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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): March 26, 1998
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Security Dynamics Technologies, Inc.
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(Exact Name of Registrant as Specified in Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-25120 04-2916506
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(Commission File Number) (I.R.S. Employer Identification No.)
20 Crosby Drive
Bedford, Massachusetts 01730
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(Address of Principal Executive Offices) (Zip Code)
(781) 687-7000
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On March 26, 1998 (the "Effective Date"), Security Dynamics Technologies,
Inc. (the "Company") acquired all of the outstanding capital stock of Intrusion
Detection Inc., a New York corporation ("IDI"), pursuant to an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of March 25, 1998, by and
among the Company, IDI, Apple Acquisition Corp., a wholly owned subsidiary of
the Company, and Robert Kane and Lillian Kane (the "IDI Stockholders").
Pursuant to the Merger Agreement, the Company issued approximately 784,000
shares of the Company's Common Stock, $.01 par value per share ("Common Stock"),
in exchange for all of the outstanding capital stock of IDI. Based on the
closing price of the Common Stock on the Nasdaq National Market on March 25,
1998, the transaction is valued at approximately $32.5 million. The transaction
will be accounted for as a pooling of interests. The Company used authorized,
but previously unissued, shares of Common Stock in the acquisition. The number
of shares of Common Stock issued in exchange for the shares held by the IDI
Stockholders was determined in an "arm's length" negotiation and the transaction
was unanimously approved by the Boards of Directors of the Company and IDI.
Prior to the Effective Date, neither the Company nor any of its affiliates, nor
any director or officer of the Company or any associate of any such director or
officer, had any material relationship with IDI.
In connection with the Merger Agreement, the Company and the IDI
Stockholders entered into a Registration Rights Agreement, dated as of March 25,
1998, pursuant to which the Company has agreed to file a Registration Statement
on Form S-3, on or prior to the 15th business day following the Effective Date,
for the purpose of registering under the Securities Act of 1933 the shares of
Common Stock issued to such stockholders pursuant to the Merger Agreement.
In addition, the Company, the IDI Stockholders, the representative of such
IDI Stockholders and State Street Bank and Trust Company, as escrow agent, have
entered into an Escrow Agreement, dated as of March 25, 1998, providing, among
other things, that 10% of the shares of Common Stock received by the IDI
Stockholders pursuant to the Merger Agreement will be held in escrow to
reimburse the Company in connection with breaches of representations, warranties
or covenants made by the IDI Stockholders in the Merger Agreement.
IDI, based in New York, is a leading publisher of network security
software tools that help network officials manage enterprise-wide security more
effectively. The IDI products, Kane Security Analyst and Kane Security Monitor
are highly complementary to the Company's SecurSight family of plug-in
enterprise security solutions and address two critical solutions areas, network
security assessment and monitoring. The products are currently distributed both
directly and through distributors in the United States and
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through resellers in 20 countries and will also be available through the
Company's direct sales forces, as well as through SecurWorld channel partners.
The foregoing descriptions of the Merger Agreement and Registration Rights
Agreement do not purport to be complete and are qualified in their entirety by
reference to the full text of each such agreement which are filed as Exhibits
2.1 and 10.1, respectively, to this Current Report on Form 8-K and incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Financial statements of business acquired are not required as per
Rule 3-05(b) of Regulation S-X.
(b) Pro Forma Financial Information.
Pro forma financial information is not required as per Rule 11-01(c)
of Regulation S-X.
(C) EXHIBITS.
2.1 Agreement and Plan of Merger by and among the Registrant,
Intrusion Detection Inc., Apple Acquisition Corp., Robert
Kane and Lillian Kane, dated March 25, 1998
10.1 Registration Rights Agreement by and among the Registrant,
Robert Kane and Lillian Kane, dated March 25, 1998
99 Press Release
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SIGNATURE
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.
Date: March 26, 1998 SECURITY DYNAMICS TECHNOLOGIES, INC.
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(Registrant)
By: /s/ Marian G. O'Leary
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Marian G. O'Leary
Senior Vice President, Finance
Chief Financial Officer and Treasurer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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2.1 Agreement and Plan of Merger by and among the Registrant, Intrusion
Detection Inc., Apple Acquisition Corp., Robert Kane and Lillian
Kane, dated March 25, 1998
10.1 Registration Rights Agreement by and among the Registrant, Robert
Kane and Lillian Kane, dated March 25, 1998
99 Press Release
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
SECURITY DYNAMICS TECHNOLOGIES, INC.,
APPLE ACQUISITION CORP.,
AND
INTRUSION DETECTION INC.
MARCH 25, 1998
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TABLE OF CONTENTS
ARTICLE I - THE MERGER.......................................................1
1.1 The Merger.......................................................1
1.2 The Closing......................................................1
1.3 Actions at the Closing...........................................2
1.4 Additional Action................................................2
1.5 Conversion of Shares.............................................2
1.6 Exchange of Shares...............................................3
1.7 Dividends........................................................4
1.8 Fractional Shares................................................4
1.9 Escrow...........................................................4
1.10 Certificate of Incorporation.....................................5
1.11 By-laws..........................................................5
1.12 Directors and Officers...........................................5
1.13 No Further Rights................................................5
1.14 Closing of Transfer Books........................................5
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................5
2.1 Organization, Qualification and Corporate Power..................6
2.2 Capitalization...................................................6
2.3 Authorization of Transaction.....................................6
2.4 Noncontravention.................................................7
2.5 Subsidiaries.....................................................8
2.6 Financial Statements.............................................8
2.7 Absence of Certain Changes.......................................8
2.8 Undisclosed Liabilities..........................................8
2.9 Tax Matters......................................................9
2.10 Assets..........................................................11
2.11 Owned Real Property.............................................12
2.12 Intellectual Property...........................................12
2.13 Real Property Leases............................................14
2.14 Contracts.......................................................15
2.15 Powers of Attorney..............................................17
2.16 Insurance.......................................................17
2.17 Litigation......................................................17
2.18 Employees and Subcontractors....................................18
2.19 Employee Benefits...............................................19
2.20 Environmental Matters...........................................21
2.21 Legal Compliance................................................22
2.22 Permits.........................................................22
2.23 Certain Business Relationships With Affiliates..................23
2.24 Brokers' Fees...................................................23
2.25 Books and Records...............................................23
2.26 Prepayments, Prebilled Invoices and Deposits....................23
2.27 Banking Facilities..............................................24
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2.28 Pooling.........................................................24
2.29 Company Action..................................................24
2.30 Reorganization..................................................24
2.31 Consultants.....................................................24
2.32 Disclosure......................................................25
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY................................25
3.1 Organization....................................................25
3.2 Capitalization..................................................25
3.3 Authorization of Transaction....................................25
3.4 Noncontravention................................................26
3.5 Reports and Financial Statements................................26
3.6 Absence of Material Adverse Changes.............................27
3.7 Pooling.........................................................27
3.8 Brokers' Fees...................................................27
3.9 Disclosure......................................................27
3.10 Opinion of Financial Advisor....................................27
ARTICLE IV - COVENANTS......................................................27
4.1 Best Efforts....................................................27
4.2 Notices and Consents............................................28
4.3 Operation of Business...........................................28
4.4 Full Access.....................................................30
4.5 Notice of Breaches..............................................30
4.6 Exclusivity.....................................................30
4.7 Agreements from Certain Affiliates of the Company...............30
4.8 Listing of Merger Shares........................................31
4.9 Assistance with Retention.......................................31
4.10 Assistance with Tax Disputes....................................31
4.11 Credit for Service..............................................31
ARTICLE V - CONDITIONS TO CONSUMMATION OF MERGER............................31
5.1 Conditions to Obligations of the Buyer and the
Transitory Subsidiary...........................................31
5.2 Conditions to Obligations of the Company........................33
ARTICLE VI - INDEMNIFICATION................................................34
6.1 Indemnification.................................................34
6.2 Method of Asserting Claims......................................35
6.3 Survival........................................................36
6.4 Limitations.....................................................37
ARTICLE VII - TERMINATION...................................................38
7.1 Termination of Agreement........................................38
7.2 Effect of Termination...........................................38
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ARTICLE VIII - DEFINITIONS..................................................39
ARTICLE IX - MISCELLANEOUS..................................................40
9.1 Press Releases and Announcements................................40
9.2 No Third Party Beneficiaries....................................40
9.3 Entire Agreement................................................40
9.4 Succession and Assignment.......................................41
9.5 Counterparts....................................................41
9.6 Headings........................................................41
9.7 Notices.........................................................41
9.8 Governing Law...................................................42
9.9 Amendments and Waivers..........................................42
9.10 Severability....................................................42
9.11 Expenses........................................................43
9.12 Specific Performance............................................43
9.13 Construction....................................................43
9.14 Incorporation of Exhibits and Schedules.........................43
9.15 Submission to Jurisdiction......................................43
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Exhibit A - Escrow Agreement
Exhibit B - Certificate of Incorporation of Surviving Corporation
Exhibit C - Registration Rights Agreement
Exhibit D - Employment Agreement
Exhibit E - Affiliate's Agreement
Exhibit F - Opinion of Counsel to the Company
Exhibit G - Opinion of Counsel to the Buyer
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is entered into as of
March 25, 1998 by and among SECURITY DYNAMICS TECHNOLOGIES, INC., a Delaware
corporation (the "Buyer"), APPLE ACQUISITION CORP., a New York corporation and a
wholly-owned subsidiary of the Buyer (the "Transitory Subsidiary"), and
INTRUSION DETECTION INC., a New York corporation (the "Company"). For purposes
of this Agreement, where the context requires, the term "Company" shall also
include any predecessors of the Company, including, without limitation,
ShadoWare, Inc., Jext Inc. and U.S. Data Security Inc. The Buyer, the Transitory
Subsidiary and the Company are referred to collectively herein as the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company in a transaction that will qualify for federal tax purposes as a
reorganization under Section 368 of the Code (as defined below) and for
accounting purposes as a "pooling of interests" pursuant to Accounting
Principles Bulletin Opinion No. 16. In such merger, the stockholders of the
Company will receive capital stock of the Buyer in exchange for their capital
stock of the Company.
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Company and
the Transitory Subsidiary file the certificate of merger prepared and executed
in accordance with the relevant provisions of the New York Business Corporation
Law, including, without limitation, Section 906 thereof (the "Certificate of
Merger") with the Secretary of State of the State of New York. The Merger shall
have the effects set forth in Article IX of the New York Business Corporation
Law.
1.2 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Hale and Dorr LLP,
60 State Street in Boston, Massachusetts, commencing at 10:00 a.m. local time on
March 25, 1998, or, if all of the conditions to the obligations of the Parties
to
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consummate the transactions contemplated hereby have not been satisfied or
waived by such date, on such mutually agreeable later date as soon as
practicable after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(the "Closing Date").
1.3 ACTIONS AT THE CLOSING. At the Closing, (a) the Company shall deliver
to the Buyer and the Transitory Subsidiary the various certificates, instruments
and documents referred to in Section 5.1, (b) the Buyer and the Transitory
Subsidiary shall deliver to the Company the various certificates, instruments
and documents referred to in Section 5.2, (c) the Company and the Transitory
Subsidiary shall file with the Secretary of State of the State of New York the
Certificate of Merger, (d) the Buyer shall deliver certificates for the Initial
Shares to the Company Stockholders (as such terms are defined below) in
accordance with Section 1.6 and (e) the Buyer, the Indemnification
Representative (as defined therein) and the Escrow Agent (as defined therein)
shall execute and deliver the Escrow Agreement in substantially the form
attached hereto as EXHIBIT A (the "Escrow Agreement") and the Buyer shall
deliver to the Escrow Agent a certificate for the Escrow Shares (as defined
below) being placed in escrow on the Closing Date pursuant to Section 1.9.
1.4 ADDITIONAL ACTION. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of any Party or the holder of any of the
following securities:
(a) Each share of common stock, no par value per share, of the
Company ("Company Shares") issued and outstanding immediately prior to the
Effective Time (other than the Company Shares held in the Company's treasury)
shall be converted into and represent the right to receive (subject to the
provisions of Section 1.9) such number of shares of common stock, $.01 par value
per share, of the Buyer ("Buyer Common Stock") as is equal to the Conversion
Ratio. The "Conversion Ratio" shall initially be equal to a fraction, (x) the
numerator of which shall be 784,342 and (y) the denominator of which shall be
the number of Company Shares issued and outstanding immediately prior to the
Effective Time (other than the Company Shares held in the Company's treasury).
The Conversion Ratio shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event affecting
the Buyer Common Stock between the date of this Agreement and the Effective
Time. Stockholders of record of the Company ("Company Stockholders") shall be
entitled to receive immediately 90% of the shares of Buyer Common Stock into
which their Company Shares were converted pursuant to this Section 1.5(a) (the
"Initial Shares"); the remaining 10% of the shares of Buyer
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Common Stock into which Company Shares were converted pursuant to this Section
1.5(a) (the "Escrow Shares") shall be deposited in escrow pursuant to Section
1.9 and shall be held and disposed of in accordance with the terms of the Escrow
Agreement. The Initial Shares and the Escrow Shares shall together be referred
to herein as the "Merger Shares."
(b) Each Company Share held in the Company's treasury immediately
prior to the Effective Time shall be cancelled and retired without payment of
any consideration therefor.
(c) Each share of common stock, $.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and thereafter evidence one share of common stock,
$.01 par value per share, of the Surviving Corporation.
1.6 EXCHANGE OF SHARES.
(a) Each holder of certificates that, immediately prior to the
Effective Time, represented Company Shares ("Certificates"), upon proper
surrender thereof to the Buyer at or after the Effective Time, shall be entitled
to receive in exchange therefor (subject to any taxes required to be withheld)
the Initial Shares issuable pursuant to Section 1.5(a). Until properly
surrendered, each such Certificate shall be deemed for all purposes to evidence
only the right to receive the Initial Shares issuable pursuant to Section
1.5(a). Holders of Certificates shall not be entitled to receive certificates
for the Initial Shares to which they would otherwise be entitled until such
Certificates are properly surrendered.
(b) If any Initial Shares are to be issued in the name of a person
other than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition to the issuance of such Initial
Shares that (i) the Certificate so surrendered shall be transferable, and shall
be properly assigned, endorsed or accompanied by appropriate stock powers, (ii)
such transfer shall otherwise be proper and (iii) the person requesting such
transfer shall pay to the Buyer any transfer or other taxes payable by reason of
the foregoing or establish to the satisfaction of the Buyer that such taxes have
been paid or are not required to be paid. Notwithstanding the foregoing, no
Party shall be liable to a holder of Company Shares for any Initial Shares
issuable to such holder pursuant to Section 1.5(a) that are delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Buyer shall issue in
exchange for such lost, stolen or destroyed Certificate the Initial Shares
issuable in exchange therefor
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pursuant to Section 1.5(a). The Board of Directors of the Buyer may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to submit to the Buyer an
affidavit and to give to the Buyer an indemnity against any claim that may be
made against the Buyer with respect to the Certificate alleged to have been
lost, stolen or destroyed.
1.7 DIVIDENDS. No dividends or other distributions that are payable to the
holders of record of Buyer Common Stock as of a date on or after the Closing
Date shall be paid to former Company Stockholders entitled by reason of the
Merger to receive Initial Shares until such holders surrender their Certificates
in accordance with Section 1.6. Upon such surrender, the Buyer shall pay or
deliver to the persons in whose name the certificates representing such Initial
Shares are issued any dividends or other distributions that are payable to the
holders of record of Buyer Common Stock as of a date on or after the Closing
Date and which were paid or delivered between the Effective Time and the time of
such surrender; provided that no such person shall be entitled to receive any
interest on such dividends or other distributions.
1.8 FRACTIONAL SHARES. No certificates or scrip representing fractional
Initial Shares shall be issued to former Company Stockholders upon the surrender
for exchange of Certificates, and such former Company Stockholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of the Buyer with respect to any fractional
Initial Shares that would otherwise be issued to such former Company
Stockholders. In lieu of any fractional Initial Shares that would otherwise be
issued, each former Company Stockholder that would have been entitled to receive
a fractional Initial Share shall, upon proper surrender of such person's
Certificates, receive a cash payment equal to the average last sale price per
share of the Buyer Common Stock on the Nasdaq National Market, as reported by
Nasdaq, on the twenty consecutive trading days ending three calendar days
immediately preceding the Closing Date, multiplied by the fraction of a share
that such Company Stockholder would otherwise be entitled to receive.
1.9 ESCROW.
(a) On the Closing Date, the Buyer shall deliver to the Escrow Agent
a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, as described in Section 1.5(a), for the purpose
of securing the indemnification obligations of the Company Stockholders set
forth in this Agreement. The Escrow Shares shall be held by the Escrow Agent
under the Escrow Agreement pursuant to the terms thereof. The Escrow Shares
shall be held as a trust fund and shall not be subject to any lien, attachment,
trustee process or any other judicial process of any creditor of any party, and
shall be held and disbursed solely for the purposes and in accordance with the
terms of the Escrow Agreement.
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(b) The adoption of this Agreement and the approval of the Merger by
the Company Stockholders shall constitute approval of the Escrow Agreement and
of all of the arrangements relating thereto, including without limitation the
placement of the Escrow Shares in escrow and the appointment of the
Indemnification Representative.
1.10 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of the
Surviving Corporation shall be amended as of the Effective Time so as to read in
its entirety in the form attached hereto as EXHIBIT B.
1.11 BY-LAWS. The By-laws of the Surviving Corporation shall be the same
as the By-laws of the Transitory Subsidiary immediately prior to the Effective
Time, except that the name of the corporation set forth therein shall be changed
to the name of the Company.
1.12 DIRECTORS AND OFFICERS. The directors and officers of the Transitory
Subsidiary shall become the directors and officers of the Surviving Corporation
as of the Effective Time.
1.13 NO FURTHER RIGHTS. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.14 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation, they shall be cancelled and exchanged for Initial
Shares in accordance with Section 1.5(a), subject to Section 1.9.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article II are true and
correct, except as set forth in the disclosure schedule attached hereto (the
"Disclosure Schedule"). The Disclosure Schedule shall be initialed by the
Parties and shall be arranged in paragraphs corresponding to the numbered and
lettered sections and paragraphs contained in this Article II, and the
disclosures in any paragraph of the Disclosure Schedule shall qualify other
sections and paragraphs in this Article II only to the extent it is clear from a
reading of the disclosure that such disclosure is applicable to such other
sections and paragraphs.
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2.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of New York. The Company is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification except where the failure
to so qualify would not result in Damages (as hereinafter defined) in excess of
$5,000, and each such jurisdiction is set forth in Section 2.1 of the Disclosure
Schedule. The Company has all requisite corporate power and authority to carry
on the businesses in which it is engaged and to own and use the properties owned
and used by it. The Company has furnished to the Buyer true and complete copies
of its Certificate of Incorporation and By-laws, each as amended and as in
effect on the date hereof. The Company has at all times complied with, and is
not in default under or in violation of any provision of, its Certificate of
Incorporation.
2.2 CAPITALIZATION. The authorized capital stock of the Company consists
of 200 shares of Common Stock, no par value per share, of which 100 shares are
issued and outstanding and no shares are held in the treasury of the Company.
Section 2.2 of the Disclosure Schedule sets forth a complete and accurate list
of all stockholders of the Company, indicating the number of Company Shares held
of record by each stockholder. All of the issued and outstanding Company Shares
are duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. There are no outstanding or authorized options, warrants,
rights, calls, convertible instruments, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no agreements, voting trusts, proxies, or
understandings with respect to the voting, or registration under the Securities
Act of 1933, as amended (the "Securities Act"), or any foreign securities laws,
of any Company Shares (i) between or among the Company and any of its
stockholders and (ii) between or among any of the Company's stockholders. All of
the issued and outstanding Company Shares were issued in compliance with
applicable federal and state securities laws.
2.3 AUTHORIZATION OF TRANSACTION. The Company has all requisite power and
authority to execute and deliver the Fundamental Agreements (as defined below in
this Section 2.3) and to perform its obligations under the Fundamental
Agreements. The execution and delivery of the Fundamental Agreements and,
subject to the adoption of the Fundamental Agreements and the approval of the
Merger by a majority of the votes represented by the outstanding Company Shares
entitled to vote on the Fundamental Agreements and the Merger voting as a single
class (the "Requisite Stockholder Approval"), the performance by the Company of
the Fundamental Agreements and the consummation by the Company of the
transactions contemplated thereby have been duly and validly authorized by all
necessary
6
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corporate action on the part of the Company. Each Fundamental Agreement has been
(or, in the case of Fundamental Agreements to be entered into on the Closing
Date, shall be when delivered) duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by the Buyer
and the Transitory Subsidiary, constitutes (or, in the case of the Fundamental
Agreements to be entered into on the Closing Date, shall constitute) a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to the effect of bankruptcy, insolvency, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
except as the availability of equitable remedies may be limited by general
principles of equity. For purposes of this Agreement, the term "Fundamental
Agreements" means this Agreement, the Escrow Agreement, the Registration Rights
Agreement in the form attached hereto as EXHIBIT C (the "Registration Rights
Agreement") and, with respect to the Company and Robert Kane, the Employment
Agreement attached hereto as EXHIBIT D.
2.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws and
the filing of the Certificate of Merger as required by the New York Business
Corporation Law, except as set forth in Section 2.4 of the Disclosure Schedule,
neither the execution and delivery by the Company or the Company Stockholders of
the Fundamental Agreements, nor the consummation by the Company or the Company
Stockholders of the transactions contemplated hereby, will (a) conflict with or
violate any provision of the Certificate of Incorporation (as amended) or
By-laws of the Company, (b) require on the part of the Company or any
corporation, partnership, limited liability company or other form of business
association (a "Business Entity") with respect to which the Company, directly or
indirectly, has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors or managers (a "Subsidiary") any filing
with, or any permit, authorization, consent or approval of, any court,
arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (a "Governmental Entity"), (c)
conflict with, result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined below) or other
arrangement to which the Company is a party or by which the Company is bound or
to which any of its assets is subject, (d) result in the imposition of any
Security Interest upon any assets of the Company or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its properties or assets. For purposes of this Agreement, "Security Interest"
means any mortgage, pledge, security interest, encumbrance, charge, or other
lien (whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's and similar liens, (ii) liens arising under worker's
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compensation, unemployment insurance, social security, retirement and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the ordinary course of
business consistent with past custom and practice (including with respect to
frequency and amount) ("Ordinary Course of Business") of the Company.
2.5 SUBSIDIARIES. The Company has no Subsidiaries.
2.6 FINANCIAL STATEMENTS. The Company has provided to the Buyer (i) the
unaudited combined balance sheets and statements of income, retained earnings,
changes in stockholders' equity and cash flows of the Company for each of the
fiscal years ended December 31, 1995 and 1996; (ii) the audited combined balance
sheet and statements of income, retained earnings, changes in stockholders'
equity and cash flows of the Company for the fiscal year ended December 31,
1997; and (iii) the unaudited combined balance sheet (the "Most Recent Balance
Sheet") and statement of operations of the Company as of and for the period
ended as of February 28, 1998 (the "Balance Sheet Date"). Such financial
statements (collectively, the "Financial Statements") have been prepared in
accordance with United States generally accepted accounting principles ("GAAP")
(except for the absence of footnotes in the Financial Statements referred to in
clauses (i) and (iii) of this Section 2.6) applied on a consistent basis
throughout the periods covered thereby, fairly present in all material respects
the financial condition, results of operations and cash flows of the Company as
of the respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company in all material respects
and complete copies of the Financial Statements are set forth in Section 2.6 of
the Disclosure Schedule.
2.7 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, (a) there
has not been any material adverse change in the assets, business, financial
condition or results of operations or future prospects of the Company, nor has
there occurred any event or development which could reasonably be foreseen to
result in such a material adverse change in the future, and (b) except as set
forth in Section 2.7 of the Disclosure Schedule, the Company has not taken any
of the actions set forth in paragraphs (a) through (o) of Section 4.3 below.
2.8 UNDISCLOSED LIABILITIES. The Company has no liability (whether known
or unknown, whether absolute or contingent, whether liquidated or unliquidated
and whether due or to become due), except for (a) liabilities accrued or
expressly reserved for on the Most Recent Balance Sheet, a copy of which is
included in Section 2.8 of the Disclosure Schedule, (b) liabilities which have
arisen since the Balance Sheet Date in the Ordinary Course of Business and which
are similar in nature to the liabilities which arose during the comparable
period of time in the immediately preceding fiscal period and (c) contractual
liabilities incurred in the Ordinary Course of
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Business of the Company which are not required by GAAP to be reflected on a
balance sheet and that are not in the aggregate material.
2.9 TAX MATTERS.
(a) The Company has filed all Tax Returns (as defined below) that it
was required to file through the Closing Date and all such Tax Returns were
correct and complete in all respects. The Company has paid or will pay all Taxes
(as defined below) due on or before the Closing Date, whether or not shown on
any such Tax Returns. The accrued but unpaid Taxes of the Company for tax
periods through the date of the Most Recent Balance Sheet do not exceed the
accruals and reserves (excluding reserves for deferred Taxes) for Taxes set
forth on the Most Recent Balance Sheet. All Taxes attributable to the period
from and after the date of the Most Recent Balance Sheet and continuing through
the Closing Date are attributable to the conduct by the Company of its
operations in the Ordinary Course of Business. The Company has no actual or
potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated or combined group of corporations or other entities
that included the Company during a prior period) other than the Company. All
Taxes that the Company is or was required by law to withhold or collect have
been duly withheld or collected and, to the extent required, have been paid to
the proper Governmental Entity. For purposes of determining the amount of Taxes
attributable to a specified period (e.g., the period from the date of the Most
Recent Balance Sheet through the Closing Date) other than a Tax Period, each Tax
shall be computed as if the specified period were a Tax Period. For purposes of
this Agreement, a Tax Period means a period for which a Tax is required to be
computed under applicable statutes and regulations.
(b) The Company has delivered to the Buyer correct and complete
copies of all income Tax Returns, as filed through the date hereof, and
examination reports and statements of deficiencies assessed against or agreed to
by the Company since its inception. The federal and state income Tax Returns of
the Company and the periods associated therewith are closed by the applicable
statute of limitations for all taxable years through fiscal year 1993. No
examination or audit of any Tax Returns of the Company by any Governmental
Entity is currently in progress or, to the knowledge of the Company, threatened
or contemplated. The Company has not waived any statute of limitations with
respect to Taxes or agreed to an extension of time with respect to an assessment
of or deficiency in Taxes.
(c) The Company is not a "consenting corporation" within the meaning
of Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
and none of the assets of the Company are subject to an election under Section
341(f) of the Code. The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(l)(A)(ii) of the Code.
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(d) The Company is not and has never been a member of an "affiliated
group" of corporations (within the meaning of Section 1504 of the Code), other
than a group comprised solely of Jext Inc., ShadoWare, Inc. and U.S. Data
Security Inc., all of which were merged into the Company immediately prior to
the Effective Time.
(e) The Company is not a party to any Tax allocation or sharing
agreement or any Tax indemnity agreement. The Company has never filed Tax
Returns on a combined, consolidated or unitary basis with any other Business
Entity in any jurisdiction or has otherwise been liable, by contract or
otherwise, for any Taxes of any other Business Entity. The Company has not
participated in or cooperated with, nor will participate in or cooperate with,
an international boycott within the meaning of Section 999 of the Code. The
Company is not a party to any agreement, contract, arrangement or plan that has
resulted, or would result, separately or in the aggregate, in the payment of any
excess "parachute payments" within the meaning of Section 280G of the Code.
(f) The Company is not a party to any tax litigation. The Company
has no reason to suspect any tax litigation attributable to periods ended before
or including the Closing Date. The Company is not and has not been a party to
any specific transaction the main purpose of which has been to evade Taxes.
(g) For all periods since its inception until the Termination Date
(as defined below), ShadoWare, Inc., an affiliate of the Company until its
merger into Intrusion Detection Inc. effective as of March 25, 1998 (the
"Termination Date"), has been an S corporation pursuant to an election validly
made under Subchapter S of the Code (which election has not been revoked or
terminated for any such period) and has not been subject to federal income taxes
for such periods. For all periods from January 1, 1996 until the Termination
Date, Intrusion Detection Inc. has been an S corporation pursuant to an election
validly made under Subchapter S of the Code (which election has not been revoked
or terminated for any such period) and has not been subject to federal income
taxes for such period.
(h) On the Termination Date, each of ShadoWare, Inc., Jext Inc. and
U.S. Data Security Inc. was merged into Intrusion Detection Inc. in a
transaction qualifying as a tax free reorganization (or part of a tax free
reorganization) under Section 368 of the Code and the S elections of Intrusion
Detection Inc. and ShadoWare, Inc. were terminated (the "Termination").
(i) The Company is not required, nor will be required, to include
any adjustment in taxable income for any Tax period (or portion thereof) as a
result of the Termination or accounting methods employed prior to the
Termination.
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(j) The Company is not required to make any adjustments under
Section 481(a) of the Code by reason of a change in accounting method, the
Termination or otherwise.
(k) For purposes of this Agreement, (i) "Taxes" means all taxes,
charges, fees, levies, custom duties or other similar assessments or
liabilities, including without limitation income, gross receipts, ad valorem,
premium, value-added, excise, severance, stamp, occupation, windfall profits,
real property, personal property, sales, use, transfer, transfer gains,
withholding, employment, unemployment, insurance, social security, business
license, business organization, environmental, payroll and franchise taxes
imposed by any federal, state, local or foreign government, or any agency
thereof, or other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any tax or any
contest or dispute thereof and any amounts of Taxes of another person that the
Company is liable to pay by law or otherwise, and (ii) "Tax Returns" means all
reports, returns, declarations, statements, forms or other information required
to be supplied to a taxing authority or any individual or Business Entity in
connection with Taxes.
2.10 ASSETS.
(a) The Company owns or leases all tangible assets necessary for the
conduct of its business as presently conducted and as presently proposed to be
conducted. Each such tangible asset is free from defects, has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear) and is suitable for the purposes for
which it presently is used.
(b) No asset of the Company (tangible or intangible) is subject to
any Security Interest.
(c) Section 2.10(c) of the Disclosure Schedule sets forth (i) a
true, correct and complete list of all items of tangible personal property,
including without limitation purchased and capitalized software, owned by the
Company as of the date hereof, or not owned by the Company but in the possession
of or used in the business of the Company (the "Personal Property"), other than
individual assets with a book value of less than $1,000, and (ii) a description
of the owner of, and any agreement relating to the use of, each item of Personal
Property not owned by the Company and the circumstances under which such
Property is used. Each item of Personal Property not owned by the Company is in
such condition that upon the return of such property to its owner in its present
condition at the end of the relevant lease term or as otherwise contemplated by
the applicable agreement between the
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Company and the owner or lessor thereof, the obligations of the Company to such
owner or lessor will be discharged.
2.11 OWNED REAL PROPERTY. The Company does not own, nor has it ever owned,
any real property.
2.12 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all Intellectual Property (as defined below in this
Section 2.12) that are used to conduct its business as currently conducted or
planned to be conducted. Each item of Intellectual Property owned or used in the
operation of the business of the Company at any time during the period covered
by the Financial Statements will be owned or available for use by the Surviving
Corporation on identical terms and conditions immediately following the Closing.
The Company has taken reasonable measures to protect the proprietary nature of
each item of Intellectual Property and to maintain in confidence all trade
secrets and confidential information that it owns or uses.
(b) No other person or Business Entity has any rights to any of the
Intellectual Property owned or used by the Company (other than any rights in any
such Intellectual Property (i) not owned by the Company that constitutes
commercially available software generally available to the public or (ii) owned
by the Company granted pursuant to software licenses entered into in the
Ordinary Course of Business), and to the Company's best knowledge, no other
person or Business Entity is infringing, violating or misappropriating any of
the Intellectual Property that the Company owns or uses. The Company has
acquired all rights to Intellectual Property developed or held by any employees
or third parties who developed Intellectual Property for the Company. For
purposes of this Agreement, "Intellectual Property" means all (A) patents,
patent applications, patent disclosures and all related continuation,
continuation in part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations, (B) trademarks, service marks, trade dress,
logos, trade names and corporate names and registrations and applications for
registration thereof, (C) copyrights and registrations and applications for
registration thereof, (D) computer software, data and documentation, (E) trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice, know-how, manufacturing and
production processes and techniques, research and development information,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (F) other proprietary rights relating to any of the foregoing, and
(G) copies and tangible embodiments thereof.
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(c) None of the products or services marketed or distributed by the
Company, and none of the activities or business conducted by the Company,
infringes, violates or constitutes a misappropriation of (or in the past
infringed, violated or constituted a misappropriation of) any Intellectual
Property rights of any other person or Business Entity. The Company has not
received any complaint, claim or notice alleging any such infringement,
violation or misappropriation, and to the Company's best knowledge there is no
basis for any such complaint, claim or notice.
(d) Section 2.12(d) of the Disclosure Schedule identifies each (i)
patent or registration that has been issued to the Company with respect to any
of its Intellectual Property, (ii) pending patent application or application for
registration that the Company has made with respect to any of its Intellectual
Property, and (iii) material license or other material agreement pursuant to
which the Company has granted any rights to any third party with respect to any
of its Intellectual Property. The Company has delivered to the Buyer correct and
complete copies of all such patents, registrations, applications, licenses and
agreements (as amended to date) and has specifically identified and made
available to the Buyer correct and complete copies of all other written
documentation evidencing ownership of, and any claims or disputes relating to,
each such item. Except as set forth in Section 2.12(d) of the Disclosure
Schedule, with respect to each item of Intellectual Property that the Company
owns:
(A) subject to such rights as have been granted by the Company
under license agreements entered into in the Ordinary Course of Business of the
Company, the Company possesses all right, title and interest in and to such
item;
(B) such item is not subject to any outstanding judgment,
order, decree, stipulation or injunction; and
(C) except in accordance with the terms of the Company's
standard form of software license agreement, a copy of which has previously been
provided to the Buyer, the Company has not agreed to indemnify any person or
Business Entity for or against any infringement, misappropriation or other
conflict with respect to such item.
(e) Section 2.12(e) of the Disclosure Schedule identifies each item
of Intellectual Property used in the operation of the business of the Company at
any time during the period covered by the Financial Statements, or that the
Company plans to use in the future, that is owned by a party other than the
Company (other than commercially available desktop software applications
generally available to the public, which is not listed in Section 2.12(e) of the
Disclosure Schedule but with respect to which the representations set forth
below in this Section 2.12(e) are true). The Company has supplied the Buyer with
correct and complete copies of all
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licenses, sublicenses or other agreements (as amended to date) pursuant to which
the Company uses such Intellectual Property, all of which are listed on Section
2.12(e) of the Disclosure Schedule (other than commercially available desktop
software applications generally available to the public). Except as set forth in
Section 2.12(e) of the Disclosure Schedule, with respect to each such item of
Intellectual Property:
(i) the license, sublicense or other agreement covering such
item is legal, valid, binding, enforceable and in full force and effect with
respect to the Company, and to the Company's best knowledge is legal, valid,
binding, enforceable and in full force and effect with respect to each other
party thereto;
(ii) such license, sublicense or other agreement will continue
to be legal, valid, binding, enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing;
(iii) neither the Company nor, to the Company's best
knowledge, any other party to such license, sublicense or other agreement is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination, modification or
acceleration thereunder;
(iv) the underlying item of Intellectual Property is not
subject to any outstanding judgment, order, decree, stipulation or injunction to
which the Company is a party or has been specifically named, nor to the
Company's best knowledge subject to any other outstanding judgment, order,
decree, stipulation or injunction;
(v) the Company has not agreed to indemnify any person or
Business Entity for or against any interference, infringement, misappropriation
or other conflict with respect to such item; and
(vi) no license or other fee is payable upon any transfer or
assignment of such license, sublicense or other agreement by the terms thereof
or the terms of any other agreement or arrangement with the other party or
parties thereto.
2.13 REAL PROPERTY LEASES. Section 2.13 of the Disclosure Schedule lists
all real property leased or subleased to the Company. The Company has delivered
to the Buyer correct and complete copies of the leases and subleases (as amended
to date) listed in Section 2.13 of the Disclosure Schedule. With respect to each
lease and sublease listed in Section 2.13 of the Disclosure Schedule, except as
set forth on Schedule 2.13 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and
in full force and effect with respect to the Company, and to the Company's best
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knowledge, is legal, valid, binding, enforceable and in full force and effect
with respect to each other party thereto;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect prior to the Closing;
(c) the Company is not in breach or default thereunder, to the
Company's best knowledge, no other party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(d) there are no disputes, oral agreements or forbearance programs
in effect as to the lease or sublease;
(e) the Company has not assigned, transferred, conveyed, mortgaged,
deeded in trust or encumbered any interest in the leasehold or subleasehold;
(f) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities; and
(g) no construction, alteration or other leasehold improvement work
with respect to the lease or sublease remains to be paid for or performed by the
Company.
2.14 CONTRACTS. Section 2.14 of the Disclosure Schedule lists the
following written arrangements (including without limitation written agreements)
to which the Company is a party:
(a) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $10,000 per annum;
(b) any written arrangement (or group of related written
arrangements) for the licensing or distribution of software, products or other
personal property or for the furnishing or receipt of services (i) which calls
for performance over a period of more than one year, (ii) which involves more
than the sum of $10,000, or (iii) in which the Company has granted rights to
license, sublicense or copy, "most favored nation" pricing provisions or
exclusive marketing or distribution rights relating to any products or territory
or has agreed to purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain party;
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(c) any written arrangement establishing a partnership or joint
venture;
(d) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed (or
may create, incur, assume, or guarantee) indebtedness (including capitalized
lease obligations) involving more than $10,000 or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or intangible;
(e) any written arrangement concerning confidentiality or
noncompetition (other than the Company's standard form of confidentiality,
nonsolicitation and non-competition agreement with its employees, a copy of
which has been provided to the Buyer, and the nondisclosure agreements entered
into among any of the Parties in connection with the transactions contemplated
by this Agreement);
(f) any written arrangement involving any of the Company
Stockholders or their Affiliates (for the purpose of this Agreement, "Affiliate"
shall mean (A) in the case of an individual, the members of the immediate family
(including parents, siblings and children) of (i) the individual and (ii) the
individual's spouse, and (iii) any Business Entity that directly or indirectly,
through one or more intermediaries controls, or is controlled by, or is under
common control with any of the foregoing individuals, or (B) in the case of a
Business Entity, another Business Entity or a person that directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with the Business Entity);
(g) any written arrangement under which the consequences of a
default or termination could have a material adverse effect on the assets,
business, financial condition, results of operations or future prospects of the
Company; and
(h) any other written arrangement (or group of related written
arrangements) either involving more than $10,000 or not entered into in the
Ordinary Course of Business of the Company.
The Company has delivered to the Buyer a correct and complete copy of each
written arrangement (as amended to date) listed in Section 2.14 of the
Disclosure Schedule. With respect to each written arrangement so listed: (i) the
written arrangement is legal, valid, binding and enforceable and in full force
and effect with respect to the Company and, to the Company's best knowledge the
written arrangement is legal, valid, binding and in enforceable and in full
force and effect with respect to each other party thereto; (ii) the written
arrangement will continue to be legal, valid, binding and enforceable and in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect prior to the Closing; and (iii) neither the Company
nor, to the Company's best knowledge, any other party, is
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in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default by the Company or, to the Company's
best knowledge, by any such other party, or permit termination, modification or
acceleration, under the written arrangement. The Company is not a party to any
oral contract, agreement or other arrangement which, if reduced to written form,
would be required to be listed in Section 2.14 of the Disclosure Schedule under
the terms of this Section 2.14. The Company is not restricted by any arrangement
from carrying on its business anywhere in the world.
2.15 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
2.16 INSURANCE.
(a) Section 2.16 of the Disclosure Schedule lists each insurance
policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company is a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past year. Each such insurance policy is in full force and
effect and will continue to be in full force and effect following the Closing in
accordance with the terms thereof as in effect prior to the Closing.
(b) The Company is not in breach or default (including with respect
to the payment of premiums or the giving of notices) under such policy, and no
event has occurred which, with notice or the lapse of time, would constitute
such a breach or default or permit termination, modification or acceleration,
under any such policy; and the Company has not received any notice from the
insurer disclaiming coverage or reserving rights with respect to a particular
claim or such policy in general. Section 2.16 of the Disclosure Schedule
identifies all claims asserted by the Company pursuant to any insurance policy
since January 1, 1997 and describes the nature and status of such claim. The
Company has not incurred any loss, damage, expense or liability covered by any
such insurance policy for which it has not properly asserted a claim under such
policy. The Company is covered by insurance in scope and amount customary and
reasonable for the businesses in which it is engaged.
2.17 LITIGATION. Except as identified and described in Section 2.17 of the
Disclosure Schedule, (a) there is no action, suit, proceeding or investigation
to which the Company is a party (either as a plaintiff or defendant) pending or,
to the Company's best knowledge, threatened before any court, Governmental
Entity or arbitrator, and to the Company's best knowledge, there is no basis for
any such action, suit, proceeding or investigation; (b) neither the Company nor,
to the Company's best knowledge, any officer, director or employee of the
Company has
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been permanently or temporarily enjoined by any order, judgment or decree of any
court or Governmental Entity from engaging in or continuing to conduct the
business of the Company; and (c) no order, judgment or decree of any court or
Governmental Entity has been issued in any proceeding to which the Company is or
was a party or, to the Company's best knowledge, in any other proceeding that
enjoins or requires the Company to take an action of any kind with respect to
its business, assets or properties. None of the actions, suits, proceedings or
investigations set forth in Section 2.17 of the Disclosure Schedule,
individually or collectively, if determined adversely to the interests of the
Company, could have a material adverse effect on the assets, business, financial
condition, results of operations or future prospects of the Company.
2.18 EMPLOYEES AND SUBCONTRACTORS.
(a) Section 2.18(a) of the Disclosure Schedule contains a list of
all employees of the Company along with the position, date of hire and the
annual rate of compensation of each such person including salary and other
benefits (or, with respect to employees compensated on an hourly or per diem
basis, the hourly or per diem rate of compensation) and estimated or target
annual incentive compensation of each such employee. Except as set forth in
Section 2.18 of the Disclosure Schedule, each such employee has entered into a
confidentiality/assignment of inventions agreement with the Company, a copy of
which has previously been delivered to the Buyer. To the Company's best
knowledge, no employee or group of employees has any plans to terminate
employment with the Company. The Company is not a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. The Company has no knowledge of any organizational effort made or
threatened, either currently or within the past two years, by or on behalf of
any labor union with respect to employees of the Company.
(b) Section 2.18(b) of the Disclosure Schedule sets forth (i) a list
of all subcontractors currently performing services or under contract to perform
future services for the Company and (ii) the start date, type of services to be
provided, estimated completion date and hourly or per diem pay rate of such
subcontractors.
(c) Neither the Company nor any of the Company Stockholders nor any
director or officer, or to the Company's best knowledge, any key employee of the
Company, or to the Company's best knowledge, any relatives of any of the
foregoing, owns, directly or indirectly, individually or collectively, any
interest in any corporation, company, partnership, entity or organization which
is in a business similar or competitive to the businesses of the Company or
which has any existing undisclosed contractual relationship with the Company,
other than any interest as a holder of less than 5% of the outstanding voting
securities of any publicly traded company.
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(d) The Company has not violated any labor legislation, regulation
or agreement in any relevant jurisdiction.
2.19 EMPLOYEE BENEFITS.
(a) Section 2.19(a) of the Disclosure Schedule contains a complete
and accurate list of all Employee Benefit Plans (as defined below) maintained,
or contributed to, by the Company or any ERISA Affiliate (as defined below). For
purposes of this Agreement, "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), any "employee welfare benefit plan"
(as defined in Section 3(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including
without limitation insurance coverage, severance benefits, disability benefits,
pension, retirement plans, profit sharing, deferred compensation, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement compensation. For purposes of this
Agreement, "ERISA Affiliate" means any entity which is a member of (i) a
controlled group of corporations (as defined in Section 414(b) of the Code),
(ii) a group of trades or businesses under common control (as defined in Section
414(c) of the Code), or (iii) an affiliated service group (as defined under
Section 414(m) of the Code or the regulations under Section 414(o) of the Code),
any of which includes the Company. Complete and accurate copies of (i) all
Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R for the last five plan
years for each Employee Benefit Plan, have been delivered to the Buyer. Each
Employee Benefit Plan has been administered in accordance with its terms and
each of the Company and the ERISA Affiliates has met its obligations with
respect to such Employee Benefit Plan and has made all required contributions
thereto. The Company and all Employee Benefit Plans are in compliance with the
currently applicable provisions of ERISA and the Code and other applicable
federal, state and local laws and the regulations thereunder. Each Employee
Benefit Plan that is intended to qualify under Section 401(k) of the Code is so
qualified. Nothing has occurred that might cause a loss of such qualification
and no loss of qualification has been threatened.
(b) To the Company's best knowledge, there are no inquiries or
investigations by any Governmental Entity, termination proceedings or other
claims (except claims for benefits payable in the normal operation of the
Employee Benefit Plans and proceedings with respect to qualified domestic
relations orders), suits or proceedings against or involving any Employee
Benefit Plan or asserting any rights or claims to benefits under any Employee
Benefit Plan.
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(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or increase its cost.
(d) Neither the Company nor any ERISA Affiliate has ever maintained
an Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(e) At no time has the Company or any ERISA Affiliate been obligated
to contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Company (or to any beneficiary of any such employee), including but not limited
to retiree health coverage and deferred compensation, but excluding continuation
of health coverage required to be continued under Section 4980B of the Code and
insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company or any ERISA
Affiliate that would subject the Company or any ERISA Affiliate to any fine,
penalty, tax or liability of any kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan and any Employee Benefit Plan may be terminated
without liability to the Company, the Surviving Corporation or the Buyer, except
for benefits accrued through the date of termination. No former employees
participate in any welfare benefit plans listed in Section 2.19(a) of the
Disclosure Schedule. No Employee Benefit Plan includes in its assets any
securities issued by the Company. No Employee Benefit Plan has been subject to
tax under Section 511 of the Code.
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(j) Section 2.19(j) of the Disclosure Schedule discloses each: (i)
agreement with any director, executive officer or other key employee of the
Company (A) the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of a transaction involving the Company of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation guarantee or (C) providing severance
benefits or other benefits after the termination of employment of such director,
executive officer or key employee; (ii) agreement, plan or arrangement under
which any person may receive payments from the Company that may be subject to
the tax imposed by Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Company, including without limitation any stock
option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the 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.
2.20 ENVIRONMENTAL MATTERS.
(a) The Company has complied with all applicable Environmental Laws
(as defined below). There is no pending or, to the Company's best knowledge,
threatened civil or criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or information request by
any Governmental Entity, relating to any Environmental Law involving the
Company. For purposes of this Agreement, "Environmental Law" means any federal,
state or local law, statute, rule or regulation or the common law relating to
the environment or occupational health and safety, including without limitation
any statute, regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wildlife, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used above, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Compensation, Liability and Response Act of
1980 ("CERCLA").
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(b) There have been no releases of any Materials of Environmental
Concern (as defined below) into the environment at any parcel of real property
or any facility formerly or currently owned, operated or controlled by the
Company for which the Company may be liable under any Environmental Law of the
jurisdiction in which such property or facility is located. With respect to any
such releases of Materials of Environmental Concern, the Company has given all
required notices to Governmental Entities (copies of which have been provided to
the Buyer). The Company is not aware of any other releases of Materials of
Environmental Concern at parcels of real property or facilities other than those
owned, operated or controlled by the Company that could reasonably be expected
to have an impact on the real property or facilities owned, operated or
controlled by the Company. For purposes of this Agreement, "Materials of
Environmental Concern" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA or any Environmental
Law), solid wastes and hazardous wastes (as such terms are defined under the
federal Resources Conservation and Recovery Act or any Environmental Law), toxic
materials, oil or petroleum and petroleum products, or any other material
subject to regulation under any Environmental Law.
(c) Set forth in Section 2.20(c) of the Disclosure Schedule is a
list of all environmental reports, investigations and audits known to the
Company or any of the Company Stockholders (whether conducted by or on behalf of
the Company or a third party, and whether done at the initiative of the Company
or directed by a Governmental Entity or other third party) issued or conducted
during the past five years and relating to premises currently or previously
owned or operated by the Company. Complete and accurate copies of each such
report, or the results of each such investigation or audit, have been provided
to the Buyer.
(d) The Company is not aware of any material environmental liability
of the solid and hazardous waste transporters and treatment, storage and
disposal facilities that have been utilized by the Company.
2.21 LEGAL COMPLIANCE. The Company, and the conduct and operations of its
business, are and have been in compliance with each law (including rules and
regulations thereunder) of any federal, state, local or foreign government, or
any Governmental Entity, which (a) affects or relates to the Fundamental
Agreements or the transactions contemplated hereby or (b) is applicable to the
Company or its business.
2.22 PERMITS. Section 2.22 of the Disclosure Schedule sets forth a list of
all permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
applicable export laws or regulations and those relating to the occupancy or use
of owned or leased real property) ("Permits") issued to or held by the Company.
Such listed Permits are the only Permits that are required for the Company to
conduct its
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business as presently conducted or as proposed to be conducted. Each such Permit
is in full force and effect and, to the Company's best knowledge, no suspension
or cancellation of such Permit is threatened and there is no basis for believing
that such Permit will not be renewable upon expiration. Each such Permit will
continue in full force and effect following the Closing.
2.23 CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. No Affiliate of the
Company (a) owns any property or right, tangible or intangible, which is used in
the business of the Company, (b) has any claim or cause of action against the
Company, (c) is a party to any contract or other arrangement, written or verbal,
with the Company, or (d) owes any money to the Company or is owed money by the
Company or any affiliate (the agreements, arrangements and relationships
described in this sentence are hereinafter referred to as "Related Party
Transactions"). Section 2.23 of the Disclosure Schedule describes any Related
Party Transactions.
2.24 BROKERS' FEES. Except as disclosed in Section 2.24 of the Disclosure
Schedule, the Company has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
2.25 BOOKS AND RECORDS. The minute books and other similar records of the
Company contain true and complete records of all actions taken at any meetings
of the Company's stockholders, Board of Directors or any committee thereof and
of all written consents executed in lieu of the holding of any such meeting. The
books and records of the Company accurately reflect the assets, liabilities,
business, financial condition and results of operations of the Company and have
been maintained in accordance with good business and bookkeeping practices.
2.26 PREPAYMENTS, PREBILLED INVOICES AND DEPOSITS.
(a) Section 2.26(a) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits that have been received by the
Company as of the date hereof from customers for products to be shipped, or
services to be performed, after the Closing Date, and (ii) with respect to each
such prepayment, prebilled invoice or deposit, (A) the party and contract
credited, (B) the date received or invoiced, (C) the products and/or services to
be delivered, and (D) the conditions for the return of such prepayment,
prebilled invoice or deposit. All such prepayments, prebilled invoices and
deposits are properly accrued for on the Most Recent Balance Sheet in accordance
with GAAP applied on a consistent basis with the past practice of the Company.
(b) Section 2.26(b) of the Disclosure Schedule sets forth (i) all
prepayments, prebilled invoices and deposits that have been made or paid by the
Company as of the date hereof received after the Closing Date, and (ii) with
respect
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to each such prepayment, prebilled invoice or deposit, (A) the party to whom
such prepayment, prebilled invoice or deposit was made or paid, (B) the date
made or paid, (C) the products and/or services to be delivered, and (D) the
conditions for the return of such prepayment, prebilled invoice or deposit. All
such prepayments, prebilled invoices and deposits are properly reflected on the
Most Recent Balance Sheet in accordance with GAAP applied on a consistent basis
with the past practices of the Company.
2.27 BANKING FACILITIES. Section 2.27 of the Disclosure Schedule
identifies:
(a) Each bank, savings and loan or similar financial institution in
which the Company has an account or safety deposit box and the numbers of the
accounts or safety deposit boxes maintained by the Company thereat; and
(b) The names of all persons authorized to draw on each such account
or to have access to any such safety deposit box facility, together with a
description of the authority (and conditions thereof, if any) of each such
person with respect thereto.
2.28 POOLING. To the Company's best knowledge, neither the Company nor any
of its Affiliates has through the date of this Agreement taken or agreed to take
any action that would prevent the Company and the Buyer from accounting for the
business combination to be effected by the Merger as a "pooling of interests" in
conformity with GAAP.
2.29 COMPANY ACTION. The Board of Directors of the Company, at a meeting
duly called and held, has by the unanimous vote of all directors (i) determined
that the Merger is fair and in the best interests of the Company and its
stockholders, (ii) adopted this Agreement in accordance with the provisions of
the New York Business Corporation Law, and (iii) directed that this Agreement
and the Merger be submitted to the Company Stockholders for their adoption and
approval and resolved to recommend that Company Stockholders vote in favor of
the adoption of this Agreement and the approval of the Merger.
2.30 REORGANIZATION. Section 2.30 of the Disclosure Schedule sets forth a
detailed description of the reorganization effected by the Company immediately
prior to the execution of this Agreement. No actions or steps were taken in
connection with such reorganization other than those set forth in Section 2.30
of the Disclosure Schedule.
2.31 CONSULTANTS. The Company's relationship with each of Messrs. Danoff,
Gelbert, Kelsinki and Linder, each previously retained by the Company as a
consultant, has been terminated, and the Company has no additional liabilities
or
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obligations with respect to such consultants, nor do any of such consultants
have any rights remaining with respect to any property or assets of the Company.
2.32 DISCLOSURE. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered to or to be delivered
by or on behalf of the Company pursuant to this Agreement, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants to
the Company as follows:
3.1 ORGANIZATION. Each of the Buyer and the Transitory Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation.
3.2 CAPITALIZATION. The authorized capital stock of the Buyer consists of
80,000,000 shares of Buyer Common Stock, of which 39,907,737 shares were issued
and outstanding and 213 shares were held in the treasury of the Buyer as of
February 28, 1998. All of the issued and outstanding shares of Buyer Common
Stock are duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights. All of the Merger Shares will be, when issued in
accordance with this Agreement, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights.
3.3 AUTHORIZATION OF TRANSACTION. Each of the Buyer and the Transitory
Subsidiary has all requisite power and authority to execute and deliver the
Fundamental Agreements to which it is a party and to perform its obligations
under each such agreement. The execution and delivery of such agreements by the
Buyer and the Transitory Subsidiary and the performance of such agreements and
the consummation of the transactions contemplated thereby by the Buyer and the
Transitory Subsidiary have been duly and validly authorized by all necessary
corporate and shareholder action on the part of the Buyer and Transitory
Subsidiary. Each Fundamental Agreement to which the Buyer or the Transitory
Subsidiary is a party has been (or, in the case of the Fundamental Agreements to
be entered into on the Closing Date, shall be when delivered) duly and validly
executed and delivered
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by the Buyer and the Transitory Subsidiary and, assuming the due authorization,
execution and delivery by the Company, constitutes (or, in the case of the
Fundamental Agreements to be entered into on the Closing Date, shall constitute
when delivered) a valid and binding obligation of the Buyer and the Transitory
Subsidiary, enforceable against them in accordance with its terms, subject to
the effect of bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and except as the
availability of equitable remedies may be limited by general principles of
equity.
3.4 NONCONTRAVENTION. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws and
the filing of the Certificate of Merger as required by the New York Business
Corporation Law, neither the execution and delivery by the Buyer or the
Transitory Subsidiary of the Fundamental Agreements, nor the consummation by the
Buyer or the Transitory Subsidiary of the transactions contemplated thereby,
will (a) conflict or violate any provision of the charter or By-laws of the
Buyer or the Transitory Subsidiary, (b) require on the part of the Buyer or the
Transitory Subsidiary any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, (c) conflict with, result in breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party any right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest or other arrangement to which the Buyer or the
Transitory Subsidiary is a party or by which either is bound or to which any of
their respective assets are subject, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Buyer or the Transitory
Subsidiary or any of their respective properties or assets.
3.5 REPORTS AND FINANCIAL STATEMENTS. The Buyer has previously furnished
to the Company complete and accurate copies, as amended or supplemented, of the
Buyer's (a) Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as filed by the Buyer with the United States Securities and Exchange
Commission (the "SEC"), and (b) all other reports filed by the Buyer with the
SEC under Section 13 or 15 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), since December 31, 1996 (such materials, together with any
amendments or supplements thereto, are collectively referred to herein as the
"Buyer Reports"). As of their respective dates, the Buyer Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited financial statements and unaudited interim financial statements of the
Buyer included in the Buyer Reports (i) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) have been prepared in
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accordance with GAAP applied on a consistent basis throughout the periods
covered thereby (except as may be indicated therein or in the notes thereto, and
in the case of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present the consolidated financial condition,
results of operations and cash flows of the Buyer as of the respective dates
thereof and for the periods referred to therein, and (iv) are consistent with
the books and records of the Buyer.
3.6 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31, 1996, there
has not been any material adverse change in the assets, business, financial
condition or results of operations of the Buyer, nor has there occurred any
event or development which could reasonably be foreseen to result in such a
material adverse change in the future.
3.7 POOLING. To the best knowledge of the Buyer, neither the Buyer nor any
of its Affiliates has through the date of this Agreement taken or agreed to take
any action that would prevent the Company and the Buyer from accounting for the
business combination to be effected by the Merger as a "pooling of interests" in
conformity with GAAP.
3.8 BROKERS' FEES. Neither the Buyer nor the Transitory Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement except to
Broadview Associates.
3.9 DISCLOSURE. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in the any document, certificate or
other instrument delivered to or to be delivered by or on behalf of the Buyer
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
3.10 OPINION OF FINANCIAL ADVISOR. The Buyer has received an opinion of
Broadview Associates, the financial advisor to the Buyer, to the effect that the
consideration payable for the Company Shares in connection with the Merger is
fair, from a financial point of view, to the Buyer.
ARTICLE IV
COVENANTS
4.1 BEST EFFORTS. Each of the Parties shall use its best efforts, to the
extent commercially reasonable, to take all actions and to do all things
necessary, proper or
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advisable to consummate the Merger and the transactions contemplated by this
Agreement; provided, however, that notwithstanding anything in this Agreement to
the contrary, the Buyer shall not be required to sell or dispose of or hold
separately (through a trust or otherwise) any assets or businesses of the Buyer
or its Affiliates.
4.2 NOTICES AND CONSENTS. Each of the Buyer, the Transitory Subsidiary and
the Company shall use its respective best efforts to obtain, at its expense, all
such waivers, permits, consents, approvals or other authorizations from third
parties and Governmental Entities, and to effect all such registrations, filings
and notices with or to third parties and Governmental Entities, as may be
required by or with respect to the Buyer, the Transitory Subsidiary or the
Company, respectively, in connection with the transactions contemplated by this
Agreement (including without limitation, with respect to the Company, those
listed in Section 2.4 or Section 2.22 of the Disclosure Schedule).
4.3 OPERATION OF BUSINESS. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Company shall conduct its operations in the Ordinary Course of Business and in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the foregoing, during
the period from the date of this Agreement to the Effective Time, the Company
shall not, without the written consent of the Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or authorize the
issuance, sale or delivery of, or redeem or repurchase, any stock of any class
or any other securities or any rights, warrants or options to acquire any such
stock or other securities;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases); assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
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(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.19(j) or (except for normal increases in the Ordinary Course of
Business) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any benefit not required by the terms in
effect on the date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any assets or
property other than purchases and sales of assets in the Ordinary Course of
Business;
(f) amend its charter or By-laws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(h) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any
such assets to any Security Interest;
(j) sell, assign, transfer or license any Intellectual Property,
other than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or waive any rights
under, any material contract or agreement;
(l) make or commit to make any capital expenditure in excess of
$10,000 per item or $50,000 in the aggregate;
(m) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied;
(n) take any action that would jeopardize the treatment of the
Merger as a "pooling of interests" for accounting purposes; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
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4.4 FULL ACCESS. The Company shall permit representatives of the Buyer to
have full access (at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company) to all premises,
properties, financial, accounting and Tax records, contracts, other records and
documents, and personnel, of or pertaining to the Company. The officers and
management of the Company shall cooperate fully with the Buyer's representatives
and agents and shall make themselves available to the extent necessary to
complete the due diligence process and the Closing. The Company shall, at the
request of the Buyer, introduce the Buyer to the principal suppliers, customers
and employees of the Company to facilitate discussions between such persons and
the Buyer in regard to the conduct of the business of the Company following the
Closing.
4.5 NOTICE OF BREACHES. The Company shall promptly deliver to the Buyer
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Disclosure Schedule) inaccurate or incomplete in any respect, or (b) constitute
or result in a breach by the Company of, or a failure by the Company to comply
with, any agreement or covenant in this Agreement applicable to such party. No
such disclosure shall be deemed to avoid or cure any such misrepresentation or
breach.
4.6 EXCLUSIVITY. Neither the Company nor Robert Kane shall, and each of
the Company and Robert Kane shall use its or his best efforts to cause its or
his Affiliates and each of the officers, directors, employees, representatives
and agents of the Company not to, directly or indirectly, (a) solicit, initiate,
engage or participate in or encourage discussions or negotiations with any
person or entity (other than the Buyer) concerning any merger, consolidation,
sale of material assets, tender offer, recapitalization, accumulation of Company
Shares, proxy solicitation or other business combination involving the Company
or any division of the Company or (b) provide any non-public information
concerning the business, properties or assets of the Company to any person or
entity (other than the Buyer). The Company shall immediately notify the Buyer
of, and shall disclose to the Buyer all details of, any inquiries, discussions
or negotiations of the nature described in the first sentence of this Section
4.6.
4.7 AGREEMENTS FROM CERTAIN AFFILIATES OF THE COMPANY. Concurrently with
the execution of this Agreement, the Company shall deliver to the Buyer a list
of all persons or entities who are at such time Affiliates of the Company (the
"Company Affiliates"). In order to help ensure that the Merger will be accounted
for as a "pooling of interests", that the issuance of Merger Shares will comply
with the Securities Act and that the Merger will be treated as a tax-free
reorganization, the Company shall cause each Company Affiliate to execute and
deliver to the Buyer, on the Closing Date, a written agreement substantially in
the form attached hereto as EXHIBIT E (the "Affiliate Agreement").
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4.8 LISTING OF MERGER SHARES. The Buyer shall use its best efforts to list
the Merger Shares on the Nasdaq National Market and shall use its best efforts
to cause such listing to be approved prior to the Effective Time.
4.9 ASSISTANCE WITH RETENTION. For a period of six months commencing on
the Closing Date, Robert Kane shall provide the Company and the Surviving
Corporation with such assistance, at no cost to Robert Kane, as the Company may
reasonably request in its efforts to retain the services, following the
Effective Time, of the employees of the Company.
4.10 ASSISTANCE WITH TAX DISPUTES. Robert Kane agrees to provide the
Company and its auditors and advisors with such assistance, at no cost to Robert
Kane (except any costs relating to any claim arising pursuant to Article VI
hereof), as the Company may reasonably request from time to time in connection
with any response to, or the preparation of any defense to, any claims,
inquiries or contests relating to the characterization of Intrusion Detection
Inc. or ShadoWare, Inc. as an S corporation for Tax purposes.
4.11 CREDIT FOR SERVICE. The Buyer shall grant to each of the employees of
the Company from and after the Effective Time credit for all service with the
Company with respect to eligibility under any benefit plan of the Buyer made
available to employees of the Surviving Corporation, including without
limitation for purposes of calculating vacation pay, severance pay under
severance plans or policies, if any, and any other seniority based plan,
practice, policy or arrangement sponsored or contributed to by the Buyer.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE TRANSITORY SUBSIDIARY.
The obligation of each of the Buyer and the Transitory Subsidiary to consummate
the Merger is subject to the satisfaction, or waiver by the Buyer, of the
following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Stockholder Approval by the Company Stockholders;
(b) there shall be no Dissenting Shares (as hereinafter defined) as
of the Effective Time. For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a Company Stockholder who has
not voted such Company Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Sections 623 and 910 of the New York Business
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Corporation Law and not effectively withdrawn or forfeited prior to the
Effective Time;
(c) the Company shall have obtained all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, necessary for the consummation by the
Company and the Company Stockholders of the Merger and the transactions
contemplated by this Agreement;
(d) the representations and warranties of the Company set forth in
Article II shall be true and correct when made on the date hereof and shall be
true and correct in all material respects as of the Effective Time as if made as
of the Effective Time, except for representations and warranties made as of a
specific date, which shall be true and correct as of such date;
(e) the Company shall have performed or complied with its agreements
and covenants required to be performed or complied with under this Agreement as
of or prior to the Effective Time;
(f) no action, suit or proceeding shall be pending or threatened by
or before any Governmental Entity wherein an unfavorable judgment, order,
decree, stipulation or injunction would (i) prevent consummation of the Merger
or any of the transactions contemplated by this Agreement, (ii) cause the Merger
or any of the transactions contemplated by this Agreement to be rescinded
following consummation, or (iii) affect adversely the right of the Company to
own, operate or control any of its assets or operations, and no such judgment,
order, decree, stipulation or injunction shall be in effect;
(g) the Company shall have delivered to the Buyer and the Transitory
Subsidiary a certificate (without qualification as to knowledge or materiality
or otherwise) to the effect that each of the conditions specified in clauses (a)
through (f) of this Section 5.1 is satisfied in all respects;
(h) the Buyer and the Transitory Subsidiary shall have received from
Morse, Zelnick, Rose & Lander, LLP, counsel to the Company, an opinion in the
form set forth as EXHIBIT F attached hereto, addressed to the Buyer and the
Transitory Subsidiary and dated as of the Closing Date;
(i) the Buyer shall have received a letter from each of KPMG Peat
Marwick and Deloitte & Touche LLP, auditors for the Company and the Buyer,
respectively, in a form reasonably satisfactory to the Buyer, to the effect that
the Company and, in the case of the letter from Deloitte & Touche LLP, the Buyer
may treat the Merger as a "pooling of interests" for accounting purposes;
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<PAGE> 38
(j) the Buyer and the Transitory Subsidiary shall have received the
resignations, effective as of the Effective Time, of each director of the
Company and the Subsidiaries;
(k) Robert Kane shall be available for continued employment pursuant
to the employment agreement of even date herewith in the form of EXHIBIT D
attached hereto;
(l) the Buyer and each of the Company Stockholders shall have
entered into the Registration Rights Agreement and such Agreement shall be in
full force and effect on the Closing Date in accordance with its terms;
(m) the Buyer, the Company Stockholders, the Escrow Agent and the
Indemnification Representative shall have entered into the Escrow Agreement and
such Agreement shall be in full force and effect on the Closing Date in
accordance with its terms; and
(n) all actions to be taken by the Company in connection with the
Merger and the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to the Buyer and the Transitory Subsidiary.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to consummate the Merger is subject to the satisfaction, or waiver by
the Company and (if required after the Requisite Stockholder Approval) the
Company Stockholders, of the following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Stockholder Approval by the Company Stockholders;
(b) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in Article III shall be true and correct when
made on the date hereof and shall be true and correct in all material respects
as of the Effective Time as if made as of the Effective Time, except for
representations and warranties made as of a specific date, which shall be true
and correct as of such date;
(c) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with its agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Effective Time;
(d) The Buyer and the Transitory Subsidiary shall have delivered to
the Company a certificate (without qualification as to knowledge or materiality
or
33
<PAGE> 39
otherwise) to the effect that each of the conditions specified in clauses (b)
and (c) of this Section 5.2 is satisfied in all respects;
(e) the Company Stockholders shall have received from Hale and Dorr
LLP, counsel to the Buyer and the Transitory Subsidiary, an opinion in the form
set forth as EXHIBIT G attached hereto, addressed to the Company and dated as of
the Closing Date;
(f) the Buyer and each of the Company Stockholders shall have
entered into the Registration Rights Agreement and such Agreement shall be in
full force and effect on the Closing Date in accordance with its terms;
(g) the Buyer, the Company Stockholders, the Escrow Agent and the
Indemnification Representative shall have entered into the Escrow Agreement and
such Agreement shall be in full force and effect on the Closing Date in
accordance with its terms;
(h) the Company Stockholders shall have received a copy of a letter
from each of KPMG Peat Marwick and Deloitte & Touche LLP, auditors for the
Company and the Buyer, respectively, in a form reasonably satisfactory to the
Buyer, to the effect that the Company and, in the case of the letter from
Deloitte & Touche LLP, the Buyer may treat the Merger as a "pooling of
interests" for accounting purposes;
(i) the shares of Buyer Common Stock to be issued to the Company
Stockholders in connection with the Merger shall have been approved for listing
on the Nasdaq National Market, subject to official notice of issuance; and
(j) all actions to be taken by the Buyer and the Transitory
Subsidiary in connection with the Merger and the consummation of the
transactions contemplated hereby and all certificates, opinions, instruments and
other documents required to effect the transactions contemplated hereby shall be
reasonably satisfactory in form and substance to the Company.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION. The Company Stockholders shall indemnify the Buyer
and the Surviving Corporation (together, the "Indemnified Persons") in respect
of, and hold the Indemnified Persons harmless against, any and all claims,
debts, obligations and other liabilities (whether absolute, accrued, contingent,
fixed or otherwise, and whether known or unknown, due or to become due or
otherwise),
34
<PAGE> 40
monetary damages, fines, fees, Taxes, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) incurred or suffered by the Indemnified Persons or any Affiliate
thereof ("Damages"):
(a) resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company contained in this Agreement or in the Certificate
delivered pursuant to Section 5.1(g) hereof;
(b) resulting from any claim by a stockholder or former stockholder
of the Company, or any other person or Business Entity, seeking to assert, or
based upon: (i) ownership or rights to ownership of any shares of stock of the
Company; (ii) any rights of a stockholder (other than the right to receive the
Merger Shares pursuant to this Agreement or appraisal rights under the
applicable provisions of the New York Business Corporation Law), including any
option, preemptive rights or rights to notice or to vote; (iii) any rights under
the Certificate of Incorporation or By-laws of the Company; or (iv) any claim
that his, her or its shares were wrongfully repurchased by the Company; or
(c) resulting from any failure of the Company to comply with, or any
default by the Company under or violation by the Company of any provision of its
By-laws.
6.2 METHOD OF ASSERTING CLAIMS.
(a) All claims for indemnification by an Indemnified Person pursuant
to this Article VI shall be made in accordance with the provisions of this
Section 6.2 and the Escrow Agreement.
(b) If a third party asserts that an Indemnified Person is liable to
such third party for a monetary or other obligation which may constitute or
result in Damages for which such Indemnified Person may be entitled to
indemnification pursuant to Section 6.1, and such Indemnified Person reasonably
determines that it has a valid business reason to fulfill such obligation, then
(i) such Indemnified Person shall be entitled to satisfy such obligation,
without prior notice to or consent from the Company Stockholders or the
Indemnification Representative, (ii) such Indemnified Person may make a claim
for indemnification pursuant to this Article VI in accordance with the
provisions of the Escrow Agreement, and (iii) such Indemnified Person shall be
reimbursed, in accordance with the provisions of the Escrow Agreement, for any
such Damages for which it is entitled to indemnification pursuant to this
Article VI (subject to the right of the Indemnification Representative to
dispute
35
<PAGE> 41
the Indemnified Person's entitlement to indemnification under the terms of this
Article VI).
(c) The Indemnified Person shall give prompt written notification to
the Indemnification Representative of the commencement of any action, suit or
proceeding relating to a third party claim for which indemnification pursuant to
Section 6.1 may be sought; provided, however, that no delay on the part of the
Indemnified Person in notifying the Indemnification Representative shall relieve
the Company Stockholders of any liability or obligation hereunder except to the
extent of any damage or liability caused by or arising out of such failure.
Within 20 days after delivery of such notification, the Indemnification
Representative may, upon written notice thereof to the Indemnified Person,
assume control of the defense of such action, suit or proceeding with counsel
reasonably satisfactory to the Indemnified Person, provided the Indemnification
Representative acknowledges in writing to the Indemnified Person, on behalf of
the Company Stockholders, that the Company Stockholders shall indemnify the
Indemnified Person with respect to all elements of such action, suit or
proceeding and any Damages, fines, costs or other liabilities that may be
assessed against the Indemnified Person in connection with such action, suit or
proceeding. If the Indemnification Representative does not so assume control of
such defense, the Indemnified Person shall control such defense. The party not
controlling such defense may participate therein at its own expense; provided
that if the Indemnification Representative assumes control of such defense and
the Indemnified Person reasonably concludes that the indemnifying parties and
the Indemnified Person have conflicting interests or different defenses
available with respect to such action, suit or proceeding, the reasonable fees
and expenses of counsel to the Indemnified Person shall be considered "Damages"
for purposes of this Agreement. The party controlling such defense shall keep
the other party advised of the status of such action, suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
other party with respect thereto. The Indemnified Person shall not agree to any
settlement or the entry of a judgment in any such action, suit or proceeding
without the prior written consent of the Indemnification Representative, which
consent shall not be unreasonably withheld or delayed. The Indemnification
Representative shall not agree to any settlement or the entry of a judgment in
any action, suit or proceeding without the prior written consent of the
Indemnified Person, which shall not be unreasonably withheld (it being
understood that it is reasonable to withhold such consent if, among other
things, the settlement or the entry of a judgment (i) lacks a complete release
of the Indemnified Person for all liability with respect thereto or (ii) imposes
any liability or obligation on the Indemnified Person).
6.3 SURVIVAL. The representations and warranties of the Company set forth
in this Agreement and the indemnification obligations set forth in Section 6.1
hereof shall survive the Closing and the consummation of the transactions
contemplated hereby and continue until the first anniversary of the Closing Date
(except in the case
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<PAGE> 42
of the representations and warranties set forth in clause (a) of Section 2.7 of
this Agreement and the indemnification obligations with respect thereto, which
shall continue until the issuance of the Buyer's audited financial statements
for the year ending December 31, 1998). If a notice is given in accordance with
the Escrow Agreement before expiration of such period, then (notwithstanding the
expiration of such time period) the representation or warranty applicable to
such claim and the related indemnification obligation in Section 6.1 shall
survive until, but only for purposes of, the resolution of such claim. The
rights to indemnification, reimbursement or other remedy set forth in this
Agreement will not be affected by any investigation conducted by an Indemnified
Person with respect to, or any knowledge acquired (or capable of being acquired)
by an Indemnified Person about, the accuracy or inaccuracy of, or compliance
with, any representation, warranty, covenant or obligation.
6.4 LIMITATIONS. Notwithstanding anything to the contrary herein, (a)
except in the case of any Damages resulting from or arising out of the breach of
any representations or warranties relating to Taxes, including without
limitation the representations and warranties set forth in Section 2.9 of this
Agreement, and the indemnification obligations with respect thereto
(collectively, the "Tax Obligations"), the aggregate liability of the Company
Stockholders for Damages under this Agreement shall not exceed the fair market
value of the Escrow Shares, as determined in accordance with the Escrow
Agreement, and shall be satisfied only from the Escrow Shares, (b) the aggregate
liability of the Company Stockholders for Damages under this Agreement for Tax
Obligations shall not exceed one-half (1/2) of the value of the Merger Shares as
of the Effective Time, and (c) the Company Stockholders shall be liable under
the indemnification provisions contained in Section 6.1(a) of this Agreement for
only that portion of the aggregate Damages which exceeds $100,000. No Company
Stockholder shall have any rights of contribution against the Company with
respect to any breach by the Company of any of its representations, warranties,
covenants or agreements. Except with respect to Tax Obligations and with respect
to claims based on fraud, the shares of Buyer Common Stock held pursuant to the
Escrow Agreement shall be the Buyer's sole and exclusive remedy for Damages
resulting from or relating to any breach of any representation, warranty,
covenant or indemnification obligation under this Agreement. The indemnification
obligations of the Company Stockholders pursuant to this Article VI shall be
joint and several.
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<PAGE> 43
ARTICLE VII
TERMINATION
7.1 TERMINATION OF AGREEMENT. The Parties may terminate this Agreement
prior to the Effective Time (whether before or after Requisite Stockholder
Approval) as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
(b) the Buyer may terminate this Agreement by giving written notice
to the Company in the event the Company is in breach, and the Company may
terminate this Agreement by giving written notice to the Buyer and the
Transitory Subsidiary in the event the Buyer or the Transitory Subsidiary is in
breach, of any material representation, warranty or covenant contained in this
Agreement, and such breach is not remedied within 10 days of delivery of written
notice thereof;
(c) the Buyer may terminate this Agreement by giving written notice
to the Company if the Closing shall not have occurred on or before March 31,
1998 by reason of the failure of any condition precedent under Section 5.1
hereof (unless the failure results primarily from a breach by the Buyer or the
Transitory Subsidiary of any representation, warranty or covenant contained in
this Agreement); and
(d) the Company may terminate this Agreement by giving written
notice to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before March 31, 1998 by reason of the failure of any condition
precedent under Section 5.2 hereof (unless the failure results primarily from a
breach by the Company of any representation, warranty or covenant contained in
this Agree ment).
7.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 7.1, all obligations of the Parties hereunder shall terminate without
any liability of any Party to any other Party (except for any liability of any
Party for breaches of this Agreement).
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ARTICLE VIII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms
is defined in the Section of this Agreement indicated below.
DEFINED TERM SECTION
------------ -------
Affiliate........................................................2.14(f)
Affiliate Agreement..................................................4.7
Balance Sheet Date...................................................2.6
Business Entity......................................................2.4
Buyer ......................................................Introduction
Buyer Common Stock................................................1.5(a)
Buyer Reports........................................................3.5
CERCLA...........................................................2.20(a)
Certificate of Merger................................................1.1
Certificates......................................................1.6(a)
Closing..............................................................1.2
Closing Date.........................................................1.2
Code..............................................................2.9(c)
Company ....................................................Introduction
Company Affiliates...................................................4.7
Company Shares....................................................1.5(a)
Company Stockholders..............................................1.5(a)
Conversion Ratio..................................................1.5(a)
Damages..............................................................6.1
Disclosure Schedule...........................................Article II
Dissenting Shares....................................................5.1
Effective Time.......................................................1.1
Employee Benefit Plan............................................2.19(a)
Environmental Law................................................2.20(a)
ERISA............................................................2.19(a)
ERISA Affiliate..................................................2.19(a)
Escrow Agreement.....................................................1.3
Escrow Shares.....................................................1.5(a)
Exchange Act.........................................................3.5
Financial Statements.................................................2.6
Fundamental Agreements...............................................2.3
GAAP.................................................................2.6
Governmental Entity..................................................2.4
Indemnification Representative.......................................1.3
Indemnified Persons..................................................6.1
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Initial Shares....................................................1.5(a)
Intellectual Property............................................2.12(b)
Materials of Environmental Concern...............................2.20(b)
Merger...............................................................1.1
Merger Shares.....................................................1.5(a)
Most Recent Balance Sheet............................................2.6
Ordinary Course of Business..........................................2.4
Parties.....................................................Introduction
Permits.............................................................2.22
Personal Property................................................2.10(c)
Registration Rights Agreement........................................2.3
Related Party Transactions..........................................2.23
Requisite Stockholder Approval.......................................2.3
SEC..................................................................3.5
Securities Act.......................................................2.2
Security Interest....................................................2.4
Subsidiary...........................................................2.4
Surviving Corporation................................................1.1
Taxes.............................................................2.9(g)
Tax Obligations......................................................6.4
Tax Returns.......................................................2.9(g)
Termination.......................................................2.9(h)
Termination Date..................................................2.9(g)
Transitory Subsidiary.......................................Introduction
ARTICLE IX
MISCELLANEOUS
9.1 PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any press
release or public disclosure relating to the subject matter of this Agreement
without the prior written approval of the other Parties; PROVIDED, HOWEVER, that
any Party may make any public disclosure it believes in good faith is required
by law or regulation (in which case the disclosing Party shall advise the other
Parties and provide them with a copy of the proposed disclosure prior to making
the disclosure).
9.2 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns and the Company Stockholders.
9.3 ENTIRE AGREEMENT. The Fundamental Agreements and the exhibits and
schedules attached thereto, together with that certain letter agreement dated
November 7, 1997, by and between the Buyer and Update Capital, Inc. (signing on
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behalf of the Company) regarding the disclosure of certain confidential
information described therein regarding the Company, constitute the entire
agreement among the Parties and supersede any prior understandings, agreements
or representations by or among the Parties, written or oral, that may have
related in any way to the Merger.
9.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that the Transitory Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer.
9.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, including signatures presented by facsimile, each of which shall
be deemed an original but all of which together shall constitute one and the
same instrument.
9.6 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
IF TO THE COMPANY: COPY TO:
Intrusion Detection Inc. Morse, Zelnick, Rose & Lander, LLP
217 East 86th Street 450 Park Avenue
Suite 213 New York, NY 10022-2605
New York, NY 10028 Attn: Kenneth S. Rose, Esq.
Attn: Mr. Robert Kane
IF TO THE BUYER: COPIES TO:
Security Dynamics Security Dynamics
Technologies, Inc. Technologies, Inc.
20 Crosby Drive 20 Crosby Drive
Bedford, MA 01730 Bedford, MA 01730
Attn: President Attn: General Counsel
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Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attn: Hal J. Leibowitz, Esq.
IF TO THE TRANSITORY
SUBSIDIARY COPY TO:
Security Dynamics Hale and Dorr LLP
Technologies, Inc. 60 State Street
20 Crosby Drive Boston, MA 02109
Bedford, MA 01730 Attn: Hal J. Leibowitz, Esq.
Attn: President
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
New York.
9.9 AMENDMENTS AND WAIVERS. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time; provided, however,
that any amendment effected subsequent to the Requisite Stockholder Approval
shall be subject to the restrictions contained in the New York Business
Corporation Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
9.10 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that
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<PAGE> 48
the court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
9.11 EXPENSES. Except as set forth in the Escrow Agreement, each of the
Parties shall bear its own costs and expenses (including fees and expenses of
their respective legal, accounting and financial advisors) incurred in
connection with this Agreement and the transactions contemplated hereby;
provided, however, that if the Merger is consummated, the Company shall not
incur fees and expenses of legal, accounting and financial advisors in
connection with the Merger in excess of the amounts set forth in Section 9.11 of
the Disclosure Schedule, and any such fees and expenses incurred by the Company
in excess of such amounts shall be recovered by the Buyer pursuant to the Escrow
Agreement without regard to the provisions of the first sentence of Section 6.4.
9.12 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that one or more of the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which it may be entitled, at law or in equity.
9.13 CONSTRUCTION. The language used in this Agreement shall be deemed to
be the language chosen by the Parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any Party. Any reference
to any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise.
9.14 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
9.15 SUBMISSION TO JURISDICTION. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in Boston, Massachusetts in
any action or proceeding arising out of or relating to this Agreement, (b)
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court, (c) agrees not to bring any action or proceeding
arising out of or relating to this
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<PAGE> 49
Agreement in any other court and (d) waives any right it may have to a trial by
jury with respect to any action or proceeding arising out of or relating to this
Agreement. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety
or other security that might be required of any other party with respect
thereto. Any Party may make service on another Party by sending or delivering a
copy of the process to the Party to be served at the address and in the manner
provided for giving notices in Section 9.7. Nothing in this Section 9.15,
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law.
[Signatures begin on the following page.]
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<PAGE> 50
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
SECURITY DYNAMICS TECHNOLOGIES, INC.
By: /s/ Marian O'Leary
---------------------------
Marian O'Leary
Senior Vice President and
Chief Financial Officer
APPLE ACQUISITION CORP.
By: /s/ Marian O'Leary
---------------------------
Title: President
INTRUSION DETECTION INC.
By: /s/ Robert Kane
---------------------------
Title: President
The undersigned hereby joins in this Agreement
solely for purposes of agreeing to be bound by the
provisions of Sections 4.6, 4.9, 4.10 and 9.12 and
Article VI hereof.
/s/ Robert Kane
-------------------
Robert Kane
The undersigned hereby joins in this Agreement
solely for purposes of agreeing to be bound by the
provisions of Article VI hereof.
/s/ Lillian Kane
-------------------
Lillian Kane
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<PAGE> 51
The undersigned, being the duly elected Secretary of the Transitory
Subsidiary, hereby certifies that this Agreement has been adopted by a majority
of the votes represented by the outstanding shares of capital stock of the
Transitory Subsidiary entitled to vote on this Agreement.
/s/ Marian O'leary
-------------------
Secretary
The undersigned, being the duly elected Secretary or Assistant Secretary
of the Company, hereby certifies that this Agreement has been adopted by a
majority of the votes represented by the outstanding Company Shares entitled to
vote on this Agreement.
/s/ Ken Rose
-------------------
Secretary or Assistant Secretary
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<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of March 25, 1998, by and among Security Dynamics Technologies, Inc., a
corporation organized under the laws of the State of Delaware (the "Company"),
and each of the parties listed on SCHEDULE I to this Agreement (individually, a
"Stockholder" and collectively, the "Stockholders").
INTRODUCTION
The Company and Intrusion Detection Inc., a corporation organized under
the laws of the State of New York ("ID"), have entered into an Agreement and
Plan of Merger, dated as of March 25, 1998 (the "Merger Agreement"), pursuant to
which, upon and subject to the occurrence of the Closing thereunder, a
subsidiary of the Company shall merge with and into ID (the "Merger") and as
consideration therefor, the Company will issue to the Stockholders shares of
Common Stock, $.01 par value per share ("Common Stock"), of the Company. The
Stockholders wish to have, and the Company is willing to grant to them, certain
rights with respect to the registration of such shares of Common Stock.
In consideration of the mutual covenants and promises contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and the Stockholders agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Section 1 and elsewhere in this
Agreement, the following terms shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"REGISTRABLE SHARES" means (a) the shares of Common Stock issued to
the Stockholders pursuant to the Merger Agreement, including without limitation,
the Escrow Shares, and (b) any other shares of Common Stock of the Company
issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations or similar events); provided, however, that
shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares (i) upon any sale pursuant to a Registration Statement,
Section 4(1) of the Securities Act or Rule 144 under the Securities Act or upon
any sale in any manner to a person or entity which, by virtue of Section 9 of
this Agreement, is not entitled to the rights provided in this Agreement, (ii)
at such time as all of the Registrable Shares then held by the
<PAGE> 2
Rightsholders may be sold without restriction as to volume under Rule 144, or
(iii) with respect to a Rightsholder, at such time as all such shares may be
sold by such Rightsholder under Rule 144(k).
"REGISTRATION EXPENSES" means the expenses described in Section 5.
"REGISTRATION STATEMENT" means a registration statement filed by the
Company with the Commission for a public offering and sale of securities of the
Company (other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"RIGHTSHOLDERS" means the Stockholders and any other person or
entity who becomes a Rightsholder under this Agreement pursuant to Section 9.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
Other terms used herein and not otherwise defined shall have the
respective meanings ascribed to them in the Merger Agreement.
2. RESALE REGISTRATION STATEMENT.
(a) Subject to the provisions of paragraph (b) below, on or prior to
the 15th business day following the Closing Date, the Company shall file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings) (the "Resale Registration Statement") registering the Registrable
Shares under the Securities Act and shall use its best efforts to cause the
Resale Registration Statement to become effective promptly following the filing
thereof and to remain effective until the first anniversary of the Closing Date;
provided, however, that (i) the Company shall not be obligated to cause the
Resale Registration Statement to become effective until a date promptly
following the date on which the Company files with the Commission its Quarterly
Report on Form 10-Q for the period ending March 31, 1998 (but in any event by
May 31, 1998), and (ii) each Company Affiliate agrees not to sell any
Registrable Shares pursuant to the Resale Registration Statement until after
such time as the Company has published (within the meaning of Accounting Series
Release No. 130, as amended, of the Commission) financial results covering at
least 30 days of combined operations of the Company and ID (the "Release Date").
(b) Anything contained herein to the contrary notwithstanding, with
respect to the registration required pursuant to this Section 2, the Company may
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<PAGE> 3
include in such registration any issued and outstanding shares of Common Stock
held by others; provided, however, that the inclusion of such issued and
outstanding shares of Common Stock by others in such registration shall not
prevent the Rightsholders from registering the entire number of Registrable
Shares held by them.
3. INCIDENTAL REGISTRATION RIGHTS.
(a) From and after the date hereof, whenever the Company proposes to
file a Registration Statement at any time and from time to time relating to an
offering in which the Company proposes to sell shares of Common Stock for its
own account, it will, prior to such filing, give at least 20 days' written
notice to all Rightsholders of its intention to do so (subject to the
limitations set forth in paragraph (c) below) and, upon the written request of a
Rightsholder or Rightsholders given within 20 days after the Company provides
such notice (which request shall state the intended method of disposition of
such Registrable Shares), the Company shall use its best efforts to cause all
Registrable Shares which the Company has been requested by such Rightsholder or
Rightsholders to register to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such
Rightsholder or Rightsholders; provided, that (i) the Company shall have the
right to postpone or withdraw any registration effected pursuant to this Section
3 without obligation to any Rightsholder, and (ii) no Company Affiliate may sell
any Registrable Shares pursuant to any such registration until after the Release
Date.
(b) In connection with any offering under this Section 3 involving
an underwriting, the Company shall not be required to include any Registrable
Shares in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriter(s) of such
offering. If in the opinion of the managing underwriter(s) of such offering the
registration of all, or part of, the shares of Common Stock (the "Incidental
Shares") which the Rightsholders have requested to be included pursuant to this
Section 3 and/or which other holders of shares of Common Stock or other
securities of the Company entitled to include shares of Common Stock in such
registration have requested to be included would materially and adversely affect
such public offering, then the Company shall be required to include in the
underwriting only that number of such shares, if any, which the managing
underwriter(s) believe(s) may be sold without causing such adverse effect. If
the number of Registrable Shares to be included in the underwriting in
accordance with the foregoing is less than the total number of shares which the
Rightsholders have requested to be included, then (i) the Company shall be
entitled to include all shares that it desires to be registered and (ii) the
Rightsholders who have requested registration and other holders of shares of
Common Stock or other securities of the Company entitled to include shares of
Common Stock in such registration on a parity with the Rightsholders shall
participate in the underwriting
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<PAGE> 4
pro rata based upon their total ownership of shares of Common Stock of the
Company.
(c) Notwithstanding anything in the foregoing to the contrary, the
Company shall not be required to provide any advance notice to Rightsholders in
connection with any offering under this Section 3 involving an underwriting if
the Company has been informed that in the opinion of the managing underwriter(s)
the inclusion of any Incidental Shares in such offering would materially and
adversely affect the offering. In such event, the Company will provide written
notice to all Rightsholders of such managing underwriter's(s') opinion, which
notice need not be given prior to the filing of the applicable Registration
Statement.
4. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective for the period specified in paragraph
(b) below (subject, in the case of the Resale Registration Statement, to the
limitations set forth in Section 2(a) above);
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective for a period ending on the earlier of (i)
the first Anniversary of the Closing Date, and (ii) the date on which all
Registrable Shares registered under such Registration Statement have been sold;
provided, however, that the Company may by written notice require that each
Rightsholder (a "Selling Holder") who is selling shares pursuant to such
registration immediately cease sales of shares pursuant to such Registration
Statement (a "Black Out Requirement") at any time that (A) the Company becomes
engaged in a business activity or negotiation which is not disclosed in the
Registration Statement (or the prospectus included therein) which the Company
reasonably believes must be disclosed therein under applicable law and which the
Company desires to keep confidential for business purposes, the disclosure of
which at such time the Company believes could have an adverse effect on the
Company or its business or prospects or on the successful completion of such
business activity or negotiation or on the market price of the Company's stock,
(B) the Company believes that a particular disclosure so determined to be
required to be disclosed therein would be premature or would adversely affect
the Company or its business or prospects or the market price of the Company's
stock, or (C) the Registration Statement can no longer be used under the
existing rules and regulations promulgated under the Securities Act. The Company
shall not be required to disclose to the Selling Holder(s) the reasons for
requiring a
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<PAGE> 5
suspension of sales hereunder, and the Selling Holder(s) shall not disclose to
any third party (other than financial advisors or other experts consulted by
such Selling Holder(s) with respect to any such sales of shares) the existence
of any such suspension;
(c) as expeditiously as possible furnish to each Selling Holder such
reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the Selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the Selling Holder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the Selling Holders shall
reasonably request, and do any and all other acts and things that may reasonably
be necessary or desirable to enable the Selling Holders to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
Selling Holders; provided, however, that the Company shall not be required in
connection with this paragraph (d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
Selling Holders and after having done so the prospectus is amended to comply
with the requirements of the Securities Act, the Company shall promptly notify
the Selling Holders and, if requested, the Selling Holders shall immediately
cease making offers of Registrable Shares and return all undistributed
prospectuses to the Company. The Company shall promptly provide the Selling
Holders with revised prospectuses and, following receipt of the revised
prospectuses, the Selling Holders shall be free to resume making offers of the
Registrable Shares.
5. ALLOCATION OF EXPENSES. The Company will pay all Registration Expenses
of all registrations under this Agreement. For purposes of this Section 5, the
term "Registration Expenses" shall mean all expenses incurred by the Company in
complying with this Agreement, including without limitation all registration and
filing fees, exchange listing fees, printing expenses, fees and disbursements of
counsel for the Company, state Blue Sky fees and expenses, the expense of any
special audits incident to or required by any such registration and
disbursements of one counsel for all holders of registration rights
participating in the registration (with such counsel being selected by the
participating holders of registration rights), but excluding underwriting
discounts and selling commissions.
6. INDEMNIFICATION. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each
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<PAGE> 6
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which the Company, such directors
and officers, underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of such seller, specifically for use in connection with the preparation
of such Registration Statement, prospectus, amendment or supplement; provided,
however, that the obligations of such
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<PAGE> 7
Rightsholders hereunder shall be limited to an amount equal to the proceeds to
each Rightsholder of Registrable Shares sold as contemplated herein.
Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Agreement unless and to the extent that the Indemnifying
Party is adversely affected by such failure. The Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect of such claim or litigation, and no Indemnified Party
shall consent to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party.
7. INFORMATION BY HOLDER. Each Rightsholder of Registrable Shares included
in any registration shall furnish to the Company such information regarding such
holder and the distribution proposed by such holder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
8. EFFECTIVENESS. This Agreement shall become effective upon the
occurrence of the Closing under the Merger Agreement. If the Merger Agreement
shall be terminated without the occurrence of such a Closing, this Agreement
(and all of the rights and obligations of the parties hereunder) shall terminate
simultaneously.
9. TRANSFERS OF CERTAIN RIGHTS; ADDITIONAL RIGHTSHOLDERS.
(a) GENERAL. The rights granted to each Rightsholder pursuant to the
terms of this Agreement may be transferred by such Rightsholder to another
Rightsholder, to any affiliate of such Rightsholder, or to any member of the
immediate family of such Rightsholder, or any trust established for the benefit
of any
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<PAGE> 8
of the foregoing; provided, however, that in the case of any transfer referred
to in this paragraph (a), the Company is given written notice by the transferor
at the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which such rights are being assigned.
(b) TRANSFEREES. Any transferee to whom rights hereunder are
transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed upon Rightsholders under this Agreement to the same extent
as if such transferee were a party hereto.
(c) SUBSEQUENT TRANSFEREES. A transferee to whom rights are
transferred pursuant to this Section 9 may not again transfer such rights to any
other person or entity, other than as provided in (a) and (b) above.
10. TRANSFERS PURSUANT TO RULE 144 OR RESALE REGISTRATION STATEMENT. Upon
a Rightsholder's compliance with the applicable provisions of Rule 144 under the
Securities Act or prospectus delivery requirements under the Securities Act, as
the case may be, the Company will take such action as may be required
(including, without limitation, causing legal counsel to issue an appropriate
opinion) to cause its transfer agent to effectuate any transfer of Registrable
Shares properly requested by such Rightsholder, in accordance with the terms and
conditions of Rule 144 or any sale under the Resale Registration Statement.
11. NO ASSIGNMENT. Except as provided in Section 9 hereof, the rights
granted pursuant to this Agreement may not be transferred or assigned by any
Rightsholder.
12. AMENDMENTS. The provisions of this Agreement may be modified or
amended at any time and from time to time only by an agreement or consent in
writing executed by the Company and the holders of a majority of the Registrable
Shares then outstanding; provided, however, that the registration rights granted
under this Agreement may be amended only in a manner which affects all
Registrable Shares in the same fashion.
13. TERMINATION. All of the Company's obligations to register Registrable
Shares under this Agreement and to maintain the effectiveness of any
Registration Statement(s) shall terminate on the first anniversary of the
Closing Date.
14. NOTICES. All notices, requests, consents and other communications
required to be given pursuant to this Agreement shall be in writing and shall be
given by personal delivery or by certified or registered mail, postage prepaid,
return receipt requested. Notices shall be deemed effective when personally
delivered or three days after being so mailed, as the case may be, to the
parties at the following
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<PAGE> 9
respective addresses or at such other address of which either party shall notify
the other in accordance with this Section 14:
The Company: Security Dynamics Technologies, Inc.
20 Crosby Drive
Bedford, MA 01730
Attention: President
With copies to: Security Dynamics Technologies, Inc.
20 Crosby Drive
Bedford, MA 01730
Attention: General Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Attention: Hal J. Leibowitz, Esq.
Any
Rightsholder: To the address set forth below
such Rightsholder's name on
SCHEDULE I hereto
With a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, NY 10022-2605
Attention: Kenneth S. Rose, Esq.
15. ENTIRE AGREEMENT; GOVERNING LAW. This Agreement, together with the
Merger Agreement, embodies the entire agreement and understanding between the
parties, and supersedes all prior agreements and understandings relating to the
subject matter hereof. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware without giving
effect to conflict of laws provisions.
16. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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<PAGE> 10
17. HEADINGS. The headings of the sections, subsections, and paragraphs of
this Agreement have been added for convenience only and shall not be deemed to
be a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SECURITY DYNAMICS TECHNOLOGIES, INC.
/s/ Marian G. O'Leary
-----------------------------
Name: Marian G. O'Leary
Title: Senior Vice President and
Chief Financial Officer
STOCKHOLDERS:
/s/ Robert Kane
----------------------
Robert Kane
/s/ Lillian Kane
----------------------
Lillian Kane
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<PAGE> 11
SCHEDULE I
LIST OF STOCKHOLDERS
Robert Kane
1623 Third Avenue
Apt. 36DW
New York, NY 10128
Lillian Kane
158 Jaffrey Street
Brooklyn, NY 11235
<PAGE> 1
EXHIBIT 99
FOR MORE INFORMATION, PLEASE CONTACT:
Lisa Landa Alana Gentle
Security Dynamics Neva Group
781-687-7311 617-441-4000, ext. 228
[email protected] [email protected]
FOR IMMEDIATE RELEASE
---------------------
SECURITY DYNAMICS ANNOUNCES AGREEMENT
TO ACQUIRE INTRUSION DETECTION INC.
Network Security Assessment and Monitoring Tools to Be Added to SecurSight
Solutions Family
Transaction Valued at Approximately $32.5 Million
BEDFORD, Mass., March 26, 1998 - Security Dynamics Technologies, Inc. (NASDAQ:
SDTI), a leading provider of enterprise security solutions and RSA cryptographic
technology, today announced that it has signed an agreement to acquire Intrusion
Detection Inc. (IDI), a leading publisher of network security software tools
that help network officials manage enterprise-wide security more effectively.
The IDI products - Kane Security Analyst(TM) (KSA) software and Kane Security
Monitor(TM) (KSM) software - are available today as part of Security Dynamics'
SecurSight(TM) family of plug-in enterprise security solutions that provide
customers with secure access to information wherever it resides in the
enterprise.
Security Dynamics will issue approximately 784,000 shares of Common
Stock in exchange for all of the outstanding shares of Intrusion Detection Inc.
Based on the closing price of Security Dynamics' Common Stock on the Nasdaq
National Market on March 25, 1998, the transaction is valued at approximately
$32.5 million. The transaction will be accounted for as a pooling of interests.
The consummation of the acquisition is subject to the filing of a Certificate of
Merger with the State of New York. It is anticipated that the closing will occur
later today.
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Security Dynamics to Acquire Intrusion Detection Inc. - Page 2
The KSA and KSM products are highly complementary to the SecurSight
family and address two critical solutions areas - network security assessment
and monitoring - as part of an overall security management framework. KSA is
available today as a front-line assessment tool to analyze security weaknesses
in systems, and KSM is available today as a system monitoring tool. Over time,
KSM functionality, including audit and monitoring, will also be delivered
through the SecurSight Manager product as part of a security management console.
According to an Aberdeen Group report from February 1998, the intrusion
detection market was $50 million in 1997, and is expected to grow 100 percent to
$100 million in 1998. Products in the intrusion detection market let
organizations perform comprehensive analyses of their network security systems
in order to spot and correct weaknesses in their current system configurations.
Customers can then deploy real-time security software tools that constantly
monitor the network for suspicious activities and alert administrators when such
events occur, thereby averting potential security breaches.
"There are great synergies between the IDI products and our SecurSight
solutions," said Charles R. Stuckey, Jr., chairman, president and CEO of
Security Dynamics. "By acquiring IDI, and adding intrusion detection to our
family of enterprise security solutions, we are further extending the value of
SecurSight to customers. No other company today is delivering as broad an
offering of best-of-class enterprise security solutions."
"Since 1991, Intrusion Detection has been delivering best-in-class
network security analysis and monitoring tools to Fortune 500 and other
customers in a wide range of industries," said Robert Kane, president of
Intrusion Detection Inc. "By joining with Security Dynamics, we will be able to
leverage SDI's extensive distribution channels, development organization and
marketing infrastructure to deliver an even richer set of solutions to more
customers."
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Security Dynamics to Acquire Intrusion Detection Inc. - Page 3
Intrusion Detection Inc. offers two products: Kane Security Analyst and
Kane Security Monitor. Kane Security Analyst is a front-line analysis tool that
performs a complete security assessment and reports security exposures in six
critical areas: user account restriction, password strength, access controls,
system monitoring, data integrity and data confidentiality. KSA is currently
available for Windows NT, and Netware 3.x and 4.x NDS.
Kane Security Monitor is a real-time intrusion detection system that
provides sophisticated security monitoring for Windows NT networks. Security
officers, auditors and network administrators are automatically alerted about
unauthorized access or abuse. The system filters through security and audit data
to identify unauthorized activities, including compromised user IDs, password
cracking attempts, privileged ID abuse, curious users and others.
KSA and KSM are distributed both directly and through distributors in
the U.S., and through resellers in 20 countries. KSA and KSM will also be
available through Security Dynamics' direct sales forces, as well as through
SecurWorld channel partners.
ABOUT SECURSIGHT
The SecurSight family of plug-in enterprise security solutions provides
customers with secure access to information, wherever it resides in the extended
enterprise. SecurSight solutions are delivered today through current products -
including ACE/Server(R) software, SecurID(R) authentication technology and
BoKS(R) Manager software - and over time will be delivered through an integrated
set of products including SecurID authentication technology, the SecurSight
Manager(TM), SecurSight Desktop(TM) and SecurSight Agents(TM). SecurSight
solutions address a wide range of enterprise security needs, including: secure
remote access via dial-up lines or virtual private networks; secure network
access; secure applications access for single sign-on, intranets and extranets;
email security; and platform security for desktops and UNIX hosts.
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Security Dynamics to Acquire Intrusion Detection Inc. - Page 4
ABOUT SECURITY DYNAMICS
Security Dynamics is a leading provider of enterprise network and data
security solutions that help companies conduct business securely, protect
corporate information assets and facilitate business-to-business electronic
commerce. With more than 2.5 million users of its SecurID authentication
technology, Security Dynamics is the world leader in two-factor user
identification and authentication. RSA Data Security, Inc., a wholly owned
subsidiary of Security Dynamics, is a leading supplier of software components
that secure electronic data, with more than 300 million of copies of RSA
encryption and authentication software and technologies installed worldwide. RSA
technologies are part of existing and proposed standards for the Internet and
World Wide Web, ISO, ITU-T, ANSI, IEEE, and business, financial and electronic
commerce networks around the globe. Security Dynamics and RSA can be found on
the World Wide Web at http://www.securitydynamics.com/ and http://www.rsa.com/,
respectively.
# # #
ACE/Server, BoKS and SecurID are registered trademarks, and SecurSight is a
trademark of Security Dynamics Technologies, Inc. Kane Security Analyst and Kane
Security Monitor are trademarks, and Intrusion Detection is a registered
trademark of Intrusion Detection Inc. All other products and service names
mentioned herein are trademarks of their respective owners.
NOTE TO EDITORS: There will be a teleconference held today at 3:00 PM ET to
discuss Security Dynamics' acquisition of Intrusion Detection Inc. Inside the
U.S., please call 800-781-0003 at 2:45 PM ET, and outside the U.S., please call
617-225-2125 at 2:45 PM ET, and ask to be connected to the Security Dynamics'
teleconference. A 48-hour playback of the teleconference will be available
immediately following the live teleconference, and can be accessed by calling
800-458-7879 and referencing replay code 136-359.
