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EXHIBIT 2.1
Agreement and Plan of Reorganization
among
Keynote Systems, Inc.,
Roadrunner Acquisition Corporation and
Velogic, Inc.
May 9, 2000
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made
and entered into as of May 9, 2000 (the "Agreement Date") by and among Keynote
Systems, Inc., a Delaware corporation ("Keynote"), Roadrunner Acquisition
Corporation, a Delaware corporation that is a wholly-owned subsidiary of Keynote
("Sub"), and Velogic, Inc., a California corporation ("Velogic").
Recitals
A. The parties intend that, Sub will be merged with and into Velogic
in a reverse triangular merger, with Velogic to be the surviving corporation
(the "Merger"), all pursuant to the terms and conditions of this Agreement and
applicable law. The parties also intend for the Merger to be treated as a
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and to be treated as a "purchase" transaction for
accounting purposes.
B. Upon the Effective Time of the Merger, and subject to the terms
and conditions hereof, (i) the shares of capital stock of Velogic that are
outstanding immediately prior to the effectiveness of the Merger will be
converted into shares of Keynote Common Stock (as defined in Section 1.4), (ii)
options, warrants and other rights to purchase Velogic capital stock (other than
the Notes and the Note Warrants, as defined in Section 2.4) that are outstanding
immediately prior to the effectiveness of the Merger will be converted into
options, warrants and other rights to purchase Keynote Common Stock, and (iii)
Sub will be merged with and into Velogic, in each case, as provided in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, covenants and conditions contained herein, the parties hereby agree as
follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms will have the meanings
set forth below:
1.1 "Conversion Number" means the quotient (calculated to the fourth
decimal place) obtained by dividing (a) the Merger Shares by (b) the Velogic
Fully Diluted Share Number.
1.2 "Keynote Ancillary Agreements" means, collectively, each
certificate to be delivered by Keynote or an officer or officers of Keynote at
the Closing pursuant to Article 8 of this Agreement and each agreement (other
than this Agreement) which Keynote is to enter into as a party thereto pursuant
to this Agreement.
1.3 "Keynote Average Price Per Share" means $51.77 per share, the
average closing price of Keynote Common Stock on the Nasdaq Stock Market for the
ten consecutive trading days prior to the day before the Agreement date.
1.4 "Keynote Common Stock" means Keynote Common Stock, par value
$0.01 per share.
1.5 The "Effective Time" means the date and time on which the Merger
first becomes legally effective under the laws of the States of Delaware and
California as a result of the filing with the Delaware and California
Secretaries of State of Certificates of Merger in substantially the forms
attached hereto as Exhibit A-1 and Exhibit A-2 (the "Certificates of Merger")
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and any
required related certificates pursuant to, and in conformity with, the
requirements of Section 252 of the Delaware General Corporation Law ("Delaware
Law") and Section 1103 of the California Corporations Code ("California Law").
1.6 "Encumbrance" means, with respect to any asset, any mortgage,
deed of trust, lien, pledge, charge, security interest, title retention devices,
collateral assignments, claims, charges, restrictions or other encumbrances of
any kind in respect of such asset.
1.7 "knowledge," when used with reference to (a) an individual, means
the actual knowledge after reasonable inquiry of such individual, or (b) a
person that is not an individual, means the collective actual knowledge of the
officers and directors of such party, after reasonable inquiry of the employees
and agents of such party.
1.8 "Legal Requirements" means any federal, state, local, municipal,
foreign or other law, statute, constitution, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Authority.
1.9 "Material Adverse Change" or "Material Adverse Effect," when used
with reference to any entity or group of related entities, means any event,
change, violation, inaccuracy, circumstance or effect (regardless of whether or
not such events or changes are inconsistent with the representations or
warranties made by such party in this Agreement) that is or is reasonably likely
to be, individually or in the aggregate, materially adverse to the condition
(financial or otherwise), capitalization, properties, employees, assets
(including intangible assets), business, operations or results of operations of
such entity and its subsidiaries, taken as a whole; provided, that in no event
shall (a) a change in the price of the publicly traded stock of Keynote; (b)
conditions affecting the industry generally in which Keynote operates or the
U.S. economy as a whole; (c) continuing losses of Keynote, provided, that such
losses do not materially increase between the Agreement Date and the Closing
constitute, in and of itself, a Material Adverse Change or Material Adverse
Effect in Keynote; provided further, that in no event shall (a) conditions
affecting the industry generally in which Velogic operates or the U.S. economy
as a whole; (b) continuing losses of Velogic, provided, that such losses do not
materially increase between the Agreement Date and the Closing; or (c) any
effect on Velogic directly resulting from actions not taken by Velogic pursuant
to Section 5.3 due to prior written consent not being provided by Keynote
following a written request from Velogic to Keynote to undertake such actions,
constitute, in and of itself, a Material Adverse Change or Material Adverse
Effect in Velogic.
1.10 "Merger Shares" means a number of shares of Keynote Common Stock
equal to the difference between (a) 850,000 shares of Keynote Common Stock
(adjusted to reflect any stock split, stock dividend, combination or other
change in Keynote Common Stock after the date of this agreement) minus (b) the
quotient of (i) $1,000,000 divided by (ii) the Keynote Average Price Per Share,
subject to adjustment as provided in Section 11.8.
1.11 "Percentage Interests" means the respective percentages of the
total number of shares of Velogic Common Stock and Velogic Preferred Stock (on
an as converted to Velogic common stock basis) held by each of the Velogic
Shareholders, determined immediately prior to
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the Effective Time, after all exercises and conversions of Velogic Warrants and
Velogic Options that are exercised or converted prior to the Effective Time.
1.12 "person" means any individual, corporation (including any
not-for-profit corporation), partnership, limited liability partnership, joint
venture, estate, trust, firm, company (including any limited liability company
or joint stock company), association, organization, entity or Governmental
Authority.
1.13 "Principal Velogic Shareholders" means, collectively, those
shareholders of Velogic set forth on Schedule 1.13 to the Velogic Disclosure
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Letter.
1.14 "Sub Ancillary Agreements" means, collectively, each certificate
to be delivered by Sub or an officer or officers of Sub at the Closing pursuant
to Article 8 of this Agreement and each agreement (other than this Agreement)
which Sub is to enter into as a party thereto pursuant to this Agreement.
1.15 "Termination Date" means June 30, 2000.
1.16 "Velogic Ancillary Agreements" means, collectively, the
Certificates of Merger, each certificate to be delivered by Velogic or an
officer or officers of Velogic at the Closing pursuant to Article 9 of this
Agreement, and each other agreement (other than this Agreement) which Velogic is
to enter into as a party thereto pursuant to this Agreement.
1.17 "Velogic Common Stock" means common stock, $0.001 par value per
share, of Velogic.
1.18 "Velogic Fully Diluted Share Number" means the aggregate number
of shares of Velogic Common Stock, Velogic Preferred Stock, Velogic Options and
Velogic Warrants (each, on a fully exercised and converted to Common Stock
basis) that are issued and outstanding at the Effective Time.
1.19 "Velogic Options" shall have the meaning given in Section 2.3 of
this Agreement.
1.20 "Velogic Preferred Stock" means Series A Preferred Stock, $0.001
par value per share, of Velogic.
1.21 "Velogic Shareholders" means the record holders of issued and
outstanding Velogic Common Stock and Velogic Preferred Stock immediately prior
to the Effective Time of the Merger.
1.22 "Velogic Warrants" shall have the meaning given in Section 2.4
of this Agreement.
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Article 1 will have the meanings assigned to such terms in this
Agreement.
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ARTICLE 2
Plan of Reorganization
2.1 Conversion of Shares.
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2.1.1 Conversion of Sub Stock. At the Effective Time, each share
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of Sub common stock that is issued and outstanding immediately prior to the
Effective Time will by virtue of the Merger and without the need for any further
action on the part of the holder thereof, be converted into and become one (1)
share of Velogic Common Stock that is issued and outstanding immediately after
the Effective Time, and the shares of Velogic Common Stock into which the shares
of Sub Common Stock are so converted in the Merger will be the only shares of
capital stock of Velogic that are issued and outstanding immediately after the
Effective Time.
2.1.2 Conversion of Velogic Common Stock and Velogic Preferred
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Stock. Subject to the terms and conditions of this Agreement, at the Effective
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Time, each share of Velogic Common Stock and of Velogic Preferred Stock that is
issued and outstanding immediately prior to the Effective Time will, by virtue
of the Merger and without the need for any further action on the part of the
holder thereof (except as expressly provided herein), be converted into and
represent the right to receive the number of shares (or fraction of a share) of
Keynote Common Stock that is equal to the Conversion Number plus, if applicable,
the number of shares as provided for in Schedule 2.1.2 to this Agreement. The
preceding provisions of this Section 2.1.2 are subject to the provisions of
Section 2.1.3 (regarding rights of holders of Dissenting Shares), Section 2.1.4
(regarding the elimination of fractional shares of Keynote Common Stock) and
Section 2.5 (regarding the withholding of Escrow Shares).
2.1.3 Dissenting Shares. Holders of shares of Velogic Common
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Stock who have complied with all requirements for perfecting shareholders'
rights of appraisal, as set forth in Section 1301 of California Law, shall be
entitled to their rights under the California Law with respect to such shares
("Dissenting Shares") and such Dissenting Shares will not be converted into
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shares of Keynote Common Stock in the Merger; provided, however, that shares of
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the capital stock of Velogic that are outstanding immediately prior to the
Effective Time of the Merger and with respect to which dissenting shareholders'
rights of appraisal under the California have not been properly perfected will,
when such dissenting shareholders' rights can no longer be legally exercised
under the California Law, be converted into Keynote Common Stock as provided in
Section 2.1.2.
2.1.4 Fractional Shares. No fractional shares of Keynote Common
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Stock will be issued in connection with the Merger. In lieu thereof, each holder
of Velogic Common Stock who would otherwise be entitled to receive a fraction of
a share of Keynote Common Stock pursuant to Section 2.1.2, computed after
aggregating all shares of Keynote Common Stock to be received by such holder
pursuant to Section 2.1.2, will instead receive from Keynote, upon surrender of
such holder's Velogic Certificates (as such term is defined in Section 7.2.1)
pursuant to Article 7 hereof, an amount of cash (rounded to the nearest cent)
equal to the product obtained by multiplying (a) the Keynote Average Price Per
Share by (b) the fraction of a share of Keynote Common Stock that such holder
would otherwise have been entitled to receive.
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2.1.5 Continuation of Vesting and Repurchase Rights. If any
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shares of Velogic Common Stock outstanding immediately prior to the Effective
Time are at the Effective Time unvested or are subject to a repurchase option
(other than a right of first refusal) or any other condition providing that such
shares may be forfeited to Velogic upon any termination of the shareholder's
employment, directorship or other relationship with Velogic (and/or any
affiliate of Velogic) under the terms of any restricted stock purchase
agreement, stock option agreement (including any stock option agreement under
the Velogic Plan (as defined in Section 2.3 below)) or other agreement with
Velogic ("Unvested Velogic Shares"), then such repurchase option or other
condition shall be assigned to Keynote and the shares of Keynote Common Stock
issued upon the conversion of such Unvested Velogic Shares in the Merger will
continue to be unvested and will continue to be subject to the same repurchase
options or conditions, as applicable, immediately following the Effective Time
as they were subject to immediately prior to the Effective Time. The
certificates representing such shares of Keynote Common Stock shall accordingly
be marked with appropriate legends noting such repurchase options or other
conditions. Velogic shall take all actions that may be necessary to ensure that,
from and after the Effective Time, Keynote is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement (other than a right of first refusal).
2.2 Adjustments for Capital Changes. Notwithstanding the
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provisions of Section 2.1, if Keynote recapitalizes, either through a
subdivision (or stock split) of any of its outstanding shares of Keynote Common
Stock into a greater number of such shares or a combination (or reverse stock
split) of any of its outstanding shares of Keynote Common Stock into a lesser
number of such shares, or reorganizes, reclassifies or otherwise changes its
outstanding shares of Keynote Common Stock into the same or a different number
of shares of other classes or series of Keynote stock (other than through a
subdivision or combination of shares provided for in the preceding clause), or
declares a dividend or other distribution on its outstanding shares payable in
shares of Keynote Common Stock in shares or securities convertible into shares
of Keynote Common Stock and/or other Keynote equity securities (each, a "Capital
Change"), at any time after the Agreement Date and prior to the Effective Time,
then the Keynote Average Price Per Share and the Conversion Number will be
proportionally and equitably adjusted.
2.3 Velogic Options. At the Effective Time, all outstanding options
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(collectively, "Velogic Options") to purchase Velogic Common Stock, including
all Velogic Options granted under Velogic's 1998 Stock Option Plan (the "Velogic
Plan") will be assumed by Keynote and Velogic's repurchase right with respect to
any unvested shares of Velogic Common Stock acquired upon the exercise of
Velogic Options shall be assigned to Keynote. Each Velogic Option so assumed by
Keynote shall be entitled, in accordance with the terms of such option, to
purchase after the Effective Time that number of shares of Keynote Common Stock,
determined by multiplying (a) the number of shares of Velogic Common Stock
subject to such Velogic Option at the Effective Time by (b) the Conversion
Number, and the exercise price per share for each such assumed Option will equal
the exercise price of the Velogic Option immediately prior to the Effective Time
divided by the Conversion Number. Holders of Velogic Options at the Effective
Time shall be entitled to receive a portion of any Earnout Amount (as defined in
Schedule 2.1.2 to this Agreement) as provided in Schedule 2.1.2 to this
Agreement. If the foregoing calculation results in an assumed Velogic Option
being exercisable (i) for a fraction of a share of Keynote Common Stock, then
the number of shares of Keynote Common Stock
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subject to such option will be rounded down to the nearest whole number of
shares of Keynote Common Stock, or (b) for a fraction of a cent, then the
exercise price of such Velogic Option will be rounded up to the nearest cent.
The term, exercisability, vesting schedule, status as an "incentive stock
option" under Section 422A of the Code, if applicable, and all other terms of
the Velogic Options will otherwise be unchanged. Continuous employment with
Velogic will be credited to an optionee for purposes of determining the number
of shares that are vested after the Effective Time.
2.4 Velogic Warrants. At the Effective Time, all then outstanding
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warrants or rights to purchase or otherwise acquire securities that are
exercisable or convertible, ultimately or potentially, into any Velogic Common
Stock (each, a "Velogic Warrant"), excluding the $2.0 million principal amount
of promissory notes dated March 9, 2000 (the "Notes") together with the warrants
issued in connection therewith (the "Note Warrants") which Notes will become due
and payable and which Note Warrants will be cancelled at the Closing as provided
in Section 9.20, shall by virtue of the Merger, and without any further action
on the part of any holder thereof, be assumed by Keynote and converted into a
warrant or like security (each, a "Keynote Warrant") to purchase that number of
shares of Keynote Common Stock determined by multiplying (a) the number of
shares of Velogic Common Stock that are subject to such Velogic Warrant
immediately prior to the Effective Time by (b) the Conversion Number, at an
exercise price per share of such Keynote Common Stock equal to the exercise
price per share of Velogic Common Stock that was in effect for such Velogic
Warrant immediately prior to the Effective Time divided by the Conversion
Number. If the foregoing calculation results in an assumed Velogic Warrant being
exercisable (a) for a fraction of a share of Keynote Common Stock, then the
number of shares of Keynote Common Stock subject to such Keynote Warrant will be
rounded up to the nearest whole number of shares of Keynote Common Stock, or (b)
for a fraction of a cent, then the exercise price of such Velogic Warrant will
be rounded up to the nearest cent. The exercisability period and other terms and
conditions of the Velogic Warrants will remain unchanged.
2.5 Escrow of Shares. At the Effective Time, Keynote will withhold
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from the shares of Keynote Common Stock to be issued to Velogic Shareholders in
the Merger upon conversion of their Velogic Common Stock and Velogic Preferred
Stock pursuant to Section 2.1.2 above, twenty percent (20%) of the shares of
Keynote Common Stock issued to such Velogic Shareholders pursuant to Section
2.1.2 (such withheld shares of Keynote Common Stock and any dividends or
distributions received in respect of such shares of Keynote Common Stock, being
hereinafter referred to as the "Escrow Shares"), and will hold the certificates
representing such Escrow Shares as security for the Velogic Shareholders'
indemnification obligations for Damages (as defined in Section 11.2) under
Article 11 hereof. The Escrow Shares will be represented by a certificate or
certificates issued in the names of each Velogic Shareholder in proportion to
each such shareholder's interest therein and will be held by Keynote, subject to
the terms and conditions of Article 11 hereof, until the Release Date (as
defined in Section 11.1 hereof).
2.6 Effects of the Merger. At and upon the Effective Time of the
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Merger:
(a) the separate existence of Sub will cease and Sub will be
merged with and into Velogic, and Velogic will be the surviving corporation of
the Merger (sometimes hereinafter
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referred to as the "Surviving Corporation") pursuant to the terms of this
Agreement and the Certificates of Merger;
(b) the Certificate of Incorporation of Sub will be the Articles
of Incorporation of the Surviving Corporation immediately after the Effective
Time;
(c) the Bylaws of Sub will be the Bylaws of the Surviving
Corporation immediately after the Effective Time;
(d) each share of Velogic Common Stock and of Velogic Preferred
Stock that is outstanding immediately prior to the Effective Time will be
converted as provided in this Article 2;
(e) each Velogic Option and Velogic Warrant that is outstanding
immediately prior to the Effective Time will be assumed and converted as
provided in this Article 2;
(f) each share of Sub common stock that is outstanding
immediately prior to the Effective Time will be converted into one (1) share of
Velogic Common Stock as provided in Section 2.1.1;
(g) the officers of the Surviving Corporation immediately after
the Effective Time will be those individuals who were the officers of Sub
immediately prior to the Effective Time, and each such individual shall,
immediately after the Effective Time, hold the same office or offices of the
Surviving Corporation as the office or offices that such individual held with
Sub immediately prior to the Effective Time;
(h) the members of the Board of Directors of the Surviving
Corporation immediately after the Effective Time will be the members of the
Board of Directors of Sub immediately prior to the Effective Time; and
(i) the Merger will, from and after the Effective Time, have all
of the effects provided by applicable law.
2.7 Securities Law Issues; Registration Rights. Keynote shall issue
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the shares of Keynote Common Stock to be issued to the Velogic Shareholders in
the Merger pursuant to Section 2.1.2 and to be issuable to holders of Velogic
Warrants pursuant to Section 2.4 pursuant to an exemption or exemptions from
registration under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and/or Regulation D promulgated under the Securities Act and
the exemption from qualification under the laws of the State of California and
other applicable state securities laws. Keynote and Velogic shall comply with
all applicable provisions of, and rules under, the Securities Act in connection
with offering and issuance of shares of Keynote Common Stock in the Merger.
Keynote will cause to be filed with the SEC a shelf registration statement on
Form S-3 providing for the resale by the Velogic Shareholders of the shares of
Keynote Common Stock issued to them in the Merger pursuant to Section 2.1.2
hereof, pursuant to the terms and conditions of Article 12 hereof.
2.8 Tax-Free Reorganization. The parties intend to adopt this
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Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of
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Section 368(a) of the Code. Each of the parties hereto agrees to cooperate in
order to qualify the transaction as a tax-free reorganization, and to report the
Merger for federal and state income tax purposes in a manner consistent with
such characterization. Each party hereto represents and warrants to the other
parties that it has not taken any action or knows of any fact, agreement or
other circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization under Section 368(a) to the Code. From and after
the Effective Time, neither Keynote, Sub nor Velogic shall take any action that
could reasonably be expected to cause the Merger not to be treated as
reorganization under Section 368(a) of the Code. Keynote, Sub and Velogic
covenant to each other that neither Keynote, Sub nor Velogic nor any of their
respective subsidiaries has taken or will take any such action inconsistent with
any representation, warranty, or covenant made or to be made in connection with
opinions to be delivered pursuant to Sections 8.8 and 9.7 hereof.
2.9 Further Assurances. If, at any time before or after the Effective
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Time, Keynote believes or is advised that any further instruments, deeds,
assignments or assurances are reasonably necessary or desirable to consummate
the Merger or to carry out the purposes and intent of this Agreement at or after
the Effective Time, then Keynote, the Surviving Corporation and their respective
officers and directors will execute and deliver all such proper deeds,
assignments, instruments and assurances and do all other things necessary or
desirable to consummate the Merger and to carry out the purposes and intent of
this Agreement.
ARTICLE 3
Representations and Warranties of Velogic
Velogic represents and warrants to Keynote that, except as set forth in
the letter addressed to Keynote from Velogic and dated as of the Agreement Date
(including all schedules thereto) which has been delivered by Velogic to Keynote
concurrently with the parties' execution of this Agreement (the "Velogic
Disclosure Letter"), each of the representations, warranties and statements
contained in the following sections of this Article 3 is true and correct as of
the Agreement Date. For all purposes of this Agreement, the statements contained
in the Velogic Disclosure Letter and its schedules shall also be deemed to be
representations and warranties made and given by Velogic under Article 3 of this
Agreement.
3.1 Organization and Good Standing. Velogic is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California and has continuously been in good standing under the laws of the
State of California at all times since its inception. Velogic has the corporate
power and authority to own, operate and lease its properties and to carry on its
business as now conducted and as proposed to be conducted, and is qualified to
transact business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities make such qualification necessary, except to the extent that any
failure to qualify would not individually or in the aggregate have a Material
Adverse Effect. Velogic has delivered to Keynote true and correct copies of the
currently effective Articles of Incorporation and Bylaws of Velogic, each as
amended to date. Velogic is not in violation of its Articles of Incorporation or
Bylaws.
3.2 Subsidiaries. Velogic does not have any subsidiary or any equity
------------
or ownership interest, whether direct or indirect, in any corporation,
partnership, limited liability company, joint venture or other business entity.
Velogic is not obligated to make nor bound by any
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agreement or obligation to make any investment in or capital contribution in or
on behalf of any other entity.
3.3 Power, Authorization and Validity.
---------------------------------
3.3.1 Power and Authority. Subject to approval by Velogic
-------------------
Shareholders, Velogic has all requisite corporate power and authority to enter
into, execute, deliver and perform its obligations under, this Agreement and all
Velogic Ancillary Agreements and to consummate the Merger. The Merger and the
execution, delivery and performance by Velogic of this Agreement, each of the
Velogic Ancillary Agreements and all other agreements, transactions and actions
contemplated hereby or thereby, have been duly and validly approved and
authorized by Velogic's Board of Directors, and the Principal Velogic
Shareholders have executed and delivered to Keynote Voting Agreements (as
defined in Section 3.25) agreeing to vote in favor of the Merger.
3.3.2 No Consents. Except for approval of the Velogic
-----------
Shareholders that may be required by the California Corporations Code and the
filing of the Certificates of Merger with the Delaware and California
Secretaries of State, no consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency,
commission or other governmental authority (each, a "Governmental Authority"),
or any other person or entity, governmental or otherwise (including any consent,
approval, order, authorization, registration, declaration or filing pursuant to
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act")), is necessary or required to be made or obtained by Velogic to enable
Velogic to lawfully execute and deliver, enter into, and to perform its
obligations under, this Agreement and each of the Velogic Ancillary Agreements,
or to consummate the Merger.
3.3.3 Enforceability. This Agreement and each of the Velogic
--------------
Ancillary Agreements are, or when executed by Velogic will be, and each Voting
Agreement is, valid and binding obligations of Velogic and/or the Principal
Velogic Shareholders, enforceable against Velogic or the Principal Velogic
Shareholders, as the case may be, in accordance with their respective terms,
subject to the effect of (a) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to rights
of creditors generally and (b) rules of law and equity governing specific
performance, injunctive relief and other equitable remedies.
3.4 Capitalization of Velogic.
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3.4.1 Outstanding Securities. The authorized capital stock of
----------------------
Velogic consists entirely of: (a) 50,000,000 shares of Velogic Common Stock, of
which a total of 11,136,980 shares are issued and outstanding and (b) 13,000,000
shares of Velogic Preferred Stock, 11,782,942 of which are issued and
outstanding. The numbers of issued and outstanding shares of Velogic Common
Stock and Velogic Preferred Stock held by each of the Velogic Shareholders are
set forth in Schedule 3.4.1(a) to the Velogic Disclosure Letter. Velogic holds
-----------------
no treasury shares. An aggregate of 8,000,000 shares of Velogic Common Stock and
50,959 shares of Velogic Preferred Stock are reserved and authorized for
issuance pursuant to the Velogic Plan, of which options to purchase a total of
963,667 shares of Velogic Common Stock are outstanding. An aggregate of 438,000
shares of Velogic Common Stock are reserved and
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authorized for issuance pursuant to outstanding Velogic Warrants. Schedule
--------
3.4.1(b) to the Velogic Disclosure Letter lists for each person who holds
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Velogic Options, the name of the holder of each such Velogic Option, the
exercise price for each such Velogic Option, the number of shares or other
securities covered by each such Velogic Option, and the vesting schedule and the
extent each such Velogic Option are vested as of the Agreement Date. True and
complete copies of the standard agreement under the Velogic Plan and each
agreement for each Velogic Option that does not conform to the standard
agreement under the Velogic Plan have been delivered by Velogic to Keynote or
its legal counsel, Fenwick & West LLP. The vesting or exercisability (or any
other material terms) of any Velogic Option, except as disclosed in the Velogic
Disclosure Letter, will not accelerate or otherwise change as a result of the
execution and delivery of this Agreement or the consummation of the Merger or
the transactions contemplated hereby or the occurrence of any subsequent event
(such as the termination of employment of the option holder following
consummation of the Merger). No Velogic Options have been granted or are
outstanding except under and pursuant to the Velogic Plan.
3.4.2 Valid Issuance. All issued and outstanding shares of Velogic
--------------
Common Stock and Velogic Preferred Stock have been duly authorized and validly
issued, are fully paid and nonassessable, are not subject to any preemptive
right, right of first refusal, right of first offer or right of rescission, and
have been offered, issued, sold and delivered by Velogic in compliance with (a)
all registration or qualification requirements (or applicable exemptions
therefrom) of all applicable securities laws and, to the knowledge of Velogic,
other applicable Legal Requirements and (b) all requirements set forth in
applicable agreements or instruments. All shares of Velogic Common Stock subject
to issuance under Velogic Options and Velogic Warrants, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
All outstanding Velogic Options and Velogic Warrants have been issued and
granted in compliance with (a) all registration or qualification requirements
(or applicable exemptions therefrom) of all applicable securities laws and, to
the knowledge of Velogic, other applicable Legal Requirements and (b) all
requirements set forth in applicable agreements or instruments.
3.4.3 No Other Options, Warrants or Rights. Other than is set forth in
------------------------------------
Sections 3.4.1 and 3.4.2 above, there are no options, warrants, convertible
securities or other securities, calls, commitments, conversion privileges,
preemptive rights, rights of first refusal, rights of first offer or other
rights or agreements outstanding to purchase or otherwise acquire (whether
directly or indirectly) any shares of Velogic's authorized but unissued capital
stock or any securities convertible into or exchangeable for any shares of
Velogic's capital stock or obligating Velogic to grant, issue, extend, or enter
into any such option, warrant, convertible security or other security, call,
commitment, conversion privilege, preemptive right, right of first refusal,
right of first offer or other right or agreement to obtain any shares of
Velogic's capital stock, and there is no liability for dividends accrued but
unpaid.
3.4.4 No Voting Arrangements or Registration Rights. Except as
---------------------------------------------
contemplated by the Voting Agreements, there are no voting agreements, voting
trusts or proxies applicable to any of Velogic's outstanding capital stock or
any Velogic Options or to the conversion of any shares of Velogic's capital
stock in the Merger pursuant to any agreement or obligation to which Velogic is
a party or, to Velogic's knowledge, pursuant to any other agreement or
obligation. Velogic is not under any obligation to register under the Securities
Act any of its presently
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outstanding shares of stock or other securities or any stock or other securities
that may be subsequently issued.
3.5 No Conflict. Neither the execution and delivery of this Agreement nor
-----------
any of the Velogic Ancillary Agreements by Velogic, nor the consummation of the
Merger or any of the other transactions contemplated hereby or thereby, will
conflict with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or constitute a default under:
(a) any provision of the Articles of Incorporation or Bylaws of Velogic as
currently in effect; (b) any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Velogic or any of its
material assets or properties; or (c) any material instrument, agreement,
contract, undertaking, understanding, letter of intent, memorandum of
understanding or commitment (whether verbal or in writing) to which Velogic is a
party or by which Velogic or any of its material assets or properties are bound,
except in the case of (b) or (c) for any such conflicts, terminations, breaches,
impairments, violations or defaults which would not have a Material Adverse
Effect on Velogic or which would not have a material adverse effect on Velogic's
ability to consummate the Merger. Neither Velogic's entering into this Agreement
nor the consummation of the Merger or the transactions contemplated thereby will
give rise to, or trigger the application of, any rights of any third party that
would come into effect upon the effectiveness of the Merger. The consummation of
the Merger by Velogic will not require the consent, release, waiver or approval
of any third party (including the consent of any party required to be obtained
in order to keep any agreement between such party and Velogic in effect
following the Merger or to provide that Velogic is not in breach or violation of
any such agreement following the Merger), other than the approval of this
Agreement and the Merger by Velogic Shareholders under California law except
where the failure to obtain such consent, release, waiver or approval would not
have a Material Adverse Effect on Velogic.
3.6 Litigation. There is no action, suit, arbitration, mediation,
----------
proceeding, claim or investigation pending against Velogic (or to Velogic's
knowledge against any officer, director, employee or agent of Velogic in their
capacity as such or relating to their employment, services or relationship with
Velogic) before any court, Governmental Authority or arbitrator, nor, to
Velogic's knowledge, has any such action, suit, arbitration, mediation,
proceeding, claim or investigation been threatened. There is no judgment,
decree, injunction, rule or order of any court, Governmental Authority or
arbitrator outstanding against Velogic. To Velogic's knowledge, there is no
basis for any person to assert a claim against Velogic based upon: (a) Velogic's
negotiating or entering into this Agreement or any Velogic Ancillary Agreement
or consummating the Merger or any of the transactions contemplated by this
Agreement or any Velogic Ancillary Agreement; (b) any confidentiality or similar
agreement entered into by Velogic; (c) any claim that Velogic has agreed to sell
or dispose all or any substantial portion of its assets or business to any party
other than Keynote, whether by way of merger, consolidation, sale of assets or
otherwise; (d) any wrongful failure by Velogic to issue any of its stock or
other securities to any party; (e) ownership or rights to ownership of any
shares of Velogic Common Stock, Velogic Options or Velogic Warrants; (f) any
rights as a shareholder of Velogic, including any option or preemptive rights or
rights to notice or to vote; or (g) any rights under any agreement among Velogic
and its shareholders.
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3.7 Taxes.
-----
3.7.1 Velogic has timely filed all federal, state, local and foreign
tax and information returns required to be filed by it, has timely paid all
taxes required to be paid by it for which payment is due, except to the extent
that an accrual or reserve for such taxes has been reflected in accordance with
GAAP (as defined below) on the Balance Sheet (as defined in Section 3.8), has
established an adequate accrual or reserve in accordance with GAAP for the
payment of all taxes payable in respect of the periods subsequent to the periods
covered by its most recent applicable tax returns (which accrual or reserve as
of the Balance Sheet Date is fully reflected on the Balance Sheet and in any
more recent balance sheet of Velogic provided by Velogic to Keynote on or before
the Agreement Date), has made all necessary estimated tax payments, except to
the extent that an accrual or reserve for such taxes has been reflected in
accordance with United States generally accepted accounting principals ("GAAP")
on the Balance Sheet. All such returns and reports are true, correct and
complete, except to the extent that an accrual or reserve for such taxes has
been reflected in accordance with GAAP on the Balance Sheet, and Velogic has
provided Keynote with true and correct copies of such returns and reports.
Velogic is not delinquent in the payment of any tax or in the filing of any tax
returns, except to the extent that an accrual or reserve for such taxes has been
reflected in accordance with GAAP on the Balance Sheet, and no deficiencies for
any tax have been threatened, claimed, proposed or assessed against Velogic or
any of the officers, employees or agents of Velogic in their capacity as such.
Velogic has not received any notification from the Internal Revenue Service or
any other taxing authority regarding any material issues that are currently
pending before the Internal Revenue Service or any other taxing authority
(including but not limited to any sales or use tax authority) regarding Velogic.
No tax return of Velogic is under audit by the Internal Revenue Service or any
other taxing agency or authority and any such past audits (if any) have been
completed and fully resolved and all taxes and any penalties or interest
determined by such audit to be due from Velogic have been paid in full to the
applicable taxing authorities. No tax liens are currently in effect against any
assets of Velogic other than liens which arise by operation of law for taxes not
yet due and payable. There is not in effect any waiver by Velogic of any statute
of limitations with respect to any taxes or agreed to any extension of time for
filing any tax return which has not been filed; and Velogic has not consented to
extend to a date later than the date hereof the period in which any tax may be
assessed or collected by any taxing authority. Velogic is not a "personal
holding company" within the meaning of the Code. Velogic has not filed any
election under Section 341(f) of the Code. Velogic has withheld all taxes,
including but not limited to federal and state income taxes, FICA, Medicare,
FUTA and other taxes, required to be withheld, and paid such withheld amounts to
the appropriate tax authority within the time prescribed by law. Since its
inception, Velogic has not been a "United States real property holding
corporation," as defined in Section 897(c)(2) of the Code, and in Section 1.897-
2(b) of the Treasury Regulations issued thereunder (the "Regulations"), and
Velogic has filed with the Internal Revenue Service all statements, if any,
which are required under Section 1.897-2(h) of the Regulations.
3.7.2 For the purposes of this Section, the terms "tax" and "taxes"
include all federal, state, local and foreign income, alternative or add-on
minimum income, gains, franchise, excise, property, property transfer, sales,
use, employment, license, payroll, ad valorem, documentary, stamp, withholding,
occupation, recording, value added or transfer taxes, governmental charges,
fees, customs duties, levies or assessments (whether payable directly or
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by withholding), and, with respect to any such taxes, any estimated tax,
interest, fines and penalties or additions to tax and interest on such fines,
penalties and additions to tax.
3.8 Velogic Financial Statements. Velogic has delivered to Keynote as an
----------------------------
attachment to the Velogic Disclosure Letter the consolidated balance sheet of
Velogic as of December 31, 1999 and March 31, 2000 (the "Balance Sheets"), and
Velogic's consolidated statements of operations, statements of cash flows and
statements of changes in shareholders' equity (or, as applicable, statement of
changes in members' interests) for the quarter ended March 31, 2000 and the year
ended December 31, 1999 (all such financial statements of Velogic and any notes
thereto are hereinafter collectively referred to as the "Velogic Financial
Statements"). The Velogic Financial Statements: (a) are derived from and are in
accordance with the books and records of Velogic, (b) fairly present the
financial condition of Velogic at the dates therein indicated and the results of
operations for the periods therein specified, and (c) have been prepared in
accordance with GAAP applied on a basis consistent with prior periods except for
any absence of notes thereto. Velogic has no material debt, liability or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, except for those (a) shown on the Balance
Sheets and (b) that may have been incurred after March 31, 2000 (the "Balance
Sheet Date") in the ordinary course of Velogic's business consistent with its
past practices and that are not material in amount, either individually or
collectively or are not required to be set forth in the Balance Sheet under
GAAP. All reserves established by Velogic that are set forth in or reflected in
the Balance Sheet are adequate. At the Balance Sheet Date, there were no
material loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) which are not adequately provided for in the Balance Sheet as
required by said Statement No. 5. The Financial Statements comply in all
material respects with the American Institute of Certified Public Accountants'
Statement of Position 97-2. At the Closing Date, Velogic's Current Assets were
and will be equal to or greater than its Total Liabilities. For purposes of the
preceding sentence, "Current Assets" shall mean cash and other assets expected
to be converted into cash within one year, and "Total Liabilities" shall mean
probable future sacrifices of economic benefits arising from present obligations
of Velogic to transfer assets or provide services to other persons in the future
as a result of past transactions; (b) Velogic is not engaged in manufacturing
(within the meaning of the HSR Act) and Velogic's Total Assets (as defined
below) (i) were less than Ten Million Dollars ($10,000,000) on the Balance Sheet
and on the date of the last regularly prepared balance sheet of Velogic prepared
on or prior to the Agreement Date (the "Last Date") and (ii) will not equal or
exceed Ten Million Dollars ($10,000,000) at any time during the time period
commencing on the Last Date and ending on the earlier to occur of (a) the
Effective Time or (b) the date on which this Agreement is terminated in
accordance with the provisions of Article 10. As used herein, the term
"Velogic's Total Assets" means Velogic's total assets as determined in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods.
3.9 Title to Properties. Velogic has good and marketable title to all of
-------------------
its assets and properties (including those shown on the Balance Sheet), free and
clear of all Encumbrances, other than liens for current taxes that are not yet
due and payable and except for liens which in the aggregate do not secure more
than $10,000 in liabilities. All machinery, vehicles, equipment (including,
without limitation, computers and webservers) and other tangible personal
property owned or leased by Velogic or used in its business are in good
condition and repair, normal wear
-13-
and tear excepted, and all leases of real or personal property to which Velogic
is a party are fully effective and afford Velogic peaceful and undisturbed
leasehold possession of the real or personal property that is the subject of the
lease and Velogic is not in breach of any such lease. Velogic is not in
violation of any zoning, building, safety or environmental ordinance, regulation
or requirement or other law or regulation applicable to the operation of its
owned or leased properties, nor has Velogic received any notice of violation of
law with which it has not complied. Velogic does not own any real property.
Section 3.9 of the Velogic Disclosure Letter sets forth a complete and accurate
-----------
list and a brief description of all personal property owned or leased by Velogic
with an individual value of $1,000 or greater. Velogic owns no real property.
3.10 Absence of Certain Changes. Since the Balance Sheet Date, Velogic has
--------------------------
operated its business in the ordinary course consistent with its past practice,
and since such date there has not been with respect to Velogic any:
(a) Material Adverse Change in Velogic;
(b) amendment or change in the Articles of Incorporation or Bylaws;
(c) incurrence, creation or assumption by Velogic of (i) any
Encumbrance on any of the assets or properties of Velogic, (ii) any obligation
or liability or any indebtedness for borrowed money, or (iii) any contingent
liability as a guarantor or surety with respect to the obligations of others;
(d) grant or issuance of any options, warrants or other rights to
acquire from Velogic, directly or indirectly, except as described in Sections
3.4.1 and 3.4.2 hereof, or any offer, issuance or sale by Velogic of any debt or
equity securities of Velogic;
(e) any acceleration or release of any vesting condition to the right
to exercise any option, warrant or other right to purchase or otherwise acquire
any shares of Velogic's capital stock, or any acceleration or release of any
right to repurchase shares of Velogic's capital stock upon the shareholder's
termination of employment or services with Velogic or pursuant to any right of
first refusal;
(f) payment or discharge by Velogic of any Encumbrance on any asset
or property of Velogic, or the payment or discharge of any liability of Velogic,
in each case that was not either shown on the Balance Sheet or incurred in the
ordinary course of Velogic's business after the Balance Sheet Date in an amount
not in excess of $10,000 for any single liability to a particular creditor;
(g) purchase, license, sale, assignment or other disposition or
transfer, or any agreement or other arrangement for the purchase, license, sale,
assignment or other disposition or transfer, of any of the assets, properties or
goodwill of Velogic other than a license of any product or products of Velogic
made in the ordinary course of Velogic's business consistent with its past
practice;
(h) damage, destruction or loss of any property or asset, whether or
not covered by insurance, having (or likely with the passage of time to have) a
Material Adverse Effect on Velogic;
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(i) declaration, setting aside or payment of any dividend on, or the
making of any other distribution in respect of, the capital stock of Velogic, or
any split, combination or recapitalization of the capital stock of Velogic or
any direct or indirect redemption, purchase or other acquisition of any capital
stock of Velogic or any change in any rights, preferences, privileges or
restrictions of any outstanding security of Velogic;
(j) change or increase in the compensation payable or to become
payable to any of the officers, directors, or employees of Velogic, or in any
bonus or pension, insurance or other benefit payment or arrangement (including
without limitation stock awards, stock option grants, stock appreciation rights
or stock option grants) made to or with any of such officers, employees or
agents except in connection with normal employee salary or performance reviews
or otherwise in the ordinary course of Velogic's business consistent with its
past practice and except as contemplated in this Agreement;
(k) change with respect to the management, supervisory or other key
personnel of Velogic;
(l) obligation or liability incurred by Velogic to any of its
officers, directors or shareholders, except for normal and customary
compensation and expense allowances payable to officers in the ordinary course
of Velogic's business consistent with its past practice;
(m) making by Velogic of any loan, advance or capital contribution
to, or any investment in, any officer, director or shareholder of Velogic or any
firm or business enterprise in which any such person had a direct or indirect
material interest at the time of such loan, advance, capital contribution or
investment;
(n) entering into, amendment of, relinquishment, termination or
non-renewal by Velogic of any contract, lease, transaction, commitment or other
right or obligation other than in the ordinary course of its business consistent
with its past practice; or any written or oral indication or assertion by the
other party thereto of any material problems with Velogic's services or
performance under such contract, lease, transaction, commitment or other right
or obligation or its desire to so amend, relinquish, terminate or not renew any
such contract, lease, transaction, commitment or other right or obligation;
(o) any cancellation or non-renewal of any material customer contract
or any material change in the manner in which Velogic extends discounts, credits
or warranties to customers or otherwise deals with its customers;
(p) entering into by Velogic of any transaction, contract or
agreement that by its terms requires or contemplates a current and/or future
financial commitment, expense (inclusive of overhead expense) or obligation on
the part of Velogic that involves in excess of $25,000 or that is not entered
into in the ordinary course of Velogic's business, or the conduct of any
business or operations other than in the ordinary course of Velogic's business
consistent with its past practice;
(q) any license, transfer or grant of a right under any Velogic IP
Rights (as defined in Section 3.13 below), other than those licensed,
transferred or granted in the ordinary course of Velogic's business consistent
with its past practices; or
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(r) any agreement or arrangement made by Velogic to take any action
which, if taken prior to the Agreement Date, would have made any representation
or warranty of Velogic set forth in Article 3 of this Agreement untrue or
incorrect as of the date when made.
3.11 Contracts and Commitments/Licenses and Permits. Section 3.11 of
---------------------------------------------- ------------
the Velogic Disclosure Letter sets forth a list of each of the following written
or oral contracts, agreements, leases, licenses, permits, assignments,
mortgages, transactions, obligations, commitments or other instruments to which
Velogic is a party or to which Velogic or any of its assets or properties is
bound:
(a) any contract or agreement providing for payments (whether fixed,
contingent or otherwise) by or to Velogic in an aggregate amount of $25,000 or
more;
(b) any dealer, distributor, OEM (Original Equipment Manufacturer),
VAR (Value Added Reseller), sales representative or similar agreement under
which any third party is authorized to sell, sublicense, lease, distribute,
market or take orders for, any product, service or technology of Velogic;
(c) any contract providing for the development of any software,
technology or intellectual property for (or for the benefit or use of) Velogic,
or providing for the purchase or license of any software, technology or
intellectual property to (or for the benefit or use of) Velogic, which software,
technology or intellectual property is in any manner used or incorporated (or is
contemplated by Velogic to be used or incorporated) in connection with any
aspect or element of any product, service or technology of Velogic to the extent
necessary for the conduct of the business of Velogic as presently conducted or
contemplated;
(d) any joint venture or partnership contract or other agreement
which has involved, or is reasonably expected to involve, a sharing of profits,
expenses or losses with any other party;
(e) any contract or commitment in which Velogic has granted or
received preferential customer pricing provisions or exclusive marketing or
distribution rights relating to any product, service, market or geographic
territory;
(f) any contract or commitment for or relating to the employment of
any officer, employee or consultant of Velogic or any other type of contract or
understanding with any officer, employee or consultant of Velogic that is not
immediately terminable by Velogic without cost or other liability;
(g) any indenture, mortgage, trust deed, promissory note, loan
agreement, security agreement, guarantee or other agreement or commitment for
the borrowing of money, for a line of credit or for a leasing transaction of a
type required to be capitalized in accordance with Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board;
(h) any lease or other agreement under which Velogic is lessee of or
holds or operates any items of tangible personal property or real property owned
by any third party;
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(i) any agreement that restricts Velogic from: engaging in any aspect
of its business; participating or competing in any line of business or market;
freely setting prices for Velogic's products, services or technologies
(including but not limited to most favored customer pricing provisions);
engaging in any business in any market or geographic area; or soliciting
potential employees, consultants, contractors or other suppliers or customers;
(j) any Velogic IP Rights Agreement (as defined in Section 3.13);
(k) any agreement relating to the sale, issuance, grant, exercise,
award, purchase, repurchase or redemption of any shares of capital stock or
other securities of Velogic or any options, warrants or other rights to purchase
or otherwise acquire any such shares of capital stock, other securities or
options, warrants or other rights therefor, except for those agreements
conforming to the standard agreement under the Velogic Plan;
(l) any contract with or commitment to any labor union; and
(m) any Governmental Permit (as defined in Section 3.14.3).
A true and complete copy of each agreement or document required by
subsections (a) through (m) of this Section to be listed in Section 3.11 of the
------------
Velogic Disclosure Letter (such agreements and documents being hereinafter
collectively referred to as the "Velogic Material Agreements") and a copy of
each Governmental Permit required by subsection (l) of this Section to be listed
in Section 3.11 of the Velogic Disclosure Letter has been delivered to Keynote's
------------
legal counsel.
3.12 No Default; No Consent Required; No Restrictions. Velogic is not in
------------------------------------------------
material breach or default under any Velogic Material Agreement. Velogic has no
material liability for renegotiation of government contracts or subcontracts, if
any. Except as set forth in Section 3.12 of the Velogic Disclosure Letter, no
------------
consent, notice or approval of any third party is required to ensure that,
following the Effective Time, any Velogic Material Agreement will continue to be
in full force and effect without any breach or violation thereof caused by
virtue of the Merger or by any other transaction called for by this Agreement or
any Velogic Ancillary Agreement. Velogic is not a party to, and no asset or
property of Velogic is bound or affected by, any judgment, injunction, order,
decree, contract, covenant or agreement (noncompete or otherwise) that restricts
or prohibits, purports to restrict or prohibit, Velogic or, following the
Effective Time, the Surviving Corporation or Keynote, from freely engaging in
any business now conducted or contemplated by Velogic or from competing anywhere
in the world (including any contracts, covenants or agreements restricting the
geographic area in which Velogic may sell, license, market, distribute or
support any products or technology or provide services; or restricting the
markets, customers or industries that Velogic may address in operating its
business; or restricting the prices which Velogic may charge for its products or
technology or services), or includes any grants by Velogic of exclusive rights
or licenses. No event has occurred, and no circumstance or condition exists,
that (with or without notice or lapse of time) will, or would reasonably be
expected to, (a) result in a violation or breach of any of the provisions of any
Velogic Material Agreement, or (b) to Velogic's knowledge, give any third party
(i) the right to declare a default or exercise any remedy under any Velogic
Material Agreement, (ii) the right to a rebate, chargeback, penalty or change in
delivery schedule or term under any Velogic Material Agreement, (iii) the right
to accelerate the maturity or performance of any obligation of Velogic
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under any Velogic Material Agreement, or (iv) the right to cancel, terminate or
modify any Velogic Material Agreement, except in each such case for such
defaults, acceleration rights, termination rights and other rights that have not
had and would not reasonably be expected to have individually or in the
aggregate a Material Adverse Effect on Velogic. Velogic has not received any
notice or other communication regarding any actual or possible violation or
breach of, or default under, any Velogic Material Agreement.
3.13 Intellectual Property.
---------------------
3.13.1 Velogic owns, or has the valid right or license to use,
possess, sell, license, copy, distribute, market, advertise and/or dispose of
all Intellectual Property (as defined below) to the extent necessary or required
for the conduct of the Velogic Business (as defined below) (such Intellectual
Property being hereinafter collectively referred to as the "Velogic IP Rights"),
and such rights to use, possess, sell, license, copy, distribute, market,
advertise and/or dispose of are sufficient for such conduct of such business. As
used herein, the term "Velogic Business" means the business of Velogic as
presently conducted and presently proposed to be conducted. As used herein, the
term "Intellectual Property" means, collectively, all worldwide industrial and
intellectual property rights, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark registrations and
applications therefor, trade dress rights, trade names, service marks, service
▇▇▇▇ registrations and applications therefor, Internet domain names, Internet
and World Wide Web URLs or addresses, copyrights, copyright registrations and
applications therefor, mask work rights, mask work registrations and
applications therefor, franchises, licenses, inventions, trade secrets, know-
how, customer lists, supplier lists, proprietary processes and formulae,
software source code and object code, algorithms, net lists, architectures,
structures, screen displays, photographs, images, layouts, inventions,
development tools, designs, blueprints, specifications, technical drawings (or
similar information in electronic format) and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, programmers' notes, memoranda and records. As used in this
Section 3.13, "Velogic-Owned IP Rights" means Velogic IP Rights which are owned
or exclusively licensed to Velogic; and "Velogic-Licensed IP Rights" means
Velogic IP Rights which are not Velogic-Owned IP Rights. By way of
clarification, if a vendor grants certain license rights to Velogic, only the
license rights granted by the vendor to Velogic is included under the term
Velogic-Licensed IP Rights and Velogic IP Rights.
3.13.2 Neither the execution, delivery and performance of this
Agreement, the Certificates of Merger, or the consummation of the Merger and the
other transactions contemplated by this Agreement and/or by Velogic Ancillary
Agreements will, in accordance with their terms: (a) constitute a material
breach of or default under any instrument, contract, license or other agreement
governing any Velogic IP Right to which Velogic is a party (collectively, the
"Velogic IP Rights Agreements"); (b) cause the forfeiture or termination of, or
give rise to a right of forfeiture or termination of, any Velogic IP Right; or
(c) materially impair the right of Velogic or the Surviving Corporation to use,
possess, sell or license any Velogic IP Right or portion thereof. There are no
royalties, honoraria, fees or other payments payable by Velogic to any third
person (other than salaries payable to employees and independent contractors not
contingent on or related to use of their work product) as a result of the
ownership, use, possession, license-in, sale, marketing, advertising or
disposition of any Velogic IP Rights by Velogic to the extent necessary for the
conduct of the Velogic Business and none will become
-18-
payable as a result of the consummation of the transactions contemplated by this
Agreement, in and of themselves, except for per copy license fees of less than
$500 for software generally commercially available to the public.
3.13.3 Neither the manufacture, marketing, license, sale, furnishing
or intended use of any product or service currently licensed, utilized, sold,
provided or furnished by Velogic or currently under development by Velogic
violates any license or agreement between Velogic and any third party or
infringes or misappropriates any Intellectual Property Right of any other party;
and there is no pending or threatened, claim or litigation contesting the
validity, ownership or right of Velogic to exercise any Velogic IP Right nor, to
the knowledge of Velogic, is there any legitimate basis for any such claim, nor
has Velogic received any notice asserting that any Velogic IP Right or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party, nor, to the knowledge of Velogic, is there
any legitimate basis for any such assertion.
3.13.4 No current or former employee, consultant or independent
contractor of Velogic: (a) is in material violation of any term or covenant of
any employment contract, patent disclosure agreement, invention assignment
agreement, non-disclosure agreement, noncompetition agreement or any other
contract or agreement with any other party by virtue of such employee's,
consultant's, or independent contractor's being employed by, or performing
services for, Velogic or using trade secrets or proprietary information of
others without permission that would be likely to have a Material Adverse Effect
on Velogic; or (b) has developed any technology, software or other
copyrightable, patentable, or otherwise proprietary work for Velogic that is
subject to any agreement under which such employee, consultant or independent
contractor has assigned or otherwise granted to any third party any rights
(including without limitation Intellectual Property) in or to such technology,
software or other copyrightable, patentable or otherwise proprietary work. The
employment of any employee of Velogic or the use by Velogic of the services of
any consultant or independent contractor does not subject Velogic to any
liability to any third party for improperly soliciting such employee or
consultant, or independent contractor to work for Velogic, whether such
liability is based on contractual or other legal obligations to such third
party.
3.13.5 Velogic has taken reasonably necessary and appropriate steps
to protect, preserve and maintain the secrecy and confidentiality of the Velogic
IP Rights (in the case of Velogic-Licensed IP Rights, to the extent required by
such third parties) and to preserve and maintain all Velogic's interests and
proprietary rights in Velogic IP Rights. All officers, employees and consultants
of Velogic having access to proprietary information of Velogic, its customers or
business partners and inventions owned by Velogic, have executed and delivered
to Velogic an agreement regarding the protection of such proprietary information
and the assignment of Velogic's inventions to Velogic (in the case of
proprietary information of Velogic's customer and business partners, to the
extent required by such customers and business partners); and copies of all such
agreements have been delivered to Keynote's counsel. Velogic has secured valid
written assignments from all of Velogic's consultants, contractors and employees
who were involved in, or who contributed to, the creation or development of any
Velogic-Owned IP Rights, of the rights to such contributions that may be owned
by such persons or that Velogic does not already own by operation of law. No
current or former employee,
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officer, director, consultant or independent contractor of Velogic has any
right, license, claim or interest whatsoever in or with respect to any Velogic
IP Rights.
3.13.6 Section 3.13.6 of the Velogic Disclosure Letter contains a
--------------
true and complete list of (i) all worldwide registrations made by or on behalf
of Velogic of any patents, copyrights, mask works, trademarks, service marks,
Internet domain names or Internet or World Wide Web URLs or addresses with any
governmental or quasi-governmental authority; and (ii) all applications,
registrations, filings and other formal written governmental actions made or
taken pursuant to federal, state and foreign laws by Velogic to secure, perfect
or protect its interest in Velogic IP Rights, including, without limitation, all
patent applications, copyright applications, and applications for registration
of trademarks and service marks. All registered patents, trademarks, service
marks, Internet domain names, Internet or World Wide Web URLs or addresses, and
copyrights held by Velogic are valid, enforceable and subsisting.
3.13.7 Velogic owns all right, title and interest in and to all
Velogic-Owned IP Rights free and clear of all security interests, liens,
pledges, mortgages, assignments, claims, licenses, restrictions and encumbrances
(other than licenses and rights listed in Section 3.13.8 of the Velogic
Disclosure Letter). Velogic's right, license and interest in and to all Velogic-
Licensed IP Rights are free and clear of all security interests, liens, pledges,
mortgages, assignments, claims, licenses, and encumbrances (other than licenses
and rights listed in Section 3.13.8 of the Velogic Disclosure Letter).
3.13.8 Section 3.13.8 of the Velogic Disclosure Letter contains a
--------------
true and complete list of (i) all licenses, sublicenses and other agreements as
to which Velogic is a party and pursuant to which any person or entity is
authorized to use any Velogic IP Rights, and (ii) all licenses, sublicenses and
other agreements as to which Velogic is a party and pursuant to which Velogic is
authorized to use any third party patents, trademarks, Internet domain names,
Internet or World Wide Web URLs or addresses, or copyrights, including but not
limited to software.
3.13.9 Neither Velogic nor any other party acting on its behalf, has
disclosed or delivered to any party, or permitted the disclosure or delivery to
any escrow agent or other party, of any Velogic Source Code (as defined below).
No event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or would reasonably be expected to,
result in the disclosure or delivery by Velogic or any other party acting on
Velogic's behalf to any party of any Velogic Source Code (as defined below).
Section 3.13.9 of the Velogic Disclosure Letter identifies each contract,
--------------
agreement and instrument (whether written or oral) pursuant to which Velogic has
deposited, or is or may be required to deposit, with an escrowholder or any
other party, any Velogic Source Code and further describes whether the execution
of this Agreement or the consummation of the Merger or any of the other
transactions contemplated by this Agreement, in and of itself, would reasonably
be expected to result in the release from escrow of any Velogic Source Code. As
used in this Section 3.13.9, "Velogic Source Code" means, collectively, any
software source code, or any material portion or aspect of the software source
code, or any material proprietary information or algorithm contained in or
relating to any software source code, of any Velogic-Owned IP Rights or any
other product marketed or currently proposed to be marketed by Velogic.
-20-
3.13.10 There is no unauthorized use, disclosure, infringement or
misappropriation of any Velogic IP Rights by any third party, including any
employee or former employee of Velogic. Velogic has not agreed to indemnify any
person for any infringement of any Intellectual Property of any third party by
any product or service that has been sold, licensed to third parties, leased to
third parties, supplied, marketed, distributed, or provided by Velogic.
3.13.11 To Velogic's knowledge, all software developed by Velogic and
licensed by Velogic to customers and all other products manufactured, sold,
licensed, leased or delivered by Velogic to customers and all services provided
by Velogic to customers on or prior to the Closing Date conform in all material
respects (to the extent required in contracts with such customers) to applicable
contractual commitments, express and implied warranties, product specifications
and product documentation and to any representations provided to customers and
Velogic has no material liability (and, to Velogic's knowledge, there is no
legitimate basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against Velogic giving rise to
any material liability relating to the foregoing contracts that could have a
Material Adverse Effect on Velogic) for replacement or repair thereof or other
damages in connection therewith in excess of any reserves therefor reflected on
the Balance Sheet.
3.13.12 All of the software, hardware or other technology developed,
owned, licensed and/or marketed or distributed by Velogic to the extent
necessary for the conduct of the Velogic Business are Year 2000 Compliant. "Year
2000 Compliant" means, to the extent related to date-related errors, as applied
to software, hardware or other technology, that: (i) such software, hardware or
other technology will operate and correctly store, represent and process
(including sort) all dates (including single and multi-century formulas and leap
year calculations), such that date-related errors will not occur when the date
being used is in the Year 2000, or in a year preceding or following the Year
2000; (ii) such software, hardware or other technology has been written and
tested to support numeric and date transitions from the twentieth century to the
twenty-first century, and back (including without limitation all calculations,
aging, reporting, printing, displays, reversals, disaster and vital records
recoveries) without date-related error, corruption or impact to current and/or
future operations; and (iii) such software, hardware or other technology will
function without error or interruption related to any date information,
specifically including errors or interruptions from functions which may involve
date information from more than one century. Notwithstanding anything to the
contrary, the foregoing applies only if such software, hardware or other
technology receive properly formatted data.
3.13.13 No government funding; facilities of a university, college,
other educational institution or research center; or funding from third parties
(other than funds received in consideration for capital stock of Velogic) was
used in the development of the computer software programs or applications owned
by the Company. No current or former employee, consultant or independent
contractor of Velogic, who was involved in, or who contributed to, the creation
or development of any Velogic IP Rights, has performed services for the
government, university, college, or other educational institution or research
center during a period of time during which such employee, consultant or
independent contractor was also performing services for Velogic.
-21-
3.14 Compliance with Laws.
--------------------
3.14.1 Velogic has complied, and is now and at the Closing Date will
be in compliance with, all applicable federal, state or local laws, ordinances,
regulations, and rules, and all orders, writs, injunctions, awards, judgments,
and decrees, and to Velogic's knowledge, all foreign laws, ordinances,
regulations and rules, applicable to it or to its assets, properties, and
business (and any regulations promulgated thereunder) (collectively, "Applicable
Law"), except for such noncompliance which, individually or in the aggregate,
would not have a Material Adverse Effect on Velogic. Velogic holds all valid
licenses and other governmental permits that are necessary and/or legally
required to be held by it to conduct its business as presently conducted, except
where the failure to hold such licenses and permits would not individually or in
the aggregate have a Material Adverse Effect on Velogic.
3.14.2 All materials, products and services distributed or marketed
by Velogic have at all times made all disclosures to users or customers required
by Applicable Law and none of such disclosures made or contained in any such
materials have been inaccurate, misleading or deceptive, except where the
failure to make such disclosure or where such inaccurate, misleading or
deceptive disclosures, individually or in the aggregate, would not have a
Material Adverse Effect on Velogic.
3.14.3 Velogic holds all material permits, licenses and approvals
from, and has made all material filings with, government (and quasi-
governmental) agencies and authorities, that are necessary for Velogic to
conduct its present business without any violation of Applicable Law
("Governmental Permits") and all such Governmental Permits are in full force and
effect. Velogic has not received any notice or other communication from any
Governmental Authority regarding (a) any actual or possible violation of law or
any Governmental Permit or any failure to comply with any term or requirement of
any Governmental Permit, or (b) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any Governmental
Permit.
3.14.4 Neither Velogic nor any director, officer, agent or employee
of Velogic has, for or on behalf of Velogic, (a) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (b) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or (c) made any other payment in violation of Applicable Law,
which violation, for the purposes of clause (c) only, does not have a Material
Adverse Effect on Velogic.
3.15 Certain Transactions and Agreements. None of the officers and
-----------------------------------
directors of Velogic and, to Velogic's knowledge, none of the employees or
shareholders of Velogic, nor any member of their immediate families, has any
direct ownership interest in any firm or corporation that competes with, or does
business with, or has any contractual arrangement with, Velogic (except with
respect to any interest in less than one percent of the stock of any corporation
whose stock is publicly traded). To Velogic's knowledge, none of the officers,
directors, employees or shareholders of Velogic, nor any member of their
immediate families, has any indirect ownership interest in any firm or
corporation that competes with, or does business with, or has any
-22-
contractual arrangement with, Velogic (except with respect to any interest in
less than one percent of the stock of any corporation whose stock is publicly
traded). None of said officers, directors, employees or shareholders or any
member of their immediate families, is a party to, or otherwise directly or
indirectly interested in, any contract or informal arrangement with Velogic,
except for normal compensation for services as an officer, director or employee
thereof that have been disclosed to Keynote and except for agreements related to
the purchase of the stock of Velogic by such persons. None of said officers,
directors, employees, shareholders or family members has any interest in any
property, real or personal, tangible or intangible (including but not limited to
any Velogic IP Rights or any other Intellectual Property) that is used in, or
that pertains to, the business of Velogic, except for the rights of a
shareholder.
3.16 Employees, ERISA and Other Compliance.
-------------------------------------
3.16.1 Velogic is in compliance in all material respects with all
applicable laws, agreements and contracts relating to employment, employment
practices, immigration, wages, hours, and terms and conditions of employment,
including, but not limited to, employee compensation matters, and has correctly
classified employees as exempt employees and non-exempt employees under the Fair
Labor Standards Act, except to the extent that noncompliance or incorrect
classification of employees would not have a Material Adverse Effect on Velogic.
A list of all employees, officers and consultants of Velogic and their current
title and/or job description and compensation is set forth on Section 3.16.1 of
--------------
the Velogic Disclosure Letter. Velogic does not have any employment contracts or
consulting agreements currently in effect that are not terminable at will (other
than agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.16.2 Velogic (a) is not now, nor has ever been, subject to a union
organizing effort, (b) is not subject to any collective bargaining agreement
with respect to any of its employees, (c) is not subject to any other contract,
written or oral, with any trade or labor union, employees' association or
similar organization or (d) has any current labor disputes. Velogic has good
labor relations, and has no knowledge of any facts indicating that the
consummation of the Merger or any of the other transactions contemplated hereby
will have a Material Adverse Effect on such labor relations, and has no
knowledge that any of its key employees intends to leave their employ. All of
the employees of Velogic are legally permitted to be employed by Velogic in the
United States of America in their current job capacities.
3.16.3 Velogic has no pension plan, which constitutes, or has since
the enactment of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), constituted, a "multiemployer plan" as defined in Section 3(37) of
ERISA. No pension plan of Velogic is subject to Title IV of ERISA.
3.16.4 (a) Section 3.16.4 of the Velogic Disclosure Letter lists each
--------------
employment, severance or other similar contract, arrangement or policy, each
"employee benefit plan" as defined in Section 3(3) of ERISA and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-
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retirement insurance, compensation or benefits for employees, consultants or
directors which is entered into, maintained or contributed to by Velogic and
covers any employee or former employee of Velogic. Such contracts, plans and
arrangements as are described in this Section 3.16.4 are hereinafter
collectively referred to as "Velogic Benefit Arrangements."
(b) Each Velogic Benefit Arrangement has been maintained in
compliance in all material respects with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations that are
applicable to such Velogic Benefit Arrangement, except to the extent that
noncompliance would not have a Material Adverse Effect on Velogic and, unless
otherwise indicated in Section 3.16.4 of the Velogic Disclosure Letter, each
--------------
such Velogic Benefit Arrangement that is an "employee pension benefit plan" as
defined in Section 3(2) of ERISA which is intended to qualify under Section
401(a) of the Code has received a favorable determination opinion, advisory
and/or notification letter or still has a remaining period of time under
applicable Treasury Regulations or IRS pronouncements in which to apply for such
a letter and to make amendments necessary to obtain such a letter that such plan
satisfied the requirements of the Tax Reform Act of 1986 (to the extent
applicable, a copy of which letter(s) have been delivered to Keynote and its
counsel).
(c) Velogic has delivered to Keynote or its counsel a complete and
correct copy and description of each Velogic Benefit Arrangement.
(d) Velogic has timely filed and delivered to Keynote and its counsel
the most recent annual report (Form 5500) required for each Velogic Benefit
Arrangement that is an "employee benefit plan" as defined under ERISA.
(e) Velogic has not ever been a participant in any "prohibited
transaction," within the meaning of Section 406 of ERISA with respect to any
employee pension benefit plan (as defined in Section 3(2) of ERISA) which
Velogic sponsors as employer or in which Velogic participates as an employer,
which was not otherwise exempt pursuant to Section 408 of ERISA or Code Section
4975 (or any administrative class exemption) (including any individual exemption
granted under Section 408(a) of ERISA), or which could result in an excise tax
under the Code.
(f) All contributions due from Velogic with respect to any of Velogic
Benefit Arrangements have been made or have been accrued on Velogic's financial
statements (including without limitation the Velogic Financial Statements), and
no further contributions will be due and owing or will have accrued thereunder
as of the Closing Date.
(g) All individuals who, pursuant to the terms of any Velogic Benefit
Arrangement, are entitled to participate in any such Velogic Benefit
Arrangement, are currently participating in such Velogic Benefit Arrangement or
have been offered an opportunity to do so.
(h) Velogic will have no liability to any employee or to any
organization or any other entity as a result of the termination of any employee
leasing arrangement in excess of $10,000.
3.16.5 There has been no amendment to, written interpretation or
announcement (whether or not written) by Velogic relating to, or change in
employee participation or coverage
-24-
under, any Velogic Benefit Arrangement that would increase materially the
expense of maintaining such Velogic Benefit Arrangement above the level of the
expense incurred in respect thereof during the calendar year 1999.
3.16.6 The group health plans (as defined in Section 4980B(g) of the
Code) that benefit employees of Velogic are in compliance, in all material
respects, with the continuation coverage requirements of Section 4980B of the
Code as such requirements affect Velogic and its employees. As of the Closing
Date, there will be no material outstanding, uncorrected violations under the
Consolidation Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
with respect to any of Velogic Benefit Arrangements, covered employees, or
qualified beneficiaries that could result in a Material Adverse Effect on
Velogic, or in a Material Adverse Effect on Keynote after the Effective Time.
3.16.7 No benefit payable or which may become payable by Velogic
pursuant to any Velogic Benefit Arrangement or as a result of or arising under
this Agreement or the Certificates of Merger will constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) which is
subject to the imposition of an excise tax under Section 4999 of the Code or
which would not be deductible by reason of Section 280G of the Code. Velogic is
not a party to any: (a) agreement with any executive officer or other key
employee thereof (i) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving Velogic
in the nature of the Merger or any of the other transactions contemplated by
this Agreement or any Velogic Ancillary Agreement, (ii) providing any term of
employment or compensation guarantee, or (iii) providing severance benefits or
other benefits after the termination of employment of such employee regardless
of the reason for such termination of employment; or (b) agreement or plan,
including, without limitation, any stock option plan, stock appreciation rights
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of benefits of which will be accelerated (other than any partial or
full plan termination resulting from the Merger), by the occurrence of the
Merger or any of the other transactions contemplated by this Agreement or any
Velogic Ancillary Agreement, or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement or any Velogic Ancillary Agreement.
3.17 Corporate Documents. Velogic has made available to Keynote or its
-------------------
legal counsel for examination all documents and information listed in the
Velogic Disclosure Letter or in any schedule thereto or in any other exhibit or
schedule called for by this Agreement which have been requested by Keynote or
its legal counsel, including the following: (a) copies of Velogic's Articles of
Incorporation and Bylaws as currently in effect; (b) Velogic's minute book
containing all records of all proceedings, consents, actions, and meetings of
Velogic Shareholders, board of directors and any committees thereof; (c)
Velogic's stock ledger, option ledger, and warrant ledger and journal reflecting
all stock issuances and transfers, and all grants of options and warrants to
purchase Velogic capital stock and other Velogic securities; (d) all permits,
orders, and consents issued by, and filings by Velogic with, any regulatory
agency with respect to Velogic, or any securities of Velogic, and all
applications for such permits, orders, and consents; and (e) all the Velogic
Material Agreements.
3.18 No Brokers. Neither Velogic nor any affiliate of Velogic is obligated
----------
for the payment of any fees or expenses of any investment banker, broker, finder
or similar party in
-25-
connection with the origin, negotiation or execution of this Agreement or in
connection with the Merger or any other transaction contemplated by this
Agreement, and Keynote will not incur any liability, either directly or
indirectly, to any such investment banker, broker, finder or similar party as a
result of, this Agreement, the Merger or any act or omission of Velogic, any of
its employees, officers, directors, shareholders, agents or affiliates.
3.19 Books and Records.
-----------------
3.19.1 The books, records and accounts of Velogic (a) are in all
material respects true, complete and correct, (b) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(c) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of Velogic, and (d) accurately and
fairly reflect the basis for the Velogic Financial Statements.
3.19.2 Velogic has devised and maintains a system of internal
accounting controls sufficient to provide reasonable assurances that: (a)
transactions are executed in accordance with management's general or specific
authorization; (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with generally accepted
accounting principles or any other criteria applicable to such statements, and
(ii) to maintain accountability for assets; and (c) the amount recorded for
assets on the books and records of Velogic is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
3.20 Insurance. Since its organization, Velogic has maintained, and now
---------
maintains, policies of insurance and bonds of the type and in amounts reasonably
and customarily carried by persons conducting businesses or owning assets
similar in type and size to those of Velogic, including without limitation all
legally required workers' compensation insurance and errors and omissions,
casualty, fire and general liability insurance. 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 timely
paid and Velogic is otherwise in material compliance with the terms of such
policies and bonds. Velogic has no knowledge of any threatened termination of,
or material premium increase with respect to, any of such policies. All policies
of insurance now held by Velogic are set forth in Section 3.20 of the Velogic
Disclosure Letter, together with the name of the insurer under each policy, the
type of policy, the policy coverage amount and any applicable deductible.
3.21 Environmental Matters.
---------------------
3.21.1 Velogic is in material compliance with all applicable
Environmental Laws (as defined below), which compliance includes the possession
by Velogic of all permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. Velogic has not received any notice, or other communication (in writing
or otherwise), whether from a governmental body, citizens groups, employee or
otherwise, that alleges that Velogic is not in compliance with any Environmental
Law, and there are no circumstances that may prevent or interfere with the
compliance by Velogic with any current Environmental Law in the future. To
Velogic's knowledge, no current
-26-
or prior owner of any property leased or possessed by Velogic has received any
notice or other communication (in writing or otherwise), whether from a
government body, citizens group, employee or otherwise, that alleges that such
current or prior owner or Velogic is not in compliance with any Environmental
Law. All governmental authorizations currently held by Velogic pursuant to any
Environmental Law (if any) are identified in Section 3.21 of the Velogic
------------
Disclosure Letter.
3.21.2 For purposes of this Section 3.21: (a) "Environmental Law"
means any federal, state or local statute, law regulation or other legal
requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern (defined below); and (b) "Material of Environmental
Concern" include chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other substance that is currently
regulated by an Environmental Law or that is otherwise a danger to health,
reproduction or the environment.
3.22 Board Actions. The Board of Directors of Velogic (a) has unanimously
-------------
determined that the Merger is in the best interests of the Velogic Shareholders
and is on terms that are fair to such Velogic Shareholders, and has recommended
the Merger to the Velogic Shareholders, (b) has unanimously approved this
Agreement, the Certificates of Merger, the Merger, the Velogic Ancillary
Agreements and all other agreements, transactions and actions contemplated
hereby and thereby and (c) will submit this Agreement, the Certificates of
Merger, the Merger, the Velogic Ancillary Agreements and all other agreements,
transactions and actions contemplated hereby and thereby, to the extent that
shareholder approval is required thereof under Applicable Law and Velogic's
Articles of Incorporation and Bylaws, to the vote and approval of Velogic
Shareholders.
3.23 Vote Required. The affirmative vote of the holders of a majority of
-------------
the shares of Velogic Common Stock that are issued and outstanding on the Record
Date (as defined below) is the only vote of the holders of any of the shares of
Velogic's capital stock necessary to approve this Agreement, the Merger, the
Certificates of Merger, the Escrow Agreement (as defined in Section 9.15), the
Velogic Ancillary Agreements and the other transactions contemplated by this
Agreement and the Velogic Ancillary Agreements. As used in this Section 3.23,
the term "Record Date" means the record date for determining those shareholders
of Velogic who are entitled to vote at the Velogic shareholders' meeting to
approve the Merger under applicable law and Velogic's Articles of Incorporation
and Bylaws.
3.24 No Existing Discussions. Neither Velogic nor any director, officer,
-----------------------
shareholder, employee or agent of Velogic is engaged, directly or indirectly, in
any discussions or negotiations with any third party relating to any Alternative
Transaction (as defined in Section 5.7).
3.25 Voting Agreement; Irrevocable Proxies. The persons and/or entities set
-------------------------------------
forth on Schedule 1.12 to the Velogic Disclosure Letter have agreed in writing
-------------
to vote for approval of this Agreement and the Merger (and to vote against
proposals conflicting or inconsistent with this
-27-
Agreement and the Merger) pursuant to a voting agreement in the form attached
hereto as Exhibit B ("Voting Agreement") and pursuant to Irrevocable Proxies in
---------
the form attached as Exhibit A thereto ("Irrevocable Proxies").
---------
3.26 Disclosure.
----------
(a) Neither this Agreement, its exhibits and schedules and the
Velogic Disclosure Letter, nor any Velogic Ancillary Agreements delivered by
Velogic to Keynote under this Agreement, taken together, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which such statements were made, not misleading.
(b) None of the information supplied or to be supplied by or on
behalf of Velogic for inclusion in the Information Statement will, as of the
date such Information Statement is first sent to the shareholders of Velogic,
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 the light of the circumstances under which they are made, not
misleading; provided, that Velogic shall not be responsible for any statement,
--------
information or omission relating to Keynote or any other information supplied or
to be supplied by or on behalf of Keynote for inclusion in the Information
Statement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF KEYNOTE AND SUB
Keynote and Sub hereby represent and warrant to Velogic that, except as set
forth in the letter addressed to Velogic from Keynote and dated as of the
Agreement Date which has been delivered by Keynote to Velogic concurrently
herewith (the "Keynote Disclosure Letter"), each of the following
representations, warranties and statements contained in the following Sections
of this Article 4 are true and correct as of the Agreement Date and will be true
and correct on and as of the Closing Date. For all purposes of this Agreement,
the statements contained in the Keynote Disclosure Letter and its schedules
shall also be deemed to be representations and warranties made and given by
Keynote and Sub under Article 4 of this Agreement.
4.1 Organization and Good Standing. Keynote is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power and authority to own, operate and lease
its properties and to carry on its business as now conducted and as proposed to
be conducted. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the corporate power
and authority to own, operate and lease its properties and to carry on its
business. Keynote owns all of the issued and outstanding capital stock of Sub.
Each of Keynote and Sub is duly qualified or licensed to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed would not have a Material Adverse Effect on Keynote. Keynote has made
available to Velogic or its legal counsel, accurate and complete copies of the
Certificates of Incorporation and Bylaws of Keynote and Sub, as currently in
full force and effect. Neither Keynote nor Sub is in violation of its
Certificate of Incorporation or Bylaws.
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4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 Power and Authority. Keynote has all requisite corporate power
-------------------
and authority to enter into, execute, deliver and perform its obligations under,
this Agreement and all the Keynote Ancillary Agreements and to consummate the
Merger. The Merger and the execution, delivery and performance of this Agreement
and each of the Keynote Ancillary Agreements by Keynote have been duly and
validly approved and authorized by Keynote's Board of Directors in compliance
with applicable law (including the Delaware General Corporation Law) and
Keynote's Certificate of Incorporation and Bylaws. Neither the Merger nor the
execution, delivery and performance of this Agreement and each of the Keynote
Ancillary Agreements by Keynote requires the approval of Keynote's stockholders.
Sub has all requisite corporate power, capacity and authority to execute,
deliver and perform its obligations under, this Agreement and all the Sub
Ancillary Agreements and to consummate the Merger. The execution, delivery and
performance of this Agreement and each of the Sub Ancillary Agreements by Sub
have been duly and validly approved and authorized by Sub's Board of Directors
and its sole stockholder in compliance with Applicable Law and Sub's Certificate
of Incorporation and Bylaws.
4.2.2 No Consents. No consent, approval, order or authorization of,
-----------
or registration, declaration or filing with, any court, administrative agency,
commission or other Governmental Authority is necessary or required to be made
or obtained by Keynote or Sub to enable Keynote and Sub to enter into, and to
perform their respective obligations under, this Agreement, the Keynote
Ancillary Agreements or the Sub Ancillary Agreements, respectively, and for
Keynote and Sub to consummate the Merger, except for: (a) the filing of the
Certificates of Merger with the Delaware Secretary of State as required by
Delaware Law and with the California Secretary of State as required by
California Law, (b) the filing by Keynote with the SEC or any state securities
law authorities of any notices or filings required in connection with the
exemptions from the registration or qualification requirements of the Securities
Act and/or applicable state securities laws which Keynote relies on in issuing
shares of Keynote Common Stock pursuant to this Agreement; (c) the filing by
Keynote of such reports and information with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated by the SEC thereunder, as may be required in connection
with this Agreement, the Merger and the other transactions contemplated by this
Agreement; (d) the filing by Keynote with the SEC of the Form S-3 registration
statement to be filed by Keynote pursuant to this Agreement; (e) the filing by
Keynote with the Delaware Secretary of State of the Certificates of Designation
to be filed by Keynote pursuant to this Agreement; (f) such other filings as may
be required by the Nasdaq Stock Market with respect to the Merger and the other
transactions contemplated by this Agreement, and the issuance of the shares of
Keynote Common Stock and the assumption of Velogic Options and Velogic Warrants
by Keynote in the Merger; and (g) such other filings, if any, as may be required
in order for Keynote to comply with applicable federal and state securities
laws.
4.2.3 Enforceability. This Agreement and the Keynote Ancillary
--------------
Agreements are, or when executed by Keynote will be, valid and binding
obligations of Keynote, enforceable against Keynote in accordance with their
respective terms, subject to the effect of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (b) rules of law
and equity governing specific performance, injunctive relief and other equitable
remedies. This
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Agreement and the Sub Ancillary Agreements are, or when executed by Sub will be,
valid and binding obligations of Sub, enforceable against Sub in accordance with
their respective terms, subject to the effect of (a) applicable bankruptcy and
other similar laws affecting the rights of creditors generally and (b) rules of
law and equity governing specific performance, injunctive relief and other
equitable remedies.
4.3 Keynote and Sub Capital Structure.
---------------------------------
(a) The authorized capital stock of Keynote consists of 100,000,000
shares of common stock, par value $0.01 per share, of which there were
26,741,104 shares issued and outstanding as of April 30, 2000; and 5,000,000
shares of Preferred Stock, par value $0.01 per share, of which no shares were
issued or outstanding as of April 30, 2000. At the Effective Time, Keynote shall
have designated a sufficient number of shares of Keynote Common Stock to fulfill
Keynote's obligations to issue shares of such stock pursuant to the terms of
this Agreement. All outstanding shares of Keynote Common Stock are duly
authorized, validly issued, fully paid and nonassessable. As of April 30, 2000:
(i) there were options outstanding to purchase an aggregate of 2,613,004 shares
of Keynote Common Stock pursuant to Keynote's stock option plans; and (ii)
400,000 shares of Keynote Common Stock reserved for future issuance under
Keynote's Employee Stock Purchase Plan. All shares of Keynote Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable.
(b) The authorized capital stock of Sub consists of 1,000 shares of
common stock, $0.001 par value per share, 100 of which, as of the date hereof,
are issued and outstanding and are held by Keynote. All of the outstanding
shares of Sub's common stock have been duly authorized and validly issued, and
are fully paid and nonassessable. Sub was formed for the purpose of consummating
the Merger and has no material assets or liabilities except as necessary for
such purpose.
(c) The Keynote Common Stock to be issued in the Merger, issued in
accordance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable and will be issued in compliance with all applicable
federal and state securities laws.
4.4 No Conflict. Neither the execution and delivery of this Agreement nor
-----------
any of the Keynote Ancillary Agreements or Sub Ancillary Agreements by Keynote
or Sub, nor the consummation of the Merger or any of the other transactions
contemplated hereby or thereby, will conflict with, or (with or without notice
or lapse of time, or both) result in a termination, breach, impairment or
violation of or constitute a default under: (a) any provision of the Certificate
of Incorporation, the Certificates of Designation or Bylaws of Keynote or Sub as
currently in effect; (b) any federal, state, local or foreign judgment, writ,
decree, order, statute, rule or regulation applicable to Keynote or Sub or any
of their respective material assets or properties; or (c) any note, bond,
mortgage, indenture, lease, license, permit, franchise, material instrument,
agreement, or contract, undertaking, understanding, letter of intent, memorandum
of understanding or commitment (whether verbal or in writing) to which Keynote
or any of its subsidiaries is a party or by which Keynote or any of its
subsidiaries or any of their respective
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material assets or properties are bound, except in the case of (b) and (c) for
any such conflicts, terminations, breaches, impairments, violations or defaults
which would not have a Material Adverse Effect on Keynote or a material adverse
effect on Keynote's or Sub's ability to consummate the Merger.
4.5 SEC Filings.
-----------
(a) Keynote has filed all forms, reports and documents required to
be filed by Keynote with the SEC since September 24, 1999, and has made
available to Company such forms, reports and documents in the form filed with
the SEC. All such required forms, reports and documents (including those that
Keynote may file subsequent to the date hereof) are referred to herein as the
"Keynote SEC Reports." As of their respective dates, the Keynote SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Keynote SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected by a subsequently filed
Keynote SEC Report.
(b) Each of the audited consolidated financial statements
(including, in each case, any related notes thereto) contained in the Keynote
SEC Reports (the "Keynote Financials"), including any Keynote SEC Reports filed
after the date hereof until the Closing Date, (i) complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q, 8-K or any successor forms under the
Exchange Act) and (iii) fairly presented in all material respects the
consolidated financial position of Keynote and its subsidiaries as at the
respective dates thereof and the consolidated results of Keynote's operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements may not contain footnotes and were or are subject to normal
and recurring year-end adjustments. The audited balance sheet of Keynote
contained in Keynote SEC Reports as of December 31, 1999 is hereinafter referred
to as the "Keynote Balance Sheet." Except as disclosed in the Keynote
Financials, since December 31, 1999, neither Keynote nor any of its subsidiaries
has any liabilities required under GAAP to be set forth on a balance sheet
(absolute, accrued, contingent or otherwise) which are, individually or in the
aggregate, material to the business, results of operations or financial
condition of Keynote and its subsidiaries taken as a whole, except for
liabilities incurred since the date of the Keynote Balance Sheet in the ordinary
course of business consistent with past practices and liabilities incurred in
connection with this Agreement.
4.6 Disclosure. Keynote has made available to Velogic an investor
----------
disclosure package consisting of Keynote's annual report on Form 10-K for its
fiscal year ending September 30, 1999 (the "Fiscal Year End"), all Forms 10-Q
and 8-K filed by Keynote with the SEC since the Fiscal Year End and up to the
date of this Agreement and all proxy materials distributed to Keynote's
stockholders since the Fiscal Year End and up to the date of this Agreement (the
"Keynote Disclosure Package").
-31-
4.7 Absence of Certain Changes. Except as set forth in the Keynote SEC
--------------------------
Documents, since the Keynote Balance Sheet Date, Keynote has conducted its
business in the ordinary course consistent with past practice and there has not
occurred: (a) any change, event or condition (whether or not covered by
insurance) that has resulted in a Material Adverse Effect on Keynote; (b) any
change in accounting methods or practices (including any change in depreciation
or amortization policies or rates) by Keynote or any revaluation by Keynote of
any of its assets; (c) any declaration, setting aside, or payment of a dividend
or other distribution with respect to the shares of Keynote, or any direct or
indirect redemption, purchase or other acquisition by Keynote of any of its
shares of capital stock; or (d) any negotiation or agreement by Keynote or any
of its subsidiaries to do any of the things described in the preceding clauses
(a) through (d) (other than negotiations with Velogic and its representatives
regarding the transactions contemplated by this Agreement).
4.8 Litigation. There is no action, suit, arbitration, proceeding or
----------
investigation pending against Keynote before any court, Governmental Authority
or arbitrator, nor, to Keynote's knowledge, has any such action, suit,
arbitration, proceeding or investigation been threatened that, individually or
in the aggregate, would have a Material Adverse Effect on Keynote. As of the
date hereof, there is no judgment, decree or order against Keynote or any of its
subsidiaries or, to the knowledge of Keynote, any of their respective directors
or officers (in their capacities as such), that could prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement or that
could have a Material Adverse Effect on Keynote.
4.9 Delivery of Documents. Keynote has delivered true and complete copies
---------------------
of all documents requested by Velogic and which are referred to in this Article
4 or in any Schedule delivered by Keynote to Velogic.
ARTICLE 5
Pre Closing Covenants Of Velogic
During the time period from the Agreement Date until the earlier to occur
of (a) the Effective Time or (b) the termination of this Agreement in accordance
with the provisions of Article 10, Velogic covenants and agrees with Keynote as
follows:
5.1 Advice of Changes. Velogic will promptly advise Keynote in writing of
-----------------
any (a) event occurring subsequent to the Agreement Date that would render any
representation or warranty of Velogic contained in Article 3 of this Agreement,
if made on or as of the date of such event or the Closing Date, untrue or
inaccurate and (b) Material Adverse Change in Velogic. Velogic will immediately
advise Keynote if Velogic's Current Assets (as defined in Section 3.8) equal or
exceed (or are at any time likely to equal or exceed) Ten Million Dollars
($10,000,000) at any time prior to the earlier to occur of (i) the termination
of this Agreement in accordance with Article 10 or (ii) the Effective Time.
5.2 Maintenance of Business. Velogic will carry on and preserve its
-----------------------
business and its relationships with customers, advertisers, suppliers, employees
and others with whom Velogic has contractual relations in substantially the same
manner as it has prior to the Agreement Date consistent with past practices. If
Velogic becomes aware of a material deterioration in the relationship with any
key customer, key supplier or key employee, it will promptly bring such
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information to the attention of Keynote in writing and, if requested by Keynote,
will exert reasonable commercial efforts to promptly restore the relationship.
5.3 Conduct of Business. Velogic will continue to conduct its business and
-------------------
maintain its business relationships in the ordinary and usual course and Velogic
will not, without the prior written consent of Keynote:
(a) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person other than in the ordinary course of business
consistent with past practice;
(b) lend any money, other than reasonable and normal advances to
employees for bona fide expenses that are incurred in the ordinary course of
Velogic's business consistent with Velogic's past practices;
(c) enter into any material transaction or agreement or take any
other action not in the ordinary course of Velogic's business consistent with
Velogic's past practices;
(d) grant any Encumbrance on any of its assets;
(e) sell, transfer or dispose of any of its assets except in the
ordinary course of Velogic's business consistent with Velogic's past practices;
(f) enter into any material lease or contract for the purchase or
sale of any property, whether real or personal, tangible or intangible;
(g) pay any bonus, increased salary or special remuneration to any
officer, director, employee or consultant (except for normal salary increases
consistent with Velogic's past practices and not to exceed 5% of such officer's,
employee's or consultant's base annual compensation, and except pursuant to
arrangements disclosed in writing to Keynote prior to the Agreement Date or
disclosed in writing subsequent to the Agreement Date and approved in writing by
Keynote) or enter into any new employment or consulting agreement with any such
person;
(h) change any of its accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of its capital stock, redeem, repurchase or otherwise
acquire any of its capital stock or other securities (except for the repurchase
of stock from employees, directors, consultants or contractors of Velogic in
connection with the termination of their services with Velogic at the original
purchase price of such stock), pay or distribute any cash or property to any
shareholder or security holder of Velogic or make any other cash payment to any
shareholder or security holder of Velogic that is unusual, extraordinary, or not
made in the ordinary course of Velogic's business consistent with its past
practices;
(j) amend or terminate any contract, agreement or license to which
Velogic is a party except those amended or terminated in the ordinary course of
Velogic's business, consistent with its past practices, and which are not
material in amount or effect;
-33-
(k) waive or release any material right or claim except in the
ordinary course of Velogic's business consistent with its past practices;
(l) issue, sell, create or authorize any shares of its capital stock
of any class or series or any other of its securities (other than pursuant to
the exercise of any Velogic Options or Velogic Warrants), or issue, grant or
create any warrants, obligations, subscriptions, options (other than the grant
of options to employees to purchase Velogic Common Stock, provided that the
vesting of such options does not accelerate in connection with the Merger or any
of the other transactions contemplated hereby, such options vest over a four-
year period, with not more than twenty-five percent in the first year and 2.083%
each full calendar month thereafter, the exercise price of such option is not
less than the fair market value of Velogic Common Stock on the date of grant,
and the number of shares subject to such option is consistent with the past
practice of Velogic; convertible securities, or other commitments to issue
shares of its capital stock or any securities that are potentially exchangeable
for, or convertible into, shares of its capital stock;
(m) subdivide or split or combine or reverse split the outstanding
shares of its capital stock of any class or series or enter into any
recapitalization affecting the number of outstanding shares of its capital stock
of any class or series or affecting any other of its securities;
(n) merge, consolidate or reorganize with, or acquire, or enter into
any other business combination with, any corporation, partnership, limited
liability company or any other entity (other than Keynote or Sub) or enter into
any negotiations, discussions or agreement for such purpose;
(o) amend its Articles of Incorporation or Bylaws;
(p) license any of its technology or Intellectual Property, or
acquire any Intellectual Property (or any license thereto) from any third
party;
(q) materially change any insurance coverage;
(r) agree to any audit assessment by any tax authority or file any
federal or state income or franchise tax return unless copies of such returns
have first been delivered to Keynote for its review at a reasonable time prior
to filing;
(s) modify or change the exercise or conversion rights or exercise
or purchase prices of any capital stock of Velogic, any Velogic stock options,
warrants or other Velogic securities, or accelerate or otherwise modify (i) the
right to exercise any option, warrant or other right to purchase any capital
stock or other securities of Velogic or (ii) the vesting or release of any
shares of capital stock or other securities of Velogic from any repurchase
options or rights of refusal held by Velogic or any other party or any other
restrictions; or
(t) agree to do any of the things described in the preceding
clauses 5.3(a) through 5.3(s).
5.4 Regulatory Approvals. Velogic will promptly execute and file, or join
--------------------
in the execution and filing, of any application, notification or any other
document that may be necessary in order to obtain the authorization, approval or
consent of any Governmental
-34-
Authority, whether federal, state, local or foreign, which may be reasonably
required, or which Keynote may reasonably request, in connection with the
consummation of the Merger or any other transactions contemplated by this
Agreement or any Velogic Ancillary Agreement. Velogic will use diligent efforts
to obtain, and to cooperate with Keynote to promptly obtain, all such
authorizations, approvals and consents.
5.5 Necessary Consents. Velogic will use diligent efforts to promptly
------------------
obtain such written consents and authorizations of the third parties set forth
in Section 5.5 of the Velogic Disclosure Letter, give notices to such third
parties and take such other actions as may be necessary or appropriate in order
to effect the consummation of the Merger and the other transactions contemplated
by this Agreement, to enable Keynote to carry on Velogic's business immediately
after the Effective Time and to keep in effect and avoid the breach, violation
of, termination of, or adverse change to, any agreement or contract to which
Velogic is a party or is bound or by which any of its assets is bound.
5.6 Litigation. Velogic will notify Keynote in writing promptly after
----------
learning of any claim, action, suit, arbitration, mediation, proceeding or
investigation by or before any court, arbitrator or arbitration panel, board or
governmental agency, initiated by or against it, or known by it to be threatened
against Velogic or any of its officers, directors, employees or shareholders in
their capacity as such.
5.7 No Other Negotiations. Velogic will not, and Velogic will not
---------------------
authorize, encourage or permit any officer, director, employee, shareholder,
affiliate or agent of Velogic or any attorney, investment banker or other person
on Velogic's or their behalf to, directly or indirectly: (i) solicit, initiate,
encourage or induce the making, submission or announcement of, any offer or
proposal from any party concerning any Alternative Transaction (as defined
below) or take any other action that could reasonably be expected to lead to an
Alternative Transaction or a proposal therefor; (ii) consider any inquiry, offer
or proposal received from any party concerning any Alternative Transaction
(other than to respond to such inquiry, offer or proposal by indicating that
Velogic is not interested in any Alternative Transaction); (iii) furnish any
information regarding Velogic to any person or entity in connection with or in
response to any inquiry, offer or proposal for or regarding any Alternative
Transaction (other than to respond to such inquiry, offer or proposal by
indicating that Velogic is not interested in any Alternative Transaction); (iv)
participate in any discussions or negotiations with any person or entity with
respect to any Alternative Transaction (other than to respond to such inquiry,
offer or proposal by indicating that Velogic is not interested in any
Alternative Transaction); (v) otherwise cooperate with, facilitate (with
knowledge) or encourage any effort or attempt by any person or entity (other
than Keynote) to effect any Alternative Transaction; or (vi) execute, enter into
or become bound by any letter of intent, agreement, commitment or understanding
between Velogic and any third party that is related to, provides for or concerns
any Alternative Transaction. Velogic will promptly notify Keynote orally and in
writing of any inquiries or proposals received by Velogic, directors, officers,
shareholders, employees or agents regarding any Alternative Transaction and
will, identify the party making the inquiry or proposal and the nature and terms
of any inquiry or proposal. Any violation of the restrictions set forth in this
Section by any officer, director or employee of Velogic or any attorney,
investment banker or other director or representative of Velogic shall be deemed
a breach of this Section 5.7 by Velogic. As used herein, the term "Alternative
Transaction" means any commitment, agreement or transaction involving or
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providing for (a) the possible disposition of all or any substantial portion of
Velogic's business, assets or capital stock, whether by way of merger,
consolidation, sale of assets, sale of stock, stock exchange, tender offer
and/or any other form of business combination, or (b) any initial public
offering of capital stock or other securities of Velogic pursuant to a
registration statement filed under the Securities Act.
5.8 Access to Information. Velogic will allow Keynote and its agents
---------------------
access at reasonable time to the files, books, records, technology, contracts,
personnel and offices of Velogic, including, without limitation, any and all
information relating to Velogic's taxes, commitments, contracts, leases,
licenses, financial condition and real, personal and intangible property,
subject to the terms and conditions of the Mutual Non-disclosure Agreement
between Velogic and Keynote, dated July 14, 1999 (the "Confidentiality
Agreement"). Velogic will cause its accountants to cooperate with Keynote and
Keynote's agents (provided that, prior to any disclosure to such agents, such
agents are bound by the terms of a confidentiality agreement with substantially
similar restriction as included in the Confidentiality Agreement to restrict the
use and disclosure of Velogic's confidential information) in making available
all financial information reasonably requested by Keynote, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
5.9 Satisfaction of Conditions Precedent. Velogic will use its diligent
------------------------------------
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Article 9, and Velogic will use its diligent efforts to cause
the Merger and the other transactions contemplated by this Agreement to be
consummated in accordance with this Agreement.
5.10 Velogic Employee Plans and Benefit Arrangements. Upon the request of
-----------------------------------------------
Keynote, Velogic will terminate any Velogic Benefit Plan and any leased employee
arrangement or professional employee organization immediately prior to the
Effective Time.
5.11 Information Statement. Velogic will deliver to counsel to Keynote a
---------------------
draft of the Information Statement as promptly as practicable following the
Agreement Date, will send to the Velogic Shareholders such information statement
for the purpose of considering and approving the Merger Agreement, the Merger
and the transactions contemplated hereby.
5.12 Tax Representation Letter. Velogic shall make such reasonable
---------------------------
representations as are requested by its counsel and Keynote's counsel for the
---------
purpose of their rendering the tax opinions discussed in Section
8.8 and Section 9.7.
ARTICLE 6
Keynote Covenants
During the time period from the Agreement Date until the earlier to occur
of (a) the Effective Time or (b) the termination of this Agreement in accordance
with Article 10, Keynote covenants and agrees as follows:
6.1 Advice of Changes. Keynote will promptly advise Velogic in writing of
-----------------
any (a) event that would render any representation or warranty of Keynote or Sub
contained in this Agreement or the Keynote Disclosure Letter, if made on or as
of the date of such event or the Closing Date, to be untrue or inaccurate, (b)
any breach of any covenant or obligation of Keynote
-36-
or Sub pursuant to this Agreement, any Keynote Ancillary Agreement or any Sub
Ancillary Agreement, and (c) Material Adverse Change in Keynote.
6.2 Regulatory Approvals. Keynote will execute and file, or join in the
--------------------
execution and filing, of any application, notification or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be reasonably
required, in connection with the consummation of the Merger and the other
transactions contemplated by this Agreement and the Keynote Ancillary Agreements
and Sub Ancillary Agreements in accordance with the terms of this Agreement.
Keynote will use diligent efforts to obtain all such authorizations, approvals
and consents. Notwithstanding anything in this Agreement to the contrary,
neither Keynote nor any of its affiliates shall be under any obligation to make
proposals, execute or carry out agreements or submit to orders providing for the
sale or other disposition or holding separate (through the establishment of a
trust or otherwise) of any assets or categories of assets of Keynote, or any of
its affiliates or Velogic, or the holding separate of the shares of Velogic
Common Stock or imposing or seeking to impose any limitation on the ability of
Keynote or any of its subsidiaries or affiliates to conduct their business or
own such assets or to acquire, hold or exercise full rights of ownership of the
shares of Velogic Common Stock.
6.3 Satisfaction of Conditions Precedent. Keynote will use its diligent
------------------------------------
efforts to satisfy or cause to be satisfied all of the conditions precedent
which are set forth in Article 8, and Keynote will use its diligent efforts to
cause the transactions contemplated by this Agreement to be consummated in
accordance with the terms of this Agreement.
6.4 Listing of Additional Shares. Keynote will use its diligent efforts to
----------------------------
cause the shares of Keynote Common Stock to be issued in the Merger to be
approved for listing on the Nasdaq Stock Market, subject to notice of issuance.
6.5 Blue Sky Laws. Keynote shall take such steps as may be necessary to
-------------
comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Merger; provided, however, that Keynote shall
not be required to qualify to do business or execute a general consent to
service of process in any jurisdiction.
6.6 Tax Free Reorganization. Keynote will cooperate with Velogic and take
-----------------------
all reasonable actions as may be necessary to ensure that this Agreement
involves a tax-free plan of reorganization and that the Merger is consummated in
accordance with the provisions of Section 368(a) of the Code.
6.7 Indemnification.
---------------
(a) From and after the Effective Time, the Surviving Corporation
shall indemnify, defend and hold harmless each person who is now, or has been at
any time prior to the date of this Agreement or who becomes prior to Effective
Time, an officer, director or employee of Velogic (the "Indemnified Parties") in
respect of acts or omissions occurring on or prior to the Effective Time to the
extent provided under the Velogic's Articles of Incorporation, Bylaws and
indemnification agreements in effect on the date hereof, provided that such
indemnification shall be subject to any limitation imposed from time to time
under applicable law.
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(b) If the Surviving Corporation or any of its respective successors
or assigns (i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving person of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
person or entity, then and in each such case, proper provision shall be made so
that such successors or assigns of the Surviving Corporation shall assume the
obligations set forth in this Section 6.7.
6.8 Employee Benefit Plans. Keynote will provide benefits to employees of
----------------------
Velogic as soon as reasonably practicable following the Effective Time that are
substantially identical in the aggregate to the benefits currently provided to
similarly situated employees of Keynote. From and after the Effective Time,
Keynote shall grant all employees of Velogic credit for all service with Velogic
prior to the Effective Time for (a) eligibility and vesting purposes and (b) for
purposes of vacation accrual after the Effective Time as if such service with
Velogic was service with Keynote. Subject to the approval of any insurance
carrier and to the extent consistent with law and applicable tax qualification
requirements, Keynote shall use its commercially reasonable efforts to cause any
and all pre-existing condition limitations, eligibility waiting periods and
evidence of insurability requirements under any group health plans to be waived
with respect to Velogic employees and their eligible dependents and shall
provide them with credit for any co-payments and deductibles prior to the
Effective Time for purposes of satisfying any applicable deductible, out-of-
pocket, or similar requirements under all employee benefit plan of Keynote in
which they are eligible to participate immediately after the Effective Time.
6.9 Tax Representation Letter. Keynote shall make such reasonable
---------------------------
representations as are requested by its counsel and Velogic's counsel for the
purpose of their rendering the tax opinions discussed in Section 8.8 and Section
9.7.
ARTICLE 7
Closing Matters
7.1 The Closing. Subject to termination of this Agreement as provided in
-----------
Article 10 below, the closing of the transactions to consummate the Merger (the
"Closing") will take place at the offices of Fenwick & West LLP, Two Palo Alto
Square, Palo Alto, California at 10:00 a.m., Pacific Time on the second business
day after all of the conditions to Closing set forth in Sections 8 and 9 hereof
have been satisfied and/or waived in accordance with this Agreement, or on such
other day as Keynote and Velogic may mutually agree upon (the "Closing Date").
Concurrently with the Closing, the Certificates of Merger will be filed with the
Delaware and California Secretaries of State.
7.2 Exchange of Certificates.
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7.2.1 At the Effective Time, shares of Velogic Common Stock that are
outstanding immediately prior thereto (other than Dissenting Shares for which
dissenters rights have been or will be perfected in accordance with California
law), will, by virtue of the Merger and without further action, cease to exist,
and all such shares will be converted into the right to receive from Keynote the
number of shares of Keynote Common Stock to which such holder is entitled
pursuant to Section 2.1.2, subject to the provisions of Section 2.1.4 (regarding
the elimination of fractional shares of Keynote Common Stock) and Section 2.5
(regarding the
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withholding of Escrow Shares). As soon as reasonably practicable (and in any
event no later than eight business days after the Effective Time), Keynote shall
make available to American Stock Transfer and Trust Company, (the "Exchange
Agent") certificates representing Keynote Common Stock to be issued in exchange
for outstanding shares of Velogic Common Stock and cash in an amount sufficient
to permit the payment of cash in lieu of fractional shares pursuant to Section
2.1.4. As soon as practicable after the Effective Time (and in any event no
later than ten (10) Business Days after the Effective Time), the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
which immediately prior to the Effective Time represented outstanding shares of
Velogic Common Stock (the "Velogic Certificates") and which shares were
converted into the right to receive shares of Keynote Common Stock pursuant to
Section 2.1.2, (a) a letter of transmittal in customary form (which shall
specify that delivery shall be effected, and risk of loss and title to the
Velogic Certificates shall pass, only upon delivery of the Velogic Certificates
to the Exchange Agent and shall be in such form and have such other provisions
as Keynote may reasonably specify) and (b) instructions for use in effecting the
surrender of the Velogic Certificates in exchange for certificates representing
shares of Keynote Common Stock and cash in lieu of fractional shares. Upon
surrender of a Velogic Certificate for cancellation or upon delivery of an
affidavit of lost certificate and an indemnity in form and substance
satisfactory to Keynote (the "Affidavit") to the Exchange Agent or to such other
agent or agents as may be appointed by Keynote, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, (a) Keynote or its transfer agent will issue to each
tendering holder of a Velogic Certificate or an Affidavit, certificates (a
"Tendering Velogic Holder") for the number of shares of Keynote Common Stock to
which such holder is entitled pursuant to Section 2.1.2, subject to the
provisions of Section 2.1.4 (regarding the elimination of fractional shares of
Keynote Common Stock) and Section 2.5 (regarding the withholding of Escrow
Shares); and (b) Keynote or its transfer agent will pay by check to each
Tendering Velogic Holder cash in the amounts payable to such holder in
accordance with the provisions of Sections 2.1.4.
7.2.2 No dividends or distributions payable to holders of record of
Keynote Common Stock after the Effective Time will be paid to the holder of any
unsurrendered Velogic Certificate unless and until the holder of such
unsurrendered Velogic Certificate surrenders such Velogic Certificate or an
Affidavit to Keynote as provided above. Subject to the effect, if any, of
applicable escheat and other laws, following surrender of any Velogic
Certificate or Affidavit, there will be delivered to the person entitled
thereto, without interest, the amount of any dividends and distributions
theretofore paid with respect to Keynote Common Stock so withheld as of any date
subsequent to the Effective Time and prior to such date of delivery.
7.2.3 After the Effective Time there will be no further registration
of transfers on the stock transfer books of Velogic or its transfer agent of any
shares of capital stock of Velogic that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Velogic Certificates or an
Affidavit are presented for any reason, they will be canceled and exchanged as
provided in this Section 7.2.
7.2.4 Until Velogic Certificates or an Affidavit representing shares
of Velogic Common Stock that are outstanding immediately prior to the Effective
Time are surrendered pursuant to Section 7.2.1 above, such Velogic Certificates
will be deemed, for all purposes, to evidence ownership of the number of shares
of Keynote Common Stock, subject to the
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provisions of Section 2.1.4 (regarding the elimination of fractional shares of
Keynote Common Stock) and Section 2.5 (regarding the withholding of Escrow
Shares).
7.3 Appraisal Rights. If holders of Velogic Common Stock are entitled to
----------------
appraisal rights pursuant to the California Law in connection with the Merger,
any shares held by Velogic Shareholders who exercise and perfect such appraisal
rights ("Dissenting Shares") shall not be converted into a right to receive
Keynote Common Stock, but shall be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to the California Law. Velogic shall give Keynote prompt notice
(and in no event more than two business days) of any demand received by Velogic
for appraisal of Velogic Common Stock, and Keynote shall have the right to
control all negotiations and proceedings with respect to such demand. Velogic
agrees that, except with the prior written consent of Keynote, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. In the event that any Velogic Shareholder fails to
make an effective demand for payment or otherwise loses his status as a holder
of Dissenting Shares (a "Dissenting Shareholder"), Keynote shall, as of the
later of the Effective Time of the Merger or ten business days from the
occurrence of such event, issue and deliver, upon surrender by such Dissenting
Shareholder of its Velogic Certificate or Certificates, the shares of Keynote
Common Stock and any cash payment in lieu of fractional shares, in each case
without interest thereon, to which such Dissenting Shareholder would have been
entitled to under Section 2.1.2 of this Agreement (less the number of shares of
Keynote Common Stock to be held in escrow with respect to such shareholder
pursuant to Section 2.5).
ARTICLE 8
Conditions To Obligations Of Velogic
Velogic's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Velogic, but only in a writing signed by
Velogic):
8.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Keynote and Sub set forth in Article 4 (a) that are qualified as
to materiality will be true and correct and (b) that are not qualified as to
materiality shall be true and correct in all material respects, in each case on
and as of the Closing with the same force and effect as if they had been made on
the Closing Date (except for any such representations or warranties that, by
their terms, speak only as of a specific date or dates, in which case such
representations and warranties that are qualified as to materiality shall be
true and correct, and such representations and warranties that are not qualified
as to materiality shall be true and correct in all material respects, on and as
of such specified date or dates), and at the Closing Velogic will have received
a certificate to such effect executed by an officer of Keynote.
8.2 Covenants. Keynote will have performed and complied in all material
---------
respects with all of its covenants contained in Article 6 on or before the
Closing (to the extent that such covenants require performance by Keynote on or
before the Closing), and at the Closing Velogic will have received a certificate
to such effect signed by an officer of Keynote.
8.3 No Material Adverse Change. There will not have been any Material
--------------------------
Adverse Change in Keynote, whether or not resulting from a breach in any
representation, warranty or
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covenant in this Agreement, and at the Closing Velogic will have received a
certificate to such effect signed by and officer of Keynote.
8.4 Requisite Approvals. This Agreement will have been duly and validly
-------------------
approved by Keynote's Board of Directors in accordance with Applicable Law and
Keynote's Certificate of Incorporation and Bylaws, each as amended. This
Agreement will have been approved and adopted by Sub's Board of Directors and
sole stockholder in accordance with Applicable Law and Sub's Certificate of
Incorporation and Bylaws, each as amended.
8.5 Compliance with Law; No Legal Restraints; No Litigation. There will
-------------------------------------------------------
not be issued or enacted or adopted, or threatened in writing by any
Governmental Authority, any order, decree, temporary, preliminary or permanent
injunction, legislative enactment, statute, regulation, action or proceeding, or
any judgment or ruling by any Governmental Authority that prohibits or renders
illegal or imposes limitations on the Merger or any other material transaction
contemplated by this Agreement or any Keynote Ancillary Agreements or any Sub
Ancillary Agreements. No litigation or proceeding will be threatened or pending
for the purpose or with the probable effect of enjoining or preventing the
consummation of the Merger or any of the other material transactions
contemplated by this Agreement or which could be reasonably expected to have a
Material Adverse Effect on Keynote.
8.6 Government Consents. There will have been obtained at or prior to the
-------------------
Closing Date such permits or authorizations, and there will have been taken all
such other actions by any regulatory authority having jurisdiction over the
parties and the actions herein proposed to be taken, as may be required to
lawfully consummate the Merger, including but not limited to requirements under
applicable federal and state securities laws.
8.7 Opinion of Keynote's Counsel. Velogic will have received from Fenwick
----------------------------
& West LLP, counsel to Keynote, an opinion, subject to customary qualifications
and limitations covering the matters set forth in Exhibit C.
----------
8.8 Velogic Tax Opinion. Velogic shall have received an opinion of ▇▇▇▇▇▇
-------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ PC, counsel to Velogic, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization under
Section 368(a) of the Code and that each of Keynote, Sub and Velogic will be a
party to the reorganization within the meaning of Section 368(b) of the Code and
such opinion shall not have been withdrawn or modified in any material respect.
In the event that Velogic's counsel shall not render such opinion, then
Keynote's counsel may render such opinion in satisfaction of the condition set
forth in this Section 8.8.
8.9 Nasdaq Listing. The shares of Keynote Common Stock that are issuable
--------------
in the Merger and upon exercise of outstanding Velogic Options and Velogic
Warrants, shall be authorized for listing on the Nasdaq Stock Market, subject to
notice of issuance.
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ARTICLE 9
Conditions To Obligations Of Keynote
The obligations of Keynote hereunder are subject to the fulfillment or
satisfaction on, and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Keynote, but only in a writing signed by
Keynote):
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Velogic set forth in Article 3 (a) that are qualified as to
materiality will be true and correct and (b) that are not qualified as to
materiality shall be true and correct in all material respects, in each case on
and as of the Closing with the same force and effect as if they had been made at
the Closing Date (except for any such representations or warranties that, by
their terms, speak only as of a specific date or dates, in which case such
representations and warranties that are qualified as to materiality shall be
true and correct, and such representations and warranties that are not qualified
as to materiality shall be true and correct in all material respects, on and as
of such specified date or dates), and at the Closing Keynote will have received
a certificate to such effect executed by Velogic's President or Chief Executive
Officer.
9.2 Covenants. Velogic will have performed and complied in all material
---------
respects with all of its covenants contained in Article 5 at or before the
Closing (to the extent that such covenants require performance by Velogic at or
before the Closing), and at the Closing Keynote will have received a certificate
to such effect signed by Velogic's President or Chief Executive Officer.
9.3 No Material Adverse Change. There will not have been any Material
--------------------------
Adverse Change in Velogic, whether or not resulting from a breach in any
representation, warranty or covenant in this Agreement, and at the Closing
Keynote will have received a certificate to such effect signed by Velogic's
President or Chief Executive Officer.
9.4 Compliance with Law; No Legal Restraints; No Litigation. There will
-------------------------------------------------------
not have been issued, enacted or adopted, or threatened in writing by any
Governmental Authority any order, decree, temporary, preliminary or permanent
injunction, legislative enactment, statute, regulation, action, proceeding,
judgment or ruling by any Governmental Authority that prohibits or renders
illegal or imposes limitations on: (a) the Merger or any other material
transaction contemplated by this Agreement or any Velogic Ancillary Agreement;
or (b) Keynote's right (or the right of any Keynote subsidiary) to own, retain,
use or operate any of its products, properties or assets (including equity,
properties or assets of Velogic) on or after consummation of the Merger or
seeking a disposition or divestiture of any such properties or assets. No
litigation or proceeding will be threatened or pending for the purpose or with
the probable effect of enjoining or preventing the consummation of any of the
transactions contemplated by this Agreement, or which could be reasonably
expected to have a Material Adverse Effect on Velogic.
9.5 Government Consents. There will have been obtained at or prior to the
-------------------
Closing Date such permits or authorizations, and there will have been taken all
such other actions by any governmental or regulatory authority having
jurisdiction over the parties and the actions herein proposed to be taken, as
may be required to consummate the Merger, including but not limited to
requirements under applicable federal and state securities laws.
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9.6 Opinion of Velogic's Counsel. Keynote will have received from ▇▇▇▇▇▇,
----------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ PC, counsel to Velogic, an opinion, subject to
customary qualifications and limitations opining to the matters set forth in
Exhibit D.
---------
9.7 Keynote Tax Opinion. Keynote shall have received an opinion of
-------------------
Fenwick & West LLP, counsel to Keynote, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization under Section 368(a)
of the Code and that each of Keynote, Sub and Velogic will be a party to the
reorganization within the meaning of Section 368(b) of the Code and such opinion
shall not have been withdrawn or modified in any material respect. In the event
that Keynote's counsel shall not render such opinion, then Velogic's counsel may
render such opinion in satisfaction of the condition set forth in this Section
9.7.
9.8 Consents. Keynote will have received duly executed copies of all
--------
consents, approvals, assignments, notices, waivers, authorizations or other
certificates from the third parties set forth in Section 5.5 of the Velogic
Disclosure Letter to provide for the continuation in full force and effect of
any and all material contracts, agreements and leases of Velogic after the
Merger and the preservation of Velogic's IP Rights and other assets and
properties after the Merger and for Keynote to consummate the Merger and the
other transactions contemplated by this Agreement, the Keynote Ancillary
Agreements and the Velogic Ancillary Agreements, in each case, in form and
substance satisfactory to Keynote.
9.9 Requisite Approvals. This Agreement, the Merger and the Velogic
-------------------
Ancillary Agreements will have been duly and validly approved and adopted, as
required by applicable law and Velogic's Articles of Incorporation and Bylaws,
by (a) all of the members of Velogic's Board of Directors, (b) the valid and
affirmative vote of at least 95% of the outstanding shares of Velogic Common
Stock and Velogic Preferred Stock.
9.10 Investment Representation Letters; Exemptions Available. Keynote: (a)
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will have received an executed counterpart of the Investment Representation
Letter substantially in the form of Exhibit E to this Agreement executed by each
---------
Velogic Shareholder who approved and adopted this Agreement, the Merger and the
Velogic Ancillary Agreements; and (b) must be reasonably satisfied that there
are not more than thirty-five Velogic Shareholders who are not "accredited
investors" within the meaning of Regulation D promulgated under the Securities
Act.
9.11 Continued Employment of Certain Personnel. Each of the persons listed
-----------------------------------------
on Schedule 9.11 to the Velogic Disclosure Letter will have executed and
-------------
delivered to Keynote employment agreements or employment offer letters in the
form attached hereto as Exhibit F-1 and F-2, respectively (the "Employment
-------------------
Agreements").
9.12 Resignation of Directors and Officers. The directors and officers of
-------------------------------------
Velogic in office immediately prior to the Effective Time of the Merger (other
than any such director who is designated in Section 2.6(h)) to be a director of
Velogic immediately after the Effective Time) will have resigned as directors of
the Surviving Corporation in writing effective as of the Effective Time.
9.13 Limits on Dissenting Shares. No more than five percent (5%) of the
---------------------------
outstanding shares of Velogic Common Stock taken together will (a) not have
affirmatively voted in favor of
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the Merger and the Agreement and (b) accordingly be eligible to exercise or
perfect any statutory appraisal rights of dissenting shareholders under
applicable law.
9.14 Escrow Agreement. Keynote will have received a copy of the Escrow
-----------------
Agreement in the form of Exhibit G executed by the Escrow Agent and the
---------
Representatives (the "Escrow Agreement").
9.15 No Other Securities. All securities of Velogic other than Velogic
-------------------
Common Stock, Velogic Warrants, Velogic Options and Velogic Preferred Stock,
including, without limitation, the Note Warrants, will have been validly
terminated or exercised in full in accordance with their current terms and
conditions.
9.16 Termination of Velogic Benefit Plans. Pursuant to Section 5.10,
------------------------------------
Velogic shall have duly and effectively terminated such Velogic Benefit Plan as
Keynote shall have requested Velogic to terminate in writing pursuant to
documentation that is reasonably satisfactory in form and substance to Keynote.
9.17 Velogic Shareholder Approval. Velogic shall obtain the valid and
----------------------------
affirmative vote of at least 95% of the outstanding shares of Velogic Common
Stock and Velogic Preferred Stock.
9.18 Cancellation or Exercise of Warrants. At the Closing, all of the Note
------------------------------------
Warrants shall be exercised in full or canceled and all other Velogic Warrants
shall have been exercised or terminated.
9.19 Purchaser's Representative. Each Velogic Shareholder who is not an
--------------------------
"accredited investor," as such term in defined in Rule 501(a) of Regulation D
promulgated under the Securities Act, shall have entered into an agreement
appointing a purchaser representative, as such term in defined in Rule 501(h) of
Regulation D, to assist such Velogic Shareholder in evaluating the merits and
risks of the Merger.
9.20 No Capital Changes. As of the Closing Date, there shall have been no
------------------
change in the authorized and outstanding capital stock of Velogic as represented
in Section 3.4.1, other than the following changes if made in compliance with
this Agreement: (i) the issuance of shares of Velogic Common Stock pursuant to
the exercise of Velogic Options represented as being outstanding on the
Agreement Date in Section 3.4.1; (ii) pursuant to the exercise or conversion of
any Velogic Warrants represented as being outstanding on the Agreement Date in
Section 3.4.1; or (iii) the issuance of Velogic Options pursuant to the Velogic
Plan, but not to exceed in the aggregate the number of shares of Velogic Common
Stock reserved for issuance thereunder as specified in Section 3.4.1.
9.21 Termination of Investor Rights Agreement. Velogic will have caused
----------------------------------------
that certain Investors' Rights Agreement, dated as of January 7, 1999, by and
among Velogic and the investors listed on Schedule A thereto, to be amended to
provide for the termination of all rights and covenants thereunder effective
immediately upon the Closing.
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ARTICLE 10
Termination Of Agreement
10.1 Termination by Mutual Consent. This Agreement may be terminated at
-----------------------------
any time prior to the Effective Time by the mutual written consent of Keynote
and Velogic.
10.2 Unilateral Termination.
----------------------
10.2.1 Either Keynote or Velogic, by giving written notice to the
other, may terminate this Agreement if a court of competent jurisdiction or
other Governmental Authority shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger.
10.2.2 Either Keynote or Velogic, by giving written notice to the
other, may terminate this Agreement if the Merger shall not have been
consummated by midnight Pacific Time on the Termination Date; provided, however,
that the right to terminate this Agreement pursuant to this Section 10.2.2 shall
not be available to any party whose failure to perform in any material respect
any of its obligations or covenants under this Agreement results in the failure
of any condition set forth in Article 8 or Article 9 or if the failure of such
condition results from facts or circumstances that constitute a material breach
of a representation or warranty or covenant made under this Agreement by such
party.
10.2.3 Either Keynote or Velogic may terminate this Agreement at
any time prior to the Effective Time if the other has committed (or, in the case
of a termination by Velogic, Sub has committed) a material breach of (a) any of
its representations and warranties under Article 3 or Article 4 of this
Agreement, as applicable; or (b) any of its covenants under Article 5 or Article
6 of this Agreement, as applicable, and has not cured such material breach
within ten days after the party seeking to terminate this Agreement has given
the other party written notice of the material breach and its intention to
terminate this Agreement pursuant to this Section 10.2.3.
10.2.4 No Liability for Termination. Termination of this
Agreement by a party (the "Terminating Party") in accordance with the provisions
of this Section 10 will not give rise to any obligation or liability on the part
of the Terminating Party on account of such termination; provided, however, that
nothing herein shall relieve a party from liability for a willful breach of this
Agreement. The provisions of Article 10 and Article 13 shall survive any
termination of this Agreement.
ARTICLE 11
Survival of Representations, Indemnification
and Remedies, Continuing Covenants
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of the parties to this Agreement contained in this Agreement will
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any of the parties to this Agreement, until that date
(the "Release Date") which is the earlier of (a) the termination of this
Agreement in accordance with its terms or (b) December 31, 2000; provided,
however, that notwithstanding the foregoing, Keynote may seek recovery of
Special Damages (as defined in
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Section 11.2(c)) or Shareholder Damages (as defined in Section 11.2(b)) at any
time prior to the expiration of the applicable statute of limitations at any
time prior to the expiration of the applicable statute of limitations for the
claim which seeks recovery of such Special Damages or Shareholder Damages.
11.2 Agreement to Indemnify.
----------------------
(a) The Velogic Shareholders will severally, but not jointly,
on a pro rata basis based upon their respective ownership interests in Velogic
Common Stock set forth besides their names on Schedule 3.4.1(a) to the Velogic
-----------------
Disclosure Letter, indemnify and hold harmless, Keynote and the Surviving
Corporation and their respective officers, directors, agents, representatives,
stockholders and employees, and each person, if any, who controls or may control
Keynote or the Surviving Corporation within the meaning of the Securities Act or
the Exchange Act (each hereinafter referred to individually as a "Keynote
Indemnified Person" and collectively as "Keynote Indemnified Persons") from and
against any and all claims, demands, suits, actions, causes of actions, losses,
costs, damages, liabilities and expenses including, without limitation,
reasonable attorneys' fees, other professionals' and experts' reasonable fees
and court or arbitration costs (hereinafter collectively referred to as
"Damages") directly or indirectly incurred, resulting or and arising out of: (a)
any inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties or covenants given or made by Velogic in this
Agreement or in the Velogic Disclosure Letter or in any certificate delivered by
or on behalf of Velogic or an officer of Velogic pursuant hereto; or (b) any
Excess Transaction Expenses (as defined in Section 13.7). Except with respect to
claims arising from Shareholder Damages, which may be raised after the Release
Date, any claim of indemnity made by an Keynote Indemnified Person under this
Section 11.2(a) must be raised in a Notice of Claim (as defined in Section 11.5)
delivered to the Representative (as defined below) by no later than the Release
Date and, if raised by such date, such claim shall survive the Release Date
until final resolution thereof. Escrow Shares, other than Escrow Shares having a
value (calculated pursuant to Section 11.3(a)) equal to the amount of Damages
asserted in any Claim (as defined in Section 11.5) which has not been resolved
pursuant to the terms hereof prior to the Release Date, shall be released to the
Velogic Shareholders on the Release Date or, in the case of any such withheld
shares, upon the resolution of such Claim(s).
(b) Each Velogic Shareholder will severally (and not jointly)
indemnify and hold harmless Keynote Indemnified Persons from and against all
Damages incurred or suffered by any such persons resulting or arising from, by
reason of or in connection with (i) any misrepresentation or breach of or
default in connection with any of the representations, warranties, covenants or
agreements given or made by such Velogic Shareholder in the Investment
Representation Letter executed by such Velogic Shareholder pursuant to this
Agreement or, (ii) the failure of such Velogic Shareholder to have good, valid
and marketable title to the issued and outstanding Velogic Common Stock or
Velogic Preferred Stock held by such shareholder, free and clear of all
Encumbrances, or to have full right, capacity and authority to vote such Velogic
Common Stock in favor of the Merger and the other transactions contemplated by
this Agreement (collectively "Shareholder Damages").
(c) The Velogic Shareholders will severally, but not jointly,
on a pro rata basis based upon their respective ownership interests in Velogic
Common Stock set forth besides
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their names on Schedule 3.4.1(a) to the Velogic Disclosure Letter, indemnify and
-----------------
hold harmless Keynote Indemnified Persons from and against all Damages incurred
or suffered by any such persons resulting or arising from, by reasons of or in
connection with any fraudulent conduct or fraudulent misrepresentation made by
Velogic in this Agreement or in any Velogic Ancillary Agreement ("Special
Damages").
11.3 Limitation On Indemnity Obligation.
----------------------------------
(a) Except with respect to claims for indemnification for
Shareholder Damages and Special Damages, the Escrow Shares shall constitute the
sole and exclusive remedy of Keynote and the Surviving Corporation with respect
to Damages. In seeking indemnification for Damages under Section 11.2, the
Keynote Indemnified Persons shall first exercise their remedies with respect to
the Escrow Shares and any other assets deposited in escrow pursuant to the terms
of Section 2.5 and Article 11 hereof and then, solely with respect to
Shareholder Damages and Special Damages may seek recovery of such Damages
against any other assets of the Velogic Shareholder. Each Velogic Shareholder
agrees that claims for indemnification against such person under this Article 11
may be satisfied by the forfeiture of such person's shares of Keynote Common
Stock (including fractions of a share thereof) as provided for in this Article
11 and that no Keynote Indemnified Person shall have any obligation to exercise
its remedies against any other assets of such Velogic Shareholder prior to
exercising them against such shares of Keynote Common Stock. In the event of a
Capital Change after the Effective Time, the Keynote Average Price Per Share
will, for purposes of this Section 11.3, be proportionally and equitably
adjusted. Notwithstanding the foregoing, in no event shall any claim for Special
Damages against any Velogic Shareholder exceed the value of the Keynote
securities received by such Velogic Shareholder in the Merger.
(b) The indemnification provided for in Section 11.2(a) shall
not apply unless and until the aggregate cumulative Damages for which one or
more Indemnified Persons have sought indemnification under this Section exceeds
one hundred thousand dollars ($100,000) (the "Basket") and then the
indemnification shall extend to the amount of such cumulative Damages in excess
of fifty thousand dollars ($50,000).
11.4 Appointment of Representatives. By voting in favor of the Merger,
------------------------------
each of the Velogic Shareholders approves the designation of and designates
▇▇▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ as the Representatives of the Velogic
Shareholders and as the attorneys-in-fact and agents for and on behalf of each
Velogic Shareholder with respect to claims for indemnification under Article 11
and the taking by the Representatives of any and all actions and the making of
any decisions required or permitted to be taken by the Representatives under
this Agreement, including, without limitation, the exercise of the power to: (a)
authorize the release or delivery to Keynote of shares of Keynote Common Stock
and any other assets deposited in escrow pursuant to the terms of Section 2.5
and Article 11 hereof in satisfaction of indemnity claims by Keynote or any
other Keynote Indemnified Person (as defined herein) pursuant to Article 11; (b)
agree to, negotiate, enter into settlements and compromises of, demand
arbitration of, and comply with orders of courts and awards of arbitrators with
respect to, such claims; (c) arbitrate, resolve, settle or compromise any claim
for indemnity made pursuant to Article 11; and (d) take all actions necessary in
the judgment of the Representatives for the accomplishment of the foregoing. The
Representatives will have authority and power to act on behalf of each Velogic
Shareholder with
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respect to the disposition, settlement or other handling of all claims under
Article 11 hereof and all rights or obligations arising under Article 11. The
Velogic Shareholders will be bound by all actions taken and documents executed
by any Representative in connection with Article 11, and Keynote will be
entitled to rely on any action or decision of any Representative. In performing
the functions specified in this Agreement, the Representatives will not be
liable to any Velogic Shareholder in the absence of gross negligence or willful
misconduct on the part of the Representatives. The Velogic Shareholders shall
severally indemnify the Representatives and hold him or her harmless against any
loss, liability or expense incurred without gross negligence or willful
misconduct on the part of the Representatives and arising out of or in
connection with the acceptance or administration of his or her duties hereunder.
Any out-of-pocket costs and expenses reasonably incurred by the Representatives
in connection with actions taken by the Representatives pursuant to the terms of
Article 11 (including without limitation the hiring of legal counsel and the
incurring of legal fees and costs) will be paid by the Velogic Shareholders to
the Representatives pro rata in proportion to their respective Percentage
Interests, which Velogic Shareholders shall be entitled to reimbursement by
Keynote if Keynote is determined to be a Non-Prevailing Party pursuant to
Section 11.8(c)(i) below. Each of the venture capital firms with which a
Representative is associated, may upon prior written notice to Keynote,
designate a replacement Representative reasonably acceptable to Keynote that is
associated with the applicable venture capital firm.
11.5 Notice of Claim. As used herein, the term "Claim" means a claim for
---------------
indemnification of Keynote or any other Keynote Indemnified Person for Special
Damages, Shareholder Damages or Damages under Article 11. Keynote (and only
Keynote) may give notice of a Claim under this Agreement whether for its own
Special Damages, Shareholder Damages or Damages or for Special Damages,
Shareholder Damages or Damages incurred by any other Keynote Indemnified Person,
and Keynote will give written notice of a Claim executed by an officer of
Keynote (a "Notice of Claim") to Representative and, in the case of Shareholder
Damages, to the applicable Velogic Shareholder, promptly after Keynote becomes
aware of the existence of any potential claim by an Keynote Indemnified Person
for indemnity from the Velogic Shareholders or a Velogic Shareholder under
Article 11, but in any event before the Release Date arising from or relating
to:
(a) (i) any inaccuracy, misrepresentation, breach of, or
default in, any of the representations, warranties or covenants given or made by
Velogic in this Agreement or in the Velogic Disclosure Letter or in any
certificate delivered by Velogic or an officer of Velogic pursuant hereto, (ii)
the incurring of any Excess Transaction Expenses (as defined in Section 13.7),
or (iii) any Special Damages or Shareholder Damages; or
(b) the assertion, whether orally or in writing, against
Keynote or against any other Keynote Indemnified Person of a claim, demand,
suit, action, arbitration, investigation, inquiry or proceeding brought by a
third party against such Indemnified Person that is based upon, or includes
assertions that would, if true, constitute (in each such case, a "Third-Party
Claim"): (i) any inaccuracy, misrepresentation, breach of, or default in, any of
the representations, warranties or covenants given or made by Velogic in this
Agreement or in the Velogic Disclosure Letter or in any certificate delivered by
or on behalf of Velogic or an officer of Velogic pursuant hereto (if such
inaccuracy, misrepresentation, breach or default existed at the Closing Date),
or (ii) any Excess Transaction Expenses.
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Until the Release Date, no delay on the part of Keynote in giving a
Representative a Notice of Claim will relieve any Representative or any Velogic
Shareholder from any of its obligations under Article 11 unless (and then only
to the extent) that the Representatives or the Velogic Shareholders are
materially prejudiced thereby.
11.6 Defense of Third-Party Claims.
-----------------------------
(a) Keynote shall defend any Third-Party Claim, and the costs
and expenses incurred by Keynote in connection with such defense (including but
not limited to reasonable attorneys' fees, other professionals' and experts'
fees and court or arbitration costs) shall be included in the Special Damages,
Shareholder Damages or Damages for which Keynote may seek indemnity pursuant to
a Claim made by any Keynote Indemnified Person hereunder.
(b) The Representatives shall have the right to receive copies
of all pleadings, notices and communications with respect to the Third-Party
Claim to the extent that receipt of such documents by the Representatives does
not affect any privilege relating to the Keynote Indemnified Person, and may
participate in settlement negotiations with respect to the Third-Party Claim. No
Keynote Indemnified Person shall enter into any settlement of a Third-Party
Claim without the prior written consent of one of the Representatives (which
consent shall not be unreasonably withheld), and the Velogic Shareholders will
remain responsible to indemnify the Keynote Indemnified Persons for all Special
Damages, Shareholder Damages or Damages they may incur arising out of, resulting
from or caused by the Third-Party Claim to the fullest extent provided in
Article 11 hereof.
11.7 Contents of Notice of Claim. Each Notice of Claim by Keynote given
---------------------------
pursuant to Section 11.5 will contain the following information:
(a) that Keynote has incurred, paid or properly accrued (in
accordance with GAAP) or, in good faith, believes it will have to incur, pay or
accrue (in accordance with GAAP), Damages in an aggregate stated amount arising
from such Claim (which amount may be the amount of damages claimed by a third
party in an action brought against any Keynote Indemnified Person based on
alleged facts, which if true, would give rise to liability for Special Damages,
Shareholder Damages or Damages to such Keynote Indemnified Person under Article
11); and
(b) a brief description, in reasonable detail (to the extent
reasonably available to Keynote), of the facts, circumstances or events giving
rise to the alleged Special Damages, Shareholder Damages or Damages based on
Keynote's good faith belief thereof, including, without limitation, the identity
and address of any third-party claimant (to the extent reasonably available to
Keynote) and copies of any formal demand or complaint, the amount of Special
Damages, Shareholder Damages or Damages, the date each such item was incurred,
paid or properly accrued, or the basis for such anticipated liability, and the
specific nature of the breach to which such item is related.
11.8 Resolution of Notice of Claim. Any Notice of Claim received by a
-----------------------------
Representative pursuant to Section 11.5 and Section 11.7 above will be resolved
as follows:
(a) Uncontested Claims. In the event that, within thirty
------------------
calendar days after a Notice of Claim is received by the Representative pursuant
to Section 11.5 and Section 11.7, the
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Representative does not contest such Notice of Claim in writing to Keynote as
provided in Section 11.8(b) (an "Uncontested Claim"), the Representatives will
be conclusively deemed to have consented, on behalf of all Velogic Shareholders,
to the recovery by the Keynote Indemnified Person of the full amount of Damages
specified in the Notice of Claim in accordance with this Article 11, including
the adjustment to the number of Merger Shares by withdrawal of a number of
shares of Keynote Common Stock equal to the amount of Damages divided by the
Keynote Average Price Per Share, and any other assets deposited in escrow
pursuant to the terms of Section 2.5 and Article 11 hereof and, without further
notice, to have stipulated to the entry of a final judgment for damages against
the Velogic Shareholders for such amount in any court having jurisdiction over
the matter where venue is proper.
(b) Contested Claims. In the event that the Representatives give
----------------
Keynote written notice contesting all or any portion of a Notice of Claim (a
"Contested Claim") within the forty-five day period specified in Section
11.8(a), then: (i) such Contested Claim will be resolved by either (A) a written
settlement agreement executed by Keynote and the Representative or (B) in the
absence of such a written settlement agreement, by binding arbitration between
Keynote and the Representatives in accordance with the terms and provisions of
Section 11.8(c).
(c) Arbitration of Contested Claims. Each of Keynote, Velogic and the
-------------------------------
Velogic Shareholders agree that any Contested Claim will be submitted to
mandatory, final and binding arbitration before J.A.M.S./ENDISPUTE or its
successor ("J.A.M.S."), pursuant to the United States Arbitration Act, 9 U.S.C.,
Section 1 et seq. and that any such arbitration will be conducted in San Mateo
County, California. Either Keynote or the Representatives may commence the
arbitration process called for by this Agreement by filing a written demand for
arbitration with J.A.M.S. and giving a copy of such demand to each of the other
parties to this Agreement. The arbitration will be conducted in accordance with
the provisions of J.A.M.S' Streamlined Arbitration Rules and Procedures in
effect at the time of filing of the demand for arbitration, subject to the
provisions of this Section 11.8(c). The parties will cooperate with J.A.M.S. and
with each other in promptly selecting an arbitrator from J.A.M.S.' panel of
neutrals, and in scheduling the arbitration proceedings in order to fulfill the
provisions, purposes and intent of this Agreement. The parties covenant that
they will participate in the arbitration in good faith, and that they will share
in its costs in accordance with subparagraph (i) below. The provisions of this
Section 11.8(c) may be enforced by any court of competent jurisdiction, and the
party seeking enforcement will be entitled to an award of all costs, fees and
expenses, including attorneys' fees, to be paid by the party against whom
enforcement is ordered. Subject to the provisions of subparagraph (vii) below,
judgment upon the award rendered by the arbitrator may be entered in any court
having competent jurisdiction.
(i) Payment of Costs. Keynote on the one hand, and Velogic
----------------
Shareholders (through the Representatives), on the other hand, will bear the
expense of deposits and advances required by the arbitrator in equal
proportions, but either party may advance such amounts, subject to recovery as
an addition or offset to any award. The arbitrator shall determine the party who
is the Prevailing Party and the party who is the Non-Prevailing Party. The Non-
Prevailing Party shall pay all reasonable costs, fees and expenses related to
the arbitration, including reasonable fees and expenses of attorneys,
accountants and other professionals incurred by the prevailing party, the fees
of each arbitrator and the administrative fee of the arbitration
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proceedings. If such an award would result in manifest injustice, however, the
arbitrator may apportion such costs, fees and expenses between the parties in
such a manner as the arbitrator deems just and equitable.
(ii) Burden of Proof. Except as may be otherwise expressly
---------------
provided herein, for any Contested Claim submitted to arbitration, the burden of
proof will be as it would be if the claim were litigated in a judicial
proceeding governed by California law exclusively.
(iii) Award. Upon the conclusion of any arbitration proceedings
-----
hereunder, the arbitrator will render findings of fact and conclusions of law
and a final written arbitration award setting forth the basis and reasons for
any decision reached (the "Final Award") and will deliver such documents to the
Representatives and Keynote, together with a signed copy of the Final Award.
Subject to the provisions of subparagraph (vii) below, the Final Award will
constitute a conclusive determination of all issues in question, binding upon
the Velogic Shareholders or a Velogic Shareholder (in the case of a claim for
Shareholder Damages or Special Damages), the Representatives and Keynote, and
will include an affirmative statement to such effect.
(iv) Timing. The Representatives, Keynote and the arbitrator
------
will conclude each arbitration pursuant to this Section 11.8 as promptly as
possible for the Contested Claim being arbitrated.
(v) Terms of Arbitration. The arbitrator chosen in accordance
--------------------
with these provisions will not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of this
Agreement.
(vi) Exclusive Remedy. Following the Effective Time, except as
----------------
specifically otherwise provided in this Agreement, arbitration conducted in
accordance with this Agreement will be the sole and exclusive remedy of the
parties for any Claim made pursuant to Article 11.
(vii) Allocation of Damages. A number of the Escrow Shares equal
---------------------
to the amount of Damages owed to Keynote hereunder, as finally determined under
this Section 11.8(c), divided by the Keynote Average Price Per Share, will
automatically be deducted from the Merger Shares and transferred to Keynote,
which adjustment to the Merger Shares will be allocated among the Velogic
Shareholders based upon their respective Percentage Interests, except for Claims
for Shareholder Damages arising under Section 11.2(b) of the Merger Agreement,
which will only be allocated against the Velogic Shareholder's pro rata portion
of the Escrow Shares to whom such Claim applies.
11.9 Distribution Upon Termination of Escrow Period Within ten business
----------------------------------------------
days following the Release Date, Keynote shall deliver to the Velogic
Shareholders all of the Escrow Shares in excess of any amount of Escrow Shares
necessary to satisfy any unsatisfied or disputed claims for Special Damages,
Shareholder Damages or Damages specified in any Notice of Claim delivered to one
of the Representatives before the Release Date. As soon as all such claims have
been resolved, Keynote shall deliver to the Velogic Shareholders all remaining
Escrow Shares not required to satisfy such claims.
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ARTICLE 12
Registration Rights
12.1 Certain Definitions. For purposes of this Article 12:
-------------------
(a) Registration. The terms "register," "registered" and
------------
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities" means
----------------------
(i) the shares of Keynote Common Stock that are issued to the Velogic
Shareholders in the Merger pursuant to Section 2.1.2 hereof, and (ii) any shares
of Keynote Common Stock that may be issued as a dividend or other distribution
(including shares of Keynote Common Stock issued in a subdivision and split of
Keynote's outstanding Common Stock) with respect to, or in exchange for, or in
replacement of, shares of Keynote Common Stock described in clauses (i) or (ii)
of this Section 12.1(b); excluding in all cases, however, from the definition of
---------
"Registrable Securities" any such shares that are: (w) registered under the
Securities Act other than pursuant to a registration statement filed pursuant to
this Agreement; (x) sold by a person in a transaction in which rights under this
Agreement with respect to such shares are not assigned in accordance with the
terms of this Agreement; (y) sold pursuant to a registration statement filed
pursuant to this Agreement; or (z) sold pursuant to Rule 144 promulgated under
the Securities Act or otherwise sold to the public. Only shares of Keynote
Common Stock shall be Registrable Securities. Except as provided in clause (iii)
of the first sentence of this Section 12.1(b), without limitation, the term
"Registrable Securities" does not include any shares of Keynote Common Stock
that were not issued in connection with the Merger.
(c) Holder. The term "Holder" means a Velogic Shareholder who is the
------
original holder of any Registrable Securities or any assignee of record of any
Registrable Securities to whom rights under this Agreement have been duly
assigned in accordance with the provisions of this Agreement.
(d) Form S-3. The term "Form S-3" means a registration statement
--------
filed under Form S-3 under the Securities Act, as such is in effect at the
Effective Time, or any successor form of registration statement under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of a substantial amount of information by reference to other
documents filed by Keynote with the SEC.
(e) Rule 415. The term "Rule 415" means Rule 415 promulgated under
--------
the Securities Act, as such Rule may be amended from time to time, or any
similar or successor rule or regulation hereafter adopted by the SEC.
12.2 Form S-3 Shelf Registration.
---------------------------
(a) Filing and Registration Period. Subject to the terms and
------------------------------
conditions of this Agreement, on October 2, 2000, or as soon as practicable
thereafter, in the case such filing is delayed by circumstances beyond Keynote's
control, and consistent with the requirements of applicable law, Keynote shall
prepare and file with the SEC a registration statement on Form S-3 for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the then
-52-
outstanding Registrable Securities (the "Shelf Registration"). Keynote shall use
commercially reasonable efforts to have such Shelf Registration declared
effective as soon as practicable after its filing and to keep the Shelf
Registration continuously effective under the Securities Act for a continuous
period of time (such period of time being hereinafter called the "Registration
Period") commencing on the date the Shelf Registration is declared effective
under the Securities Act by the SEC (the "Date of Effectiveness") and ending on
the date that is the first anniversary of the Effective Time of the Merger.
Keynote shall have no duty or obligation to keep the Shelf Registration
effective after the expiration of the Registration Period.
(b) Supplements and Amendments. During the Registration Period,
--------------------------
Keynote shall supplement and amend the Shelf Registration, if, as and when
required by the Securities Act, the rules and regulations promulgated thereunder
or the rules, regulations or instructions applicable to Form S-3.
(c) Manner of Sales. Any sale of Registrable Securities pursuant to a
---------------
Shelf Registration under this Section 12.2 may only be made in accordance with
the method or methods of distribution of such Registrable Securities that are
described in the registration statement for the Shelf Registration, based on
information provided by the Selling Holders under Section 12.7 and permitted by
such form of registration statement.
(d) No Underwritings. No sale of Registrable Securities under any
----------------
Shelf Registration effected pursuant to this Section 12.2 may be effected
pursuant to any underwritten offering without Keynote's prior written consent,
which may be withheld in its sole and absolute discretion. A sale through a
broker-dealer on an agency basis or to a market maker shall not be deemed to be
an "underwritten offering" within the meaning of the preceding sentence,
notwithstanding that the broker-dealer or market maker may be deemed to be an
"underwriter" within the meaning of Section 2 of the Securities Act.
(e) Trading Window Compliance. The Holders acknowledge that the
-------------------------
Keynote ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Compliance Program and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Policy, as such
may be amended from time to time, a current copy of which has been provided to
Velogic prior to the Closing (the "Keynote Trading Policy") requires that those
directors, officers, consultants and employees of Keynote and its subsidiaries
that Keynote determines to be "Access Personnel" or otherwise subject to the
"trading window" and pre-clearance requirements of the Keynote Trading Policy
(and members of their immediate families and households) are permitted to effect
trades in Keynote securities: (i) only during those specified time periods
("trading windows") in which such persons are permitted to make sales, purchases
or other trades in Keynote's securities under the "trading window" provisions of
the Keynote Trading Policy; and (ii) only after pre-clearance of such sales,
purchases or other trades with Keynote's ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Compliance Officer. If
a Holder is or becomes subject to the "trading window" and/or "pre-clearance"
provisions of the Keynote Trading Policy described above, then, notwithstanding
anything herein to the contrary, such Holder may sell, transfer and dispose of
Registrable Securities only during those trading windows during which such
Keynote Access Personnel are permitted to effect trades in Keynote stock under
the Keynote Trading Policy and only after pre-clearing such trades with
Keynote's ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Compliance Officer as provided in the Keynote Trading
Policy.
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12.3 Limitations. Notwithstanding the provisions of Section 12.2 above,
-----------
Keynote shall not be obligated to effect any registration, qualification or
compliance of Registrable Securities pursuant to Section 12.2 of this Agreement,
and the Holders shall not be entitled to sell Registrable Securities pursuant to
any registration statement filed under Section 12.2 of this Agreement, as
applicable:
(a) if Form S-3 is not then available for such offering by the
Holders provided, that if such form is not available, Keynote shall use
commercially reasonable efforts to become eligible to use such form and the
Registration Period shall be extended for such period of time that such form is
not available, but only if all of a Holder's Registrable Securities may not be
resold in a three month period pursuant to Rule 144;
(b) if Keynote shall furnish to the Holders (and all other holders of
Keynote's registrable securities) a certificate signed by an officer of Keynote
stating that, in the good faith judgment of such officer, it would be
detrimental to Keynote and its stockholders for sales under the Registration
Statement to occur at such time, due, for example, to the existence of a
material development or potential material development involving Keynote which
Keynote would be obligated to disclose in the prospectus contained in the Shelf
Registration, which disclosure would, in the good faith judgment of such
officer, be premature or otherwise inadvisable at such time or would have a
material adverse affect upon Keynote and its stockholders, in which event
Keynote will have the right to suspend the use of the Registration Statement for
a period of not more than sixty days pursuant to this Section 12.3(b), provided
that in the event that the Registration Statement is suspended by Keynote
pursuant to this Section 12.3(b), then Keynote shall extend the Registration
Period hereunder by the number of days that the Registration Statement was
suspended;
(c) if Keynote is acquired and Keynote Common Stock ceases to be
publicly traded;
(d) in any particular jurisdiction in which Keynote would be required
to qualify to do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless Keynote is
already subject to service of process in such jurisdiction; or
(e) if the SEC refuses to declare such registration effective due to
the participation of any particular Holder in such registration (unless such
Holder withdraws all such Holder's Registrable Securities from such registration
statement); or if the manner in which any Registrable Securities are disposed of
pursuant to the Shelf Registration is not included within the plan of
distribution set forth in the prospectus for the Shelf Registration.
12.4 Shares Otherwise Eligible for Resale. Notwithstanding anything herein
------------------------------------
to the contrary, Keynote shall not be obligated to effect or continue to keep
effective any such registration, registration statement, qualification or
compliance with respect to the Registrable Securities held by any particular
Holder:
(a) if all the Registrable Securities then held by such Holder may be
resold by such Holder within a three month period without registration under the
Securities Act
-54-
pursuant to the provisions of Rule 144 promulgated under the Securities Act (or
successor provisions), or otherwise;
(b) after expiration or termination of the Registration Period.
12.5 Expenses. Keynote shall pay all expenses incurred in connection with
--------
any registration effected by Keynote pursuant to this Agreement (excluding
brokers' discounts and commissions), including, without limitation, all filing,
registration and qualification, printers', legal (including, the reasonable fees
and expenses of one counsel for the Holders as a group) and accounting fees.
12.6 Obligations of Keynote. Subject to Sections 12.2, 12.3 and 12.4 above,
----------------------
when required to effect the registration of any Registrable Securities under the
terms of this Agreement, Keynote will, as expeditiously as reasonably possible:
(a) furnish to the Holders such number of copies of the prospectus
for the Shelf Registration, including a preliminary prospectus (and amendments
or supplements thereto), in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by them;
(b) notify each Holder of Registrable Securities promptly and, if
requested by such Holder, confirm such notification in writing promptly (i) when
the registration statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request the SEC
or any state securities authority for post-effective amendments and supplements
to a registration statement has become effective, (iii) of the issuance by the
SEC or any state securities authority of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by Keynote of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose, and (v) of any determination by Keynote that a post-effective
amendment to a registration statement would be appropriate;
(c) use all reasonable efforts to (i) register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions in the United States as will be reasonably
requested by the Holders; provided that Keynote will not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such state or jurisdiction
unless Keynote is already so qualified or subject to service of process,
respectively, in such jurisdiction; and (ii) cause such Registrable Securities
to be registered with or approved by such other governmental agencies or
authorities, including the National Association of Securities Dealers as may be
necessary by virtue of the business and operations of Keynote; provided that
Keynote will not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (c), (B) subject itself to taxation in any jurisdiction, or (C)
consent to general service of process in any such jurisdiction except as may be
required by the Securities Act;
-55-
(d) promptly notify each Holder of Registrable Securities covered by
such registration statement, when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and,
subject to the provisions of this Agreement, at the request of any Holder,
prepare and furnish to each Holder of Registrable Securities then outstanding a
reasonable number of copies of a supplement to or an amendment of the prospectus
as may be necessary to correct the untrue statement or omission;
(e) use its commercially reasonable efforts to cause all such
Registrable Securities to be listed on the Nasdaq National Market and each
securities exchange on which similar securities issued by Keynote are then
listed; and
(f) upon the request of any Holder, promptly provide the name,
address and other contact information regarding Keynote's transfer agent for the
Registrable Securities and the CUSIP number for the Registrable Securities.
12.7 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of Keynote to take any action pursuant to this Article 12 that the
selling Holders will furnish to Keynote such information regarding themselves,
the Registrable Securities held by them, and the intended method of disposition
and plan of distribution of such Registrable Securities as shall be required to
timely effect the registration of their Registrable Securities.
12.8 Delay of Registration. No Holder will have any right to obtain or seek
---------------------
an injunction restraining or otherwise delaying any registration that is the
subject of this Agreement as the result of any controversy that might arise with
respect to the interpretation or implementation of this Agreement.
12.9 Indemnification.
---------------
(a) By Keynote. To the extent permitted by law, Keynote will
----------
indemnify, defend and hold harmless each Holder and its directors, officers and
each person, if any, who controls Holder with the meaning of the Securities Act,
against any losses, claims, damages, or liabilities (joint or several) to which
such Holder may become subject under the Securities Act, the Exchange Act or
other U.S. federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, a
"Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in a registration statement filed by Keynote pursuant to
this Agreement pursuant to which Registrable Securities are sold, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto;
(ii) the omission or alleged omission to state in such
registration statement, preliminary prospectus or final prospectus or any
amendments or supplements thereto, a material fact required to be stated
therein, or necessary to make the statements therein not misleading; or
-56-
(iii) any violation or alleged violation by Keynote of the
Securities Act, the Exchange Act, any U.S. federal or state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange Act or
any U.S. federal or state securities law in connection with the offering of
Registrable Securities covered by such registration statement; provided,
however, that the indemnity agreement contained in this subsection 12.9(a) shall
not apply to (A) any losses, claims, damages or liabilities (or actions in
respect thereto) insofar as such violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration and (B) amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the written consent of Keynote (which consent shall not be unreasonably
withheld), nor shall Keynote be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder.
(b) By Selling Holders. To the extent permitted by law, (i) each
------------------
selling Holder will indemnify and hold harmless Keynote, each of its directors,
each of its officers who have signed the registration statement, each Person, if
any, who controls Keynote within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement, against any losses, claims, damages or liabilities (joint or several)
to which Keynote or any such director, officer, controlling person, underwriter
or other such Holder may become subject under the Securities, the Exchange Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
(ii) and each such Holder will indemnify and reimburse Keynote or any such
director, officer, controlling person, underwriter or other Holder for any
reasonable attorneys' fees and other expenses reasonably incurred by Keynote or
any such director, officer, controlling person, underwriter or other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action, as incurred. Each selling Holder's liability pursuant to
this Section 12.9(b) shall be limited to an amount equal to the net proceeds
received by such selling Holder pursuant to sales under the registration
statement.
(c) Notice. Promptly after receipt by an indemnified party under this
------
Section 12.9 of notice of the commencement of any action (including any
governmental action) against such indemnified party, such indemnified party
will, if a claim for indemnification or contribution in respect thereof is to be
made against any indemnifying party under this Section 12.9, deliver to the
indemnifying party a written notice of the commencement thereof and, if the
indemnifying party is Keynote, Keynote shall have the right and obligation to
control the defense of such action, and if Keynote fails to defend such action
it shall indemnify and promptly reimburse the selling Holders for any reasonable
attorneys' fees and other expenses reasonably incurred by them in connection
with investigating or defending such action; provided, however, that: (i)
Keynote shall also have the right, at its option, to assume and control the
defense of any action with respect to which Keynote or any person entitled to be
indemnified by the selling Holders under Section 12.9(b) is entitled to
indemnification from the selling Holders; (ii) the indemnified party or parties
shall have the right to participate at its own expense in the
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defense of such action and (but only to the extent agreed in writing with
Keynote and any other indemnifying party similarly noticed) to assume the
defense thereof with counsel mutually satisfactory to the parties; and (iii) an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses of such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to an actual or potential conflict
of interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure of an indemnified party to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying party
of any liability to the indemnified party under this Section 12.9, but the
omission so to deliver written notice to the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party otherwise than under this Section 12.9.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
-------------------------------------
agreements of Keynote and the Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended or supplemented prospectus on file with the SEC and
effective at the time the sale of Registrable Securities under such registration
statement occurs (the "Amended Prospectus"), such indemnity agreement shall not
inure to the benefit of any person if a copy of the Amended Prospectus was
furnished to the indemnified party and was not furnished to the person asserting
the loss, liability, claim or damage in the action giving rise to indemnity
claims under this Section 12.9, at or prior to the time such action is required
by the Securities Act.
(e) Survival. The obligations of Keynote and Holders under this
--------
Section 12.9 shall survive the completion of any offering of Registrable
Securities in a registration statement pursuant to this Agreement, and
otherwise.
12.10 Duration and Termination of Keynote's Obligations. Keynote will have
-------------------------------------------------
no obligations pursuant to Section 12.2 of this Agreement to maintain or
continue to keep effective any registration or registration statement pursuant
hereto: (a) after the expiration or termination of the Registration Period; (b)
with respect to a particular Holder if, in the opinion of counsel to Keynote,
all such Registrable Securities proposed to be sold by such Holder may be sold
in a three (3) month period without registration under the Securities pursuant
to Rule 144 promulgated under the Securities or otherwise; or (c) if all
Registrable Securities have been registered and sold pursuant to a registration
effected pursuant to this Agreement and/or have been transferred in transactions
in which registration rights hereunder have not been assigned in accordance with
this Agreement.
12.11 Assignment. Notwithstanding anything herein to the contrary, the
----------
rights of a Holder under Article 12 may be assigned only with Keynote's express
prior written consent, which may be withheld in Keynote's sole discretion;
provided, however, that the rights of a Holder under Article 12 may be assigned
without Keynote's express prior written consent: (a) to a Permitted Assignee (as
defined below); or (b) (if applicable) by will or by the laws of intestacy,
descent or distribution, provided that the assignee first agrees in writing to
be bound by all the obligations of the Holders under this Article 12. Any
attempt to assign any rights of a Holder under Article 12 without Keynote's
express prior written consent in a situation in which such
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consent is required by this Section shall be null and void and without effect.
Subject to the foregoing restrictions, all rights, covenants and agreements in
Article 12 by or on behalf of the parties hereto will bind and inure to the
benefit of the respective permitted successors and assigns of the parties
hereto. Each of the following parties are "Permitted Assignees" for purposes of
this Section 12.11: (a) a trust whose beneficiaries consist solely of a Holder
and such Holder's immediate family; (b) the personal representative (such as an
executor of a Holder's will), custodian or conservator of a Holder, in the case
of the death, bankruptcy or adjudication of incompetency of that Holder; (c)
immediate family members of a Holder; (d) partners of a Holder that is a
partnership; or (e) members of a Holder that is a limited liability company
ARTICLE 13
Miscellaneous
13.1 Governing Law. The internal laws of the State of California,
-------------
irrespective of its choice of law principles, will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto; provided, however, that issues
involving the consummation and effects of the Merger shall be governed by the
laws of the State of Delaware.
13.2 Assignment; Binding Upon Successors and Assigns. Neither party hereto
-----------------------------------------------
may assign any of its rights or obligations hereunder without the prior written
consent of the other party hereto. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. Any assignment in violation of this provision shall be void.
13.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, then
the remainder of this Agreement 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 the void or unenforceable provision.
13.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories.
13.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party hereunder will be deemed
cumulative with and not exclusive of any other remedy conferred hereby or by law
on such party, and the exercise of any one remedy will not preclude the exercise
of any other. Subsequent to the consummation of the Merger, Keynote and Velogic
agree that the indemnification and arbitration provisions set forth in Article
11 shall be each such person's sole and exclusive remedy with respect to any
inaccuracy, misrepresentation, breach of, or default in, any of the
representations, warranties, covenants or agreements of any such party in this
Agreement, other than claims for Special Damages and
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Shareholder Damages, provided, that the foregoing shall not limit the parties'
respective rights to seek specific performance or other injunctive relief. The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction.
13.6 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
This Agreement may be amended by the parties hereto as provided in this Section
at any time before or after approval of this Agreement by the Velogic
Shareholders, but, after such approval, no amendment will be made which by
applicable law requires the further approval of the Velogic Shareholders without
obtaining such further approval. At any time prior to the Effective Time, each
of Velogic and Keynote, by action taken by its Board of Directors, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other; (ii) waive any inaccuracies in the
representations and warranties made to it contained herein or in any document
delivered pursuant hereto; and (iii) waive compliance with any of the agreements
or conditions for its benefit contained herein. No such waiver or extension will
be effective unless signed in writing by the party against whom such waiver or
extension is asserted. The failure of any party to enforce any of the provisions
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
13.7 Expenses. Each party will bear its respective legal, auditors' and
--------
financial advisors' fees and other expenses incurred with respect to this
Agreement, the Merger and the transactions contemplated hereby ("Transaction
Expenses"). Notwithstanding the foregoing, if the Merger is consummated, then
Keynote will thereafter be entitled to adjust the number of Merger Shares
through indemnification from the Escrow Shares in accordance with Section 11.2
for an amount equal to the amount such Transaction Expenses of Velogic exceed
the lesser of (i) $400,000 and (ii) Velogic's cash on hand at the Closing (such
amount, "Excess Transaction Expenses").
13.8 Attorneys' Fees. Should suit or arbitration be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party will be entitled to
recover, as an element of the costs of suit and not as damages, reasonable
attorneys' fees to be fixed by the court (including without limitation, costs,
expenses and fees on any appeal). The prevailing party will be entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment.
13.9 Notices. All notices and other communications required or permitted
-------
under this Agreement will be in writing and will be either hand delivered in
person, sent by facsimile, sent by certified or registered first class mail,
postage pre-paid, or sent by nationally recognized express courier service. Such
notices and other communications will be effective upon receipt if hand
delivered or sent by facsimile, five days after mailing if sent by mail, and one
day after
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dispatch if sent by express courier, to the following addresses, or such other
addresses as any party may notify the other parties in accordance with this
Section:
If to Keynote:
Keynote Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: John Flavio
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Fenwick & West LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
If to Velogic:
Velogic, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as a party may have furnished to the other parties
in writing pursuant to this Section 12.9.
13.10 Construction of Agreement. This Agreement has been negotiated by the
-------------------------
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a Section or an exhibit
will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole. 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." Each reference herein to a law,
statute, regulation, document or agreement shall be deemed in each case to
include all amendments thereto.
13.11 No Joint Venture. Nothing contained in this Agreement will be deemed
----------------
or construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other and their status is,
and at all times will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other party. No party will hold itself out as having any authority or
relationship in contravention of this Section.
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13.12 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
13.13 Third Party Beneficiary Rights. No provisions of this Agreement are
------------------------------
intended, nor will be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any client, customer,
affiliate, stockholder, partner or any party hereto or any other person or
entity unless specifically provided otherwise herein and, except as so provided,
all provisions hereof will be personal solely between the parties to this
Agreement.
13.14 Public Announcement. Upon the closing of the transaction contemplated
-------------------
by this Agreement, Keynote and Velogic will issue a press release approved by
both parties announcing the Merger. Keynote may issue such press releases, and
make such other disclosures regarding the Merger, as it determines are required
under applicable securities laws or regulatory rules. Prior to the publication
of such mutually agreed press release, neither party will make any public
announcement relating to this Agreement or the transactions contemplated hereby
(except as may be required by law) and Velogic will use its reasonable efforts
to prevent any trading in Keynote Common Stock by its officers, directors,
employees, shareholders and agents. Neither Keynote nor Velogic will make any
disclosures regarding this Agreement or the Merger that would jeopardize
Keynote's ability to timely and lawfully issue the shares of Keynote Common
Stock in the Merger pursuant to the exemptions described in Section 2.7.
13.15 Disclosure Letter. The Velogic Disclosure Letter shall be arranged in
-----------------
separate parts corresponding to the numbered and lettered sections contained in
Article 3, and the information disclosed in any numbered or lettered part shall
be deemed to relate to and to qualify only the particular representation or
warranty set forth in the corresponding numbered or lettered section in Article
3, and shall not be deemed to relate to or to qualify any other representation
or warranty unless the applicability to such other section is obvious from the
disclosure.
13.16 Confidentiality. Velogic and Keynote each confirm that they have
---------------
entered into the Confidentiality Agreement and that they are each bound by, and
will abide by, the provisions of such Confidentiality Agreement (except that
Keynote will cease to be bound by the Confidentiality Agreement after the Merger
becomes effective). If this Agreement is terminated, the Confidentiality
Agreement shall remain in full force and effect and all copies of documents
containing confidential information of a disclosing party will be returned by
the receiving party to the disclosing party or be destroyed, as provided in the
Confidentiality Agreement.
13.17 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto other than the Confidentiality
Agreement. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Keynote Systems, Inc. Velogic, Inc.
By: /s/ John Flavio By: /s/ ▇▇▇▇▇ ▇. ▇▇▇ ▇▇ ▇▇▇▇▇▇
----------------------------------- ------------------------------------
Name: John Flavio Name: ▇▇▇▇▇ ▇. ▇▇▇ ▇▇ ▇▇▇▇▇▇
--------------------------------- ----------------------------------
Title: Vice President Finance, Chief Title: Chief Technology Officer
-------------------------------- ---------------------------------
Financial Officer and Secretary
--------------------------------
Roadrunner Acquisition Corporation
By: /s/ John Flavio
-----------------------------------
Name: John Flavio
---------------------------------
Title: President
--------------------------------
Representative
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇
-----------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇
-----------------------------
Crescendo Ventures
-----------------------------
Representative
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
[Signature Page to Agreement and Plan of Reorganization]
List of Exhibits and Schedule
Exhibits:
--------
Exhibits A-1 and A-2 Certificates of Merger
Exhibit B Voting Agreement
Exhibit C Opinion of Fenwick & West LLP
Exhibit D Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ PC
Exhibit E Investment Representation Letter
Exhibits F-1 and F-2 Form of Employment Agreement and Offer Letter
Exhibit G Escrow Agreement
Schedule:
--------
Schedule 2.1.2 Calculation of Earnout