<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 7, 1997
---------------------------
QUICKTURN DESIGN SYSTEMS, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-22738 77-0159619
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification Number)
incorporation)
440 CLYDE AVENUE, MOUNTAIN VIEW, CALIFORNIA 94043
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 967-3300
-------------------------
N/A
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 7, 1997 (the "Closing Date"), pursuant to an Agreement and
Plan of Reorganization dated as of January 16, 1997 (the "Reorganization
Agreement"), among Quickturn Design Systems, Inc. ("Quickturn"), QT
Corporation, a Delaware corporation and wholly-owned subsidiary of Quickturn
("Merger Sub"), and SpeedSim, Inc., a Delaware corporation ("SpeedSim"),
Quickturn acquired SpeedSim by means of a statutory merger (the "Merger") of
Merger Sub into SpeedSim, with SpeedSim remaining as the surviving
corporation in the Merger. As a result of the Merger, SpeedSim became a
wholly-owned subsidiary of Quickturn. Merger Sub was formed solely for the
purpose of effecting the Merger. Quickturn is a leading provider of
reprogrammable emulation products for system-level design verification.
SpeedSim provides cycle-based simulation technology and develops and markets
SpeedSim/3 for digital logic simulation.
Pursuant to the Reorganization Agreement, an aggregate of 2,827,221
shares of Quickturn Common Stock were issued in exchange for (i) all of the
issued and outstanding capital stock of SpeedSim and (ii) all unexpired and
unexercised options to acquire capital stock of SpeedSim. Each outstanding
share of SpeedSim capital stock was converted into the right to receive a
number of shares of Quickturn Common Stock equal to 2,827,221 divided by the
sum of (i) the total number of shares of SpeedSim capital stock outstanding
on the Closing Date, and (ii) the total number of shares of SpeedSim capital
stock subject to unexpired and unexercised options to purchase SpeedSim
capital stock outstanding on the Closing Date (the "Exchange Ratio"). All
options to purchase SpeedSim capital stock outstanding immediately prior to
the Merger were assumed by Quickturn. Each such option became exercisable
(when vested) for that number of whole shares of Quickturn Common Stock equal
to the product of the number of shares of SpeedSim capital stock subject to
such option multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Quickturn Common Stock. The per share exercise
price of each assumed option is equal to the quotient determined by dividing
the exercise price per share of SpeedSim capital stock subject to such option
immediately prior to the Merger by the Exchange Ratio, rounded up to the
nearest whole cent.
The consideration paid by Quickturn for the outstanding capital stock of
SpeedSim pursuant to the Reorganization Agreement was determined pursuant to
arms' length negotiations and took into account various factors concerning
the valuation of the business of SpeedSim, including public market valuations
of comparable companies, discounted cash flows for SpeedSim, and multiples
paid in recent acquisitions of comparable companies.
ITEM 5. OTHER EVENTS.
On January 16, 1997 Quickturn announced that for the year ended December
31, 1996, revenue was $104.4 million, an increase of 28% over 1995 revenue of
$81.8 million. Operating income was $16.3 million, an increase of 39% over
the operating income of $11.7 million in 1995. Net income was $12.6 million
or $0.83 per share, compared to net income of $13.1 million or $0.90 per
share in 1995.
Both the 1996 results and the results for the fourth quarter of 1996
include a net year-to-date tax benefit of $542,000 or $0.03 per share
comprised of a one time recognition of deferred tax assets. Both the 1995
results and the results for the fourth quarter of 1995 include a net
year-to-date tax benefit of $3.7 million or $0.26 per share comprised of a
one time recognition of deferred tax assets of $6.0 million or $0.41 per
share offset by an increased tax expense of $2.3 million or $0.15 per share.
Fourth quarter revenue of $28.8 million was up 25% over revenue of $23.0
million in the comparable period of 1995 and up 6% over the previous quarter
of $27.2 million. Operating income was $4.8 million, an
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increase of 33% over the operating income of $3.6 million in the fourth
quarter of 1995 and compared to operating income of $4.2 million in the third
quarter of 1996. Net income was $4.1 million or $0.26 per share, compared to
$6.6 million or $0.45 per share in the fourth quarter of 1995 and an increase
of 29% over the net income of $3.2 million or $0.21 per share in the third
quarter of 1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF SPEEDSIM
The Financial Information required to be filed pursuant to Item
7(a) of Form 8-K was not available at the time of filing of this Current
Report on Form 8-K and will be filed on a Form 8-K/A as soon as practicable,
but in no event later than 60 days after the date this Form 8-K is required
to be filed.
(b) PRO FORMA FINANCIAL INFORMATION.
The Pro Forma Financial Information required to be filed pursuant
to Item 7(b) of Form 8-K was not available at the time of filing of this
Current Report on Form 8-K and will be filed on a Form 8-K/A as soon as
practicable, but in no event later than 60 days after the date this Form 8-K
is required to be filed.
(c) EXHIBITS
2.1 Agreement and Plan of Reorganization dated as of January 16,
1997.
2.2 Certificate of Merger dated February 7, 1997, filed with
the Secretary of State of the State of Delaware on
February 7, 1997.
20.1 Press Release of Quickturn, dated January 16, 1997,
announcing the financial results for the quarter and year
ended December 31, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: February __, 1997 QUICKTURN DESIGN SYSTEMS, INC.
/s/ Raymond K. Ostby
--------------------------------------
Raymond K. Ostby
Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Document
------- -----------------------
2.1 Agreement and Plan of Reorganization dated as of January 16,
1997.
2.2 Certificate of Merger dated February 7, 1997, filed with the
Secretary of State of the State of Delaware on February 7, 1997.
20.1 Press Release of Quickturn, dated January 16, 1997, announcing
the financial results for the quarter and year ended
December 31, 1996.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
QUICKTURN DESIGN SYSTEMS, INC.
QT CORPORATION
AND
SPEEDSIM, INC.
Dated as of January 16, 1997
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . A-2
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . A-2
1.4 Certificate of Incorporation; Bylaws . . . . . . . . . . . . . . . A-2
1.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . A-2
1.6 Maximum Shares to Be Issued; Effect on Capital Stock . . . . . . . A-2
1.7 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . A-5
1.8 Surrender of Certificates. . . . . . . . . . . . . . . . . . . . . A-6
1.9 No Further Ownership Rights in Company Common Stock. . . . . . . . A-7
1.10 Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . A-7
1.11 Tax and Accounting Consequences. . . . . . . . . . . . . . . . . . A-7
1.12 Taking of Necessary Action; Further Action . . . . . . . . . . . . A-7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . A-7
2.1 Organization of the Company. . . . . . . . . . . . . . . . . . . . A-8
2.2 Company Capital Structure. . . . . . . . . . . . . . . . . . . . . A-8
2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
2.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.5 Company Financial Statements . . . . . . . . . . . . . . . . . . . A-9
2.6 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . .A-10
2.7 No Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-10
2.8 Tax and Other Returns and Reports. . . . . . . . . . . . . . . . .A-12
2.9 Restrictions on Business Activities. . . . . . . . . . . . . . . .A-13
2.10 Title to Properties; Absence of Liens and Encumbrances . . . . . .A-13
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TABLE OF CONTENTS
(continued)
2.11 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . .A-14
2.12 Agreements, Contracts and Commitments. . . . . . . . . . . . . . .A-15
2.13 Interested Party Transactions. . . . . . . . . . . . . . . . . . .A-17
2.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . .A-17
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-17
2.16 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-17
2.17 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . .A-18
2.18 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . .A-18
2.19 Brokers' and Finders' Fees; Third Party Expenses . . . . . . . . .A-19
2.20 Employee Matters and Benefit Plans . . . . . . . . . . . . . . . .A-19
2.21 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-22
2.22 Pooling of Interests . . . . . . . . . . . . . . . . . . . . . . .A-22
2.23 Representations Complete . . . . . . . . . . . . . . . . . . . . .A-22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB . . . . . . . .A-23
3.1 Organization, Standing and Power . . . . . . . . . . . . . . . . .A-23
3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-23
3.3 Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . .A-24
3.4 SEC Documents; Parent Financial Statements . . . . . . . . . . . .A-24
3.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . .A-24
3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-25
3.7 Brokers' and Finders' Fees; Third Party Expenses . . . . . . . . .A-25
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME . . . . . . . . . . . . . . . . . .A-25
4.1 Conduct of Business of the Company . . . . . . . . . . . . . . . .A-25
4.2 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . .A-28
ARTICLE V
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . .A-29
5.1 Registration on Form S-4; Private Placement Exemption; Company
Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . .A-29
5.2 Access to Information. . . . . . . . . . . . . . . . . . . . . . .A-30
5.3 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . .A-30
5.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-30
5.5 Public Disclosure. . . . . . . . . . . . . . . . . . . . . . . . .A-31
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-31
5.7 FIRPTA Compliance. . . . . . . . . . . . . . . . . . . . . . . . .A-31
5.8 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . .A-31
5.9 Notification of Certain Matters. . . . . . . . . . . . . . . . . .A-31
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<PAGE>
TABLE OF CONTENTS
(continued)
5.10 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . .A-31
5.11 Pooling Accounting . . . . . . . . . . . . . . . . . . . . . . . .A-32
5.12 Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . .A-32
5.13 Voting Agreements. . . . . . . . . . . . . . . . . . . . . . . . .A-32
5.14 Additional Documents and Further Assurances. . . . . . . . . . . .A-32
5.15 Form S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-33
5.16 Nasdaq National Market Listing . . . . . . . . . . . . . . . . . .A-33
5.17 Company's Auditors . . . . . . . . . . . . . . . . . . . . . . . .A-33
5.18 Updates of Schedules . . . . . . . . . . . . . . . . . . . . . . .A-33
ARTICLE VI
CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . . . . . .A-33
6.1 Conditions to Obligations of Each Party to Effect the Merger . . .A-33
6.2 Additional Conditions to Obligations of the Company. . . . . . . .A-34
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.A-35
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW. . . . . . . . . . .A-37
7.1 Survival of Representations and Warranties . . . . . . . . . . . .A-37
7.2 Escrow Arrangements. . . . . . . . . . . . . . . . . . . . . . . .A-37
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . .A-43
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . .A-43
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . .A-44
8.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-44
8.4 Extension; Waiver. . . . . . . . . . . . . . . . . . . . . . . . .A-45
ARTICLE IX
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .A-45
9.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .A-45
9.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . .A-46
9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .A-46
9.4 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . .A-46
9.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .A-47
9.6 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . .A-47
9.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .A-47
9.8 Rules of Construction. . . . . . . . . . . . . . . . . . . . . . .A-47
9.9 Specific Performance . . . . . . . . . . . . . . . . . . . . . . .A-47
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<PAGE>
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
Exhibit A Form of Company Affiliate Agreement
Exhibit B Form of Company Stockholder Voting Agreement
Exhibit C Form of Employment Agreement
Exhibit D Form of Legal Opinion of Counsel to Parent
Exhibit E Form of Legal Opinion of Counsel to the Company
Exhibit F Form of Declaration of Registration Rights
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<PAGE>
INDEX OF SCHEDULES
SCHEDULE DESCRIPTION
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2.2(a) Stockholder List
2.2(b) Option List
2.4 Governmental and Third Party Consents
2.5(h) Company Financial Statements
2.7 No Changes
2.8 Tax Returns and Audits
2.9 Restrictions on Business Activity
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.19 Expenses of Transaction
2.20(b) Employee Benefit Plans and Employee Agreements
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
4.1(l) Severance Agreements
5.12 Company Affiliate List
6.1(f) Employees Signing Employment Agreements
6.2(c) Third Party Consents Required of Parent
6.3(c) Third Party Consents Required of the Company
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of January 16, 1997 among Quickturn Design Systems, Inc., a
Delaware corporation ("PARENT"), QT Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and SpeedSim, 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
stockholders 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. Pursuant to the Merger, among other things, and subject to the
terms and conditions of this Agreement, all of the issued and outstanding
shares of capital stock of the Company ("COMPANY CAPITAL STOCK") and all
outstanding options to acquire or receive shares of Company Capital Stock
shall be converted into the right to receive shares of voting Common Stock of
Parent ("PARENT COMMON STOCK").
C. A portion of the shares of Parent Common Stock otherwise issuable
by Parent in connection with the Merger shall be placed in escrow by Parent,
the release of which amount shall be contingent upon certain events and
conditions, all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties 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
A-1
<PAGE>
the surviving corporation after the Merger is hereinafter sometimes referred
to as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement, 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 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 an Agreement or Certificate of Merger (or like
instrument) with the Secretary of State of the State of Delaware (the "MERGER
AGREEMENT"), in accordance with the relevant provisions of Delaware Law (the
time of confirmation 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.
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 "SpeedSim, Inc."
(b) Unless otherwise determined by Parent, 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(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each 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 MAXIMUM SHARES TO BE ISSUED; EFFECT ON CAPITAL STOCK. The maximum
number of shares of Parent Common Stock to be issued (including Parent Common
Stock to be reserved for
A-2
<PAGE>
issuance upon exercise of any of the Company's options to be assumed by
Parent) in exchange for the acquisition by Parent of all outstanding Company
Capital Stock and all unexpired and unexercised options to acquire Company
Capital Stock shall be equal to the Aggregate Share Number (as defined in
Section 1.6(g)(iii)). No adjustment shall be made in the number of shares of
Parent Common Stock issued in the Merger as a result of any cash proceeds
received by the Company from the date hereof to the Effective Time pursuant
to the exercise of options to acquire Company Capital Stock. Subject to the
terms and conditions of this Agreement, as of the Effective Time, by virtue
of the Merger and without any action on the part of Merger Sub, the Company
or the holder of any shares of the Company Capital Stock, the following shall
occur:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Common
Stock of the Company (including all shares of Common Stock of the Company
issued upon conversion of Preferred Stock of the Company ("COMPANY PREFERRED
STOCK") immediately prior to the Closing) (collectively, the "COMPANY COMMON
STOCK") issued and outstanding immediately prior to the Effective Time (other
than any shares of Company Stock to be canceled pursuant to Section 1.6(b)
and any Dissenting Shares (as defined and to the extent provided in Section
1.7(a)) will be canceled and extinguished and be converted automatically into
the right to receive that number of shares of Parent Common Stock equal to
the Exchange Ratio (as defined in Section 1.6(g)(v) below), upon surrender of
the certificate representing such share of Company Common Stock in the manner
provided in Section 1.8.
(b) CANCELLATION OF PARENT-OWNED AND COMPANY-OWNED STOCK. Each
share of Company Capital Stock owned by Merger Sub, Parent, the Company or
any direct or indirect wholly-owned subsidiary of Parent or the Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) STOCK OPTIONS. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's 1995 Incentive and
Nonqualified Stock Option Plan, as amended as of the date hereof (the "OPTION
PLAN"), shall be assumed by Parent in accordance with provisions described
below.
(i) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each a "COMPANY OPTION") under the
Option Plan, whether vested or unvested, shall be, in connection with the
Merger, assumed by Parent. Each Company Option so assumed by Parent under
this Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Option Plan and/or as provided in the respective
option agreements governing such Company Option immediately prior to the
Effective Time, except that (A) such Company Option shall be exercisable
(when vested) for that number of whole shares of Parent Common Stock equal to
the product of the number of shares of Company Common Stock that were
issuable upon exercise of such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (B) the per share exercise
price for the shares of Parent Common Stock issuable upon exercise of such
assumed Company Option shall be equal to the quotient determined by dividing
the exercise
A-3
<PAGE>
price per share of Company Common Stock at which such Company Option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent.
(ii) It is the intention of the parties that the Company
Options assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "CODE"), to the extent the Company Options qualified as
incentive stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Parent will
issue to each holder of an outstanding Company Option a document evidencing
the foregoing assumption of such Company Option by Parent.
(d) 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 of Common
Stock of Merger Sub shall, as of the Effective Time, evidence ownership of
such shares of Common Stock of the Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible
into Company Capital Stock), reorganization, recapitalization or other like
change with respect to Company Capital Stock occurring after the date hereof
and prior to the Effective Time.
(f) FRACTIONAL SHARES. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall be entitled to receive from Parent
an amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction, multiplied by (ii) the average closing price of a share of
Parent Common Stock for the five (5) consecutive trading days ending on the
trading day immediately prior to the Closing Date, as reported on the Nasdaq
National Market.
(g) DEFINITIONS.
(i) AGGREGATE COMMON NUMBER. The "Aggregate Common Number"
shall mean the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (including all shares of Company
Common Stock issued upon conversion of Company Preferred Stock.
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(ii) AGGREGATE OPTION NUMBER. The "Aggregate Option Number"
shall mean the aggregate number of shares of Company Common Stock issuable
upon the exercise of all outstanding Company Options immediately prior to the
Effective Time.
(iii) AGGREGATE SHARE NUMBER. The "Aggregate Share
Number" shall be 2,827,221 shares of Parent Common Stock (as appropriately
adjusted to reflect the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible
into Parent Common Stock), reorganization, recapitalization or other like
change with respect to the Parent Common Stock occurring after the date
hereof and prior to the Effective Time).
(iv) ESCROW AMOUNT. The "Escrow Amount" shall be a number of
shares of Parent Common Stock obtained by multiplying (x) the Aggregate
Common Number by (y) the Exchange Ratio by (z) 0.10.
(v) EXCHANGE RATIO. The "Exchange Ratio" shall mean the
quotient obtained by dividing (x) the Aggregate Share Number by (y) the sum
of (A) the Aggregate Common Number, plus (B) the Aggregate Option Number.
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
demanded and perfected appraisal or dissenters' rights for such shares in
accordance with Delaware Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal or dissenters' rights
("DISSENTING SHARES") shall not be converted into or represent a right to
receive Parent Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of shares of Company Capital Stock who demands appraisal of such
shares under Delaware Law shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive
Parent Common Stock and payment for any fractional share as provided in
Section 1.6, without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any shares of Company Capital Stock, withdrawals of
such demands, and any other instruments served pursuant to Delaware Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent
of Parent, voluntarily make any payment with respect to any demands for
appraisal of capital stock of the Company or offer to settle or settle any
such demands.
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1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE PROCEDURES. At the Closing, (i) each holder of
record of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Capital Stock and which shares were converted into the right to
receive shares of Parent Common Stock pursuant to Section 1.6 shall surrender
such Certificates in exchange for certificates representing shares of Parent
Common Stock, (ii) upon such surrender of a Certificate the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock (less the
number of shares of Parent Common Stock, if any, to be deposited in the
Escrow Fund on such holder's behalf pursuant to Article VII hereof), plus
cash in lieu of fractional shares in accordance with Section 1.6, to which
such holder is entitled pursuant to Section 1.6, and (iii) the Certificate so
surrendered shall forthwith be canceled. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of
Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing that
number of shares of Parent Common Stock equal to the Escrow Amount, which
certificate shall be registered in the name of the Escrow Agent. Such shares
shall be beneficially owned by the holders on whose behalf such shares were
deposited in the Escrow Fund and shall be available to compensate Parent as
provided in Article VII. Each outstanding Certificate that, prior to the
Effective Time, represented shares of Company Capital Stock and that is not
surrendered at the Closing will be deemed from and after the Effective Time,
for all corporate purposes, other than the payment of dividends, to evidence
the ownership of the number of full shares of Parent Common Stock into which
such shares of Company Capital Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6. Upon surrender of any such
outstanding Certificate to Parent after the Effective Time, Parent shall
promptly deliver, or cause to be delivered, a certificate representing the
number of shares of Parent Common Stock into which the shares of Company
Capital Stock represented by such Certificate were converted, together with
such amount in cash in lieu of fractional shares.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Parent Common Stock declared
or made after the Effective Time and with a record date after the Effective
Time will be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such
whole shares of Parent Common Stock.
(c) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the
person requesting such
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exchange will have paid to Parent or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares
of Parent Common Stock in any name other than that of the registered holder
of the Certificate surrendered, or established to the satisfaction of Parent
or any agent designated by it that such tax has been paid or is not payable.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof (including any cash
paid in respect thereof) shall be deemed to have been issued 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 exchanged as provided in this Article I.
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, the Company shall, prior to the Closing Date, issue a
replacement certificate or certificates for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder
thereof; provided, however, that the Company will, upon the request of
Parent, and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may
be made against the Company or Parent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment
as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any such 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, 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 action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are specifically disclosed in the disclosure
letter (referencing the appropriate section number) supplied by the Company
to Parent (the "COMPANY SCHEDULES") and dated as of the date hereof, as
follows:
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2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. The Company has the corporate power to own its properties and
to carry on its business as now being conducted. The Company is duly
qualified to do business and in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have, or
would reasonably be expected to have, a material adverse effect on the
business, assets (including intangible assets), financial condition or
results of operations of the Company (hereinafter referred to as a "MATERIAL
ADVERSE EFFECT"). The Company has delivered a true and correct copy of its
Certificate of Incorporation and Bylaws, each as amended to date, to Parent.
2.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of
10,000,000 shares of authorized Common Stock, of which 2,930,000 shares are
issued and outstanding, and 2,100,000 shares of authorized Series A Preferred
Stock, of which 1,600,000 shares are issued and outstanding. The Company
Capital Stock is held of record by the persons, with the addresses of record
and in the amounts set forth on Schedule 2.2(a). All outstanding shares of
Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of the Company or any agreement to
which the Company is a party or by which it is bound.
(b) As of January 16, 1997, the Company had reserved 970,000
shares of Common Stock, net of exercises, for issuance pursuant to the Option
Plan, of which 796,727 shares are subject to outstanding, unexercised options
and 173,273 shares remain available for future grant. Schedule 2.2(b) sets
forth for each outstanding Company Option the name of the holder of such
option, the state of domicile of such holder, 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
exercisable by reason of the transactions contemplated by this Agreement.
Except for the Company Options described in Schedule 2.2(b), the Company
Preferred Stock and this Agreement, 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 have been or
will be given, or shall have properly waived, any required notice prior to
the Merger. As a result of the Merger, Parent will be the record and sole
beneficial owner of all capital stock of the Company and rights to acquire or
receive such capital stock.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries and does not otherwise own and has never otherwise owned any
shares of capital stock or any ownership
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interest in, or control, directly or indirectly, any other corporation,
partnership, association, joint venture or other business entity.
2.4 AUTHORITY. Subject only to the requisite approval of the Merger
and this Agreement by the Company's stockholders, the Company has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The vote required of the
Company's stockholders to duly approve the Merger and this Agreement is (a)
the holders of a majority of the outstanding shares of Company Capital Stock
voting as a single class and (b) the holders of a majority of the outstanding
shares of Company Preferred Stock, provided that the conversion of Company
Preferred Stock into Company Common Stock contemplated by Section 6.3(g) will
require the consent of all of the holders of outstanding shares of Company
Preferred Stock. 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,
subject only to the approval of the Merger and this Agreement by the
Company's stockholders. The Company's Board of Directors has unanimously
approved the Merger and this Agreement. 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 except
(i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. 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 (i) the filing of the Merger Agreement with the Delaware Secretary of
State, (ii) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and (iii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
2.5 COMPANY FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent a true and complete copy
of its unaudited balance sheet as of December 31, 1996 (the "BALANCE SHEET")
and the related unaudited
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statements of operations and cash flows for the twelve-month period then
ended (collectively, the "COMPANY FINANCIALS"). The Company Financials have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied. The Company Financials present fairly, in all
material respects, the financial condition and operating results of the
Company as of the date and during the period indicated therein.
(b) Prior to the Closing, the Company shall deliver to Parent an
audited balance sheet as of the Balance Sheet date and the related audited
statements of operations and cash flows for the twelve-month period then
ended (the "Audited Company Financials"). The Audited Company Financials
shall have been prepared in accordance with GAAP. The Audited Company
Financials shall present fairly, in all material respects, the financial
condition and operating results of the Company as of the date and during the
period indicated therein. Except as set forth on Schedule 2.5(b), the Audited
Company Financials shall not differ materially from the Company Financials as
of and for the twelve-month period ended December 31, 1996.
2.6 NO UNDISCLOSED LIABILITIES. Except as set forth in this Agreement
and the Company Schedules, the Company does not have any liability,
indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement
of any type, whether accrued, absolute, contingent, matured, unmatured or
other (whether or not required to be reflected in financial statements in
accordance with GAAP), which the Company believes would or, in the good faith
judgment of the Company, would be reasonably expected to result in a
liability individually or in the aggregate in excess of $100,000 and which,
(i) has not been reflected in the Balance Sheet or (ii) has not arisen in the
ordinary course of the Company's business since December 31, 1996 consistent
with past practices.
2.7 NO CHANGES. Except as set forth in Schedule 2.7, since the date of
the Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on the date of the Balance Sheet and consistent with
past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $100,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful
labor practice or action;
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(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) 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
Company Capital Stock;
(i) increase in the salary or other compensation payable or to
become payable to any of its officers, directors, employees or advisors, or
the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement;
(j) sale, lease, license or other disposition of any of the assets
or properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement
or license to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the
Company of any indebtedness, guaranteeing by the Company of any indebtedness,
issuance or sale of any debt securities of the Company or guaranteeing of any
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(m) 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;
(n) commencement or notice or overt threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of Company
Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's intellectual property rights;
(p) issuance or sale by the Company of any of its shares of
Company Capital Stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(q) change in pricing or royalties set or charged by the Company
to its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Company Intellectual Property Rights to the Company;
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(r) event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on the Company; or
(s) negotiation or agreement by the Company or any officer or
employees thereof to do any of the things described in the preceding clauses
(a) through (r) (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, "TAXES", means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities relating to Taxes, 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
were true and correct in all material respects as of the date on which they
were filed or as subsequently amended and have been completed in accordance
with applicable law.
(ii) The Company as of the Effective Time: (A) will have paid
all Taxes shown to be due on the Returns or will be contesting them in good
faith 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) Except as is not material to the Company, 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.
(iv) No audit or other examination by any Governmental Entity
of any Return of the Company is currently in progress, nor has the Company
been notified of any request for such an audit or other examination.
(v) As of December 31, 1996, the Company did not have any
liabilities for unpaid federal, state, local and foreign Taxes were not
accrued or reserved against in accordance with GAAP on the Balance Sheet,
whether asserted or unasserted, contingent or otherwise, and has not
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incurred liability for Taxes since the date of the Balance Sheet other than
in the ordinary course of business.
(vi) The Company has provided to Parent copies of all federal
and state income and all state sales and use Tax Returns for all periods
since the date of the Company's incorporation.
(vii) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(viii) 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 Sections 280G, 404 or 162
of the Code.
(ix) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(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.
(x) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xi) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
Schedule 2.9, there is no agreement (non-compete or otherwise), commitment,
judgment, injunction, order or decree to which the Company is a party or
otherwise binding upon the Company which has or reasonably could be expected
to have the effect of prohibiting or impairing any business practice that is
material to the Company, any acquisition of material property (tangible or
intangible) by the Company or the conduct of business by the Company as
currently conducted. Without limiting the foregoing, the Company has not
entered into any agreement under which the Company is restricted from
selling, licensing or otherwise distributing any of its products to any class
of customers, in any geographic area, during any period of time or in any
segment of the market.
2.10 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
(a) The Company owns no real property, nor has it ever owned any
real property. 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
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respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(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, pledges, charges, claims,
security interests or other encumbrances of any sort ("LIENS"), except as
reflected in the Company Financials or in Schedule 2.10(b) and except for
liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
2.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, computer software programs or
applications (in both source code and object code form, if applicable), and
tangible or intangible proprietary information or material that is necessary
to the business of the Company as currently conducted or as proposed to be
conducted by the Company (the "COMPANY INTELLECTUAL PROPERTY RIGHTS").
(b) Schedule 2.11(a) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the
Company Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Schedule 2.11(b)
sets forth a complete list of all licenses, sublicenses and other agreements
as to which the Company is a party and pursuant to which the Company or any
other person is authorized to use any Company Intellectual Property Right
(excluding object code end-user licenses granted to end-users in the ordinary
course of business that permit use of software products without a right to
modify, distribute or sublicense the same ("END-USER LICENSES")) or trade
secret of the Company, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty
or other fees and the term thereof. Except as set forth in Schedule 2.11(b),
the execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement.
Except as set forth in Schedules 2.11(a) or 2.11(b), the Company is the sole
and exclusive owner or licensee of, with all right, title and interest in and
to (free and clear of any Liens), the Company Intellectual Property Rights,
and has sole and exclusive rights (and is not contractually obligated to pay
any compensation to any third party in respect thereof) to
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the use thereof or the material covered thereby in connection with the
services or products in respect of which the Company Intellectual Property
Rights are being used.
(c) No claims with respect to the Company Intellectual Property
Rights have been asserted or are, to the Company's knowledge, threatened by
any person, nor, to the Company's knowledge, are there any valid grounds for
any BONA FIDE claims, (i) to the effect that the manufacture, sale, licensing
or use of any of the products of the Company infringes on any copyright,
patent, trade mark, service mark, trade secret or other proprietary right,
(ii) against the use by the Company of any trademarks, service marks, trade
names, trade secrets, copyrights, maskworks, patents, technology, know-how or
computer software programs and applications used in the Company's business as
currently conducted or as proposed to be conducted by the Company, or (iii)
challenging the ownership by the Company, validity or effectiveness of any of
the Company Intellectual Property Rights. All registered trademarks, service
marks and copyrights held by the Company are valid and subsisting. To the
Company's knowledge, the Company has not infringed, and the business of the
Company as currently conducted or as proposed to be conducted does not
infringe, any copyright, patent, trademark, service mark, trade secret or
other proprietary right of any third party. To the Company's knowledge,
there is no material unauthorized use, infringement or misappropriation of
any of the Company Intellectual Property Rights by any third party, including
any employee or former employee of the Company. No Company Intellectual
Property Right or product of the Company or any of its subsidiaries is
subject to any outstanding decree, order, judgment, or stipulation
restricting in any manner the licensing thereof by the Company. Each
employee, consultant or contractor of the Company has executed a proprietary
information and confidentiality agreement substantially in the Company's
standard forms. All software included in the Company Intellectual Property
Rights that is owned or purported to be owned by the Company has been either
created by employees of the Company on a work-for-hire basis or by
consultants or contractors who have created such software themselves and have
assigned all rights they may have had in such software to the Company, in
each case without any unauthorized use or misappropriation of any copyright,
patent, trademark, service mark, trade secret or other proprietary right of
any third party.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. Except as set forth on
Schedule 2.12(a), the Company is not currently a party to or 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
(other than as provided by statute or other law) with an employee or
individual consultant or salesperson or any
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consulting or sales agreement, contract or commitment under which any firm or
other organization provides services to the Company,
(v) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually
in excess of $25,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of
business or to compete with any person,
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000,
(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,
(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,
(xiii) any purchase order or contract for the purchase of raw
materials involving $25,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or
may grant in the future, to any party, a source-code license or option or
other right to use or acquire source-code, or
(xvii) any other agreement, contract or commitment that involves
$25,000 or more and 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, as are all noted in Schedule
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2.12(b), the Company has not breached, violated or defaulted under, or
received overt notice that it has breached, violated or defaulted under, any
of the terms or conditions of any agreement, contract or commitment required
to be set forth on Schedule 2.12(a) or Schedule 2.11(b) (any such agreement,
contract or commitment, a "CONTRACT") in such a manner as would permit any
other party to cancel or terminate the Contract or would permit any other
party to seek damages from the Company under the Contract. Each Contract is
in full force and effect and, except as otherwise disclosed in Schedule
2.12(b), is not subject to any default thereunder of which the Company has
knowledge by any party obligated to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. Except as set forth on Schedule
2.13, no officer, director or stockholder of the Company (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
interest), has, directly or indirectly, (i) an economic interest in any
entity which furnished or sold, or furnishes or sells, services or products
that the Company furnishes or sells, or proposes to furnish or sell, (ii) an
economic interest in any entity that purchases from or sells or furnishes to,
the Company, any goods or services or (iii) a beneficial interest in any
contract or agreement set forth in Schedule 2.12(a) or Schedule 2.11(b);
provided, that ownership of no more than one percent (1%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed an
"economic interest in any entity" for purposes of this Section 2.13.
2.14 COMPLIANCE WITH LAWS. The business of the Company is not being
conducted in material violation of, and the Company has not received any
notices of violation with respect to, any foreign, federal, state or local
statute, law or regulation.
2.15 LITIGATION. There is no action, suit or proceeding of any nature
pending, or as to which the Company or any of its officers or directors has
received a written notice of assertion, against the Company, its properties
or any of its officers or directors, in their respective capacities as such.
There is no investigation pending, or as to which the Company or any of its
officers or directors has received a written notice of assertion, against the
Company, its properties or any of its officers or directors, in their
respective capacities as such or as employees, by or before any governmental
entity. The Company has not received any communication from a governmental
entity at any time challenging or questioning the legal right of the Company
to manufacture, offer or sell any of its products in the present manner
thereof.
2.16 INSURANCE. The Company has made available to Parent true and
complete copies of all insurance policies or binders to which the Company is
a party or under which the Company is covered and true and complete copies of
all applications for insurance policies. All insurance policies to which the
Company is a party or that provide coverage to the Company are in full force
and effect. There is no claim by the Company pending under any of such
policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and the Company is
otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing
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substantially similar insurance coverage). The Company has no knowledge of
any threatened termination of, or material premium increase with respect to,
any of such policies.
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 all
of the votes and consents adopted by the Company's board of directors (or
committees thereof) and stockholders since the time of incorporation of the
Company.
2.18 ENVIRONMENTAL MATTERS.
(a) HAZARDOUS MATERIAL. The Company has not operated any
underground storage tanks, and has no knowledge of the existence, at any
time, of any underground storage tank (or related piping or pumps), at any
property that the Company has at any time owned, operated, occupied or
leased. The Company has not released any amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state or
local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, oil and
petroleum products, urea-formaldehyde and all substances listed as a
"hazardous substance," "hazardous waste," "hazardous material" or "toxic
substance" or words of similar import, under any law, including but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act
of 1976, as amended; the Federal Water Pollution Control Act, as amended; the
Clean Air Act, as amended, and the regulations promulgated pursuant to said
laws, (a "HAZARDOUS MATERIAL"). No Hazardous Materials are present as a
result of the actions of the Company, or, to the Company's knowledge, as a
result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect
on or before the Effective Time, nor has the Company disposed of,
transported, sold, or manufactured any product containing a Hazardous
Material (any or all of the foregoing being collectively referred to as
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to
or as of the date hereof to prohibit, regulate or control Hazardous Materials
or any Hazardous Material Activity.
(c) PERMITS. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "ENVIRONMENTAL
PERMITS") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) ENVIRONMENTAL LIABILITIES. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
the Company's knowledge, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials
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Activity of the Company. The Company is not aware of any fact or
circumstance which could involve the Company in any environmental litigation
or impose upon the Company any environmental liability.
2.19 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. The Company has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
Schedule 2.19 sets forth the Company's current 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 MATTERS AND BENEFIT PLANS.
(a) DEFINITIONS. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (which definition shall
apply only to this Section 2.20), for purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under
common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations 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, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between the Company or
any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
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(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, together with
a schedule of all liabilities, whether or not accrued, under each such
Company Employee Plan or Employee Agreement. Except as set forth on Schedule
2.20(b), 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.
(c) DOCUMENTS. The Company has provided to Parent (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 three
most recent annual reports (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code 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; (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; and (viii) all registration
statements and prospectuses prepared in connection with each Company Employee
Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Except as set forth on Schedule
2.20(d), (i) the Company has performed in all material respects all
obligations required to be performed by it under each Company Employee Plan,
and each Company Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) 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
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for benefits) against any Company Employee Plan or against the assets of any
Company Employee Plan; and (iv) 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 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) 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 foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement
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to be withheld from the wages, salaries and other payments to Employees;
(iii) is not liable for any arrears of wages or any taxes or penalty for
failure to comply with any of the foregoing; and (iv) 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 or obligations for Employees (other than routine
payments to be made in the ordinary course of business and consistent with
past practice).
(j) LABOR. No work stoppage or labor strike against the Company
is pending or, to the best knowledge of the Company, threatened. 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
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 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.
2.21 EMPLOYEES. To the best of the Company's knowledge, no employee of
the Company (i) is in violation of any term of any employment contract,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to
be employed by the Company because of the nature of the business conducted or
presently proposed to be conducted by the Company or to the use of trade
secrets or proprietary information of others and (ii) has given notice to the
Company, nor is the Company otherwise aware, that such employee intends to
terminate his or her employment with the Company.
2.22 POOLING OF INTERESTS. To the Company's knowledge, based on
consultation with its independent accountants, neither the Company nor any of
its directors, officers or stockholders has taken any action which would
interfere with Parent's ability to account for the Merger as a pooling of
interests.
2.23 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company (as modified by the Company Schedules), nor
any statement made in any schedule or certificate furnished by the Company
pursuant to this Agreement, or furnished in or in connection with documents
mailed or delivered to the stockholders of the Company in connection with
soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of
the circumstances under which made, not misleading. Disclosure of any matter
herein, including as set forth on any one Company Schedule, shall, if
reasonable, be deemed to be set forth on any other Company Schedule for which
such matter is applicable.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
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 as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
business, assets (including intangible assets), financial condition or
results of operations of Parent and Merger Sub as a whole.
3.2 AUTHORITY. Parent and Merger Sub have 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 Parent
and Merger Sub. This Agreement has been duly executed and delivered by
Parent and Merger Sub and constitutes the valid and binding obligations of
Parent and Merger Sub, enforceable in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. 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 (i) any provision of the Certificate of Incorporation or Bylaws
of the Company or (ii) any agreement required to be filed as an exhibit to
any registration statement or report filed with the SEC (as defined below) or
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, which would have a
material adverse effect on Parent. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity or any third party (so as not to trigger any Conflict) is
required by or with respect to the Company in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Merger Agreement with
the Delaware Secretary of State, (ii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws, (iii) such other
consents, waivers, authorizations, filings, approvals and registrations which
are required to be obtained by the Company, and (iv) such other consents,
waivers, authorizations, filings, approvals and registrations, the absence of
which would not have a material adverse effect on the
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business, assets (including intangible assets), financial conditions or
results of operations of Parent or on the ability of Parent to consummate the
transactions contemplated hereby.
3.3 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 20,000,000 shares
of Common Stock, of which 14,145,923 shares were issued and outstanding as of
January 15, 1997, and 2,000,000 shares of Preferred Stock, none of which is
issued or outstanding. The authorized capital stock of Merger Sub consists
of 1,000 shares of Common Stock, all of which, as of the date hereof, are
issued and outstanding and are held by Parent. All such shares have been
duly authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon
the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger (including shares issued upon valid exercise of the Company Options),
when issued, will be duly authorized, validly issued, fully paid and
non-assessable.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished
or made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934 (the
"EXCHANGE ACT") for all periods since January 1, 1996, all in the form so
filed (all of the foregoing being collectively referred to as the "SEC
DOCUMENTS"). As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933
(the "SECURITIES ACT") or the Exchange Act, as the case may be, and none of
the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which
they were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC and delivered to the Company. The financial
statements of Parent, including the notes thereto, included in the SEC
Documents (the "PARENT FINANCIAL STATEMENTS") comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) and present fairly the consolidated
financial position of Parent at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal and recurring year-end
adjustments). There has been no change in Parent accounting policies except
as described in the notes to the Parent Financial Statements. Parent has
delivered to the Company a true and complete copy of the press release to be
issued by Parent on the date hereof with respect to, among other things, its
results of operations for the fiscal quarter ended December 31, 1996.
3.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-Q or Form
10-K, Parent has conducted its business in
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the ordinary course and there has not occurred: (a) any material adverse
change in the financial condition, liabilities, assets or business of Parent;
(b) any amendment or change in the Certificate of Incorporation or Bylaws of
Parent, or (c) any damage to, destruction or loss of any assets of the Parent
(whether or not covered by insurance) that materially and adversely affects
the financial condition or business of Parent.
3.6 LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Parent or Merger Sub has
received any notice of assertion against Parent or Merger Sub, which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
execution and delivery of this Agreement or the consummation of any of the
transactions contem-plated by this Agreement.
3.7 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except for
amounts owed to Hambrecht & Quist LLC, 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.
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 and the Effective Time, the Company agrees (except to the
extent that Parent shall otherwise consent in writing) to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its debts and Taxes when due (subject
to good faith disputes over such debts and taxes), to pay or perform other
material obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time. The
Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of its business, and any event materially and
adversely affecting the Company or its business. Except as expressly
contemplated by this Agreement, the Company shall not, without the prior
written consent of Parent:
(a) Enter into any commitment, activity or transaction not in the
ordinary course of business.
(b) Transfer to any person or entity any rights to any Company
Intellectual Property Rights (other than pursuant to End-User Licenses and to
software vendors in the ordinary course of business);
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(c) Enter into or amend any agreements pursuant to which any other
party is granted manufacturing, 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 other than (i) for the routine
collection of bills and (ii) in such cases where the Company in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of the Company's business, provided that the
Company consults with Parent prior to the filing of such a suit;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock, or split, combine or reclassify any of Company Capital Stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of Company Capital Stock, or
repurchase, redeem or otherwise acquire, directly or indirectly, any shares
of Company Capital Stock (or options, warrants or other rights exercisable
therefor);
(g) Except for the issuance of shares of Company Capital Stock
upon exercise of presently outstanding Company Options, issue, grant, deliver
or sell or authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of Company 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;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any equity interest in or a material 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 and
consistent with past practice;
(k) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities of the Company or guarantee any debt securities of
others;
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(l) Grant any severance or termination pay to any director,
officer, employee or consultant, except payments made pursuant to standard
written agreements outstanding on the date hereof (which such agreements are
disclosed on Schedule 4.1(l));
(m) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment
offer other than in the ordinary course of business and involving at-will
employment for an annual salary of less than $75,000 (provided, however, that
not more than five individuals are hired with respect thereto), pay or agree
to pay any special bonus or special remuneration to any director, employee or
consultant, 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 and consistent with
past practice;
(o) Intentionally take any action, including the acceleration of
vesting of any options, warrants, restricted stock or other rights to acquire
shares of Company capital stock, which would be reasonably likely to
interfere with Parent's ability to account for the Merger as a pooling of
interests or to jeopardize the tax-free reorganization hereunder;
(p) Pay, discharge or satisfy, in an amount in excess of $50,000,
in any one case, or $150,000, in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in the
Company Financial Statements (or incurred since December 31, 1996 in the
ordinary course of business);
(q) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes (except as set
forth in the Company Schedules), enter into any closing agreement, settle any
claim or assessment in respect of Taxes (except any settlement effected
solely through payment of an immaterial amount of money), or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(r) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(s) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(t) Waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $25,000, in the aggregate;
(u) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business;
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(v) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity
in which the Company directly or indirectly holds any ownership interest on
the date hereof; or
(w) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (v) above, or any other action
that would cause any of the conditions to the Merger set forth in Section 6.1
or 6.2 not to be satisfied.
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 to) directly or indirectly, take any of the following actions with
any party other than Parent, Merger Sub and their 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 (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its
capital stock or assets or any equity interest in the Company (excluding the
exercise of Company Options), (b) provide information with respect to it to
any person, other than Parent, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such person with regard
to, any possible acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any material
portion of its capital stock or assets or any equity interest in the Company
(excluding the exercise of Company Options), (c) enter into an agreement with
any person, other than Parent, providing for the acquisition of the Company
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its capital stock or assets or any equity
interest in the Company (excluding the exercise of Company Options), or (d)
make or authorize any statement, recommendation or solicitation in support of
any possible acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise), any material portion of
its or their capital stock or assets or any equity interest in the Company
(excluding the exercise of Company Options) by any person, other than by
Parent. The Company shall immediately cease and cause to be terminated any
such contacts or negotiations with third parties relating to any such
transaction or proposed transaction. In addition to the foregoing, if the
Company receives prior to the Effective Time or the termination of this
Agreement any offer or proposal relating to any of the above, the Company
shall immediately notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and
the specific terms of such offer or proposal, as the case may be, and such
other information related thereto as Parent may reasonably request. Except
as contemplated by this Agreement, disclosure by the Company of the terms
hereof (other than the prohibition of this section or pursuant to Section
5.5) shall be deemed to be a violation of this Section 4.2.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 REGISTRATION ON FORM S-4; PRIVATE PLACEMENT EXEMPTION; COMPANY
STOCKHOLDER APPROVAL.
(a) As promptly as practicable after the execution of this
Agreement, Parent and Company shall mutually determine whether Parent will
issue the shares of Parent Common Stock to be issued pursuant to the Merger
by (i) registering the offer and sale of the shares pursuant to a
Registration Statement on Form S-4 (or such other or successor form as shall
be appropriate) (the "REGISTRATION STATEMENT"), which shall include the
Company's proxy statement (the "PROXY STATEMENT") as a prospectus which
complies in form with applicable SEC requirements, or (ii) relying on an
exemption from registration (the "PRIVATE PLACEMENT EXEMPTION") pursuant to
Section 4(2), including Rule 506 under the Securities Act. Such
determination shall be based on whether the Merger must be approved by the
stockholders of Parent pursuant to Delaware Law or the rules and regulations
of The Nasdaq Stock Market. Parent will rely on the Registration Statement
process if it is determined that Parent's stockholders must approve the
Merger, and Parent will rely on the Private Placement Exemption if it is
determined otherwise. Upon determining whether to file a Registration
Statement or pursue a Private Placement Exemption, Parent shall notify the
Company of its determination and, as promptly as practicable, prepare the
necessary documentation to satisfy the relevant securities law requirements
of such determination.
(b) In the event the Parent relies on the Registration Statement
process, Parent shall prepare and file with the SEC the Registration
Statement, in which the Proxy Statement will be included as a prospectus.
Such Proxy Statement shall include the recommendation of the Board of
Directors of the Company in favor of the Merger which shall not be withdrawn,
modified or withheld. The Company shall furnish to Parent all information
concerning the Company and the holders of capital stock of the Company as may
be reasonably requested in connection with any action contemplated by this
Section 5.1(a).
(c) In the event that Parent relies on the Private Placement
Exemption, Parent shall use its reasonable best efforts to file, within 20
days following the Closing, a registration statement with the SEC covering
the resale of such shares of Parent Common Stock. Any such registration
shall be subject to the terms and conditions set forth in the Declaration of
Registration Rights attached here to as EXHIBIT F. The certificates for
shares of Parent Common Stock to be issued in the Merger pursuant to such
private placement exemption, if applicable, shall bear appropriate legends to
identify such privately placed shares as being restricted under the
Securities Act, to comply with applicable state securities laws. It is
acknowledged and understood that in order for Parent to rely upon a private
placement exemption from registration under the Securities Act, Parent will
be required to rely upon certain representations made by each holder of the
Company Capital Stock, including, but not limited to, representations
regarding investment intent.
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(d) As promptly as practicable after the execution of this
Agreement and at such time as Parent may request so as not to interfere with
Registration Statement process or the Private Placement Exemption described
above, the Company shall submit this Agreement and the transactions
contemplated hereby 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 convene a stockholders' meeting as promptly as
possible for the purpose of voting upon the Merger and this Agreement. The
materials submitted to the Company's stockholders shall be subject to review
and approval by Parent and include information regarding the Company, the
terms of the Merger and this Agreement and the unanimous recommendation of
the Board of Directors of the Company in favor of the Merger and this
Agreement.
5.2 ACCESS TO INFORMATION. Each party shall afford the others and
their accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Effective Time to
(a) all of its properties, books, contracts, commitments and records, and (b)
all other information concerning its business, properties and personnel
(subject to restrictions imposed by applicable law) as the others may
reasonably request, subject, in the case of Parent, to reasonable limits on
access to its technical and other nonpublic information. 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;
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 or (f) which is disclosed in the course of any litigation
between any of the parties hereto.
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 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;
provided, however, that at the Closing, the stockholders of the Company shall
pay to the Company an amount equal to all fees and expenses payable to any
financial advisor or investment bank retained by the Company on its own
behalf or on behalf of such stockholders prior to the Effective Time.
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5.5 PUBLIC DISCLOSURE. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by
the rules and regulations of the Nasdaq Stock Market, prior to the Effective
Time, no disclosure (whether or not in response to an inquiry) of the subject
matter of this Agreement shall be made by any party hereto unless approved by
Parent and the Company prior to release, provided that such approval shall
not be unreasonably withheld.
5.6 CONSENTS. The Company shall use commercially reasonable efforts to
obtain the consents, waivers and approvals under any of the Contracts as may
be required in connection with the Merger (all of such consents, waivers and
approvals are set forth in Company Schedules) so as to preserve all rights of
and benefits to the Company thereunder.
5.7 FIRPTA COMPLIANCE. On or prior to the Closing Date, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.8 REASONABLE EFFORTS. Subject to the terms and conditions provided
in this Agreement, each of the parties hereto shall use its commercially
reasonable efforts to ensure that its representations and warranties remain
true and correct in all material respects, and to take promptly, or cause to
be taken, all actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals, to effect all necessary
registrations and filings, and to remove any injunctions or other impediments
or delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to
the parties hereto the benefits contemplated by this Agreement; provided that
Parent shall not be required to agree to any divestiture by Parent or the
Company or any of Parent's subsidiaries or affiliates of shares of capital
stock or of any business, assets or property of Parent or its subsidiaries or
affiliates or the Company or its affiliates, or the imposition of any
material limitation on the ability of any of them to conduct their businesses
or to own or exercise control of such assets, properties and stock.
5.9 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 EMPLOYEE MATTERS. Parent shall offer, or cause the Surviving
Corporation to offer, employment by the Surviving Corporation to each person
as mutually agreed upon by Parent and Company prior to the Closing Date
("Continuing Employees"). Subject to compliance with pooling-of-interest
accounting treatment of the Merger, Parent shall take such reasonable actions
as are
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necessary to allow eligible employees of the Company to participate in the
benefit programs of Parent, or alternative benefits programs substantially
comparable to those applicable to employees of Parent on similar terms, as
soon as practicable after the Effective Time. In providing such benefits or
alternative benefits, Parent and the Surviving Corporation shall afford to
the Continuing Employees full credit for service to the Company prior to the
Effective Time, as if such service has been provided to Parent. The
Continuing Employees shall have full opportunity to participate in Parent's
stock purchase and option plans after the Effective Time, subject to the
standard terms of such plans. Without limiting the foregoing, Parent will
grant to the Continuing Employees, as promptly as practicable after the
Effective Time, new stock options to purchase an aggregate of 200,000 shares
of Parent Common Stock, which options shall be allocated among the Continuing
Employees in a manner to be mutually agreed upon by the Company and Parent
prior to the Closing Date.
5.11 POOLING ACCOUNTING. The Company shall each use its reasonable
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. The Company shall use its
reasonable efforts to cause its respective employees, directors, stockholders
and affiliates not to take any action that would adversely affect the ability
of Parent to account for the business combination to be effected by the
Merger as a pooling of interests.
5.12 AFFILIATE AGREEMENTS. Schedule 5.12 sets forth those persons who,
in the Company's reasonable judgment, are or may be "affiliates" of the
Company within the meaning of Rule 145 (each such person an "Affiliate")
promulgated under the Securities Act ("Rule 145"). The Company shall provide
Parent such information and documents as Parent shall reasonably request for
purposes of reviewing such list. If Parent relies on the Registration
Statement process to issue the Parent Common Stock pursuant to the Merger,
(a) the Company shall deliver or cause to be delivered to Parent,
concurrently with the execution of this Agreement (and in any case prior to
the Closing) from each of the Affiliates of the Company, an executed
Affiliate Agreement in the form attached hereto as EXHIBIT A and (b) Parent
shall be entitled to place appropriate legends on the certificates evidencing
any Parent Common Stock to be received by such Affiliates pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for Parent Common Stock, consistent with the terms of
such Affiliate Agreements.
5.13 VOTING AGREEMENTS. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement, from
each Affiliate, an executed Voting Agreement in the form attached hereto as
EXHIBIT B (the "VOTING AGREEMENTS"), agreeing, among other things, to vote in
favor of the Merger and against any competing proposals.
5.14 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
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5.15 FORM S-8. Parent shall file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed
Company Options promptly after the Effective Time.
5.16 NASDAQ NATIONAL MARKET LISTING. Parent shall authorize for listing
on the Nasdaq National Market the shares of Parent Common Stock issuable, and
those required to be reserved for issuance, in connection with the Merger,
upon official notice of issuance.
5.17 COMPANY'S AUDITORS. The Company will use its commercially
reasonable efforts to cause its management and its independent auditors to
facilitate on a timely basis (i) the preparation of financial statements
(including pro forma financial statements if required) as required by Parent
to comply with applicable SEC regulations, (ii) the review of the Company's
audit work papers for up to the past three years , including the examination
of selected interim financial statements and data, and (iii) the delivery of
such representations from the Company's independent accountants as may be
reasonably requested by Parent or its accountants in order for Parent's
accountants to render the opinion called for by Section 6.3(j) hereof.
5.18 UPDATES OF SCHEDULES. The Company may, from time to time after the
date hereof but not later than five business days before the Closing Date,
prepare and deliver to Parent updates to one or more of the Company Schedules
disclosing any changes thereto required in respect of matters not known to
the Company on or prior to the date hereof. In the event the Closing does
not occur, the initial Company Schedules shall constitute the Company
Schedules to be used in determining any inaccuracy in, or breach of, any
representations or warranties of the Company pursuant to Section 8.2. In the
event the Closing occurs, the final versions of the Company Schedules as of
the Closing Date shall supersede the initial Company Schedules and shall
constitute the definitive Company Schedules for all purposes of Article VIII.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have been approved and adopted by the stockholders of the Company and the
Parent, if required by Delaware Law or the rules and regulations of The
Nasdaq Stock Market, by the requisite vote under applicable law and the
Company's and Parent's respective Certificate of Incorporation.
(b) GOVERNMENT APPROVALS; REGISTRATION STATEMENT EFFECTIVE. All
approvals of governments and governmental agencies necessary to consummate
the transactions hereunder, including the Registration Statement being
declared effective if Parent relies on the Registration Statement process
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to issue the Parent Common Stock pursuant to the Merger, shall have been
received. No stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
the purpose, and no similar proceeding in respect of the Proxy Statement,
shall have been initiated or threatened by the SEC.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued
by any court of competent jurisdiction or other legal or regulatory restraint
or prohibition preventing the consummation of the Merger shall be in effect.
(d) TAX OPINIONS. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Wilson Sonsini
Goodrich & Rosati and Foley, Hoag & Eliot LLP, respectively, in form and
substance reasonably satisfactory to them, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
The parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
(e) NASDAQ LISTING. The shares of Parent Common Stock issuable to
stockholders of the Company pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq National Market upon official
notice of issuance.
(f) EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule
6.1(f) shall have executed and delivered to Parent an Employment Agreement in
substantially the form of EXHIBIT C, and all of the Employment Agreements
shall be in full force and effect.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, 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 date), with the same
force and effect as if made on and as of the Closing Date, except, in all
such cases, for such breaches, inaccuracies or omissions of such
representations and warranties which have neither had nor reasonably would be
expected to have a material adverse effect on the business, assets (including
intangible assets), financial condition or results of operations of Parent;
and the Company shall have received a certificate to such effect signed on
behalf of Parent by a duly authorized officer of Parent. The amendments, if
any, to the Company Schedules pursuant to Section 5.18 shall be reasonably
satisfactory in form and substance to Parent.
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(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them
on or prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) THIRD PARTY CONSENTS. The Company shall have been furnished
with evidence satisfactory to it that Parent has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) LEGAL OPINION. The Company shall have received a legal
opinion from Wilson Sonsini Goodrich & Rosati, counsel to Parent, in
substantially the form attached hereto as EXHIBIT D.
(e) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible
assets), financial condition or results of operations of Parent since the
date of the financial statements in the SEC Documents. For purposes of this
condition, a decline in the trading price of Parent's Common Stock, whether
occurring at any time or from time to time, as reported by Nasdaq or any
other automated quotation system or exchange shall not, by itself, constitute
a material adverse change.
(f) DECLARATION OF REGISTRATION RIGHTS. If Parent relies on the
Private Placement Exemption to issue Parent Common Stock pursuant to the
Merger, Parent shall have adopted the Declaration of Registration Rights in
the form attached hereto as EXHIBIT F, and such Declaration shall be in full
force and effect in accordance with the terms thereof.
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, 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 date), with the same force and
effect as if made on and as of the Closing Date, except, in all such cases,
for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Parent; and Parent and Merger Sub
shall have received a certificate to such effect signed on behalf of the
Company by the chief executive officer and chief financial officer of the
Company. The amendments, if any, to the Company Schedules pursuant to
Section 5.18 shall be reasonably satisfactory in form and substance to Parent.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed
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or complied with by it on or prior to the Effective Time, and Parent and
Merger Sub shall have received a certificate to such effect signed by a duly
authorized officer of the Company.
(c) THIRD PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) LEGAL OPINION. Parent shall have received a legal opinion
from Foley, Hoag & Eliot LLP, legal counsel to the Company, in substantially
the form attached hereto as EXHIBIT E.
(e) AFFILIATE AGREEMENTS. If Parent relies on the Registration
Statement process to issue the Parent Common Stock pursuant to the Merger,
(a) each of the parties identified by the Company as being an Affiliate of
the Company shall have delivered to Parent an executed Affiliate Agreement
which shall be in full force and effect.
(f) MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, assets (including intangible
assets), financial condition or results of operations of the Company since
the date of the Balance Sheet.
(g) CONVERSION OF PREFERRED STOCK. All shares of Company
Preferred Stock shall have converted into Company Common Stock in accordance
with the Company's Certificate of Incorporation.
(h) AUDITED FINANCIAL STATEMENTS. The Company shall have
delivered to Parent the Audited Company Financials in accordance with Section
2.5(b) of this Agreement.
(i) DISSENTERS' RIGHTS. Holders of more than 10% of the
outstanding shares of Company Capital Stock (or such lesser number of shares
that would not jeopardize the accounting treatment of the Merger as a pooling
of interests) shall not have exercised, nor shall they have any continued
right to exercise, appraisal, dissenters' or similar rights under applicable
law with respect to their shares by virtue of the Merger.
(j) OPINION OF ACCOUNTANTS. Parent shall have received a letter
from Coopers & Lybrand L.L.P. regarding such firm's concurrence with Parent
management's conclusions as to the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16,
if consummated in accordance with this Agreement. In addition, the Company's
accountants shall have provided a letter, satisfactory in form and substance
to Parent, regarding the appropriateness of pooling of interests accounting
for a transaction involving the Company.
(k) SECURITIES LAW COMPLIANCE. Parent shall be able to issue the
Parent Common Stock to be issued in connection with the Merger in compliance
with the Securities Act and the rules and regulations thereunder.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the Company's
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement (each as modified by the Company
Schedules) shall survive the Merger and continue until 5:00 p.m., California
time, on the date which is six months following the date of this Agreement
(the "Expiration Date").
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. At the Effective Time, the Company's
stockholders will be deemed to have received and deposited with the Escrow
Agent (as defined below) the Escrow Amount (plus any additional shares as may
be issued upon any stock split, stock dividend or recapitalization effected
by Parent after the Effective Time) without any act of any stockholder. As
soon as practicable after the Effective Time, the Escrow Amount, without any
act of any stockholder, will be deposited with an institution acceptable to
Parent and the Securityholder Agent (as defined in Section 7.2(g) below) as
Escrow Agent (the "ESCROW AGENT"), such deposit to constitute an escrow fund
(the "ESCROW FUND") to be governed by the terms set forth herein and at
Parent's cost and expense. The portion of the Escrow Amount contributed on
behalf of each stockholder of the Company shall be in proportion to the
aggregate Parent Common Stock which such holder would otherwise be entitled
under Section 1.6(a). No portion of the Escrow Amount shall be contributed
in respect of any Company Options or warrants. The Escrow Fund shall be
available to compensate Parent and its affiliates for any claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses, and expenses of investigation and defense
(hereinafter individually a "LOSS" and collectively "LOSSES") incurred by
Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly as a result of any inaccuracy or breach
of a representation or warranty of the Company contained in Article II herein
(as modified by the Company Schedules), or any failure by the Company to
perform or comply with any covenant contained herein. The amount of any
Losses shall be net of (a) any amount for which reimbursement is received by
Parent or the Surviving Corporation pursuant to insurance policies or (b) any
Tax benefit (or decrese in Tax liabilities) attributable to such Losses.
Parent and the Company each acknowledge that such Losses, if any, would
relate to unresolved contingencies existing at the Effective Time, which if
resolved at the Effective Time would have led to a reduction in the aggregate
Merger consideration. Nothing herein shall limit the liability of the Company
for any breach of any representation, warranty or covenant if the Merger does
not close. Parent may not receive any shares from the Escrow Fund unless and
until Officer's Certificates (as defined in paragraph (d) below) identifying
Losses, the aggregate amount of which exceed $250,000, have been delivered to
the Escrow Agent as provided in paragraph (e); in such case, Parent may
recover from the Escrow Fund the total of its Losses in excess of $250,000.
(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW
PERIODS. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective
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Time and shall terminate at 5:00 p.m., California time, on the Expiration
Date (the "ESCROW PERIOD"); provided that the Escrow Period shall not
terminate with respect to such amount (or some portion thereof), that
together with the aggregate amount remaining in the Escrow Fund is necessary
in the reasonable judgment of Parent, subject to the objection of the
Securityholder Agent and the subsequent arbitration of the matter in the
manner provided in Section 7.2(f) hereof, to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
Escrow Period specified in any Officer's Certificate delivered to the Escrow
Agent prior to termination of such Escrow Period. As soon as all such claims
have been resolved, the Escrow Agent shall deliver to the stockholders of the
Company the remaining portion of the Escrow Fund and not required to satisfy
such claims. Deliveries of Escrow Amounts to the stockholders of the Company
pursuant to this Section 7.2(b) shall be made in proportion to their
respective original contributions to the Escrow Fund.
(c) PROTECTION OF ESCROW FUND.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a
stock split) ("NEW SHARES") in respect of Parent Common Stock in the Escrow
Fund which have not been released from the Escrow Fund shall be added to the
Escrow Fund and become a part thereof. New Shares issued in respect of
shares of Parent Common Stock which have been released from the Escrow Fund
shall not be added to the Escrow Fund but shall be distributed to the
recordholders thereof. Cash dividends on Parent Common Stock shall not be
added to the Escrow Fund but shall be distributed to the recordholders
thereof.
(iii) Each stockholder shall have voting rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund
by such stockholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Stock).
(d) CLAIMS UPON ESCROW FUND.
(i) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of a certificate signed by any officer of
Parent (an "OFFICER'S CERTIFICATE"): (A) stating that Parent has paid or
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid or
properly accrued, or the basis for such anticipated liability, and the nature
of the misrepresentation, breach of warranty or covenant to which such item
is related, the Escrow Agent shall, subject to the provisions of Section
7.2(e) hereof, deliver
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to Parent out of the Escrow Fund, as promptly as practicable, shares of
Parent Common Stock held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant
to Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be
valued at the average of the closing prices of Parent's Common Stock on the
principal securities exchange on which Parent's Common Stock is then traded,
or if not so traded, the National Market System of the National Association
of Securities Dealers Automated Quotation system, in either case as reported
in THE WALL STREET JOURNAL for the five (5) consecutive trading days ending
on the date that is two (2) trading days prior to the date on which such
shares are delivered from the Escrow Fund. Parent and the Securityholder
Agent shall certify such fair market value in a certificate signed by both
Parent and the Securityholder Agent, and shall deliver such certificate to
the Escrow Agent.
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such
certificate shall be delivered to the Securityholder Agent and for a period
of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any Escrow Amounts pursuant to Section 7.2(d) hereof
unless the Escrow Agent shall have received written authorization from the
Securityholder Agent to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of shares of
Parent Common Stock from the Escrow Fund in accordance with Section 7.2(d)
hereof, provided that no such payment or delivery may be made if the
Securityholder Agent shall object in a written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to
the Escrow Agent prior to the expiration of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration
of the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. Parent and the Securityholder
Agent shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator. The arbitrators shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
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judgment of the arbitrators, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the
extent as a court of competent law or equity, should the arbitrators
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of a majority of the three arbitrators as to the validity and amount
of any claim in such Officer's Certificate shall be binding and conclusive
upon the parties to this Agreement, and notwithstanding anything in Section
7.2(e) hereof, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported
by written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators
may be entered in any court having jurisdiction. Any such arbitration shall
be held in Santa Clara County, California under the rules then in effect of
the American Arbitration Association. For purposes of this Section 7.2(f),
in any arbitration hereunder in which any claim or the amount thereof stated
in the Officer's Certificate is at issue, 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 plus any amounts not in
dispute; otherwise, the stockholders of the Company as represented by the
Securityholder 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 costs of the arbitration and the
expenses, including without limitation, reasonable attorneys' fees and costs,
incurred by the other party to the arbitration.
(g) SECURITYHOLDER AGENT OF THE STOCKHOLDERS; POWER OF ATTORNEY.
(i) In the event that the Merger is approved, effective upon
such vote, and without further act of any stockholder, Don McInnis and a
representative of Fidelity Ventures to be appointed before the Effective Time
shall be appointed as agents and attorneys-in-fact (collectively, the
"SECURITYHOLDER AGENT") for each stockholder of the Company (except such
stockholders, if any, as shall have perfected their appraisal or 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 shares of Parent Common Stock from the Escrow Fund in satisfaction
of claims by Parent, to object to such deliveries, to agree to, negotiate,
enter into settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to such claims,
and to take all actions necessary or appropriate in the judgment of
Securityholder Agent for the accomplishment of the foregoing. Such agency
may be changed by the stockholders of the Company from time to time upon not
less than thirty (30) days prior written notice to Parent; provided that the
Securityholder Agent may not be removed unless holders of a two-thirds
interest of the Escrow Fund agree to such removal and to the identity of the
substituted agent. Any vacancy in the position of Securityholder Agent may
be filled by approval of the holders of a majority in interest of the Escrow
Fund. No bond shall be required of the Securityholder Agent, and the
Securityholder
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Agent shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to
or from each of the stockholders of the Company.
(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good faith
and in the exercise of reasonable judgment. The stockholders of the Company
on whose behalf the Escrow Amount was contributed to the Escrow Fund shall
severally indemnify the Securityholder Agent and hold the Securityholder
Agent harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of the Securityholder Agent and arising
out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(h) ACTIONS OF THE SECURITYHOLDER AGENT. A decision, act, consent
or instruction of the Securityholder Agent shall constitute a decision of all
the stockholders for whom a portion of the Escrow Amount otherwise issuable
to them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each of such stockholders, and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the
Securityholder Agent as being the decision, act, consent or instruction of
each every such 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
Securityholder Agent.
(i) THIRD-PARTY CLAIMS. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claim, and
the Securityholder Agent, as representative for the stockholders of the
Company, shall be entitled, at their expense, to participate in any defense
of such claim. Parent shall have the right in its sole discretion to settle
any such claim; provided, however, that except with the consent of the
Securityholder Agent, no settlement of any such claim with third-party
claimants shall alone be determinative of the amount of any claim against the
Escrow Fund. In the event that the Securityholder Agent has consented to any
such settlement, the Securityholder Agent shall have no power or authority to
object under any provision of this Article VII to the amount of any claim by
Parent against the Escrow Fund with respect to such settlement.
(j) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent
may receive after the date of this Agreement which are signed by an officer
of Parent and the Securityholder Agent, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to
be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall not be liable for any act done or omitted
hereunder as Escrow Agent 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.
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(ii) The Escrow Agent is hereby expressly authorized to comply
with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warnings or other communications from any party
or any other person to the contrary. In case the Escrow Agent obeys or
complies with any such order, judgment or decree of any court, the Escrow
Agent shall not be liable to any of the parties hereto or to any other person
by reason of such compliance, notwithstanding any such order, judgment or
decree being subsequently reversed, modified, annulled, set aside, vacated or
found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement
or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act
or failure to act made or omitted in good faith, or (B) any action taken or
omitted in reliance upon any instrument, including any written statement or
affidavit provided for in this Agreement that the Escrow Agent shall in good
faith believe to be genuine, nor will the Escrow Agent be liable or
responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, the Escrow Agent may consult with
the legal counsel in connection with Escrow Agent's duties under this
Agreement and shall be fully protected in any act taken, suffered, or
permitted by it in good faith in accordance with the advice of counsel. The
Escrow Agent is not responsible for determining and verifying the authority
of any person acting or purporting to act on behalf of any party to this
Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow
Agent may hold all documents and shares of Parent Common Stock and may wait
for settlement of any such controversy by final appropriate legal proceedings
or other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the
Escrow Agent may at its option, file an action of interpleader requiring the
parties to answer and litigate any claims and rights among themselves. The
Escrow Agent is authorized to deposit with the clerk of the court all
documents and shares of Parent Common Stock held in escrow, except all cost,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent
due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by
the terms of this Agreement.
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(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her duties under this Agreement, including but
not limited to any litigation arising from this Agreement or involving its
subject matter.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a
successor escrow agent which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the parties fail to
agree upon a successor escrow agent within such time, the Escrow Agent shall
have the right to appoint a successor escrow agent authorized to do business
in the State of California. The successor escrow agent shall execute and
deliver an instrument accepting such appointment and it shall, without
further acts, be vested with all the estates, properties, rights, powers, and
duties of the predecessor escrow agent as if originally named as escrow
agent. The Escrow Agent shall be discharged from any further duties and
liability under this Agreement.
(k) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be
considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not
promptly fulfilled, or if the Escrow Agent renders any service not provided
for in this Agreement, or if the parties request a substantial modification
of its terms, or if any controversy arises, or if the Escrow Agent is made a
party to, or intervenes in, any litigation pertaining to this escrow or its
subject matter, the Escrow Agent shall be reasonably compensated for such
extraordinary services and reimbursed for all costs, attorney's fees, and
expenses occasioned by such default, delay, controversy or litigation.
Parent promises to pay these sums upon demand.
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 written consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) on May 31, 1997 (provided that the
right to terminate this Agreement under this clause 8.1(b)(i) shall not be
available to any party whose willful failure to fulfill any obligation
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hereunder has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental entity that would make consummation of the
Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable
to the Merger, by any Governmental Entity, which would: (i) prohibit
Parent's or the Company's ownership or operation of all or any material
portion of the business of the Company or (ii) compel Parent or the Company
to dispose of or hold separate all or a material 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 breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
the Company and (i) 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), and (ii) as a
result of such breach the conditions set forth in Section 6.3(a) or 6.3(b),
as the case may be, would not then be satisfied;
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of Parent or Merger Sub and (i) 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), and (ii) as a result of such breach the conditions set forth in
Section 6.2(a) or 6.2(b), as the case may be, would not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent,
Merger Sub or the Company, or their respective officers, directors or
stockholders, provided that each party shall remain liable for any breaches
of this Agreement prior to its termination; and provided further that, the
provisions of Sections 5.3 and 5.4 and Article VIII 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.
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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.
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:
Quickturn Design Systems, Inc.
440 Clyde Avenue
Mountain View, CA 94043
Attention: Keith R. Lobo
Telephone No.: (415) 967-3300
Facsimile No.: (415) 694-6505
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Herbert P. Fockler, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
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(b) if to the Company, to:
SpeedSim, Inc.
11 School Street
North Chelmsford, Massachusetts 01863
Attention: Don McInnis
Telephone No.: (508) 251-3377
Facsimile No.: (508) 251-4004
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: John D. Patterson, Jr.
Telephone No.: (617) 832-1000
Facsimile No.: (617) 832-7000
(c) if to the Securityholder Agent:
Don McInnis
East Corporation
11 School Street
North Chelmsford, Massachusetts 01863
Telephone No.: (508) 251-3377
Facsimile No.: (508) 251-4004
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 to the subject matter hereof; (b) are not intended to confer
upon any other person any rights or remedies hereunder; and (c) shall not be
assigned by operation of law or otherwise except as
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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. Each of the parties hereto agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.9 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, Parent, Merger Sub, Company and the Securityholder
Agent (as to Articles VII and IX), and have caused this Agreement to be
signed by their duly authorized respective officers, all as of the date first
written above.
QUICKTURN DESIGN SYSTEMS, INC. SPEEDSIM, INC.
By /S/ KEITH LOBO By /S/ DON MCINNIS
-------------------------------- ---------------------------------
Name: Keith Lobo Name: Don McInnis
Title: President Title: President
SECURITYHOLDER AGENT: QT CORPORATION
/S/ DON MCINNIS By /S/ KEITH LOBO
- ----------------------------------- ---------------------------------
Name: Don McInnis Name: Keith Lobo
Title: President
(to be executed by Fidelity Investors Limited Partnership
representative before the Closing Date)
/S/ JOHN REMONDI
- -----------------------------------
Name: John Remondi
***REORGANIZATION AGREEMENT***
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EXHIBIT 2.2
CERTIFICATE OF MERGER
MERGING
QT CORPORATION
WITH AND INTO
SPEEDSIM, INC.
________________________________
Pursuant to Section 251 of the General Corporation Law of
the State of Delaware
________________________________
SpeedSim, Inc., a Delaware corporation ("SpeedSim"), DOES HEREBY CERTIFY
AS FOLLOWS:
FIRST: That SpeedSim was incorporated on February 1, 1995, pursuant to
the Delaware General Corporation Law (the "Delaware Law"), and QT
Corporation. ("QT") was incorporated on January 10, 1997 pursuant to the
Delaware Law.
SECOND: That an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of January 16, 1997, among Quickturn
Design Systems, Inc., a Delaware corporation, SpeedSim and QT, setting forth
the terms and conditions of the merger of QT with and into SpeedSim (the
"Merger"), has been approved, adopted, certified, executed and acknowledged
by each of the constituent corporations in accordance with the requirements
of Section 251 of the Delaware Law.
THIRD: That the surviving corporation (the "Surviving Corporation")
shall be SpeedSim, which shall retain the name "SpeedSim, Inc."
FOURTH: That pursuant to the Reorganization Agreement, the Certificate
of Incorporation of SpeedSim, Inc. shall be amended on the date of the Merger
to read in its entirety as set forth on EXHIBIT A attached hereto.
From and after the effective time of the Merger, the Certificate of
Incorporation of SpeedSim, as so amended, shall continue to be the
Certificate of Incorporation of the surviving corporation, until amended as
provided by law.
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<PAGE>
FIFTH: That an executed copy of the Reorganization Agreement is on
file at the principal place of business of the Surviving Corporation at the
following address:
11 School Street
North Chelmsford, Massachusetts 01863
SIXTH: That a copy of the Reorganization Agreement will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
SEVENTH: That the Merger shall become effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, SpeedSim has caused this Certificate of Merger to be
executed in its corporate name as of the 7th day of February 1997.
SPEEDSIM, INC.
By: /s/ Donald McInnis
----------------------------------------------
Donald McInnis
President
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<PAGE>
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
SPEEDSIM, INC.
ARTICLE 1.
The name of the corporation is SpeedSim, Inc. (the "Corporation").
ARTICLE 2.
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3.
The nature of the business or purposes to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE 4.
The total number of shares of stock which the corporation shall
have authority to issue is Ten Thousand (10,000) and the par value of each of
such shares is One Cent ($.01) amounting in the aggregate to One Hundred
Dollars ($100.00).
ARTICLE 5.
The board of directors is authorized to make, alter or repeal the
by-laws of the corporation. Election of directors need not be by written
ballot.
ARTICLE 6.
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit.
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<PAGE>
ARTICLE 7.
The Corporation shall indemnify its officers, directors, employees
and agents to the extent permitted by the General Corporation Law of
Delaware.
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<PAGE>
EXHIBIT 20.1
Quickturn Design Systems, Inc. Reports Results for 1996
Revenue Increases 28%, Operating Income Increases 39%
MOUNTAIN VIEW, CA - January 16, 1997 - Quickturn Design Systems, Inc.
(NASDAQ: QKTN) today announced that for the year ended December 31, 1996,
revenue was $104.4 million, an increase of 28% over 1995 revenue of $81.8
million. Operating income was $16.3 million, an increase of 39% over the
operating income of $11.7 million in 1995. Net income was $12.6 million or
$0.83 per share, compared to net income of $13.1 million or $0.90 per share
in 1995.
Both the 1996 results and the results for the fourth quarter of 1996 include
a net year-to-date tax benefit of $542,000 or $0.03 per share comprised of a
one time recognition of deferred tax assets. Both the 1995 results and the
results for the fourth quarter of 1995 include a net year-to-date tax benefit
of $3.7 million or $0.26 per share comprised of a one time recognition of
deferred tax assets of $6.0 million or $0.41 per share offset by an increased
tax expense of $2.3 million or $0.15 per share.
Fourth quarter revenue of $28.8 million was up 25% over revenue of $23.0
million in the comparable period of 1995 and up 6% over the previous quarter
of $27.2 million. Operating income was $4.8 million, an increase of 33% over
the operating income of $3.6 million in the fourth quarter of 1995 and
compared to operating income of $4.2 million in the third quarter of 1996.
Net income was $4.1 million or $0.26 per share, compared to $6.6 million or
$0.45 per share in the fourth quarter of 1995 and an increase of 29% over the
net income of $3.2 million or $0.21 per share in the third quarter of 1996.
"Quickturn surpassed the $100 million threshold for the first time in the
fiscal year just ended," said Keith Lobo, president and CEO of Quickturn.
"This is a significant achievement in the electronic design automation (EDA)
business, and a milestone of which we are all very proud. Looking forward, we
intend to build on this success by continuing to offer solutions for our
customers to deal with their most complex and difficult design verification
problems."
For the second year in a row, Quickturn has been named to the Technology
"Fast 50" list, honoring the fastest growing technology companies in the
Silicon Valley. The list sponsors - Deloitte and Touche LLP, NASDAQ and Joint
Venture: Silicon Valley - name public and private technology-based companies
to the list according to revenue growth in the preceding five years.
Quickturn Design Systems, Inc. is the industry pioneer in reprogrammable
emulation products for system-level design verification. The company's
products create a "virtual silicon(TM)" representation of an electronic
design to permit concurrent verification of ASICs and full-custom ICs with
system
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<PAGE>
hardware and software. Quickturn's customers include the leading electronics
companies in the high-performance computing, multimedia, graphics, and
communications markets. Quickturn's verification solutions enable these
companies to improve design quality, lower overall development cost, and
shorten time to market. Quickturn Design Systems, Inc. is headquartered at
440 Clyde Avenue, Mountain View, CA 94043, telephone 415-967-3300. For more
information, send e-mail to [email protected] or visit the Quickturn website
at www.quickturn.com.
###
Quickturn and virtual silicon are trademarks of Quickturn Design Systems, Inc.
QUICKTURN DESIGN SYSTEMS, Inc.
Condensed Consolidated Statements of Income
(amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
---------------------- -------------------
1996* 1995** 1996* 1995**
---------- ---------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue $28,786 $23,000 $104,370 $81,800
Cost of Revenue 8,934 7,012 32,383 25,082
-------- ------- -------- -------
Gross Profit 19,852 15,988 71,987 56,718
Operating expenses:
Research and development 5,226 4,152 18,548 14,864
Sales and marketing 8,069 7,004 30,694 25,439
General and administrative 1,751 1,216 6,476 4,681
-------- ------- -------- -------
Total operating expenses 15,046 12,372 55,718 44,984
Operating income 4,806 3,616 16,269 11,734
Other income, net 505 192 1,785 737
-------- ------- -------- -------
Net income before provision
for (benefit from) income taxes 5,311 3,808 18,054 12,471
Provision for (benefit from) income
taxes 1,216 (2,778) 5,415 (612)
-------- ------- -------- -------
Net income $ 4,095 $ 6,586 $12,639 $13,083
-------- ------- -------- -------
-------- ------- -------- -------
Net income per share $ 0.26 $ 0.45 $ 0.83 $ 0.90
-------- ------- -------- -------
-------- ------- -------- -------
Shares used in per share calculations 15,583 14,735 15,204 14,605
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
* The 1996 results include a net year-to-date tax benefit of $542,000 or
$0.03 per share.
** The 1995 results include a net year-to-date-tax benefit of $3.7 million
or $0.26 per share.
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<PAGE>
QUICKTURN DESIGN SYSTEMS, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1996* 1995*
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and marketable securities $34,225 $31,397
Accounts receivable, net 21,537 20,706
Inventories 10,141 7,805
Prepaid expenses and other current assets 8,369 7,285
-------- --------
Total current assets 74,272 67,193
Marketable securities 18,198 9,110
Fixed assets, net 11,032 13,003
Other assets 5,351 3,478
-------- --------
$108,853 $ 92,784
-------- --------
-------- --------
LIABILITIES
Current liabilities
Current portion of long-term debt $3,502 $3,401
Accounts payable and accrued liabilities 15,414 16,716
Deferred revenue 8,151 3,538
-------- --------
Total current liabilities 27,067 23,655
Long-term debt 0 3,502
-------- --------
27,067 27,157
STOCKHOLDERS' EQUITY
Stockholders' equity 81,786 65,627
-------- --------
$108,853 $ 92,784
-------- --------
-------- --------
</TABLE>
*Derived from audited financial statements
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