AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
ARTICLE I THE MERGER
1.1 The Merger
1.2 Effective Time
1.3 Effect of the Merger
1.4 Articles of Incorporation and Bylaws
1.5 Directors and Officers
1.6 Maximum Shares to be Issued
1.7 Conversion of Securities
1.8 Dissenting Shares
1.9 Surrender of Certificates
1.10 No Further Ownership Rights in Company Common Stock
1.11 Lost, Stolen or Destroyed Certificates
1.12 Tax and Accounting Consequences
1.13 Taking of Necessary Action; Further Action
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization of the Company
2.2 Company Capital Structure
2.3 Subsidiaries
2.4 Authority
2.5 No Conflict
2.6 Consents
2.7 Company Financial Statements
2.8 No Undisclosed Liabilities
2.9 No Changes
2.10 Tax and Other Returns and Reports
2.11 Restrictions on Business Activities
2.12 Title of Properties; Absence of Liens and Encumbrances
2.13 Intellectual Property
2.14 Agreements, Contracts and Commitments
2.15 Interested Party Transactions
2.16 Compliance with Laws
2.17 Governmental Authorization
2.18 Litigation
2.19 Accounts Receivable
2.20 Insurance
2.21 Minute Books
2.22 Environmental Matters
2.23 Brokers' and Finders' Fees
2.24 Employee Matters and Benefit Plans
2.25 Warranties; Indemnities
2.26 Complete Copies of Materials
2.27 Representations Complete
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
3.1 Organization, Standing and Power
3.2 Authority
3.3 Capital Structure
3.4 SEC Documents
3.5 Financial Statements
3.6 Absence Of Undisclosed Liabilities
3.7 Litigation
3.8 Compliance with Laws and Other Instruments
3.9 Brokers' and Finders' Fees
3.10 Consents
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company
ARTICLE V ADDITIONAL AGREEMENTS
5.1 Access to Information
5.2 Confidentiality
5.3 Expenses
5.4 Public Disclosure
5.5 Consents
5.6 FIRPTA Compliance
5.7 Reasonable Efforts
5.8 Notification of Certain Matters
5.9 Certain Benefit Plans
5.10 Additional Documents and Further Assurances
5.11 Registration Statement
5.12 Restrictions on Sales and Other Transfers
ARTICLE VI CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to
Effect the Merger
6.2 Additional Conditions to Obligations of the Company
6.3 Additional Conditions to the Obligations of Parent
and Merger Sub
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties
7.2 Escrow Arrangements
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
8.1 Termination
8.2 Effect of Termination
ARTICLE IX GENERAL PROVISIONS
9.1 Notices
9.2 Interpretation
9.3 Amendment
9.4 Extension; Waiver
9.5 Counterparts
9.6 Entire Agreement; Assignment
9.7 Severability
9.8 Other Remedies
9.9 Governing Law
9.10 Rules of Construction
9.11 Specific Performance
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
made and entered into as of October 3, 2000 among Socket
Communications, Inc., a Delaware corporation ("Parent"); 3rd Rail
Acquisition Corp., a California corporation and a wholly owned
subsidiary of Parent ("Merger Sub") and 3rd Rail Engineering, Inc., a
California corporation (the "Company"); Paul Hughes, Robert Miller
and Thomas Newman (collectively, the "Principal Shareholders"); Paul
Hughes as Securityholder Agent (the "Securityholder Agent") and David
W. Dunlap, in his capacity as Chief Financial Office of Parent, as
Escrow Agent (the "Escrow Agent").
RECITALS
A. The Boards of Directors of each of the Company, Parent and
Merger Sub believe it is in the best interests of each company and
their respective stockholders that Parent acquire the Company through
the statutory merger of Merger Sub with and into the Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to
the terms and conditions of this Agreement, all of the issued and
outstanding shares of capital stock of the Company ("Company Capital
Stock") shall be converted into the right to receive shares of Common
Stock of Parent ("Parent Common Stock").
C. A portion of the shares of Parent Common Stock otherwise
issuable by Parent in connection with the Merger shall be placed in
escrow by Parent, the release of which amount shall be contingent
upon certain events and conditions, all as set forth in Article VII
hereof.
D. The parties intend that the Merger constitute a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
E. The Company, Parent, and Merger Sub desire to make certain
representations and warranties and other agreements in connection
with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time
(as defined in Section 1.2 hereof) and subject to and
upon the terms and conditions of this Agreement and the applicable
provisions of the California General Corporation Law ("California
Law"), Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation and as a wholly
owned subsidiary of Parent. The surviving corporation after the
Merger is sometimes referred to hereinafter as the "Surviving
Corporation."
1.2 Effective Time. Unless this
Agreement is earlier terminated pursuant to Section 8.1 hereof, the
closing of the Merger (the "Closing") will take place as promptly as
practicable after the execution and delivery hereof by the parties
hereto, but no later than five (5) business days following
satisfaction or waiver of the conditions set forth in Article VI
hereof, at the offices of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California,
unless another time and/or place is mutually agreed upon in writing
by Parent and the Company. The date upon which the Closing actually
occurs shall be referred to herein as the "Closing Date." On the
Closing Date, the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger (or like instrument)
and the accompanying officers' certificates, each in the form
reasonably satisfactory to Parent and Company, with the Secretary of
State of the State of California (the "Certificate of Merger"), in
accordance with the applicable provisions of California Law (the time
of acceptance by the Secretary of State of the State of California of
such filing shall be referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time,
the effect of the Merger shall be as provided in
the applicable provisions of California Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise agreed to pursuant to the terms of this
Agreement, all the property, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Articles of Incorporation and Bylaws
(a) Unless otherwise determined by Parent prior to the
Effective Time, the articles of incorporation of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the articles
of incorporation of the Surviving Corporation at the Effective Time
until thereafter amended in accordance with California Law and as
provided in such articles of incorporation; provided, however, that
at the Effective Time, Article I of the Articles of Incorporation of
the Surviving Corporation shall be amended and restated in its
entirety to read as follows: "The name of the corporation is 3rd Rail
Engineering, Inc."
(b) Unless otherwise determined by Parent prior to the
Effective Time, the bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving
Corporation at the Effective Time until thereafter amended in
accordance with California Law and as provided in the articles of
incorporation of the Surviving Corporation and such bylaws.
1.5 Directors and Officers
(a) Unless otherwise determined by Parent prior to the
Effective Time, the directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation
immediately after the Effective Time, each to hold the office of
director of the Surviving Corporation in accordance with the
provisions of California Law and the articles of incorporation and
bylaws of the Surviving Corporation until his successor is duly
elected and qualified.
(b) Unless otherwise determined by Parent prior to the
Effective Time, the officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation
immediately after the Effective Time, each to hold office in
accordance with the provisions of the bylaws of the Surviving
Corporation.
1.6 Maximum Shares to be Issued. The maximum
number of shares of Parent Common Stock to be
issued in exchange for the acquisition by Parent of all outstanding
Company Capital Stock (assuming no Dissenting Shares (as defined in
Section 1.8 below) shall be the Aggregate Share Number (as defined in
Section 1.7(g) below). No adjustment shall be made in the number of
shares of Parent Common Stock issued in the Merger as a result of any
cash proceeds received by the Company from the date hereof to the
Closing Date pursuant to the exercise of options or warrants to
acquire Company Capital Stock.
1.7 Conversion of Securities. Subject to the
terms and conditions of this Agreement, as of
the Effective Time, by virtue of the Merger and without any action on
the part of Merger Sub, the Company or the holder of any shares of
the Company's capital stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of
Common Stock of the Company ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any
shares of Company Common Stock to be canceled pursuant to
Section 1.7(b) and any Dissenting Shares (as defined and to the
extent provided in Section 1.8(a)) will be canceled and extinguished
and be converted automatically into the right to receive that number
of shares of Parent Common Stock equal to the Exchange Ratio (as
defined in paragraph (g) below), upon surrender of the certificate
representing such share of Company Common Stock in the manner
provided in Section 1.9; provided, however that up to 10% (rounding
down to the nearest whole share) of the Stockholder Amount (as
defined in paragraph (g) below) payable to each holder of Company
Common Stock (a "Company Shareholder") may be paid in cash at a price
per share equal the Average Closing Price (as defined in paragraph
(g) below). Such amount that each Company Shareholder elects to be
paid in cash shall for each Company Shareholder be referred to herein
as the "Cash Election".
(b) Cancellation of Parent-Owned and Company-Owned Stock.
Each share of Company Capital Stock owned by Merger Sub, Parent, the
Company or any direct or indirect wholly owned subsidiary of Parent
or of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Company Stock Options. Prior to the Effective Time,
the Company shall send a notice (the "Option Notice") to all holders
of options to purchase Company Capital Stock (the "Company Options"):
(i) specifying that such options shall not be assumed in connection
with the Merger, (ii) specifying that the vesting restrictions
applicable to all options to purchase Company Common Stock
outstanding at the time of such notice shall be eliminated such that
no vesting restrictions remain thereon effective as of the date such
notice is given, (iii) specifying that any Company Options
outstanding as of the Effective Time shall terminate and be cancelled
at such time, and (iv) setting forth instructions as to how to
exercise such Company Options.
(d) Capital Stock of Merger Sub. Each share of Common
Stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of Common Stock of the
Surviving Corporation. Each stock certificate evidencing ownership
of any such shares of Merger Sub shall continue to evidence ownership
of such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio
shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution
of securities convertible into Parent Common Stock or Company Capital
Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Capital Stock occurring
after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent
Common Stock will be issued, but in lieu thereof, each holder of
shares of Company Capital Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such
holder) shall be entitled to receive from Parent an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) Average Closing Price.
(g) Definitions.
(i) Aggregate Common Number. The "Aggregate Common
Number" shall mean the aggregate number of shares of Company Common
Stock outstanding immediately prior to the Effective Time (assuming
the prior exercise or termination of all options to purchase Company
Capital Stock).
(ii) Aggregate Share Number. The "Aggregate Share
Number" shall be a number of shares of Parent Common Stock equal to
the quotient derived by dividing (A) $12,000,000 by (B) the Average
Closing Price, rounded to the nearest whole number (as appropriately
adjusted to reflect the effect of any stock split, stock dividend,
reorganization, recapitalization or the like with respect to the
Parent Common Stock occurring after the date hereof and prior to the
Effective Time).
(iii) Average Closing Price. The "Average Closing
Price" shall mean the average of the closing prices of one share of
Parent Common Stock as reported on the Nasdaq National Market over
the twenty trading days ending one day prior to the Closing Date;
provided that if such average during the period is: (A) greater than
$15.00, then the Average Closing Price shall be $15.00 or (B) less
than $12.00, then the Average Closing Price shall be $12.00.
(iv) Escrow Amount. The "Escrow Amount" shall be a
number of shares of Parent Common Stock obtained by multiplying (x)
the aggregate Shareholder Amount for each Principal Shareholder by
(y) 0.30.
(v) Exchange Ratio. The "Exchange Ratio" shall mean
the quotient obtained by dividing (x) the Aggregate Share Number by
(y) the Aggregate Common Number.
(vi) Shareholder Amount. The "Shareholder Amount"
shall mean, for each individual Company Shareholder, that portion of
the Aggregate Share Number to which such shareholder is entitled
based upon the number of shares of Company Common Stock such Company
Shareholder owns immediately prior to the Effective Time multiplied
by the Exchange Ratio (rounded down to the nearest whole share)
(assuming the prior exercise or termination of all options to
purchase Company Capital Stock).
1.8 Dissenting Shares
(a) Company shall be solely responsible for giving notice
of appraisal or dissenters' rights to its shareholders in a manner
consistent with California Law. Notwithstanding any other provisions
of this Agreement to the contrary, any shares of Company Capital
Stock held by a holder who has exercised and perfected appraisal
rights for such shares in accordance with California Law and who, as
of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares") shall not be converted into or
represent a right to receive Parent Common Stock pursuant to
Section 1.7 hereof, but the holder thereof shall only be entitled to
such rights as are provided by California Law.
(b) Notwithstanding the provisions of Section 1.8(a)
hereof, if any holder of Dissenting Shares shall effectively withdraw
or lose (through failure to perfect or otherwise) such holder's
appraisal rights under California Law, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to
receive Parent Common Stock pursuant to Section 1.7 hereof, without
interest thereon, upon surrender of the certificate representing such
shares.
(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the
applicable provisions of California Law, and (ii) the opportunity to
participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written
consent of Parent, make any payment with respect to any such demands
or offer to settle or settle any such demands.
1.9 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent
shall designate a bank or trust company with assets of not less than
$100,000,000 to act as exchange agent (the "Exchange Agent") in the
Merger.
(b) Parent to Provide Common Stock. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent,
for exchange in accordance with this Article I, the aggregate number
of shares of Parent Common Stock issuable pursuant to Section 1.7 in
exchange for outstanding shares of Company Capital Stock; provided
that, on behalf of the Principal Shareholders, Parent shall deposit
into an escrow account a number of shares of Parent Common Stock
equal to the Escrow Amount out of the aggregate number of shares of
Parent Common Stock otherwise issuable pursuant to Section 1.7. The
portion of the Escrow Amount contributed on behalf of each Principal
Shareholder shall be in proportion to the Shareholder Amount for each
Principal Shareholder.
(c) Exchange Procedures. Promptly after the Effective
Time, the Surviving Corporation shall cause to be mailed to each
holder of record of a certificate or certificates (the
"Certificates") that immediately prior to the Effective Time
represented outstanding shares of Company Capital Stock whose shares
were converted into the right to receive shares of Parent Common
Stock pursuant to Section 1.7 (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon actual delivery of
the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of
Parent Common Stock and the Cash Election, if applicable. Upon
surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly completed and validly executed
in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor a
certificate representing the number of whole shares of Parent Common
Stock (less the number of shares of Parent Common Stock to be
deposited in the Escrow Fund on each Principal Shareholder's behalf
pursuant to Article VII hereof) and the Cash Election, if applicable,
plus cash in lieu of fractional shares in accordance with
Section 1.7(f), to which such holder is entitled pursuant to
Section 1.6, and the Certificate so surrendered shall forthwith be
canceled. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Article VII
hereof, Parent shall cause to be distributed to the Escrow Agent (as
defined in Article VII) a certificate or certificates representing
that number of shares of Parent Common Stock equal to the Escrow
Amount which shall be registered in the name of the Escrow Agent.
Such shares shall be beneficially owned by the Company Shareholders
on whose behalf such shares were deposited in the Escrow Fund and
shall be available to compensate Parent as provided in Article VII.
Until so surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Company Capital Stock will be
deemed from and after the Effective Time, for all corporate purposes,
other than the payment of dividends, to evidence the ownership of the
number of full shares of Parent Common Stock into which such shares
of Company Capital Stock shall have been so converted and the right
to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 1.7.
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made with respect to
Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any
such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued
in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to
such shares of Parent Common Stock.
(e) Transfers of Ownership. If any Certificate for shares
of Parent Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered,
it will be a condition of the issuance thereof that the Certificate
so surrendered will be properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other
taxes required by reason of the issuance of a certificate for shares
of Parent Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax
has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the
contrary in this Section 1.9, none of the Exchange Agent, the
Surviving Corporation or any party hereto shall be liable to a holder
of shares of Parent Common Stock or Company Capital Stock for any
amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.10 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender
for exchange of shares of Company Capital Stock in accordance with
the terms hereof (including any cash paid in respect thereof) shall
be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Capital Stock, and there shall
be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Capital Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.11 Lost, Stolen or Destroyed Certificates. In the
event any Certificates evidencing shares of Company
Capital Stock shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the
holder thereof and providing an appropriate indemnity therefor, such
shares of Parent Common Stock and cash for fractional shares, if any,
as may be required pursuant to Section 1.7(f); provided, however,
that Parent may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or
destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made
against Parent or the Exchange Agent with respect to the certificates
alleged to have been lost, stolen or destroyed.
1.12 Tax and Accounting Consequences. It is intended
by the parties hereto that the Merger shall
(i) constitute a "reorganization" within the meaning of Section 368
of the Code and (ii) be accounted for under purchase accounting.
1.13 Taking of Necessary Action; Further Action. If, at
any time after the Effective Time, any such further
action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right,
title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and
directors of the Company and Merger Sub are fully authorized in the
name of their respective corporations or otherwise to take, and shall
take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger
Sub, subject to such exceptions as are specifically disclosed in the
disclosure schedule (referencing the appropriate section and
paragraph numbers) supplied by the Company to Parent (the "Company
Disclosure Schedule") and dated as of the date hereof, on the date
hereof and as of the Effective Time as though made at the Effective
Time as follows (provided that the representations and warranties
made as of a specified date shall be true and correct as of such
date):
2.1 Organization of the Company. The Company
is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. The
Company has the corporate power to own its properties and to carry on
its business as now being conducted. The Company is duly qualified
to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a
material adverse effect on the business, assets (including intangible
assets), condition (financial or otherwise), prospects or results of
operations (hereinafter referred to as a "Material Adverse Effect")
of the Company. The Company has delivered a true and correct copy of
its Articles of Incorporation and Bylaws, each as amended to date, to
Parent. Section 2.1 of the Company Disclosure Schedule lists the
directors and officers of the Company. The operations now being
conducted by the Company are not now and have never been conducted by
the Company under any other name.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists
of 25,000,000 shares of authorized Common Stock, of which 13,863,700
shares are issued and outstanding. The Company Capital Stock is held
by the persons, with the domicile addresses and taxpayer
identification numbers, and in the amounts set forth on Section
2.2(a) of the Company Disclosure Schedule. All outstanding shares of
Company Capital Common Stock are duly authorized, validly issued,
fully paid and non-assessable and not subject to preemptive rights
created by statute, the Articles of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which
it is bound. There are no declared or accrued but unpaid dividends
with respect to any shares of Company Capital Stock.
(b) The Company has reserved 5,000,000 shares of Common
Stock for issuance to employees and consultants pursuant to the 2000
Stock Plan (the "Option Plan"), of which no shares are subject to
outstanding, unexercised options and 2,576,300 shares remain
available for future grant. Section 2.2(b) of the Company Disclosure
Schedule sets forth for each outstanding Company Option the name of
the holder of such option, the domicile address and the taxpayer
identification number of such holder, the number of shares of Common
Stock subject to such option, the exercise price of such option and
the vesting schedule for such option, including the extent vested to
date and whether the exercisability of such option will be
accelerated and become exercisable by the transactions contemplated
by this Agreement, and whether such option is intended to qualify as
an incentive stock option as defined in Section 422 of the Code.
Section 2.2(b) of the Company Disclosure Schedule also sets forth the
name of the holder of any Company Capital Stock subject to a right of
repurchase by the Company ("Company Restricted Stock"), the number of
shares of Company Restricted Stock and the vesting schedule for such
Company Restricted Stock, including the extent vested to date and
whether the vesting of such shares of Company Restricted Stock will
be accelerated by the transactions contemplated by this Agreement.
Except for the Company Options described in Section 2.2(b) of the
Company Disclosure Schedule, there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral,
to which the Company is a party or by which it is bound obligating
the Company to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise
amend or enter into any such option, warrant, call, right, commitment
or agreement. The holders of Company Options have been or will be
given, or shall have properly waived, any required notice prior to
the Merger and all such rights will be terminated at or prior to the
Effective Time. Except as contemplated hereby, and with respect to
the Principal Stockholders to their knowledge, there are no voting
trusts, proxies, or other agreements or understandings with respect
to the voting stock of the Company. As a result of the Merger,
Parent will be the record and sole beneficial owner of all
outstanding capital stock of the Company and rights to acquire or
receive Company Capital Stock.
2.3 Subsidiaries. The Company does not
have and has never had any subsidiaries
or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or
control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity.
2.4 Authority. The Company has
all requisite power and authority to enter into this Agreement and
any Related Agreements (as hereinafter defined) to which it is a
party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any
Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the
Company, and no further action is required on the part of the Company
to authorize the Agreement, any Related Agreements to which it is or
they are a party and the transactions contemplated hereby and
thereby, subject only to the approval of this Agreement by the
Company Shareholders. This Agreement and the Merger have been
unanimously approved by the Board of Directors of the Company. This
Agreement and any Related Agreements to which the Company is a party
have been duly executed and delivered by the Company, and assuming
the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligation of
the Company and such Principal Stockholder, as the case may be,
enforceable in accordance with their respective terms, subject to the
laws of general application relating to bankruptcy, insolvency and
the relief of debtors and to rules of law governing specific
performance, injunctive relief or other equitable remedies. The
"Related Agreements" shall mean all such ancillary agreements
required in this Agreement to be executed and delivered in connection
with the transactions contemplated hereby, including the Employment
Agreements.
2.5 No Conflict. The execution and
delivery of this Agreement and any Related Agreements to which
the Company is a party by the Company do not, and the consummation of
the transactions contemplated hereby and thereby will not, conflict
with, or result in any violation of or default under (with or without
notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any
obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Articles of Incorporation and
Bylaws of the Company, (ii) any mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise or
license to which the Company or any of its properties or assets are
subject, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or their
respective properties or assets.
2.6 Consents. No consent,
waiver, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign
governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party, including a party to any
agreement with the Company (so as not to trigger any Conflict), is
required by or with respect to the Company in connection with the
execution and delivery of this Agreement and any Related Agreements
to which the Company is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable
securities laws thereby, and (ii) the filing of the Merger Agreement
with the Secretary of State of the State of California.
2.7 Company Financial Statements. Section 2.7 of
the Company Disclosure Schedule sets forth (i)
the Company's unaudited balance sheet as of December 31, 1999 and the
related unaudited statements of income and cash flow for the twelve-
month period then ended and (ii) the Company's unaudited balance
sheet as of August 31, 2000 (the "Current Balance Sheet") and the
related unaudited statements of income and cash flow for the eight-
month period then ended (collectively, the "Company Financials").
The Company Financials are correct in all material respects and have
been prepared using cash basis accounting applied on a basis
consistent throughout the periods indicated and consistent with each
other. The Company Financials present fairly the financial condition
and operating results of the Company as of the dates and during the
periods indicated therein, subject to normal year-end adjustments,
which will not be material in amount or significance.
2.8 No Undisclosed Liabilities. The Company
does not have any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured
or other (whether or not required to be reflected in financial
statements), which individually or in the aggregate (i) has not been
reflected in the Current Balance Sheet, or (ii) has not arisen in the
ordinary course of the Company's business since August 31, 2000,
consistent with past practices.
2.9 No Changes. Except as set forth in Section 2.9 of the Company
Disclosure Schedule, since August 31, 2000, there has not been, occurred
or arisen any:
(a) transaction by the Company except in the ordinary
course of business as conducted on that date and consistent with past
practices;
(b) amendments or changes to the Articles of Incorporation
or Bylaws of the Company;
(c) capital expenditure or commitment by the Company,
either individually or in the aggregate, exceeding $10,000
individually or $50,000 in the aggregate;
(d) destruction of, damage to or loss of any material
assets, business or customer of the Company (whether or not covered
by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the
Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a dividend or
other distribution with respect to the capital stock of the Company,
or any direct or indirect redemption, repurchase or other acquisition
by the Company of any of its capital stock;
(i) increase in the salary or other compensation payable
or to become payable by the Company to any of its officers,
directors, employees or advisors, or the declaration, payment or
commitment or obligation of any kind for the payment, by the Company,
of a bonus or other additional salary or compensation to any such
person except as otherwise contemplated by this Agreement;
(j) sale, lease, license or other disposition of any of
the assets or properties of the Company or any creation of any
security interest in such assets or properties, except in the
ordinary course of business as conducted on that date and consistent
with past practices;
(k) any material agreement, contract, covenant,
instrument, lease, license or commitment to which the Company is a
party or by which they or any of its assets are bound or any
termination, extension, amendment or modification the terms of any
material agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of
its assets are bound;
(l) loan by the Company to any person or entity, incurring
by the Company of any indebtedness, guaranteeing by the Company of
any indebtedness, issuance or sale of any debt securities of the
Company or guaranteeing of any debt securities of others;
(m) waiver or release of any right or claim of the
Company, including any write-off or other compromise of any account
receivable of the Company;
(n) the commencement or notice or threat of commencement
of any lawsuit or proceeding against or investigation of the Company
or its affairs;
(o) notice of any claim of ownership by a third party of
the Company Intellectual Property (as defined in Section 2.13 below)
or of infringement by the Company of any third party's Intellectual
Property rights;
(p) issuance or sale, or contract to issue or sell, by the
Company of any shares of its capital stock or securities
exchangeable, convertible or exercisable therefor, or any securities,
warrants, options or rights to purchase any of the foregoing, except
for options to purchase capital stock of the Company granted to
employees of the Company in the ordinary course of business
consistent with past practice;
(q) (i) selling or entering into any license agreement
with respect to the Company Intellectual Property with any third
party or (ii) buying or entering into any license agreement with
respect to the Intellectual Property of any third party;
(r) change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set
or charged by persons who have licensed Intellectual Property to the
Company;
(s) any event or condition of any character that has or
could be reasonably expected to have a Material Adverse Effect on the
Company; or
(t) negotiation or agreement by the Company or any officer
or employees thereof or by any Principal Shareholder to do any of the
things described in the preceding clauses (a) through (s) (other than
negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
2.10 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this
Agreement, a "Tax" or, collectively, "Taxes", means any and all
federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any
agreements or arrangements with any other person with respect to such
amounts and including any liability for taxes of a predecessor
entity.
(b) Tax Returns and Audits.
(i) The Company as of the Effective Time will have
prepared and filed all required federal, state, local and foreign
returns, estimates, information statements and reports ("Returns")
relating to any and all Taxes concerning or attributable to the
Company or its operations and such Returns are true and correct and
have been completed in accordance with applicable law.
(ii) The Company as of the Effective Time: (A) will
have paid or accrued all Taxes it is required to pay or accrue and
(B) will have withheld with respect to its employees all federal and
state income taxes, FICA, FUTA and other Taxes required to be
withheld.
(iii) The Company has not been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding,
proposed or assessed against the Company, nor has the Company
executed any waiver of any statute of limitations on or extending the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of
the Company is presently in progress, nor has the Company been
notified of any request for such an audit or other examination.
(v) The Company does not have any liabilities for
unpaid federal, state, local and foreign Taxes which have not been
accrued or reserved against in accordance with GAAP on the Current
Balance Sheet, whether asserted or unasserted, contingent or
otherwise, and the Company has no knowledge of any basis for the
assertion of any such liability attributable to the Company, its
assets or operations.
(vi) The Company has provided to Parent copies of all
federal and state income and all state sales and use Tax Returns for
all periods since the date of Company's incorporation.
(vii) There are (and as of immediately following the
Closing there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets
of the Company relating to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of the
Company.
(ix) None of the Company's assets are treated as "tax-
exempt use property" within the meaning of Section 168(h) of the
Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited
to the provisions of this Agreement, covering any employee or former
employee of the Company that, individually or collectively, could
give rise to the payment of any amount that would not be deductible
pursuant to Section 280G, 404 or 162 of the Code.
(xi) The Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any
such agreement.
(xiii) The Company is not, and has not been at any time,
a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for
purposes of determining its future amortization, depreciation and
other federal income tax deductions is accurately reflected on the
Company's tax books and records.
(xv) The Company (A) has not been a member of any
affiliated group within the meaning of Code Section 1504 or any
similar group defined under a similar provision of state, local, or
foreign law filing a consolidated federal Income Tax Return (other
than a group the common parent of which was the Company) and (B) has
no liability for the taxes of any Person (other than any of the
Company) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(xvi) The Company has not constituted either a
"distributing corporation" or a "controlled corporation" in a
distribution of stock qualifying for tax-free treatment under Section
355 of the Code (i) in the two years prior to the date of this
Agreement or (ii) in a distribution which could otherwise constitute
part of a "plan" or "series of related transaction" (within the
meaning of Section 355(e) of the Code) that includes the Merger.
2.11 Restrictions on Business Activities. There
is no agreement (noncompete or otherwise),
commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or
may have the effect of prohibiting or impairing any business practice
of the Company, any acquisition of property (tangible or intangible)
by the Company or the conduct of business by the Company. Without
limiting the foregoing, the Company has not entered into any
agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its technology or products
to or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time
or in any segment of the market.
2.12 Title of Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever
owned any real property. Section 2.12(a) of the Company Disclosure
Schedule sets forth a list of all real property currently, or at any
time in the past, leased by the Company, the name of the lessor, the
date of the lease and each amendment thereto and, with respect to any
current lease, the aggregate annual rental and/or other fees payable
under any such lease. All such current leases are in full force and
effect, are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of
time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the
case of leased properties and assets, valid leasehold interests in,
all of its tangible properties and assets, real, personal and mixed,
used or held for use in its business, free and clear of any Liens,
except as reflected in the Current Balance Sheet and except for Liens
for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or
extent, and which do not detract from the value, or interfere with
the present use, of the property subject thereto or affected thereby.
(c) Section 2.12(c) of the Company Disclosure Schedule
lists all material items of equipment (the "Equipment") owned or
leased by the Company, and such Equipment is (i) sufficient for the
conduct of the business of the Company as currently conducted and
(ii) in good operating condition, regularly and properly maintained,
subject to normal wear and tear.
(d) The Company has sole and exclusive ownership, free and
clear of any Liens, of all customer files and other customer
information relating to customers of the Company's current and former
customers (the "Customer Information"). No person other than the
Company possesses any claims or rights with respect to use of the
Customer Information.
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following
terms have the following definitions:
"Intellectual Property" shall mean any or all of the
following and all rights in, arising out of, or associated therewith:
(i) all United States and foreign patents and applications therefor
and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all inventions
(whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, technology,
technical data and customer lists, and all documentation relating to
any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor and all other rights corresponding thereto
throughout the world; (iv) all mask works, mask work registrations
and applications therefor; (v) all industrial designs and any
registrations and applications therefor throughout the world;
(vi) all trade names, logos, common law trademarks and service marks;
trademark and service mark registrations and applications therefor
and all goodwill associated therewith throughout the world; (vii) all
databases and data collections and all rights therein throughout the
world; (viii) all computer software including all source code, object
code, firmware, development tools, files, records and data, all media
on which any of the foregoing is recorded, all Web addresses, sites
and domain names; (ix) any similar, corresponding or equivalent
rights to any of the foregoing; and (x) all documentation related to
any of the foregoing.
"Company Intellectual Property" shall mean any
Intellectual Property that is owned by or exclusively licensed to the
Company.
"Registered Intellectual Property" shall mean all
United States, international and foreign: (i) patents, patent
applications (including provisional applications); (ii) registered
trademarks, applications to register trademarks, intent-to-use
applications, or other registrations or applications related to
trademarks; (iii) registered copyrights and applications for
copyright registration; (iv) any mask work registrations and
applications to register mask works; and (v) any other Company
Intellectual Property that is the subject of an application,
certificate, filing, registration or other document issued by, filed
with, or recorded by, any state, government or other public legal
authority.
(b) Section 2.13(b) of the Company Disclosure Schedule
lists all Registered Intellectual Property owned by, or filed in the
name of, the Company (the "Company Registered Intellectual Property")
and lists any proceedings or actions before any court, tribunal
(including the United States Patent and Trademark Office (the "PTO")
or equivalent authority anywhere in the world) related to any of the
Company Registered Intellectual Property.
(c) Except as set forth in Section 2.13(b) of the Company
Disclosure Schedule, each item of Company Intellectual Property,
including all Company Registered Intellectual Property listed in
Section 2.13(b) of the Company Disclosure Schedule and all
Intellectual Property licensed to the Company, is free and clear of
any Liens. The Company (i) is the exclusive owner of all trademarks
and trade names used in connection with the operation or conduct of
the business of the Company, including the sale of any products or
technology or the provision of any services by the Company and
(ii) owns exclusively, and has good title to, all copyrighted works
that are Company products or other works of authorship that the
Company otherwise purports to own.
(d) To the extent that any Intellectual Property has been
developed or created by any person other than the Company for which
the Company has, directly or indirectly, paid, the Company has a
written agreement with such person with respect thereto, and the
Company thereby has obtained ownership of, and is the exclusive owner
of, all such Intellectual Property by operation of law or by valid
assignment.
(e) Except as set forth in Section 2.13(e) of the Company
Disclosure Schedule, the Company has not transferred ownership of or
granted any license of or right to use or authorized the retention of
any rights to use any Intellectual Property that is or was Company
Intellectual Property to any other person.
(f) The Company Intellectual Property constitutes all the
Intellectual Property used in and/or necessary to the conduct of its
business as it currently is conducted or is reasonably contemplated
to be conducted, including, without limitation, the design,
development, manufacture, use, import and sale of the products,
technology and services of the Company (including products,
technology or services currently under development).
(g) Other than "shrink-wrap" and similar widely available
commercial end-user licenses, the contracts, licenses and agreements
listed in Section 2.13(g) of the Company Disclosure Schedule include
all contracts, licenses and agreements to which the Company is a
party with respect to any Intellectual Property. No person who has
licensed Intellectual Property to the Company has ownership rights or
license rights to improvements made by the Company in such
Intellectual Property.
(h) Section 2.13(h) of the Company Disclosure Schedule
lists all contracts, licenses and agreements between the Company and
any other person wherein or whereby the Company has agreed to, or
assumed, any obligation or duty to warrant, indemnify, reimburse,
hold harmless, guaranty or otherwise assume or incur any obligation
or liability or provide a right of rescission with respect to the
infringement or misappropriation by the Company or such other person
of the Intellectual Property of any person other than the Company.
(i) The operation of the business of the Company as it
currently is conducted or is reasonably contemplated to be conducted,
including but not limited to the Company's design, development, use,
import, manufacture and sale of the products, technology or services
(including products, technology or services currently under
development) of the Company does not infringe or misappropriate the
Intellectual Property of any person, violate the rights of any person
(including rights to privacy or publicity), or constitute unfair
competition or trade practices under the laws of any jurisdiction,
and the Company has not received notice from any person claiming that
such operation or any act, product, technology or service (including
products, technology or services currently under development) of the
Company infringes or misappropriates the Intellectual Property of any
person or constitutes unfair competition or trade practices under the
laws of any jurisdiction (nor is the Company aware of any basis
therefor).
(j) Each item of Company Registered Intellectual Property
is valid and subsisting, all necessary registration, maintenance and
renewal fees in connection with such Registered Intellectual Property
have been paid, and all necessary documents and certificates in
connection with such Company Registered Intellectual Property have
been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the
case may be, for the purposes of maintaining such Registered
Intellectual Property. There are no actions that must be taken by
the Company within sixty (60) days of the Closing Date, including the
payment of any registration, maintenance or renewal fees or the
filing of any documents, applications or certificates for the
purposes of maintaining, perfecting or preserving or renewing any
Company Intellectual Property. In each case in which the Company has
acquired any Intellectual Property rights from any person, the
Company has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property
(including the right to seek past and future damages with respect to
such Intellectual Property) to the Company and, to the maximum extent
provided for by, and in accordance with, applicable laws and
regulations, the Company has recorded each such assignment with the
relevant governmental authorities, including the PTO, the U.S.
Copyright Office, or their respective equivalents in any relevant
foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between
the Company and any other person with respect to Company Intellectual
Property under which there is any dispute known to the Company
regarding the scope of such agreement, or performance under such
agreement including with respect to any payments to be made or
received by the Company thereunder.
(l) To the knowledge of the Company, no person is
infringing or misappropriating any Company Intellectual Property.
(m) The Company has taken all reasonable steps that are
required to protect the Company's rights in confidential information
and trade secrets of the Company or provided by any other person to
the Company. Without limiting the foregoing, the Company has, and
enforces, a policy requiring each employee, consultant and contractor
to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms, and all
current and former employees, consultants and contractors of the
Company have executed such an agreement.
(n) No Company Intellectual Property or product,
technology or service of the Company is subject to any proceeding or
outstanding decree, order, judgment, agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by the
Company or may affect the validity, use or enforceability of such
Company Intellectual Property.
(o) No (i) product, technology, service or publication of
the Company (ii) material published or distributed by the Company or
(iii) conduct or statement of Company constitutes obscene material, a
defamatory statement or material, false advertising or otherwise
violates any law or regulation.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth on Section 2.14(a) of the Company
Disclosure Schedule, the Company does not have, is not a party to nor
is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(iv) any employment or consulting agreement, contract
or commitment with an employee or individual consultant or
salesperson or consulting or sales agreement, contract or commitment
with a firm or other organization,
(v) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation rights plan or
stock purchase plan, any of the benefits of which will be increased,
or the vesting of benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement
or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value
individually in excess of $10,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing
any covenant limiting the freedom of the Company to engage in any
line of business or to compete with any person,
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of
$10,000,
(xi) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of the Company's
business,
(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other agreements or instruments
relating to the borrowing of money or extension of credit, including
guaranties referred to in clause (viii) hereof,
(xiii) any purchase order or contract for the purchase
of raw materials involving $10,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development
agreement, or
(xvi) any other agreement, contract or commitment that
involves $10,000 or more or is not cancelable without penalty within
thirty (30) days.
(b) The Company is in compliance with and has not
breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions
of any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it is bound
(collectively a "Contract"), nor is the Company or any Principal
Stockholder aware of any event that would constitute such a breach,
violation or default with the lapse of time, giving of notice or
both. Each Contract is in full force and effect and is not subject
to any default thereunder by any party obligated to the Company
pursuant thereto. The Company has obtained, or will obtain prior to
the Closing Date, all necessary consents, waivers and approvals of
parties to any Contract as are required thereunder in connection with
the Merger or for such Contracts to remain in effect without
modification after the Closing. Following the Effective Time, the
Company will be permitted to exercise all of the Company's rights
under the Contracts without the payment of any additional amounts or
consideration other than ongoing fees, royalties or payments which
the Company would otherwise be required to pay had the transactions
contemplated by this Agreement not occurred.
2.15 Interested Party Transactions. Except as
set forth on Section 2.15 of the Company
Disclosure Schedule, no officer, director or Stockholder of the
Company (nor any ancestor, sibling, descendant or spouse of any of
such persons, or any trust, partnership or corporation in which any
of such persons has or has had an interest), has or has had, directly
or indirectly, (i) an interest in any entity which furnished or sold,
or furnishes or sells, services, products or technology that the
Company furnishes or sells, or proposes to furnish or sell, or
(ii) any interest in any entity that purchases from or sells or
furnishes to the Company any goods or services or (iii) a beneficial
interest in any Contract; provided, that ownership of no more than
one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "interest in any entity" for
purposes of this Section 2.15.
2.16 Compliance with Laws. The Company
has complied in all material respects with, is
not in material violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local
statute, law or regulation.
2.17 Governmental Authorization.
Section 2.17 of the Company Disclosure Schedule accurately lists each
consent, license, permit, grant or other authorization issued to the
Company by a Governmental Entity (i) pursuant to which the Company
currently operates or holds any interest in any of their properties
or (ii) which is required for the operation of its business or the
holding of any such interest (herein collectively called "Company
Authorizations"). The Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit
the Company to operate or conduct its business or hold any interest
in its properties or assets.
2.18 Litigation. There is no
action, suit or proceeding of any nature pending
or to the Company's knowledge threatened against the Company, its
properties or any of its officers or directors, in their respective
capacities as such. To the Company's knowledge, there is no
investigation pending or threatened against the Company, its
properties or any of its officers or directors by or before any
governmental entity. Section 2.18 of the Company Disclosure Schedule
sets forth, with respect to any pending or threatened action, suit,
proceeding or investigation, the forum, the parties thereto, the
subject matter thereof and the amount of damages claimed or other
remedy requested. No Governmental Entity has at any time challenged
or questioned the legal right of the Company to manufacture, offer or
sell any of its products in the present manner or style thereof.
2.19 Accounts Receivable.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company ("Accounts Receivable") as of
August 31, 2000 along with a range of days elapsed since invoice.
(b) All Accounts Receivable of the Company arose in the
ordinary course of business and are collectible except to the extent
of reserves therefor set forth in the Current Balance Sheet. No
person has any Lien on any of such Accounts Receivable and no request
or agreement for deduction or discount has been made with respect to
any of such Accounts Receivable.
2.20 Insurance. Section 2.20 of
the Company Disclosure Schedule contains an
accurate summary of the insurance policies currently maintained by
the Company. The Company has obtained and maintained in full force
and effect insurance with responsible and reputable insurance
companies or associations in such amounts, on such terms and covering
such risks, including fire and other risks insured against by
extended coverage, as is reasonably prudent. With respect to the
insurance policies and fidelity bonds covering the assets, business,
equipment, properties, operations, employees, officers and directors
of the Company, there is no claim by the Company pending under any of
such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have
been paid and the Company is otherwise in material compliance with
the terms of such policies and bonds (or other policies and bonds
providing substantially similar insurance coverage). The Company has
no knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
2.21 Minute Books. The minute books of the
Company made available to counsel for
Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or
committees thereof) and stockholders or actions by written consent
since the time of incorporation of the Company.
2.22 Environmental Matters.
(i) Hazardous Material. The Company has
not: (i) operated any underground storage tanks at any property that
the Company has at any time owned, operated, occupied or leased; or
(ii) illegally released any material amount of any substance that has
been designated by any Governmental Entity or by applicable federal,
state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, or defined as a hazardous waste pursuant to the United
States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, (a "Hazardous
Material"), but excluding office and janitorial supplies properly and
safely maintained. No Hazardous Materials are present, as a result
of the deliberate actions of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the
Company has at any time owned, operated, occupied or leased.
(ii) Hazardous Materials Activities. The Company has
not transported, stored, used, manufactured, disposed of, released or
exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has the
Company disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (any or all of the foregoing being
collectively referred to as "Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by
any Governmental Entity in effect prior to or as of the date hereof
to prohibit, regulate or control Hazardous Materials or any Hazardous
Material Activity.
(iii) Permits. The Company currently holds all
environmental approvals, permits, licenses, clearances and consents
(the "Environmental Permits") necessary for the conduct of the
Company's Hazardous Material Activities and other businesses of the
Company as such activities and businesses are currently being
conducted.
(iv) Environmental Liabilities. No action,
proceeding, revocation proceeding, amendment procedure, writ,
injunction or claim is pending, or to the Company's knowledge,
threatened concerning any Environmental Permit, Hazardous Material or
any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in
any environmental litigation or impose upon the Company any
environmental liability.
2.23 Brokers' and Finders' Fees. The Company
has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby. Section 2.23 of the Company
Disclosure Schedule sets forth the Company's current reasonable
estimate of all Third Party Expenses (as defined in Section 5.3)
expected to be incurred by the Company in connection with the
negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.24 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.24(a)(i) below (which definition
shall apply only to this Section 2.24), for purposes of this
Agreement, the following terms shall have the meanings set forth
below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code and the regulations
issued thereunder;
(ii) "Code" shall mean the Internal Revenue Code of
1986, as amended;
(iii) "Company Employee Plan" shall mean any plan,
program, policy, practice, contract, agreement or other arrangement
providing for compensation, severance, termination pay, deferred
compensation, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits or remuneration of any
kind, whether written or unwritten or otherwise, funded or unfunded,
including without limitation, each "employee benefit plan," within
the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or
any Affiliate for the benefit of any Employee, or with respect to
which the Company or any Affiliate has or may have any liability or
obligation;
(iv) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended;
(v) "DOL" shall mean the Department of Labor;
(vi) "Employee" shall mean any current or former
employee, consultant or director of the Company or any Affiliate;
(vii) "Employee Agreement" shall mean each management,
employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or other agreement, contract or
understanding between the Company or any Affiliate and any Employee;
(viii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(ix) "FMLA" shall mean the Family Medical Leave Act of
1993, as amended;
(x) "International Employee Plan" shall mean each
Company Employee Plan that has been adopted or maintained by the
Company or any Affiliate, whether informally or formally, or with
respect to which the Company or any Affiliate will or may have any
liability, for the benefit of Employees who perform services outside
the United States;
(xi) "IRS" shall mean the Internal Revenue Service;
(xii) "Multiemployer Plan" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined
in Section 3(37) of ERISA;
(xiii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiv) "Pension Plan" shall mean each Company Employee
Plan which is an "employee pension benefit plan," within the meaning
of Section 3(2) of ERISA.
(b) Schedule. Section 2.24(b) of the Company Disclosure
Schedule contains an accurate and complete list of each Company
Employee Plan and each Employee Agreement under each Company Employee
Plan or Employee Agreement. The Company does not have any plan or
commitment to establish any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to enter into any
Company Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent
(i) correct and complete copies of all documents embodying each
Company Employee Plan and each Employee Agreement including (without
limitation) all amendments thereto and all related trust documents;
(ii) the most recent annual actuarial valuations, if any, prepared
for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the
Code in connection with each Company Employee Plan; (iv) if the
Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent
summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to
each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and all applications and
correspondence to or from the IRS or the DOL with respect to any such
application or letter; (vii) all material written agreements and
contracts relating to each Company Employee Plan, including, but not
limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications
material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case,
relating to any amendments, terminations, establishments, increases
or decreases in benefits, acceleration of payments or vesting
schedules or other events which would result in any material
liability to the Company; (ix) all correspondence to or from any
governmental agency relating to any Company Employee Plan; (x) all
COBRA forms and related notices; (xi) all policies pertaining to
fiduciary liability insurance covering the fiduciaries for each
Company Employee Plan; (xii) all discrimination tests for each
Company Employee Plan for the most recent plan year; and (xiii) all
registration statements, annual reports (Form 11-K and all
attachments thereto) and prospectuses prepared in connection with
each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has
performed in all material respects all obligations required to be
performed by it under, is not in default or violation of, and has no
knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been
established and maintained in all material respects in accordance
with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or
the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable
determination, opinion, notification or advisory letter from the IRS
with respect to each such Plan as to its qualified status under the
Code, including all amendments to the Code effected by the Tax Reform
Act of 1986 and subsequent legislation, or has remaining a period of
time under applicable Treasury regulations or IRS pronouncements in
which to apply for such a letter and make any amendments necessary to
obtain a favorable determination as to the qualified status of each
such Company Employee Plan; (iii) no "prohibited transaction," within
the meaning of Section 4975 of the Code or Sections 406 and 407 of
ERISA, and not otherwise exempt under Section 408 of ERISA, has
occurred with respect to any Company Employee Plan; (iv) there are no
actions, suits or claims pending, or, to the knowledge of the
Company, threatened or reasonably anticipated (other than routine
claims for benefits) against any Company Employee Plan or against the
assets of any Company Employee Plan; (v) each Company Employee Plan
can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to the
Parent or Surviving Corporation or any of its Affiliates (other than
ordinary administration expenses); (vi) there are no audits,
inquiries or proceedings pending or, to the knowledge of the Company
or any Affiliates, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vii) neither the Company nor any
Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 502(i) of ERISA or Sections 4975
through 4980 of the Code.
(e) Pension Plan. Neither the Company nor any Affiliate
has ever maintained, established, sponsored, participated in, or
contributed to, any Pension Plan which is subject to Title IV of
ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company or
any Affiliate contributed to or been obligated to contribute to any
Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth
in Section 2.24(g) of the Company Disclosure Schedule, no Company
Employee Plan provides, or reflects or represents any liability to
provide, retiree life insurance, retiree health or other retiree
employee welfare benefits to any person for any reason, except as may
be required by COBRA or other applicable statute, and the Company has
never represented, promised or contracted (whether in oral or written
form) to any Employee (either individually or to Employees as a
group) or any other person that such Employee(s) or other person
would be provided with retiree life insurance, retiree health or
other retiree employee welfare benefit, except to the extent required
by statute.
(h) COBRA etc. Neither the Company nor any Affiliate has,
prior to the Effective Time and in any material respect, violated any
of the health care continuation requirements of COBRA, the
requirements of FMLA, the requirements of the Women's Heath and
Cancer Rights Act, the requirements of the Newborns' and Mothers'
Health Protection Act of 1996, or any similar provisions of state law
applicable to its Employees.
(i) Effect of Transaction.
(i) Except as set forth on Section 2.24(i) of the
Company Disclosure Schedule, the execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either
alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee
Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made
by the Company or its Affiliates with respect to any Employee as a
result of the transactions contemplated by this Agreement or
otherwise will be characterized as a "parachute payment," within the
meaning of Section 280G(b)(2) of the Code (but without regard to
clause (ii) thereof).
(j) Employment Matters. The Company: (i) is in compliance
in all respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees; (ii) has withheld and reported
all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental
authority, with respect to unemployment compensation benefits, social
security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and
consistent with past practice). There are no pending, threatened or
reasonably anticipated claims or actions against the Company under
any worker's compensation policy or long-term disability policy.
(k) Labor. No work stoppage or labor strike against the
Company is pending, threatened or reasonably anticipated. The
Company does not know of any activities or proceedings of any labor
union to organize any Employees. There are no actions, suits,
claims, labor disputes or grievances pending, or, to the knowledge of
the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to
the Company. Neither the Company nor any of its subsidiaries has
engaged in any unfair labor practices within the meaning of the
National Labor Relations Act. The Company is not presently, nor has
it been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and
no collective bargaining agreement is being negotiated by the
Company.
(l) International Employee Plan. The Company does not
now, nor has it ever had the obligation to, maintain, establish,
sponsor, participate in, or contribute to any International Employee
Plan.
2.25 Warranties; Indemnities. Except for
the warranties and indemnities contained in (i) those
contracts and agreements set forth in Section 2.13(g) of the Company
Disclosure Schedule and (ii) the Company's shrink wrap license
agreements substantially in the form set forth in Section 2.13(d) of
the Company Disclosure Schedule, the Company has not given any
warranties or indemnities relating to products or technology sold or
licensed or services rendered by the Company.
2.26 Complete Copies of Materials. The Company
has delivered or made available true and
complete copies of each document (or summaries of same) that has been
requested by Parent or its counsel.
2.27 Representations Complete. None of the
representations or warranties made by the Company
(as modified by the Company Disclosure Schedule), nor any statement
made in any Schedule or certificate furnished by the Company pursuant
to this Agreement, or furnished in or in connection with documents
mailed or delivered to the Company Shareholders in connection with
soliciting their consent to this Agreement and the Merger, contains
or will contain at the Effective Time, any untrue statement of a
material fact, or omits or will omit at the Effective Time to state
any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which
made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant, subject to such
exception as are disclosed in any of the Parent SEC Documents (as
defined below) filed prior to the date hereof, on the date hereof
(provided that the representations and warranties made as of a
specified date will be true and correct as of such date) as follows:
3.1 Organization, Standing and Power. Parent is
a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Merger Sub
is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Each of Parent
and Merger Sub has the corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified to
do business and is in good standing in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on
the ability of Parent and Merger Sub to consummate the transactions
contemplated hereby.
3.2 Authority. Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on
the part of Parent and Merger Sub. This Agreement has been duly
executed and delivered by Parent and Merger Sub and constitutes the
valid and binding obligations of Parent and Merger Sub, enforceable
in accordance with its terms, except as such enforceability may be
limited by principles of public policy and subject to the laws of
general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
3.3 Capital Structure. The authorized
capital stock of Parent as of the date hereof
is 100,000,000 shares of Common Stock and 3,000,000 shares of
Preferred Stock. As of October 2, 2000, there are 21,942,282 issued
and outstanding shares of Parent's Common Stock and no issued and
outstanding shares of Parent's Preferred Stock. All such issued and
outstanding shares have been duly authorized and validly issued, are
fully paid and nonassessable, and were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities. Parent has: (i) reserved 118,048 shares of its Common
Stock for issuance under Parent's 1993 Stock Plan, 3,411,788 shares
of its Common Stock for issuance under Parent's 1995 Stock Plan and
912,918 shares of its Common Stock for issuance under Parent's 1999
Stock Plan, each to its employees, consultants, directors or officers
of which options for an aggregate of 3,219,529 shares are outstanding
as of October 2, 2000 and (ii) reserved 1,068,272 shares of its
Common Stock for issuance upon exercise of outstanding warrants as of
October 2, 2000.
3.4 SEC Documents. Parent has
filed timely all required reports, proxy
statements, registration statements, forms and other documents with
the SEC on or after January 1, 1998 (the "Parent SEC Documents"). As
of their respective dates, and giving effect to any amendments
thereto, (a) the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the applicable rules and regulations of
the SEC promulgated thereunder and (b) none of the Parent SEC
Documents at the time filed (or if amended or superceded by a filing
prior to the date of this Agreement, then on the date of such filing)
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.5 Financial Statements.
(a) The financial statements of Parent (including, in each
case, any notes and schedules thereto) included in the Parent SEC
Documents (a) were prepared from the books and records of the Parent,
(b) complied as to form in all material respects with all applicable
accounting requirements and the rules and regulations of the SEC with
respect thereto, (c) are in conformity with United States generally
accepted accounting principles ("GAAP"), applied on a consistent
basis (except in the case of unaudited statements, as otherwise
permitted by the rules and regulations of the SEC and described in
the Notes included therewith) during the periods involved and (d)
fairly present, in all material respects, the consolidated financial
position of Parent as of the dates thereof and the results of their
operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments
which are not expected to be, individually or in the aggregate,
material in amount).
(b) The unaudited consolidating income statement of the
Company for the six-month period ended June 30, 2000 and balance
sheet as of such date that are filed with the Parent SEC Documents
(including any notes and schedules thereto): (i) were prepared from
the books and records of the Company and its Subsidiaries, (ii) are
in conformity with GAAP, applied on a consistent basis (except for
the absence of explanatory footnotes) during the period involved, and
(iii) fairly present, in all material respects, the financial
position of the Company and its Subsidiaries as of the date thereof
and the results of their operations for the periods then ended
(subject to normal year-end audit adjustments which are not expected
to be, individually or in the aggregate, material in amount).
3.6 Absence Of Undisclosed Liabilities. Except as
set forth in the Parent SEC Documents filed prior
to the date of this Agreement, and except for liabilities and
obligations incurred in the ordinary course of business since June
30, 2000, Parent has no liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) except for those
that would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent.
3.7 Litigation. Other than that which is disclosed in the Parent
SEC documents, there is no litigation, action, suit, proceeding or
governmental investigation pending or, to the knowledge of Parent,
threatened against Parent or its predecessor or affecting any of
Parent's properties or assets, which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay the consummation
of the transactions contemplated by this Agreement.
3.8 Compliance with Laws and Other Instruments. Neither
the execution, delivery or performance of this
Agreement, nor the transactions contemplated herein, with or without
the giving of notice or passage of time, or both, will violate, or
result in any breach of, or constitute a default under, or result in
the imposition of any encumbrance in any material respect upon any
asset of Parent pursuant to any provision of Parent's Certificate of
Incorporation, or any other material agreement or instrument by which
Parent is bound or to which Parent or any of its properties are
subject.
3.9 Brokers' and Finders' Fees. Neither Parent
nor Merger Sub has incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
3.10 Consents. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other federal, state, county, local or other
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any third party, including a party to any
agreement with the Parent, is required by or with respect to the
Parent or Merger Sub in connection with the execution and delivery of
this Agreement and any Related Agreements to which the Parent or the
Merger Sub is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable
securities laws hereby, and (ii) the filing of the Merger Agreement
with the Secretary of Sate of the State of California.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the
period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement and
the Effective Time, the Company and the Principal Stockholders agree
(except to the extent that the other shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, to
pay its debts and Taxes when due, to pay or perform other obligations
when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the
services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the
goal of preserving unimpaired its goodwill and ongoing businesses at
the Effective Time. The Company shall promptly notify Parent of any
event or occurrence or emergency not in the ordinary course of its
business, and any material event involving it. Except as expressly
contemplated by this Agreement, the Company shall not, without the
prior written consent of Parent:
(a) Enter into any commitment or transaction not in the
ordinary course of business.
(b) (i) Sell or enter into any license agreement with
respect to the Company Intellectual Property with any person or
entity or (ii) buy or enter into any license agreement with respect
to the Intellectual Property of any person or entity;
(c) Transfer to any person or entity any rights to the
Company's Intellectual Property (other than pursuant to end user
licenses in the ordinary course of business);
(d) Enter into or amend any agreements pursuant to which
any other party is granted marketing, distribution or similar rights
of any type or scope with respect to any products or technology of
the Company;
(e) Enter into or amend any Contract pursuant to which any
other party is granted marketing, distribution or similar rights of
any type or scope with respect to any products or technology of the
Company;
(f) Amend or otherwise modify (or agree to do so), except
in the ordinary course of business, or violate the terms of, any of
the Contracts set forth or described in the Company Disclosure
Schedule;
(g) Commence any litigation;
(h) Declare, set aside or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect
of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of
capital stock of the Company, or repurchase, redeem or otherwise
acquire, directly or indirectly, any shares of its capital stock (or
options, warrants or other rights exercisable therefor);
(i) Except for the issuance of shares of Company Capital
Stock upon exercise or conversion of currently outstanding Company
Options or warrants, issue, grant, deliver or sell or authorize or
propose the issuance, grant, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities;
(j) Cause or permit any amendments to its Articles of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities
of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which
are material, individually or in the aggregate, to the business of
the Company;
(l) Sell, lease, license or otherwise dispose of any of
its properties or assets, except in the ordinary course of business;
(m) Incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities of the
Company or guarantee any debt securities of others;
(n) Grant any loans to others or purchase debt securities
of others or amend the terms of any outstanding loan agreement;
(o) Grant any severance or termination pay (i) to any
director or officer or (ii) to any other employee except payments
made pursuant to standard written agreements outstanding on the date
hereof and disclosed in the Company Disclosure Schedule;
(p) Adopt or amend any employee benefit plan, or enter
into any employment contract, pay or agree to pay any special bonus
or special remuneration to any director or employee, or increase the
salaries or wage rates of its employees;
(q) Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes
or accounts receivable other than in the ordinary course of business;
(r) Accelerate the vesting of any options, warrants,
restricted stock or other rights to acquire shares of the capital
stock of the Company;
(s) Pay, discharge or satisfy, in an amount in excess of
$10,000 (in any one case) or $25,000 (in the aggregate), any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the Company Financial Statements (or
the notes thereto);
(t) Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes,
enter into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of
Taxes;
(u) Enter into any strategic alliance or joint marketing
arrangement or agreement;
(v) Hire or terminate employees or encourage employees to
resign other than in the ordinary course of business;
(w) Take, or agree in writing or otherwise to take, any of
the actions described in Sections 4.1(a) through (v) above, or any
other action that would prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information. The Company
shall afford Parent and its accountants, counsel and other
representatives, reasonable access during normal business hours
during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records,
(b) all other information concerning the business, properties and
personnel (subject to restrictions imposed by applicable law) of the
Company as Parent may reasonably request and (c) all key employees of
the Company as identified by Parent. The Company agrees to provide
to Parent and its accountants, counsel and other representatives
copies of internal financial statements (including by returns and
supporting documentation) promptly upon request. Parent shall
provide the Company with copies of such publicly available
information about Parent as the Company may request. No information
or knowledge obtained in any investigation pursuant to this
Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
5.2 Confidentiality. Each of the
parties hereto hereby agrees to keep such
information or knowledge obtained in any investigation pursuant to
Section 5.1, or pursuant to the negotiation and execution of this
Agreement or the effectuation of the transactions contemplated
hereby, confidential; provided, however, that the foregoing shall not
apply to information or knowledge which (a) a party can demonstrate
was already lawfully in its possession prior to the disclosure
thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became
known to the public through no fault of such party, (d) is later
lawfully acquired by such party from other sources, (e) is required
to be disclosed by order of court or government agency with subpoena
powers or (f) which is disclosed in the course of any litigation
between any of the parties hereto.
5.3 Expenses. Whether or not the Merger is consummated, all fees
and expenses incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory, consulting and
all other fees and expenses of third parties ("Third Party Expenses")
incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the
respective party incurring such fees and expenses. The Principal
Shareholders shall be jointly and severally liable, and neither
Parent nor the Surviving Corporation shall have any liability for any
Third Party Expenses attributable to the Company or the Principal
Shareholders except for the Third Party Expenses incurred by the
Company.
5.4 Public Disclosure. Unless otherwise
required by law, prior to the Effective
Time, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto
unless approved by Parent and the Company prior to release.
5.5 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be
required in connection with the Merger (all of such consents, waivers
and approvals are set forth in Company Disclosures) so as to preserve
all rights of, and benefits to the Company thereunder.
5.6 FIRPTA Compliance. On the Closing Date,
the Company shall deliver to Parent a
properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
5.7 Reasonable Efforts. Subject to the
terms and conditions provided in this
Agreement, each of the parties hereto shall use its reasonable
efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated hereby to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other
impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for
the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that Parent shall not be
required to agree to any divestiture by Parent or the Company or any
of Parent's subsidiaries or affiliates of shares of capital stock or
of any business, assets or property of Parent or its subsidiaries or
affiliates or the Company or its affiliates, or the imposition of any
material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties
and stock.
5.8 Notification of Certain Matters. Each party
shall give prompt notice to the other parties
of (i) the occurrence or non-occurrence of any event, the occurrence
or non-occurrence of which is likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate at or
prior to the Effective Time and (ii) any failure to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of
any notice pursuant to this Section 5.8 shall not limit or otherwise
affect any remedies available to the party receiving such notice. No
disclosure, however, shall be deemed to amend or supplement the
Company Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
5.9 Certain Benefit Plans. Parent shall
keep the existing benefit programs of the
Company available to eligible employees of the Company after the
Effective Time until such time Parent elects to terminate such plans
provided that Parent shall thereafter, take such reasonable actions
as are necessary to allow eligible employees of the Company to
participate in the benefit programs of Parent, or alternative
benefits programs substantially comparable to those applicable to
employees of Parent on similar terms.
5.10 Additional Documents and Further Assurances. Each party
hereto, at the request of another party hereto,
shall execute and deliver such other instruments and do and perform
such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.11 Registration Statement. Subject to
certain limitations set forth in the Registration
Rights Agreement attached hereto as Exhibit A, (i) Parent shall, at
Parent's own expense, use reasonable commercial efforts to file, no
later than 90 days after the Closing Date and in any event as soon as
reasonably practicable, a registration statement (the "Registration
Statement") under the Securities Act to provide for resale by the
Company Shareholders of the shares of Parent Common Stock
constituting the merger consideration and shall use commercially
reasonable efforts to cause such Registration Statement to become
effective as promptly as practicable thereafter. The rights and
obligations of the Company Shareholders and Parent in respect of the
Registration Statement shall be as set forth in the Registration
Rights Agreement. Notwithstanding anything herein or in the
Registration Rights Agreement, in the event that all of the shares of
Parent Common Stock issued to a Company Shareholder can be sold by
such person in a single three month period in accordance with Rule
144 under the Securities Act, Parent shall have no obligation to
cause such shares to continue to be registered.
5.12 Restrictions on Sales and Other Transfers.
(a) General Restrictions. Except as otherwise provided in
Section 5.12(b) or as otherwise consented to in writing by Parent in
its absolute discretion, until the two year anniversary after the
Closing Date, the Company Shareholders shall not (x) effect an offer,
pledge, sale, contract of sale, short sale, sale of any option or
contract to purchase, purchase of any option or contract to sell,
grant of any option, right or warrant to purchase, gift or other
transfer or disposition of, directly or indirectly, any of the shares
of Parent Common Stock issued to them upon consummation of the Merger
as part of the Shareholder Amount or (y) enter into any swap or other
arrangement that transfers all or a portion of the economic
consequences associated with the ownership of the applicable
Shareholder Amount (regardless of whether any of the transactions
described in clause (x) or (y) (each, a "Disposition") are to be
settled by the delivery of the shares consisting of the Shareholder
Amount, or such other securities, in cash or otherwise). Parent shall
be authorized to cause its transfer agent to decline to transfer
and/or to note stop transfer restrictions on the transfer books and
records of Parent with respect to any of the shares constituting the
Shareholder Amount.
(b) Sequential Lapse of Restrictions. Initially, each
Company Shareholder shall have the right to make a Disposition of up
to 20% of the applicable Shareholder Amount less the amount of any
Company Shareholder's Cash Election. Upon the one year anniversary
of the Closing Date, each Company Shareholder shall have the right to
make a Disposition of an additional 25% of the applicable Shareholder
Amount and upon the 18 month anniversary of the Closing Date each
Company Shareholder shall have the right to make a Disposition of an
additional 25% of the applicable Shareholder Amount. The restrictions
set forth in this Section 5.12 shall cease to apply on the two-year
anniversary of the Closing Date. Notwithstanding the foregoing: (i)
if at any time, a Company Shareholder voluntarily terminates his/her
employment with Parent (other than for death or disability), any
unsold Shareholder Amount held by such Company Shareholder shall not
be eligible for Disposition until the three-year anniversary of the
Closing Date and (ii) if Parent terminates the employment of any
Company Shareholder other than for Cause (as such term is defined in
the form of Employment Agreement attached hereto as Exhibit B) or if
Employee terminates due to death or disability, all restrictions on
Disposition of such Company Shareholder's Shareholder Amount shall
lapse; provided, however, in no event shall the provisions of this
Section 5.12 disturb the creation, operation and distribution of the
Escrow Fund as contemplated in Article VII hereof.
(c) Certificates. The certificates representing the
Shareholder Amounts shall bear a legend, in addition to any other
legend required hereunder, referring to the restrictions set forth in
this Section 5.12; provided, however, at Parent's discretion, Parent
may issue without legend certificates representing the portion of the
Shareholder Amounts that may be subject to a Disposition during the
initial period. At a Company Shareholder's written request, Parent
will remove the legends required by this Section 5.12 at any time
after the applicable restrictive period has lapsed.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to this Agreement to
effect the Merger shall be subject to the satisfaction at or prior to
the Closing of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the stockholders of the
Company by the requisite vote under applicable law and the Company's
Articles of Incorporation.
(b) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the
consummation of the Merger shall be in effect.
6.2 Additional Conditions to Obligations of the Company.
The obligations of the Company to consummate the Merger and
the transactions contemplated by this Agreement shall be subject to
the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by
the Company:
(a) Representations and Warranties. The representations
and warranties of Parent and Merger Sub contained in this Agreement
shall be true and correct in all material respects on and as of the
Effective Time, except for changes contemplated by this Agreement and
except for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as
of such date), with the same force and effect as if made on and as of
the Effective Time, except, in all such cases, for such breaches,
inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a
Material Adverse Effect on Parent; and the Company shall have
received a certificate to such effect signed on behalf of Parent by a
duly authorized officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall
have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed
or complied with by them on or prior to the Effective Time, and the
Company shall have received a certificate to such effect signed by a
duly authorized officer of Parent.
(c) Material Adverse Change. There shall not have
occurred any material adverse change in the business, assets
(including intangible assets), condition (financial or otherwise) or
results of operations of Parent since August 31, 2000.
(d) Registration Rights Agreement. Concurrent with the
execution of this Agreement, Parent shall enter into a Registration
Rights Agreement attached hereto as Exhibit A for the benefit of the
Company Shareholders.
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub. The obligations of Parent and Merger Sub to consummate the
Merger and the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Representations and Warranties. The representations
and warranties of the Company contained in this Agreement shall be
true and correct in all material respects on and as of the Effective
Time, except for changes contemplated by this Agreement and except
for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of
such date), with the same force and effect as if made on and as of
the Effective Time, except, in all such cases, for such breaches,
inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a
Material Adverse Effect on the Company or Parent; and Parent and
Merger Sub shall have received a certificate to such effect signed on
behalf of the Company by a duly authorized officer of the Company;
(b) Agreements and Covenants. The Company shall have
performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied
with by it on or prior to the Effective Time, and Parent and Merger
Sub shall have received a certificate to such effect signed by a duly
authorized officer of the Company;
(c) Third Party Consents. Parent shall have been
furnished with evidence satisfactory to it that the Company has
obtained the consents, approvals and waivers set forth in Section
6.3(c) of the Company Disclosure Schedule.
(d) Material Adverse Change. There shall not have
occurred any material adverse change in the business, assets
(including intangible assets) condition (financial or otherwise) or
results of operations of the Company since August 31, 2000.
(e) New Employment Arrangements. Each of the Principal
Shareholders shall have executed employment agreements substantially
in the form attached hereto as Exhibit B. A minimum of six (6)
additional employees from the list of Company employees in Exhibit C
hereto shall have entered into "at-will" employment arrangements with
Parent and/or the Surviving Corporation pursuant to the form of offer
letter attached hereto as Exhibit D, shall have agreed to be
employees of Parent after the Closing and shall be employees of the
Company immediately prior to the Effective Time.
(f) No Dissenters. Holders of more than 2% of the
outstanding shares of Company Capital Stock shall not have exercised,
nor shall they have any continued right to exercise, appraisal,
dissenters' or similar rights under applicable law with respect to
their shares by virtue of the Merger.
(g) Termination of Options. Parent shall have received
evidence that as of the Effective Time each unexercised Company
Option and warrant shall have been terminated to the satisfaction of
Parent.
(h) Opinion of Company Counsel. Parent shall have
received an opinion of Landrum & Company, counsel to the Company, in
the form attached hereto as Exhibit E and dated as of the Closing
Date.
(i) Shareholder Certificate. Each of the Company
Shareholders shall have executed and delivered a Shareholder
Certificate in the form attached hereto as Exhibit F.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of
the Company's representations and warranties in this
Agreement or in any instrument delivered pursuant to this Agreement
(each as modified by the Company Disclosure Schedule) and all of
Parent's representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement (each as modified by
the Parent SEC Documents) shall survive the Merger and continue until
the 11:59 p.m. California time on the date which is two years
following the date of this Agreement (the "Expiration Date").
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time, the Principal
Shareholders shall be deemed to have received and deposited with the
Escrow Agent (as defined below) the Escrow Amount (plus any
additional shares as may be issued upon any stock split, stock
dividend or recapitalization effected by Parent after the Effective
Time) without any act of any shareholder. As soon as practicable
after the Effective Time, the Escrow Amount, without any act of any
shareholder, will be deposited with David W. Dunlap, in his capacity
as Chief Financial Officer of Parent, (or other institution or
individual acceptable to Parent and the Securityholder Agent (as
defined in Section 7.2(h) below)) as Escrow Agent (the "Escrow
Agent"), such deposit to constitute an escrow fund (the "Escrow
Fund") to be governed by the terms set forth herein and at Parent's
cost and expense. The portion of the Escrow Amount contributed on
behalf of each Principal Shareholder shall be in proportion to each
Principal Shareholder's Shareholder Amount.
(b) Indemnification. The Principal Shareholders hereby,
severally and not jointly, indemnify Parent, its officers, directors
and affiliates for any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys'
fees and expenses, and expenses of investigation and defense
(hereinafter individually a "Loss" and collectively "Losses")
incurred by Parent, its officers, directors, or affiliates (including
the Surviving Corporation) directly or indirectly as a result of (i)
any inaccuracy or breach of a representation or warranty of the
Company contained in this Agreement, or (ii) any failure by the
Company to perform or comply with any covenant contained herein,
which shall be satisfied exclusively through the Escrow Fund, except
that no portion of the Escrow Fund shall be available to satisfy any
claim arising from death of a Shareholder, failure of a Shareholder
to continue employment with Parent or breach of Section 6.3(f)
hereof. Parent and the Company each acknowledge that such Losses, if
any, would relate to unresolved contingencies existing at the
Effective Time, which if resolved at the Effective Time would have
led to a reduction in the Aggregate Share Number. Nothing herein
shall limit the liability of the Company for any breach of any
representation, warranty or covenant if the Merger does not close.
(c) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund
shall be in existence immediately following the Effective Time and
shall terminate at 11:59 p.m., California time, on the Expiration
Date (the "Escrow Period"); provided that the Escrow Period shall not
terminate with respect to such amount (or some portion thereof) if in
a reasonable judgment of Parent, subject to the objection of the
Securityholder Agent and the subsequent arbitration of the matter in
the manner provided in Section 7.2(f) hereof, such amount (or some
portion thereof) together with the aggregate amount remaining in the
Escrow Fund is necessary to satisfy any unsatisfied claims specified
in any Officer's Certificate delivered to the Escrow Agent prior to
termination of such Escrow Period with respect to facts and
circumstances existing prior to the termination of such Escrow
Period. As soon as all such claims have been resolved, the Escrow
Agent shall deliver to the Principal Shareholders the remaining
portion of the Escrow Fund and not required to satisfy such claims.
Deliveries of Escrow Amounts to the Principal Shareholders pursuant
to this Section 7.2(b) shall be made in proportion to their
respective original contributions to the Escrow Fund.
(d) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a
trust fund in accordance with the terms of this Agreement and not as
the property of Parent and shall hold and dispose of the Escrow Fund
only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued
upon a stock split) ("New Shares") in respect of Parent Common Stock
in the Escrow Fund which have not been released from the Escrow Fund
shall be added to the Escrow Fund and become a part thereof. New
Shares issued in respect of shares of Parent Common Stock which have
been released from the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the recordholders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow
Fund but shall be distributed currently to the recordholders thereof.
(iii) Each Principal Shareholder shall have voting
rights with respect to the shares of Parent Common Stock contributed
to the Escrow Fund by such Principal Shareholder (and on any voting
securities added to the Escrow Fund in respect of such shares of
Parent Common Stock).
(e) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on
or before the last day of the Escrow Period of a certificate signed
by any officer of Parent (an "Officer's Certificate"): (A) stating
that Parent has paid or properly accrued or reasonably anticipates
that it will have to pay or accrue Losses, and (B) specifying in
reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid or properly
accrued, or the basis for such anticipated liability, and the nature
of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the
provisions of Section 7.2(e) hereof, deliver to Parent out of the
Escrow Fund, as promptly as practicable, shares of Parent Common
Stock held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of
shares of Parent Common Stock to be delivered to Parent out of the
Escrow Fund pursuant to Section 7.2(d)(i) hereof, the shares of
Parent Common Stock shall be valued at the Average Closing Price.
Parent and the Securityholder Agent shall certify such fair market
value in a certificate signed by both Parent and the Securityholder
Agent, and shall deliver such certificate to the Escrow Agent.
(f) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such
certificate shall be delivered to the Securityholder Agent and for a
period of thirty (30) days after such delivery, the Escrow Agent
shall make no delivery to Parent of any Escrow Amounts pursuant to
Section 7.2(d) hereof unless the Escrow Agent shall have received
written authorization from the Agent to make such delivery. After
the expiration of such thirty (30) day period, the Escrow Agent shall
make delivery of shares of Parent Common Stock from the Escrow Fund
in accordance with Section 7.2(d) hereof, provided that no such
payment or delivery may be made if the Securityholder Agent shall
object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall so object
in writing to any claim or claims made in any Officer's Certificate,
the Securityholder Agent and Parent shall attempt in good faith to
agree upon the rights of the respective parties with respect to each
of such claims. If the Securityholder Agent and Parent should so
agree, a memorandum setting forth such agreement shall be prepared
and signed by both parties and shall be furnished to the Escrow
Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute shares of Parent Common Stock from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good
faith negotiation, either Parent or the Securityholder Agent may
demand arbitration of the matter unless the amount of the damage or
loss is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration conducted by three
arbitrators. Parent and the Securityholder Agent shall each select
one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The arbitrators shall set a limited time period
and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrators, to discover relevant information
from the opposing parties about the subject matter of the dispute.
The arbitrators shall rule upon motions to compel or limit discovery
and shall have the authority to impose sanctions, including attorneys
fees and costs, to the extent as a court of competent law or equity,
should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected
to without substantial justification. The decision of a majority of
the three arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in
Section 7.2(e) hereof, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of
the Escrow Fund in accordance therewith. Such decision shall be
written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or
order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any
such arbitration shall be held in Santa Clara County, California
under the rules then in effect of the American Arbitration
Association. The arbitrators shall have the power, in their
discretion, to determine that the party is the prevailing party in
the arbitration. The non-prevailing party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative fee
of the American Arbitration Association, and the expenses, including
without limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration. In the event the arbitrators
choose not to determine a prevailing party, then each party shall pay
its own expenses, and the parties shall each pay one-half of the fees
of each arbitrator and such administrative fees.
(h) Securityholder Agent of the Company Shareholders;
Power of Attorney.
(i) In the event that the Merger is approved,
effective upon such vote, and without further act of any shareholder,
Paul Hughes shall be appointed as agent and attorney-in-fact (the
"Securityholder Agent") for each of the Company Shareholders (except
such shareholders, if any, as shall have perfected their appraisal
rights under California Law), for and on behalf of Company
Shareholders, to give and receive notices and communications, to
authorize delivery to Parent of shares of Parent Common Stock from
the Escrow Fund in satisfaction of claims by Parent, to object to
such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of
Securityholder Agent for the accomplishment of the foregoing. Such
agency may be changed by the Company Shareholders from time to time
upon not less than thirty (30) days prior written notice to Parent;
provided that the Securityholder Agent may not be removed unless
holders of a two-thirds interest of the Escrow Fund agree to such
removal and to the identity of the substituted agent. No bond shall
be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute
notice to or from each of the Company Shareholders.
(ii) The Securityholder Agent shall not be liable for
any act done or omitted hereunder as Securityholder Agent while
acting in good faith and in the exercise of reasonable judgment. The
Principal Shareholders on whose behalf the Escrow Amount was
contributed to the Escrow Fund shall severally indemnify the
Securityholder Agent and hold the Securityholder Agent harmless
against any loss, liability or expense incurred without negligence or
bad faith on the part of the Securityholder Agent and arising out of
or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable
fees and expenses of any legal counsel retained by the Securityholder
Agent.
(i) Actions of the Securityholder Agent. A decision, act,
consent or instruction of the Securityholder Agent shall constitute a
decision of all the shareholders for whom a portion of the Escrow
Amount otherwise issuable to them are deposited in the Escrow Fund
and shall be final, binding and conclusive upon each of such
shareholders, and the Escrow Agent and Parent may rely upon any such
decision, act, consent or instruction of the Securityholder Agent as
being the decision, act, consent or instruction of each every such
shareholder of the Company. The Escrow Agent and Parent are hereby
relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the
Securityholder Agent.
(j) Third-Party Claims. In the event Parent becomes aware
of a third-party claim which Parent believes may result in a demand
against the Escrow Fund, Parent shall notify the Securityholder Agent
of such claim, and the Securityholder Agent, as representative for
the Principal Shareholders, shall be entitled, at their expense, to
participate in any defense of such claim. Parent shall have the
right in its sole discretion to settle any such claim; provided,
however, that except with the consent of the Securityholder Agent, no
settlement of any such claim with third-party claimants shall alone
be determinative of the amount of any claim against the Escrow Fund.
In the event that the Securityholder Agent has consented to any such
settlement, the Securityholder Agent shall have no power or authority
to object under any provision of this Article VII to the amount of
any claim by Parent against the Escrow Fund with respect to such
settlement.
(k) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and
as set forth in any additional written escrow instructions which the
Escrow Agent may receive after the date of this Agreement which are
signed by an officer of Parent and the Securityholder Agent, and may
rely and shall be protected in relying or refraining from acting on
any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The Escrow Agent
shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized
to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of
law, and is hereby expressly authorized to comply with and obey
orders, judgments or decrees of any court. In case the Escrow Agent
obeys or complies with any such order, judgment or decree of any
court, the Escrow Agent shall not be liable to any of the parties
hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have
been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the
parties executing or delivering or purporting to execute or deliver
this Agreement or any documents or papers deposited or called for
hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with
respect to this Agreement or any documents deposited with the Escrow
Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent. The Escrow Agent shall not incur any such
liability for (A) any act or failure to act made or omitted in good
faith, or (B) any action taken or omitted in reliance upon any
instrument, including any written statement of affidavit provided for
in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult
with the legal counsel in connection with Escrow Agent's duties under
this Agreement and shall be fully protected in any act taken,
suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for
determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to
this Agreement, or with any other party, concerning the subject
matter of this Agreement, its terms or conditions, the Escrow Agent
will not be required to determine the controversy or to take any
action regarding it. The Escrow Agent may hold all documents and
shares of Parent Common Stock and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as,
in the Escrow Agent's discretion, the Escrow Agent may require,
despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action
of interpleader requiring the parties to answer and litigate any
claims and rights among themselves. The Escrow Agent is authorized
to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses,
charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action and which the parties jointly and
severally agree to pay. Upon initiating such action, the Escrow
Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow
Agent harmless against any and all losses, claims, damages,
liabilities, and expenses, including reasonable costs of
investigation, counsel fees, and disbursements that may be imposed on
Escrow Agent or incurred by Escrow Agent in connection with the
performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving
its subject matter.
(viii) The Escrow Agent may resign at any time upon
giving at least thirty (30) days written notice to the parties;
provided, however, that no such resignation shall become effective
until the appointment of a successor escrow agent which shall be
accomplished as follows: the parties shall use their best efforts to
mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have
the right to appoint a successor escrow agent authorized to do
business in the state of California. The successor escrow agent
shall execute and deliver an instrument accepting such appointment
and it shall, without further acts, be vested with all the estates,
properties, rights, powers, and duties of the predecessor escrow
agent as if originally named as escrow agent. The Escrow Agent shall
be discharged from any further duties and liability under this
Agreement.
(l) Fees. All fees of the Escrow Agent for performance of
its duties hereunder shall be paid by Parent. It is understood that
the fees and usual charges agreed upon for services of the Escrow
Agent shall be considered compensation for ordinary services as
contemplated by this Agreement. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Escrow Agent
renders any service not provided for in this Agreement, or if the
parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or
intervenes in, any litigation pertaining to this escrow or its
subject matter, the Escrow Agent shall be reasonably compensated for
such extraordinary services and reimbursed for all costs, attorney's
fees, and expenses occasioned by such default, delay, controversy or
litigation. Parent promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below,
this Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity, which
would: (i) prohibit Parent's or the Company's ownership or operation
of all or a portion of the business of the Company or (ii) compel
Parent or the Company to dispose of or hold separate all or a portion
of the business or assets of the Company or Parent as a result of the
Merger;
(c) by Parent if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of the Company and (i) such breach has not been
cured within five (5) business days after written notice to the
Company (provided that, no cure period shall be required for a breach
which by its nature cannot be cured), and (ii) as a result of such
breach the conditions set forth in Section 6.3(a) or 6.3(b), as the
case may be, would not then be satisfied;
(d) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a breach of any
representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent or Merger Sub and (i) such breach has
not been cured within five (5) business days after written notice to
Parent (provided that, no cure period shall be required for a breach
which by its nature cannot be cured), and (ii) as a result of such
breach the conditions set forth in Section 6.2(a) or 6.2(b), as the
case may be, would not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized
by the Board of Directors (as applicable) of the party taking such
action.
8.2 Effect of Termination. In the event of
termination of this Agreement as provided in
Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub
or the Company, or their respective officers, directors or
stockholders, provided that each party shall remain liable for any
breaches of this Agreement prior to its termination; and provided
further that the provisions of Sections 5.2, 5.3 and 5.4 and Articles
VIII and IX of this Agreement and paragraph 5 of the letter of
understanding between the parties dated September 11, 2000 shall
remain in full force and effect and survive any termination of this
Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally
or by commercial delivery service, or mailed by registered or certified
mail (return receipt requested) or sent via facsimile (with
acknowledgment of complete transmission) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Merger Sub, to:
Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Attention: David W. Dunlap
Telephone No.: (510) 744-2700
Facsimile No.: (510) 744-2727
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Herbert P. Fockler, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to:
3rd Rail Engineering, Inc.
39889 Balentine Drive
Suite 160
Newark, California 94560
Attention: Paul Hughes
Telephone No.: (510) 623-8808
Facsimile No.: (510) 623-7223
with a copy to:
Landrum & Company
333 W. Santa Clara St., Suite 606
San Jose, CA 95113
Attention: Jay Landrum
Telephone No.: (408) 278-1600
Facsimile No.: (408) 278-8608
(c) if to the Securityholder Agent:
3rd Rail Engineering, Inc.
39889 Balentine Drive
Suite 160
Newark, California 94560
Attention: Paul Hughes
Telephone No.: (510) 623-8808
Facsimile No.: (510) 623-7223
(d) if to the Escrow Agent:
Socket Communications, Inc.
37400 Central Court
Newark, CA 94560
Attention: Chief Financial Officer
Telephone No.: (510) 744-2700
Facsimile No.: (510) 744-2727
9.2 Interpretation. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents
and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation
of this Agreement.
9.3 Amendment. This Agreement
may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver . At any
time prior to the Closing, Parent, on the one hand, and the Company,
on the other hand, may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document
delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained
herein.
9.5 Counterparts. This Agreement may
be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
9.6 Entire Agreement; Assignment. This Agreement,
the schedules and Exhibits hereto, and the
documents and instruments and other agreements among the parties
hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede
all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided, except that
Parent and Merger Sub may assign their respective rights and delegate
their respective obligations hereunder to their respective
affiliates.
9.7 Severability. In the event that
any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will
be interpreted so as reasonably to effect the intent of the parties
hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable
provision.
9.8 Other Remedies. Except as otherwise
provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.
9.9 Governing Law. This Agreement shall
be governed by and construed in accordance with the
laws of the State of California, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction and venue of any court within Santa Clara,
State of California, in connection with any matter based upon or
arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized
by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction, venue and such process.
9.10 Rules of Construction. The parties hereto
agree that they have been represented by
counsel during the negotiation and execution of this Agreement and,
therefore, waive the application of any law, regulation, holding or
rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such
agreement or document.
9.11 Specific Performance. The parties hereto
agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are entitled
at law or in equity.
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the
Principal Shareholder, the Securityholder Agent and the Escrow Agent
(as to matters set forth in Article VII only) have caused this
Agreement to be signed by their duly authorized respective officers,
all as of the date first written above.
SOCKET COMMUNICATIONS, INC. 3RD RAIL ENGINEERING, INC.
By: /s/ David W. Dunlap By: /s/ Paul T. Hughes
Name: Name:
Title: Chief Financial Officer Title: President
3RD RAIL ACQUISITION CORP. PRINCIPAL SHAREHOLDERS
By: /s/ David W. Dunlap By: /s/ Paul T. Hughes
Name: Name:
Title: President By: /s/ Robert J. Miller
Name:
By: /s/ Thomas J. Newman
Name:
SECURITYHOLDER AGENT ESCROW AGENT
By: /s/ Pual T. Hughes By: /s/ David W. Dunlap
Name: Name:
Title: Agent Title: Escrow Agent
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SOCKET COMMUNICATIONS, INC.
3RD RAIL ACQUISITION CORP.
AND
3RD RAIL ENGINEERING, INC.
Dated as of October 3, 2000
<PAGE>
INDEX OF EXHIBITS
Exhibit Description
--------- -------------------------------------
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Employment Agreement
Exhibit C List of Company Employees
Exhibit D Form of Offer Letter
Exhibit E Form of Opinion of Landrum & Company
Exhibit F Form of Shareholder Certificate
</PAGE>
