EXHIBIT 2.1
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AGREEMENT AND PLAN OF
REORGANIZATION
BY AND AMONG
RATIONAL SOFTWARE CORPORATION,
SUNSHINE ACQUISITION CORPORATION
AND SQA, INC.
November 12, 1996
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TABLE OF CONTENTS
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ARTICLE I -- THE MERGER.............................................. 2
1.1 The Merger................................................. 2
1.2 Closing: Effective Time.................................... 2
1.3 Effect of the Merger....................................... 3
1.4 Certificate of Incorporation: Bylaws....................... 3
1.5 Directors and Officers..................................... 3
1.6 Effect on Capital Stock.................................... 3
1.7 Dissenting Shares.......................................... 4
1.8 Surrender of Certificates.................................. 4
1.9 No Further Ownership Rights in Target Common Stock......... 5
1.10 Lost, Stolen or Destroyed Certificates..................... 5
1.11 Tax and Accounting Consequences............................ 6
1.12 Taking of Necessary Action; Further Action................. 6
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF TARGET................ 6
2.1 Organization; Standing and Power........................... 6
2.2 Capital Structure.......................................... 7
2.3 Authority.................................................. 8
2.4 SEC Documents: Financial Statements........................ 8
2.5 Absence of Certain Changes................................. 9
2.6 Absence of Undisclosed Liabilities......................... 9
2.7 Litigation................................................. 10
2.8 Restrictions on Business Activities........................ 10
2.9 Compliance; Governmental Authorization..................... 10
2.10 Title to Property.......................................... 10
2.11 Intellectual Property...................................... 10
2.12 Environmental Matters...................................... 11
2.13 Taxes...................................................... 12
2.14 Employee Benefit Plans..................................... 13
2.15 Certain Agreements Affected by the Merger.................. 14
2.16 Employee Matters........................................... 14
2.17 Interested Party Transactions.............................. 15
2.18 Insurance.................................................. 15
2.19 Compliance With Laws....................................... 15
2.20 Pooling of interests....................................... 15
2.21 Brokers' and Finders' Fees................................. 15
2.22 Registration Statement; Proxy Statement/Prospectus......... 15
2.23 Opinion of Financial Advisor............................... 16
2.24 Vote Required.............................................. 16
2.25 Board Approval............................................. 16
2.26 Section 203 of the DGCL Not Applicable..................... 16
2.27 Minute Books............................................... 16
2.28 Representations Complete................................... 16
-- REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER
ARTICLE III SUB........................................................ 16
3.1 Organization, Standing and Power........................... 16
3.2 Capital Structure.......................................... 17
3.3 Authority.................................................. 17
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3.4 SEC Documents: Financial Statements......................... 18
3.5 Absence of Certain Changes.................................. 19
3.6 Absence of Undisclosed Liabilities.......................... 19
3.7 Litigation.................................................. 19
3.8 Restrictions on Business Activities......................... 19
3.9 Governmental Authorization.................................. 19
3.10 Compliance With Laws........................................ 19
3.11 Pooling of Interests........................................ 20
3.12 Broker's and Finders' Fees.................................. 20
3.13 Registration Statement: Proxy Statement/Prospectus.......... 20
3.14 Board Approval.............................................. 20
3.15 Opinion of Financial Advisor................................ 20
3.16 Intellectual Property....................................... 20
3.17 Taxes....................................................... 21
3.18 Representations Complete.................................... 22
ARTICLE IV -- CONDUCT PRIOR TO THE EFFECTIVE TIME...................... 22
4.1 Conduct of Business of Target and Acquiror.................. 22
4.2 Conduct of Business of Target............................... 23
4.3 Solicitation................................................ 24
ARTICLE V -- ADDITIONAL AGREEMENTS.................................... 25
5.1 Proxy Statement/Prospectus; Registration Statement.......... 25
5.2 Meeting of Stockholders..................................... 26
5.3 Access to Information....................................... 26
5.4 Confidentiality............................................. 27
5.5 Public Disclosure........................................... 27
5.6 Consents; Cooperation....................................... 27
5.7 Pooling Accounting.......................................... 28
5.8 Affiliate Agreements........................................ 28
5.9 Legal Requirements.......................................... 28
5.10 Blue Sky Laws............................................... 28
5.11 Employee Benefit Plans...................................... 29
5.12 [Intentionally left blank].................................. 29
5.13 Form S-8.................................................... 29
5.14 Indemnification............................................. 30
5.15 Option Agreement............................................ 31
5.16 Listing of Additional Shares................................ 31
5.17 Nasdaq Quotation............................................ 31
5.18 Pooling Letters............................................. 31
5.19 Participation Agreement..................................... 31
5.20 Employment and Noncompetition Agreements.................... 31
5.21 Amendment to Registration Rights............................ 31
5.22 FIRPTA...................................................... 31
5.23 Best Efforts and Further Assurances......................... 31
ARTICLE VI -- CONDITIONS TO THE MERGER................................. 32
Conditions to Obligations of Each Party to Effect the
6.1 Merger...................................................... 32
6.2 Additional Conditions to Obligations of Target.............. 33
Additional Conditions to the Obligations of Acquiror and
6.3 Merger Sub.................................................. 33
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ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER....................... 34
7.1 Termination................................................ 34
7.2 Effect of Termination...................................... 35
7.3 Expenses and Termination Fees.............................. 36
7.4 Amendment.................................................. 37
7.5 Extension; Waiver.......................................... 37
ARTICLE VIII -- GENERAL PROVISIONS...................................... 37
8.1 Non-Survival at Effective Time............................. 37
8.2 Notices.................................................... 37
8.3 Interpretation............................................. 38
8.4 Counterparts............................................... 38
8.5 Entire Agreement; Nonassignability; Parties in Interest.... 38
8.6 Severability............................................... 38
8.7 Remedies Cumulative........................................ 38
8.8 Governing Law.............................................. 39
8.9 Rules of Construction...................................... 39
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of November 12, 1996, by and among Rational Software
Corporation, a Delaware corporation ("Acquiror"), Sunshine Acquisition
Corporation, a Delaware corporation ("Merger Sub") and wholly owned subsidiary
of Acquiror, and SQA, Inc., a Delaware corporation ("Target").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub believe it is
in the best interests of their respective companies and the stockholders of
their respective companies that Target and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Target (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Target Common Stock, $.01 par value ("Target Common Stock"), shall be
converted into shares of Acquiror Common Stock, no par value ("Acquiror Common
Stock"), at the rate set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E)
of the Code.
E. The parties intend to cause the Merger to be accounted for as a pooling
of interests pursuant to APB Opinion No. 16.
F. Concurrent with the execution of this Agreement and as an inducement to
Acquiror and Merger Sub to enter into this Agreement, (a) Target and Acquiror
have entered into a stock option agreement dated the date hereof (the "Option
Agreement") providing for the purchase by Acquiror of newly-issued shares of
Target's Common Stock, and (b) certain of the affiliates of Target who are
stockholders, officers or directors have on the date hereof entered into an
agreement to vote the shares of Target's Common Stock owned by such person to
approve the Merger and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the
Certificate of Merger attached hereto as Exhibit A (the "Certificate of
Merger") and the applicable provisions of the Delaware General Corporation Law
("Delaware Law"), Merger Sub shall be merged with and into Target, the
separate corporate existence of Merger Sub shall cease and Target shall
continue as the surviving corporation. Target as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Closing: Effective Time. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI
hereof or at such other time as the parties hereto agree (the "Closing Date").
The Closing shall take place at the
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offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, or at such other location as the parties hereto agree. In
connection with the Closing, the parties hereto shall cause the Merger to be
consummated by filing the Certificate of Merger with the Secretary of State of
the State of Delaware and with the Recorder of the County in which the
registered office of each of Target and Merger Sub is located, in accordance
with the relevant provisions of Delaware Law (the time of such filing being
the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Target and Merger Sub shall vest
in the Surviving Corporation, and all debts, liabilities and duties of Target
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation: Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Target, as
in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by Delaware Law and such Certificate of Incorporation; provided,
however, that Article I of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: "The name of the
corporation is SQA Holdings, Inc.."
(b) The Bylaws of Target, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter
amended.
1.5 Directors and Officers. At the Effective Time, the directors and
officers of the Surviving Corporation shall be the directors and officers,
respectively, of Merger Sub, until their respective successors are duly
elected or appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any action
on the part of Merger Sub, Target or the holders of any of the following
securities:
(a) Conversion of Target Common Stock. At the Effective Time, each share
of Target Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Target Common Stock to be canceled
pursuant to Section 1.6(b)) will be canceled and extinguished and be
converted automatically into the right to receive 0.86 shares of Acquiror
Common Stock (the "Exchange Ratio").
(b) Cancellation of Target Common Stock Owned by Acquiror or Target. At
the Effective Time, all shares of Target Common that are owned by Stock
Target as treasury stock and each share of Target Common Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or
of Target immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Target Stock Option Plans. At the Effective Time, all options to
purchase Target Common Stock then outstanding under the Target 1990
Incentive and Nonqualified Stock Option Plan, the 1995 Stock Plan and the
1995 Non-Employee Director Stock Option Plan (collectively, the "Target
Stock Option Plans") shall be assumed by Acquiror in accordance with
Section 5.11. At the Effective Time, in accordance with the terms of
Target's 1995 Employee Stock Purchase Plan (the "Target ESPP"), all rights
to purchase shares of Target Common Stock under the Target ESPP shall be
converted into rights to purchase a number of shares of Acquiror Common
Stock as provided in the Target ESPP (based on the Exchange Ratio), all
such rights shall be assumed by Acquiror, and the offering period in effect
under the Target ESPP immediately prior to the Effective Time shall not be
terminated early. At the Effective Time, each warrant to purchase Target
Common Stock shall be converted into warrants to purchase a number of
shares of Acquiror Common Stock, based on the Exchange Ratio.
(d) Capital Stock of Merger Sub. At the Effective Time, each share of
Common Stock, $.001 par value, of Merger Sub ("Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable
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share of Common Stock, $.001 par value, of the Surviving Corporation. Each
stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(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 Acquiror Common Stock or Target Common Stock), reorganization,
recapitalization or other like change with respect to Acquiror Common Stock
or Target Common Stock occurring after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No fraction of a share of Acquiror Common Stock
will be issued, but in lieu thereof each holder of shares of Target Common
Stock who would otherwise be entitled to a fraction of a share of Acquiror
Common Stock (after aggregating all fractional shares of Acquiror Common
Stock to be received by such holder) shall receive from Acquiror an amount
of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average of the closing prices of a
share of Acquiror Common Stock for the ten most recent days that Acquiror
Common Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on the Nasdaq National Market.
1.7 Dissenting Shares.
(a) The shares of any holder of Target Common Stock who has demanded and
perfected appraisal rights for such shares in accordance with Delaware Law
and who, as of the Effective Time, has not effectively withdrawn or lost
such appraisal rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive Acquiror Common Stock pursuant to Section 1.6,
but the holder thereof shall only be entitled to such rights as are granted
by Delaware Law.
(b) Notwithstanding the foregoing, if any holder of shares of Target
Common Stock who demands appraisal of such shares under Delaware Law shall
effectively withdraw the rights to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive
Acquiror Common Stock, without interest thereon, upon surrender of the
certificate representing such shares.
(c) Target shall give Acquiror (i) prompt notice of any written demands
for appraisal of any shares of Target Common Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and
received by Target which relate to any such demand for appraisal and (ii)
the opportunity to participate in all negotiations and proceedings which
take place prior to the Effective Time with respect to demands for
appraisal under Delaware Law. Target shall not, except with the prior
written consent of Acquiror or as may be required by applicable law,
voluntarily make any payment with respect to any demands for appraisal of
Acquiror Common Stock or offer to settle or settle any such demands.
(d) The above provisions of this Section 1.7 shall apply only to the
extent that appraisal rights are required pursuant to Delaware law, and
shall not be construed to diminish the parties' obligations under Section
5.17.
1.8 Surrender of Certificates.
(a) Exchange Agent. ChaseMellon Shareholder Services or such other party
as the Acquiror and Target may agree upon shall act as exchange agent (the
"Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash. Promptly after the
Effective Time, Acquiror shall make available to the Exchange Agent for
exchange in accordance with this Article 1, through such reasonable
procedures as Acquiror may adopt, (i) the shares of Acquiror Common Stock
issuable pursuant to Section 1.6(a) in exchange for shares of Target Common
Stock outstanding immediately prior to the Effective Time and (ii) cash in
an amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section 1.6(f).
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(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") which immediately prior to
the Effective Time represented outstanding shares of Target Common Stock,
whose shares were converted into the right to receive shares of Acquiror
Common Stock (and cash in lieu of fractional shares) pursuant to Section
1.6, (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 receipt of the Certificates by the Exchange Agent, and shall be
in such form and have such other provisions as Acquiror may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Acquiror
Common Stock (and cash in lieu of fractional shares). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Acquiror, 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 Acquiror Common Stock and payment in lieu of fractional shares
which such holder has the right to receive pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Target Common Stock will be deemed from and
after the Effective Time, for all corporate purposes, subject to Section
1.8(d) below as to the payment of dividends, to evidence the ownership of
the number of full shares of Acquiror Common Stock into which such shares
of Target Common Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares
in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to Acquiror 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 Acquiror 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 Acquiror Common Stock
issued in exchange therefor, without interest, at the time of such
surrender, the amount of any such dividends or other distributions with a
record date after the Effective Time theretofore payable (but for the
provisions of this Section 1.8(d)) with respect to such shares of Acquiror
Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Acquiror
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 Acquiror or any agent
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Acquiror Common Stock in any name
other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Acquiror 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 1.8, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
1.9 No Further Ownership Rights in Target Common Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of
Target Common Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Common 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 1.
1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the
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making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock (and cash in lieu of fractional shares) as may be
required pursuant to Section 1.6; provided, however, that Acquiror 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 Acquiror, the Surviving Corporation or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368(a) of the Code and (ii) qualify for accounting treatment as a
pooling of interests.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any 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 Target and Merger Sub, the officers and directors of
Target and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is not inconsistent with this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any entity or group of entities means any
material event, change, condition or effect related to the financial
condition, assets (including intangible assets), business or results of
operations of such entity or group of entities. In this Agreement, any
reference to a "Material Adverse Effect" with respect to any entity or group
of entities means any event, change or effect that is materially adverse to
the financial condition, assets (including intangible assets), business or
results of operations of such entity and its subsidiaries, taken as a whole;
provided, however, that a "Material Adverse Effect" with respect to Target
shall not include any adverse effect on the revenues or gross margins of
Target (or the direct consequences thereof) following the date of this
Agreement which is attributable to a delay of, reduction in or cancellation or
change in the terms of product orders by customers of Target, where Target
sustains the burden of reasonably demonstrating that any such delay,
reduction, cancellation or change is directly attributable to the transactions
contemplated by this Agreement.
In this Agreement, any reference to a party's "knowledge" means such party's
actual knowledge after reasonable inquiry of officers and directors of such
party.
Except as disclosed in a document of even date herewith and delivered by
Target to Acquiror prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the "Target
Disclosure Letter"), Target represents and warrants to Acquiror and Merger Sub
as follows:
2.1 Organization; Standing and Power. Each of Target and SQA (Europe)
Limited and SQA Securities Corporation, being Target's only two subsidiaries,
is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Target and its
subsidiaries has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Target. Target has delivered a true and correct copy of the
Amended and Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and Bylaws, as amended, or other charter
documents, as applicable, of Target and each of its subsidiaries, each as
amended to-date, to legal counsel for Acquiror. Neither Target nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws or equivalent organizational documents. Target is the
owner of all outstanding shares of capital stock of each of its two
subsidiaries and all such shares are duly authorized, validly issued, fully
paid and nonassessable. All of the outstanding shares of
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capital stock of each such subsidiary are owned by Target free and clear of
all liens, charges, claims or encumbrances or rights of others. There are no
outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commit ments or agreements of
any character relating to the issued or unissued capital stock or other
securities of any such subsidiary, or otherwise obligating Target or any such
subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire any
such securities. Except as disclosed in the Target SEC Documents (as defined
in Section 2.4), Target does not directly or indirectly own any equity or
similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
2.2 Capital Structure. The authorized capital stock of Target consists of
18,000,000 shares of Common Stock, $.01 par value, and 3,000,000 shares of
Preferred Stock, $.01 par value, of which there were issued and outstanding as
of the close of business on November 11, 1996, 8,088,644 shares of Common
Stock and no shares of Preferred Stock. Since the close of business on
November 11, 1996, no shares of Target capital stock have been issued except
pursuant to the exercise of options outstanding as of November 11, 1996 under
the Target Stock Option Plans. As of the close of business on November 12,
1996, there were no other outstanding commitments to issue any shares of
capital stock or voting securities of Target other than pursuant to the Option
Agreement, the exercise of options outstanding as of such date under the
Target Stock Option Plans, pursuant to the Target ESPP or pursuant to the
Warrants (as defined below). All outstanding shares of Target Common Stock are
duly authorized, validly issued, fully paid and non-assessable and are not
subject to preemptive rights or rights of first refusal created by statute,
the Certificate of Incorporation or Bylaws of Target or any agreement to which
Target is a party or by which it is bound. As of the close of business on
November 12, 1996, Target has reserved (i) 1,426,687 shares of Common Stock
for issuance to employees, consultants and directors pursuant to the Target
Stock Option Plans, net of exercises, under which, as of the close of business
on November 11, 1996, options were outstanding for an aggregate of 1,304,697
shares, and no shares were subject to outstanding stock purchase rights, (ii)
285,000 shares of Common Stock for issuance to employees pursuant to the
Target ESPP, of which, as of the close of business on November 11, 1996, 6,898
shares had been issued, and (iii) 27,852 shares of Common Stock for issuance
upon the exercise of warrants to purchase Target Common Stock (the "Warrants")
of which no shares have been issued. When issued in accordance with the terms
of the Target Stock Option Plans, the Target ESPP and the Warrants, the Target
Common Stock so issued will be duly authorized, validly issued, fully paid and
non-assessable and will not be subject to preemptive rights or right of first
refusal created by statute, the Certificate of Incorporation or Bylaws of
Target or any agreement to which Target is a party or by which it is bound.
Except as expressly permitted by the terms of this Agreement, since November
11, 1996, Target has not (i) issued or granted additional options under the
Target Stock Option Plans, or (ii) accepted contributions to or enrollments in
the Target ESPP. Except for the rights created pursuant to this Agreement, the
Option Agreement, the Target Stock Option Plans, the Target ESPP and the
Warrants, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Target is a party or by which it is bound
obligating Target to issue, deliver, sell, repurchase or redeem, or cause to
be issued, delivered, sold, repurchased or redeemed, any shares of capital
stock of Target or obligating Target to grant, extend, accelerate the vesting
of, change the price of, or otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. There are no contracts,
commitments or agreements relating to voting, purchase or sale of Target's
capital stock (i) between or among Target and any of its stockholders and (ii)
to Target's knowledge, between or among any of Target's stockholders, except
for the voting agreement described in Section 5.19. Except as set forth in the
Target Disclosure Letter, there are no registration rights with respect to any
equity security of any class of Target or with respect to any equity security
of any class of any of its subsidiaries. The terms of the Target Stock Option
Plans permit the assumption or substitution of options to purchase Acquiror
Common Stock as provided in this Agreement, without the consent or approval of
the holders of such securities, the Target stockholders, or otherwise and
without any acceleration of the exercise schedule or vesting provisions in
effect for those options, other than as disclosed in the Target Disclosure
Letter. The current "Purchase Period" (as defined in the Target ESPP)
commenced under the Target ESPP on July 1, 1996 and will end as provided in
Section 5.11(b) of this Agreement, and except for the purchase rights granted
on such commencement date to participants in the current Purchase Period,
there are no other purchase rights or options outstanding under the Target
ESPP. True and complete copies of all agreements and instruments relating to
or
6
issued under the Target Stock Option Plans. Target ESPP have been made
available to legal counsel for Acquiror and such agreements and instruments
have not been amended, modified or supplemented, and there are no agreements
to amend, modify or supplement such agreements or instruments in any case from
the form made available to Acquiror. Schedule 2.2 of the Disclosure Letter
lists the name of each holder of stock options and warrants, the number of
shares of Common Stock subject to such options and warrants, and the exercise
price for such options and warrants. Each of the options listed on Schedule
2.2 of the Disclosure Letter has a term of ten years.
2.3 Authority.
(a) Target has all requisite corporate power and authority to enter into
this Agreement and the Option Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's stockholders as contemplated by Section 6.1(a) and the
filing and recordation of the Certificate of Merger pursuant to Delaware
Law. Each of this Agreement and the Option Agreement has been duly executed
and delivered by Target and constitutes the valid and binding obligation of
Target enforceable against Target in accordance with its terms, except as
enforceability may be limited by bankruptcy and other laws affecting the
rights and remedies of creditors generally and, general principles of
equity. The execution and delivery of this Agreement and the Option
Agreement by Target does not, and the consummation of the transactions
contemplated hereby and thereby will not (i) conflict with, or result in
any violation of any provision of the Certificate of Incorporation or
Bylaws of Target or any of its subsidiaries, as amended, or (ii) subject to
obtaining the approval of Target's stockholders of the Merger as
contemplated in Section 5.2 and compliance with the requirements set forth
in Section 2.3(b) below, result in any breach of or constitute a default
under (with or without notice or lapse of time, or both) or give rise to a
right of termination, cancellation or acceleration of any material
obligation or loss of any material benefit under any material mortgage,
indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its
subsidiaries or any of their properties or assets, except where such
conflict, violation, default, termination, cancellation or acceleration
with respect to the foregoing provisions of (ii) would not have had and
would not reasonably be expected to have a Material Adverse Effect on
Target.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other federal, state, local, foreign or other governmental authority or
instrumentality ("Governmental Entity") is required by or, to the knowledge
of Target, with respect to, Target or any of its subsidiaries in connection
with the execution and delivery of this Agreement, the Option Agreement, or
the consummation of the transactions contemplated hereby and thereby,
except for (i) the filing of the Certificate of Merger as provided in
Section 1.2, (ii) the filing with the Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers, Inc. (the
"NASD") of the Proxy Statement (as defined in Section 2.22) (iii) the
filing of a Current Report on Form 8-K with the SEC, (iv) relating to the
Target Stockholders Meeting (as defined in Section 2.22), (iv) such
consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable state securities laws and
the securities laws of any foreign country; (v) such filings as may be
required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended ("HSR") or the competition regulations of any other foreign
governmental authority; and (vi) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would
not have a Material Adverse Effect on Target and would not prevent, or
materially alter or delay any of the transactions contemplated by this
Agreement or the Option Agreement.
2.4 SEC Documents: Financial Statements. Target has filed all forms,
reports, documents and other items required to be filed with the SEC since
October 25, 1995, and has made available to Acquiror such forms, reports,
documents and items in the form filed with the SEC, and, prior to the
Effective Time, will have furnished
7
to Acquiror copies of any additional forms, reports, documents and other items
filed with the SEC prior to the Effective Time. All such required forms,
reports, document and other items (including those that Target may file
subsequent to the date hereof) are referred to herein collectively as the
"Target SEC Documents." In addition, Target has made available to Acquiror all
exhibits to the Target SEC Documents filed prior to the date hereof, and will
promptly make available to Acquiror all exhibits to any additional Target SEC
Documents filed prior to the Effective Time. All documents required to be
filed as exhibits to the Target SEC Documents have been so filed, and all
material contracts so filed as exhibits are in full force and effect, except
those which have expired in accordance with their terms, and neither Target
nor any of its subsidiaries is in default thereunder, except where any such
default has not resulted in and is not reasonably expected to result in any
Material Adverse Effect on Target. As of their respective filing dates, the
Target SEC Documents complied in all material respects with the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the Securities Act of 1933, as amended (the "Securities Act"), and none of the
Target SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading, except to the extent corrected by a
subsequently filed Target SEC Document. The financial statements of Target,
including the notes thereto, included in the Target SEC Documents (the "Target
Financial Statements") were complete and correct in all material respects as
of their respective dates, complied as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto as of their respective dates, and
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto
or, in the case of unaudited statements included in Quarterly Reports on Form
10-Q, as permitted by Form 10-Q of the SEC). The Target Financial Statements
fairly present the consolidated financial condition and operating results of
Target and its subsidiaries at the dates and during the periods indicated
therein (subject, in the case of unaudited statements, to normal, recurring
period-end adjustments) in all material respects. There has been no material
change in Target accounting policies except as described in the notes to the
Target Financial Statements.
2.5 Absence of Certain Changes. Since September 30, 1996 (the "Target
Balance Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change,
event or condition (whether or not covered by insurance) that would result in
a Material Adverse Effect to Target; (ii) any acquisition, sale or transfer of
any material asset of Target or any of its subsidiaries other than in the
ordinary course of business and consistent with past practice; (iii) any
material change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Target or any material
revaluation by Target of any of its or any of its subsidiaries' assets, except
as required by concurrent changes in GAAP; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the
shares of Target, or any direct or indirect redemption, purchase or other
acquisition by Target of any of its shares of capital stock; (v) any material
contract entered into by Target or any of its subsidiaries, other than in the
ordinary course of business and as provided to Acquiror, or any material
amendment or termination of, or default under, any material contract to which
Target or any of its subsidiaries is a party or by which it is bound which
would result in a Material Adverse Effect on Target; or (vi) any negotiation
or agreement by Target or any of its subsidiaries to do any of the things
described in the preceding clauses (i) through (v) (other than negotiations
with Acquiror and its representatives regarding the transactions contemplated
by this Agreement).
2.6 Absence of Undisclosed Liabilities. Target has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the unaudited balance
sheet for the quarter ended September 30, 1996, which has been provided to
Acquiror (the "Target Balance Sheet"), (ii) those not required to be set forth
in the Target Balance Sheet under GAAP, (iii) those incurred in the ordinary
course of business since the Target Balance Sheet Date and consistent with
past practice; and (iv) those incurred in connection with the execution of
this Agreement.
8
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target or any
of its subsidiaries, threatened against Target or any of its subsidiaries or
any of their respective properties
or any of their respective officers or directors (in their capacities as such)
that, individually or in the aggregate, would have a Material Adverse Effect
on Target. There is no judgment, decree or order against Target or any of its
subsidiaries, or, to the knowledge of Target and its subsidiaries, any of
their respective directors or officers (in their capacities as such), that
would prevent, enjoin, materially alter or materially delay any of the
transactions contemplated by this Agreement, or that would have a Material
Adverse Effect on Target.
2.8 Restrictions on Business Activities. There is no agreement (other than
any exclusive distribution agreements identified in Schedule 2.8 of the
Disclosure Letter), judgment, injunction, order or decree binding upon Target
or any of its subsidiaries which has the effect of prohibiting or materially
impairing any current or future business practice of Target or any of its
subsidiaries, any acquisition of property by Target or any of its subsidiaries
or the conduct of business by Target or any of its subsidiaries as currently
conducted by Target or any of its subsidiaries.
2.9 Compliance; Governmental Authorization.
(a) Neither Target nor any of its subsidiaries is in conflict with, or in
default or violation of any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Target or any of its subsidiaries is a party or by
which Target or any of its subsidiaries or its or any of their respective
properties is bound or affected, except for any conflicts, defaults or
violations which would have a Material Adverse Effect on Target. No
investigation or review by any governmental or regulatory body or authority
is pending or threatened against Target or its subsidiaries, nor has any
governmental or regulatory body or authority indicated an intention to
conduct the same, other than, in each such case, those the outcome of which
would not have a Material Adverse Effect on Target.
(b) Target and each of its subsidiaries have obtained each federal,
state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity which are material
to the operations of the business of Target and its subsidiaries taken as a
whole (collectively called "Target Authorizations"), and all of such Target
Authorizations are in full force and effect, except where the failure to
obtain or have any of such Target Authorizations would not have a Material
Adverse Effect on Target.
2.10 Title to Property. Target and its subsidiaries have good and valid
title to, or in the case of leased properties and assets, valid leasehold
interests in, all of its material tangible properties and assets, real,
personal and mixed, used in its business, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i)
for liens for taxes not yet due and payable, (ii) for such imperfections of
title, liens and easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected thereby,
or otherwise materially impair business operations involving such properties,
(iii) as reflected on the Target Balance Sheet or (iv) for those which would
not have a Material Adverse Effect on Target. To Target's knowledge, the
plants, property and equipment of Target and its subsidiaries that are used in
the operations of their businesses are in good operating condition and repair
in all material respects. All properties used in the operations of Target and
its subsidiaries are reflected in the Target Balance Sheet to the extent GAAP
requires the same to be reflected. Schedule 2.10 of the Disclosure Letter
identifies each material parcel of real property owned or leased by Target or
any of its subsidiaries.
2.11 Intellectual Property.
(a) Target and its subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use all patents, trademarks, trade names,
service marks, copyrights, and any applications therefor, technology, know-
how, trade secrets, inventory, ideas, algorithms, processes, computer
software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") that are used in the business of Target and its
subsidiaries
9
as currently conducted or as proposed to be conducted by Target and its
subsidiaries, except to the extent that the failure to have such rights
have not had and would not reasonably be expected to have a Material
Adverse Effect on Target.
(b) Schedule 2.11 of the Disclosure Letter lists (i) all patents and
patent applications and all registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights, and
maskworks, which Target considers to be material to its business and
included in the Intellectual Property, including the jurisdictions in which
each such Intellectual Property right has been issued or registered or in
which any application for such issuance and registration has been filed,
(ii) all material licenses, sublicenses and other agreements as to which
Target is a party and pursuant to which any person is authorized to use any
Intellectual Property (excluding object-code end-user licenses granted to
end-users in the ordinary course of business), and (iii) all material
licenses, sublicenses and other agreements as to which Target is a party
and pursuant to which Target is authorized to use any third party patents,
trademarks or copyrights, including software ("Third Party Intellectual
Property Rights") which are incorporated in, are, or form a part of any
Target product that is material to its business.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of Target or any of
its subsidiaries, any trade secret material to Target or any of its
subsidiaries, or any Intellectual Property right of any third party to the
extent licensed by or through Target or any of its subsidiaries, by any
third party, including any employee or former employee of Target or any of
its subsidiaries. Neither Target nor any of its subsidiaries has entered
into any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification
provisions contained in purchase orders or customer agreements arising in
the ordinary course of business.
(d) Target is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating
to the Intellectual Property or Third Party Intellectual Property Rights,
the breach of which would have a Material Adverse Effect on Target.
(e) All patents, registered trademarks, service marks and copyrights held
by Target are valid and subsisting. Target (i) is not a party to any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or
other proprietary right of any third party and (ii) has not brought any
action, suit or proceeding for infringement of Intellectual Property or
breach of any license or agreement involving Intellectual Property against
any third party. The manufacture, marketing, licensing or sale of Target's
products does not infringe any patent, trademark, service ▇▇▇▇, copyright,
trade secret or other proprietary right of any third party, except where
such infringement would not have a Material Adverse Effect on Target.
(f) Target has a policy, which it has consistently enforced, to secure
valid written assignments from all consultants and employees who contribute
or have contributed to the creation or development of Intellectual Property
of the rights to such contributions that Target does not already own by
operation of law.
(g) Target believes it has taken all reasonable and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, or patent applications or copyright
("Confidential Information"). To Target's knowledge, all use, disclosure or
appropriation of Confidential Information owned by Target by or to a third
party has been pursuant to the terms of a written agreement between Target
and such third party. To Target's knowledge, all use, disclosure or
appropriation of Confidential Information not owned by Target has been
pursuant to the terms of a written agreement between Target and the owner
of such Confidential Information, or is otherwise lawful.
2.12 Environmental Matters. Except in all cases as, in the aggregate, have
not had and would not have a Material Adverse Effect on Target, Target and
each of its subsidiaries (i) have obtained all applicable permits, licenses
and other authorizations that are required under Federal, state or local laws
relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants or hazardous or toxic materials or wastes into
ambient air, surface water, ground water
10
or land or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of pollutants,
contaminants or hazardous or toxic materials or wastes by Target or its
subsidiaries (or their respective agents); (ii) are in compliance with all
material terms and conditions of such required permits, licenses and
authorizations, and also are in compliance with all other material
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in
any regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder; (iii) as of the date
hereof, are not aware of and have not received notice of any event, condition,
circumstance, activity, practice, incident, action or plan that is reasonably
likely to interfere with or prevent continued compliance or that would give
rise to any common law or statutory liability, or otherwise form the basis of
any claim, action, suit or proceeding, based on or resulting from Target's or
any of its subsidiaries (or any of their respective agents) manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling, or the emission, discharge or release into the environment of any
pollutant, contaminant or hazardous or toxic material or waste; (iv) has not
disposed of any pollutants, contaminants or hazardous or toxic materials or
wastes into the soil or groundwater at any properties owned or leased by
Target, either now or in the past, or at any other property that would result
in any assessment or remedial action; and (v) have taken all actions necessary
under applicable requirements of Federal, state or local laws, rules or
regulations to register any products or materials required to be registered by
Target or its subsidiaries (or any of their respective agents) thereunder.
2.13 Taxes. Except as disclosed on Schedule 2.13 of the Disclosure Letter
and except to the extent the failure to do so would not have a Material
Adverse Effect, Target and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Target or any
of its subsidiaries is or has been a member have timely filed all Tax Returns
required to be filed by it, have paid all Taxes shown thereon to be due (or
Target has paid on its behalf) and have provided adequate accruals in
accordance with GAAP in its financial statements for any unpaid Taxes that are
imposed on Target or its subsidiaries. Except as disclosed on Schedule 2.13 of
the Disclosure Letter, the most recent financial statements contained in the
Target SEC Documents reflect an adequate reserve, in accordance with GAAP, for
all Taxes payable by Target and its subsidiaries through the date of such
financial statements. Except as disclosed in the Target Disclosure Letter, (i)
no material claim for Taxes has become a lien against the property of Target
or any of its subsidiaries or is being asserted against Target or any of its
subsidiaries other than liens for Taxes not yet due and payable, (ii) no audit
of any Tax Return of Target or any of its subsidiaries is being conducted by a
Tax authority, (iii) no extension of the statute of limitations on the
assessment of any Taxes has been granted by Target or any of its subsidiaries
and is currently in effect, and (iv) there is no agreement, contract or
arrangement to which Target or any of its subsidiaries is a party that may
result in the payment of any amount that would not be deductible by reason of
Sections 280G or 404 of the Code. Target has not been and will not be required
to include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events
or accounting methods employed prior to the Merger. Neither Target nor any of
its subsidiaries is a party to any tax sharing or tax allocation agreement nor
does Target or any of its subsidiaries owe any amount under any such
agreement. For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Entity (a "Tax authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of any obligation to
indemnify any other person. As used herein, "Tax Return" shall mean any
return, statement, report or form (including, without limitation,) estimated
Tax returns and reports, withholding Tax returns and reports and information
reports and returns required to be filed with
11
respect to Taxes. To the knowledge of Target, neither Target nor any of its
subsidiaries is a party to any Tax-exemption or other Tax-sparing agreement or
order of any foreign government.
2.14 Employee Benefit Plans.
(a) Schedule 2.14 of the Disclosure Letter lists, with respect to Target,
any subsidiary of Target and any trade or business (whether or not
incorporated) which is treated as a single employer with Target (an "ERISA
Affiliate") within the meaning of Section 414(b), (c), (m) or (o) of the
Code, (i) all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
whether or not such plans are subject to ERISA, (ii) each loan to a non-
officer employee in excess of $50,000, loans to officers and directors and
any stock option, stock purchase, phantom stock, stock appreciation right,
(iii) all supplemental retirement, severance, sabbatical, medical, dental,
vision care, disability, employee relocation, cafeteria benefit (Code
Section 125) or dependent care (Code Section 129), life insurance or
accident insurance, bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements which are not
employee benefit plans as otherwise covered under clause (i) above, (iv)
other fringe or employee benefit plans, programs or arrangements that apply
to senior management or overseas employees of Target and that do not
generally apply to all employees, and (v) any current or former employment
or executive compensation or severance agreements (other than pursuant to
the Target Stock Option Plans), written or otherwise, as to which
unsatisfied or potential obligations of Target of greater than $100,000
exist for the benefit of, or relating to, any present or former employee,
consultant or director of Target (together, the "Target Employee Plans").
(b) Target has furnished to Acquiror a copy of each of the Target
Employee Plans and related plan documents (including trust documents,
insurance policies or contracts) and has, with respect to each Target
Employee Plan which is subject to ERISA reporting requirements, provided
copies of the Form 5500 reports filed for the last three plan years. Any
Target Employee Plan intended to be qualified under Section 401(a) of the
Code has either obtained from the Internal Revenue Service a favorable
determination letter 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 applied to the Internal Revenue Service for
such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service
pronouncements in which to apply for such determination letter and to make
any amendments necessary to obtain a favorable determination. Target has
also furnished Acquiror with the most recent Internal Revenue Service
determination letter issued with respect to each such Target Employee Plan,
and nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Target Employee Plan subject to Code Section 401(a).
(c) (i) Other than continued health care coverage required under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), none of the Target Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Target Employee
Plan, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect; (iii) each Target Employee Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate,
a Material Adverse Effect, and Target and each subsidiary or ERISA
Affiliate have performed all obligations required to be performed by them
under, are not in any respect in default under or violation of, and have no
knowledge of any default or violation by any other party to, any of the
Target Employee Plans, which default or violation could reasonably be
expected to have a Material Adverse Effect on Target; (iv) neither Target
nor any subsidiary or ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA
with respect to any of the Target Employee Plans and which individually or
in the aggregate could reasonably be expected to have a Material Adverse
Effect on Target; (v) all material contributions required to be made by
Target or any subsidiary or ERISA Affiliate to any Target Employee Plan
have been made on or before their due dates and a reasonable amount has
been accrued for contributions to each Target
12
Employee Plan for the current plan years; (vi) with respect to each Target
Employee Plan, no "reportable event" within the meaning of Section 4043 of
ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of ERISA)
nor any event described in Section 4062, 4063 or 4041 or ERISA has
occurred; and (vii) no Target Employee Plan is covered by, and neither
Target nor any subsidiary or ERISA Affiliate has incurred or expects to
incur any liability under Title IV of ERISA or Section 412 of the Code.
With respect to each Target Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(l) of ERISA,
Target has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed)
and, to Target's knowledge, Target has properly and timely filed and
distributed or posted all notices and reports to employees required to be
filed, distributed or posted with respect to each such Target Employee
Plan, except in each case to the extent that such failure to perform such
action would not, in the aggregate, have a Material Adverse Effect on
Target. No suit, administrative proceeding, action or other litigation has
been brought, or to the best knowledge of Target is threatened, against or
with respect to any such Target Employee Plan, including any audit or
inquiry by the IRS or United States Department of Labor. Neither Target nor
any Target subsidiary or other ERISA Affiliate is a party to, or has made
any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target and each of its
United States subsidiaries have complied with (i) the applicable health
care continuation and notice provisions of COBRA and the proposed
regulations thereunder and (ii) the applicable requirements of the Family
Leave Act of 1993 and the regulations thereunder, except to the extent that
such failure to comply would not, in the aggregate, have a Material Adverse
Effect on Target.
(e) Except as disclosed in the Target Disclosure Letter the consummation
of the transactions contemplated by this Agreement will not (i) entitle any
current or former employee or other service provider of Target, any Target
subsidiary or any other ERISA Affiliate to severance benefits or any other
payment, except as expressly provided in this Agreement, or (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due
any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target, any Target subsidiary or
other ERISA Affiliate relating to, or change in participation or coverage
under, any Target Employee Plan which would materially increase the expense
of maintaining such Plan above the level of expense incurred with respect
to that Plan for the most recent fiscal year included in Target's financial
statements.
2.15 Certain Agreements Affected by the Merger. Except as set forth in
Schedule 2.15 or pursuant to this Agreement, neither the execution and
delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Target or any of its
subsidiaries, (ii) materially increase any benefits otherwise payable by
Target or (iii) result in the acceleration of the time of payment or vesting
of any such benefits.
2.16 Employee Matters. Target and each of its subsidiaries are in compliance
in all respects with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and
is not engaged in any unfair labor practice, except where the failure to be in
compliance or the engagement in such unfair labor practices would not have a
Material Adverse Effect on Target. There are no pending claims against Target
or any of its subsidiaries under any workers compensation plan or policy or
for long term disability which would have a Material Adverse Effect on Target.
Neither Target nor any of its subsidiaries has any obligations under COBRA
with respect to any former employees or qualifying beneficiaries thereunder,
except for obligations that would not have a Material Adverse Effect on
Target. There are no controversies pending or, to the knowledge of Target or
any of its subsidiaries, threatened, between Target or any of. its
subsidiaries and any of their respective employees, which controversies would
have a Material Adverse Effect on Target. Neither
13
Target nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract nor does Target nor any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees.
2.17 Interested Party Transactions. Except as disclosed in the Target SEC
Documents, neither Target nor any of its subsidiaries is indebted to any
director, officer, employee or agent of Target or any of its subsidiaries
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), and no such person is indebted to Target or any of its
subsidiaries, and there have been no other transactions of the type required
to be disclosed pursuant to Items 402 and 404 of Regulation S-K under the
Securities Act and the Exchange Act since June 30, 1996.
2.18 Insurance. Target and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Target and its
subsidiaries. There is no material claim 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 Target and its subsidiaries are
otherwise in compliance in all material respects with the terms of such
policies and bonds. Target has no knowledge of any threatened termination of,
or material premium increase with respect to, any of such policies.
2.19 Compliance With Laws. Each of Target and its subsidiaries has complied
with, is not in violation of, and has not received any notices of violation
with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
would not have a Material Adverse Effect on Target.
2.20 Pooling of interests. To the knowledge of Target, based on consultation
with its independent accountants, neither Target, nor any of its subsidiaries,
nor any of their respective directors, officers or stockholders has taken any
action that would prevent Acquiror from accounting for the Merger as a pooling
of interests.
2.21 Brokers' and Finders' Fees. Except for payment obligations to ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & Company disclosed to Acquiror, Target has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
2.22 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Target for inclusion in the registration statement on Form S-4 (or
such other or successor form as shall be appropriate) pursuant to which the
shares of Acquiror Common Stock to be issued in the Merger will be registered
with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact
or omit 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. The information supplied by Target for
inclusion in the proxy statement/prospectus to be sent to the stockholders of
Target in connection with the meeting of Target's stockholders to consider the
Merger (the "Target Stockholders Meeting") and to the stockholders of Acquiror
in connection with the meeting of Acquiror's stockholders to consider the
Merger (the "Acquiror Stockholders Meeting") (such proxy statement/prospectus
as amended or supplemented is referred to herein as the "Proxy Statement")
shall not, on the date the Proxy Statement is first mailed to Target's
stockholders and Acquiror's stockholders, at the time of the Target
Stockholders Meeting, at the time of the Acquiror Stockholders Meeting and at
the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Target
Stockholders Meeting or the Acquiror Stockholder Meeting which has become
false or misleading. If at any time prior to the Effective Time any event or
information should be
14
discovered by Target which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Target shall
promptly inform Acquiror and Merger Sub. Notwithstanding the foregoing, Target
makes no representation, warranty or covenant with respect to any information
supplied by Acquiror or Merger Sub which is contained in any of the foregoing
documents.
2.23 Opinion of Financial Advisor. Target has been advised orally (to be
subsequently confirmed in writing) by its financial advisor, ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ & Company, that in such advisor's opinion, as of the date hereof, the
consideration to be received by the stockholders of Target is fair, from a
financial point of view, to the stockholders of Target.
2.24 Vote Required. The affirmative vote of the holders of a majority of the
shares of Target Common Stock outstanding on the record date set for the
Target Stockholders Meeting is the only vote of the holders of any of Target's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.25 Board Approval. The Board of Directors of Target has, prior to the date
hereof, unanimously (i) approved this Agreement and the Merger, (ii)
determined that the Merger is in the best interests of the stockholders of
Target and is on terms that are fair to such stockholders and (iii) determined
to recommend that the stockholders of Target approve this Agreement and
consummation of the Merger.
2.26 Section 203 of the DGCL Not Applicable. The Board of Directors of
Target has taken all actions so that the restrictions contained in Section 203
of the Delaware Law applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the Option Agreement or the consummation of the Merger or the
other transactions contemplated by this Agreement or by the Option Agreement.
2.27 Minute Books. The minute books of Target and its subsidiaries made
available to legal counsel for Acquiror contain a complete and accurate
summary of all meetings of directors and stockholders or actions by written
consent since the time of incorporation of Target and the respective
subsidiaries through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
2.28 Representations Complete. None of the representations or warranties
made by Target herein or in any Letter hereto, including the Target Disclosure
Letter, or certificate furnished by Target pursuant to this Agreement, or the
Target SEC Documents, when all such documents are read together in their
entirety, 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 ACQUIROR AND MERGER SUB
Except as disclosed in a document of even date herewith and delivered by
Acquiror to Target prior to the execution and delivery of this Agreement and
referring to the representations and warranties in this Agreement (the
"Acquiror Disclosure Letter"), Acquiror and Merger Sub represent and warrant
to Target as follows:
3.1 Organization, Standing and Power. Each of Acquiror and its subsidiaries,
including Merger Sub, is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of
Acquiror and its subsidiaries has the corporate power to own its properties
and to carry on its business as now being conducted and as proposed to be
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Acquiror. Acquiror has delivered a
true and correct copy of the Certificate of Incorporation and Bylaws or other
charter documents, as applicable, of Acquiror to legal counsel for Target.
Neither Acquiror nor any of its subsidiaries is in violation of any of the
provisions of its Certificate of
15
Incorporation or Bylaws or equivalent organizational documents. Acquiror is
the owner of all outstanding shares of capital stock of each of its
subsidiaries and all such shares are duly authorized, validly issued, fully
paid and nonassessable. All of the outstanding shares of capital stock of each
such subsidiary are owned by Acquiror free and clear of all liens, charges,
claims or encumbrances or rights of others. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any
such subsidiary, or otherwise obligating Acquiror or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Acquiror SEC Documents (as defined in
Section 3.4), Acquiror does not directly or indirectly own any equity or
similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
3.2 Capital Structure. The authorized capital stock of Acquiror consists of
75,000,000 shares of Common Stock, $.01 par value and no shares of Preferred
Stock of which there were issued and outstanding as of the close of business
on November 11, 1996, 40,159,798 shares of Common Stock and no shares of
Preferred Stock. Since the close of business on November 11, 1996, no shares
of Acquiror capital stock have been issued except pursuant to the exercise of
options outstanding as of November 11, 1996 under the Acquiror Stock Option
Plans (as defined below). As of the close of business on November 12, 1996,
there were no other outstanding commitments to issue any shares of capital
stock or voting securities of Acquiror other than pursuant to the exercise of
options outstanding as of that date under the 1983 Incentive Stock Option
Plans, the 1986 Stock Option Plan, the Stock Option Plan for Directors, the
1993 Incentive Stock Option Plan, and the 1994 Stock Option Plan, and pursuant
to the 1994 Employee Stock Purchase Plan (collectively, the "Acquiror Stock
Option Plans"). The authorized capital stock of Merger Sub consists of 1,000
shares of Common Stock, $.001 par value, all of which are issued and
outstanding and are held by Acquiror. All outstanding shares of Acquiror and
Merger Sub have been duly authorized, validly issued, fully paid and are
nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. As of the close
of business on November 12, 1996, Acquiror has reserved 6,545,604 shares of
Common Stock for issuance to employees, directors and independent contractors
pursuant to the Acquiror Stock Option Plans, net of exercises, cancellations,
repurchases and expiration of options of which, as of the close of business on
November 11, 1996, 4,965,519 shares were subject to outstanding, unexercised
options and 1,580,085 shares remained available for future grant. Other than
pursuant to this Agreement and the Acquiror 1994 Employee Stock Purchase Plan,
there are no other options, warrants, calls, rights, commitments or agreements
of any character to which Acquiror or Merger Sub is a party or by which either
of them is bound obligating Acquiror or Merger Sub to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of Acquiror or Merger Sub or
obligating Acquiror or Merger Sub to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. The shares of Acquiror
Common Stock to be issued pursuant to the Merger will be duly authorized,
validly issued, fully paid, and non-assessable.
3.3 Authority.
(a) Acquiror 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 Acquiror and
Merger Sub, and the approval of the shareholders of Acquiror is not
required for Acquiror to enter into this Agreement and consummate the
Merger. This Agreement has been duly executed and delivered by Acquiror and
Merger Sub and constitutes the valid and binding obligations of Acquiror
and Merger Sub, enforceable against each in accordance with its terms,
except as enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally, and general
principles of equity. The execution and delivery of this Agreement do not,
and the consummation of the trans actions contemplated hereby will not, (i)
conflict with, or result in any violation of any provision of the
Certificate of Incorporation or Bylaws of Acquiror or any of its
subsidiaries, as amended, or (ii) subject to obtaining the approval of
Acquiror's stockholders of the Merger
16
as contemplated in Section 5.2 and compliance with the requirements set
forth in Section 3.3(b) below, result in any breach of or constitute a
default under (with or without notice or lapse of time, or both) or give
rise to a right of termination, cancellation or acceleration of any
material obligation or loss of any material benefit under any material
mortgage, indenture, lease, contract or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Acquiror or any of its
subsidiaries or their properties or assets, except where such conflict,
violation, default, termination, cancellation or acceleration with respect
to the foregoing provisions of (ii) would not have had and would not
reasonably be expected to have a Material Adverse Effect on Acquiror.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or, to
the knowledge of Acquiror with respect to, Acquiror or any of its
subsidiaries in connection with the execution and delivery of this
Agreement by Acquiror and Merger Sub or the consummation by Acquiror and
Merger Sub of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger as provided in Section 1.2, (ii) the
filing with the SEC and NASD of the Registration Statement, (iii) the
filing of a Form 8-K with the SEC and NASD within 15 days after the Closing
Date, (iv) any filings as may be required under applicable state securities
laws and the securities laws of any foreign country, (v) such filings as
may be required under HSR or the competition regulations of any other
foreign governmental authority, (vi) the filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect
to the shares of Acquiror Common Stock issuable upon conversion of the
Target Common Stock in the Merger and upon exercise of the options under
the Target Stock Option Plans assumed by Acquiror, and (vii) such other
consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Acquiror
and would not prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
3.4 SEC Documents: Financial Statements. Acquiror has made available to
Target a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of
the Securities Act), definitive proxy statement, and other filing filed with
the SEC by Acquiror since June 30, 1994, and, prior to the Effective Time,
Acquiror will have furnished Target with true and complete copies of any
additional documents filed with the SEC by Acquiror prior to the Effective
Time (collectively, the "Acquiror SEC Documents"). In addition, Acquiror has
made available to Target all exhibits to the Acquiror SEC Documents filed
prior to the-date hereof, and will promptly make available to Target all
exhibits to any additional Acquiror SEC Documents filed prior to the Effective
Time. All documents required to be filed as exhibits to the Target SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance
with their terms, and neither Acquiror nor any of its subsidiaries is in
default thereunder, except where such default has not resulted in and is not
reasonably expected to result in any Material Adverse Effect on Acquiror. As
of their respective filing dates, the Acquiror SEC Documents complied in all
material respects with the requirements of the Exchange Act and the Securities
Act, and none of the Acquiror SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document. The financial
statements of Acquiror, including the notes thereto, included in the Acquiror
SEC Documents (the "Acquiror Financial Statements") were complete and correct
in all material respects as of their respective dates, complied as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and consistent with each
other (except as may be indicated in the notes thereto or, in the case of
unaudited statements included in Quarterly Reports on Form 10-Q, as permitted
by Form 10-Q of the SEC). The Acquiror Financial Statements fairly present the
consolidated financial condition and operating results of Acquiror and its
subsidiaries at the dates and during the periods indicated therein (subject,
in the case of unaudited statements, to normal, recurring year-end
adjustments) in all material respects. There has been no
17
material change in Acquiror accounting policies except as described in the
notes to the Acquiror Financial Statements.
3.5 Absence of Certain Changes. Since September 30, 1996 (the "Acquiror
Balance Sheet Date"), Acquiror has conducted its business in the ordinary
course consistent with past practice and there has not occurred: (i) any
change, event or condition (whether or not covered by insurance) that would
result in a Material Adverse Effect to Acquiror; (ii) any acquisition, sale or
transfer of any material asset of Acquiror or any of its subsidiaries other
than in the ordinary course of business and consistent with past practice;
(iii) any material change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by Acquiror or any
material revaluation by Acquiror of any of its or any of its subsidiaries'
assets; (iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Acquiror, or any direct or indirect
redemption, purchase or other acquisition by Acquiror of any of its shares of
capital stock; (v) any material contract entered into by Acquiror, other than
in the ordinary course of business and as provided to Target, or any material
amendment or termination of, or default under, any material contract to which
Acquiror or any of its subsidiaries is a party or by which it is bound which
would result in a Material Adverse Effect on Acquiror; or (vi) any negotiation
or agreement by Acquiror or any of its subsidiaries to do any of the things
described in the preceding clauses (i) through (v) (other than negotiations
with Target and its representatives regarding the transactions contemplated by
this Agreement).
3.6 Absence of Undisclosed Liabilities. Acquiror has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the unaudited balance
sheet for the quarter ended September 30, 1996, which has been provided to
Target (the "Acquiror Balance Sheet"), (ii) those not required to be set forth
in the Acquiror Balance Sheet under GAAP, and (iii) those incurred in the
ordinary course of business since the Acquiror Balance Sheet Date and
consistent with past practice.
3.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Acquiror or
any of its subsidiaries, threatened against Acquiror or any of its
subsidiaries or any of their respective properties or any of their respective
officers or directors (in their capacities as such) that, individually or in
the aggregate, would have a Material Adverse Effect on Acquiror. There is no
judgment, decree or order against Acquiror or any of its subsidiaries or, to
the knowledge of Acquiror or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that would prevent,
enjoin, materially alter or materially delay any of the transactions
contemplated by this Agreement, or that would. have a Material Adverse Effect
on Acquiror.
3.8 Restrictions on Business Activities. There is no material agreement,
judgment, injunction, order or decree binding upon Acquiror or any of its
subsidiaries which has the effect of prohibiting or materially impairing any
current or future business practice of Acquiror or any of its subsidiaries,
any acquisition of property by Acquiror or any of its subsidiaries or the
conduct of business by Acquiror or any of its subsidiaries as currently
conducted or as proposed to be conducted by Acquiror or any of its
subsidiaries.
3.9 Governmental Authorization. Acquiror and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity which
are material (collectively called "Acquiror Authorizations"), and all of such
Acquiror Authorizations are in full force and effect, except where the failure
to obtain or have any of such Acquiror Authorizations would not have a
Material Adverse Effect on Acquiror.
3.10 Compliance With Laws. Each of Acquiror and its subsidiaries has
complied with, are not in violation of, and has not received any notices of
violation with respect to, any federal, state, local or foreign statute, law
or regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
would not have a Material Adverse Effect on Acquiror.
18
3.11 Pooling of Interests. To the knowledge of Acquiror, based on
consultation with its independent accountants, neither Acquiror nor any of its
subsidiaries nor any of their respective directors, officers or stockholders
has taken any action that would prevent Acquiror from accounting for the
Merger as a pooling of interests.
3.12 Broker's and Finders' Fees. Except for payment obligations to ▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇ disclosed to Target, Acquiror has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.13 Registration Statement: Proxy Statement/Prospectus. The information
supplied by Acquiror and Merger Sub for inclusion in the Registration
Statement shall not, at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Acquiror for inclusion in the Proxy Statement shall not, on the
date the Proxy Statement is first mailed to Target's stockholders, to
Acquiror's stockholders at the time of the Target Stockholders Meeting, at the
time of the Acquiror Stockholders Meeting and at the Effective Time, contain
any statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which it is made,
not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Target Stockholders Meeting or the Acquiror
Stockholders Meeting which has become false or misleading. If at any time
prior to the Effective Time any event or information should be discovered by
Acquiror or Merger Sub which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Acquiror or
Merger Sub will promptly inform Target. Notwithstanding the foregoing,
Acquiror and Merger Sub make no representation, warranty or covenant with
respect to any information supplied by Target which is contained in any of the
foregoing documents.
3.14 Board Approval. The Boards of Directors of Acquiror and Merger Sub have
prior to the date hereof unanimously (i) approved this Agreement and the
Merger, (ii) determined that the Merger is in the best interests of their
respective stockholders and is on terms that are fair to such stockholders and
(iii) determined to recommend that the stockholders of Acquiror and of Merger
Sub approve this Agreement and the consummation of the Merger.
3.15 Opinion of Financial Advisor. Acquiror has been advised orally (to be
subsequently confirmed in writing) by its financial advisor, ▇▇▇▇▇▇▇▇▇ &
▇▇▇▇▇, that in such advisor's opinion as of the date hereof, the consideration
to be paid by Acquiror is fair to Acquiror from a financial point of view.
3.16 Intellectual Property.
(a) Acquiror and its subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor,
technology, know-how, trade secrets, inventory, ideas, algorithms,
processes, computer software programs or applications (in both source code
and object code form), and tangible or intangible proprietary information
or material ("Intellectual Property") that are used in the business of
Acquiror and its subsidiaries as currently conducted or as proposed to be
conducted by Acquiror and its subsidiaries, except to the extent that the
failure to have such rights have not had and would not reasonably be
expected to have a Material Adverse Effect on Acquiror.
(b) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of Acquiror or any of
its subsidiaries, any trade secret material to Acquiror or any of its
subsidiaries, or any Intellectual Property right of any third party to the
extent licensed by or through Acquiror or any of its subsidiaries, by any
third party, including any employee or former employee of Acquiror or any
of its subsidiaries. Neither Acquiror nor any of its subsidiaries has
entered into any
19
agreement to indemnify any other person against any charge of infringement
of any Intellectual Property, other than indemnification provisions
contained in purchase orders or customer agreements arising in the ordinary
course of business.
(c) Acquiror is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating
to the Intellectual Property or Third Party Intellectual Property Rights,
the breach of which would have a Material Adverse Effect on Acquiror.
(d) All patents, registered trademarks, service marks and copyrights held
by Acquiror are valid and subsisting. Acquiror (i) is not a party to any
suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party and (ii) has not
brought any action, suit or proceeding for infringement of Intellectual
Property or breach of any license or agreement involving Intellectual
Property against any third party. The manufacture, marketing, licensing or
sale of Acquiror's products does not infringe any patent, trademark,
service ▇▇▇▇, copyright, trade secret or other proprietary right of any
third party, except where such infringement would not have a Material
Adverse Effect on Acquiror.
(e) Acquiror has a policy, which it has consistently enforced, to secure
valid written assignments from all consultants and employees who contribute
or have contributed to the creation or development of Intellectual Property
of the rights to such contributions that Acquiror does not already own by
operation of law.
(f) Acquiror believes it has taken all reasonable and appropriate steps
to protect and preserve the confidentiality of all Intellectual Property
not otherwise protected by patents, or patent applications or copyright
("Confidential Information"). To Acquiror's knowledge, all use, disclosure
or appropriation of Confidential Information owned by Acquiror by or to a
third party has been pursuant to the terms of a written agreement between
Acquiror and such third party. To Acquiror's knowledge, all use, disclosure
or appropriation of Confidential Information not owned by Acquiror has been
pursuant to the terms of a written agreement between Acquiror and the owner
of such Confidential Information, or is otherwise lawful.
3.17 Taxes. Except as disclosed in the Acquiror Disclosure Letter and except
to the extent the failure to do so would not have a Material Adverse Effect,
Acquiror and each of its subsidiaries, and any consolidated, combined, unitary
or aggregate group for Tax purposes of which Acquiror or any of its
subsidiaries is or has been a member have timely filed all Tax Returns
required to be filed by it, have paid all Taxes shown thereon to be due (or
Acquiror has paid on its behalf) and have provided adequate accruals in
accordance with GAAP in its financial statements for any unpaid Taxes that are
imposed on Acquiror or its subsidiaries. The most recent financial statements
contained in the Acquiror SEC Documents reflect an adequate accrual, in
accordance with GAAP, for all Taxes payable by Acquiror and its subsidiaries
through the date of such financial statements. Except as disclosed in the
Acquiror Disclosure Letter, (i) no material claim for Taxes has become a lien
against the property of Acquiror or any of its subsidiaries or is being
asserted against Acquiror or any of its subsidiaries other than liens for
Taxes not yet due and payable, (ii) no audit of any Tax Return of Acquiror or
any of its subsidiaries is being conducted by a Tax authority, (iii) no
extension of the statute of limitations on the assessment of any Taxes has
been granted by Acquiror or any of its subsidiaries and is currently in
effect, and (iv) there is no agreement, contract or arrangement to which
Acquiror or any of its subsidiaries is a party that may result in the payment
of any amount that would not be deductible by reason of Sections 280G or 404
of the Code. Acquiror has not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Merger. Neither Acquiror nor any of its
subsidiaries is a party to any tax sharing or tax allocation agreement nor
does Acquiror or any of its subsidiaries owe any amount under any such
agreement. For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax,
20
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional
amount imposed by any Governmental Entity (a "Tax authority") responsible for
the imposition of any such tax (domestic or foreign), (ii) any liability for
the payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any
Taxable period and (iii) any liability for the payment of any amounts of the
type described in (i) or (ii) as a result of any obligation to indemnify any
other person. As used herein, "Tax Return" shall mean any return, statement,
report or form (including, without limitation,) estimated Tax returns and
reports, withholding Tax returns and reports and information reports and
returns required to be filed with respect to Taxes. To the knowledge of
Acquiror, neither Acquiror nor any of its subsidiaries is a party to any Tax-
exemption or other Tax-sparing agreement or order of any foreign government.
3.18 Representations Complete. None of the representations or warranties
made by Acquiror or Merger Sub herein or in any Letter hereto, including the
Acquiror Disclosure Letter, or certificate furnished by Acquiror or Merger Sub
pursuant to this Agreement, or the Acquiror SEC Documents, when all such
documents are read together in their entirety, 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 IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target and Acquiror. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, each of Target and Acquiror agrees
(except to the extent expressly contemplated by this Agreement or as consented
to in writing by the other), to carry on its and its subsidiaries' business in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay and to cause its subsidiaries to pay debts and
Taxes when due subject to good faith disputes over such debts or taxes, to pay
or perform other obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact its and its
subsidiaries' present business organizations, use its commercially reasonable
efforts consistent with past practice to keep available the services of its
and its subsidiaries' present officers and key employees and to preserve its
and its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, it being the parties' intent that Target's and its subsidiaries'
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Each of Target and Acquiror agrees to use its best efforts to promptly notify
the other of any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which would have a Material Adverse
Effect. Without limiting the foregoing, except as expressly contemplated by
this Agreement, neither Target nor Acquiror shall do, cause or permit any of
the following, or allow, cause or permit any of its subsidiaries to do, cause
or permit any of the following, without the prior written consent of the
other:
(a) Charter Documents. Cause or permit any amendments to its Certificate
of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Except as set forth in the
Acquiror Disclosure Letter, declare or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any
of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in
connection with any termination of service to it or its subsidiaries;
(c) Stock Option Plans, Etc. Except as set forth in the Target Disclosure
Letter, accelerate, amend or change the period of exercisability or vesting
of options or other rights granted under its employee stock
21
plans or director stock plans or authorize cash payments in exchange for
any options or other rights granted under any of such plans;
(d) Pooling. Take any action, which, to the knowledge of such party would
prevent Acquiror from accounting for the Merger as a pooling of interests;
or
(e) Other. Intentionally take, or agree in writing or otherwise to take,
any of the actions described in Sections 4.1(a) through (d) above, or any
action which would make any of its representations or warranties contained
in this Agreement untrue or incorrect or prevent it from performing or
cause it not to perform its covenants hereunder.
4.2 Conduct of Business of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement or consented to in writing by Acquiror, Target shall not do, cause
or permit any of the following, or allow, cause or permit any of its
subsidiaries to do, cause or permit any of the following, without the prior
written consent of Acquiror, which consent shall not be unreasonably withheld:
(a) Material Contracts. Enter into any partnership arrangements, joint
development agreements, strategic alliances, or other material contracts
other than in the ordinary course of business consistent with past
practice, or violate, amend or otherwise modify or waive any material
contract which violation, amendment, modification or waiver would have a
Material Adverse Effect;
(b) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares
of its Common Stock pursuant to the exercise of stock options, warrants or
other rights therefor outstanding as of November 11, 1996; provided,
however, that Target may, in the ordinary course of business consistent
with past practice, grant options for the purchase of Target Common Stock
under the Target Option Plans (not to exceed an aggregate of 50,000 options
to purchase shares of Target Common Stock granted after November 11, 1996);
(c) Intellectual Property. Transfer to any person or entity any rights to
its Intellectual Property other than in the ordinary course of business
consistent with past practice;
(d) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or distribution rights
with respect to any of its products or technology;
(e) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past
practice;
(f) Indebtedness. Incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or guarantee any
debt securities of others, except in the ordinary course of business
consistent with past practice;
(g) Leases. Enter into any operating lease, except in the ordinary course
of business consistent with past practice;
(h) Payment of Obligations. Pay, discharge or satisfy any material claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Target Financial Statements;
(i) Capital Expenditures. Make any material capital expenditures, capital
additions or capital improvements except in the ordinary course of business
and consistent with past practice;
(j) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
22
(k) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any
material employee benefit or stock purchase or option plan, or hire any new
officer or director level employee, pay any special bonus or special
remuneration to any employee or director, or increase the salaries or wage
rates of its employees, except in the ordinary course of business
consistent with past practice;
(l) Severance Arrangements. Grant any severance or termination pay to any
director or officer or to any other employee except (A) payments made
pursuant to standard written agreements outstanding on the date hereof or
(B) grants which are made in the ordinary course of business in accordance
with its standard past practice;
(m) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this
Agreement;
(n) Acquisitions. Acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole, or
acquire or agree to acquire any equity securities of any corporation,
partnership, association or business organization;
(o) Taxes. Other than in the ordinary course of business, make or change
any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes to the extent material to Target or its
subsidiaries, enter into any material closing agreement, settle any
material claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any material
claim or assessment in respect of Taxes;
(p) Notices. Target shall give all notices and other information required
to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable
government authority under the WARN Act, the National Labor Relations Act,
the Code, COBRA, and other applicable law in connection with the
transactions provided for in this Agreement;
(q) Revaluation. 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; or
(r) Other. Intentionally take or agree in writing or otherwise to take,
any of the actions described in Sections 4.2(a) through (q) above, or any
action which would make any of its representations or warranties contained
in this Agreement untrue or incorrect or prevent it from performing or
cause it not to perform its covenants hereunder.
4.3 Solicitation. From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Article VII,
Target and its subsidiaries will not, directly or indirectly through their
officers, directors, employees, agents or otherwise, (i) solicit, initiate or
encourage any Takeover Proposal (defined below) or (ii) engage in negotiations
with, or disclose any nonpublic information relating to Target or any of it
subsidiaries to, or afford access to the properties, books or records of
Target or any of its subsidiaries to, any person that has indicated to Target
that it may be considering making, or that has made, a Takeover Proposal;
provided, nothing herein shall prohibit Target's Board of Directors from
taking and disclosing to Target's stockholders a position with respect to a
tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange
Act. Notwithstanding the immediately preceding sentence, if an unsolicited
Takeover Proposal, or an unsolicited written expression of interest that
Target reasonably expects to lead to a Takeover Proposal, shall be received by
the Board of Directors of Target, then, to the extent the Board of Directors
of Target believes in good faith (after consultation with its financial
advisor) (i) that such Takeover Proposal would, if consummated, result in a
transaction that appears to be more favorable to Target's stockholders from a
financial point of view than the transaction contemplated by the Agreement and
(ii) after reasonable inquiry by Target, that the third party making such
Takeover Proposal is financially capable of consummating such Takeover
Proposal (any Takeover Proposal meeting such conditions being referred to in
this
23
Agreement as a "Superior Proposal") and the Board of Directors of Target
determines in good faith after consultation with outside legal counsel that it
is necessary for the Board of Directors of Target to comply with its fiduciary
duties to stockholders under applicable law, Target and its officers,
directors, employees, investment bankers, financial advisors, attorneys,
accountants and other representatives retained by it may furnish in connection
therewith information and take such other actions as are consistent with the
fiduciary obligations of Target's Board of Directors, and such actions shall
not be considered a breach of this Section 4.3 or any other provisions of this
Agreement, provided that (A) upon each such determination Target notifies
Acquiror of such determination by the Target Board of Directors and provides
Acquiror with a true and complete copy of the Superior Proposal received from
such third party, if the Superior Proposal is in writing, or a written summary
of all material terms and conditions thereof, if it is not in writing, (B)
Target provides Acquiror (no later than the time that such documents are
provided to such third party) with all documents containing or referring to
non-public information of Target that are supplied to such third party, to the
extent not previously supplied by Target to Acquiror and (C) Target provides
such non-public information to any such third party pursuant to a non-
disclosure agreement at least as restrictive as to confidential information as
the Confidentiality Agreement (as defined in Section 5.4). Target shall not,
and shall not permit any of its officers, directors, employees (acting on
behalf of Target) or other representatives to agree to or endorse any Takeover
Proposal unless Target shall have terminated this Agreement pursuant to
Section 7.1(e) and paid Acquiror all amounts payable to Acquiror pursuant to
Section 7.3(b). Notwithstanding anything in this Agreement to the contrary,
Target shall not accept or recommend to its stockholders, or enter into any
agreement concerning, a Superior Proposal for a period of not less than 48
hours after Acquiror's receipt of a true and complete copy of such Superior
Proposal, if the Superior Proposal is in writing, or a written summary of all
material terms and conditions thereof, if it is not in writing. Target will
promptly notify Acquiror after receipt of any Takeover Proposal or any notice
that any person is considering making a Takeover Proposal or any request for
non-public information relating to Target or any of its subsidiaries or for
access to the properties, books or records of Target or any of its
subsidiaries by any person that has indicated to Target that it may be
considering making, or that has made, a Takeover Proposal and will keep
Acquiror fully informed of the status and details of any such Takeover
Proposal notice, request or any correspondence or communications related
thereto and shall provide Acquiror with a true and complete copy of such
Takeover Proposal notice or request or correspondence or communications
related thereto, if it is in writing, or a complete written summary thereof,
if it is not in writing. For purposes of this Agreement, "Takeover Proposal"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving Target or the acquisition of 20% or more
of the outstanding shares of capital stock of Target, or the sale or transfer
of any material assets (excluding the sale or disposition of assets in the
ordinary course of business) of Target, other than, (i) the transactions
contemplated by this Agreement and (ii) transactions by persons disclosing
their beneficial ownership of shares of Target's Common Stock on Schedule 13G
under the Exchange Act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, Target and Acquiror shall
prepare, and file with the SEC, preliminary proxy materials relating to the
approval of the Merger and the transactions contemplated hereby by the
stockholders of Target and the stockholders of Acquiror and, as promptly as
practicable following receipt of SEC comments thereon, Acquiror shall file
with the SEC a Registration Statement on Form S-4 (or such other or successor
form as shall be appropriate), which complies in form with applicable SEC
requirements and shall use all reasonable efforts to cause the Registration
Statement to become effective as soon thereafter as practicable; provided,
however, that Acquiror shall have no obligation to agree to account for the
Merger as a "purchase" in order to cause the Registration Statement to become
effective. Each of Acquiror and Target will notify the other promptly of the
receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement or any other filing or for
additional information and will supply the other with copies of all
correspondence between such company or
24
any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the
Registration Statement or other filing. The Registration Statement and the
other filings shall comply in all material respects with all applicable
requirements of law. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the Registration Statement or any other
filing, Acquiror or Target, as the case may be, shall promptly inform the
other of such occurrence and cooperate in filing with the SEC or its staff or
any other government officials, and/or mailing to stockholders of Acquiror,
such amendment or supplement. Subject to the provisions of Section 4.3, the
Proxy Statement shall include the recommendation of the Board of Directors of
Target in favor of the Merger; provided that such recommendation may not be
included or may be withdrawn if previously included if Target's Board of
Directors believes in good faith that a Superior Proposal has been made or,
upon written advice of its outside legal counsel, shall determine that to
include such recommendation or not withdraw such recommendation if previously
included would constitute a breach of the Board's fiduciary duty under
applicable law. The Proxy Statement shall include the recommendation of the
Board of Directors of Acquiror in favor of the Merger; provided that such
recommendation may not be included or may be withdrawn if previously included
if Acquiror's Board of Directors determines in good faith, upon written advice
of its outside legal counsel, that such Board's fiduciary duties under
applicable law require it to do so.
5.2 Meeting of Stockholders. Promptly after the date hereof, Target and
Acquiror shall each take all action necessary in accordance with Delaware Law
and their respective Certificates of Incorporation and Bylaws to convene the
Target Shareholders Meeting and the Acquiror Stock holders Meeting,
respectively, to be held as promptly as practicable, and in any event within
45 days after the declaration of effectiveness of the Registration Statement,
for the purpose of voting upon this Agreement. Target and Acquiror shall
consult with each other and use their commercially reasonable efforts to hold
their respective stockholders meetings on the same day. Promptly after the
date hereof, Target and Acquiror shall each use its commercially reasonable
efforts to solicit from its stockholders proxies in favor of the approval of
this Agreement and the approval of the issuance of shares of Acquiror Common
Stock pursuant to the terms of the Merger, as the case may be, and will take
all other action necessary or advisable to secure the vote or consent of their
respective stock holders required by the rules of the National Association of
Securities Dealers, Inc, or the Delaware General Corporation Law, except to
the extent that the Board of Directors of such party determines that doing so
would cause the Board of Directors to breach its fiduciary duties under
applicable law.
5.3 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the earlier of the Effective Time or the termination of
this Agreement under Article VII to (i) all of Target's and its
subsidiaries' properties, books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and
personnel of Target and its subsidiaries as Acquiror may reasonably
request. Target agrees to provide to Acquiror and its accountants, counsel
and other representatives copies of internal financial statements promptly
upon request. Acquiror shall afford Target and its accountants, counsel and
other representatives, reasonable access during normal business hours
during the period prior to the earlier of the Effective Time or the
termination of this Agreement under Article VII to (i) all of Acquiror's
and its subsidiaries' properties, books, contracts, commitments and
records, and (ii) all other information concerning the business, properties
and personnel of Acquiror and its subsidiaries as Target may reasonably
request. Acquiror agrees to provide to Target and its accountants, counsel
and other representatives copies of internal financial statements promptly
upon request.
(b) Subject to compliance with applicable law, from the date hereof until
the earlier of the Effective Time or the termination of this Agreement
under Article VII, each of Acquiror and Target shall confer on a regular
and frequent basis with one or more representatives of the other party to
report matters of materiality and the general status of ongoing operations.
25
(c) No information or knowledge obtained in any investigation pursuant to
this Section 5.3 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.
5.4 Confidentiality. The parties acknowledge that each of Acquiror and
Target have previously executed a Mutual Confidentiality and Standstill
Agreement, dated November 6, 1996 (the "Confidentiality Agreement"), which
Confidentiality Agreement shall continue in full force and effect in
accordance with its terms, except as is necessary to comply with the terms of
this Agreement.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement (whether or not in response
to an inquiry) regarding the terms of this Agreement and the transactions
contemplated hereby, and neither shall issue any such press release or make
any such statement without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law, or in
exercise of the fiduciary duties of the Board of Directors, or by obligations
pursuant to any listing agreement with any national securities exchange or
with the NASD.
5.6 Consents; Cooperation.
(a) Each of Acquiror and Target shall promptly apply for or otherwise
seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, including
those required under HSR, and shall use its reasonable efforts to obtain
all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or
otherwise, except where the failure to obtain such consents under material
contracts would not have a Material Adverse Effect on Target. The parties
hereto will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to HSR or any other federal,
state or foreign antitrust or fair trade law.
(b) Each of Acquiror and Target shall use all reasonable efforts to
resolve such objections, if any, as may be asserted by any Governmental
Entity with respect to the transactions contemplated by this Agreement
under HSR, the ▇▇▇▇▇▇▇ Act, as amended, the ▇▇▇▇▇▇▇ Act, as amended, the
Federal Trade Commission Act, as amended, and any other Federal, state or
foreign statutes, rules, regulations, orders or decrees that are designed
to prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "Antitrust Laws"). In
connection therewith, if any administrative or judicial action or
proceeding is instituted (or threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust
Law, each of Acquiror and Target shall cooperate and use all best efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or over turned any decree, judgment, injunction
or other order, whether temporary, preliminary or permanent (each an
"Order"), that is in effect and that prohibits, prevents, or restricts
consummation of the Merger or any such other transactions, unless by mutual
agreement Acquiror and Target decide that litigation is not in their
respective best interests. Notwithstanding the provisions of the
immediately preceding sentence, it is expressly understood and agreed that
Acquiror shall have no obligation to litigate or contest any administrative
or judicial action or proceeding or any Order beyond the earlier of (i)
April 15, 1997, or (ii) the date of a ruling preliminarily enjoining the
Merger issued by a court of competent jurisdiction. Each of Acquiror and
Target shall use all reasonable efforts to take such action as may be
required to cause the expiration of the notice periods under the HSR or
other Antitrust Laws with respect to such transactions as promptly as
possible after the execution of this Agreement.
(c) Notwithstanding anything to the contrary in Section 5.6(a) or (b),
(i) neither Acquiror nor any of it subsidiaries shall be required to divest
any of their respective businesses, product lines or assets, or to take or
agree to take any other action or agree to any limitation, that could
reasonably be expected to have a Material Adverse Effect on Acquiror or of
Acquiror combined with the Surviving Corporation after the
26
Effective Time or (ii) neither Target nor its subsidiaries shall be
required to divest any of their respective businesses, product lines or
assets, or to take or agree to take any other action or agree to any
limitation, that could reasonably be expected to have a Material Adverse
Effect on Target.
5.7 Pooling Accounting. Acquiror and Target shall each use its best efforts
to cause the business combination to be effected by the Merger to be accounted
for as a pooling of interests. Each of Acquiror and Target shall use its best
efforts to cause its "Affiliates" (as defined in Section 5.8) not to take any
action that would prevent Acquiror from accounting for the business
combination to be effected by the merger as a pooling of interest.
5.8 Affiliate Agreements.
(a) Schedule 5.8(a) of the Disclosure Letter sets forth those persons who
may be deemed "Affiliates" of Target within the meaning of Rule 145
promulgated under the Securities Act ("Rule 145"). Target shall provide
Acquiror such information and documents as Acquiror shall reasonably
request for purposes of reviewing such list. Target shall use its best
efforts to deliver or cause to be delivered to Acquiror, promptly after the
execution of this Agreement (and in each case at least thirty (30) days
prior to the Effective Time) from each of the Affiliates of Target, an
executed Affiliate Agreement in the form attached hereto as Exhibit B-1.
Acquiror and Merger Sub shall be entitled to place appropriate legends on
the certificates evidencing any Acquiror Common Stock to be received by
such Affiliates of Target pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for
Acquiror Common Stock, consistent with the terms of such Affiliates
Agreements.
(b) Schedule 5.8(b) of the Disclosure Letter sets forth those persons who
may be deemed "Affiliates" of Acquiror within the meaning of Rule 145.
Acquiror shall provide Target such information and documents as Target
shall reasonably request for purposes of reviewing such list. Acquiror
shall use its best efforts to deliver or cause to be delivered to Target,
concurrently with the execution of this Agreement (and in each case at
least thirty (30) days prior to the Effective Time) from each of the
Affiliates of Acquiror, an executed Affiliate Agreement in the form
attached hereto as Exhibit B-2.
5.9 Legal Requirements. Each of Acquiror, Merger Sub and Target will, and
will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed
on them with respect to the consummation of the transactions contemplated by
this Agreement and will promptly cooperate with and furnish information to any
party hereto necessary in connection with any such requirements imposed upon
such other party in connection with the consummation of the transactions
contemplated by this Agreement and will take all reasonable actions necessary
to obtain (and will cooperate with the other parties hereto in obtaining) any
consent, approval, order or authorization of, or any registration, declaration
or filing with, any Governmental Entity or other person, required to be
obtained or made in connection with the taking of any action contemplated by
this Agreement. Each of Acquiror and Target further agrees to notify the other
promptly of the receipt of any comments from any government officials for
amendments or supplements to any filing or for additional information and will
supply the other with copies of all correspondence between such company or any
of its representatives, on the one hand, and the government officials, on the
other hand, with respect to such filing. All filings shall comply in all
material respects with all applicable requirements of law. Whenever any event
occurs which is required to be set forth in an amendment or supplement to any
such filing, Acquiror or Target, as the case may be, shall promptly inform the
other of such occurrence and cooperate in filing with the government
officials.
5.10 Blue Sky Laws. Acquiror shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock
in connection with the Merger.
27
5.11 Employee Benefit Plans.
(a) At the Effective Time, each outstanding option to purchase shares of
Target Common Stock under the Target Stock Option Plans, whether vested or
unvested, will be assumed by Acquiror. Schedule 5.11 of the Disclosure
Letter hereto sets forth a true and complete list as of the date hereof of
all holders of outstanding options under the Target Stock Option Plans,
including the number of shares of Target capital stock subject to each such
option, the exercise or vesting schedule, the exercise price per share and
the term of each such option. On the Closing Date, Target shall deliver to
Acquiror an updated Schedule 5.11 of the Disclosure Letter hereto current
as of such date. Each such option so assumed by Acquiror under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Target Stock Option Plans and the documents
governing the outstanding options under those Plans, immediately prior to
the Effective Time, except that (i) such option will be exercisable for
that number of whole shares of Acquiror Common Stock equal to the product
of the number of shares of Target Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time multiplied
by the Exchange Ratio and rounded down to the nearest whole number of
shares of Acquiror Common Stock, and (ii) the per share exercise price for
the shares of Acquiror Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise
price per share of Target Common Stock at which such option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up
to the nearest whole cent. Consistent with the terms of the Target Stock
Option Plans and the documents governing the outstanding options under
those Plans and except as set forth in the Target Disclosure Letter, the
Merger will not terminate any of the outstanding options under such Plans
or accelerate the exercisability or vesting of such options or the shares
of Acquiror Common Stock which will be subject to those options upon the
Acquiror's assumption of the options in the Merger. It is the intention of
the parties that the options so assumed by Acquiror qualify following the
Effective Time as incentive stock options as defined in Section 422 of the
Code to the extent such options qualified as incentive stock options as of
the Effective Time. As soon as reasonably practical but in no event more
than 30 days after the Effective Time, Acquiror will issue to each person
who, immediately prior to the Effective Time was a holder of an outstanding
option under the Target Stock Option Plans a document in form and substance
satisfactory to Target evidencing the foregoing assumption of such option
by Acquiror.
(b) Outstanding purchase rights under the Target ESPP shall be assumed by
Acquiror at the Effective Time. Schedule 5.11(b) of the Disclosure Letter
hereto sets forth a true and complete list as of the date hereof of all
holders of outstanding purchase rights under the Target ESPP, including
payroll deduction amounts elected by each holder and the price per share of
Target Stock at the beginning of the current offering period. On the
Closing Date, Target shall deliver to Acquiror an updated Schedule 5.11(b)
of the Disclosure Letter current as of such date. Each such purchase right
so assumed by Acquiror under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Target ESPP and
the documents governing the outstanding purchase rights under the Target
ESPP, immediately prior to the Effective Time, except that the purchase
price of shares of Acquiror Common Stock and the number of shares of
Acquiror Common Stock to be issued upon the exercise of such purchase right
shall be adjusted in accordance with the Exchange Ratio. The assumed
outstanding purchase rights under the Target ESPP shall be exercised
immediately prior to the start date of the first offering period under the
Acquiror Employee Stock Purchase Plan occurring after the Effective Time,
and each participant in the Target ESPP shall accordingly be issued shares
of Acquiror Common Stock at that time. The Target ESPP, and all outstanding
purchase rights thereunder, shall terminate with such exercise date, and no
purchase rights shall be subsequently granted or exercised under the Target
ESPP. Target employees who meet the eligibility requirements for
participation in the Acquiror Employee Stock Purchase Plan shall be
eligible to begin payroll deductions under that plan as of the start date
of the first offering period thereunder after the Effective Time.
5.12 [Intentionally left blank.]
5.13 Form S-8. Acquiror agrees to file, no later than five (5) business days
after the Closing Date, a registration statement on Form S-8 covering the
shares of Acquiror Common Stock issuable pursuant to
28
outstanding options and purchase rights under the Target Stock Option Plans
and Target ESPP assumed by Acquiror. Target shall cooperate with and assist
Acquiror in the prepara tion of such registration statement.
5.14 Indemnification.
(a) After the Effective Time, Acquiror will, and will cause the Surviving
Corporation to, indemnify and hold harmless the present and former
officers, directors, employees and agents of Target (the "Indemnified
Parties") in respect of acts or omissions occurring on or prior to the
Effective Time to the extent permitted by law and to the extent provided
under Target's Certificate of Incorporation and Bylaws or any
indemnification agreement with Target officers and directors to which
Target is a party, in each case in effect on the date hereof; provided that
such indemnification shall be subject to any limitation imposed from time
to time under applicable law. Without limitation of the foregoing, in the
event any such Indemnified Party is or becomes involved in any capacity in
any action, proceeding or investigation in connection with any matter
relating to this Agreement or the transactions contemplated hereby
occurring on or prior to the Effective Time, Acquiror shall, or shall cause
the Surviving Corporation to, pay as incurred such Indemnified Party's
reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith.
(b) For six years after the Effective Time, Acquiror will either (i) at
all times maintain at least $5,000,000 in cash, marketable securities and
unrestricted lines of credit to be available to indemnify the Indemnified
Parties in accordance with Section 5.14(a) above (but such amount shall not
be construed as a limitation of any such indemnification), or (ii) cause
the Surviving Corporation to use its best efforts to provide officers' and
directors' liability insurance in respect of acts or omissions occurring on
or prior to the Effective Time covering each such person currently covered
by Target's officers' and directors' liability insurance policy on terms
substantially similar to those of such policy in effect on the date hereof,
provided that in satisfying its obligation under this Section, Acquiror
shall not be obligated to cause the Surviving Corporation to pay premiums
in excess of 150% of the amount per annum Target paid in its last full
fiscal year, which amount has been disclosed to Acquiror and if the
Surviving Corporation is unable to obtain the insurance required by this
Section 5.14, it shall obtain as much comparable insurance as possible for
an annual premium equal to such maximum amount.
(c) To the extent there is any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) against
an Indemnified Party that arises out of or pertains to any action or
omission in his or her capacity as a director, officer, employee, fiduciary
or agent of Target occurring prior to the Effective Time, or arises out of
or pertains to the transactions contemplated by this Agreement for a period
of six years after the Effective Time (whether arising before or after the
Effective Time), such Indemnified Party shall be entitled to be represented
by counsel and following the Effective Time (i) any counsel retained by the
Indemnified Parties shall be reasonably satisfactory to the Surviving
Corporation and Acquiror, (ii) the Surviving Corporation and Acquiror shall
pay the reasonable fees and expenses of such counsel, promptly after
statements therefor are received and (iii) the Surviving Corporation and
Acquiror will cooperate in the defense of any such matter; provided,
however, that neither the Surviving Corporation nor Acquiror shall be
liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld); and provided further, that, in
the event that any claim or claims for indemnification are asserted or made
within such six-year period, all rights to indemnification in respect of
any such claim or claims shall continue until the disposition of any and
all such claims. The Indemnified Parties as a group shall be entitled to
reimbursement for only one law firm (in addition to local counsel) to
represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(d) The provisions of this Section 5.14 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives.
29
5.15 Option Agreement. Concurrently with the execution of this Agreement,
Target shall deliver to Acquiror an executed Option Agreement in the form of
Exhibit C attached hereto. Target agrees to fully perform its obligations
under the Option Agreement.
5.16 Listing of Additional Shares. Prior to the Effective Time, Acquiror
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares referred to in Section 6.1(f).
5.17 Nasdaq Quotation. Target and Acquiror agree to continue the quotation
of Target Common Stock and Acquiror Common Stock, respectively, on the Nasdaq
National Market during the term of the Agreement so that, to the extent
necessary, appraisal rights will not be available to stockholders of Target
under Section 262 of the Delaware Law.
5.18 Pooling Letters.
(a) Target shall use all reasonable efforts to cause to be delivered to
Acquiror a letter of Target's independent auditors, dated on or prior to
the date of this Agreement and confirmed in writing two business days
before the date of the Proxy Statement to the effect that Target qualifies
as an entity that may be a party to a business combination for which the
pooling-of-interest method of accounting would be available and in a form
reasonably satisfactory to Acquiror and customary in scope and substance
for letters delivered by independent public accountants in connection with
transactions of this type.
(b) Acquiror shall use all reasonable efforts to cause to be delivered to
Target a letter of Acquiror's independent auditors, dated on or prior to
the date of this Agreement and confirmed in writing two business days
before the date of the Proxy Statement regarding concurrence with
Acquiror's management's conclusion regarding appropriateness of pooling-of-
interest accounting treatment for the Merger under APB Opinion No. 16 if
consummated in accordance with this Agreement and in a form reasonably
satisfactory to Target and customary in scope and substance for letters
delivered by independent public accountants in connection with transactions
of this type.
5.19 Participation Agreement. Target shall use its best efforts, on behalf
of Acquiror and pursuant to the request of Acquiror, to cause each Target
stockholder named in Schedule 5.19 of the Disclosure Letter to execute and
deliver to Acquiror a Participation Agreement in substantially the form of
Exhibit D attached hereto concurrently with the execution of this Agreement
(and in each case no later than the date prior to the time that the
preliminary proxy materials are filed with the SEC pursuant to Section 5.1).
Target shall use its commercially reasonable efforts to provide to Acquiror,
as promptly as practicable following the date hereof, a letter correctly
stating on Schedule 5.19 of the Disclosure Letter the number of shares of
Target Common Stock beneficially owned by each person listed.
5.20 Employment and Noncompetition Agreements. Prior to the Effective Time,
Acquiror shall enter into an Employment and Noncompetition Agreement (i) in
the form of Exhibit E-1 attached hereto with each of the individuals named on
Schedule 5.20(a) of the Disclosure Letter and (ii) in the form of Exhibit E-2
attached hereto with each of the individuals named on Schedule 5.20(b) of the
Disclosure Letter; provided, however, that this covenant shall not be deemed
to have been breached as a result of any individual named on Schedule 5.20(a)
or Schedule 5.20(b) of the Disclosure Letter failing to enter into any such
agreement.
5.21 Amendment to Registration Rights. Target shall use its commercially
reasonably efforts to obtain such amendments to registration rights agreements
to which it is a party as may be requested by Acquiror.
5.22 FIRPTA. Acquiror and Target shall use commercially reasonable efforts
to timely comply with the notice requirements of Income Tax Regulations,
Section 1.897-2(h).
5.23 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing
30
under this Agreement. Each party hereto, at the reasonable 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.
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 consummate and
effect the Merger shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, by agreement of all the parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of Target
and the stockholders of Acquiror (as described in Section 2.24) under
Delaware Law and under NASD Rule 4460(i).
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
respect of the Proxy Statement, shall have been initiated or threatened to
either party by the SEC.
(c) No Injunctions or Restraints: Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by an administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, which makes the consummation of the
Merger illegal or prevents or prohibits the Merger. In the event an
injunction or other order shall have been issued, each party agrees to use
its reasonable diligent efforts to have such injunction or other order
lifted.
(d) Governmental Approval. All material authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation
of the transactions contemplated by this Agreement and the Certificate of
Merger shall have been filed, expired or been obtained, other than those
that, individually or in the aggregate, the failure to be filed, expired or
obtained would not, in the reasonable opinion of Acquiror after
consultation with Target, have a Material Adverse Effect on Target or
Acquiror.
(e) Tax Opinion. Acquiror and Target shall have received substantially
identical written opinions of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., legal
counsel to Acquiror, and ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, legal counsel to
Target, respectively, in form and substance reasonably satisfactory to
them, and shall be to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinions shall not have been withdrawn. In rendering such opinions, counsel
shall be entitled to rely upon, among other things, reasonable assumptions
as well as representations of Acquiror, Merger Sub and Target and certain
stockholders of Target.
(f) Listing of Additional Shares. The filing with the Nasdaq National
Market of a Notification Form for listing of Additional Shares with respect
to the shares of Acquiror Common Stock issuable upon conversion of the
Target Common Stock in the Merger and upon exercise of the options under
the Target Stock Option Plans assumed by Acquiror shall have been made.
(g) Letter from Accountants. Prior to the Effective Time, each of
Acquiror and Target shall have received a confirming letter from each of
Ernst & Young LLP, independent auditors, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP,
independent auditors, as described in Section 5.18.
31
6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Target:
(a) Representations and Warranties. The representations and warranties of
Acquiror and Merger Sub contained in this Agreement shall be true and
correct as of the Effective Time, with the same force and effect as if made
on and as of the Effective Time, except for such inaccuracies as
individually or in the aggregate that would not have a Material Adverse
Effect on Acquiror, and Target shall have received a certificate to such
effect signed on behalf of Acquiror by the President and Chief Financial
Officer of Acquiror.
(b) Agreements and Covenants. Acquiror and Merger Sub shall have
performed or complied in all material respects with all covenants,
obligations, conditions and agreements required by this Agreement to be
performed or complied with by them on or prior to the Effective Time; and,
Target shall have received a certificate to such effect signed by the
President and Chief Financial Officer of Acquiror.
(c) Legal Opinion. Target shall have received a legal opinion from
Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C., counsel to Acquiror,
substantially in the form of Exhibit F hereto.
(d) No Material Adverse Effect. There shall not have occurred any
Material Adverse Effect with respect to Acquiror.
(e) Third Party Consents. Target shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in connection with the Merger under
any material contract of Acquiror or any of its subsidiaries or otherwise,
except where the failure to obtain such consent or approval would not have
a Material Adverse Effect on Acquiror.
(f) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's business following
the Merger shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other Governmental Entity, domestic
or foreign, seeking the foregoing be pending except where the existence of
any of the foregoing items would not have a Material Adverse Effect on
Acquiror.
(g) Appointment to Board of Acquiror. ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall have been
appointed to the Board of Directors of Acquiror, contingent upon the
consummation of the Merger.
6.3 Additional Conditions to the Obligations of Acquiror and Merger Sub. The
obligations of Acquiror and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by
Acquiror:
(a) Representations and Warranties. The representations and warranties of
Target contained in this Agreement shall be true and correct as of the
Effective Time, with the same force and effect as if made on and as of the
Effective Time, except, for such inaccuracies as individually or in the
aggregate that would not have a Material Adverse Effect on Target; and,
Acquiror and Merger Sub shall have received a certificate to such effect
signed on behalf of Target by the President and Chief Financial Officer of
Target.
(b) Agreements and Covenants. Target shall have performed or complied in
all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
it on or prior to the Effective Time, and the Acquiror and Merger Sub shall
have received a certificate to such effect signed by the President and
Chief Financial Officer of Target.
(c) Legal Opinion. Acquiror shall have received a legal opinion from
▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, legal counsel to Target, in substantially
the form of Exhibit G.
(d) Third Party Consents. Acquiror shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger
under any material contract of Target or any of its subsidiaries or
otherwise, except where the failure to obtain such consent or approval
would not have a Material Adverse Effect on Target.
32
(e) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation
of the business of Target and its subsidiaries, following the Merger shall
be in effect, nor shall any proceeding brought by an administrative agency
or commission or other Governmental Entity, domestic or foreign, seeking
the foregoing be pending, except where the existence of any of the
foregoing items would not have a Material Adverse Effect on Target.
(f) No Material Adverse Effect. There shall not have occurred any
Material Adverse Effect with respect to Target.
(g) Affiliate Agreements. Acquiror shall have received from each of the
Affiliates of Target an executed Affiliate Agreement in substantially the
form attached hereto as Exhibit B-1.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Target and by the stockholders of Acquiror, this Agreement may
be terminated:
(a) by mutual written consent duly authorized by the Board of Directors
of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the terminating
party, the Closing shall not have occurred on or before April 15, 1997
(provided, a later date may be agreed upon in writing by the parties
hereto, and provided further that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any party whose action
or failure to act has been the cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a breach of this Agreement);
(c) by Acquiror, (i) upon a breach of any representation, warranty,
covenant or agreement on the part of Target set forth in this Agreement, or
if any representation or warranty of Target shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided
that if such inaccuracy in Target's representations and warranties or
breach by Target is curable by Target through the exercise of its
commercially reasonable efforts within ten business days of receipt by
Target of written notice thereof, Acquiror may not terminate this Agreement
under this Section 7.1(c)(i) during such ten business day period, so long
as Target continues to exercise such commercially reasonable efforts, and
provided further that the right to terminate this Agreement by Acquiror
under this Section 7.1(c)(i) shall not be available to Acquiror where
Acquiror is at that time in willful breach of this Agreement; (ii) if the
Board of Directors of Target shall have withdrawn or modified its
recommendation of this Agreement or the Merger in a manner adverse to
Acquiror or shall have resolved to do any of the foregoing, provided that
the right to terminate this Agreement by Acquiror under this Section
7.1(c)(ii) shall not be available to Acquiror where Acquiror is at that
time in willful breach of this Agreement, or (iii) for any reason Target
fails to call and hold the Target Stockholders Meeting by April 15, 1997
and Target is at that time in willful breach of this Agreement, provided
that the right to terminate this Agreement by Acquiror under this Section
7.1(c)(iii) shall not be available to Acquiror where Acquiror is at that
time in willful breach of this Agreement;
(d) by Target (i) upon a breach of any representation, warranty, covenant
or agreement on the part of Acquiror set forth in this Agreement, or if any
representation or warranty of Acquiror shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided that if such
inaccuracy in Acquiror's representations and warranties or breach by
Acquiror
33
is curable by Acquiror through the exercise of its commercially reasonable
efforts within ten business days of receipt by Acquiror of written notice
thereof, Target may not terminate this Agreement under this Section
7.1(d)(i) during such ten business day period, so long as Acquiror
continues to exercise such commercially reasonable efforts, and provided
further that the right to terminate this Agreement by Target under this
Section 7.1(d)(i) shall not be available to Target where Target is at that
time in willful breach of this Agreement; (ii) if the Board of Directors of
Acquiror shall have withdrawn or modified its recommendation of this
Agreement or the Merger in a manner adverse to Target or shall have
resolved to do any of the foregoing, provided that the right to terminate
this Agreement by Target under this Section 7.1(d)(ii) shall not be
available to Target where Target is at that time in willful breach of this
Agreement, or (iii) for any reason Acquiror fails to call and hold the
Acquiror Stockholders Meeting by April 15, 1997 and Acquiror is at that
time in willful breach of this Agreement, provided that the right to
terminate this Agreement by Target under this Section 7.1(d)(iii) shall not
be available to Target where Target is at that time in willful breach of
this Agreement;
(e) by Target if a Trigger Event (as defined in Section 7.3(f)) or
Takeover Proposal (as defined in Section 7.3(g)) shall have occurred and
the Board of Directors of Target in connection therewith, after
consultation with its legal counsel, withdraws or modifies its approval and
recommendation of this Agreement and the transactions contemplated hereby
after, in the case of the termination by Target, determining that to cause
Target to proceed with the transactions contemplated hereby would not be
consistent with the Board of Directors' fiduciary duty to the stockholders
of Target;
(f) by Acquiror, if following a Trigger Event or Takeover Proposal, the
Board of Directors of Target shall withdraw or modify its recommendation of
this Agreement and the transactions contemplated hereby;
(g) by either Acquiror or Target, if there shall have occurred any
Material Adverse Effect with respect to the other party since the date of
this Agreement;
(h) by either Acquiror or Target if (i) any permanent injunction or other
order of a court or other competent authority preventing the consummation
of the Merger shall have become final and nonappealable or (ii) any
required approval of the stockholders of Target or the stockholders of
Acquiror shall not have been obtained by reason of the failure to obtain
the required vote upon a vote held at a duly held meeting of stockholders
or at any adjournment thereof; or
(i) by Target, in the event (i) of the acquisition, by any person or
group of persons (other than persons or groups of persons who (A) acquired
shares of Acquiror Common Stock pursuant to any merger of Acquiror in which
Acquiror was the surviving corporation and stock holders of Acquiror
represent less than 70% of the outstanding shares of the surviving
corporation following such transaction or any acquisition by Acquiror of
all or substantially all of the capital stock or assets of another person
or (B) disclose their beneficial ownership of shares of Acquiror Common
Stock on Schedule 13G under the Exchange Act), of beneficial ownership of
30% or more of the outstanding shares of Acquiror Common Stock (the terms
"person," "group" and "beneficial ownership" having the meanings ascribed
thereto in Section 13(d) of the Exchange Act and the regulations
promulgated thereunder), (ii) the Board of Directors of Acquiror accepts or
publicly recommends acceptance of an offer from a third party to acquire
50% or more of the outstanding shares of Acquiror Common Stock or of
Acquiror's consolidated assets; or (iii) Acquiror acquires or agrees to
acquire by merging or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof and such acquisition requires the approval of the stock
holders of Acquiror in accordance with Delaware Law or NASD Rule 4460(i).
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Acquiror, Merger Sub or
Target or their respective officers, directors, stockholders or affiliates,
except to the extent that such termination results from the willful breach by
a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3
34
(Expenses and Termination Fees) and this Section 7.2 shall remain in full
force and effect and survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to Sections 7.3(b), 7.3(c), 7.3(d) and 7.3(e), whether or not
the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including,
without limitation, the fees and expenses of its advisers, accountants and
legal counsel) shall be paid by the party incurring such expense, except
that expenses incurred in connection with printing the Proxy Materials and
the Registration Statement, registration and filing fees incurred in
connection with the Registration Statement, the Proxy Materials and the
listing of additional shares pursuant to Section 6.1(f) and fees, costs and
expenses associated with compliance with applicable state securities laws
in connection with the Merger shall be shared equally by Target and
Acquiror.
(b) In the event that (i) Target shall terminate this Agreement pursuant
to Section 7.1(e), (ii) either Acquiror or Target shall terminate this
Agreement pursuant to Section 7.1(h)(ii) following a failure of the
stockholders of Target to approve this Agreement and, prior to the time of
the meeting of Target's stockholders, there shall have been (A) a Trigger
Event or (B) a Takeover Proposal, (iii) Acquiror shall terminate this
Agreement pursuant to Section 7.1(c)(iii) and, prior thereto, there shall
have been (A) a Trigger Event or (B) a Takeover Proposal, or (iv) Acquiror
shall terminate this Agreement pursuant to Section 7.1(f), then Target
shall immediately reimburse Acquiror for up to $1,000,000 of out-of-pocket
costs and expenses incurred by Acquiror in connection with this Agreement
and the transactions contemplated hereby (including, without limitation,
the fees and expenses of its advisors, accountants and legal counsel), and,
in addition Target shall promptly pay to Acquiror the sum of $6,000,000.
(c) In the event that Target shall terminate this Agreement pursuant to
Section 7.1(d)(ii), 7.1(d)(iii) or, following a failure of the stockholders
of Acquiror to approve this Agreement, pursuant to 7.1(h)(ii), then
Acquiror shall immediately reimburse Target for up to $1,000,000 of out-of-
pocket costs and expenses incurred by Target in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel), and, in addition Acquiror shall promptly pay to Target the sum of
$20,000,000.
(d) In the event that Acquiror shall terminate this Agreement pursuant to
Section 7.1(c) or, following a failure of the stockholders of Target to
approve this Agreement, pursuant to 7.1(h)(ii), Target shall promptly
reimburse Acquiror for up to $1,000,000 of out-of-pocket costs and expenses
incurred by Acquiror in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses
of its advisors, accountants and legal counsel).
(e) In the event that Target shall terminate this Agreement pursuant to
Section 7.1(d)(i), Acquiror shall promptly reimburse Target for up to
$1,000,000 of out-of-pocket costs and expenses incurred by Acquiror in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel).
(f) As used herein, a "Trigger Event" shall occur if any Person (other
than a person disclosing its beneficial ownership of shares of Target's
Common Stock on Schedule 13G under the Exchange Act) acquires securities
representing 20% or more, or commences a tender or exchange offer following
the successful consummation of which the offeror and its affiliate would
beneficially own securities representing 20% or more, of the voting power
of Target.
(g) As used in Section 7.3(b), "Takeover Proposal" shall occur if there
is an offer or proposal for, or any indication of interest in (where such
indication of interest has been disclosed publicly), a merger or other
business combination involving Target or the acquisition of 20% or more of
the outstanding shares of capital stock of Target or the sale or transfer
of any material assets (excluding the sale or disposition of assets in the
ordinary course of business) of Target, or any of its subsidiaries, other
than transactions contemplated by this Agreement and transactions by
persons disclosing their beneficial ownership of shares of Target's Common
Stock on Schedule 13G under the Exchange Act.
35
(h) Payment of any of the amounts described in Section 7.3(b), 7.3(c),
7.3(d) or 7.3(e) shall not be in lieu of damages in the event of breach of
this Agreement.
7.4 Amendment. The boards of directors of the parties hereto may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto; provided that an amendment
made subsequent to adoption of the Agreement by the stockholders of Target or
Merger Sub shall not (i) alter or change the amount or kind of consideration
to be received on conversion of the Target Common Stock, (ii) alter or change
any term of the Certificate of Incorporation of the Surviving Corporation to
be effected by the Merger, or (iii) alter or change any of the terms and
conditions of the Agreement if such alteration or change would adversely
affect the holders of Target Common Stock or Merger Sub Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival at Effective Time. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article 1, Section 5.4
(Confidentiality) 5.7 (Pooling Accounting), 5.8 (Affiliates), 5.12 (Employee
Benefit Plans), 5.14 (Form S-8), 5.15 (Indemnification), 5.21 (Best Efforts
and Further Assurances), 7.3 (Expenses and Termination Fees), 7.4 (Amendment),
and this Article VIII shall survive the Effective Time.
8.2 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 confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Rational Software Corporation
▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
36
(b) if to Target, to:
SQA, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
High Street Tower
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
8.3 Interpretation. When a reference is made in this Agreement to Exhibits
or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including," when used herein shall be deemed in each case to be followed by
the words "without limitation." The phrase "made available" in this Agreement
shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement", "the date hereof", and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
November 12, 1996. 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.
8.4 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 parties, it being understood that
all parties need not sign the same counterpart.
8.5 Entire Agreement; Nonassignability; Parties in Interest. This Agreement
and the documents and instruments and other agreements specifically referred
to herein or delivered pursuant hereto, including the Exhibits, the Schedules,
including the Target Disclosure Letter and the Acquiror Disclosure Letter (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,
except for the Confidentiality Agreement, which shall continue in full force
and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(c) and (f), 1.8-1.10, 5.11, 5.13 and 5.14; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
8.6 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.
37
8.7 Remedies Cumulative. 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.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law. Each
of the parties hereto irrevocably consents to the exclusive jurisdiction of
the state or federal courts located in the State of Delaware 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 and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation 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.
38
IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
Rational Software Corporation
/s/ ▇▇▇▇ ▇. ▇▇▇▇
By___________________________________
Chairman and Chief Executive
Officer
Sunshine Acquisition
/s/ ▇▇▇▇ ▇. ▇▇▇▇
By___________________________________
President
SQA, Inc.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By___________________________________
President and Chief Executive
Officer
39
EXHIBIT A
CERTIFICATE OF MERGER
MERGING
SUNSHINE ACQUISITION CORPORATION
WITH AND INTO TARGET
----------------
Pursuant to Section 251 of the General Corporation Law of the State of
Delaware
----------------
Sunshine Acquisition Corporation, a Delaware corporation ("Merger Sub"), and
SQA, Inc., a Delaware corporation ("Target"), DO HEREBY CERTIFY AS FOLLOWS:
FIRST: That Merger Sub was incorporated on November 8, 1996, pursuant to the
Delaware General Corporation Law (the "Delaware Law"), and that Target was
incorporated on , , pursuant to the Delaware Law.
SECOND: That an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of November , 1996, as amended, among Acquiror, a
California corporation, Merger Sub and Target, setting forth the terms and
conditions of the merger of Merger Sub with and into Target (the "Merger"),
has been approved, adopted, certified, executed and acknowledged by each of
the constituent corporations in accordance with Section 251 of the Delaware
Law.
THIRD: That the name of the surviving corporation (the "Surviving
Corporation") shall be .
FOURTH: That pursuant to the Reorganization Agreement, the Restated
Certificate of Incorporation of the Surviving Corporation is amended to read
in its entirety as set forth in Exhibit A hereto.
FIFTH: That an executed copy of the Reorganization Agreement is on file at
the principal place of business of the Surviving Corporation at the following
address:
Rational Software Corporation ▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇
▇▇▇▇▇
SIXTH: That a copy of the Reorganization Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of any
constituent corporation.
SEVENTH: That the Merger shall become effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, each of Merger Sub and Target has caused this
Certificate of Merger to be executed in its corporate name this day of
, 199 .
Sunshine Acquisition Corporation
By___________________________________
President and Chief Executive
Officer
Attest:
, Secretary
SQA, Inc.
By___________________________________
President and Chief Executive
Officer
Attest:
, Secretary
40