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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 14, 1997
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Spyglass, Inc.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
0-26074 37-1258139
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(Commission File Number) (IRS Employer Identification No.)
Naperville Corporate Center
1240 East Diehl Road, 4th Floor
Naperville, IL 60563
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (630) 505-1010
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N/A
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
On November 14, 1997, Spyglass, Inc. (the "Registrant") acquired (the
"Acquisition") all of the issued capital stock of AllPen Software, a California
corporation ("AllPen"), by means of a merger of Spyglass Acquisition Corp., a
California corporation and a wholly-owned subsidiary of the Registrant (the
"Transitory Subsidiary"), with and into AllPen. The Acquisition took place
pursuant to an Agreement and Plan of Merger, dated as of November 14, 1997 (the
"Merger Agreement"), among the Registrant, the Transitory Subsidiary and
AllPen. Under the terms of the Merger Agreement, the stockholders of AllPen
received an aggregate of 639,246 shares of the Registrant's Common Stock, $.01
par value per share, in exchange for their AllPen common stock. Also pursuant
to the Merger Agreement, AllPen optionholders received options for shares of
the Registrant's Common Stock in exchange for their outstanding options for
common stock of AllPen. The consideration for the common stock and options of
AllPen was determined by arm's length negotiation between the parties as to the
fair market value of AllPen as a going concern. Under the terms of the Merger
Agreement, 10% of the shares of the Registrant's Common Stock issuable to the
stockholders of AllPen in exchange for their AllPen common stock were deposited
in escrow to secure certain indemnification obligations of the AllPen
stockholders. AllPen is located in Los Gatos, California, and is in the
business of systems integration and software development focused on Internet
technology for non-PC devices.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired. Not filed herewith; to be
filed by amendment. Pursuant to Item 7(a)(4) of Form 8-K, the Registrant
hereby indicates that the filing of such financial statements at this time is
impracticable and undertakes to file such information on a Form 8-K/A to this
Report as soon as it is available, and in any event on or before January 30,
1998.
(b) Pro forma financial information. Not filed herewith; to be filed by
amendment. Pursuant to Items 7(a)(4) and 7(b)(2) of From 8-K, the Registrant
hereby indicates that the filing of such financial information at this time is
impracticable and undertakes to file such information on a Form 8-K/A to this
Report as soon as it is available, and in any event on or before January 30,
1998.
(c) Exhibits. See Exhibit Index.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
SPYGLASS, INC.
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(Registrant)
November 21, 1997 /s/ Gary L. Vilchick
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(Date) Gary L. Vilchick
Executive Vice President,
Finance, Administration and
Operations and Chief Financial
Officer
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Exhibit Index
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Exhibit
No. Description
- ------ -----------
2 Agreement and Plan of Merger dated as of
November 14, 1997 by and among the Registrant,
Spyglass Acquisition Corp. and AllPen Software.
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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
AMONG
SPYGLASS, INC.,
SPYGLASS ACQUISITION CORP.
AND
ALLPEN SOFTWARE
DATED
NOVEMBER 14, 1997
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
Page
<S> <C> <C>
THE MERGER..................................................1
1.1 The Merger...........................................1
1.2 The Closing .........................................1
1.3 Actions at the Closing...............................1
1.4 Additional Action....................................2
1.5 Conversion of Shares.................................3
1.6 Fractional Shares....................................3
1.7 Escrow ..............................................3
1.8 Options..............................................4
1.9 Dissenting Shares....................................4
1.10 Articles of Incorporation............................5
1.11 No Further Rights....................................5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............5
2.1 Organization ........................................5
2.2 Capitalization ......................................5
2.3 Authorization .......................................6
2.4 Noncontravention ....................................6
2.5 Financial Statements and Information.................7
2.6 Intellectual Property................................7
2.7 Trademarks ..........................................8
2.8 Accounts Receivables.................................9
2.9 Real Property........................................9
2.10 Personal Property....................................9
2.11 Accounts Payable.....................................9
2.12 Contracts............................................9
2.13 Permits..............................................9
2.14 Books and Records....................................9
2.15 Tax Matters..........................................10
2.16 Product Warranties...................................10
2.17 Insurance............................................10
2.18 Legal Compliance.....................................10
2.19 Litigation...........................................10
2.20 Confidential Information.............................10
2.21 Customers and Suppliers..............................10
2.22 Employees............................................11
2.23 Business Relationships With Affiliates...............11
2.24 Brokers' Fees........................................11
2.25 Pooling of Interests.................................11
2.26 Company Transaction Expenses.........................11
2.27 Disclosure...........................................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER.................12
3.1 Organization.........................................12
3.2 Capitalization.......................................12
3.3 Authorization........................................12
3.4 Noncontravention.....................................13
3.5 Buyer Reports and Financial Statements...............13
3.6 Absence of Certain Changes...........................13
3.7 Representations Relating to Qualification of
the Merger as a Tax-Free Reorganization..............13
3.8 Litigation...........................................14
3.9 Pooling of Interests.................................14
3.10 Listing of Merger Shares.............................14
</TABLE>
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<TABLE>
<CAPTION>
Page
<S> <C> <C>
3.11 Disclosure...........................................14
ARTICLE IV
COVENANTS....................................................14
4.1 Employees............................................14
4.2 Sale of Merger Shares Under Rule 144.................15
4.3 Pooling of Interests.................................15
4.4 Indemnification......................................15
4.5 Tax Reporting........................................15
ARTICLE V
INDEMNIFICATION..............................................15
5.1 Indemnification......................................15
5.2 Method of Asserting Claims...........................16
5.3 Survival.............................................16
5.4 Limitations..........................................17
ARTICLE VI
REGISTRATION RIGHTS..........................................17
6.1 Registration of Shares...............................17
6.2 Limitations on Registration Rights...................18
6.3 Registration Procedures..............................18
6.4 Requirements of Rightsholders........................19
6.5 Indemnification......................................20
6.6 Assignment of Rights.................................20
ARTICLE VII
DEFINITIONS..................................................20
ARTICLE VIII
MISCELLANEOUS................................................21
8.1 [Intentionally omitted]..............................21
8.2 No Third Party Beneficiaries.........................21
8.3 Entire Agreement.....................................21
8.4 Succession and Assignment............................21
8.5 Counterparts.........................................22
8.6 Headings.............................................22
8.7 Notices..............................................22
8.8 Governing Law........................................22
8.9 Amendments and Waivers...............................22
8.10 Severability.........................................22
</TABLE>
Exhibit A - Merger Agreement
Exhibit B - Optionholder Consent
Exhibit C - Investment Representation Letter
Exhibit D-1 - Employment Letter Agreement with Ivan Yurtin
Exhibit D-2 - Employment Letter Agreement with Wayne Yurtin
Exhibit E - Noncompetition Agreement
Exhibit F - Form of opinion of Morrison & Foerster LLP
Exhibit G - Form of opinion of Hale and Dorr LLP
Exhibit H - Escrow Agreement
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AGREEMENT AND PLAN OF MERGER
This Agreement is entered into as of November 14, 1997 among Spyglass,
Inc., a Delaware corporation (the "Buyer"), Spyglass Acquisition Corp., a
California corporation and a wholly owned subsidiary of the Buyer (the
"Transitory Subsidiary"), and Allpen Software, a California corporation (the
"Company"). The Buyer and the Company are referred to collectively herein as
the "Parties."
This Agreement contemplates a merger of the Transitory Subsidiary into the
Company, in which the stockholders of the Company will receive common stock of
the Buyer in exchange for their common stock of the Company.
The Parties intend that the merger contemplated by this Agreement shall be
treated as a tax free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
Now, therefore, in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Transitory Subsidiary shall merge with and into the Company
(with such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Company and
the Transitory Subsidiary file the Merger Agreement in the form attached hereto
as Exhibit A, together with the required officers' certificates of the
Transitory Subsidiary and the Company (collectively, the "Merger Filings"), in
accordance with Sections 1101, 1102 and 1103 of the California Corporations
Code, with the Secretary of State of the State of California.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place on the date of this Agreement or
such later date as may be mutually agreeable to the Parties (the "Closing
Date").
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer copies of (i) all of the
waivers, permits, consents, approvals, authorizations, registrations, filings
and notices referred to in the last sentence of Section 2.4 and (ii) the
consent of each holder of an Option in the form attached hereto as Exhibit B;
(b) the Company shall deliver to the Buyer an Investment Representation
Letter in the form attached hereto as Exhibit C executed by each of the
stockholders of record of the Company immediately prior to the Effective Time
(the "Company Stockholders"), other than holders of Dissenting Shares (as
defined in Section 1.9);
(c) the Buyer and each of Ivan W. Yurtin and Wayne B. Yurtin shall execute
and deliver employment letter agreements in the form attached hereto as Exhibit
D-1 and Exhibit D-2, respectively;
(d) the Buyer and each of Ivan W. Yurtin and Wayne B. Yurtin shall execute
and deliver Noncompetition Agreements in the form attached hereto as Exhibit E;
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(e) the Company shall deliver to the Buyer the Buyer's standard form of
employee confidentiality agreement executed by each employee of the Company;
(f) the Company shall cause Morrison & Foerster LLP to deliver to the
Buyer an opinion in the form attached hereto as Exhibit F, dated as of the
Closing Date;
(g) the Buyer shall cause Ernst & Young LLP, auditors for the Buyer, to
deliver to the Buyer a letter, in a form reasonably satisfactory to the Buyer,
to the effect that the Buyer may treat the Merger as a "pooling of interests"
for accounting purposes;
(h) the Company shall deliver to the Buyer the resignations, effective as
of the Effective Time, of each director and officer of the Company;
(i) the Company shall cause Alliant Partners (formerly Bentley Hall Von
Gehr International) (the "Broker") to deliver to the Buyer a letter or other
instrument, in a form reasonably satisfactory to the Buyer, setting forth the
total fees and expenses payable to the Broker for the services rendered by the
Broker to the Company or its stockholders, which fees shall be consistent with
the engagement letter dated September 5, 1996 between the Company and the
Broker (the "Broker Agreement"), and the Buyer shall pay such fees.
(j) the Buyer shall cause Hale and Dorr LLP to deliver to the Company
Stockholders an opinion in the form attached hereto as Exhibit G, dated as of
the Closing Date;
(k) the Company shall cause Morrison & Foerster LLP to deliver to the
Company Stockholders an opinion, dated as of the Closing Date, to the effect
that the Merger contemplated by this Agreement constitutes a tax-free
reorganization under Section 368(a) of the Code;
(l) the Company and the Transitory Subsidiary shall file the Merger
Filings with the California Secretary of State;
(m) each of the Company Stockholders shall be given the opportunity to
deliver to the Buyer the certificate(s) representing his or her shares of
common stock of the Company (the "Company Shares");
(n) the Buyer shall deliver certificates for the Initial Shares (as
defined below) in accordance with Section 1.5 to each Company Stockholder who
has delivered to the Buyer certificates for Company Shares;
(o) the Buyer and Ivan W. Yurtin and Wayne B. Yurtin (the "Indemnification
Representatives") and State Street Bank and Trust Company (the "Escrow Agent")
shall execute and deliver the Escrow Agreement in the form attached hereto as
Exhibit H (the "Escrow Agreement") and the Buyer shall deliver to the Escrow
Agent a certificate for the Escrow Shares (as defined below) being placed in
escrow on the Closing Date pursuant to Section 1.7; and
(p) the Company shall cause Morrison & Foerster LLP to present to the
Buyer its bill for all fees and expenses relating to the transactions
contemplated hereby, and the Buyer shall pay such amount, subject to the terms
of Section 2.26.
1.4 Additional Action. The Surviving Corporation may, at any time after
the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of the Company or the Transitory Subsidiary
it deems necessary or advisable in order to more fully consummate the
transactions contemplated by this Agreement.
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1.5 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of any Party or the holder of any of the following securities:
(i) Each Company Share issued and outstanding immediately prior to the
Effective Time (excluding Dissenting Shares (as defined in Section 1.9) and any
Company Shares held in the Company's treasury) shall be converted into and
represent the right to receive (subject to the provisions of Section 1.7) such
number of shares of common stock of the Buyer, $.01 par value per share ("Buyer
Common Stock"), as is equal to the Conversion Ratio. The "Conversion Ratio"
shall be the result obtained by dividing (1) 1,000,000 by (2) the sum of (x)
the number of outstanding Company Shares immediately prior to the Effective
Time and (y) the number of Company Shares issuable upon exercise of all Options
outstanding immediately prior to the Effective Time.
(ii) Each Company Share held in the Company's treasury immediately
prior to the Effective Time shall be cancelled and retired without payment of
any consideration therefor.
(iii) Each share of common stock of the Transitory Subsidiary issued
and outstanding immediately prior to the Effective Time shall be converted into
and thereafter evidence one share of common stock of the Surviving Corporation.
(b) The Company Stockholders shall be entitled to receive upon surrender
of their certificate(s) that represented Company Shares converted into Merger
Shares pursuant to Section 1.5(a) ("Certificates") 90% of the shares of Buyer
Common Stock into which their Company Shares were converted pursuant to Section
1.5(a) (the "Initial Shares"); and the remaining 10% of the shares of Buyer
Common Stock into which the Company Shares were converted pursuant to Section
1.5(a) (the "Escrow Shares") shall be deposited in escrow pursuant to Section
1.7 and shall be held and disposed of in accordance with the terms of the
Escrow Agreement. The Initial Shares and the Escrow Shares shall together be
referred to herein as the "Merger Shares."
1.6 Fractional Shares. No certificates or script representing fractional
Initial Shares shall be issued to the Company Stockholders upon the surrender
for exchange of Certificates and no Company Stockholder shall be entitled to
any voting rights, rights to receive any dividends or distributions or other
rights as a stockholder of the Buyer with respect to any fractional Initial
Shares that would otherwise be issued to such Company Stockholder. In lieu of
any fractional Initial Shares that would otherwise be issued, each Company
Stockholder shall, upon proper surrender of his or her Certificates, receive
such whole number of Initial Shares as is equal to the precise number of
Initial Shares to which it would be entitled, rounded up or down to the nearest
whole number.
1.7 Escrow. On the Closing Date, the Buyer shall deliver to the Escrow
Agent a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, for the purpose of securing the indemnification
obligations of the Company Stockholders set forth in this Agreement. The
Escrow Shares shall be held by the Escrow Agent under the Escrow Agreement
pursuant to the terms thereof. The Escrow Shares shall be held as a trust fund
and shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of the Escrow
Agreement.
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1.8 Options.
(a) As of the Effective Time, all outstanding options to purchase Company
Shares ("Options"), whether vested or unvested, shall be assumed by the Buyer,
and shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Option at the Effective Time, such
number of shares of Buyer Common Stock as is equal to the number of Company
Shares subject to the unexercised portion of such Option multiplied by the
Conversion Ratio (with any fraction resulting from such multiplication to be
rounded up to the nearest whole number). The exercise price per share of each
such assumed Option shall be equal to the exercise price of such Option
immediately prior to the Effective Time divided by the Conversion Ratio
(rounded down to the nearest cent). The term, exercisability, vesting schedule
and all of the other terms of the Options shall otherwise remain unchanged.
Any such adjustments for Options which were incentive stock options under
Section 422 of the Code shall be made in accordance with the rules of Section
424(a) of the Code.
(b) Within two business days after the Effective Time, the Buyer or the
Surviving Corporation shall deliver to the holders of Options appropriate
notices setting forth such holders' rights pursuant to such Options, as amended
by this Section 1.8, and the agreements evidencing such Options shall continue
in effect on the same terms and conditions (subject to the amendments provided
for in this Section 1.8).
(c) The Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery upon
exercise of the Options assumed in accordance with this Section 1.8. Within
two business days after the Effective Time, the Buyer shall file a Registration
Statement on Form S-8 (or any successor form) under the Securities Act of 1933
(as amended, the "Securities Act") with respect to all shares of Buyer Common
Stock subject to such Options that may be registered on a Form S-8, and
shall use its best efforts to maintain the effectiveness of such Registration
Statement for so long as such Options remain outstanding.
(d) The Company shall obtain, prior to the Closing, the consent from each
holder of an Option to the amendment of such Option in the form attached hereto
as Exhibit B.
1.9 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means Company
Shares held as of the Effective Time by a Company Stockholder who has not voted
such Company Shares in favor of the adoption of this Agreement and the Merger
and with respect to which appraisal shall have been duly demanded and perfected
in accordance with Chapter 13 of the California Corporations Code and not
effectively withdrawn or forfeited prior to the Effective Time. Dissenting
Shares shall not be converted into or represent the right to receive Buyer
Common Stock, unless such Company Stockholder's right to appraisal shall have
ceased in accordance with Section 1309 of the California Corporations Code. If
such Company Stockholder's right to appraisal of Dissenting Shares shall have
ceased in accordance with Section 1309 of the California Corporations Code,
then, as of the occurrence of such event (i) such holder's Dissenting Shares
shall cease to be Dissenting Shares and shall be converted into and represent
the right to receive the Buyer Common Stock payable in respect of such Company
Shares pursuant to Section 1.5(a), (ii) the Buyer shall deliver to such holder,
upon surrender for exchange of his or her Certificate(s), a certificate
representing 90% of the Merger Shares to which such holder is entitled pursuant
to Section 1.5(a) (which Shares shall be considered Initial Shares for purposes
of this Agreement) and (iii) the Buyer shall deliver to the Escrow Agent a
certificate representing
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10% of the Merger Shares to which such holder is entitled pursuant to Section
1.5(a) (which Shares shall be considered Escrow Shares for purposes of this
Agreement).
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the California Corporations Code. The Company
shall not, except with the prior written consent of the Buyer, make any payment
with respect to any demands for appraisal of Company Shares or offer to settle
or settle any such demands.
1.10 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be the same as the Articles of Incorporation of the
Transitory Subsidiary immediately prior to the Effective Time, except that the
name of the corporation set forth therein shall be changed to the name of the
Company.
1.11 No Further Rights. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of stock certificates
evidencing Company Shares immediately prior to the Effective Time shall cease
to have any rights with respect thereto, except the right to receive the Merger
Shares pursuant to Section 1.5.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct as of the date of this
Agreement, except as set forth in the disclosure schedule attached hereto (the
"Disclosure Schedule"). The Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article II, and the disclosures in any paragraph of the Disclosure
Schedule shall qualify the representations and warranties set forth in other
paragraphs in this Article II only to the extent it is clear from a reading of
the disclosure that such disclosure is applicable to such other paragraphs.
Whenever used in this Article II, (a) the term "to the Company's knowledge" or
any similar expression shall mean to the actual knowledge of Ivan Yurtin and
Wayne Yurtin, after reasonable inquiry or investigation, (b) the term "received
no notice" or any similar expression shall mean the Company has not received
any written notice (in the form of correspondence, a legal complaint or summons
or other written communication) of the matter to which such term is applied,
and (c) the term "Company Material Adverse Effect" shall mean an effect which
is or is reasonably likely to be materially adverse to the results of
operations, financial condition or business of the Company.
2.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California, and
has all requisite power and authority to own its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and the
agreements and instruments contemplated hereby, and to perform its obligations
under this Agreement and such other agreements and instruments and to
consummate the transactions contemplated hereby and thereby. The Company does
not have any subsidiaries or own any equity interest in any other corporation
or entity.
2.2 Capitalization. The authorized capital stock of the Company consists
of 6,000,000 Company Shares, of which 3,730,000 shares are issued and
outstanding as of the date of this Agreement and no shares are held in the
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treasury of the Company. Section 2.2 of the Disclosure Schedule sets forth (a)
a list of all stockholders of the Company, indicating the number of Company
Shares held by each stockholder and (b) a list of all holders of Options,
indicating the number of Company Shares subject to each Option (the aggregate
number of which is 2,105,000) and the exercise price, term and vesting schedule
of each Option. All of the issued and outstanding Company Shares are duly
authorized, validly issued, fully paid, nonassessable and issued without
violation of any preemptive rights. Except for those Options listed in Section
2.2 of the Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance, disposition or
acquisition of any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
the Company. There are no agreements, voting trusts, proxies or understandings
with respect to the voting, or registration under the Securities Act of any
capital stock of the Company. The Company has not repurchased any shares of
its capital stock in violation of its Articles of Incorporation or Bylaws or
applicable law. All of the issued and outstanding Company Shares were issued
in compliance with applicable federal and state securities laws.
2.3 Authorization. The execution and delivery by the Company of this
Agreement and the Merger Agreement attached hereto as Exhibit A and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company
(including the approval by the holders of at least 95% of the outstanding
Company Shares in accordance with the provisions of the California Corporations
Code). The Company provided to each stockholder of the Company, prior to the
vote by the stockholders of the Company with respect to the Merger and this
Agreement, (i) a copy of this Agreement, (ii) a brief description of this
Agreement (including without limitation, a summary of the indemnification and
escrow provisions hereof), (iii) information concerning the business and
finances of the Company, (iv) copies of the Buyer Reports (as defined in
Section 3.5) and (v) all information required under the California Corporations
Code concerning their appraisal rights. This Agreement constitutes the valid
and legally binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally and equitable principles, regardless of whether
such enforceability is considered in a proceeding at law or in equity.
2.4 Noncontravention. The execution and delivery by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby will not, with or without the giving of notice or the passage of time or
both, (a) violate the provisions of any law, rule or regulation applicable to
the Company; (b) violate the provisions of the Articles of Incorporation or
By-laws of the Company; (c) violate any judgment, decree, order or award of any
court, governmental body or arbitrator applicable to the Company; or (d)
conflict with or result in the breach or termination of, or require any consent
under, or cause any acceleration under, or cause the creation of any lien,
charge or encumbrance upon the Company's assets pursuant to, any agreement or
instrument to which the Company is a party or by which the Company or any of
its assets is bound. The Company has obtained all such waivers, permits,
consents, approvals or other authorizations from third parties and governmental
agencies, and has effected all such registrations, filings and notices with or
to third parties and governmental agencies, as are required in connection with
the consummation by the Parties of the transactions contemplated by this
Agreement (all of which are listed in Section 2.4 of the Disclosure Schedule).
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2.5 Financial Statements and Information.
(a) The Company has previously delivered to the Buyer its unaudited
financial statements as of and for the fiscal year ended December 31, 1996 and
the interim period ended October 6, 1997. Such financial statements have not
been prepared in accordance with generally accepted accounting principles, but
(i) have been prepared on a cash basis (without accrued expenses or deferred
income of any kind) in accordance with principles applied consistently with
past practice, (ii) are consistent with the books and records of the Company
and (iii) fairly present, as of the dates and for the periods indicated, the
financial condition and the results of operations (on a cash basis) of the
Company.
(b) The Company has no liability, other than (i) the liabilities shown on
the Company's balance sheet as of October 6, 1997, (ii) liabilities, similar in
nature to those shown on the October 6, 1997 balance sheet, which have arisen
after October 6, 1997 in the ordinary course of business consistent with past
practice (including with respect to amount) and (iii) contractual liabilities
disclosed in any contract set forth in Section 2.6 or 2.12 of the Disclosure
Schedule to the extent payment or performance is not yet due.
(c) Since October 6, 1997, there has not occurred any event or
circumstance which has had, or may reasonably be foreseen to have, a Company
Material Adverse Effect.
(d) Since October 6, 1997, the Company has not done, or agreed to do, any
of the following:
(i) pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock;
(ii) create, incur or assume any debt not currently outstanding
(including capital leases obligations, but excluding accounts payable incurred
in the ordinary course of business); assume, guarantee, endorse or otherwise
become liable for the obligations of any other person; or make any loans,
advances or capital contributions to, or investments in, any other person;
(iii) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, or pay any bonuses to, its employees
(other than the payment to Ivan Yurtin and Wayne Yurtin of bonuses totalling
$186,000 and $253,000, respectively, and the forgiveness of the outstanding
loan from the Company to Wayne Yurtin in the principal amount of $93,932,
together with any associated interest); or hire or fire (other than for cause)
any employee;
(iv) acquire, sell, lease, encumber or dispose of any assets, other
than purchases and sales of assets in the ordinary course of business; or
(v) pay any obligation or liability other than in the ordinary course
of business.
2.6 Intellectual Property.
(a) The Company owns or has the right to use all Intellectual Property (as
defined below) incorporated in its products or necessary for the operation of
its business as presently conducted (the "Company Intellectual Property").
Each item of Company Intellectual Property will be owned or available for use
by the Surviving Corporation on substantially identical
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terms and conditions immediately following the Closing. The Company has taken
all reasonable measures to protect the proprietary nature of each item of
Company Intellectual Property, and to maintain in confidence all trade secrets
and confidential information, that it owns or uses. To the knowledge of the
Company, (a) no other person or entity has any rights to any of the Company
Intellectual Property owned or used by the Company (except pursuant to
agreements or licenses specified in Section 2.6(c) or 2.6(d) of the Disclosure
Schedule), and (b) no other person or entity is infringing, violating or
misappropriating any of the Company Intellectual Property. The Company has made
available to the Buyer correct and complete copies of all other written
documentation in the Company's possession evidencing ownership of, and any
claims or disputes known to the Company relating to, each item of Company
Intellectual Property. For purposes of this Agreement, "Intellectual Property"
means all (i) patents and patent applications, (ii) copyrights and registrations
thereof, (iii) mask works and registrations and applications for registration
thereof, (iv) computer software, data and documentation, (v) trade secrets and
confidential business information, whether patentable or unpatentable and
whether or not reduced to practice, know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information,
and (vi) other proprietary rights relating to any of the foregoing.
(b) None of the activities or business presently conducted by the Company
infringes or violates, or constitutes a misappropriation of, any Intellectual
Property rights of any other person or entity. The Company has not received
any complaint, claim or notice alleging any such infringement, violation or
misappropriation.
(c) Section 2.6(c) of the Disclosure Schedule identifies each license or
other agreement (or type of license or other agreement) pursuant to which the
Company has licensed, distributed or otherwise granted any rights to any third
party with respect to, any of Company Intellectual Property.
(d) Section 2.6(d) of the Disclosure Schedule identifies each item of
Company Intellectual Property that is owned by a party other than the Company,
and the license or agreement pursuant to which the Company uses it.
(e) The Company has not disclosed the source code for any of the software
owned by the Company and incorporated in its products or necessary for the
operation of its business as presently conducted (the "Software") or other
confidential or proprietary information constituting, embodied in or pertaining
to the Software to any person and has taken reasonable measures to prevent such
disclosure.
(f) All of the Software has been created by employees of the Company
within the scope of their employment by the Company or by independent
contractors of the Company who have executed agreements expressly assigning all
right, title and interest in the Software to the Company. The Software does
not include, link with or otherwise depend upon, or constitute a derivative
work of, any public domain software, shareware, or (other than operating
systems) third party software. No portion of the Software was jointly
developed with any third party.
2.7 Trademarks. The Company has used the trademarks listed in Section
2.7 of the Disclosure Schedule. The Company has not licensed or granted any
right to use any such trademark to any other person or entity. The Company
does not use, and in the past has not used, any other trademarks or trade names
other than those listed in Section 2.7 of the Disclosure Schedule.
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2.8 Accounts Receivables. All of the accounts receivable of the Company
are current and were created in the ordinary course of the Company's business.
2.9 Real Property. The Company does not own any real property.
2.10 Personal Property. All of the tangible personal property of the
Company (including fixtures, computers, machinery and equipment) is in good
operating condition and repair, normal wear and tear excepted. All such assets
are located at the Company's facility at 16795 Lark Avenue, Los Gatos,
California.
2.11 Accounts Payable. All of the accounts payable of the Company were
incurred in the ordinary course of the Company's business.
2.12 Contracts.
(a) Section 2.12 of the Disclosure Schedule lists each contract, agreement
or commitment (written or oral) to which the Company is a party that is
material to the Company or its business (other than those listed in Section 2.6
of the Disclosure Schedule), including without limitation (i) any contract,
agreement or commitment providing for the payment by the Company of an amount
in excess of $10,000; (ii) any contract, agreement or commitment concerning
confidentiality or non-competition; (iii) any contract, agreement or commitment
with any stockholder or employee of the Company; (iv) any contract, agreement
or commitment with any distributors or resellers of the Company's products; and
(v) any lease or sublease of real estate (collectively, together with the
agreements and licenses listed in Section 2.6 of the Disclosure Schedule, the
"Contracts").
(b) The Company has previously delivered to the Buyer a complete and
accurate copy of each Contract (except as provided in Section 2.12(c)). Each
Contract is a valid and binding agreement between the Company and the other
party or parties thereto, and will continue to be so immediately following the
Effective Time; and no defaults or breaches exist under any of the Contracts on
the part of the Company or, to the Company's knowledge, on the part of any
other party thereto, and none will arise as a result of the Merger.
(c) The Companay is a party to a Prototype License and Confidentiality
Agreement with Apple Computer, Inc. dated May 10, 1995, a Software Development,
Bundling and Co-Marketing Agreement with Apple Computer, Inc. dated August 30,
1996, as amended on June 28, 1997, and a Software Development Agreement with an
unidentified party dated June 1, 1997, the terms of which agreements prohibit
the Company from providing copies of such agreements to the Buyer. The
obligations of the Company under such agreements are similar in nature to the
obligations of the Company under other agreements to which it is a party; the
Company, using its current personnel, will be able to fulfill when due its
obligations under such agreements; and the Company has no reason to believe
that the terms of such agreements will have a Company Material Adverse Effect.
2.13 Permits. The Company possesses all licenses, permits, certificates,
registrations and authorizations from any governmental or regulatory authority
or agency that are required for the Company to conduct its business, each of
which is listed in Section 2.13 of the Disclosure Schedule.
2.14 Books and Records. The books, records and files of the Company are
accurate and complete in all material respects.
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2.15 Tax Matters. The Company has filed on a timely basis all federal,
state, local and foreign Tax (as defined below) returns that were required to
be filed, all of which returns were accurate and complete in all material
respects. The Company has paid all Taxes which have become due and withheld
and remitted any Taxes required to be withheld by it. No unsatisfied
deficiencies have been asserted or assessed against the Company as a result of
any audit by the Internal Revenue Service or any state or local taxing
authority, and no examination or audit by any such authority is currently in
progress or, to the knowledge of the Company, threatened. "Taxes" means all
taxes, charges, fees and similar assessments (including without limitation
those relating to income, receipts, excise, real property, personal property,
sales, use, transfer, withholding, employment, payroll and franchises) imposed
by the United States of America or any state, local or foreign government, or
any agency thereof.
2.16 Product Warranties. No product sold or licensed by the Company is
subject to any guaranty, warranty, right of return, right of credit or other
indemnity beyond the applicable standard warranty terms which are set forth in
Section 2.16 of the Disclosure Schedule.
2.17 Insurance.
(a) The Company maintains, and has maintained since its inception,
insurance with respect to its assets and business, the scope and coverage
amounts of which are adequate for the business in the Company's reasonable
judgment.
(b) No product liability or similar claim has ever been asserted against
the Company.
2.18 Legal Compliance. The Company, and the conduct and operations of
the Company's business, are in compliance with each applicable law (including
rules and regulations thereunder) of any federal, state, local or foreign
government or governmental authority (including without limitation any relating
to public health and safety, environmental protection or hazardous waste),
except for any violation or default which does not and is not reasonably likely
to have a Company Material Adverse Effect. The Company has not received any
notice from any federal, state or local governmental or regulatory authority
indicating that it is or may be in violation of any law, and the Company has no
liability in connection with any environmental remediation or cleanup.
2.19 Litigation. The Company is not a party to any, nor has it received
notice of any threatened, litigation, suit, action, investigation, proceeding
or controversy before any court, administrative agency or other governmental
authority.
2.20 Confidential Information. Section 2.20 of the Disclosure Schedule
describes any disclosures by the Company, outside the ordinary course of
business, of any information of a proprietary or confidential nature relating
to its business, products, technology or financial condition to any person or
entity. All such disclosures were made pursuant to customary non-disclosure
agreements which prevent use (except for the purpose of evaluating a potential
transaction with the Company) or disclosure by the receiving party of the
proprietary or confidential information disclosed by the Company.
2.21 Customers and Suppliers. No customer that has purchased or licensed
products from the Company since January 1, 1997 has notified the Company that
it will not license any products from the Company in the future or that it
wishes to return any products previously licensed from the Company; and no
supplier that has supplied products to the Company since January 1,
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<PAGE> 14
1997 has notified the Company that it will not sell materials or products to
the Company in the future.
2.22 Employees.
(a) Section 2.22(a) of the Disclosure Schedule sets forth a complete and
accurate list of all employees of the Company, including their title or
position, date of hire and salary or wage rate. No employees of the Company
are represented by any labor union or subject to any collective bargaining
agreement. Each employee of the Company has entered into the Company's
standard confidentiality agreement, a copy of which has been delivered by the
Company to the Buyer.
(b) Section 2.22(b) of the Disclosure Schedule contains a list of all
employee benefit plans or policies (including, without limitation, "employee
benefit plans" within the meaning of Section 3(3) of the Employment Retirement
Income Security Act of 1974, as amended ("ERISA"), bonus programs, insurance
plans, policies relating to vacations, sick days and leaves of absence, and
pension or retirement plans) of the Company; and complete and accurate copies
of each such plan or policy have been delivered by the Company to the Buyer.
The Company has complied in all material respects with the terms of each such
plan or policy and with the provisions of all laws and regulations applicable
to such plan or policy. The amount of unfunded benefit liabilities (as defined
in Section 4001(a)(18) of ERISA) of all employee benefit plans of the Company
that are subject to Title IV of ERISA determined as of the date of this
Agreement does not exceed $90,000. If the assets of all such plans were to be
liquidated on the Closing Date the proceeds of such liquidation would not be
reduced by any charges, including without limitation deferred sales charges,
surrender fees or back-end loads, but excluding reasonable brokerage
commissions.
2.23 Business Relationships With Affiliates. No officer, director or
stockholder of the Company (a) owns any property or right, tangible or
intangible, which is used in the business of the Company, (b) to the Company's
knowledge, has any claim or cause of action against the Company, or (c) owes
any money to, or is owed any money by, the Company (other than salaries since
the most recent regularly scheduled pay date and the rights of the Company's
stockholders with respect to the assets of the Company upon a liquidation or
dissolution).
2.24 Brokers' Fees. Except for a fee payable to the Broker pursuant to
the Broker Agreement, a copy of which has been provided to the Buyer, the
Company has no liability or obligation to pay any fees or commissions to any
broker, finder or agent with respect to the Merger.
2.25 Pooling of Interests. To the knowledge of the Company, after
consultation with its advisors, neither the Company nor any of its stockholders
has taken or agreed to take any action that would prevent the Buyer from
accounting for the business combination to be effected by the Merger as a
"pooling of interests."
2.26 Company Transaction Expenses. The Company has ascertained the
aggregate amount (the "Expense Amount") of all costs and expenses, including
without limitation legal fees and expenses and accounting fees and expenses,
incurred by the Company in connection with the transactions contemplated by
this Agreement, other than the fee described in Section 2.24 payable to the
Broker (the "Company Transaction Expenses"), and has delivered deliver written
notice of the Expense Amount to the Buyer. The Expense Amount does not exceed
$100,000.
2.27 Disclosure. No representation or warranty by the Company contained
in this Agreement, and no statement contained in the Disclosure
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Schedule or the certificate to be delivered by or on behalf of the Company
pursuant to Section 5.1(f) of this Agreement, contains or will contain any
untrue statement of a material fact or omits or will omit (when read in
conjunction with the other statements contained herein and in the Disclosure
Schedule) to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company as follows:
3.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Transitory Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. Each of the Buyer and
the Transitory Subsidiary has all requisite power and authority to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements and instruments contemplated hereby,
and to perform its obligations under this Agreement and the other agreements
and instruments and consummate the transactions contemplated hereby and
thereby.
3.2 Capitalization. The authorized capital stock of the Buyer consists
of (a) 50,000,000 shares of Buyer Common Stock, of which 12,369,709 shares were
issued and outstanding as of October 31, 1997 and (b) 2,000,000 shares of
Preferred Stock, $.01 par value per share, none of which are issued or
outstanding. The authorized capital stock of the Transitory Subsidiary
consists of 1,000 shares of common stock, $.01 par value per share, all of
which are outstanding and owned by the Buyer. All of the foregoing shares have
been duly authorized and validly issued and are fully paid and nonassessable,
and were issued in conformity with applicable federal and state securities
laws. All of the Merger Shares will be, when issued in accordance with this
Agreement, duly authorized, validly issued, fully paid, nonassessable and free
and clear of any claims, liens, pledges, charges, encumbrances, security
interests, options, restrictions on transfer (except those imposed by the
federal and state securities laws), rights of first refusal, preemptive or
other rights or any other imperfections of title whatsoever (other than those
created or incurred by the Company Stockholders). As of October 31, 1997,
1,967,309 shares of Buyer Common Stock are issuable upon the exercise of
options outstanding under the Spyglass, Inc. 1991 Employee Stock Option Plan,
the 1995 Stock Incentive Plan of the Buyer, as amended, the 1995 Director Stock
Option Plan of the Buyer, and the SurfWatch Software, Inc. Stock Option Plan
(the "Buyer Options"). Except for the Buyer Options, there are no outstanding
equity securities, or agreements or obligations to issue or grant any rights to
acquire any equity securities, of the Buyer, or any agreements to restructure
or recapitalize the Buyer. Without limiting the foregoing, there are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Buyer.
3.3 Authorization. The execution and delivery by the Buyer and the
Transitory Subsidiary of this Agreement and (in the case of the Transitory
Subsidiary) the Merger Agreement attached hereto as Exhibit A, and the
consummation by the Buyer and the Transitory Subsidiary of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of the Buyer and the Transitory Subsidiary. The consent of
the stockholders of the Buyer is not required in connection with the Merger.
This Agreement constitutes the valid and binding obligation of the Buyer and
the Transitory Subsidiary, enforceable against the Buyer and the Transitory
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Subsidiary in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally and equitable principles, regardless of whether
such enforceability is considered in a proceeding at law or in equity.
3.4 Noncontravention. Subject to the execution and delivery by each of
the Company Stockholders (other than holders of Dissenting Shares) to the Buyer
of an investment representation letter in the form of Exhibit C attached
hereto and to the accuracy of the other representations and warranties
contained therein and in Article II of this Agreement, the execution and
delivery by the Buyer and the Transitory Subsidiary of this Agreement and the
consummation by the Buyer and the Transitory Subsidiary of the transactions
contemplated hereby will not, with or without the giving of notice or the
passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to the Buyer or the Transitory Subsidiary; (b) violate
the provisions of the charter or By-laws of the Buyer or the Transitory
Subsidiary; (c) violate any judgment, decree, order or award of any court,
governmental body or arbitrator applicable to the Buyer or the Transitory
Subsidiary; or (d) conflict with or result in the breach or termination of, or
require any consent under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the Buyer's or the Transitory
Subsidiary's assets pursuant to, any agreement or instrument to which the Buyer
or the Transitory Subsidiary is a party or by which the Buyer or the Transitory
Subsidiary or any of their assets is bound.
3.5 Buyer Reports and Financial Statements. The Buyer has previously
furnished to the Company true and complete copies of (i) its Annual Report on
Form 10-K for the fiscal year ended September 30, 1996, its Proxy Statement for
the 1997 Annual Meeting of Stockholders, its Quarterly Report on Form 10-Q for
the quarter ended December 31, 1996, its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, its Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 and its Current Report on Form 8-K dated July 15, 1997, as
amended (collectively, the "Buyer Reports"), as filed with the Securities and
Exchange Commission (the "SEC"), and (ii) its Certificate of Incorporation and
By-laws, as amended to date. The Buyer Reports comply in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules and regulations thereunder. As of their dates,
the Buyer Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The financial statements of the Buyer included in
the Buyer Reports (i) comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and (ii) fairly present the consolidated financial
condition, results of operations and cash flows of the Buyer (and its
subsidiaries) as of the respective dates thereof and for the periods referred
to therein. The Buyer Reports were timely filed with the SEC and constitute
all reports required to be filed by the Buyer pursuant to the Exchange Act from
September 30, 1996 through the date of this Agreement.
3.6 Absence of Certain Changes. Since June 30, 1997, there has not
occurred any event or circumstance which has had, or may reasonably be foreseen
to have, a material adverse effect on the results of operations, financial
condition or business of the Buyer (a "Buyer Material Adverse Effect").
3.7 Representations Relating to Qualification of the Merger as a Tax-Free
Reorganization. (a) The Buyer (i) is not an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present plan or
intention to liquidate the Surviving Corporation or to merge the Surviving
Corporation with or into any other corporation or entity, or to sell
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or otherwise dispose of the stock of the Surviving Corporation which Buyer will
acquire in the Merger, or to cause the Surviving Corporation to sell or
otherwise dispose of its assets, all except in the ordinary course of business
or if such liquidation, merger, disposition is described in both Section
368(a)(2)(C) and Treasury Regulation Section 1.368-2(j)(4); (iii) has no
present plan or intention, following the Merger, to issue any additional shares
of stock of the Surviving Corporation or to create any new class of stock of
the Surviving Corporation; (b) the Transitory Subsidiary is a wholly-owned
subsidiary of the Buyer, formed solely for the purpose of engaging in the
Merger, and will carry on no business prior to the Merger; (c) immediately
prior to the Merger, the Buyer will be in control of Transitory Subsidiary
within the meaning of Section 368(c) of the Code; (d) immediately following the
Merger, the Surviving Corporation will hold at least 90% of the fair market
value of the Transitory Subsidiary's net assets and at least 70% of the fair
market value of the Transitory Subsidiary's gross assets held immediately prior
to the Merger (for purposes of this representation, amounts used by the
Transitory Subsidiary to pay reorganization expenses, if any, will be included
as assets of the Company or the Transitory Subsidiary, respectively, held
immediately prior to the Merger); (e) the Buyer has no present plan or
intention to reacquire any of the Merger Shares; (f) the Transitory Subsidiary
will have no liabilities assumed by the Surviving Corporation and will not
transfer to the Surviving Corporation any assets subject to liabilities in the
Merger; and (g) following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of the Company's
historic business assets in a business as required by Section 368 of the Code
and the Treasury Regulations promulgated thereunder.
3.8 Litigation. Except as disclosed in the Buyer Reports, the Buyer is
not a party to any, nor has it received notice of any threatened litigation,
suit, action, investigation, proceeding or controversy before any court,
administrative agency or other governmental authority which has or may
reasonably be foreseen to have a Buyer Material Adverse Effect.
3.9 Pooling of Interests. To the knowledge of the Buyer, after
consultation with its advisors, neither the Buyer nor any of its stockholders
has taken or agreed to take any action that would prevent the Buyer from
accounting for the business combination to be effected by the Merger as a
"pooling of interests."
3.10 Listing of Merger Shares. The Buyer has filed with The Nasdaq Stock
Market, Inc. ("Nasdaq") a Notification Form for Listing of Additional Shares
with respect to the Merger Shares.
3.11 Disclosure. No representation or warranty by the Buyer contained in
this Agreement, and no statement contained in the certificate to be delivered
by or on behalf of the Buyer pursuant to Section 5.2(d) this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit (when read in conjunction with the other statements contained herein
and in the Buyer Reports) to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
ARTICLE IV
COVENANTS
4.1 Employees. Effective as of the Closing, the Buyer shall offer to
continue the employment of each employee of the Company (terminable at the will
of the Buyer), upon the salaries set forth in Section 2.22(a) of the Disclosure
Schedule. The employees of the Company who are offered continued employment by
the Buyer shall be entitled to participate in the employee
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benefit plans and programs of the Buyer, to the extent his/her position, salary
and other qualifications makes him/her eligible to participate, and shall be
given service credit for the purposes of such plans and policies for the length
of time and position in which such employee was employed by the Company. The
Buyer agrees to review the salaries of such employees following the Closing and
make such increases as it deems appropriate to bring the salaries of such
employees in line with those of other comparable employees of the Buyer. For
federal and state income tax reporting purposes, no part of the Merger Shares
will be allocated to the noncompetition agreements referred to in Section 5.1(h)
hereof, and the Buyer will not claim any deduction in respect thereof.
4.2 Sale of Merger Shares Under Rule 144. From and after the Closing
Date, at the request of any holder of Merger Shares (or other Registrable
Securities (as defined in Section 6.1)) who proposes to sell the same in
compliance with Rule 144 under the Securities Act, the Buyer shall (a) promptly
furnish to such holder a written statement as to its compliance with the filing
requirements of the SEC as set forth in Rule 144, as the same may be amended
from time to time, and (b) make such additional filings of reports with the SEC
as will enable the holders of Registrable Securities to make sales thereof
pursuant to such Rule. The Buyer shall provide its transfer agent with
appropriate instructions and/or opinions of counsel in order for any
restrictive legend contained on the certificates for the Merger Shares (or
other Registrable Securities) to be removed when appropriate and for such
holders to sell, transfer and/or dispose of the Registrable Securities in
accordance with Rule 144.
4.3 Pooling of Interests. The Buyer shall publish (within the meaning of
Accounting Series Release No. 130, as amended, of the SEC) financial results
covering at least 30 days of combined operations of the Buyer and the Company
as soon as reasonably practicable after the Closing Date (the date such
financial results are published shall be referred to herein as the "Pooling
Date"), and in any event (assuming the Closing occurs on or before December 1,
1997) no later than February 14, 1998.
4.4 Indemnification. The Buyer agrees and acknowledges that, following
the Effective Time, the officers and directors of the Company immediately prior
to the Effective Time shall be entitled to be indemnified by the Surviving
Corporation in their capacities as officers and directors of the Company prior
to the Effective Time to the extent provided by the Bylaws and Articles of
Incorporation of the Company in effect as of the date of this Agreement.
Notwithstanding the foregoing, no Company Stockholder shall be entitled to
indemnification pursuant to such Articles or Bylaws as to any claim by the
Buyer or any "third party claim" to which the Buyer is otherwise entitled to
indemnification pursuant to Article V of this Agreement.
4.5 Tax Reporting. The Parties intend that the Merger will be treated as
a tax-free reorganization under Section 368(a) of the Code for federal and
state income tax purposes. The Parties agree that they will report the Merger
as a reorganization under Section 368(a) of the Code.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification. The Company Stockholders shall indemnify the Buyer
and the Surviving Corporation (the "Indemnified Parties") in respect of, and
hold each Indemnified Party harmless against, any and all debts, obligations
and other liabilities, monetary damages, fines, fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
amounts paid in settlement, interest, court costs, costs of
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investigators, reasonable fees and expenses of attorneys, accountants, financial
advisors and other experts, and other expenses of litigation) incurred or
suffered by an Indemnified Party ("Damages"), resulting from, relating to or
constituting any misrepresentation, breach of warranty or failure to perform any
covenant or agreement of the Company contained in this Agreement.
5.2 Method of Asserting Claims.
(a) All claims for indemnification by the Indemnified Parties pursuant to
this Article V shall be made in accordance with the provisions of this Section
5.2 and the Escrow Agreement. All claims for indemnification by Indemnified
Parties other than the Buyer shall be made by and through the Buyer.
(b) If a third party asserts that an Indemnified Party is liable to such
third party for a monetary or other obligation which may constitute or result
in Damages for which such Indemnified Party may be entitled to indemnification
pursuant to this Article V, and the Buyer reasonably determines that it has a
valid business reason to fulfill such obligation, then (i) the Buyer shall be
entitled to satisfy such obligation, without prior notice to or consent from
the Indemnification Representatives, (ii) the Buyer may make a claim for
indemnification pursuant to this Article V, and (iii) such Indemnified Party
shall be reimbursed for any such Damages for which it is entitled to
indemnification pursuant to this Article V (subject to the right of the
Indemnification Representatives to dispute such entitlement to indemnification
pursuant to this Article V and/or the Escrow Agreement).
(c) The Buyer shall give prompt written notification to the
Indemnification Representatives of the commencement of any action, suit or
proceeding relating to a third party claim for which indemnification pursuant
to this Article V may be sought. Within 30 days after delivery of such
notification, the Indemnification Representatives may, upon written notice
thereof to the Buyer, assume control of the defense of such action, suit or
proceeding with counsel reasonably satisfactory to the Buyer, provided the
Indemnification Representatives acknowledge in writing to the Buyer that any
damages, fines, costs or other liabilities that may be assessed against the
Indemnified Party in connection with such action, suit or proceeding constitute
Damages for which the Indemnified Party shall be entitled to indemnification
pursuant to this Article V. If the Indemnification Representatives do not so
assume control of such defense, the Buyer shall control such defense. The
party not controlling such defense may participate therein at its own expense;
provided that if the Indemnification Representatives assume control of such
defense and the Buyer reasonably concludes that the Company Stockholders and
the Buyer have conflicting interests with respect to such action, suit or
proceeding, the reasonable fees and expenses of counsel to the Buyer insofar as
they relate to such conflict shall be considered "Damages" for purposes of this
Agreement. The party controlling such defense shall keep the other party
advised of the status of such action, suit or proceeding and the defense
thereof and shall consider in good faith recommendations made by the other
party with respect thereto. Neither the Buyer nor any other Indemnified Party
shall agree to any settlement of such action, suit or proceeding without the
prior written consent of the Indemnification Representatives, which shall not
be unreasonably withheld. The Indemnification Representatives shall not agree
to any settlement of such action, suit or proceeding without the prior written
consent of the Buyer, which shall not be unreasonably withheld.
5.3 Survival. The representations and warranties of the Company and the
Buyer in this Agreement shall survive the Closing and the consummation of the
transactions contemplated hereby and continue until the date one year after the
Closing Date and shall not be affected by any examination made for
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<PAGE> 20
or on behalf of the other Party or the knowledge of any of such other Party's
officers, directors, stockholders, employees or agents. If a notice of a claim
for Damages incurred or suffered, or a notice for Damages that are reasonably
expected to be incurred or suffered on account of a legal proceeding instituted
by or a written claim made by a third party, is properly given before the
expiration of such period, then (notwithstanding the expiration of such period)
the representation or warranty applicable to such claim shall survive until, but
only for the purposes of, the resolution of such claim.
5.4 Limitations. Notwithstanding anything to the contrary herein, (a)
the aggregate liability of the Company Stockholders for Damages under this
Article V shall not exceed the value of the Escrow Shares, as determined in
accordance with the Escrow Agreement, and the Indemnified Parties' recourse for
claims under this Article V shall be only to the Escrow Shares and (b) the
Company Stockholders shall be liable under this Article V for only that portion
of the aggregate Damages not paid directly by the Company Stockholders which
exceeds $200,000 (provided that the limitation in this clause (b) shall not
apply to a claim made for expenses in excess of those set forth in Section
2.26). Except with respect to claims based on fraud, the rights of the
Indemnified Parties under this Article V shall be the exclusive remedy of the
Indemnified Parties with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Company contained in this Agreement. No Company Stockholder
shall have any right of contribution against the Company with respect to any
breach by the Company of any of its representations, warranties, covenants or
agreements.
ARTICLE VI
REGISTRATION RIGHTS
6.1 Registration of Shares. The Buyer shall, promptly after the Closing,
file with the SEC, and use its best efforts to have declared effective no later
than the Pooling Date, a registration statement on Form S-3 covering the resale
to the public by the Company Stockholders of 50% of the Merger Shares, together
with any shares of Buyer Common Stock issued as a dividend or distribution or
issuable upon the conversion of exercise of any option, warrant, right or other
security which is issued as a dividend or other distribution with respect to,
or in exchange for or in replacement of, such Merger Shares (collectively, with
such Merger Shares, the "Registrable Shares"). The Buyer shall use
commercially reasonable efforts to remain eligible for the use of a
registration statement on Form S-3, but shall instead register 50% of the
Registrable Shares on a registration statement on Form S-1 if it is ineligible
for the use of a registration statement on Form S-3. The registration
statement filed by the Buyer under this Section 6.1 shall be referred to herein
as the "Stockholder Registration Statement"; and the stockholders holding such
Registrable Shares shall be referred to as the "Rightsholders." The Buyer
shall cause the Stockholder Registration Statement to remain effective (and the
prospectus therein updated as necessary) until one year after the Stockholder
Registration Statement is declared effective or such earlier time as all of the
Registrable Shares covered by the Stockholder Registration Statement have been
sold pursuant thereto. At all times until all of the Merger Shares and other
Registrable Shares have been sold by the holders thereof, the Buyer shall file
with the SEC and, if applicable, Nasdaq, in a timely manner, all reports and
other documents required to be filed by the Buyer (1) with the SEC pursuant to
the Exchange Act, and (2) with Nasdaq pursuant to its rules and regulations.
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<PAGE> 21
6.2 Limitations on Registration Rights.
(a) The Buyer may, by written notice to the Rightsholders, delay the
filing or effectiveness of, or suspend, for a period no longer than 60 days,
the Stockholder Registration Statement, and require that the Rightsholders
immediately cease sales of shares pursuant to the Stockholder Registration
Statement, in any period during which the Buyer is engaged in any activity or
transaction or preparations or negotiations for any activity or transaction
("Buyer Activity") that the Buyer desires to keep confidential for business
reasons, if the Buyer determines in good faith (and so certifies to the
Rightsholders) that the public disclosure requirements imposed on the Buyer
under the Securities Act in connection with the Stockholder Registration
Statement would require disclosure of the Buyer Activity; provided, however,
that (i) the Buyer shall use commercially reasonable efforts to minimize the
length of any such period of delay or suspension, (ii) any such delay or
suspension shall be applied in the same manner to any other registration
statement or proposed offering of the Buyer's securities proposed or then in
effect and (iii) the Buyer shall not be permitted to so delay or suspend the
Stockholder Registration Statement for an aggregate of more than 60 days in any
12-month period.
(b) If the Buyer delays or suspends the Stockholder Registration Statement
or requires the Rightsholders to cease sales of shares pursuant to paragraph
(a) above, the Buyer shall, as promptly as practicable following the
termination of the circumstance which entitled the Buyer to do so, take such
actions as may be necessary to file or reinstate the effectiveness of the
Stockholder Registration Statement and/or give written notice to all
Rightsholders authorizing them to resume sales pursuant to the Stockholder
Registration Statement. If as a result thereof the prospectus included in the
Stockholder Registration Statement has been amended to comply with the
requirements of the Securities Act, the Buyer shall enclose such revised
prospectus with the notice to Rightsholders given pursuant to this paragraph
(b), and the Rightsholders shall make no offers or sales of shares pursuant to
the Stockholder Registration Statement other than by means of such revised
prospectus.
6.3 Registration Procedures.
(a) In connection with the filing by the Buyer of the Stockholder
Registration Statement, the Buyer shall furnish to each Rightsholder such
number of copies of the prospectus, including each preliminary prospectus, and
any amendments thereto, any documents incorporated by reference therein and
such other documents as such Rightsholder may reasonably request in order to
facilitate the disposition of the Registrable Shares, all in conformity with
the requirements of the Securities Act.
(b) The Buyer shall use its best efforts to register or qualify the
Registrable Shares covered by the Stockholder Registration Statement under the
securities laws of such states as the Rightsholders shall reasonably request;
provided, however, that the Buyer shall not be required in connection with this
paragraph (b) to qualify as a foreign corporation or execute a general consent
to service of process in any jurisdiction.
(c) Subject to the provisions of Section 6.2, upon the happening of any
event which makes any statement made in the Stockholder Registration Statement
untrue or which requires the making of any changes therein so that it will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein, the Buyer shall promptly notify the
Rightsholders of such occurrence and shall prepare and file with the SEC, as
promptly as practicable thereafter, a supplement or amendment to the
Stockholder Registration Statement so that it will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
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<PAGE> 22
make the statements therein not misleading. If the Buyer has delivered
preliminary or final prospectuses to the Rightsholders and after having done so
the prospectus is amended to comply with the requirements of the Securities
Act, the Buyer shall promptly notify the Rightsholders and, if requested by the
Buyer, the Rightsholders shall immediately cease making offers or sales of
shares under the Stockholder Registration Statement and return all prospectuses
to the Buyer. The Buyer shall promptly provide the Rightsholders with revised
prospectuses and, following receipt of the revised prospectuses, the
Rightsholders shall be free to resume making offers and sales under the
Stockholder Registration Statement.
(d) The Buyer shall pay the expenses incurred by it in complying with its
obligations under this Article VI, including without limitation all
registration and filing fees, printing costs and the fees and expenses of the
Buyer's counsel and accountants, but excluding any brokerage fees or
underwriting or selling commissions incurred by the Right sholders in
connection with sales under the Stockholder Registration Statement and
excluding the fees and expenses of any counsel retained by the Rightsholders.
(e) The Stockholder Registration Statement, the prospectus contained
therein, all amendments to the foregoing (other than reports filed by the Buyer
pursuant to the Exchange Act which are incorporated into the Stockholder
Registration Statement and such prospectus) shall be subject to the prior
reasonable approval of the Rightsholders and their counsel.
(f) The Buyer shall provide and cause to be maintained a transfer agent
and registrar for all Registrable Shares covered by the Stockholder
Registration Statement from and after a date not later than the effective date
of such Stockholder Registration Statement.
(g) The Buyer shall use its best efforts to comply with all applicable
rules and regulations of the SEC relating to the Stockholder Registration
Statement, and make available to its securityholders, as soon as reasonably
practicable but no later than 18 months after the effective date of the
Stockholder Registration Statement, an earnings statement covering the period
of at least 12 months beginning with the first full calendar month after the
effective date of the Stockholder Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act.
6.4 Requirements of Rightsholders. Each Rightsholder executing this
Agreement hereby agrees, and each other Rightsholder shall as a condition to
the inclusion of his or her Registrable Shares in the Stockholder Registration
Statement provide to the Buyer a written instrument agreeing, as follows:
(a) to furnish to the Buyer in writing such information regarding such
Rightsholder, the contemplated distribution of the Registrable Shares by such
Rightsholder (which may be by whatever lawful method or methods, whether to an
underwriter or through brokers or otherwise, as the Rightsholders may choose)
and such other information as the Buyer may reasonably request in connection
with the Stockholder Registration Statement or as shall be required in
connection therewith by the SEC or any state securities law authorities;
(b) to indemnify the Buyer and each of its directors and officers against,
and hold the Buyer and each of its directors and officers harmless from, any
losses, claims, damages, expenses or liabilities (including reasonable
attorneys fees) to which the Buyer or such directors and officers may become
subject by reason of any statement or omission in the Stockholder Registration
Statement made in reliance upon, or in conformity with, written information
furnished by such Rightsholder pursuant to this Section 6.4;
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<PAGE> 23
(c) to report to the Buyer sales made pursuant to the Stockholder
Registration Statement; and
(d) to comply with the provisions of this Article VI.
6.5 Indemnification. The Buyer agrees to indemnify and hold harmless
each Rightsholder whose Registrable Shares are included in the Stockholder
Registration Statement against any losses, claims, damages, expenses or
liabilities to which such Rightsholder may become subject by reason of any
untrue statement of a material fact contained in the Stockholder Registration
Statement or any omission to state therein a fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, expenses or liabilities arise out of or are based
upon statements or omissions made in reliance upon, or in conformity with,
written information furnished to the Buyer by or on behalf of a Rightsholder
for use in the Stockholder Registration Statement. The Buyer shall have the
right to assume the defense and settlement of any claim or suit for which the
Buyer may be responsible for indemnification under this Section 6.5; provided
that the Buyer shall not settle any claim or suit in respect of a Rightsholder
without the written consent of such Rightsholder unless such settlement
includes an unconditional release of such Rightsholder from all liability in
respect of such claim or suit.
6.6 Assignment of Rights. A Rightsholder may not assign any of its
rights under this Article VI except in connection with the transfer of some or
all of his or her Registrable Shares to a child or spouse, or trust for their
benefit, to the person to whom such Registrable Shares are transferred by the
laws of descent and distribution or to a person to whom at least one-half of
all the Registrable Shares held by such Rightsholder are transferred, provided
each such transferee agrees in a written instrument delivered to the Buyer to
be bound by the provisions of this Article VI.
ARTICLE VII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Average Market Price 1.5(a)(i)
Broker 1.3(i)
Broker Agreement 1.3(i)
Buyer Introduction
Buyer Activity 6.2(a)
Buyer Common Stock 1.5(a)
Buyer Material Adverse Effect 3.6
Buyer Options 3.2
Buyer Reports 3.5
Certificates 1.5(b)
Closing 1.2
Closing Date 1.2
Code Introduction
Company Introduction
Company Intellectual Property 2.6(a)
Company Material Adverse Effect Article II
Company Shares 1.3(m)
Company Stockholders 1.3(b)
Company Transaction Expenses 2.26
Contract 2.12(a)
</TABLE>
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<PAGE> 24
<TABLE>
<S> <C>
Conversion Ratio 1.5(a)
Damages 5.1
Disclosure Schedule Article II
Dissenting Shares 1.9
Effective Time 1.1
ERISA 2.22(b)
Escrow Agent 1.3(o)
Escrow Agreement 1.3(o)
Escrow Shares 1.5(b)
Exchange Act 3.5
Expense Amount 2.26
Indemnification Representatives 1.3(o)
Initial Shares 1.5(b)
Intellectual Property 2.6(a)
Merger 1.1
Merger Filings 1.1
Merger Shares 1.5(b)
Nasdaq 3.10
Options 1.8(a)
Parties Introduction
Pooling Date 4.3
Registrable Shares 6.1
Requisite Stockholder Approval 2.3
Rightsholders 6.1
SEC 3.5
Securities Act 1.8(c)
Software 2.6(e)
Stockholder Registration Statement 6.1
Surviving Corporation 1.1
Taxes 2.15
Transitory Subsidiary Introduction
</TABLE>
ARTICLE VIII
MISCELLANEOUS
8.1 [Intentionally omitted].
8.2 No Third Party Beneficiaries. Except as provided in the next
sentence, with the exception of the provisions of Article I concerning issuance
of the Merger Shares and Article VI, this Agreement shall not confer any rights
or remedies upon any person other than the Parties and their respective
successors and permitted assigns. Notwithstanding the foregoing, the Buyer
acknowledges that (i) the Company Stockholders have each relied on the
representations and warranties of the Buyer and the covenants and obligations
of the Buyer contained in this Agreement and (ii) the officers and directors of
the Company immediately prior to the Effective Time shall have the rights
afforded to them in Section 4.4.
8.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements or representations among the
Parties, written or oral, that may have related in any way to the subject
matter hereof.
8.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. Neither Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties.
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<PAGE> 25
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a
reputable nationwide overnight courier service, in each case to the intended
recipient as set forth below:
If to the Company: With a Copy to:
----------------- --------------
Allpen Software Morrison & Foerster LLP
16975 Lark Avenue, Suite 200 425 Market Street
Los Gatos, CA 95030 San Francisco, CA 94105
Attn: Ivan W. Yurtin Attn: Gavin B. Grover, Esq.
Fax No.: (408) 399-4395 Fax No.: (415) 268-7522
If to the Buyer or the
Transitory Subsidiary: With a Copy to:
--------------------- --------------
Spyglass, Inc. Hale and Dorr LLP
One Cambridge Center 60 State Street
Cambridge, MA 02142 Boston, MA 02109
Attn: Michael F. Tyrrell Attn: Patrick J. Rondeau, Esq.
Fax: (617) 679-4782 Fax: (617) 526-5000
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is received by
the party for whom it is intended. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to
be delivered by giving the other Parties notice in the manner herein set forth.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State
of Delaware; notwithstanding the foregoing, the implementation and effect of
the Merger shall be governed by the laws of the State of California.
8.9 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by each
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
8.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
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<PAGE> 26
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or
phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE> 27
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
SPYGLASS, INC.
By: /s/ Michael F. Tyrrell
------------------------------
Title: Executive Vice President
SPYGLASS ACQUISITION CORP.
By: /s/ Douglas P. Colbeth
------------------------------
President
By: /s/ Michael F. Tyrrell
------------------------------
Secretary
ALLPEN SOFTWARE
By: /s/ Ivan W. Yurtin
------------------------------
President
By: /s/ Wayne B. Yurtin
------------------------------
Secretary
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<PAGE> 28
The undersigned stockholders of the Company hereby agree to all of the
terms of this Agreement covering the Company Stockholders, including without
limitation the terms of Section 1.5, Section 1.7, Article V and Article VI, and
to execute and deliver at the Closing the agreements and instruments to be
executed and delivered by them pursuant to Section 1.3.
/s/ Ivan W. Yurtin
------------------------------
IVAN W. YURTIN
/s/ Wayne B. Yurtin
------------------------------
WAYNE B. YURTIN
/s/ S. Tupper Snook
------------------------------
S. TUPPER SNOOK
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