of this Section 2.11(a) are made only
to Target's knowledge. All copyrightable matter within Target Intellectual
<PAGE>
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. Target has not
received any written communication alleging or suggesting that or questioning
whether Target has been or may be 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 (but excluding Intellectual Property licensed to Target
only on a nonexclusive basis and material to Target's business), the Target
Disclosure Letter lists (by name, number, jurisdiction, owner and, where
applicable, the name and address of each inventor) all patents and patent
applications; all registered and unregistered Marks; and all registered and,
if material, 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.
Target is not aware of any material 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).
(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 reasonable and
appropriate steps to protect and preserve the confidentiality of all Target
Intellectual Property with respect to which Target has exclusivity and that
is not otherwise disclosed in published patents or patent applications or
registered copyrights ("Target Confidential Information"). Except where failure
to do so would not have a Material Adverse Effect on Target, 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 the Target Disclosure
Letter, 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 code.
(e) Each current and former employee and
contractor of Target who is or was involved in, or who has contributed to, the
creation or development of any Target Intellectual Property 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 Confidentiality and
Non-Compete Agreement (in the case of an employee) or a consulting agreement
providing for the valid assignment to Target of all Target Intellectual
Property created or developed for the Target (in the case of a contractor).
(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.
<PAGE>
2.12 Environmental Matters. Target is and has at
all times operated its business in material compliance with all Environmental
Laws and to 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. ss. 7401, et seq., the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. ss. 9601, et seq., the Federal Water Pollution Control
Act, 33 U.S.C. ss. 1321, et seq., the Hazardous Materials Transportation Act, 49
U.S.C. ss. 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
ss. 6901, et seq. ("RCRA"), and the Toxic Substances Control Act, 15 U.S.C. ss.
2601, et seq.
2.13 Taxes.
(a) All Tax returns, statements, reports,
declarations and other forms and documents (including without limitation
estimated Tax returns and reports and material information statements, returns
and reports) required to be filed with any Tax authority with respect to any
Taxable period ending on or before the Effective Time, 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) and all amounts shown due on such Tax Returns on or before the
Effective Time have been or will be paid on or before such date. The Target
September 30, 1999, balance sheet included in the Financial Statements (the
"Target Balance Sheet") (i) fully accrues for all actual and contingent
liabilities for Taxes with respect to all periods through September 30, 1999,
and Target has not and will not incur any Tax liability in excess of the amount
reflected on such Target Balance Sheet with respect to such periods (excluding
any amount thereof that reflects timing differences between the recognition
of income for purposes of GAAP and for Tax purposes), and (ii) accrues in
accordance with GAAP for all material liabilities for Taxes payable after
September 30, 1999, 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 (with respect to
such matters required under GAAP) and accurate in all material respects. No
material Tax liability since September 30, 1999, has been or will be 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 Tax Returns filed since
January 1, 1995. Target has withheld and paid to the applicable financial
institution or Tax authority all amounts required to be withheld. To the best
knowledge of Target, Tax Returns filed with respect to Taxable years of Target
through the Taxable year ended December 31, 1998 in the case of the United
States, have been examined and 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,
<PAGE>
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 written 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. ss.1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. Target has never been a party (either as a distributing corporation as
a corporation that has been distributed) to any transaction intended to qualify
under Section 355 of the 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. 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 never elected to be treated as an
S-corporation under Section 1362 of the Code or any corresponding provision of
federal or state law. All material elections with respect to Target's Taxes
made during the fiscal years ending December 31, 1996, 1997 and 1998 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 that 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(a) (by reason of being unreasonable in amount), 162(b)
through (p) 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
<PAGE>
states or foreign jurisdictions) that 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 2.13, the term "Target" means Target and any entity included in, or
required under GAAP to be included in, any of the Target Financial Statements.
2.14 Employee Benefit Plans.
(a) For all purposes under this Section 2.14
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of the
Employee Retirement Income Security Act of 1974, as amended ("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 2.14 (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 ERISA;
(ii) Any bonus, deferred compensation,
incentive, restricted stock, stock purchase, stock option, stock appreciation
right, phantom stock, supplemental 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
<PAGE>
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 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
(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, except to the extent
that a failure to satisfy any of such requirements would not have a Material
Adverse Effect.
(e) With respect to each Plan that is
subject to COBRA, the requirements of COBRA applicable to such Plan have been
satisfied, except to the extent that a failure to satisfy any of such
requirements would not have a Material Adverse Effect.
(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, except to the extent
<PAGE>
that a failure to satisfy any of such requirements would not have a Material
Adverse Effect.
(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 extent
that such requirements may be satisfied by adopting retroactive amendments
under section 401(b) of the Code and the regulations thereunder. 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) and the applicable provisions of ERISA and the Code and the
regulations thereunder, except to the extent that a failure to be so
administered 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, except to the
extent that any such liability would not have a Material Adverse Effect.
(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 except
to the extent that failure to pay or provide for such contributions, premiums
or other payments would not have a Material Adverse Effect. All accruals
(including, where appropriate, proportional accruals for partial periods) have
been made in accordance with prior practices.
2.15 Employees and Consultants.
(a) Target has provided Acquiror with a true
and complete list of all individuals employed by Target as of the date hereof
and the position and base compensation payable to each such individual. The
Target Disclosure Letter contains a list of any written and a description of
any 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 or employment dispute.
(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.
<PAGE>
(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 that 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 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
that could reasonably be expected to have a Material Adverse Effect.
(g) Target has not received or been notified
of any written 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, except such complaints
as could not reasonably be expected to have a Material Adverse Effect.
(h) Target's action in complying with the
terms of this Agreement will not violate any agreements with any of Target's
employees.
(i) Target has filed or will file 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, except to the extent that any such failure to file or comply
would not have a Material Adverse Effect on Target.
(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 and that could reasonably
be expected to have a Material Adverse Effect on Target. Neither the execution
nor delivery of this Agreement nor the conduct of Target's business as
conducted, will, to Target's knowledge, conflict with or result in a material
breach of the terms, conditions or provisions of, or constitute a default
under, any Employee Obligation.
2.16 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 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
<PAGE>
compete with Target. No member of the immediate family of any officer or
director of Target is directly or indirectly interested in any material
contract with Target.
2.17 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.
2.18 Compliance with Laws. Target has complied
with, is not in violation of, and has not received any written 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.
2.19 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.
2.20 Vote Required. The affirmative vote of the
holders of a majority of the Target Common Stock outstanding on the record
date set for the Target Shareholders Meeting (as hereafter defined) is the
only vote of the holders of any of Target's Capital Stock necessary to approve
this Agreement and the transactions contemplated hereby.
2.21 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, to Target's knowledge, is not alleged to be
in default in respect of any material contract, except where the default would
not and could not be expected to have a Material Adverse Effect on Target. 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 material 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 code. True, correct and
complete copies of all material contracts have been delivered to the Acquiror.
2.22 Registration Statement; Proxy
Statement/Prospectus. The written information supplied by Target expressly for
the purpose of inclusion in the registration statement on Form S-4 (or such
other or successor form as shall be appropriate) pursuant to which the issuance
of the shares of Acquiror Common Stock to be issued in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time
<PAGE>
the Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein not misleading. The written information supplied by Target expressly
for the purpose of inclusion in the proxy statement/prospectus to be sent to
the shareholders of Target in connection with the meetings of Target's
shareholders (the "Target Shareholders Meeting") to be held in connection
with the Merger (such proxy statement/prospectus as amended or supplemented
is referred to herein as the "Proxy Statement") shall not, on the date the
Proxy Statement is first mailed to Target's shareholders, at the time of the
Target Shareholders Meeting and at the Effective Time, contain any untrue
statement of a material fact, or omit to state any material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. If at any time prior to the
Effective Time any event or information should be discovered by Target that
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Target shall promptly inform Acquiror and
Merger Sub. Notwithstanding the foregoing, Target makes no representation,
warranty or covenant with respect to any information supplied by Acquiror or
Merger Sub that is contained in any of the foregoing documents.
2.23 Complete Copies of Materials. Target has
delivered or made available true and complete copies of each document that has
been requested by Acquiror or its counsel in connection with their technical,
legal and accounting review of Target.
2.24 Opinion of Financial Advisor. Target has been
advised in writing by its financial advisor, U.S. Bancorp Piper Jaffray, that
in its opinion, as of the date of this Agreement, the Merger is fair to the
shareholders of Target from a financial point of view.
2.25 Board Approval. The Board of Directors of
Target has unanimously (i) approved this Agreement and the Merger,
(ii) determined that the Merger is in the best interest of the shareholders of
Target and is on terms that are fair to such shareholders and
(iii) recommended that the shareholders of Target approve this Agreement and
the Merger.
2.26 Section 673 of Minnesota Law Not Applicable.
The Board of Directors of Target has taken all actions so that the restrictions
contained in Section 302A.673 of the Minnesota Law applicable to a "business
combination" (as defined in Section 302A.673) will not apply to the execution,
delivery or performance of this Agreement or the consummation of the Merger or
the other transactions contemplated by this Agreement.
2.27 Representations Complete. None of the
representations or warranties made by Target herein or in any Schedule hereto,
including the Target Disclosure Letter, or certificate furnished by Target
pursuant to this Agreement or the Target SEC Documents, 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.
<PAGE>
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 Letter delivered by Acquiror to
Target to prior to the execution and delivery of this Agreement (the "Acquiror
Disclosure Letter"). The Acquiror Disclosure Letter 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 unless a cross reference is made to
another paragraph which such disclosure also qualifies. 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 its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization. Each
of Acquiror and its subsidiaries 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. Acquiror has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws of Acquiror and Merger Sub, each as amended to date,
to Target. Neither Acquiror nor Merger Sub is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws. Acquiror is the
owner of all outstanding shares of capital stock of each of its subsidiaries,
except where required by local law, 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 Acquiror free and clear of
all 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 Acquiror or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Acquiror SEC Documents (as defined in
Section 3.4), Acquiror 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.
3.2 Capital Structure. The authorized capital
stock of Acquiror consists of 200,000,000 shares of Common Stock, $.0001 par
value, and 5,000,000 shares of Preferred Stock, $.0001 par value, of which there
were issued and outstanding as of September 30, 1999, 84,981,147 shares of
Common Stock and no shares of Preferred Stock. An aggregate of 30,000 shares of
Acquiror's Series A Junior Participating Preferred Stock ("Acquiror Junior
Preferred Stock") were reserved for future issuance pursuant to the Rights
Agreement, dated May 23, 1997, between Acquiror and Harris Trust and Savings
Bank, as Rights Agent (the "Acquiror Rights Agreement"). There are no other
outstanding shares of capital stock or voting securities of Acquiror other than
shares of Acquiror Common Stock issued after September 30, 1999, upon (i) the
<PAGE>
exercise of options issued under Acquiror's 1995 Stock Option/Stock Issuance
Plan (the "Acquiror Stock Option Plan") or (ii) the exercise of subscription
rights outstanding as of such date under the Acquiror Employee Stock Purchase
Plan (the "Acquiror ESPP"). The authorized capital stock of Merger Sub consists
of 1,000 shares of Common Stock, $.0001 par value, all of which are issued and
outstanding and are held by Acquiror. All outstanding shares of Acquiror have
been duly authorized, validly issued, fully paid and are nonassessable and 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 or other similar rights created by statute, the
Certificate of Incorporation or Bylaws of Acquiror or Merger Sub or any
agreement to which Acquiror or Merger Sub is a party or by which it is bound.
As of September 30, 1999, Acquiror had reserved (i) 16,460,793 shares of Common
Stock for issuance to employees, directors and independent contractors pursuant
to the Acquiror Stock Option Plan, of which approximately 12,687,995 shares
have been issued pursuant to option exercises, and approximately 12,662,858
shares are subject to outstanding, unexercised options, and (ii) 8,400,000
shares of Common Stock for issuance to employees pursuant to the Acquiror ESPP,
of which 1,909,257 shares have been issued and as of September 30, 1999,
approximately 6,490,743 shares are subject to outstanding subscriptions. Other
than as set forth above and the commitment to issue shares of Common Stock
pursuant to this Agreement; there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Acquiror or Merger
Sub is a party or by which either of them is bound obligating Acquiror or
Merger Sub to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of the capital
stock of Acquiror or Merger Sub or obligating Acquiror or Merger Sub to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement. The shares of Common Stock to be issued pursuant to the Merger will,
upon their issuance, be duly authorized, validly issued, fully paid, and
non-assessable, will not be subject to any preemptive or other statutory right
of shareholders; will be issued in compliance with applicable U.S. Federal and
state securities laws; will be free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof; and will
have the rights attached thereto under the Acquiror Rights Agreement.
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, enforceable against Acquiror and Merger Sub in
accordance with their terms.
(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, or require a consent
to assignment or a novation under (i) any provision of the Certificate of
<PAGE>
Incorporation or Bylaws of Acquiror or any of its subsidiaries, 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 any of
its subsidiaries 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 any of its subsidiaries
in connection with the execution and delivery of this Agreement or the other
Transaction Documents by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub 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
Form 8-K with the SEC and National Association of Securities Dealers ("NASD")
within 15 days after the Closing Date, (iii) any filings as may be required
under applicable state securities laws and the securities laws of any foreign
country, (iv) such filings as may be required under HSR, (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 Plans assumed by Acquiror, and (vi) such
other consents, authorizations, filings, approvals and registrations that, if
not obtained or made, would not have a Material Adverse Effect on Acquiror or
Merger Sub 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 January 1, 1998, 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 Acquiror
SEC Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except those that have expired in
accordance with their terms, and neither Acquiror nor any of its subsidiaries
is in default thereunder. As of their respective filing dates, the Acquiror
SEC Documents complied in all material respects with the requirements of 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") fairly present the consolidated financial condition and the related
consolidated statements of operations, of stockholder's equity, and of cash
flows of Acquiror at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments), 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
<PAGE>
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).
3.5 Absence of Certain Changes. Since
September 30, 1999 (the "Acquiror Balance Sheet Date"), Acquiror has conducted
its business in the ordinary course consistent with past practice and there has
not occurred 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 Acquiror.
3.6 Absence of Undisclosed Liabilities. Acquiror
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 September 30, 1999 (the "Acquiror
Balance Sheet"), (ii) those obligations or liabilities (including contractual
obligations) incurred in the ordinary course of business since the Acquiror
Balance Sheet Date in amounts consistent with prior periods, and (iii) those
incurred in connection with the execution of this Agreement.
3.7 Intellectual Property. Acquiror and its
subsidiaries own or are licensed for and in any event possess sufficient rights
with respect to all Intellectual Property that is Used in, or that may be
necessary for, the business of Acquiror and its subsidiaries as currently
conducted by Acquiror and its subsidiaries ("Acquiror Intellectual Property"),
except to the extent that the failure to have such rights have not had and
would not reasonably be expected to have a Material Adverse Effect on Acquiror.
Acquiror's rights to Acquiror Intellectual Property is without any conflict
with or infringement or misappropriation of any rights or property of others.
With respect to patent rights, moral rights and Mark rights, the
representations and warranties of this Section 3.7 are made only to Acquiror's
knowledge.
3.8 Environmental Matters. Acquiror is and has at
all times operated its business in material compliance with all Environmental
Laws and to Acquiror's knowledge, no material expenditures are or will be
required in order to comply with such Environmental Laws.
3.9 Employee Benefit Plans. With respect to each
Acquiror Plan that is an employee benefit plan (as defined in section 3(3) of
ERISA), the requirements of ERISA with respect to such Plan have been
satisfied, except to the extent that a failure to satisfy any of such
requirements would not have a Material Adverse Effect.
3.10 Litigation. Except as disclosed in the
Acquiror SEC Documents, 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 Acquiror or any of its
subsidiaries, threatened against Acquiror or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Acquiror. There is
no judgment, decree or order against Acquiror or any of its subsidiaries or, to
the knowledge of Acquiror or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that could prevent, enjoin,
or materially alter or delay any of the transactions contemplated by this
<PAGE>
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Acquiror.
3.11 Compliance with Laws. Each of Acquiror and
its subsidiaries 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 Acquiror.
3.12 Proxy Statement. The written information
supplied by Acquiror and Merger Sub expressly for the purpose of inclusion in
the Proxy Statement shall not, on the date the Proxy Statement is first mailed
to Target's shareholders, at the time of the Target Shareholders Meeting and at
the Effective Time, contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. If at
any time prior to the Effective Time any event or information should be
discovered by Acquiror or Merger Sub that should be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement, Acquiror
and Merger Sub will promptly inform Target. Notwithstanding the foregoing,
neither Acquiror nor Merger Sub make any representation, warranty or covenant
with respect to any information supplied by Target that is contained in any of
the foregoing documents.
3.13 Board Approval. The Board of Directors of
Acquiror and Merger Sub have approved this Agreement and the Merger.
3.14 Representations Complete. None of the
representations, warranties or statements made by Acquiror or Merger Sub herein
or in any Schedule hereto, including the Acquiror Disclosure Letter, or
certificate furnished by Acquiror pursuant to this Agreement, or the Acquiror
SEC Documents, 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.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
-----------------------------------
4.1 Conduct of Business of Target and Acquiror.
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 and
Acquiror each agree (except to the extent expressly contemplated by this
Agreement or as consented to in writing by the other), 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, and (ii) 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
<PAGE>
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 in all
material respects. Target and Acquiror each agree to promptly notify each other
of any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event that could have a Material Adverse
Effect on Target and Acquiror, respectively. Without limiting the foregoing,
except as expressly contemplated by this Agreement, Target shall not do, 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 Acquiror:
(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; or
(c) Other. Take, or agree in writing or
otherwise to take, any of the actions described in Sections 4.1(a) and
(b) above, or any action that 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 in any material
respect.
4.2 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, except as expressly
contemplated by this Agreement, Target shall not do, 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 Acquiror:
(a) 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 and
consistent with past practice;
(b) 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; provided, however,
the foregoing shall not effect any such rights or provisions existing as of the
date of this Agreement which are identified in the Target Disclosure Letter;
(c) 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
<PAGE>
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; in
particular, Target shall not issue any securities in connection with the
earn-out provisions set forth in the Stock Purchase Agreement between Target
and Mijenix Corporation, dated July 7, 1999;
(d) Intellectual Property. Transfer to or
license any person or entity or otherwise extend, amend or modify in any
material respect any rights to Intellectual Property, other than the grant of
non-exclusive licenses in the ordinary course of business and consistent with
past practice;
(e) 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;
(f) Dispositions. Sell, lease, license or
otherwise dispose of or encumber any of its properties or assets that are
material, individually or in the aggregate, to its and its subsidiaries'
business, taken as a whole;
(g) 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;
(h) Leases. Enter into any operating lease
requiring payments in excess of $100,000;
(i) Payment of Obligations. Pay, discharge
or satisfy in an amount in excess of $100,000 in any one case or $500,000 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;
(j) Capital Expenditures. Incur or commit
to incur any capital expenditures in excess of $200,000 in any one case,
or $1,000,000 in the aggregate;
(k) Insurance. Reduce in any material manner
the amount of any insurance coverage provided by existing insurance policies;
(l) Termination or Waiver. Terminate or
waive any right of substantial value, other than in the ordinary course of
business;
(m) Employee Benefits; Severance. Take any
of the following actions, unless otherwise contemplated by this Agreement or
required by obligations of Target existing as of the date of this Agreement and
as identified in the Target Disclosure Letter: (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 consistent 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
<PAGE>
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, other
than discretionary bonus payments or profit sharing with respect to 1999
services which will not in the aggregate exceed $1,250,000 and shall be
allocated and set by Michael Rogers. United States employees of Target who are
terminated as a direct result of the Merger between the date of this Agreement
and a date six months following the Effective Date shall receive a lump sum
severance payment in an amount equal to two (2) weeks base salary plus one
(1) week base salary for every full year of employment with Target (including
service with Mijenix); European employees shall receive such severance payments
as may be required by local law, which shall not be less than the amount
provided United States employees;
(n) Lawsuits. Commence a lawsuit or
arbitration proceeding other than (i) for the routine collection of bills,
(ii) in such cases where it in good faith determines that failure to commence
suit would result in the material impairment of a valuable asset of its
business, provided that it consults with Acquiror prior to the filing of such a
suit, or (iii) for a breach of this Agreement;
(o) 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 that are
material, individually or in the aggregate, to its and its subsidiaries'
business, taken as a whole;
(p) 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;
(q) Revaluation. Revalue any of its material
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
(r) Other. Take or agree in writing or
otherwise to take, any of the actions described in Sections 4.2(a) through
(q) above, or any action that would make any of its representations or
warranties in any material respect contained in this Agreement untrue or
incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.3 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
<PAGE>
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) Target shall not, directly or
indirectly, through any officer, director, employee, financial advisor,
attorney, representative, subsidiary or agent of such party (i) take any action
to 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 substantial assets, sale of shares
of capital stock (including without limitation by way of a tender offer) or
similar transaction involving Target or any of its subsidiaries, other than
the transactions contemplated by this Agreement (any of the foregoing inquiries
or proposals being referred to in this Agreement as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any
non-public information to any person or entity relating to, any Acquisition
Proposal, or (iii) agree to or recommend any Acquisition Proposal; provided,
however, that nothing contained in this Agreement shall prevent Target, or its
Board of Directors, to the extent such Board of Directors determines, in good
faith, that such Board of Directors' fiduciary duties under applicable law
require it to do so, from (A) furnishing non-public information to, or entering
into discussions or negotiations with, any person or entity in connection with
an unsolicited, bona fide, written Acquisition Proposal by such person or
entity or recommending an unsolicited, bona fide, written Acquisition Proposal
by such person or entity to the shareholders of Target, if and only to the
extent that (1) the Board of Directors of Target believes in its good faith
reasonable judgment (based upon and consistent with advice received in
consultation with independent financial and legal advisors) that such
Acquisition Proposal is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to
be derived from the Merger and the long-term prospects of Acquiror and Target
as a combined company, would, if consummated, result in a transaction more
favorable from a financial point of view than the transaction contemplated by
this Agreement (any such more favorable Acquisition Proposal being referred to
in this Agreement as a "Superior Proposal") and the Board of Directors of
Target determines in good faith that such action is necessary for such Board
of Directors to comply with its fiduciary duties to shareholders under
applicable law and (2) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, such
Board of Directors receives from such person or entity an executed
confidentiality agreement with terms no less favorable to such party than
those contained in the Nondisclosure Agreement dated October 29, 1999
between Acquiror and Target (the "Nondisclosure Agreement"), such non-public
information has been previously delivered to the Board of Directors of Acquiror,
and Target advises the Acquiror hereto in writing of such disclosure or
discussions or negotiations, including the party to whom disclosed or with whom
discussions or negotiations will occur; or (B) complying with Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal.
Without limiting the foregoing, it is understood that any violations of the
restrictions set forth in this paragraph by any officer, director, employee,
financial advisor, attorney, representative, subsidiary or agent of Target,
<PAGE>
whether or not acting on behalf of Target, shall be deemed to be a breach of
this Section 5.1 by Target.
(b) Target shall notify Acquiror immediately
after receipt by Target (or their advisors) of any Acquisition Proposal or any
request for non-public information in connection with an Acquisition Proposal
or for access to the properties, books or records of such party or any of its
subsidiaries by any person or entity that informs such party that it is
considering making, or has made, an Acquisition 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. Such party shall continue to keep the other party hereto informed, on
a current basis, of the status of any such discussions or negotiations and the
terms being discussed or negotiated.
5.2 Proxy Statement/Prospectus; Registration
Statement. As promptly as practicable after the execution of this Agreement,
Target and Acquiror shall prepare proxy materials relating to the approval of
the Merger and the transactions contemplated hereby by the shareholders of
Target and, as promptly as practicable, Acquiror shall file with the SEC a
Registration Statement on Form S-4 (or such other or successor form as shall be
appropriate), which complies in form with applicable SEC requirements and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable. Subject to the provisions of
Section 5.1, the Proxy Statement shall include the unanimous recommendation of
the Board of Directors of Target in favor of the Merger; provided that such
recommendation may not be included or may be withdrawn if previously included
if Target's Board of Directors believes in good faith that a Superior Proposal
(as defined in Section 5.1) has been made and, shall determine that to include
such recommendation or not withdraw such recommendation if previously included
would constitute a breach of the Board of Directors' fiduciary duty under
applicable law.
5.3 Shareholders Meeting . Target shall promptly
after the date hereof take all actions necessary to call a meeting of its
shareholders to be held for the purpose of voting upon this Agreement and the
Merger, which meeting shall be held (to the extent permitted by law) within
forty-five (45) days of the date on which the Registration Statement is
declared effective. Subject to Section 5.2, Target will, through its Board of
Directors, unanimously recommend to its shareholders approval of such matters.
Target shall use all reasonable efforts to solicit from its shareholders
proxies in favor of or, subject to Section 5.1, with respect to such matters
(whether or not the Board of Directors of Target shall have withdrawn or
modified its unanimous recommendation of this Agreement or the Merger).
5.4 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.
<PAGE>
(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 5.4 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.5 Confidentiality. The parties acknowledge that
Acquiror and Target have previously executed a Nondisclosure Agreement dated
October 29, 1999, which Confidentiality Agreement shall continue in full force
and effect in accordance with its terms.
5.6 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 law
or 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.
5.7 Consents; Cooperation.
(a) Each of Acquiror and Target shall
promptly apply for or otherwise seek, and use all reasonable efforts to obtain,
all consents and approvals required to be obtained by it for the consummation
of the Merger, including those required under HSR, and shall use all reasonable
efforts to obtain all necessary consents, waivers and approvals under, or to
deliver notice of the Merger as required by, 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 HSR or any other federal or state antitrust or fair trade
law.
(b) Each of Acquiror and Target shall use
all reasonable efforts to resolve such objections, if any, as may be asserted
by any Governmental Entity with respect to the transactions contemplated by
this Agreement under HSR, the Sherman Act, as amended, the Clayton Act, as
amended, the Federal Trade Commission Act, as amended, and any other Federal,
state or foreign statutes, rules, regulations, orders or decrees that are
designed to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade (collectively, "Antitrust
Laws"). In connection therewith, if any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust Law,
each of Acquiror and Target shall cooperate and use all reasonable efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
<PAGE>
other order, whether temporary, preliminary or permanent (each an "Order"),
that is in effect and that prohibits, prevents, or restricts consummation of
the Merger or any such other transactions, unless by mutual agreement Acquiror
and Target decide that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither Acquiror nor Target shall have any
obligation to litigate or contest any administrative or judicial action or
proceeding or any Order beyond the earlier of (i) June 30, 2000, or (ii) the
date of a ruling preliminarily enjoining the Merger issued by a court of
competent jurisdiction. Each of Acquiror and Target shall use all reasonable
efforts to take such action as may be required to cause the expiration of the
notice periods under the HSR or other Antitrust Laws with respect to such
transactions as promptly as possible after the execution of this Agreement.
(c) 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
that 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.
5.8 Update Disclosure; Breaches. From and after
the date of this Agreement until the Effective Time, each party hereto shall
promptly notify the other party, by written update to its Disclosure Letter,
of (i) the occurrence or non-occurrence of any event that 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 or Acquiror, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied
by it pursuant to this Agreement that 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 in any
material respect. 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.
5.9 Stockholder Lists. Upon the execution of this
Agreement, Acquiror and Target will provide each other with a list of those
persons who are, in Acquiror's or Target's respective reasonable judgment,
"affiliates" of Acquiror or Target, respectively, within the meaning of
Rule 145 under the Securities Act ("Rule 145"). Each such person who is an
"affiliate" of Acquiror or Target within the meaning of Rule 145 is referred to
herein as an "Affiliate." Acquiror and Target shall provide each other such
information and documents as Target or Acquiror shall reasonably request for
purposes of reviewing such list and shall notify the other party in writing
regarding any change in the identity of its Affiliates prior to the Closing
Date.
5.10 Indemnification.
(a) From and after the Effective
Time, Acquiror and the Surviving Corporation jointly and severally shall
indemnify, defend and hold harmless each person who is now, or has been at any
<PAGE>
time prior to the date of this Agreement or who becomes prior to the Effective
Time, an officer, director or employee of Target or any of its subsidiaries
(the "Indemnified Parties") in respect of acts or omissions occurring on or
prior to the Effective Time to the extent provided under Target's Articles of
Incorporation, Bylaws (as in effect on the date hereof) and indemnification
agreements in effect as of the Effective Time (provided, however, that Target
covenants that it will not enter into indemnification agreements or modify
existing indemnification agreements between the date of this Agreement and the
Effective Time, except as required by law and except that officers and
directors of Target may execute a form of indemnification agreement in the form
previously provided to Acquiror or its counsel); provided that such
indemnification shall be subject to any limitation imposed from time to time
under applicable law.
(b) For a period of six years after the
Effective Time, Acquiror will cause the Surviving Corporation to use its
commercially reasonable efforts to maintain in effect, if available, directors'
and officers' liability insurance covering those persons who are currently
covered by Target's directors' and officers' liability insurance policy on
terms substantially similar to those applicable to the current directors and
officers of Target; provided, however, that in no event will Acquiror or the
Surviving Corporation be required to expend in excess of $250,000 in the
aggregate (i.e., for six years coverage) for such coverage (or such coverage as
is available for such $250,000).
5.11 Irrevocable Proxies. Target shall use its
best efforts, on behalf of Acquiror and pursuant to the request of Acquiror, to
cause Michael Rogers and Gary Stevens to execute and deliver to Acquiror, a
Voting and Proxy Agreement in the form of Exhibit B attached hereto
concurrently with the execution of this Agreement.
5.12 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 that
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.
5.13 Tax-Free Reorganization. Neither Target,
Acquiror nor Merger Sub will, either before or after consummation of the
Merger, take any action that, to the knowledge of such party, would cause the
Merger to fail to constitute a "reorganization" within the meaning of Code
Section 368.
5.14 Stock Options.
(a) At the Effective Time, the Target Stock
Option Plans and each outstanding option to purchase shares of Target Common
Stock under the Target Stock Option Plans, whether vested or unvested, shall be
assumed by Acquiror. Target has delivered to Acquiror a schedule (the "Option
<PAGE>
Schedule") that sets forth a true and complete list as of the date hereof of
all holders of outstanding options under the Target Stock Option Plans,
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. Each such option so assumed
by Acquiror under this Agreement shall continue to have, and be subject to,
the same terms and conditions set forth in the Target Stock Option Plans
immediately prior to the Effective Time, except that (i) such option shall be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Common Stock that were issuable
upon exercise of such option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio, and rounded down to the nearest whole
number of shares of Acquiror Common Stock, (ii) the per share exercise price
for the shares of Acquiror Common Stock issuable upon exercise of such assumed
option shall be equal to the quotient determined by dividing the exercise price
per share of Target Common Stock at which such option was exercisable
immediately prior to the Effective Time, by the Option Exchange Ratio, rounded
up to the nearest whole cent, (iii) assumed options which provided for
acceleration of vesting upon a change in control of Target shall be fully
vested on and after the Effective Date and shall be exercisable until the date
12 months following the later of (A) the Effective Date or (B) cessation of the
optionee's service (if such optionee commenced service with Acquiror following
the Closing), (iv) assumed options held by directors, former directors and
consultants to the directors shall be fully vested on and after the Effective
Date and shall be exercisable until the date 12 months following the
Effective Date, and (v) except as provided in the foregoing clauses (iii)
and (iv), no assumed option shall provide for an exercise period in excess of 12
months in the event of the cessation of the optionee's service. The options so
assumed by Acquiror shall qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent such options
qualified as incentive stock options prior to the Effective Time. Within twenty
(20) business days after the Effective Time, Acquiror will issue to each person
whose option shall be assumed in accordance with this section 5.14, a document
in form and substance satisfactory to Target evidencing the foregoing assumption
of such option by Acquiror. Neither Acquiror nor Target shall be in breach of
this Agreement solely as a result of any optionholder failing to sign an
Assumption Agreement.
(b) Acquiror shall take all corporate action
necessary to reserve and make available for issuance a sufficient number of
shares of Acquiror Common Stock for delivery under Target Stock Options assumed
in accordance with this Section 5.14. Within five (5) business days after the
Effective Time, Acquiror shall file a registration statement on Form S-8 (or
any successor or other appropriate forms) which will register the shares of
Acquiror Common Stock subject to assumed options to the extent permitted by
Federal securities laws and shall use its reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
(c) Outstanding purchase rights under the
Target ESPP shall be exercised upon the earlier of (i) the next scheduled
purchase date under the Target ESPP or (ii) immediately prior to the Effective
Time, and each participant in the Target ESPP shall accordingly be issued
shares of Target Common Stock at that time which shall be converted into
shares of Acquiror Common Stock in the Merger. The Target ESPP shall terminate
<PAGE>
with such exercise date, and no purchase rights shall be subsequently granted
or exercised under the Target ESPP. Target employees who meet the eligibility
requirements for participation in the Aquiror Employee Stock Purchase Plan
shall begin payroll deductions under that plan as of the start date of the
first offering period thereunder beginning at least thirty (30) days after the
Effective Time.
5.15 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 shares referred to in Section 6.1(e)
below.
5.16 Additional Agreements; Reasonable Efforts.
Each of the parties agrees to use all reasonable efforts to take, or cause to
be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable 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 5.3, 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.
5.17 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, as soon
as practicable after the Effective Time of the Merger. For purposes of
satisfying the terms and conditions of such programs, to the extent permitted
by Acquiror's benefit programs and applicable law, Acquiror shall use
reasonable efforts to give full credit for eligibility or vesting for each
participant's period of service with Target. To the extent permitted by such
plans, Acquiror shall waive any pre-existing condition exclusion and
actively-at-work requirements under its medical or dental plans.
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 at least a
majority of the shares of Target Common Stock outstanding as of the record date
set for the Target Shareholders Meeting.
(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
<PAGE>
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 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, and under HSR.
(d) Tax Opinion. Each of Target and Acquiror
shall have received a written opinion from their respective counsel to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code, which opinions shall be substantially identical in
substance. 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.
(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 Plans assumed by Acquiror shall have
been made.
6.2 Additional Conditions to the 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. Except as disclosed in the Acquiror Disclosure Letter, (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:
<PAGE>
(i) all representations and warranties
made by Acquiror under this Agreement are true and complete 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); 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) 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 or results of operations of Acquiror and its subsidiaries,
taken as a whole.
6.3 Additional Conditions to the Obligations of
Acquiror. The obligations of Acquiror and Merger Sub to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) Representations, Warranties and
Covenants. Except as disclosed in the Acquiror Disclosure Letter (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 (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); 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 6.3(c) hereto.
(d) Injunctions or Restraints on Merger and
Conduct of Business. No proceeding brought by any administrative agency or
<PAGE>
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) 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 or results of operations of Target and its subsidiaries,
taken as a whole.
(f) 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.
(g) Employment and Non-Competition
Agreements. The employees of Target set forth on Schedule 6.3(g) shall have
entered into an Employment and Non-Competition Agreement in the form attached
hereto as Exhibit C.
(h) Election under Section 338(h)(10) of
the Code. Target and Jennifer Kronenberg shall have filed a joint election
under Section 338(h)(10) of the Code with respect to Target's purchase from
Jennifer Kronenberg of all outstanding stock of Mijenix Corporation, a
Wisconsin corporation, pursuant to the Stock Purchase Agreement by and among
Target, Jennifer Kronenberg and Mijenix Corporation, dated as of July 7, 1999.
(i) Termination of Target 401(k) Plan.
Target shall have terminated its 401(k) Plan.
ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
-------------------------------------------
7.1 Termination. This Agreement may be terminated
at any time prior to the Effective Time (with respect to Sections 7.1(b)
through 7.1(f), by written notice by the terminating party to the other
party), whether before or after approval of the matters presented in
connection with the Merger by the shareholders of Target:
(a) by mutual written consent of Target and
Acquiror; or
(b) by either Target or Acquiror if the
Merger shall not have been consummated by June 30, 2000 (the "Outside Date")
(provided that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been a significant cause of or resulted in the
failure of the Merger to occur on or before such date); or
<PAGE>
(c) by either Target or Acquiror if a court
of competent jurisdiction or other Governmental Entity shall have issued a
nonappealable final order, decree or ruling or taken any other nonappealable
final action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or
(d) by either Acquiror or Target, if at the
Target Shareholders' Meeting (including any adjournment or postponement), the
requisite vote of the shareholders of Target in favor of this Agreement and
the Merger shall not have been obtained (provided that the right to terminate
this Agreement under this Section 7.1(d) shall not be available to Target
where the failure to obtain Target Shareholder Approval shall have been caused
by the action or failure to act of Target and such action or failure to act
constitutes a material breach by Target of this Agreement). A material breach
by a party of Sections 5.2 or 5.3 hereof will constitute a material breach
hereunder; or
(e) by Acquiror, if (i) the Board of
Directors of Target shall have withdrawn or modified its recommendation of
this Agreement or the Merger; (ii) the Board of Directors of Target fails to
reaffirm its recommendation of this Agreement or the Merger within ten (10)
business days after Acquiror requests in writing that such unanimous
recommendation be reaffirmed at any time following the public announcement of
an Acquisition Proposal; (iii) the Board of Directors of Target shall have
recommended to the shareholders of Target an Alternative Transaction; (iv) a
tender offer or exchange offer for 15% or more of the outstanding shares
of Target Common Stock is commenced (other than by Acquiror or an Affiliate of
Acquiror) and the Board of Directors of Target shall not have sent to its
security holders pursuant to Rule 14e-2 within ten (10) business days after such
tender or exchange offer is first published, sent or given, a statement
disclosing that Target recommends rejection of such tender or exchange offer; or
(v) for any other reason Target fails to call and hold the Target Shareholders'
Meeting within forty-five days after the Registration Statement is declared
effective under the Securities Act if such date is on or before the Outside
Date; or
(f) by Target or Acquiror, if there has
been a breach of any representation, warranty, covenant or agreement on the
part of the other party set forth in this Agreement, which breach (i) causes
the conditions set forth in Section 6.2(a) or (b) (in the case of termination
by Target) or 6.3(a) or (b) (in the case of termination by Acquiror) not to be
satisfied, and (ii) shall not have been cured within twenty (20) business days
(or prior to the Outside Date, if earlier) following receipt by the breaching
party of written notice of such breach from the other party.
As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than
Acquiror or its respective affiliates (a "Third Party"), acquires more than 15%
of the outstanding shares of Target Common Stock, as the case may be, pursuant
to a tender offer or exchange offer or otherwise, (ii) a merger or other
business combination involving Target pursuant to which any Third Party acquires
more than 15% of the outstanding equity securities of Target or the entity
surviving such merger or business combination, (iii) any other transaction
pursuant to which any Third Party acquires control of assets (including for this
purpose the outstanding equity securities of subsidiaries of Target, and the
entity surviving any merger or business combination including any of them) of
Target having a fair market value (as determined by the Board of Directors of
<PAGE>
Target or Acquiror, as the case may be, in good faith) equal to more than 15% of
the fair market value of all the assets of Target and its subsidiaries, taken as
a whole, immediately prior to such transaction, or (iv) any public announcement
by a Third Party of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing.
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,
stockholders or affiliates, except as otherwise set forth in Section 7.3 and
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) Except as set forth in this Section 7.3,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Acquiror and Target shall share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing and filing of the Proxy
Statement (including any related preliminary materials) and the Registration
Statement (including financial statements and exhibits) and any amendments or
supplements.
(b) Target shall pay Acquiror a termination
fee of $5,000,000 in immediately available funds within five business days
after the termination of this Agreement by Acquiror pursuant to Section 7.1(e).
(c) Acquiror shall pay Target's
out-of-pocket expenses incurred in connection with this Agreement (and the
transactions contemplated hereby), including without limitations the fees and
expenses of financial advisors, accountants and legal counsel and printing and
filing fees (collectively, "Termination Expenses"), in immediately available
funds within five (5) business days following termination of this Agreement by
Target pursuant to Section 7.1(f) after a willful breach by Acquiror of this
Agreement and Target shall pay Acquiror's Termination Expenses in immediately
available funds within five (5) business days following termination of this
Agreement by Acquiror pursuant to Section 7.1(f) after a willful breach by
Target of this Agreement.
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 material term of the Articles of Incorporation of the
<PAGE>
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
GENERAL PROVISIONS
------------------
8.1 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: Louis C. Cole
Facsimile No.: (650) 812-6032
Telephone No.: (650) 812-6000
with a copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attention: Robert V. Gunderson, Jr.
Facsimile No.: (650) 321-2800
Telephone No.: (650) 463-5200
<PAGE>
(b) if to Target, to:
Ontrack Data International, Inc.
9023 Columbine Road
Eden Prarie, MN 55347
Attention: Michael Rogers
Facsimile No.: (612) 949-4170
Telephone No.: (612) 937-1107
with a copy to:
Lindquist & Vennum PLLP
4200 IDS Center
Minneapolis, MN 55402
Attention: John R. Houston
Facsimile No.: (612) 371-3207
Telephone No.: (612) 371-3211
8.2 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, condition 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 November 18, 1999. 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.
8.3 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.
8.4 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 Letter and the Acquiror Disclosure Letter (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
<PAGE>
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 the provisions of Sections 5.14 and 5.17.
8.5 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.
8.6 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.
8.7 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
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 Delaware, 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 Delaware for such persons and waives and covenants not to assert or
plead any objection that they might otherwise have to such jurisdiction and such
process.
8.8 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.
8.9 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>
IN WITNESS WHEREOF, Target, Acquiror and Merger
Sub have caused this Agreement to be executed and delivered by their
respective officers thereunto duly authorized, all as of the date first
written above.
ONTRACK DATA INTERNATIONAL, INC.
By:
----------------------------
Name and
Title
LEGATO SYSTEMS, INC.
By:
----------------------------
Name and
Title
LASSO ACQUISITION CORP.
By:
----------------------------
Name and
Title
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
EDITORIAL CONTACT: INVESTOR CONTACT:
Trish Terry Stephen C. Wise
Corporate Affairs Chief Financial Officer
925.875.8062 650.812.6102
[email protected]
FOR IMMEDIATE RELEASE
LEGATO ANNOUNCES DEFINITIVE AGREEMENT
TO ACQUIRE ONTRACK
EXPANDS INFORMATION CONTINUANCE INTO DATA RECOVERY SOFTWARE
AND SERVICE SOLUTIONS
PALO ALTO, CA--NOVEMBER 18, 1999--Legato Systems, Inc. (NASDAQ:LGTO), the leader
in enterprise storage management software, today announced the signing of a
definitive agreement to acquire Ontrack Data International, Inc., the world
leader in data recovery software and service solutions. The acquisition expands
Legato's leadership in data availability and extends the company's information
continuance strategy to include premier data recovery software and service
solutions. The combination of Legato and Ontrack will allow Legato to offer
enterprise customers a new level of data availability to enhance their overall
information management plans. This acquisition also gives Legato the desktop
tools to aggressively move into the expanding application service provider (ASP)
market.
The transaction will be accounted for under purchase accounting, and is expected
to close in late January 2000, subject to customary regulatory and shareholder
approvals. Legato will issue a combination of approximately 1.485 million shares
of Legato stock (or 0.1491 shares for each issued and outstanding share of
Ontrack's common stock) and approximately $20 million in cash for all of the
outstanding stock of Ontrack Corporation, and will assume its employee options.
The value of the transaction, based on Legato's closing price as of November 17,
is approximately $134 million. Legato expects that the acquisition of Ontrack
Corporation will be accretive to its 2000 earnings, excluding non-recurring
merger-related costs and the ongoing amortization associated with the
acquisition.
"The combination of Legato and Ontrack will give customers a more complete and
more comprehensive set of data and application availability solutions provided
by a single, industry-leading company," stated Louis Cole, president and CEO of
Legato Systems. "Legato has a long history of providing our customers with
leading data recovery solutions. The acquisition of Ontrack greatly extends our
<PAGE>
reach into the growing market for recovering data that has been previously
unrecoverable using conventional methods," concluded Cole.
Ontrack Data International is the leading provider of data recovery services and
products. It is the only company to perform data recoveries on virtually every
type of storage media device, platform and operating system. Ontrack has
recovered data remotely and in its labs for more than 100,000 organizations and
individuals throughout the world. Ontrack Disk Manager technology is also used
on approximately 60 million desktops through several large OEM partners. In
addition, Ontrack provides award-winning software tools to help prevent critical
data loss and to recover data.
Ontrack has pioneered advances in information management services with specific
expertise in Electronic Information Search and Data Conversion Services. Ontrack
is uniquely qualified to help customers in these areas because of its ability to
respond quickly to a customer's needs and develop tools and processes to extract
information.
"Together, Ontrack and Legato can grow the information management services
business more quickly and effectively than as separate companies," said Michael
Rogers, CEO, Ontrack Data International. "We plan to aggressively integrate our
combined technologies and services to deliver superior products to customers
that need to manage and produce valuable electronic data for consumer, business,
legal or regulatory purposes."
The acquisition of Ontrack is a natural extension to Legato's leadership in
protecting, managing and moving data in heterogeneous environments. Legato is
delivering information continuance through solutions that enable data and
application availability. This acquisition enables Legato to provide the highest
level of service in advanced storage management.
ABOUT LEGATO
Legato Systems, Inc. (NASDAQ: LGTO), is a worldwide leader in the enterprise
storage management software market. Helping companies leverage
business-critical, corporate data assets, Legato's products and services enable
information continuance, a seamless approach to the movement, management and
protection of data throughout an enterprise. Founded in 1989, Legato's storage
management software products have become the recognized industry standard with
the largest installed base representing over 65,000 customers. Legato's products
are available through a network of Legato-licensed resellers, integrators and
OEM partners and directly from Legato. Legato's corporate headquarters is
located at 3210 Porter Drive, Palo Alto, CA 94304. Telephone: 650.812.6000.
ABOUT ONTRACK
Ontrack, a leading provider of data availability software and service solutions,
helps customers protect, recover and discover their valuable data. Using its
<PAGE>
hundreds of proprietary tools and techniques, Ontrack is able to recover lost or
corrupted data from all operating systems and types of storage devices through
its do-it-yourself, remote and in-lab capabilities. Ontrack now offers a line of
award-winning software tools to help prevent critical data loss through a broad
line of problem solving, file management and productivity utilities. Ontrack can
be reached through its World Wide Web site at http://www.ontrack.com or by
calling 800-872-2599 (612-937-5161). In addition to its Minneapolis
headquarters, Ontrack operates other locations in Los Angeles, Washington, D.C.,
New York, Tokyo, London, Paris, Stuttgart and Boulder, Colo.
# # #
This announcement contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from historical or anticipated results in such statements.
Factors that might cause such a difference include, but are not limited to,
risks associated with acquisitions generally, including integration of
operations, diversion of management's time and attention, risk of a downturn
in Legato's or Ontrack's results of operations during the period the merger is
pending, and other risks discussed in the "Risk Factors" section of the
Company's report filed from time to time with the Securities and Exchange
Commission, copies of which are available on request from the Company. This
public announcement contains information that is accurate as of November 18,
1999, the date of this public announcement.
The Legato logo design, Legato, Legato NetWorker, SmartMedia, and ClientPak are
registered trademarks, and Celestra, Co-StandbyServer, GEMS, and SnapShotServer
are trademarks of Legato Systems, Inc. All other brand names or marks are
trademarks of their respective owners.
