<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
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): DECEMBER 9, 1997
NETWORKS ASSOCIATES, INC.
(FORMERLY MCAFEE ASSOCIATES, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COMMISSION FILE NUMBER 0-20558
DELAWARE 77-0316593
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2805 BOWERS AVENUE 95051
SANTA CLARA, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 988-3832
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 9, 1997, Networks Associates, Inc. ("NETWORK ASSOCIATES" or
the "COMPANY") acquired Pretty Good Privacy, Inc. ("PGP"), a privately-held
provider of applied cryptographic solutions for securing corporate digital
assets and protecting individual privacy based in San Mateo, California.
Pursuant to an Agreement and Plan of Reorganization dated as of December 1,
1997, between the Company, PGP and PG Acquisition Corp., a wholly owned
subsidiary of the Company ("MERGER SUB"), Merger Sub merged with and into PGP,
with PGP becoming a wholly owned subsidiary of Network Associates. The aggregate
consideration payable in the acquisition was approximately $36 million (payable
at closing in cash and the assumption of certain liabilities) and warrants to
acquire a specified number of shares of Network Associates common stock. The
cash paid in the acquisition was funded or, in the case of assumed liabilities,
will be funded from Network Associates' cash on hand. The acquisition is being
accounted for under the purchase method of accounting. In accordance with
generally accepted accounting principles, Network Associates expects to incur a
charge to earnings for the December 31, 1997 quarter of approximately $30
million related to the purchase of in process research and development.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Exhibits:
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization dated December 1, 1997
between the Registrant, PGP and PG Acquisition Corp.
4.1 Registration Rights Agreement dated December 5, 1997 between the
Registrant and certain shareholders of PGP.
99.1 Press Release dated December 1, 1997.
<PAGE> 3
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization dated December 1, 1997
between the Registrant, PGP and PG Acquisition Corp.
4.1 Registration Rights Agreement dated December 5, 1997 between the
Registrant and certain shareholders of PGP.
99.1 Press Release dated December 1, 1997.
<PAGE> 4
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.
NETWORKS ASSOCIATES, INC.
By: /s/ PRABHAT K. GOYAL
-------------------------------
Prabhat K. Goyal
Chief Financial Officer
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
NETWORKS ASSOCIATES, INC.
(FORMERLY MCAFEE ASSOCIATES, INC.)
PG ACQUISITION CORP.
AND
PRETTY GOOD PRIVACY, INC.
DATED AS OF DECEMBER 1, 1997
<PAGE> 2
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
Exhibit A Form of Promissory Note
Exhibit B Form of Secured Party Letter Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D-1 List of Stockholders entering into Stockholder Agreements
Exhibit D-2 Form of Stockholder Agreement
Exhibit E Form of Parent Warrant
Exhibit F Form of Securities Law Certificate
Exhibit G Form of Legal Opinion of Counsel to Parent and Merger Sub
Exhibit H Form of Legal Opinion of Counsel to the Company
<PAGE> 3
INDEX OF SCHEDULES
COMPANY SCHEDULE DESCRIPTION
1.6 Specified Liabilities
1.8 Former Lemcom Stockholders
2.2(a) Stockholder List
2.2(b) Option List
2.5 Company Financials
2.7 No Changes
2.10(a) Leased Property
2.10(b) Liens on Property
2.10(c) Equipment
2.11 Intellectual Property
2.12(a) Agreements, Contracts and Commitments
2.11(g) Royalties
2.14 Governmental Authorizations
2.18(a) Asbestos Report on El Camino Property
2.20(b) Employee Benefit Plans
6.3(n) List of Certain Company Stockholders Executing
Releases, etc.
7.2(a) Litigation Matters
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TABLE OF CONTENTS
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ARTICLE I - THE MERGER...........................................................................2
1.1 The Merger........................................................................2
1.2 Effective Time....................................................................2
1.3 Effect of the Merger..............................................................3
1.4 Certificate of Incorporation; Bylaws..............................................3
1.5 Directors and Officers............................................................3
1.6 Effect on Capital Stock...........................................................3
1.7 Dissenting Shares.................................................................6
1.8 Surrender of Certificates; Payment of Merger Consideration........................6
1.9 No Further Ownership Rights in Company Capital Stock..............................7
1.10 Lost, Stolen or Destroyed Certificates............................................8
1.11 Tax and Accounting Treatment......................................................8
1.12 Taking of Necessary Action; Further Action........................................8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY ......................................8
2.1 Organization of the Company.......................................................8
2.2 Company Capital Structure.........................................................9
2.3 Subsidiaries.....................................................................10
2.4 Authority........................................................................10
2.5 Company Financial Statements.....................................................11
2.6 No Undisclosed Liabilities.......................................................11
2.7 No Changes.......................................................................11
2.8 Tax and Other Returns and Reports................................................13
2.9 Restrictions on Business Activities..............................................14
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment ..15
2.11 Intellectual Property............................................................15
2.12 Agreements, Contracts and Commitments............................................19
2.13 Interested Party Transactions....................................................20
2.14 Governmental Authorization.......................................................20
2.15 Litigation.......................................................................21
2.16 Accounts Receivable..............................................................21
2.17 Minute Books.....................................................................21
2.18 Environmental Matters............................................................21
2.19 Brokers' and Finders' Fees; Third Party Expenses.................................22
2.20 Employee Benefit Plans...........................................................22
2.21 Compliance with Laws.............................................................25
2.22 Warranties; Indemnities..........................................................26
2.23 Software Development Agreements..................................................26
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2.24 Representations Complete.........................................................26
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...........................26
3.1 Organization, Standing and Power.................................................26
3.2 Authority........................................................................27
3.3 Cash Consideration...............................................................27
3.4 SEC Filings......................................................................27
3.5 Warrants.........................................................................27
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME................................................28
4.1 Conduct of Business of the Company...............................................28
4.2 No Solicitation..................................................................30
ARTICLE V - ADDITIONAL AGREEMENTS...............................................................31
5.1 Company Stockholder Approval.....................................................31
5.2 Access to Information............................................................31
5.3 Confidentiality..................................................................31
5.4 Expenses.........................................................................31
5.5 Public Disclosure................................................................32
5.6 Consents.........................................................................32
5.7 FIRPTA Compliance................................................................32
5.8 Reasonable Efforts...............................................................32
5.9 Notification of Certain Matters..................................................32
5.10 Management Bonus Amount..........................................................32
5.11 Employee Benefits................................................................33
ARTICLE VI - CONDITIONS TO THE MERGER...........................................................33
6.1 Conditions to Obligations of Each Party to Effect the Merger.....................33
6.2 Additional Conditions to Obligations of Company..................................33
6.3 Additional Conditions to the Obligations of Parent and Merger Sub................34
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW................................37
7.1 Survival of Representations and Warranties.......................................37
7.2 Escrow Arrangements..............................................................37
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER................................................43
8.1 Termination......................................................................43
8.2 Effect of Termination............................................................44
8.3 Amendment........................................................................44
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8.4 Extension; Waiver................................................................44
ARTICLE IX - GENERAL PROVISIONS.................................................................45
9.1 Notices..........................................................................45
9.2 Interpretation...................................................................46
9.3 Counterparts.....................................................................46
9.4 Entire Agreement; Assignment.....................................................46
9.5 Severability.....................................................................47
9.6 Other Remedies...................................................................47
9.7 Governing Law....................................................................47
9.8 Rules of Construction............................................................47
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 1, 1997 among Networks Associates, Inc. (formerly
McAfee Associates, Inc.), a Delaware corporation ("Parent"), PG Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger
Sub") and Pretty Good Privacy, Inc., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
shareholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. On November 5, 1997, Parent lent $1,000,000 to the Company (the
"McAfee Loan"). Concurrent with the execution of this Agreement, the Company has
delivered to Parent (i) a promissory note in respect of such amount in the form
of Exhibit A hereto and (ii) a Letter Agreement in the form of Exhibit B hereto
pursuant to which Parent shall, under the circumstances specified in such Letter
Agreement, become a subordinated secured party pursuant to the Security
Agreement dated September 12, 1997 (the "Company Security Agreement") by and
between the Company and the secured parties thereunder.
C. Pursuant to the Merger all of the issued and outstanding shares of
common stock ("Common Stock"), Series A Preferred Stock ("Series A Preferred")
and Series B Preferred Stock ("Series B Preferred") (such preferred stock
hereinafter collectively referred to as the "Preferred Stock;" and the Common
Stock and the Preferred Stock hereinafter collectively referred to as the
"Company Capital Stock") of the Company and all outstanding vested employee
stock options, warrants and other rights to receive Company Capital Stock shall
be converted into the right to receive an amount of cash and, in the case of the
Series B Preferred, warrants to purchase shares of the common stock of Parent.
Parent is entering into a Registration Rights Agreement in the form of Exhibit C
attached hereto, pursuant to which Parent shall file a registration statement
providing for the sale of common stock received pursuant to the exercise of such
warrants. All unvested employee stock options shall be assumed by Parent.
D. A portion of the amount of cash otherwise payable by Parent in
connection with the Merger shall be placed by Parent into the General Escrow and
Litigation Escrow (each as defined in Section 7.2), the release of which amounts
shall be contingent upon certain events and conditions.
E. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
<PAGE> 8
G. The stockholders of the Company set forth on Exhibit D-1
(representing in the aggregate in excess of 50% of each class or series of
Company Capital Stock), are each entering into a Stockholder Agreement in the
form of Exhibit D-2 attached hereto (collectively, the "Stockholder
Agreements"). Pursuant to the terms of the Stockholder Agreements, each
stockholder shall agree to vote in favor of the Merger and this Agreement and
any related amendment to the Company's Certificate of Incorporation required in
connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California,
unless another place or time is agreed to in writing by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing a Certificate of Merger (or like instrument) with
the Secretary of State of the State of Delaware (the "Certificate of Merger"),
in accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of Delaware of such filing being referred
to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
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1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is "Pretty Good
Privacy, 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. The director of Merger Sub immediately prior
to the Effective Time shall be the initial director of the Surviving
Corporation, to hold office in accordance with the Certificate of Incorporation
and Bylaws of the Surviving Corporation. The officers of Merger Sub immediately
prior to the Effective Time shall be the initial officers of the Surviving
Corporation, each to hold office in accordance with the Bylaws of the Surviving
Corporation.
1.6 Effect on Capital Stock.
(a) Certain Definitions.
(i) "Equity Cash Amount" shall mean $35,000,000 minus the
Specified Liabilities, with (x) $4,744,322 of the Equity Cash Amount being
deposited in escrow, (y) $100,000 of the Specified Liabilities payable to GKM
(as defined in Section 2.19) as part of the Specified Liabilities being
deposited in escrow and (z) $155,768 of the Specified Liabilities payable in
connection with Company's Executive Bonus Plan being deposited in escrow (such
amount being the "Excess Bonus Amount"), in each case, pursuant to the escrow
provisions of Article VII.
(ii) "Specified Liabilities" shall mean the aggregate
dollar amount of the liabilities and other commitments described on and
determined in accordance with the provisions of Schedule 1.6 hereto.
(iii) "Outstanding Series A" shall mean the number of
shares of Series A Preferred issued and outstanding immediately prior to the
Effective Time.
(iv) "Outstanding Series B" shall mean the number of
shares of Series B Preferred issued and outstanding immediately prior to the
Effective Time.
(v) "Outstanding Common" shall mean, immediately prior to
the Effective Time, all issued and outstanding shares of Common Stock, including
shares of Common Stock issuable upon the exercise of vested outstanding Company
Options (including options vesting as a result of acceleration) or Company
Warrants (each as defined below).
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(b) Consideration of Company Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of Merger Sub,
the Company or the holders of any shares of the Company Capital Stock, each
share of the Company Capital Stock issued and outstanding immediately prior to
the Effective Time (other than any Dissenting Shares, as defined in Section
1.7(a) and shares of Company Capital Stock owned by Parent, Merger Sub or held
in the treasury of the Company) will be canceled and extinguished and be
converted automatically into the right to receive, upon surrender of the
certificate representing such share in the manner provided in Section 1.8,
without interest, an amount of cash and, in the case of the Series B Preferred,
a warrant in substantially the form attached hereto as Exhibit E to purchase
shares of Parent common stock (a "Parent Warrant," and together with such cash,
the "Merger Consideration"). Such conversion shall be made in accordance with
the terms and subject to the conditions set forth below and throughout this
Agreement, including, without limitation, the escrow provisions set forth in
Article VII hereof.
(i) Series B Preferred Cash Amount. On the Closing Date,
each share of Series B Preferred issued and outstanding immediately prior to the
Effective Time shall be entitled to receive (x) a Parent Warrant exercisable for
the number of shares of Parent Common Stock equal to 245,000 divided by the
Outstanding Series B (with Parent Warrants for fractional shares being rounded
up to the nearest whole share); and (y) $5.60.
(ii) Common/Series A Preferred Cash Amount. On the Closing
Date, each share of Company Common Stock and Series A Preferred issued and
outstanding immediately prior to the Effective Time shall be entitled to receive
an amount equal to a fraction the numerator of which is the Equity Cash Amount
minus the product of the Outstanding Series B and $5.60 and the denominator of
which shall be the sum of the Outstanding Series A and the Outstanding Common
(the "Common/Series A Preferred Cash Amount").
(c) Specified Liabilities Calculation; Closing Balance Sheet.
(i) Specified Liabilities Calculation; Closing Balance
Sheet. On the third business day preceding the expected Closing Date, the
Company will deliver to Parent a calculation (in reasonable detail and setting
forth the underlying assumptions) of the dollar amount of the Specified
Liabilities payable in connection with the Merger and the transactions
contemplated by this Agreement, together with (A) an unaudited balance sheet for
the Company as of the expected Closing Date and (B) a calculation of the
Company's expected net book value as of the expected Closing Date (as determined
in accordance with generally accepted principles consistently applied).
(ii) Parent's Review of Specified Liabilities Calculation.
During the 3-day period following Parent's receipt of the items delivered
pursuant to paragraph (c)(i) above, the Company, Ernst & Young LLP (the "Company
Accountant") and the Company's outside legal counsel will cooperate with Parent,
Coopers & Lybrand, L.L.P. ("Parent Accountant") and Parent's outside legal
counsel and answer any questions and provide such additional schedules and
materials as Parent, the Parent Accountant and Parent's outside legal counsel
may reasonably request in order for them to have a meaningful review of such
calculations.
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(iii) Disputes. Parent may dispute any amounts reflected
or not reflected in the foregoing calculations; provided, however, that Parent
will promptly notify the Company of each disputed item, and will specify the
amount thereof in dispute. If Parent and the Company are able to resolve all the
disputed items, then (to the extent that all relevant facts are known to Parent
and Company and subject to any subsequent third party claims in respect thereto)
as to all matters agreed upon by Parent and the Company the foregoing
calculations will be final and binding on all parties hereto. Subject to the
foregoing limitations as to known facts and potential third party claims, if
Parent and the Company are unable to resolve some or all of such disputed items
prior to the Closing Date and the amount in dispute is $100,000 or less, such
dispute shall be resolved subsequent to the Closing in the manner described in
Section 7.2(i). In any event, Parent shall be entitled to indemnification
pursuant to Article VII hereof (from first the General Escrow and then the
Litigation Escrow) for any Specified Liabilities as finally determined
subsequent to the Closing Date in excess of Specified Liabilities determined on
the Closing Date.
(d) Vested Company Options; Warrants. At the Effective Time, each
then outstanding stock option ("Company Option") granted under the Company's
1996 Stock Option Plan (the "Option Plan"), then vested and exercisable but not
yet exercised (a "Vested Company Option") and each then outstanding and
unexercised warrant to purchase Common Stock (the "Company Warrants"), shall be
canceled and extinguished and the holder thereof shall be entitled to receive,
in respect of each Vested Company Option or Company Warrant, as the case may be,
a dollar amount equal to the product of (x) the number of shares of Common Stock
subject to such Vested Company Option or Company Warrant multiplied by (y) the
excess, if any, of the Common/Series A Cash Amount over the exercise price per
share of such Vested Company Option or Company Warrant, subject to the escrow
provisions of Article VII hereof. Prior to the Effective Time, the Company shall
take all action necessary to effect the transactions contemplated by this
Section 1.6(d) under the terms of the Option Plan, all Company Option
agreements, and any other plan, agreement or arrangement of the Company and
under the terms of the Company Warrants, as the case may be. Any amounts payable
pursuant to this Section 1.6(d) shall be subject to any required withholding of
taxes and shall be paid without interest.
(e) Unvested Company Options. At the Effective Time, each Company
Option granted under the Option Plan, which is then unvested ("Unvested Company
Options"), shall be assumed by Parent (and become exercisable for Parent Common
Stock) in accordance with its terms. The number of shares of Parent Common Stock
purchasable upon exercise of such assumed Unvested Company Option shall be equal
to (x) the number of shares of Common Stock subject to such Unvested Company
Option multiplied by (y) a fraction the numerator of which is the Common/Series
A Cash Amount and the denominator of which is the average closing price of
Parent's Common Stock on the Nasdaq National Market as listed in the Wall Street
Journal for the ten (10) business days prior to the date hereof ("Parent's
Common Stock Price") (rounded down to the nearest whole share). The exercise
price for such assumed Unvested Company Option shall be equal to the (x)
exercise price for the Unvested Company Option multiplied by (y) a fraction the
numerator of which is the Parent's Common Stock Price and the denominator of
which is the Common/Series A Cash Amount (rounded up to the nearest whole cent).
Prior to the Effective Time, the Company shall take all action necessary to
effect the transactions
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contemplated by this Section 1.6(e) under the terms of the Option Plan, all
Company Option agreements, and any other plan, agreement or arrangement of the
Company.
(f) Capital Stock of Merger Sub. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall continue
to evidence ownership of such shares of capital stock of the Surviving
Corporation.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has exercised
and perfected appraisal rights for such shares in accordance with Delaware Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted into or represent
a right to receive the Merger Consideration pursuant to Section 1.6, but the
holder thereof shall only be entitled to such rights as are granted by Delaware
Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) his or her appraisal rights, then, as of the later of
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
Merger Consideration as provided in Section 1.6, without interest thereon, upon
surrender of the certificate representing such shares.
(c) The Company shall give Parent and Company Agent (as defined
in Article VII) (i) prompt notice of any written demand for appraisal received
by the Company pursuant to the applicable provisions of Delaware Law and (ii)
the opportunity to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any such demands or offer
to settle or settle any such demands. To the extent that Parent or the Company
makes any payment or payments in respect of any Dissenting Shares (which
payments, after the Effective Time shall not be made by Parent without the
consent of Company Agent, which consent may not be reasonably withheld), Parent
shall be entitled to recover under the terms of Article VII hereof the aggregate
amount by which such payment or payments exceed the aggregate Merger
Consideration that otherwise would have been payable in respect of such shares.
1.8 Surrender of Certificates; Payment of Merger Consideration.
(a) Parent to Provide Cash; Escrow Funding. On the Closing Date,
Parent shall make available to the Escrow Agent (as defined in Section 7.2) for
exchange in accordance with this Article I, the Merger Consideration or other
funds deliverable pursuant to Section 1.6 in exchange for outstanding shares of
Company Capital Stock; provided that Parent shall deposit into the Escrow Funds
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(as defined in Section 7.2) pursuant to Article VII the aggregate amount of
$5,000,000 in cash (of which $100,000 shall be from Specified Liabilities
otherwise payable to GKM on the Closing Date; an amount equal to the Excess
Bonus Amount (as defined in Section 1.6(a)(i)) shall be from Specified
Liabilities otherwise payable to participants in the Company's Executive Bonus
Plan; and $4,744,322 shall be from the Merger Consideration or other funds
otherwise payable pursuant to Section 1.6). The portion of the amounts
contributed on behalf of each holder of Company Capital Stock, Company Warrant
or Vested Company Option into the General Escrow and the Litigation Escrow (each
as defined in Section 7.2) shall be in proportion to the aggregate Merger
Consideration or other funds which such holder would otherwise be entitled to
receive to under Section 1.6 (it being understood that in respect of the Company
Stockholders who are former Lemcom stockholders (as set forth on Schedule 1.8)
the amount contributed to the Escrow Funds on their behalf shall be zero).
(b) Exchange Procedures. Promptly after (but in no event later
than 5 days after the Effective Time, the Surviving Corporation shall cause to
be mailed to each holder of record of a Vested Company Option, Company Warrant
or Capital Stock, which securities were converted into the right to receive the
Merger Consideration pursuant to Section 1.6 above (the option agreements,
warrant agreements and share certificates certifying such securities being
hereinafter collectively referred to as the "Certificates"), (x) 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 delivery of the
Certificates to Parent and shall be in such form and have such other provisions
as Parent may reasonably specify) and (y) instructions for use in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to Parent or to such agent or agents
as may be appointed by Parent, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and,
in the case of the Series B Preferred, a duly executed "Securities Law
Certificate", in substantially the form attached hereto as Exhibit F the holder
of such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration pursuant to Section 1.6 (subject to the escrow provisions noted in
Article VII) and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented Vested Company Options, Company Warrants or Company Capital
Stock, as the case may be, will be deemed from and after the Effective Time to
evidence only the right to receive the Merger Consideration (subject to the
escrow provisions noted in Article VII).
(c) Transfers of Ownership. If any payment or delivery is to be
made to a person other than the holder in whose name the Certificate surrendered
in exchange therefor is registered, it will be a condition of the payment
thereof that the Certificate so surrendered will be properly endorsed and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.
(d) Payments With Respect to Unexchanged Shares. No interest on
the Merger Consideration payable at or after the Effective Time shall be paid.
1.9 No Further Ownership Rights in Company Capital Stock. The Merger
Consideration delivered upon the surrender for exchange of shares of Company
Capital Stock in accordance with the
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terms hereof shall be deemed to have been delivered in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and the Merger
Consideration shall be delivered to the person entitled thereto (subject to the
escrow provisions of Article VII).
1.10 Lost, Stolen or Destroyed Certificates. In the event any
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, Parent shall make payment in exchange for such lost, stolen
or destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such amount, if any, as may be required pursuant to Section 1.6;
provided, however, that Parent may, in its sole discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver an agreement (in form and substance reasonably
satisfactory to it) to indemnify Parent against any claim that may be made
against Parent with respect to the certificates alleged to have been lost,
stolen or destroyed.
1.11 Tax and Accounting Treatment. The Merger shall constitute a taxable
transaction under the Internal Revenue Code of 1986, as amended (the "Code"),
and will be treated as a "purchase" for financial accounting purposes.
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 the Company and Merger Sub or to vest Parent with a 100%
ownership interest in the Surviving Corporation, the officers and directors of
the Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
and/or desirable action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as of the
date hereof and as of the Closing Date subject to such exceptions as are
specifically disclosed in the disclosure letter supplied by the Company to
Parent (the "Company Schedules") and dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company and each of its
subsidiaries (as set forth on Schedule 2.1 of the Company Schedule) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization. Each of the Company and its
subsidiaries has the corporate power to own its properties and to carry on its
business as now being conducted and as currently proposed to be conducted. Each
of the Company and its subsidiaries is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have
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a material adverse effect on the business, assets (including intangible assets),
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole (hereinafter referred to as a "Material Adverse
Effect"). The Company has delivered a true and correct copy of the Certificate
of Incorporation and Bylaws or other charter documents, as applicable, of the
Company and each of its subsidiaries, each as amended to date, to Parent.
Neither the Company nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents. For purposes of this Agreement, unless otherwise
specified or the context requires otherwise, all references herein to the
Company shall constitute a collective reference to the Company and its
subsidiaries.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of
53,000,000 shares, 40,000,000 shares of which are designated as Common Stock,
9,674,147 shares of which are issued and outstanding, 13,000,000 shares of which
are designated as Preferred Stock, of which 11,000,000 shares are designated as
Series A Preferred, of which 11,000,000 shares are issued and outstanding,
1,500,000 of which are designated Series B Preferred, of which 968,553 shares
are issued and outstanding, and 48,000 of which are designated Series C
Preferred, of which no shares are issued and outstanding. The Company has
outstanding Company Warrants to acquire 1,837,490 shares of Common Stock. The
Company Capital Stock and the Company Warrants are held by the persons and in
the amounts set forth on Schedule 2.2(a). All outstanding shares of the
Company's Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of the Company or any agreement to which
the Company is a party or by which it is bound.
(b) The Company has reserved 7,280,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
6,441,100 shares are subject to outstanding, unexercised options and 838,900
shares remain available for future grant. The Company has reserved 1,837,490
shares of Common Stock for issuance upon exercise of the Company Warrants. The
Company has also reserved 14,874,212 shares of Common Stock for issuance upon
conversion of outstanding shares of the Company's Preferred Stock. Schedule
2.2(b) sets forth for each outstanding Company Option the name of the holder of
such option, the number of shares of Common Stock subject to such option, the
exercise price of such option and the vesting schedule for such option,
including the extent vested to date and whether the exercisability of such
option will be accelerated and become fully exercisable by the transactions
contemplated by this Agreement. Except for the Company Options described in
Schedule 2.2(b) and the Company Warrants described in Section 2.2(a) above,
there are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company is a party or by which it is
bound obligating the Company to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. The holders of
Company Options and Company Warrants have been or will be given, or shall have
properly waived, any required notice prior to the Merger and all such rights
will be terminated at or prior
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<PAGE> 16
to the Effective Time. Upon the Effective Time without any further action
necessary, all Company Options and Company Warrants that shall not have been
exercised at or prior to the Effective Time shall be canceled such that there
shall be no outstanding Company Options and Company Warrants after the Effective
Time. As a result of the Merger and assuming that Parent owns all the share of
Merger Sub, Parent will be the record and beneficial owner of all outstanding
capital stock of the Company and there shall be no outstanding rights to acquire
capital stock of the Company.
2.3 Subsidiaries. The Company 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 the Company free
and clear of all liens, charges, claims, security interests or other
encumbrances of any sort ("Liens") 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 the Company or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities.
Except as set forth on Schedule 2.3 of the Company Disclosure Schedule, the
Company does not have and has never had any subsidiaries or affiliated companies
and does not otherwise own and has never otherwise owned any shares of capital
stock or any interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
2.4 Authority. Subject only to the requisite approval of the
Merger, this Agreement and the Certificate Amendment by the Company's
stockholders, the Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company (including the amendment of the
Company's Certificate of Incorporation to eliminate the preferences payable to
the Series A Preferred and Series B Preferred thereunder (the "Certificate
Amendment")), subject only to the approval of the Merger and the Certificate
Amendment by the Company's stockholders. The Company's Board of Directors has
unanimously approved the Merger, the Certificate Amendment and this Agreement.
For the Company's stockholders to duly approve the Merger and this Agreement,
the affirmative vote of the holders of a majority of the outstanding Common
Stock and Preferred Stock, voting together, with the holders of Preferred Stock
voting on an as-if-converted to Common Stock basis is required. For the
Company's stockholders to duly approve the Certificate Amendment, the
affirmative vote of the holders of a majority of the outstanding Common Stock
and Preferred Stock, voting together, with the holders of Preferred Stock voting
on an as-if-converted to Common Stock basis, as well as the affirmative,
separate vote of a majority of each class of Preferred Stock, is required. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company, enforceable in accordance with
its terms. The Stockholder Agreements have been duly executed and delivered by
each stockholder that is a party to a Stockholder Agreement and constitute valid
and binding obligations of each such stockholder, enforceable in accordance with
their terms except as such enforceability may be subject to the laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law
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<PAGE> 17
governing specific performance, injunctive relief or other equitable remedies.
Except as set forth on Schedule 2.4, subject only to the approval of the Merger
and this Agreement by the Company's stockholders, the execution and delivery of
this Agreement by the Company does not, and, as of the Effective Time, the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Certificate of Incorporation or Bylaws of
the Company or (ii) any mortgage, indenture, lease, contract or other agreement
or instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or Commission ("Governmental Entity") or any
third party (so as not to trigger any Conflict), is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for the
filing of the Certificate of Merger with the Delaware Secretary of State and
such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
audited balance sheet as of December 31, 1996 and the related audited statements
of income and cash flow for the twelve-month period then ended and the Company's
unaudited balance sheet as of September 30, 1997 (the "Current Balance Sheet")
and the related unaudited statements of income and cash flow for the nine-month
period then ended (collectively, the "Company Financials"). The Company
Financials are correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other. The
Company Financials present fairly the financial condition and operating results
of the Company as of the dates and during the periods indicated therein, subject
to normal year-end adjustments, which will not be material in amount or
significance in the aggregate.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, in excess of $5,000
individually or $20,000 in the aggregate, whether accrued, absolute, contingent,
matured, unmatured or other (whether or not required to be reflected in
financial statements in accordance with generally accepted accounting
principles).
2.7 No Changes. Except as set forth in Schedule 2.7, since September 30,
1997, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) capital expenditure or commitment by the Company, in excess
of $25,000 individually or $50,000 in the aggregate;
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<PAGE> 18
(c) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(d) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(e) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(f) revaluation by the Company of any of its assets;
(g) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(h) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement other than normal course of business salary increases in connection
with ongoing yearly reviews or promotions (none of which exceeds 10% of the
previous year's salary);
(i) acquisition, sale or transfer of any asset of the Company,
except in the ordinary course of business as conducted on that date;
(j) amendment or termination of any material contract, agreement
or license to which the Company is a party or by which it is bound;
(k) loan by the Company to any person or entity (other than (i)
loans to all employees aggregating to no more than $5,000 and (ii) expense
advances to employees, all of which are immaterial in any amount and are issued
in the normal course of business), incurring by the Company of any indebtedness,
guaranteeing by the Company of any indebtedness, issuance or sale of any debt
securities of the Company or guaranteeing of any debt securities of others;
(l) waiver or release of any right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(m) the commencement or notice or, to the best knowledge of the
Company, threat of commencement of any lawsuit or proceeding against or
investigation of the Company or its affairs;
(n) notice of any claim of ownership by a third party of the
Company's Intellectual Property (as defined in Section 2.11 below) or of
infringement by the Company of any third party's Intellectual Property rights;
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<PAGE> 19
(o) issuance or sale by the Company of any of its shares of
capital stock, or securities exchangeable, convertible or exercisable therefor,
or of any other of its securities;
(p) change in pricing or royalties set or charged by the Company;
(q) any event or condition of any character that has or could be
reasonably expected to have a material adverse impact on the Company; or
(r) negotiation or agreement, oral or written, by the Company or
any officer or employees thereof to do any of the things described in the
preceding clauses (a) through (q) (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, a "Taxes," means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to the Company or its operations and such
Returns are true and correct in all material respects and have been completed in
accordance with applicable law in all material respects.
(ii) The Company as of the Effective Time: (A) will have
paid or accrued all Taxes it is required to pay or accrue and will not have
incurred any liability for Taxes for the period prior to the Effective Time
other than in the ordinary course of business and (B) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
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<PAGE> 20
(iv) No audit or other examination of any Return of the
Company is presently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against on the Current Balance Sheet, whether asserted or unasserted, contingent
or otherwise, and the Company has no knowledge of any basis for the assertion of
any such liability attributable to the Company, its assets or operations.
(vi) The Company has made available to Parent or its legal
counsel copies of all federal and state income and all state sales and use Tax
Returns filed for fiscal years 1994, 1995 and 1996.
(vii) There are (and as of immediately following the
Closing there will be) no Liens (as defined in Section 2.3) on the assets of the
Company relating to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G, 162 or 409 of
the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Company's tax books and records in
all material respects.
2.9 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise
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<PAGE> 21
binding upon the Company which has or reasonably could be expected to have the
effect of materially prohibiting or impairing any business practice of the
Company, any acquisition of property (tangible or intangible) by the Company or
the conduct of business by the Company.
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition
of Equipment.
(a) The Company owns no real property, nor has it ever owned any
real property in the last five years. Schedule 2.10(a) sets forth a list of all
real property currently, or at any time in the past, leased by the Company, the
name of the lessor, the date of the lease and each amendment thereto and, with
respect to any current lease, the aggregate annual rental and/or other fees
payable under any such lease. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not with respect to the Company and to the knowledge of the Company,
any other party to such leases, under any of such leases, any existing default
or event of default (or event which with notice or lapse of time, or both, would
constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.3), except as
reflected in the Company Financials or in Schedule 2.10(b) and except for liens
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
(c) Except as described in Schedule 2.10(c), the equipment (the
"Equipment") owned or leased by the Company is, taken as a whole, (i) adequate
for the conduct of the business of the Company as currently conducted and (ii)
in good operating condition, regularly and properly maintained, subject to
normal wear and tear.
2.11 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"Intellectual Property" shall mean any or all of the
following and all rights in, arising out of, or associated therewith: (i) all
United States and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyright registrations
and applications therefor and all other rights corresponding thereto throughout
the world; (iv) all mask works, mask work registrations and applications
therefor; (v) all industrial designs and any registrations and applications
therefor throughout the world; (vi) all trade names, logos, common law
trademarks and service marks; trademark and service mark registrations and
applications therefor and all goodwill
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<PAGE> 22
associated therewith throughout the world; (vii) all databases and data
collections and all rights therein throughout the world; and (viii) all computer
software including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is recorded,
all Web addresses, sites and domain names, and (ix) any other economic or moral
rights of authors or inventors throughout the world, and (x) any similar,
corresponding or equivalent rights to any of the foregoing and (x) all
documentation related to any of the foregoing.
"Company Intellectual Property" shall mean any
Intellectual Property that is owned by or exclusively licensed to the Company.
"Registered Intellectual Property" shall mean all United
States, international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; (iv) any mask work registrations and applications to
register mask works; and (v) any other Company Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued by, filed with, or recorded by, any state, government or other public
legal authority.
(b) Schedule 2.11(b) lists all Registered Intellectual Property
owned by, or filed in the name of, the Company (the "Company Registered
Intellectual Property") and lists any proceedings or actions before any court,
tribunal (including the United States Patent and Trademark Office (the "PTO") or
equivalent authority anywhere in the world) related to any of the Company
Registered Intellectual Property.
(c) Company owns and has good and exclusive title to each item of
Company Intellectual Property free and clear any lien or encumbrance. The
Company (i) is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of the Company,
including the sale of any products or technology or the provision of any
services by the Company and (ii) owns exclusively as the sole copyright owner,
and has good title to, all copyrighted works that are Company products or other
works of authorship that the Company otherwise purports to own.
(d) To the extent that any Intellectual Property has been
developed or created by any person other than the Company for which the Company
has, directly or indirectly, paid, or which the Company otherwise purports to
own, the Company has a written agreement with such person with respect thereto
and the Company thereby has obtained ownership of, and is the exclusive owner
of, all such Intellectual Property by operation of law or by valid assignment.
(e) Except for non-exclusive license grants of object code in the
ordinary course of business and as set forth in Schedule 2.11(a) of the
Disclosure Schedule, the Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use any
Intellectual Property that is or was Company Intellectual Property, to any other
person.
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(f) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of its business as
it currently is conducted or is reasonably contemplated to be conducted,
including, without limitation, the design, development, manufacture, use, import
and sale of the products, technology and services of the Company (including
products, technology or services currently under development).
(g) Other than "shrink-wrap" and similar widely available
commercial end-user licenses, the contracts, licenses and agreements listed in
Schedule 2.11(g) include all contracts, licenses and agreements, to which the
Company is a party with respect to any Intellectual Property. Schedule 2.11(g)
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty and the term thereof. The Company
is not in violation of any license, sublicense or agreement described on such
list. No person other than the Company has ownership rights to improvements made
by the Company in Intellectual Property which has been licensed to the Company.
(h) Schedule 2.11(h) lists all contracts, licenses and agreements
between the Company and any other person wherein or whereby the Company has
agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse,
hold harmless, guaranty or otherwise assume or incur any obligation or liability
or provide a right of rescission with respect to the infringement or
misappropriation by the Company or such other person of the Intellectual
Property of any person other than the Company.
(i) The operation of the business of the Company as it currently
is conducted or is reasonably contemplated to be conducted, including but not
limited to the Company's design, development, use, import, manufacture and sale
of the products, technology or services (including products, technology or
services currently under development) of the Company does not infringe or
misappropriate the Intellectual Property of any person, violate the rights of
any person (including rights to privacy or publicity), or constitute unfair
competition or trade practices or violate any laws of any jurisdiction, and the
Company has not received notice from any person claiming that such operation or
any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property of any person or constitutes unfair
competition or trade practices or violates the laws of any jurisdiction (nor is
the Company aware of any basis therefor).
(j) Each item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal fees
in connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Company Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property. Schedule 2.11(j) lists all actions that must be taken by the Company
within sixty (60) days of the Closing Date, including the payment of any
registration, maintenance or renewal fees or the filing of any documents,
applications or certificates for the purposes of maintaining, perfecting or
preserving or renewing any Company Intellectual Property. In each case in which
the Company has acquired ownership rights to any Intellectual Property from any
person, the
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<PAGE> 24
Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property (including the
right to seek past and future damages with respect to such Intellectual
Property) to the Company.
(k) All contracts, licenses and agreements relating to the
Company Intellectual Property are in full force and effect. The consummation of
the transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination or suspension of such
contracts, licenses and agreements. Company is in compliance with, and has not
breached any term of any of such contracts, licenses and agreements, and to the
knowledge of Company, all other parties to such contracts, licenses and
agreements are in compliance with and have not breached any term of such
contracts, licenses and agreements. Following the Closing Date, the Surviving
Company will be permitted to exercise all of Company's rights under such
contracts, licenses and agreements to the extent Company would have been able to
had the transactions contemplated by this Agreement not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which Company would otherwise be required to pay.
(l) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company regarding the scope of such
agreement, or performance under such agreement including with respect to any
payments to be made or received by the Company thereunder.
(m) To the Company's knowledge, no person is infringing or
misappropriating any Company Intellectual Property.
(n) The Company has taken all steps that are reasonably required
to protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person to the Company. Without limiting the
foregoing, the Company has, and enforces, a policy requiring each employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in the Company's standard forms, and all
current and former employees, consultants and contractors of the Company have
executed such an agreement.
(o) No Company Intellectual Property or product, technology or
service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(p) No (i) product, technology, service or publication of the
Company (ii) material published or distributed by the Company or (iii) conduct
or statement of Company constitutes obscene material, a defamatory statement or
material, false advertising or otherwise violates any law or regulation in any
jurisdiction in the world.
(q) All of the Company's products (including products currently
under development) will record, store, process, calculate and present calender
dates falling on and after (and if applicable,
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spans of time including) January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates.
2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it bound
by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance
pay or post- employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing
or retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or
consulting or sales agreement, contract or commitment with a firm or other
organization,
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually
in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person,
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $25,000,
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business,
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(xii) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xiii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more other than purchases in the ordinary course
of business,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
or
(xvi) any other agreement, contract or commitment that involves
$25,000 or more or is not cancelable without penalty within thirty (30) days.
Except for such alleged breaches, violations and defaults, and events
that would constitute a breach, violation or default with the lapse of time,
giving of notice, or both, all as noted in Schedule 2.12(b), the Company has not
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract or commitment to which it is a party or by which it is bound (any such
agreement, contract or commitment, a "Contract"). Each agreement, contract or
commitment set forth in any of the Company Schedules is in full force and effect
and, except as otherwise disclosed in Schedule 2.12(b), is not subject to any
default thereunder of which the Company has knowledge by any party obligated to
the Company pursuant thereto. The Company has obtained, or will obtain prior to
the Effective Time, all necessary consents, waivers and approvals of parties to
any Contract as are required in connection with the Merger.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or to the knowledge of the Company's management,
stockholder of the Company (nor any ancestor, sibling, descendant or spouse of
any of such persons, or any trust, partnership or corporation in which any of
such persons has an interest), has, directly or indirectly, (i) a direct
interest in any entity which furnished or sold, or furnishes or sells, services
or products that the Company furnishes or sells, or proposes to furnish or sell,
or (ii) a direct interest in any entity that purchases from or sells or
furnishes to, the Company, any goods or services or (iii) a beneficial interest
in any contract or agreement set forth in Schedule 2.12; provided, that
ownership of no more than one percent (1%) of the outstanding voting stock of a
publicly traded corporation shall not be deemed an "interest in any entity" for
purposes of this section 2.13.
2.14 Governmental Authorization. Schedule 2.14 accurately lists each
material consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity (i) pursuant to which the Company currently
operates or holds any interest in any of its properties or (ii) which is
required for the operation of its business (including development, manufacture,
export or re-export of its products, software, technical data or technology) or
the holding of any such interest (herein collectively called Company
Authorizations"), which Company Authorizations are in full force and effect and
constitute all Company Authorizations required to permit the Company to operate
or
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conduct its business substantially as it is currently and has been conducted or
hold any interest in its properties or assets. The Company has complied in all
material respects with all terms and conditions of the Company Authorizations,
and the same will not be subject to suspension, modification, revocation or
non-renewal as a result of this Agreement. The Company has taken adequate and
sufficient measures to ensure that its distributors, resellers and agents have
complied with the Company Authorizations and, except as set forth on Schedule
2.14, the Company is not aware of any violation during the past 3 years by any
of its current or former distributors, resellers or agents of the Company
Authorizations.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit, claim or proceeding of any nature pending or to the Company's
knowledge threatened against the Company, its properties or any of its officers
or directors in their capacity as such, nor, to the knowledge of the Company, is
there any basis therefor. Except as set forth in Schedule 2.15, there is no
investigation pending or, to the knowledge of the Company, threatened against
the Company, its properties or any of its officers or directors (nor, to the
knowledge of the Company, is there any basis therefor) by or before any
Governmental Entity. Schedule 2.15 sets forth, with respect to any pending or
threatened action, suit, proceeding or investigation, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof.
2.16 Accounts Receivable.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company reflected on the Current Balance Sheet
("Accounts Receivable") along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the ordinary
course of business, are carried at values determined in accordance with
generally accepted accounting principles consistently applied and are
collectible except to the extent of reserves therefor set forth in the Current
Balance Sheet. Except as set forth on Schedule 2.16 (b), no person has any Lien
on any of such Accounts Receivable and no request or agreement for material
deduction or discount has been made with respect to any of such Accounts
Receivable.
2.17 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. No underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including,
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without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all
substances listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, or
defined as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, (a "Hazardous Material"), but excluding office and janitorial
supplies, are present, as a result of the deliberate actions of the Company, or,
to the Company's knowledge (without duty of independent investigation), as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous Materials Activity of the Company.
The Company is not aware of any fact or circumstance which could involve the
Company in any material environmental litigation or impose upon the Company any
material environmental liability.
(e) Capital Expenditures. The Company is not aware of any capital
expenditures which are required in order for it to comply with Environmental
Laws.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except for any
payment due to pursuant to the engagement letter with Gerard Klauer Mattison &
Co., Inc. ("GKM") dated May 30, 1997, (a true and correct copy of which has been
provided to Parent), the Company has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 2.19 sets forth a reasonable estimate
of all Third Party Expenses (as defined in Section 5.4) expected to be incurred
by the Company in connection with the negotiation and effectuation of the terms
and conditions of this Agreement and the transactions contemplated hereby.
2.20 Employee Benefit Plans.
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<PAGE> 29
(a) Definitions. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c)
or (m) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and pursuant to
which the Company or any Affiliate has or may have any material liability
contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting or similar agreement or contract between the
Company or any Affiliate and any Employee;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in Section 3(37)
of ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan," within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete
list of each Company Employee Plan and each Employee Agreement. The Company does
not have any plan or commitment, whether legally binding or not, to establish
any new Company Employee Plan or Employee Agreement, to modify any Company
Employee Plan or Employee Agreement (except to the extent required by law or to
conform any such Company Employee Plan or Employee Agreement to the requirements
of any applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to enter into any Company
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
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(c) Documents. The Company has provided (prior to the Closing
Date) to Parent where available or applicable (i) correct and complete copies of
all documents embodying or relating to each Company Employee Plan and each
Employee Agreement including all amendments thereto and written interpretations
thereof; (ii) the most recent annual actuarial valuations, if any, prepared for
each Company Employee Plan; (iii) the two most recent annual reports (Series
5500 and all schedules thereto), if any, required under ERISA in connection with
each Company Employee Plan or related trust; (iv) if the Company Employee Plan
is funded, the most recent annual and periodic accounting of Company Employee
Plan assets; (v) the most recent summary plan description together with the most
recent summary of material modifications, if any, required under ERISA with
respect to each Company Employee Plan; (vi) all IRS determination letters and
rulings relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any Company Employee Plan; and (vii) all communications material to
any Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.20(d), (i) the Company has performed in all material respects all obligations
required to be performed by it under each Company Employee Plan and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in material compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA or
the Code; (ii) no "prohibited transaction," within the meaning of Section 4975
of the Code or Section 406 of ERISA, has occurred with respect to any Company
Employee Plan; (iii) there are no actions, suits or claims pending, or, to the
knowledge of the Company, threatened or anticipated (other than routine claims
for benefits) against any Company Employee Plan or against the assets of any
Company Employee Plan; and (iv) except as described in Schedule 2.20(d), each
Company Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without liability to the
Company, Parent or any of its Affiliates (other than ordinary administration
expenses typically incurred in a termination event); (v) there are no inquiries
or proceedings pending or, to the knowledge of the Company or any affiliates,
threatened by the IRS or DOL with respect to any Company Employee Plan; and (vi)
neither the Company nor any Affiliate is subject to any penalty or tax with
respect to any Company Employee Plan under Section 402(i) of ERISA or Section
4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed
to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 2.20(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other
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employee benefits to any Employee upon his or her retirement or termination of
employment for any reason, except as may be required by statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) that such
Employee(s) would be provided with life insurance, medical or other employee
welfare benefits upon their retirement or termination of employment, except to
the extent required by statute.
(h) Effect of Transaction.
(i) Except as provided in Section 1.6 of this Agreement or
as set forth on Schedule 2.20(h)(i), the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by
the Company or Parent or any of their respective affiliates with respect to any
Employee will be characterized as an "excess parachute payment," within the
meaning of Section 280G(b)(1) of the Code.
(i) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable federal and state laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees (other than amounts which may be
required to be withheld as a result of an Employee's receipt of Merger
Consideration); (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) (other than
routine payments to be made in the normal course of business and consistent with
past practice) is not liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits for Employees.
(j) Labor. No work stoppage or labor strike against the Company
is pending or, to the best knowledge of the Company, threatened. Except as set
forth in Schedule 2.20(j), the Company is not involved in or, to the knowledge
of the Company, threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in material liability to the Company. Neither the
Company nor any of its subsidiaries has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act which would, individually
or in the aggregate, directly or indirectly result in a material liability to
the Company. The Company is not presently, nor has it been in the past, a party
to, or bound by, any collective bargaining agreement or union contract with
respect to Employees and no collective bargaining agreement is being negotiated
by the Company.
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<PAGE> 32
2.21 Compliance with Laws. The Company has materially complied with, is
not in material violation of, and has not received any notices of violation with
respect to, any applicable federal, state or local statute, law, ordinance, rule
or regulation, domestic or foreign ("Applicable Law"). In particular, except as
set forth in Schedule 2.21, the Company is in compliance with all Applicable
Laws with respect to the development, manufacture, export or re-export of its
products, software, technical data or technology. Except as set forth in
Schedule 2.21, the Company (including any predecessor thereto) has not received
any communication since during the past three years from any Governmental
Authority that alleges that it is or was not in compliance with any Applicable
Law. The Company has taken adequate and sufficient measures to ensure that its
distributors, resellers and agents have complied with all Applicable Laws with
respect to the development, manufacture, export or re-export of the Company's
products, software, technical data or technology and, except as set forth on
Schedule 2.21, the Company is not aware of any violation during the past 3 years
by any of its current or former distributors, resellers or agents of such
Applicable Laws.
2.22 Warranties; Indemnities. Schedule 2.22 indicates all warranty and
indemnity claims in excess of $5,000 made against the Company.
2.23 Software Development Agreements. The Company has not violated, is
not in violation of, nor would the entry into this Agreement or consummation of
the Merger cause any violation of, any terms or provisions of any agreement
under which the Company has or had an obligation to develop, supply or
distribute software to or for any third party, excluding end-user licenses for
object code executed in the ordinary course of business, nor is the Company nor
would the Company be, under any circumstances, under any obligation to deliver
source code to any third party, except delivery of source code to a third party
exclusively for the internal use of such third party to support, maintain and
develop its software products, which products are (i) used only for programming
of such third party's hardware products and (ii) distributed only to such third
party's customers only in object code format. In any such case after delivery of
such source code the Company does not have nor would it have under any
circumstances, any other obligation of any nature to any such third party,
including without limitation any support or similar obligation.
2.24 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules), nor any statement
made in any Schedule or certificate furnished by the Company pursuant to this
Agreement, or furnished in or in connection with documents mailed or delivered
to the stockholders of the Company in connection with soliciting their consent
to this Agreement and the Merger (as contemplated by Section 5.1 hereof),
contains or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
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Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a Material Adverse Effect on the ability of Parent and Merger Sub to consummate
the transactions contemplated hereby.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and the Registration Rights Agreement
and any other agreement entered into by Parent or Merger Sub in connection with
this Agreement (collectively, the "Ancillary Agreements") and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub. Each of this Agreement
and each Ancillary Agreement has been duly executed and delivered by Parent and
Merger Sub, as applicable, and constitutes the valid binding obligation, as
applicable, of Parent and Merger Sub, enforceable in accordance with its terms,
except as such enforceability may be limited by principles of public policy and
subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.3 Cash Consideration. Parent currently has available, and at the
Effective Time of the Merger will continue to have available, sufficient cash to
enable it to perform its obligations under this Agreement.
3.4 SEC Filings. Parent has filed all forms, reports and documents
required to be filed by Parent with the SEC since January 1, 1996, and has made
available to Company such forms, reports and documents in the form filed with
the SEC. All such required forms, reports and documents (including those that
Parent may file subsequent to the date hereof) are referred to herein as the
"Parent SEC Reports." As of their respective dates, the Parent SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
3.5 Warrants. The Parent Warrants and the Common Stock issuable upon
exercise of the Parent Warrants, when issued, will be duly authorized, validly
issued and fully paid in accordance with Parent's Certificate of Incorporation
and Bylaws.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to Section 8.1 or the Effective Time, the Company agrees
(except to the extent that Parent shall otherwise consent in writing which
consent shall not be unreasonably withheld or delayed), to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business,
use all reasonable efforts consistent with past practice and policies to
preserve intact the Company's present business organizations, keep available the
services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired the Company's goodwill and ongoing businesses at the Effective Time;
it being understood that Parent and Company shall keep each other informed of
developments to, and relating actions to be taken in connection with the matters
described in Schedule 2.4 hereto. The Company shall promptly notify Parent of
any event or occurrence or emergency not in the ordinary course of business of
the Company, and any material event involving the Company. Prior to the
Effective Date, without the express prior written consent of Parent, the Company
shall not spend any portion of the McAfee Loan. In addition, except as expressly
contemplated by this Agreement, the Company shall not, without the prior written
consent of Parent:
(a) Enter into any commitment or transaction not in the ordinary
course of business or any commitment or transaction of the type described in
Section 2.7 hereof;
(b) Transfer to any person or entity any rights to the Company's
Intellectual Property (other than pursuant to end user licenses in the ordinary
course of business);
(c) Enter into or amend any agreements pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company schedules;
(e) Commence any litigation;
(f) 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 capital stock of the Company, or repurchase,
redeem or otherwise acquire,
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directly or indirectly, any shares of its capital stock (or options, warrants or
other rights exercisable therefor);
(g) Except for the issuance of shares of Company Capital Stock
upon exercise or conversion of presently outstanding Company Options and Company
Warrants issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities;
(h) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws (except to the extent to eliminate the preferences of
the Series A Preferred and Series B Preferred thereunder);
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except payments made pursuant to standard
written agreements outstanding on the date hereof;
(m) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
of its employees;
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $10,000
(in any one case) or $25,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company Financial
Statements (or the notes thereto);
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(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(q) Enter into any strategic alliance or joint marketing
arrangement or agreement; or
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not nor will the Company permit any of the Company's
officers, directors, stockholders, agents, representatives or affiliates (any of
the foregoing, a "Company Representative") to directly or indirectly, take any
of the following actions with any party other than Parent and its designees: (a)
solicit, initiate, entertain, or encourage any proposals or offers from, or
conduct discussions with or engage in negotiations with, any person relating to
any possible acquisition of the Company or any of its subsidiaries (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise), any
portion of its or their capital stock or assets or any equity interest in the
Company or any of its subsidiaries, (b) provide information with respect to it
to any person, other than Parent and its designees, relating to, or otherwise
cooperate with, facilitate or encourage any effort or attempt by any such person
with regard to, any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise), any portion of its or their capital stock or assets or any
equity interest in the Company or any of its subsidiaries, (c) enter into an
agreement with any person, other than Parent and its designees, providing for
the acquisition of the Company or any of its subsidiaries (whether by way of
merger, purchase of capital stock, purchase of assets or otherwise), any portion
of its or their capital stock or assets or any equity interest in the Company or
any of its subsidiaries, or (d) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of the Company or any of
its subsidiaries (whether by way of merger, purchase of capital stock, purchase
of assets or otherwise), any portion of its or their capital stock or assets or
any equity interest in the Company or any of its subsidiaries by any person,
other than Parent and its designees. The taking of any action described in
clauses (a) through (d) above by any Company Representative shall be deemed a
material breach by the Company of this Agreement. The Company shall immediately
cease and cause to be terminated any such contacts or negotiations with third
parties relating to any such transaction or proposed transaction. In addition to
the foregoing, if the Company receives prior to the Effective Time or the
termination of this Agreement any offer or proposal relating to any of the
above, the Company shall immediately notify Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Company Stockholder Approval. As promptly as practicable after the
execution of this Agreement, the Company shall submit this Agreement and the
transactions contemplated hereby (including the Certificate Amendment) to its
stockholders for approval and adoption as provided by Delaware Law and its
Certificate of Incorporation and Bylaws. The Company shall use its best efforts
to solicit and obtain the consent of its stockholders sufficient to approve the
Merger, this Agreement and the Certificate Amendment and to enable the Closing
to occur as promptly as practicable. The materials submitted to the Company's
stockholders shall include information regarding the Company, the terms of the
Merger and this Agreement and the unanimous recommendation of the Board of
Directors of the Company in favor of the Merger, this Agreement and the
Certificate Amendment.
5.2 Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law or by contract, which contracts are
listed in Schedule 2.12) of the Company as Parent may reasonably request. The
Company agrees to provide to Parent and its accountants, counsel and other
representatives copies of internal financial statements promptly upon request.
No information or knowledge obtained in any investigation pursuant to this
Section 5.2 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.
5.3 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
5.2, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential
("Confidential Information"); provided, however, that the foregoing shall not
apply to information or knowledge which (a) a party can demonstrate was already
lawfully in its possession prior to the disclosure thereof by the other party,
(b) is generally known to the public and did not become so known through any
violation of law, (c) became known to the public through no fault of such party,
(d) is later lawfully acquired by such party from other sources, (e) is required
to be disclosed by order of court or government agency with subpoena powers
(provided that such party shall given the other party prior notice of such order
and a reasonable opportunity to object or take other available action), (f) is
disclosed in the course of any litigation between any of the parties hereto or
(g) is developed independently by either party without reference to, or specific
knowledge of, the other parties' Confidential Information. Notwithstanding the
foregoing, it is acknowledged that Parent may publicly disclose the material
terms of this Agreement following the date hereof in a manner reasonably
satisfactory to the Company
5.4 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party
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in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses.
5.5 Public Disclosure. Unless otherwise required by law, prior to the
Effective Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and Company prior to release, provided that such approval
shall not be unreasonably withheld or delayed.
5.6 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents and approvals are set forth in
Schedule 2.4) so as to preserve all rights of, and benefits to, the Company
thereunder.
5.7 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, to obtain all necessary waivers, consents and approvals and to effect
all necessary registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and make
effective the transactions contemplated by this Agreement for the purpose of
securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or the Company or its affiliates, or the imposition
of any limitation on the ability of any of them to conduct their businesses or
to own or exercise control of such assets, properties and stock.
5.9 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise
affect any remedies available to the party receiving such notice.
5.10 Management Bonus Amount. Parent shall cause the Surviving
Corporation to pay the Management Bonus Amount (as defined in and calculated
pursuant to Schedule 1.6) at such times as that amount is due pursuant to the
Company's Management Bonus Plan.
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5.11 Employee Benefits. The Company will promptly take any and all
actions necessary and appropriate to (i) correct the Operational Defects (as
defined in Section 7.2(e) of this Agreement) and; (ii) complete the termination
of the Company's 401(k) plan, including (without limitation) preparation and
submission of a request pursuant to the IRS's voluntary compliance resolution
program and actions required in connection with negotiating such request and
correcting the operational defects pursuant to the term of the compliance
statement and, after corrections of the Operational Defects, submission of a
Form 5310 to obtain a letter of determination upon termination and all necessary
and appropriate subsequent termination administrative actions. The Company shall
be responsible for filing the Form 5500 for the Company's cafeteria plan for the
plan year ended July 1, 1997.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Corporate Approvals. This Agreement and the Merger (and any
related amendment to the Company's Certificate of Incorporation) shall have been
approved and adopted by the requisite vote of the stockholders of the Company.
(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 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.
6.2 Additional Conditions to Obligations of Company. The obligations of
the Company 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, exclusively by the Company:
(a) Representations, Warranties and Covenants. The
representations and warranties of Parent and Merger Sub in this Agreement shall
be true and correct in all material respects on and as of the Effective Time,
except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date) with the
same force and effect as if made on and as of the Effective Time and each of
Parent and Merger Sub shall have performed and complied with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with in all material respects by it as of the Effective Time.
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(b) Certificate of Parent. Company shall have been provided with
a certificate executed on behalf of the Parent by one of its executive officers
to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Parent
in this Agreement are true and correct in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by the Parent on or before such date have been so
performed in all material respects.
(c) Payment of Certain Specified Liabilities. Concurrent with the
other transactions occurring on the Closing Date and subject to Parent having
received adequate payment instructions, Parent shall have caused to be paid the
Bridge Loan Amount, the Shareholder Debt Amount, the GCW&F Loan Amount, and the
GKM Amount, as defined in Schedule 1.6 and as set forth in the calculation
thereof delivered by the Company pursuant to Section 1.6. In addition, Parent
shall have made arrangements for the Escrow Agent to pay that portion of Lemcom
Amount (as defined in Schedule 1.6) payable to each of the former Lemcom
stockholders at such time as such stockholders shall surrender their
Certificates in exchange for that portion of the Merger Consideration payable to
them and waive any right to receive distributions from the Escrow Funds (so long
as the Company and the Escrow Agent shall have been provided adequate detail of
the amounts so payable).
(d) Parent Warrants; Registration Rights Agreement. Parent shall
have delivered Parent Warrants in respect of 500,000 shares of Parent Common
Stock of which (i) 495,000 (subject to rounding) shall be delivered to the
Escrow Agent on the Closing Date for the benefit of the holders of the Company
Series B Preferred Stock to be paid in accordance with the provisions of Section
1.8 and (ii) 5,000 shall be delivered to GKM on the Closing Date (so long as GKM
shall have delivered to Parent a Securities Law Certificate). Parent and the
Company Agent shall have executed the Registration Rights Agreement and such
agreement shall be in full force and effect.
(e) Legal Opinion. Company shall have received a legal opinion
from Wilson Sonsini Goodrich & Rosati, Professional Corporation, legal counsel
to Parent and Merger Sub, substantially in the form of Exhibit G hereto.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent 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, exclusively by Parent:
(a) Representations, Warranties and Covenants. The
representations and warranties of the Company in this Agreement shall be true
and correct in all material respects on and as of the Effective Time, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date) with the same force and
effect as if made on and as of the Effective Time and
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the Company shall have performed and complied with in all material respects 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 Company. Parent shall have been provided with
a certificate executed on behalf of the Company by its President to the effect
that, as of the Effective Time:
(i) all representations and warranties made by the Company
in this Agreement are true and correct in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by the Company on or before such date have been so
performed in all material respects.
(c) Third Party Consents. Any and all consents, waivers, and
approvals listed on Schedule 6.3(c) shall have been obtained.
(d) Option Exercises or Cancellations. All outstanding Company
Options shall have been either (i) terminated by exercise or cancellation; or
(ii) assumed by Parent on or before the Effective Time such that there shall be
no Company Options outstanding after the Effective Time.
(e) Legal Opinion. Parent shall have received a legal opinion
from Gray, Cary, Ware & Freidenrich, A Professional Corporation, legal counsel
to the Company, substantially in the form of Exhibit H hereto.
(f) Employment Offers. Parent shall have reached satisfactory
employment arrangements with Phillip Dunkelberger and Phillip Zimmerman.
(g) No Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or provision challenging Parent's proposed acquisition of the Company,
or limiting or restricting Parent's conduct or operation of the business of the
Company (or its own business) following 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.
(h) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), results of operations, liabilities (contingent or accrued) or financial
condition of the Company.
(i) Dissenters. The number of Dissenting Shares shall not exceed
2% of the outstanding shares of Company Capital Stock as of the Effective Time.
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(j) Audited Balance Sheet. The Company shall have received from
Coopers & Lybrand L.L.P. an audited Company balance sheet as of September 30,
1997 prepared in accordance with generally accepted accounting principles and
Regulation S-X of the Securities and Exchange Commission.
(k) Litigation. There shall be no action, suit, claim or
proceeding of any nature pending, or overtly threatened, against the Parent,
Merger Sub or the Company, their respective properties or any of their officers
or directors, arising out of, or in any way connected with, the Merger or the
other transactions contemplated by the terms of this Agreement.
(l) Evidence of Payment of GKM Amount; Calculation of Management
Bonus Amount. Subject to payment thereof pursuant to Section 6.2(c) on the
Closing Date, Parent shall have received from GKM evidence of payment in full of
the GKM Amount. In addition, Parent shall have received from each member of
management entitled to any portion of the Management Bonus Amount such
individual's agreement as to the calculation of the Management Bonus Amount and
such individual's share of such amount (as determined pursuant to the Management
Bonus Plan and in accordance with Schedule 1.6). Each of the foregoing items
shall be in form and substance reasonably satisfactory to Parent and its
counsel.
(m) Company Security Agreement. Subject to Parent's obligation to
repay the related secured debt on the Closing Date, Parent shall have received a
form of release of the security interest under the Company Security Agreement
and all related UCC-3s and similar forms (each, in form and substance
satisfactory to Parent and its counsel).
(n) Stockholder Release, Receipt of Payment in Full and Transfer
Obligation. The Company stockholders set forth on Schedule 6.3(n) shall have
delivered to Parent a release of all claims against the Company or its
affiliates (which shall include Parent and its subsidiaries after the Effective
Date) arising out of events or occurrences on or prior to the Effective Date;
and a receipt for amounts received on the Closing Date and acknowledgment of the
accuracy of the calculation of all amounts to be paid to such stockholder (each,
in form and substance satisfactory to Parent and its counsel).
(o) 280G Agreements. As of the Closing Date, the Company shall
obtain from each Disqualified Individual (as defined below) an agreement whereby
such Disqualified Individual shall agree to limit the payments he or she may
receive relating to the Merger to the extent necessary to prevent any such
payment from being non-deductible under Section 280G of the Code. A
"Disqualified Individual" shall mean any person performing personal services for
the Company who would receive payments which would be non-deductible under
Section 280G of the Code.
(p) Employee Benefits. The Company shall have taken any and all
actions necessary and appropriate to terminate its 401(k) plan prior to the
Closing Date.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All covenants to be
performed prior to the Effective Time, representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Merger and continue until the first anniversary of the Effective
Time.
7.2 Escrow Arrangements.
(a) Escrow Funds. Within five (5) days after the Effective Time,
without any act of any stockholder, $2,000,000 and $3,000,000 will be deposited
into separate escrow accounts with Greater Bay Trust Company, (or other
institution acceptable to Parent and the Company Stockholders' Agent (as defined
in Section 7.2(g) below)) as Escrow Agent (the "Escrow Agent"), such deposits to
constitute, respectively, a general escrow fund (the "General Escrow") and an
escrow fund in security for certain expenses and costs arising in connection
with the litigation matters (the "Litigation Matters") described in Schedule
7.2(a) (the "Litigation Escrow" and, together with the General Escrow, the
"Escrow Funds")). The Escrow Funds are to be governed by the terms set forth
herein and maintained at Parent's sole cost and expense. Each Escrow Fund shall
be deposited into an interest bearing account and such interest shall be added
to each Escrow Fund. The portion of the General Escrow and the Litigation Escrow
contributed on behalf of each of GKM, the participants in the Company's
Executive Bonus Plan and each holder of Company Capital Stock, Vested Company
Options and/or Company Warrants outstanding at the Effective Time, shall be in
proportion to the aggregate Merger Consideration or other funds which such
holder would otherwise be entitled under Section 1.6, as the case may be, and,
with respect to (i) GKM, such amount being deemed to be $100,000, (ii) the
participants in the Company's Executive Bonus Plan, such amount being deemed to
equal the Excess Bonus Amount (as defined in Section 1.6(a)(i)) and (iii) the
Company Stockholders who are former stockholders of Lemcom such amount being
deemed to be zero. (For the purposes of this Article VII, references to
stockholders of the Company shall be deemed to include (i) holders of Company
Options and Company Warrants outstanding at the Effective Time, (ii) GKM and
(iii) the participants in the Company's Executive Bonus Plan).
(b) General Escrow. The General Escrow shall be available to
compensate Parent and its affiliates for any claim, loss, expense, liability or
other damage, including reasonable attorneys' fees, to the extent of the amount
of such claim, loss, expense, liability or other damage (collectively "Losses")
that Parent or any of its affiliates has incurred or reasonably anticipates
incurring by reason, directly or indirectly, of (i) the breach by the Company of
any representation, warranty, covenant or agreement of the Company contained
herein, or by reason of any misrepresentation by the Company made in or pursuant
to Article II of this Agreement; (ii) Specified Liabilities not otherwise
deducted in calculating the Cash Equity Amount on the Closing Date; (iii) bad
debt expenses, product returns and state taxes, each in excess of the amounts
reserved therefor on the Company's Closing Date balance sheet; (iv) any amounts
required to be paid in connection with amounts owed to the Company and forgiven
in connection with the Merger; (v) all Losses related to the Company's 401(k)
plan and amounts
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otherwise required to correct the Operational Defects (as defined in Section
7.2(e)) with respect thereto; (vi) all amounts payable to Thomas Steding,
Leonard Mikus or Marc Gorlin in connection with their respective consulting
arrangements with the Company; and (vii) any investment bank fees or expenses in
excess of $12,500 payable in connection the Company's abandoned IPO (all such
amounts being "General Losses"). General Losses shall also include, without
limitation, Litigation Matter Losses (defined below) and any amounts which the
parties have specifically agreed in writing constitute amounts for which
indemnity under Article VII is available.
(c) Litigation Escrow. The Litigation Escrow shall be available
to compensate Parent and its affiliates for any Losses that Parent or any of its
affiliates has incurred or reasonably anticipates incurring by reason, directly
or indirectly, of the Litigation Matters including, without limitation, any
action brought directly against Parent after the Effective Time in respect of or
related to the Litigation Matters ("Litigation Matter Losses"). In addition, the
Litigation Escrow also shall be available to satisfy any claim for Specified
Liabilities not otherwise deducted in calculating the Cash Equity Amount on the
Closing Date and any payments in respect of Dissenting Shares (as contemplated
by Section 1.7) in excess of the Merger Consideration that otherwise would have
been payable in respect of such shares, in each case, to the extent not
otherwise satisfied out of the General Escrow Fund.
(d) Remedies. Nothing herein shall limit the liability of the
Company for any General Losses if the Merger does not close. Resort to the
Escrow Funds shall be the exclusive contractual remedy of Parent and its
affiliates for any General Losses or Litigation Matter Losses if the Merger does
close; provided, however, that nothing herein shall limit any remedy for fraud
or willful breach or misrepresentation. Parent may not receive any amounts from
the Escrow Funds unless and until Parent delivers an Officer's Certificate (as
defined in paragraph (h) below) to the Escrow Agent identifying Losses.
Notwithstanding anything herein, Parent shall not be entitled to receive any
disbursement with respect to any Loss under Sections 7.2(b)(i) and (iii) and
Section 7.2(c) arising in respect of any or in the aggregate individual
occurrence or circumstance unless the aggregate of amount of all such Losses
shall exceed $200,000, in which case, Parent shall be entitled to
indemnification in respect of any excess Losses above $200,000.
(e) Termination and Distribution of Escrow Funds. On the first
anniversary of the Effective Time, the General Escrow shall terminate; provided,
however, that such portion of the General Escrow, which, in the reasonable
judgment of Parent (subject to the objection of the Company Agent and the
subsequent arbitration of the matter in the manner provided in Section 7.2(i)
hereof) is necessary to satisfy any unsatisfied Losses specified in any
Officer's Certificate theretofore delivered to the Escrow Agent prior to
termination of the General Escrow, shall remain in the General Escrow (and the
General Escrow shall remain in existence) until such claims have been resolved.
In addition, notwithstanding the foregoing, $400,000 (or such lesser amount as
Parent shall later determine is appropriate) shall remain in the General Escrow
until the earlier of (i) six years from the Effective Time or (ii) the date the
Company Stockholder's Agent shall deliver proof in form and substance reasonably
satisfactory to Parent (as certified to by Parent, which certification shall not
be unreasonably withheld or delayed) that no further liabilities, losses, costs,
or expenses exist in connection with the possible operational defects under the
Company's 401(k) plan pertaining to coverage of certain employees and
contributions which
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would have otherwise been made on their behalf under such 401(k) plan as
identified by the parties (collectively the "Operational Defects"). In
connection with the foregoing, the parties agree that from time to time amounts
shall be released from the General Escrow (upon certification of such releases
executed by Parent and the Company Stockholder's Agent who shall covenant to
apply such amounts only for the following uses) to satisfy reasonable costs,
expenses, and fees (including attorneys' fees) incurred by the Company in
connection with any actions taken by it or on its behalf which Parent and the
Company Stockholder's Agent deem necessary or appropriate to correct the
Operational Defects, including (i) submission to the IRS under its voluntary
compliance resolution (VCR) program for a compliance statement, (ii) correction
of the Operational Defects as approved pursuant to a compliance statement
(including payment of contributions and earnings attributable thereto) and (iii)
after correction of the Operational Defects, expenses incurred in connection
with the submission of a Form 5310 to obtain a letter of determination upon
termination including all subsequent actions necessary to carry out and complete
such termination. The Litigation Escrow shall terminate upon the dismissal with
prejudice or settlement in full of both of the Litigation Matters at which time
the Escrow Agent shall deliver to the appropriate stockholders of the Company
any amounts in the Litigation Escrow after reimbursement of Parent of all
Litigation Matter Losses; provided, however, that such portion of the Litigation
Escrow, which, in the reasonable judgment of Parent, subject to the objection of
the Company Agent and the subsequent arbitration of the matter in the manner
provided in Section 7.2(i) hereof, is necessary to satisfy any unsatisfied
Losses in respect of Specified Liabilities specified in any Officer's
Certificate theretofore delivered to the Escrow Agent prior to termination of
the Litigation Escrow, shall remain in the Litigation Escrow (and the Litigation
Escrow shall remain in existence) until such claims have been resolved. As soon
as all such claims have been resolved, the Escrow Agent shall deliver to the
appropriate stockholders of the Company the remaining portion of the Litigation
Escrow not required to satisfy such claims. Deliveries of amounts out of the
Escrow Funds to the stockholders of the Company pursuant to this Section 7.2(e)
shall be made in proportion to their respective original contributions to the
Escrow Funds as determined pursuant to Section 7.2(a), subject to the following
tax obligations. Parent shall report any taxable income in respect of any
interest income earned by the Escrow Funds; immediately prior to any
distribution of monies to the stockholders remaining in any Escrow Funds, if
any, Parent shall receive a distribution out of such Escrow Fund equal to 40%
(or the combined maximum federal and California tax rate then in effect, if
lower) of the taxable income of such Escrow Fund attributed to Parent.
(f) Protection of Escrow Funds. The Escrow Agent shall hold and
safeguard the Escrow Funds during their existence, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as the
property of Parent and shall hold and dispose of the Escrow Funds only in
accordance with the terms hereof.
(g) Claims Upon Escrow Funds. Upon receipt by the Escrow Agent of
a certificate signed by any officer of Parent (an "Officer's Certificate"): (A)
stating that Parent has paid or properly accrued or reasonably anticipates that
it will have to pay or accrue Losses; (B) specifying in reasonable detail the
individual items of Losses included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability;
and (C) either the nature of the misrepresentation, breach of warranty or claim
or the Litigation Matter to which such item is related, the
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Escrow Agent shall, subject to the provisions of Section 7.2(h) hereof, deliver
to Parent out of the appropriate Escrow Fund, as promptly as practicable, such
amounts held in such Escrow Fund equal to such Losses.
(h) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Company Agent (as defined in Section 7.2(j)) and for a
period of ten (10) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any amounts out of the Escrow Funds, pursuant to Section
7.2(g) hereof unless the Escrow Agent shall have received written authorization
from the Company Agent to make such delivery. After the expiration of such ten
(10) day period, the Escrow Agent shall make delivery of an amount from the
appropriate Escrow Fund in accordance with Section 7.2(g) hereof, provided that
no such payment or delivery may be made if the Company Agent shall object in a
written statement to the claim made in the Officer's Certificate, and such
statement shall have been delivered to the Escrow Agent prior to the expiration
of such ten (10) day period.
(i) Resolution of Conflicts; Arbitration.
(i) In case the Company Agent shall so object in writing
to any claim or claims made in any Officer's Certificate, the Company Agent and
Parent shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Company Agent and Parent
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties and shall be furnished to the Escrow Agent. The Escrow
Agent shall be entitled to rely on any such memorandum and distribute amounts
from the applicable Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Company Agent may demand arbitration of the
matter. In such event, the matter shall be settled by binding arbitration
conducted by three arbitrators. Parent and the Company Agent shall each select
one arbitrator, and the two arbitrators so selected shall select a third
arbitrator. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgement of the arbitrators, to
discover relevant information from the opposing parties about the subject matter
of the dispute. The arbitrators shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including attorneys
fees and costs, to the same extent as a court of competent law or equity, should
the arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2(h) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Funds in accordance therewith. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrators.
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<PAGE> 47
(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Santa Clara County, Palo Alto, California under the rules then in effect
of the American Arbitration Association. For purposes of this Section 7.2(i), in
any arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Parent shall be deemed to be the
Non-Prevailing Party in the event that the arbitrators award Parent less than
the sum of one-half (1/2) of the disputed amount; otherwise, the stockholders of
the Company as represented by the Company Agent shall be deemed to be the Non-
Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its own
expenses, the fees of each arbitrator, the administrative fee of the American
Arbitration Association, and the out-of-pocket expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration in connection therewith.
(j) Agent of the Company Stockholders; Power of Attorney.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any stockholder, Marc Gorlin shall be
appointed as agent and attorney-in-fact (the "Company Agent") for each
stockholder of the Company on whose behalf monies were deposited into the Escrow
Funds (except such stockholders, if any, as shall have perfected their
Dissenters Rights under Delaware law), for and on behalf of stockholders of the
Company, to give and receive notices and communications, to authorize delivery
to Parent of monies from the Escrow Funds in satisfaction of claims by Parent,
to object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of courts and
awards of arbitrators with respect to such claims, and to take all actions
necessary or appropriate in the judgment of Company Agent for the accomplishment
of the foregoing. Such agency may be changed the stockholders of the Company
from time to time upon not less than thirty (30) days prior written notice to
Parent; provided that the Company Agent may not be removed unless holders of a
sixty-percent interest of the Escrow Funds agree to such removal and to the
identity of the substituted agent. No bond shall be required of the Company
Agent, and the Company Agent shall not receive compensation for his services.
Notices or communications to or from the Company Agent shall constitute notice
to or from each of the stockholders of the Company.
(ii) The Company Agent shall not be liable for any act
done or omitted hereunder as Company Agent while acting in good faith and in the
exercise of reasonable judgment. The stockholders of the Company on whose behalf
the amounts were contributed to the Escrow Funds shall severally indemnify the
Company Agent and hold the Company Agent harmless against any loss, liability or
expense incurred without negligence or bad faith on the part of the Company
Agent and arising out of or in connection with the acceptance or administration
of the Company Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Company Agent. Subject to the
prior right of Parent to make claims for Losses, Company Agent shall have the
right to recover from the Escrow Funds prior to any distribution to the
stockholders of the Company for any third party expenses incurred by the Company
Agent in performing Company Agent's duties hereunder.
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<PAGE> 48
(k) Actions of the Company Agent. A decision, act, consent or
instruction of the Company Agent shall constitute a decision of all the
stockholders for whom a portion of the amounts otherwise issuable to them are
deposited in the Escrow Funds and shall be final, binding and conclusive upon
each of such stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Company Agent as being the
decision, act, consent or instruction of each and every such stockholder of the
Company. The Escrow Agent and Parent are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Company Agent.
(l) Third-Party Claims. Parent shall have the right in its sole
reasonable discretion to settle any third-party claim; provided, however that
Parent shall not settle any of the Litigation Matter without the prior written
consent of the Company Agent (which consent shall not be unreasonably withheld).
In addition, in connection with any Litigation Matter, Parent shall keep the
Company Agent advised of any material developments with respect thereto and
allow Company Agent and Company Agent's counsel to participate in such defense
at their own cost. With respect to the Litigation Matter involving the Company
and RSA, Parent agrees and acknowledges that the principal focus of the defense
of such action shall be the resolution of the claims with respect to the
Company's rights and obligations under the Public Key Partners License (the "PKP
License") prior to the Effective Time (which rights and obligations include,
without limitation, such rights and obligations as they relate to the customers
of the Company prior to the Effective Time and any such customers who remain
customers of the Surviving Corporation or Parent subsequent to the Effective
Time). If Parent (i) determines to materially change such focus without first
obtaining the prior agreement of the Company Agent or (ii) becomes subject to a
dispute with RSA regarding matters other than the Company's rights and
obligations under the PKP License prior to the Effective Time, then Parent and
the Company Agent shall negotiate in good faith as to an appropriate allocation
of any additional Losses relating to such defense of such action as between the
Company Stockholders and Parent.
(m) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Company Agent, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any act done or omitted hereunder as Escrow Agent
while acting in good faith and in the exercise of reasonable judgment, and any
act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other
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<PAGE> 49
person by reason of such compliance, notwithstanding any such order, judgment or
decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to Parent and the Company Agent to this
Agreement; provided, however, that no such resignation shall become effective
until the appointment of a successor escrow agent which shall be accomplished as
follows: Parent and the Company Agent shall use their best efforts to mutually
agree upon a successor agent within thirty (30) days after receiving such
notice. If the parties fail to agree upon a successor escrow agent within such
time, Parent shall have the right to appoint a successor escrow agent authorized
to do business in Delaware. The successor escrow agent selected in the preceding
manner shall execute and deliver an instrument accepting such appointment and it
shall thereupon be deemed the Escrow Agent hereunder and it shall without
further acts be vested with all the estates, properties, rights, powers, and
duties of the predecessor Escrow Agent as if originally named as Escrow Agent.
Thereafter, the predecessor Escrow Agent shall be discharged for any further
duties and liabilities under this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Closing has not occurred
by December 19, 1997; (ii) there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity that would
make consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity,
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<PAGE> 50
which would: (i) prohibit Parent's or the Company's ownership or operation of
all or a portion of the business of the Company or (ii) compel Parent or the
Company to dispose of or hold separate all or a portion of the business or
assets of the Company or Parent as a result of the Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and such breach has not been cured within five (5) business days after
written notice to the Company (provided that, no cure period shall be required
for a breach which by its nature cannot be cured);
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of Parent or Merger Sub and such breach has not been cured within five
(5) business days after written notice to Parent (provided that, no cure period
shall be required for a breach which by its nature cannot be cured).
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
Notwithstanding anything in this Section 8.1, neither Parent nor the Company may
terminate this Agreement if such party is in material breach of its obligations
hereunder and such breach caused, directly or indirectly, the Closing not to
occur.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officers, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 5.3, 5.4 and
5.5 and Article IX of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
the stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
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<PAGE> 51
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Networks Associates, Inc.
2805 Bowers Avenue
Santa Clara, CA 95051
Attention: Prabhat K. Goyal
Facsimile No.: (408) 988-6054
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey Saper, Esq.
Kurt J. Berney, Esq.
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Pretty Good Privacy, Inc.
2121 S. El Camino Real
Suite 902
San Mateo, CA 94403
Attention: Ms. Mimi Frazer
Facsimile No.: (650) 572-1932
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Peter Astiz, Esq.
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<PAGE> 52
Facsimile No.: (650) 327-3699
(c) if to the Escrow Agent, to:
Greater Bay Trust Company
400 Emerson Street
2nd Floor
Palo Alto, CA 94301
Attention: Anna Paivah
Telephone No.: 650-614-5720
Facsimile No.: 650-473-1326
with a copy to:
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Peter Astiz, Esq.
Facsimile No.: (650) 327-3699
and
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey Saper, Esq.
Kurt J. Berney, Esq.
Facsimile No.: (415) 493-6811
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect
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<PAGE> 53
to the subject matter hereof; (b) are not intended to confer upon any other
person (including, without limitation, those persons listed on any exhibits
hereto) any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Parent and Merger Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
* * * *
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<PAGE> 54
IN WITNESS WHEREOF, Parent, Merger Sub, Escrow Agent and the Company
have caused this Agreement to be signed by their duly authorized respective
officers, all as of the date first written above.
COMPANY PARENT
By: /s/ Phillip Dunkelberger By: /s/ William Larson
------------------------------- -------------------------------
Name: Phillip Dunkelberger Name: William Larson
----------------------------- -----------------------------
Title: Chief Financial Officer Title: Chief Executive Officer
---------------------------- ----------------------------
ESCROW AGENT* MERGER SUB
By: /s/ Hall Palmer By: /s/ Prabhat K. Goyal
---------------------------- ----------------------------
Name: Hall Palmer Name: Prabhat K.Goyal
---------------------------- ----------------------------
Executive Vice President
Title: and Senior Trust Officer Title: Chief Financial Officer
---------------------------- ----------------------------
* With respect to the matters set forth in Articles I and VII only.
***REORGANIZATION AGREEMENT***
<PAGE> 1
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of December 5, 1997, by
and between Networks Associates, Inc. (formerly McAfee Associates, Inc.), a
Delaware corporation (the "Company"), and Marc Gorlin, as representative (the
"Representative") of the holders of Gerard Klauer Mattison & Co., Inc. ("GKM")
and the Class B Preferred Stock of Pretty Good Privacy, Inc.
(together with GKM, the "Stockholders").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, the Company, PG
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of the
Company ("Merger Sub"), and Pretty Good Privacy, Inc. ("PGP") are entering into
an Agreement and Plan of Reorganization (the "Merger Agreement") which provides
for the merger (the "Merger") of Merger Sub with and into the PGP. Pursuant to
the Merger, GKM and the holders of shares of Series B Preferred Stock of PGP
(the "Series B Preferred") will be, among other things, entitled to receive
warrants (each a "Warrant") to purchase a certain number of shares of Common
Stock of the Company;
WHEREAS, the execution and delivery of this Agreement is a condition to
the closing of the Merger Agreement;
WHEREAS, the Merger Agreement provides that the shares of Common Stock
of the Company that are issuable upon exercise of the Warrants to the
Stockholders be granted registration rights as set forth herein; and
WHEREAS, all terms not otherwise defined herein shall have the same
meanings ascribed to them in the Merger Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
<PAGE> 2
(c) The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(d) The term "Registrable Securities" means the Common
Stock of the Company ("Common Stock") issuable to the Stockholders upon exercise
of the Warrants in accordance with the terms and conditions of the Merger
Agreement and the Warrants.
(e) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC as soon as practicable,
but in no event later than 30 days after the Closing Date, a registration
statement on Form S-3 with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, and,
subject to the provisions below, use its best efforts to, keep such registration
statement effective for a period of 365 days or, if earlier, until the
distribution contemplated in the registration statement has been completed. If
at any time after a registration statement becomes effective, the Company
advises the Representative in writing that due to the existence of material
information that has not been disclosed to the public and included in the
registration statement it is necessary to amend the registration statement, the
Representative shall notify the Stockholders of such circumstances and instruct
the Stockholders to suspend any further sale of Registrable Securities pursuant
to the Registration Statement until the Company advises the Representative that
the registration statement has been amended. In such event, the Company shall
cause the registration statement to be amended as soon as reasonably
practicable, provided that the Company shall not be required to amend the
registration statement during any time when the Company's officers and director
are prohibited from buying or selling the Company's Common Stock pursuant to the
Company's insider trading policy if the Company reasonably determines that such
amendment would require the premature public disclosure of material non-public
information. Notwithstanding the foregoing sentence, the Company shall file any
amendment necessary for the Stockholders to recommence sales under the
registration statement concurrently with the commencement of any period in which
directors and officers of the Company are allowed to buy or sell Common Stock
pursuant to the Company's insider trading policy. In addition, the Company may
suspend use of the registration statement to the extent the Company is advised
by its legal counsel that, such action is reasonably necessary to comply with
applicable federal securities laws. In the event the sales of Registrable
Securities of the Stockholders are suspended as provided above, the 365-day
period during which a registration statement must be kept effective shall be
extended for the total number of days during which sales are suspended.
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<PAGE> 3
(b) Subject to subsection 1.2(a), prepare and file with
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Representative for the benefit of the
Stockholders such numbers of copies of a prospectus in conformity with the
requirements of the Act, and such other documents as the Stockholders may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Representative on behalf of the Stockholders; provided that the Company shall
not be required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Act.
(e) The Company may include securities issued in
connection with any acquisition not otherwise registered on an S-4 Registration
Statement in the registration pursuant to this Agreement.
1.3 Information from Stockholder. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of the Stockholders that
the Representative or the Stockholders shall furnish to the Company such
information regarding the Stockholders, the Registrable Securities held by them,
and the intended method of disposition of such securities as shall be required
to effect the registration of the Registrable Securities.
1.4 Expenses of Registration. All expenses of the Representative
and the Stockholders, including (without limitation) all registration, filing
and qualification fees, printers' and accounting fees, and fees and
disbursements of counsel for the Company shall be borne by the Company;
provided, however, that the Company shall not be required to pay any
professional fees of the Representative and the Stockholders other than the fees
of one counsel to the Representative and the Stockholders (not to exceed
$10,000).
1.5 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless the
Representative and the Stockholders against any losses, claims, damages, or
liabilities (joint or several) to which Stockholder may become subject under the
Act, or the 1934 Act, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
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<PAGE> 4
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements' therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act, the 1934
Act, or any rule or regulation promulgated under the Act, or the 1934 Act; and
the Company will pay to the Representative and the Stockholders any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.5(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company, which
consent shall not be unreasonably withheld, nor shall the Company be liable in
any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with information furnished expressly for use in
connection with such registration by the Stockholders. In addition, the Company
shall not be liable for any untrue statement or omission in any prospectus if a
supplement or amendment thereto correcting such untrue statement or omission was
delivered to the Representative on behalf of the Stockholders prior to the
pertinent sale or sales by the Stockholder.
(b) Each Stockholder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, the Representative and any other stockholder selling
securities in such registration statement and any controlling person of the
Representative and any such stockholder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Act, or the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by Stockholder expressly for use
in connection with such registration; and Stockholder will pay, as incurred, any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 1.5(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this subsection 1.5(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
Stockholder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.5(b) exceed the gross
proceeds from the offering received by Stockholder.
(c) Promptly after receipt by an indemnified party under
this Section 1.5 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.5, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
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<PAGE> 5
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.5, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.5.
(d) If the indemnification provided for in this Section
1.5 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the Company, the Representative and
the Stockholders under this Section 1.5 shall survive the completion of any
offering of Registrable Securities in a registration statement under this
Section 1, and otherwise.
1.6 Reports Under the Securities Exchange Act. The Company agrees
to file with the SEC in a timely manner all reports and other documents and
information required of the Company under the 1934 Act, and take such other
actions as may be necessary to assure the availability of Form S-3 for use in
connection with the registration rights provided in this Agreement.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
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<PAGE> 6
2.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon facsimile (with confirmed receipt), or personal delivery
to the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
2.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Representative (acting upon or at the direction of holders of a majority of the
outstanding Warrants).
2.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject hereof.
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
NETWORKS ASSOCIATES, INC.
By: /s/ PRABHAT K. GOYAL
-------------------------------
Prabhat K. Goyal, Chief Financial Officer
Address: 2805 Bowers Avenue
Santa Clara, California 95051-0963
REPRESENTATIVE
-----------------------------------------
Address:
-------------------------------
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[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 99.1
NETWORK ASSOCIATES ACQUIRES PRETTY GOOD
PRIVACY (PGP);
NETWORK ASSOCIATES EXTENDS ENTERPRISE OFFERINGS WITH
LEADING SECURITY SOFTWARE
SANTA CLARA, Calif., Dec. 1/PRNewswire/--Network Associates, Inc. (Nasdaq: NETA,
commencing Dec. 2), formerly McAfee Associates (Nasdaq: MCAF), announced today
that it has signed a definitive agreement to acquire privately-held Pretty Good
Privacy, Inc. (PGP). The PGP acquisition extends Network Associates' network
security and management software products with the leading applied cryptographic
security solutions for protecting corporate assets and enabling secure
electronic communication.
According to an Ernst and Young study, top threats to network security include
virus attack, sabotage from inside the firewall and sabotage from outside the
firewall. The combination of PGP and Network Associates unites leaders in
addressing these corporate security threats. Network Associates' McAfee
anti-virus security software is used by over 25 million users and more than 80%
of the Fortune 500. With more than four million users in 50 countries, PGP is
the worldwide de facto standard for Internet email and file encryption.
"The synergy across our product lines is phenomenal," said Bill Larson, chairman
and CEO of Network Associates. "We will now be able to provide an integrated
software solution for securing both corporate networks and enterprise data."
"There is a pressing need for comprehensive, integrated security solutions,"
said Phil Dunkelberger, general manager of Network Associates' Total Network
Security Division, (formerly president and CEO of PGP.) "The combination of
resources and talent of the respective companies will provide customers with a
premier enterprise-scale security solution."
Network Associates leads the way in providing large corporate customers with
integrated network security and management suites. Network Associates' total
Virus Defense Suite incorporates client, server and gateway protection against
computer viruses, and is a leading offering in its class. The PGP encryption and
management products, including the PGP Business Security Suite, will be the
<PAGE> 2
cornerstone for a complementary suite offered by Network Associates called the
Total Network Security Suite. By combining Network Associates' intrusion and
virus detection products with Business Security Suite's desktop encryption
software, and key server and policy management tools, the Total Network
Security Suite will address, in a single solution, the needs of network
administrators and corporate security officers.
PGP has long been a pioneer in the security industry, contributing
significantly to many of the principles that have driven the industry. Network
Associates will continue to support the guiding principles that have made PGP a
successful technology. These principles include a commitment to strong
encryption and open standards. Network Associates will build on the progress
made with the Internet Engineering Task Force, including RFC2015 and the Open
PGP working group, to develop standards for security designed to unify industry
practice.
The acquisition, which is expected to close on or about December 15, 1997, is
subject to PGP stockholder approval and other customary closing conditions.
Members of PGP's board of directors and management, and certain other major PGP
stockholders have agreed separately with Network Associates to vote their PGP
shares in favor of the acquisition. The aggregate consideration payable in the
acquisition is approximately $36 million (payable at closing in cash and the
assumption of certain liabilities) and warrants to acquire a specified number
of shares of Network Associates common stock. The acquisition will be accounted
for under the purchase method of accounting. In accordance with generally
accepted accounting principle, Network Associates expects to incur a
significant charge to earnings for the Dec. 31, 1997 quarter related to the
purchase of in-process research and development.
With headquarters in Santa Clara, Calif., Network Associates, Inc., formerly
McAfee Associates, is a leading supplier of enterprise network security and
management solutions. Network Associates' product offering includes four
individual software suites, Total Virus Defense, Total Network Security, Total
Network Visibility and Total ServiceDesk, which can be centrally managed from
within the Network Associates' NetTools unified management environment. For
more information, Network Associates can be reached at 408-988-3832 or on the
Web at http://www.networkassociate.com.
This news release 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. Because such statements apply to
future events, they are subject to risks and uncertainties that could cause the
actual results to differ materially, including without limitation, integration
risks related to the proposed transaction and the risk that the proposed
transaction will not be consummated. Important factors which could cause actual
results to differ materially are described in Network Associates' reports on
Form 10-K and 10-Q filed with the Securities and Exchange Commission.
