Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
Among
ARIBA, INC.
BLUE MERGER CORP.
and
TRADINGDYNAMICS, INC.
Dated as of November 15, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER..................................................... 2
SECTION 1.02. EFFECTIVE TIME; CLOSING........................................ 2
SECTION 1.03. EFFECT OF THE MERGER........................................... 2
SECTION 1.04. ARTICLES OF INCORPORATION; BY-LAWS............................. 2
SECTION 1.05. DIRECTORS AND OFFICERS......................................... 3
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES....................................... 3
SECTION 2.02. ESCROW ADJUSTMENTS............................................. 4
SECTION 2.03. EXCHANGE OF CERTIFICATES....................................... 7
SECTION 2.04. STOCK TRANSFER BOOKS........................................... 9
SECTION 2.05. COMPANY STOCK OPTIONS.......................................... 9
SECTION 2.06. DISSENTING SHARES.............................................. 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................... 10
SECTION 3.02. ARTICLES OF INCORPORATION AND BY-LAWS.......................... 11
SECTION 3.03. CAPITALIZATION................................................. 11
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT........................... 12
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS..................... 12
SECTION 3.06. PERMITS; COMPLIANCE............................................ 13
SECTION 3.07. FINANCIAL STATEMENTS........................................... 14
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................... 14
SECTION 3.09. ABSENCE OF LITIGATION.......................................... 15
SECTION 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.......................... 15
SECTION 3.11. CONTRACTS...................................................... 18
SECTION 3.12. ENVIRONMENTAL MATTERS.......................................... 19
SECTION 3.13. INTELLECTUAL PROPERTY.......................................... 20
SECTION 3.14. TAXES.......................................................... 23
SECTION 3.15. VOTE REQUIRED.................................................. 24
SECTION 3.16. ASSETS......................................................... 24
SECTION 3.17. CERTAIN INTERESTS.............................................. 24
SECTION 3.18. INSURANCE POLICIES............................................. 25
SECTION 3.19. STATE TAKEOVER STATUTES........................................ 25
SECTION 3.20. YEAR 2000 COMPLIANCE............................................ 25
SECTION 3.21. BROKERS........................................................ 26
PAGE
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES................... 26
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BY-LAWS....................... 27
SECTION 4.03. CAPITALIZATION................................................. 27
SECTION 4.04. AUTHORITY RELATIVE TO THIS AGREEMENT........................... 28
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS..................... 28
SECTION 4.06. PERMITS; COMPLIANCE............................................ 29
SECTION 4.07. SEC FILINGS; FINANCIAL STATEMENTS.............................. 29
SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS........................... 30
SECTION 4.09. OPERATIONS OF MERGER SUB....................................... 30
SECTION 4.10. ABSENCE OF LITIGATION.......................................... 30
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.......... 30
SECTION 5.02. NOTIFICATION OF CERTAIN MATTERS................................ 33
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. CALIFORNIA PERMIT; COMPANY SHAREHOLDER APPROVAL................ 33
SECTION 6.02. INFORMATION STATEMENT. ....................................... 34
SECTION 6.03. ACCESS TO INFORMATION; CONFIDENTIALITY......................... 34
SECTION 6.04. NO SOLICITATION OF TRANSACTIONS................................ 35
SECTION 6.05. EMPLOYEE BENEFITS MATTERS...................................... 35
SECTION 6.06. FURTHER ACTION; CONSENTS; FILINGS.............................. 36
SECTION 6.07. PLAN OF REORGANIZATION......................................... 36
SECTION 6.08. AFFILIATES..................................................... 37
SECTION 6.09. PUBLIC ANNOUNCEMENTS........................................... 37
SECTION 6.10. DIRECTOR AND OFFICER LIABILITY
SECTION 6.11. INTELLECTUAL PROPERTY TRANSFERS
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.................... 39
SECTION 7.02. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB......... 39
ii
PAGE
SECTION 7.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY................... 41
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION.................................................... 41
SECTION 8.02. EFFECT OF TERMINATION.......................................... 42
SECTION 8.03. AMENDMENT...................................................... 42
SECTION 8.04. WAIVER......................................................... 43
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.... 43
SECTION 9.02. NOTICES........................................................ 46
SECTION 9.03. CERTAIN DEFINITIONS............................................ 47
SECTION 9.04. SEVERABILITY................................................... 48
SECTION 9.05. ASSIGNMENT; BINDING EFFECT; BENEFIT............................ 48
SECTION 9.06. INCORPORATION OF EXHIBITS...................................... 48
SECTION 9.07. SPECIFIC PERFORMANCE........................................... 48
SECTION 9.08. GOVERNING LAW; FORUM........................................... 48
SECTION 9.09. HEADINGS....................................................... 49
SECTION 9.10. COUNTERPARTS................................................... 49
SECTION 9.11. ENTIRE AGREEMENT............................................... 49
Exhibit A List of Individual Shareholders
Exhibit B Voting Agreement
Exhibit 2.02(a) Form of Escrow Agreement
Exhibit 2.05(a) List of Certain Employees
Exhibit 6.05(c) List of Company Contingent Retention Grants
Exhibit 6.08 Form of Company Affiliate Letter
Exhibit 7.02(i) Form of Opinion of ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
Exhibit 7.02(g)(i) List of Employees with Employment Agreements
Exhibit 7.02(g)(ii) Individual with Consulting and Protective Covenant
Agreement
iii
Glossary of Defined Terms
LOCATION OF
DEFINED TERM DEFINITION
------------ -----------
Acquisition Documents............................................ Section 9.01(a)
Adjusted Closing Balance Sheet................................... Section 2.02(f)
affiliate........................................................ Section 6.08
Agreement........................................................ Preamble
Assets........................................................... Section 3.16
beneficial owner................................................. Section 9.03(b)
Blue Sky Laws.................................................... Section 3.05(b)
business day..................................................... Section 9.03(c)
California Permit................................................ Section 6.01(a)
CERCLA........................................................... Section 3.12(e)
Certificate of Merger............................................ Section 1.02
Certificates..................................................... Section 2.01(b)
Closing.......................................................... Section 1.02
Closing Parent Share Price....................................... Section 2.02(m)
Code ........................................................... Recitals
Company.......................................................... Preamble
Company Benefit Plans............................................ Section 3.10(a)
Company Common Stock............................................. Recitals
Company Disclosure Schedule...................................... Article III
Company Liabilities.............................................. Section 3.07(b)
Company Material Adverse Effect.................................. Section 3.01
Company Permits.................................................. Section 3.06
Company Preferred Stock.......................................... Recitals
Company Stock Option Plan........................................ Section 2.05(a)
Company Stock Options............................................ Section 2.05(a)
Company Subsidiaries............................................. Section 3.01
Company Systems.................................................. Section 3.20
Competing Transaction............................................ Section 6.04(b)
Confidentiality Agreement........................................ Section 6.03(b)
control.......................................................... Section 9.03(d)
Dissenting Shares................................................ Section 2.06(a)
Effective Time................................................... Section 1.02
Environmental Laws............................................... Section 3.12(e)
Environmental Permits............................................ Section 3.12(e)
ERISA ........................................................... Section 3.10(a)
ERISA Affiliate.................................................. Section 3.10(a)
Escrow Account................................................... Section 2.02(a)
Escrow Agent..................................................... Section 2.02(a)
Escrow Agreement................................................. Section 2.02(a)
iv
LOCATION OF
DEFINED TERM DEFINITION
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Escrow Fund...................................................... Section 2.02(a)
Escrow Shares.................................................... Section 2.02(a)
Estimated Closing Balance Sheet.................................. Section 2.02(b)
Exchange Act..................................................... Section 4.03
Exchange Ratio................................................... Section 2.01(e)
Final Closing Balance Sheet...................................... Section 2.02(d)
Fully Diluted Share Amount....................................... Section 2.01(e)
GAAP ........................................................... Section 3.07(a)
Governmental Entity.............................................. Section 3.05(b)
Hazardous Materials.............................................. Section 3.12(e)
HSR Act.......................................................... Section 3.05(c)
Independent Auditors............................................. Section 2.02(f)
Information Statement............................................ Section 6.02(a)
Indemnified Parties.............................................. Section 9.01(d)
Indemnifying Party............................................... Section 9.01(d)
Individual Shareholders ......................................... Recitals
Intellectual Property............................................ Section 3.13(a)
Interim Financial Statements..................................... Section 3.07(a)
IRS ........................................................... Section 3.10(b)
Law ........................................................... Section 3.05(a)
Licensed Intellectual Property................................... Section 3.13(a)
Loss ........................................................... Section 9.01(b)
Material Contracts............................................... Section 3.11(a)
Merger........................................................... Recitals
Merger Consideration............................................. Section 2.01(e)
Merger Sub....................................................... Preamble
Nasdaq........................................................... Section 2.02(m)
Net Assets....................................................... Section 2.02(m)
Order ........................................................... Section 7.01(b)
Owned Intellectual Property...................................... Section 3.13(a)
Parent........................................................... Preamble
Parent Common Stock.............................................. Section 2.01(e)
Parent Disclosure Schedule....................................... Art. IV
Parent Indemnified Parties....................................... Section 9.01(b)
Parent Material Adverse Effect................................... Section 4.01
Parent Permits................................................... Section 4.06
Parent Preferred Stock........................................... Section 4.03
Parent SEC Reports............................................... Section 4.07(a)
v
LOCATION OF
DEFINED TERM DEFINITION
------------ -----------
Parent Stock Option Plans....................................... Section 4.03
Parent Subsidiaries............................................. Section 4.01
person.......................................................... Section 9.03(f)
Plan .......................................................... Section 3.10(a)
Reference Balance Sheet......................................... Section 3.07(a)
Representatives................................................. Section 6.03(a)
Resolution Period............................................... Section 2.02(e)
SEC .......................................................... Section 4.07
Securities Act.................................................. Section 4.03
Shares.......................................................... Section 2.01(a)
Software........................................................ Section 3.13(a)
Shareholder Indemnified Party................................... Section 9.01(c)
Shareholder Representative...................................... Section 2.02(e)
subsidiary...................................................... Section 9.03(g)
Substitute Option............................................... Section 2.05(a)
Surviving Corporation........................................... Section 1.01
Taxes .......................................................... Section 3.14(d)
Terminating Company Breach...................................... Section 8.01(d)
Terminating Parent Breach....................................... Section 8.01(e)
Third Party Claims.............................................. Section 9.01(d)
Unresolved Items................................................ Section 2.02(f)
Year 2000 Compliant............................................. Section 3.20
vi
AGREEMENT AND PLAN OF MERGER dated as of November 15, 1999
(this "AGREEMENT") among ARIBA, INC., a Delaware corporation ("PARENT"), BLUE
MERGER CORP., a California corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), and TRADINGDYNAMICS, INC., a California corporation
(the "COMPANY").
W I T N E S S E T H
WHEREAS, upon the terms and subject to the conditions of
this Agreement and in accordance with the California Corporations Code
("CALIFORNIA LAW"), Parent and the Company will enter into a business
combination transaction pursuant to which Merger Sub will merge with and into
the Company (the "MERGER");
WHEREAS, the Board of Directors of the Company (i) has
determined that the Merger is consistent with and in furtherance of the
long-term business strategy of the Company and fair to, advisable to and in
the best interests of, the Company and its shareholders and has approved and
adopted this Agreement, the Merger and the other transactions contemplated by
this Agreement and (ii) has recommended the approval and adoption of this
Agreement by the shareholders of the Company;
WHEREAS, for federal income tax purposes, the Merger is
intended to qualify as a reorganization under the provisions of Section
368(a) of the United States Internal Revenue Code of 1986, as amended (the
"CODE");
WHEREAS, certain shareholders of the Company own such
number of shares of common stock, par value $0.001 per share, of the Company
("COMPANY COMMON STOCK") and such number of shares of Series A Preferred
Stock, par value $0.001 per share (the "COMPANY PREFERRED STOCK"), as is set
forth on Exhibit A hereto (such shareholders being referred to herein as the
"INDIVIDUAL SHAREHOLDERS"); and
WHEREAS, as a condition and inducement to Parent's and
Merger Sub's entering into this Agreement and incurring the obligations set
forth herein, concurrently with the execution and delivery of this Agreement,
Parent is entering into a Voting Agreement with, the Individual Shareholders,
dated the date hereof (the "VOTING AGREEMENT") and attached hereto as Exhibit
B, pursuant to which, among other things, the Individual Shareholders have
agreed, subject to the terms and conditions contained therein to make certain
representations and warranties as to themselves, to vote all shares of
Company Common Stock and Company Preferred Stock owned by them to approve and
adopt this Agreement and have granted to Parent a proxy to vote their shares
of Company Common Stock and Company Preferred Stock, upon the terms and
subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Merger Sub and the Company hereby agree as follows:
2
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with the California
Law, at the Effective Time (as defined in Section 1.02), Merger Sub shall be
merged with and into the Company. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease and the Company shall continue
as the surviving corporation of the Merger (the "SURVIVING CORPORATION").
SECTION 1.02. EFFECTIVE TIME; CLOSING. As promptly as
practicable and in no event later than the second business day following the
satisfaction or, if permissible, waiver of the conditions set forth in
Article VII (or such other date as may be agreed by each of the parties
hereto), the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "CERTIFICATE OF MERGER") with the
Secretary of State of the State of California in such form as is required by,
and executed in accordance with, the relevant provisions of the California
Law. The term "EFFECTIVE TIME" means the date and time of the acceptance of
the Agreement of Merger by the Secretary of State of the State of California
(or such later time as may be agreed by each of the parties hereto and
specified in the Agreement of Merger). Immediately prior to the filing of the
Certificate of Merger, a closing (the "CLOSING") will be held at the offices
of Shearman & Sterling, ▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or
such other place as the parties may agree).
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time,
the effect of the Merger shall be as provided in the applicable provisions of
the California Law. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of the Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of each of the Company and Merger Sub shall become
the debts, liabilities, obligations, restrictions, disabilities and duties of
the Surviving Corporation.
SECTION 1.04. ARTICLES OF INCORPORATION; BY-LAWS. (a) At
the Effective Time, the Articles of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation; PROVIDED, HOWEVER, that,
at the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the Corporation
is TradingDynamics, Inc."
(b) At the Effective Time, the By-Laws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended as provided by law, the
Articles of Incorporation of the Surviving Corporation and such By-Laws.
3
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of
Merger Sub immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance
with the Articles of Incorporation and By-Laws of the Surviving Corporation,
and the officers of the Company immediately prior to the Effective Time shall
be the initial officers of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONVERSION OF SECURITIES. At the Effective
Time, by virtue of the Merger and without any action on the part of Merger
Sub, the Company or the holders of any of the following securities:
(a) each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares and Shares to be canceled pursuant to Section 2.01(c)) shall be
canceled and converted automatically into the right to receive the Merger
Consideration (all such shares being hereinafter referred to as the "SHARES");
(b) from and after the Effective Time, the holders of
certificates formerly representing Shares (the "CERTIFICATES") shall cease to
have any rights with respect to such Shares, except the right to receive the
Merger Consideration (such Merger Consideration to be payable (except as
provided in Section 2.06 hereof) to the holder of each such Share, upon
surrender, in the manner provided in Section 2.02, of the Certificate that
formerly evidenced such Share);
(c) each Share held in the treasury of the Company and each
Share owned by Parent or any direct or indirect wholly owned subsidiary of
Parent or of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof and no payment or
distribution shall be made with respect thereto;
(d) each share of common stock, par value $0.01 per share,
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation;
(e) as used in this Agreement, the following terms have the
following meanings:
4
(i) "AGGREGATE SHARE AMOUNT" means 2,074,151 shares of common
stock, par value $0.002 per share, of Parent ("PARENT COMMON STOCK"),
subject to adjustment as described in Section 2.02(b).
(ii) "FULLY DILUTED SHARE AMOUNT" means the sum of (i) the
number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time, (ii) the number of shares of
Company Preferred Stock issued and outstanding immediately prior to the
Effective Time and (iii) the number of shares of Company Common Stock
issuable upon exercise of (x) the sum of (A) all Company Stock Options
that have been granted as of the date hereof and not exercised or
canceled prior to the Effective Time and (B) up to 100,000 Company
Stock Options granted in connection with the hiring of new employees or
consultants after the date hereof and prior to the Effective Time and
(y) all warrants that have been granted immediately prior to the
Effective Time.
(iii) "MERGER CONSIDERATION" means a number of shares of
Parent Common Stock determined by dividing (x) the Aggregate Share
Amount less the Escrow Shares (as defined in Section 2.02) by (y) the
Fully Diluted Share Amount (such number of shares obtained pursuant to
this clause (iii) is also referred to as the "EXCHANGE RATIO").
(f) If, during the period between the date hereof and the
Effective Time, any change in the capital stock of Parent shall occur by
reason of any reclassification, recapitalization, stock split or combination,
exchange or readjustment of shares, or any stock dividend thereon with a
record date during such period or any similar event, the Aggregate Share
Amount, the Merger Consideration, the number of Escrow Shares and the
Exchange Ratio and its determination shall be appropriately adjusted.
SECTION 2.02. ESCROW ADJUSTMENTS. (a) Prior to or
simultaneously with the Closing, the Shareholder Representative (as defined
in Section 2.02(d)) and Parent shall enter into an escrow agreement (the
"ESCROW AGREEMENT") with an escrow agent selected by Parent and reasonably
acceptable to the Shareholder Representative (the "ESCROW AGENT")
substantially in the form of Exhibit 2.02(a) hereto. Pursuant to the terms of
the Escrow Agreement, at the Closing Parent shall deposit 207,415 shares of
Parent Common Stock (the "ESCROW SHARES") into an escrow account, which
account is to be managed by the Escrow Agent (the "ESCROW ACCOUNT").
Distributions of any Escrow Shares from the Escrow Account shall be governed
by the terms and conditions of the Escrow Agreement (any Escrow Shares in the
Escrow Account being referred to as the "ESCROW FUND").
(b) No later than two Business Days and no earlier than ten
Business Days prior to the Closing Date, the Company shall prepare an estimated
consolidated balance sheet of the Company as of the Closing Date (the "ESTIMATED
CLOSING BALANCE SHEET") and a calculation of estimated Net Assets (as defined
below) based on the Estimated Closing Balance Sheet. If the Net Assets set forth
on the Estimated Closing Balance Sheet exceed the greater of (i) ($2,200,000) or
(ii) the actual Net Assets of the Company as of the Closing Date, as
5
certified to Parent by the Chief Executive Officer of the Company (such
greater amount being hereinafter referred to as the "TARGET AMOUNT"), then
the Aggregate Share Amount deliverable at Closing shall be increased by the
number of shares as shall equal the quotient of (i) the amount of such excess
divided by (ii) the Closing Parent Share Price (as defined below). If the
Target Amount exceeds the Net Assets as set forth on the Estimated Closing
Balance Sheet, then the Aggregate Share Amount deliverable at Closing shall
be decreased by the number of shares as shall equal the quotient of (i) the
amount of such excess divided by (ii) the Closing Parent Share Price. All
balance sheets prepared hereunder and each calculation of Net Assets (i)
shall be prepared in accordance with U.S. generally accepted accounting
principles applied on a basis consistent with those used in preparing the
1999 Financial Statements (as defined in Section 3.07(a)) and (ii) shall
include the same line items as the Reference Balance Sheet (as defined in
Section 3.07(a)), provided that there shall be no adjustment with respect to
non-cash charges associated with employee and/or non-employee equity rights
or resulting from the consummation of the Merger.
(c) In the event that the Effective Time shall not have
occurred by January 30, 2000, then the Target Amount shall be reduced
$225,000 for each week (or any portion thereof) after such date that the
Effective Time has not occurred.
(d) As soon as practicable, but in no event later than 60
days following the Closing, Parent shall prepare a consolidated balance sheet
of the Company as of the Closing Date (the "FINAL CLOSING BALANCE SHEET") and
a calculation of Net Assets as of the Closing Date based on the Final Closing
Balance Sheet.
(e) Parent shall deliver a copy of the Final Closing
Balance Sheet to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ (the "SHAREHOLDER REPRESENTATIVE")
promptly after it has been prepared. After receipt of the Final Closing
Balance Sheet, the Shareholder Representative shall have 30 days to review
the Final Closing Balance Sheet, together with the workpapers used in the
preparation thereof. Unless the Shareholder Representative delivers written
notice to Parent on or prior to the 30th day after the receipt of the Final
Closing Balance Sheet stating that it has objections to the Final Closing
Balance Sheet (and setting forth in reasonable detail its calculation of
disputed items), the Shareholder Representative shall be deemed to have
accepted and agreed to the Final Closing Balance Sheet. If the Shareholder
Representative so notifies Parent of its objections to the Final Closing
Balance Sheet, the parties shall, within 30 days (or such longer period as
the parties may agree) following such notice (the "RESOLUTION PERIOD"),
attempt to resolve their differences, and any resolution by them as to any
disputed amounts that are communicated to the Escrow Agent jointly by the
parties shall be final, binding and conclusive.
(f) Any amounts remaining in dispute at the conclusion of
the Resolution Period (the "UNRESOLVED ITEMS") shall be submitted to ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP (or another nationally recognized firm of independent public
accountants to be mutually agreed) (such firm being referred to as the
"INDEPENDENT AUDITORS") within 10 days after the expiration of the Resolution
Period. The Independent Auditors' determination of the Unresolved Items shall
be
6
made within 45 days of the submission of the Unresolved Items thereto (if
practicable), shall be set forth in a written statement delivered to Parent
and the Shareholder Representative and shall be final, binding and
conclusive. The term "ADJUSTED CLOSING BALANCE SHEET," as used in this
Agreement, shall mean the definitive closing balance sheet agreed to (or
deemed agreed to) by Parent and the Shareholder Representative under Section
2.02(e) or, if Unresolved Items are submitted to the Independent Auditors,
such definitive Closing Balance Sheet, as adjusted to reflect the
determination of the Independent Auditors under this Section 2.02(f).
(g) If and to the extent Net Assets as shown on the
Adjusted Closing Balance Sheet exceed the Net Assets on the Estimated Closing
Balance Sheet, then Parent shall deliver to the Escrow Agent that number of
shares as shall equal the quotient of (i) the amount of such excess divided
by (ii) the Closing Parent Share Price, which shall thereafter hold such
shares as part of the Escrow Fund.
(h) If and to the extent Net Assets as shown on the
Adjusted Closing Balance Sheet are less than Net Assets on the Estimated
Closing Balance Sheet, then Parent shall deliver written notice to the Escrow
Agent and the Shareholder Representative specifying the amount of such
deficiency, and the Escrow Agent shall, in accordance with the terms of the
Escrow Agreement, deliver to Parent out of the Escrow Fund that number of
shares as shall equal the quotient of (i) the amount of such deficiency
divided by (ii) the Closing Parent Share Price.
(i) If, before or during the Resolution Period, Parent and
the Shareholder Representative agree (or are deemed to agree) on an amount by
which the Net Assets as shown on the Adjusted Closing Balance Sheet are less
than the Net Assets as shown on the Estimated Closing Balance Sheet, then the
parties shall jointly notify the Escrow Agent of such agreement and the
Escrow Agent shall, in accordance with the terms of the Escrow Agreement,
deliver to Parent out of the Escrow Fund that number of shares as shall equal
the quotient of (i) the amount of such deficiency divided by (ii) the Closing
Parent Share Price. If, before or during the Resolution Period, Parent and
the Shareholder Representative agree (or are deemed to agree) on an amount by
which the Net Assets as shown on the Adjusted Closing Balance Sheet exceed
the Net Assets as shown on the Estimated Closing Balance Sheet, then Parent
shall deliver to the Escrow Agent that number of shares as shall equal the
quotient of (i) the amount of such excess divided by (ii) the Closing Parent
Share Price, which shall thereafter hold such shares as part of the Escrow
Fund.
(j) If there are Unresolved Items at the end of the
Resolution Period, then the parties shall jointly notify the Escrow Agent of
the minimum amount which the parties agree is owed pursuant to this Section
2.02 and to which party such amount is owed. If the parties agree such
minimum amount is owed to Parent, then the Escrow Agent shall, in accordance
with the terms of the Escrow Agreement, deliver to Parent out of the Escrow
Fund that number of shares as shall equal the quotient of (i) such minimum
amount divided by (ii) the Closing Parent Share Price, and any additional
shares owing with respect to the Unresolved Items shall be delivered after
the resolution thereof by the Independent Auditors as described
7
above. If the parties agree such minimum amount is owed by Parent, then
Parent shall deliver to the Escrow Agent that number of shares as shall equal
the quotient of (i) such minimum amount divided by (ii) the Closing Parent
Share Price, and any additional shares owing with respect to the Unresolved
Items shall be delivered after the resolution thereof by the Independent
Auditors as described above.
(k) During the calculation of any Closing or post-Closing
adjustments and the period of any review or dispute within the contemplation
of this Agreement, (i) each party hereto shall provide, or cause to be
provided, to the other parties and their authorized representatives, access
to all relevant books, records, workpapers and employees of the Company or
the Shareholder Representative, as the case may be, to the extent such
materials or persons are within their possession or control and (ii) the
Shareholder Representative and Parent shall cooperate fully with each other
and their authorized representatives, including the provision on a timely
basis of all information necessary or useful.
(l) In acting under this Section 2.02, the Independent
Auditors shall be entitled to the privileges and immunities of arbitrators.
Each party agrees to execute, if requested by the Independent Auditors, a
reasonable engagement letter. All fees and expenses relating to the work, if
any, to be performed by the Independent Auditors shall be borne pro rata by
Parent and the Escrow Account in proportion to the allocation of the dollar
amount of the Unresolved Items made by the Independent Auditors such that the
prevailing party or parties pays a lesser proportion of the fees and expenses.
(m) As used in this Agreement, the following terms have the
following meanings:
(i) "NET ASSETS" means total assets of the Company less total
liabilities of the Company.
(ii) "CLOSING PARENT SHARE PRICE" means the average 4:00 p.m.
Eastern Time closing price for shares of Parent Common Stock as
reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System (the "NASDAQ") for each
of the 20 trading days ending on the second business day prior to the
Closing.
SECTION 2.03. EXCHANGE OF CERTIFICATES. (a) EXCHANGE
PROCEDURES. At the Closing, the Company shall surrender to Parent all
Certificates delivered to it (together with any stock transfer tax stamps
required by reason of the payment of the Merger Consideration to a person
other than the registered holder of the Certificate surrendered), together
with such other customary documents as may reasonably be required by Parent,
in exchange for the Merger Consideration. Immediately following the Effective
Time, all Certificates surrendered to Parent shall be canceled. Any
shareholder of the Company whose Certificates are not delivered at the
Closing shall receive the Merger Consideration with respect to such
8
Certificates upon delivery to Parent after the Closing of such Certificates
and the other items required pursuant to the first sentence of this Section
2.03(a).
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF
PARENT COMMON STOCK. No dividends or other distributions declared or made
after the Effective Time with respect to Parent Common Stock comprising part
of the Merger Consideration with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in
lieu of any fractional shares shall be paid to any such holder pursuant to
Section 2.03(d), until the holder of such Certificate shall surrender such
Certificate.
(c) NO FURTHER RIGHTS IN COMPANY COMMON STOCK. All shares
of Parent Common Stock issued upon conversion of the Shares in accordance
with the terms hereof (including any cash paid pursuant to Section 2.03(d))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Shares.
(d) NO FRACTIONAL SHARES. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon
the surrender for exchange of Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to any other rights
of a shareholder of Parent. Each holder of a fractional share interest shall
be paid an amount in cash (without interest) equal to the product obtained by
multiplying (i) such fractional share interest to which such holder (after
taking into account all fractional share interests then held by such holder)
would otherwise be entitled by (ii) the Closing Parent Share Price.
(e) NO LIABILITY. Neither Parent nor the Surviving
Corporation shall be liable to any holder of Shares for any such Shares (or
dividends or distributions with respect thereto), or cash delivered to a
public official pursuant to any abandoned property, escheat or similar law.
(f) WITHHOLDING RIGHTS. Each of the Surviving Corporation
and Parent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Shares such
amounts as it is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by the Surviving
Corporation or Parent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
of the Shares in respect of which such deduction and withholding was made by
the Surviving Corporation or Parent, as the case may be.
(g) LOST CERTIFICATES. If any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond,
in such reasonable amount as the Surviving Corporation may direct, as
indemnity against any claim that may be made against it with respect to such
Certificate,
9
Parent shall issue in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration.
SECTION 2.04. STOCK TRANSFER BOOKS. At the Effective Time,
the stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of Shares thereafter on the records of the
Company. From and after the Effective Time, the holders of Certificates
representing Shares outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such Shares, except as otherwise
provided in this Agreement or by Law (as defined in Section 3.05).
SECTION 2.05. COMPANY STOCK OPTIONS. (a) All options (the
"COMPANY STOCK OPTIONS") outstanding, whether or not exercisable and whether
or not vested, at the Effective Time under the Company's 1998 Stock Plan (the
"COMPANY STOCK OPTION PLAN"), shall remain outstanding following the
Effective Time. At the Effective Time, the Company Stock Options shall, by
virtue of the Merger and without any further action on the part of the
Company or the holder thereof, be assumed by Parent. From and after the
Effective Time, all references to the Company in the Company Stock Option
Plan and the applicable stock option agreements issued thereunder shall be
deemed to refer to Parent, which shall have assumed the Company Stock Option
Plan as of the Effective Time by virtue of this Agreement and without any
further action. Each Company Stock Option assumed by Parent (each, a
"SUBSTITUTE OPTION") shall be exercisable upon the same terms and conditions
(including vesting provisions) as under the applicable Company Stock Option
Plan and the applicable option agreement issued thereunder, except that (A)
each such Substitute Option shall be exercisable for, and represent the right
to acquire, that whole number of shares of Parent Common Stock (rounded to
the nearest whole share) equal to the number of shares of Company Common
Stock subject to such Company Stock Option multiplied by the Exchange Ratio,
(B) the option price per share of Parent Common Stock shall be an amount
equal to the option price per share of Company Common Stock subject to such
Company Stock Option in effect immediately prior to the Effective Time
divided by the Exchange Ratio (the option price per share, as so determined,
being rounded to the nearest full cent) and (C) the Company Stock Options
held by the persons listed on Exhibit 2.05(a) shall vest in accordance with
the timing set forth on such Exhibit 2.05(a).
(b) As soon as practicable after the Effective Time and in
no event later than 30 days after the Effective Time, Parent shall deliver to
each holder of an outstanding Company Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto and such Company Stock
Option shall continue in effect on the same terms and conditions (including
any antidilution provisions, and subject to the adjustments required by this
Section 2.05 after giving effect to the Merger). Parent shall take all
corporate action necessary to reserve for issuance a sufficient number of
shares of Parent Common Stock for delivery upon exercise of Substitute
Options pursuant to the terms set forth in this Section 2.05. As soon as
reasonably practicable after the Effective Time and in no event later than 30
days after the Effective Time, the shares of Parent Common Stock subject to
Company Stock Options will be covered by an effective registration statement
on Form S-8 (or any successor form) or another
10
appropriate form, and Parent shall use its reasonable efforts to maintain the
effectiveness of such registration statement or registration statements for
so long as Substitute Options remain outstanding.
SECTION 2.06. DISSENTING SHARES. (a) Notwithstanding any
provision of this Agreement to the contrary, Shares that are outstanding
immediately prior to the Effective Time and which are held by shareholders
who shall have exercised and perfected appraisal rights for such Shares in
accordance with California Law (collectively, the "DISSENTING SHARES") shall
not be converted into or represent the right to receive the Merger
Consideration. Such shareholders shall be entitled to receive payment of the
appraised value of such Shares held by them in accordance with California
Law, except that all Dissenting Shares held by shareholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such Shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive the Merger Consideration, without any interest thereon,
upon surrender, in the manner provided in Section 2.03, of the certificate or
certificates that formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands,
and any other instruments served pursuant to California Law and received by
the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under the California Law.
The Company shall not, except with the prior written consent of Parent, make
any payment with respect to any demands for appraisal or offer to settle or
settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule delivered by
the Company to Parent and Merger Sub concurrently with the execution of this
Agreement (the "COMPANY DISCLOSURE SCHEDULE") and which provides an exception
to or otherwise qualifies the representations or warranties of the Company
specifically referred to therein, the Company hereby represents and warrants
to Parent and Merger Sub that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each of the Company and each subsidiary of the Company (the "COMPANY
SUBSIDIARIES") is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such corporate power and authority have not had, and would not reasonably be
expected to have, individually or in the aggregate, a Company Material
Adverse Effect (as defined below). Each of the Company and the
11
Company Subsidiaries is duly qualified or licensed as a foreign corporation
to do 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 business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that have not
had, and would not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. The term "COMPANY MATERIAL
ADVERSE EFFECT" means any change in or effect on the business of the Company
and the Company Subsidiaries that is materially adverse to the business,
financial condition, assets, liabilities or results of operations of the
Company and the Company Subsidiaries taken as a whole, except for any such
changes or effects resulting from or arising in connection with any (A)
changes in general economic or market conditions not specifically and
significantly disproportionately affecting the Company, (B) events or
conditions affecting the industry in which the Company operates generally not
specifically and significantly disproportionately affecting the Company or
(C) regulatory or legislative developments or conditions affecting companies
in general not specifically and significantly disproportionately affecting
the Company.
SECTION 3.02. ARTICLES OF INCORPORATION AND BY-LAWS. The
Company has heretofore made available to Parent a complete and correct copy
of the Articles of Incorporation and the By-Laws of the Company. Such
Articles of Incorporation and By-Laws are in full force and effect. The
Company is not in violation of any of the provisions of its Articles of
Incorporation or By-Laws.
SECTION 3.03. CAPITALIZATION. The authorized capital stock
of the Company consists of (a) 12,000,000 shares of Company Common Stock and
(b) 4,902,000 shares of Company Preferred Stock, par value $0.001 per share.
As of the date hereof, (i) 4,198,200 shares of Company Common Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no shares of Company Common Stock are held in the
treasury of the Company or by the Company Subsidiaries, (iii) 1,693,916
shares of Company Common Stock are issuable pursuant to the outstanding
Company Stock Options and (iv) 663,884 Company Stock Options are available
for grants pursuant to the Company Stock Option Plan. As of the date of this
Agreement, 4,902,000 shares of Company Preferred Stock are issued and
outstanding, all of which are validly issued, fully paid and non-assessable.
There are no other shares of preferred stock outstanding. Except for the
Company Stock Options granted pursuant to the Company Stock Option Plan and
the issuance of shares of Company Common Stock upon the conversion of a
warrant to purchase 6,666.67 shares of Company Preferred Stock, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company
or any Company Subsidiary or obligating the Company or any Company Subsidiary
to issue or sell any shares of capital stock of, or other equity interests
in, the Company or any Company Subsidiary as of the date of this Agreement.
All shares of Company Common Stock subject to issuance as aforesaid, 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. There are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise
12
acquire any shares of Company Common Stock or any capital stock of any
Company Subsidiary. Each outstanding share of capital stock of each Company
Subsidiary is duly authorized, validly issued, fully paid and nonassessable
and each such share owned by the Company or another Company Subsidiary is
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on the Company's or such
other Company Subsidiary's voting rights, charges and other encumbrances of
any nature whatsoever. There are no material outstanding contractual
obligations of the Company or any Company Subsidiary to provide funds to, or
make any investment (in the form of a loan, capital contribution or
otherwise) in, any Company Subsidiary or any other person. The holders of
Company Stock Options have been or will be given, or shall have properly
waived, any required notice of the Merger prior thereto, and all such rights
will be terminated at or prior to the Effective Date.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The
Company has all necessary corporate power and authority to execute and
deliver this Agreement, and, subject to obtaining the necessary approvals of
the Company's shareholders, to perform its obligations hereunder and to
consummate the Merger and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the Merger and the other transactions
contemplated by this Agreement have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
Merger and the other transactions contemplated by this Agreement (other than,
with respect to the Merger, the approval of this Agreement by the holders of
(i) more than 66% of the then outstanding Company Preferred Stock and (ii) a
majority of then outstanding Shares and the filing and recordation of
appropriate merger documents as required by California Law). This Agreement
has been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by Parent and Merger Sub,
constitutes a valid and binding obligation of the Company.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, (i) conflict with
or violate the Articles of Incorporation or By-laws of the Company or any
Company Subsidiary, (ii) assuming that all consents, approvals,
authorizations and other actions described in Section 3.05(b) have been
obtained and all filings and obligations described in Section 3.05(b) have
been made, conflict with or violate in any respect any foreign or domestic
law, statute, ordinance, rule, regulation, order, judgment or decree ("LAW")
applicable to the Company or any Company Subsidiary or by which any property
or asset of the Company or any Company Subsidiary is bound or affected, or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become such a default) under, or give
to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property
or asset of the Company or any Company Subsidiary pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation, except in the case of each of
clauses (ii) and (iii) above, for
13
such violations as would not reasonably be expected to materially affect the
operations of the Company.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of, or filing
with or notification to, any domestic or foreign governmental or regulatory
authority ("GOVERNMENTAL ENTITY"), except (i) for applicable requirements, if
any, of state securities or "blue sky" laws ("BLUE SKY Laws"), state takeover
laws, the obtaining of the California Permit (as defined in Section 6.01),
the filing and recordation of appropriate merger documents as required by
California Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, has not
had, and would not reasonably be expected to materially affect the operations
of the Company or to prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
(c) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will
not, require the filing of a pre-merger notification pursuant to the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR ACT").
SECTION 3.06. PERMITS; COMPLIANCE. (a) Each of the Company
and the Company Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any Governmental Entity
necessary for the Company or any Company Subsidiary to own, lease and operate
its properties or to carry on its business as it is now being conducted (the
"COMPANY PERMITS"), and no suspension or cancellation of any of the Company
Permits is pending or, to the knowledge of the Company, threatened except for
such nonpossession, suspension or cancellation that has not had, or would not
reasonably be expected to materially affect the operations of the Company.
(b) Neither the Company nor any Company Subsidiary is in
conflict with, or in default or violation, in each case, in any material
respect, of, (i) any Law applicable to the Company or any Company Subsidiary
or by which any material property or asset of the Company or any Company
Subsidiary is bound or affected, (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any Company Subsidiary is a party or by
which the Company or any Company Subsidiary or any material property or asset
of the Company or any Company Subsidiary is bound or affected or (iii) any
Company Permits except, in each such case for such default or violation that
would not reasonably be expected to materially affect the operations of the
Company.
14
SECTION 3.07. FINANCIAL STATEMENTS. (a) True and complete
copies of (i) the unaudited consolidated balance sheet of the Company as of
March 31, 1999, and the related unaudited statement of income for the year ended
March 31, 1999, together with all related notes and schedules thereto
(collectively referred to herein as the "1999 FINANCIAL STATEMENTS"), and (ii)
the unaudited consolidated balance sheet of the Company as of September 30, 1999
(the "REFERENCE BALANCE SHEET"), and the related statements of income and cash
flows for the fiscal period ended September 30, 1999 of the Company
(collectively referred to herein as the "INTERIM FINANCIAL STATEMENTS"), are
attached as Section 3.07 of the Company Disclosure Schedule. The 1999 Financial
Statements and the Interim Financial Statements (including, in each case, any
notes thereto) were prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by GAAP and except for the impact, if any,
with respect to any non-cash charges associated with employee or non-employee
equity rights) and each present fairly, in all material respects, the
consolidated financial position of the Company and the consolidated Company
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments) and except
for the impact, if any, with respect to any non-cash charges associated with
employee or non-employee equity rights. Neither the Company nor its auditors
have prepared statements of changes in shareholders' equity and cash flows for
the year ended March 31, 1999.
(b) Except as set forth in Section 3.07 of the Company
Disclosure Schedule or as otherwise disclosed pursuant to this Agreement
(including Section 5.01), there are no material debts, liabilities or
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable ("COMPANY LIABILITIES") of the
Company, other than (i) Company Liabilities reflected or reserved against on
the Interim Financial Statements, (ii) borrowings in an aggregate amount not
exceeding $2,000,000 incurred since September 30, 1999 and (iii) liabilities
incurred in the ordinary course of business, since September 30, 1999, and
consistent with past practice subject to the restrictions set forth in
Section 5.01. Except as set forth in Section 3.07 of the Company Disclosure
Schedule, there are no outstanding warranty claims against the Company that
are material to the operations of the Company.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
September 30, 1999, except as contemplated by or as disclosed in this
Agreement (including Section 5.01), the Company and the Company Subsidiaries
have conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been (a)
any Company Material Adverse Effect, (b) any material change by the Company
in its accounting methods, principles or practices, except for any such
change required by reason of a concurrent change in GAAP, (c) any
declaration, setting aside or payment of any dividend or distribution in
respect of the Shares or any redemption, purchase or other acquisition of any
of the Company's securities or (d) except as set forth in Section 3.08 of the
Company Disclosure Schedule, any increase in or establishment of any bonus,
severance,
15
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan (other than the granting of stock
options in connection with the hiring of consultants or new employees as set
forth in Section 3.08(d) of the Company Disclosure Schedule), or any other
increase in the compensation payable or to become payable to any executive
officers of the Company or any Company Subsidiary, except in each case in the
ordinary course of business consistent with past practice.
SECTION 3.09. ABSENCE OF LITIGATION. There is no
litigation, suit, claim, action, proceeding or investigation pending or, to
the knowledge of the Company, threatened against the Company or any Company
Subsidiary, or any property or asset of the Company or any Company
Subsidiary, before any court, arbitrator or Governmental Entity, domestic or
foreign, which (i) has had, or would reasonably be expected to have, if
resolved adversely against the Company, the effect of creating a liability of
the Company in excess of $250,000 or a material effect on the operations of
the Company or (ii) seeks to delay or prevent the consummation of the Merger
or any other material transaction contemplated by this Agreement. Neither the
Company nor any Company Subsidiary nor any material property or asset of the
Company or any Company Subsidiary is subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, to the knowledge of the Company, continuing investigation by, any
Governmental Entity.
SECTION 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS. (a)
Schedule 3.10(a) of the Company Disclosure Schedule contains a true and
complete list of each material deferred compensation, incentive compensation
and equity compensation plan, each material "welfare" plan, fund or program
(within the meaning of Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), each material "pension" plan,
fund or program (within the meaning of Section 3(2) of ERISA), each material
employment, termination or severance agreement and each other material
employee benefit plan, fund, program, agreement, policy or arrangement, in
each case, (i) that is sponsored, maintained or contributed to or required to
be contributed to by the Company or by any person that is a member of the
same controlled group as the Company or under common control with the Company
within the meaning of Section 414 of the Code (each, an "ERISA AFFILIATE"),
(ii) to which the Company or an ERISA Affiliate is party, whether written or
oral, for the benefit of any employee, consultant, director or former
employee, consultant or director of the Company or any Company Subsidiary or
(iii) with respect to which the Company or any Company Subsidiary could be
liable (each, a "Plan").
(b) With respect to each Plan, the Company has made
available to Parent a true and correct copy of (i) the most recent annual
report (Form 5500) filed with the Internal Revenue Service (the "IRS"), (ii)
a complete copy of such Plan, including any amendments thereto or any written
interpretations thereof, (iii) each trust agreement relating to each Plan for
which a trust agreement is required, (iv) the most recent summary plan
description for each Plan for which a summary plan description is required,
(v) the most recent actuarial report
16
or valuation relating to a Plan subject to Title IV of ERISA, (vi) the most
recent determination letter, if any, issued by the IRS with respect to any
Plan intended to be qualified under section 401(a) of the Code, (vii) any
material correspondence with the IRS or the Department of Labor with respect
to each Plan, (viii) all written communications to any employees relating to
any Plan and any proposed Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any material liability to the Company and (ix) all prospectuses
prepared in connection with each Plan requiring a prospectus.
(c) The Company does not have any plan or commitment,
whether legally binding or not, to establish any new Plan, to modify any Plan
(except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing), or to enter into any Plan, nor does it have any intention
or commitment to do any of the foregoing. No Plan is a "multiemployer plan"
(as such term is defined in section 3(37) of ERISA). Neither the Company nor
any of its ERISA Affiliates has ever maintained, established, sponsored,
participated in or contributed to any employee benefit plan which is subject
to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412
of the Code.
(d) Each of the Plans has been operated and
administered in all material respects in accordance with applicable laws and
administrative or governmental rules and regulations, including, but not
limited to, ERISA and the Code. Each of the Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a favorable
determination letter as to such qualification from the IRS, and no event has
occurred, either by reason of any action or failure to act, which would cause
the loss of any such qualification. All contributions or other amounts
payable by the Company or any ERISA Affiliate with respect to each Plan in
respect of current or prior plan years have been paid or accrued in
accordance with GAAP and Section 412 of the Code.
(e) The Company has made available to Parent prior to
the date of this Agreement copies of all Plans, agreements and other
arrangements of the Company with or relating to its employees which contain
change of control provisions.
(f) No Plan provides benefits, including, without
limitation, death or medical benefits (whether or not insured), with respect
to current or former employees of the Company or any ERISA Affiliate beyond
their retirement or other termination of service, other than (i) coverage
mandated by applicable law, (ii) death benefits or retirement benefits under
any "employee pension benefit plan" (as such term is defined in Section 3(2)
of ERISA), (iii) deferred compensation benefits accrued as liabilities on the
books of the Company or any ERISA Affiliate or (iv) benefits the full cost of
which are borne by the current or former employees (or their beneficiaries).
The Company has never represented to or contracted with (whether in oral or
written form) any employee (either individually or as a group) that such
employee would be provided with life insurance, medical or other employee
welfare benefits upon retirement or termination of employment, except to the
extent required by statute.
17
(g) Section 3.10(g) of the Company Disclosure Schedule
sets forth the name of each individual who has been granted Company Stock
Options under the Company Stock Option Plan or otherwise, the number of
Company Stock Options granted to such individual and the vesting schedule and
per share exercise price of such Company Stock Options.
(h) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby,
either alone or together with another event, will (i) result in any material
payment (including, without limitation, severance, unemployment compensation,
golden parachute, forgiveness of indebtedness or otherwise) becoming due
under any Plan or any other arrangement described in Section 3.10(e), (ii)
result in the acceleration of the time of payment, vesting or funding of any
material benefits including, but not limited to, the acceleration of the
vesting and exercisability of any Company Stock Options, or (iii) affect in
any material respect any Plan's current treatment under any Laws including
any Tax or social contribution law.
(i) There are no material pending, or to the knowledge
of the Company, threatened or anticipated, claims by or on behalf of any
Plan, by any employee or beneficiary covered under any Plan, or otherwise
involving any Plan (other than routine claims for benefits). Each Plan may be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without material liability to the Company or the
Company Subsidiaries (other than ordinary administration expenses typically
incurred in a termination event). Neither the Company nor any ERISA Affiliate
is subject to any material penalty or tax with respect to any Plan under
Section 402(i) of ERISA or Sections 4975 through 4980 of the Code.
(j) Neither the Company nor any Company Subsidiary is
a party to any collective bargaining or other labor union contract applicable
to persons employed by the Company or any Company Subsidiary and no
collective bargaining agreement is being negotiated by the Company or any
Company Subsidiary. There is no labor dispute, strike or work stoppage
against the Company or any Company Subsidiary pending or threatened in
writing which would reasonably be expected to interfere materially with the
respective business activities of the Company or any Company Subsidiary. To
the knowledge of the Company, none of the Company, any Company Subsidiary, or
their respective representatives or employees, has committed any unfair labor
practices in connection with the operation of the respective businesses of
the Company or any Company Subsidiary, and there is no charge or complaint
relating to the Company or any ERISA Affiliate by the National Labor
Relations Board, the Equal Employment Opportunity Commission or any
comparable state agency pending or threatened in writing that would
reasonably be expected to cause a Company Material Adverse Effect.
(k) The Company (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case,
18
with respect to employees, (ii) has withheld all amounts required by law or
by agreement to be withheld from the wages, salaries and other payments to
employees, (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing and (iv) is not
liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent
with past practice) except, in the case of clauses (ii), (iii) and (iv)
above, for noncompliance or liabilities not in excess of $100,000 in the
aggregate.
(l) To the knowledge of the Company, all Plans that
are subject to the laws of any jurisdiction outside the United States are in
material compliance with such applicable laws, including relevant Tax laws,
and the requirements of any trust deed under which they were established.
Section 3.10(l) of the Company Disclosure Schedule lists all Plans that are
subject to the laws of any jurisdiction outside the United States. Each such
Plan which is required by contract or under applicable local law to be funded
has been funded at least to the extent so required. If and to the extent any
such Plan is not funded, the obligations under such Plan are reflected on the
books and records of the entity maintaining the Plan and on the consolidated
financial statements of the Company.
(m) Each employee of the Company has executed and
delivered to the Company a Confidential Information and Invention Assignment
Agreement, a form of which has been previously delivered to Parent, and each
person providing services to the Company as a consultant or independent
contractor has executed and delivered to the Company a Consulting Agreement,
a form of which has been previously delivered to Parent.
SECTION 3.11. CONTRACTS. (a) Section 3.11(a) of the Company
Disclosure Schedule lists each of the following written contracts and agreements
of the Company (such contracts and agreements being "MATERIAL CONTRACTS"):
(i) each contract and agreement for the purchase or
lease of personal property with any supplier or for the furnishing
of services to the Company that in each case involves annual payment
in excess of $100,000;
(ii) all broker, exclusive dealing or exclusivity,
distributor, dealer, manufacturer's representative, franchise,
agency, sales promotion and market research agreements involving
annual payments in excess of $200,000, to which the Company is a
party or any other material contract that compensates any person
other than employees based on any sales by the Company;
(iii) all leases and subleases of real property;
(iv) all contracts and agreements relating to
indebtedness for borrowed money other than trade indebtedness of the
Company;
19
(v) all contracts and agreements involving annual
payments in excess of $100,000 with any Governmental Entity to which
the Company is a party;
(vi) all contracts and agreements that limit or purport
to limit the ability of the Company to compete in any line of
business or with any person or in any geographic area or during any
period of time;
(vii) all contracts material to the operations of the
Company containing confidentiality requirements (including all
nondisclosure agreements material to the operations of the Company);
(viii) all contracts relating to trafficking arrangements
and domain name registration and customer list agreements;
(xi) all contracts and agreements between or among the
Company and any shareholder of the Company or any affiliate of such
person; and
(x) any other material agreement of the Company which
is terminable upon or prohibits a change of ownership or control of
the Company.
(b) Each Material Contract: (i) is valid and binding
on the Company and, to the knowledge of the Company, on the other parties
thereto, and is in full force and effect, and (ii) upon consummation of the
transactions contemplated by this Agreement, shall continue in full force and
effect without material penalty or other material adverse consequence. The
Company is not in material breach of, or material default under, any Material
Contract and, to the knowledge of the Company, no other party to any Material
Contract is in material breach thereof or material default thereunder.
SECTION 3.12. ENVIRONMENTAL MATTERS. (a) The Company and
the Company Subsidiaries (i) are in compliance in all material respects with
all applicable Environmental Laws (as defined below), (ii) hold all
Environmental Permits material to the conduct of the Company's business (as
defined below) and (iii) are in compliance in all material respects with
their respective Environmental Permits.
(b) None of the Company or any Company Subsidiary has
received any written request for information, or been notified that it is a
potentially responsible party, under CERCLA (as defined below) or any similar
Law of any state, locality or any other jurisdiction.
20
(c) None of the Company or any Company Subsidiary has
entered into or agreed to any consent decree or order or is subject to any
judgment, decree or judicial order relating to compliance with Environmental
Laws, Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials (as defined
below) and, to the knowledge of the Company, no investigation, litigation or
other proceeding is pending or threatened in writing with respect thereto.
(d) To the knowledge of the Company, none of the real
property leased by the Company or any Company Subsidiary is listed or,
proposed for listing on the "National Priorities List" under CERCLA, as
updated through the date of this Agreement, or any similar list of sites in
the United States or any other jurisdiction requiring investigation or
cleanup.
(e) As used in this Agreement, the following terms
have the following meanings:
(i) "CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended as of
the date of this Agreement.
(ii) "ENVIRONMENTAL LAWS" means any federal, state or
local statute, law, ordinance, regulation, rule, code or order of
the United States, or any other jurisdiction and any enforceable
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent decree or judgment,
relating to pollution or protection of the environment or natural
resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials, as in effect as of the date of
this Agreement.
(iii) "ENVIRONMENTAL PERMITS" means any permit,
approval, identification number, license and other authorization
required under any applicable Environmental Law.
(iv) "HAZARDOUS MATERIALS" means (a) any petroleum,
petroleum products, by-products or breakdown products, radioactive
materials, asbestos-containing materials or polychlorinated
biphenyls or (b) any chemical, material or substance defined or
regulated as toxic or hazardous or as a pollutant or contaminant or
waste under any applicable Environmental Law.
SECTION 3.13. INTELLECTUAL PROPERTY. (a) Section 3.13 of
the Company Disclosure Schedule sets forth a true and complete list of all
(i) Software (as defined herein) and other Intellectual Property (as defined
herein), in each case owned by the Company or a Company Subsidiary and
material to the business of the Company and the Company Subsidiaries ("OWNED
INTELLECTUAL PROPERTY") and (ii) licenses or sublicenses of Intellectual
Property to the Company or a Company Subsidiary, and licenses or sublicenses
of Intellectual Property by the Company or a Company Subsidiary to any third
party, in each case that are material to the business of the Company and the
Company Subsidiaries and are not readily
21
available from commercial sources ("LICENSED INTELLECTUAL PROPERTY"). For
purposes hereof, "INTELLECTUAL PROPERTY" means: (i) United States,
international, and foreign patents, patent applications and statutory
invention registrations, (ii) trademarks, service marks, trade dress,
slogans, logos, domain names, and other source identifiers, including
registrations and applications for registration thereof, (iii) copyrights,
including registrations and applications for registration thereof and (iv)
confidential and proprietary information, including trade secrets and
know-how. For purposes hereof, "SOFTWARE" means all material computer
software developed by or on behalf of the Company or any Company Subsidiary,
including such computer software and databases of customers and contact lists
that are proprietary to the Company and the software operated by the Company
on its web sites.
(b) To the knowledge of the Company, the use of the
Owned Intellectual Property and the Licensed Intellectual Property by the
Company and the Company Subsidiaries in the ordinary course of business does
not conflict with or infringe in any material way upon the valid Intellectual
Property rights of any third party. No claim has been asserted that the use
of the Owned Intellectual Property or the Licensed Intellectual Property in
the ordinary course of business conflicts with or infringes in any material
way upon the valid Intellectual Property rights of any third party.
(c) The Company or a Company Subsidiary is the
exclusive owner of the entire and unencumbered right, title and interest in
and to each item of Owned Intellectual Property. The Company and the Company
Subsidiaries are entitled to use all Licensed Intellectual Property in the
ordinary course of business, subject only to the terms of the licenses of the
Licensed Intellectual Property.
(d) The Owned Intellectual Property and the Licensed
Intellectual Property include all of the Intellectual Property and Software
used in the ordinary day-to-day conduct of the business of the Company and
the Company Subsidiaries, and there are no other items of Intellectual
Property or Software that are material to such ordinary day-to-day conduct of
such business. To the knowledge of the Company, the Owned Intellectual
Property and any Intellectual Property licensed to the Company and the
Company Subsidiaries under the Licensed Intellectual Property, is subsisting,
valid and enforceable, and has not been adjudged invalid or unenforceable in
whole or part.
(e) No legal proceedings have been asserted, are
pending, or threatened against the Company or any Company Subsidiary (i)
based upon or challenging or seeking to deny or restrict the use by the
Company or any Company Subsidiary of any of the Owned Intellectual Property
or Licensed Intellectual Property, (ii) alleging that any services provided
by, processes used by, or products manufactured or sold by the Company or any
Company Subsidiary infringe upon or misappropriate any Intellectual Property
right of any third party, or (iii) alleging that any Intellectual Property
licensed under the Licensed Intellectual Property infringes upon any
Intellectual Property right of any third party or is being licensed or
sublicensed in conflict with the terms of any license or other agreement.
22
(f) To the knowledge of the Company, no person is
engaging in any activity that infringes in any material respect upon the
Owned Intellectual Property. Except as set forth in Section 3.13 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary
has granted any license or similar right to any third party with respect to
the Owned Intellectual Property or Licensed Intellectual Property. The
consummation of the transactions contemplated by this Agreement will not
result in the termination or material impairment of any of the Owned
Intellectual Property.
(g) The Company and the Company Subsidiaries have
delivered or made available to Parent correct and complete copies of all the
licenses and sublicenses by the Company of the Licensed Intellectual
Property. With respect to each such license and sublicense:
(i) such license or sublicense is valid and binding
and in full force and effect and represents the entire agreement
between the respective licensor and licensee with respect to the
subject matter of such license or sublicense;
(ii) such license or sublicense will not cease to be
valid and binding and in full force and effect on terms identical to
those currently in effect as a result of the consummation of the
transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement
constitute a breach or default under such license or sublicense or
otherwise give the licensor or sublicensor a right to terminate such
license or sublicense; and
(iii) (A) neither the Company nor any Company Subsidiary
has received any notice of termination or cancellation under such
license or sublicense, (B) neither the Company nor any Company
Subsidiary has received any notice of a breach or default under such
license or sublicense, which breach has not been cured, and (C)
neither the Company nor any Company Subsidiary has granted to any
other third party any rights, adverse or otherwise, under such
license or sublicense that would constitute a breach of such license
or sublicense; and
(iv) to the knowledge of the Company, neither the
Company, any Company Subsidiary, nor any other party to such license
or sublicense is in breach or default in any material respect, and,
to the Company's knowledge, no event has occurred that, with notice
or lapse of time would constitute such a breach or default or permit
termination, modification or acceleration under such license or
sublicense.
(h) To the knowledge of the Company, the Software is
free of all viruses, worms, trojan horses and other material known
contaminants, and does not contain any bugs, errors, or problems of a
material nature that disrupt its operations or have a material impact on the
operation of other software programs or operating systems and no rights in
the Software have been transferred to any third party.
23
(i) To the knowledge of the Company, the Company and
the Company Subsidiaries have the right to use all software development
tools, library functions, compilers, and other third party software that is
material to the business of the Company and the Company Subsidiaries, or that
is required to operate or modify the Software.
(j) The Company and the Company Subsidiaries have
taken reasonable steps in accordance with normal industry practice to
maintain the confidentiality of their customer lists and customer
information, trade secrets and other confidential Intellectual Property. To
the knowledge of the Company (i) there has been no misappropriation of any
material trade secrets or other material confidential Intellectual Property
of the Company or any Company Subsidiary by any person, (ii) no employee,
independent contractor or agent of the Company or any Company Subsidiary has
misappropriated any trade secrets of any person in the course of such
performance as an employee, independent contractor or agent and (iii) no
employee, independent contractor or agent of the Company or any Company
Subsidiary is in default or breach of any term of any employment agreement,
non-disclosure agreement, assignment of invention agreement or similar
agreement or contract relating in any way to the protection, ownership,
development, use or transfer of Intellectual Property.
SECTION 3.14. TAXES. (a) (i) All material returns and
reports in respect of Taxes (as defined herein) required to be filed with
respect to the Company and each Company Subsidiary have been timely filed;
(ii) all Taxes required to be shown on such returns and reports or otherwise
due have been timely paid; (iii) all such returns and reports are true,
correct and complete in all material respects; (iv) no adjustment relating to
such returns has been proposed formally or informally by any Tax authority
and, to the knowledge of the Company, no basis exists for any such
adjustment; (v) there are no pending or, to the knowledge of the Company,
threatened actions or proceedings for the assessment or collection of Taxes
against the Company or any Company Subsidiary; (vi) no consent under section
341(f) of the Code has been filed with respect to the Company or any Company
Subsidiary; (vii) there are no tax liens on any assets of the Company or any
Company Subsidiary; (viii) neither the Company nor any affiliate is a party
to any agreement or arrangement that would result, separately or in the
aggregate, in the actual or deemed payment by the Company or a Company
Subsidiary of any "excess parachute payments" within the meaning of Section
280G of the Code (without regard to Section 280G(b)(4)); (ix) none of the
Company or the Company Subsidiaries has been notified by the relevant
authority that the Company or the Company Subsidiaries is doing business in
or engaged in a trade or business in any jurisdiction in which it has not
filed any applicable income or franchise tax return; and (ix) no power of
attorney that is currently in force has been granted with respect to any
matter relating to Taxes that could affect in any material respect the
Company or a Company Subsidiary.
(b) On the Reference Balance Sheet, reserves and
allowances have been provided, and on the Final Closing Balance Sheet (or the
Adjusted Closing Balance Sheet) reserves and allowances will be provided,
adequate to satisfy all liabilities for Taxes relating to the Company and the
Company Subsidiaries for periods through the Effective Time.
24
(c) The Company is not aware of any agreement, plan or
other circumstance that would prevent the Merger from qualifying under
Section 368(a) of the Code.
(d) As used in this Agreement, "TAXES" shall mean any
and all taxes, fees, levies, duties, tariffs, imposts and other charges of
any kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any government or
taxing authority, including, without limitation: taxes or other charges on or
with respect to income, franchises, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs
and similar charges.
SECTION 3.15. VOTE REQUIRED. The only votes of the holders
of any classes or series of capital stock of the Company necessary to approve
this Agreement, the Merger and the other transactions contemplated by this
Agreement is the affirmative vote of the holders of (i) a majority of the
outstanding Shares, voting together as a single class, and (ii) more than 66%
of Company Preferred Stock in favor of the approval of this Agreement.
SECTION 3.16. ASSETS. Except as set forth in Section 3.16
of the Company Disclosure Schedule, the Company owns, leases or has the legal
right to use all of the material properties and assets, including, without
limitation, real property and personal property (other than Intellectual
Property, which is covered by Section 3.13 hereof), used or intended to be
used in the conduct of the business of the Company or otherwise owned, leased
or used by the Company in or relating to the conduct of the business of the
Company (all such properties, assets and contract rights being the "ASSETS").
Except as set forth in Section 3.16 of the Company Disclosure Schedule, the
Company has good and marketable title to, or, in the case of leased or
subleased material Assets, valid and subsisting leasehold interests in, all
the Assets material to the conduct of the business, free and clear of all
encumbrances.
SECTION 3.17. CERTAIN INTERESTS. (a) To the knowledge of
the Company, none of the shareholders of the Company or their affiliates or
any officer or director of the Company and no immediate relative or spouse
(or immediate relative of such spouse) who resides with, or is a dependent
of, any such officer or director:
(i) has any material direct or indirect financial
interest in any significant competitor, supplier or customer of the
Company, PROVIDED, HOWEVER, that the ownership of securities
representing no more than 5% of the outstanding voting power of any
competitor, supplier or customer, and which are listed on any
national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a "FINANCIAL
INTEREST" as long as the person owning such securities has no other
connection or relationship with such competitor, supplier or
customer;
(ii) owns, directly or indirectly, in whole or in part,
or has any other interest in any material tangible or intangible
property which the Company uses or has used in
25
the conduct of its business or otherwise (except for any such
ownership or interest resulting from the ownership of
securities in a public company); or
(iii) except as set forth in Section 3.17(a)(iii) of the
Company Disclosure Schedule, has outstanding any indebtedness to the
Company.
(b) Except as set forth in Section 3.17(b) of the
Company Disclosure Schedule, except for the payment of employee compensation
in the ordinary course of business, the Company does not have any liability
or any other obligation of any nature whatsoever to any shareholder of the
Company or any affiliate thereof or to any officer or director of the Company
or, to the knowledge of the Company, to any immediate relative or spouse (or
immediate relative of such spouse) of any such officer or director.
SECTION 3.18. INSURANCE POLICIES. Section 3.18 of the
Company Disclosure Schedule sets forth a true and complete list and
description (including face amount of policy, name of insured, carrier,
premium, expiration date and whether it is a "claims made" or an "occurrence"
policy) of all insurance policies held by the Company. True and complete
copies of all such policies have been made available by the Company to
Parent. All premiums due to the date hereof on such policies have been paid.
All pending claims, if any, made against the Company which are covered by
insurance are being defended by the appropriate insurance companies and are
described on the Company Disclosure Schedule. The Company has not failed to
give any notice or present any claim under any such policy in a timely
fashion, except where such failure would not prejudice the Company's ability
to make a material claim. Such insurance to the date hereof has (i) been
maintained in full force and effect and (ii) not been canceled or changed,
except to extend the maturity dates thereof.
SECTION 3.19. STATE TAKEOVER STATUTES. The Board of
Directors of the Company has taken all action necessary to ensure that any
restrictions on business combinations contained in the California Law will
not apply to the Merger and the other transactions contemplated by this
Agreement. To the knowledge of the Company, no other state takeover statute
is applicable to the Merger or the other transactions contemplated by this
Agreement.
SECTION 3.20. YEAR 2000 COMPLIANCE. The Company has (i)
undertaken an assessment of those Company Systems that could be materially
adversely affected by a failure to be Year 2000 Compliant, (ii) developed a
plan and time line for rendering such Company Systems Year 2000 Compliant,
(iii) to date, implemented such plan in accordance with such timetable in all
material respects and (iv) disclosed such plan to Parent. Based on such
inventory, review and assessment, to the knowledge of the Company, all
Company Systems are Year 2000 Compliant. The Company estimates that the total
remaining cost of rendering the Company Systems Year 2000 Compliant will not
exceed $100,000. For purposes hereof, "COMPANY SYSTEMS" shall mean all
computer, hardware, software, Software, systems, and equipment (including
embedded microcontrollers in non-computer equipment) embedded within or
required to operate the current products of the Company and the Company
26
Subsidiaries, and/or material to or necessary for the Company and the Company
Subsidiaries to carry on their businesses as currently conducted. For
purposes hereof, "YEAR 2000 COMPLIANT" means that the Company Systems provide
uninterrupted millennium functionality in that the Company Systems will
record, store, process and present calendar dates falling on or after January
1, 2000, in the same manner and with the same functionality as the Company
Systems record, store, process, and present calendar dates falling on or
before December 31, 1999.
SECTION 3.21. BROKERS. Except for ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.C.,
no broker, finder or investment banker is entitled to any brokerage, finder's
or other fee or commission in connection with the Merger or the other
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the Disclosure Schedule delivered by
Parent and Merger Sub to the Company concurrently with the execution of this
Agreement (the "PARENT DISCLOSURE SCHEDULE") and which provides an exception
to or otherwise qualifies the representations or warranties of Parent and
Merger Sub specifically referred to therein, and in the Parent SEC Reports
(as defined in Section 4.07), Parent and Merger Sub hereby jointly and
severally represent and warrant to the Company that:
SECTION 4.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
Each of Parent and each subsidiary of Parent (the "PARENT SUBSIDIARIES") is a
corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all corporate
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure
to be so organized, existing or in good standing or to have such corporate
power and authority have not had, and would not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect (as
defined below). Each of Parent and the Parent Subsidiaries is duly qualified
or licensed as a foreign corporation to do 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 business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed
and in good standing that have not had, and would not reasonably be expected
to have, individually or in the aggregate, a Parent Material Adverse Effect.
The term "PARENT MATERIAL ADVERSE EFFECT" means any change in or effect on
the business of Parent and the Parent Subsidiaries that is materially adverse
to the business, financial condition, assets, liabilities or results of
operations of Parent and the Parent Subsidiaries taken as a whole, except for
any such changes or effects resulting from or arising in connection with any
(A) changes in general economic or market conditions not specifically and
significantly disproportionately affecting Parent, (B) events or conditions
affecting the industry in which
27
Parent or the Parent Subsidiaries operate generally not specifically and
significantly disproportionately affecting Parent or (C) developments or any
regulatory or legislative conditions affecting companies in general not
specifically and significantly disproportionately affecting Parent.
SECTION 4.02. CERTIFICATE OF INCORPORATION AND BY-LAWS.
Parent has heretofore made available to the Company a complete and correct
copy of the Certificate of Incorporation and the By-Laws of Parent and the
Articles of Incorporation and By-Laws of Merger Sub. Such Certificates of
Incorporation and By-Laws are in full force and effect. Neither Parent nor
Merger Sub is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
SECTION 4.03. CAPITALIZATION. The authorized capital stock
of Parent consists of (a) 200,000,000 shares of Parent Common Stock and (b)
20,000,000 shares of preferred stock, par value $0.002 per share ("PARENT
PREFERRED STOCK"). As of October 31, 1999, (i) 45,805,129 shares of Parent
Common Stock are issued and outstanding, all of which are validly issued,
fully paid and non-assessable, (ii) no shares of Parent Common Stock are held
in the treasury of Parent or by Parent Subsidiaries and (iii) 2,548,342
shares are reserved for future issuance pursuant to stock options. As of the
date of this Agreement, no shares of Parent Preferred Stock were issued and
outstanding. Except for stock options granted pursuant to the stock option
plans of Parent (the "PARENT STOCK OPTION PLANS") and for warrants to
purchase 14,544 shares of Parent Common Stock, there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Parent or any Parent
Subsidiary or obligating Parent or any Parent Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, Parent or any
Parent Subsidiary. All shares of Parent Common Stock subject to issuance as
aforesaid, 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 non-assessable. Except for 6,907,820 shares
acquired prior to Parent's initial public offering which are subject to
repurchase by Parent, there are no outstanding contractual obligations of
Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire
any shares of Parent Common Stock or any capital stock of any Parent
Subsidiary. Each outstanding share of capital stock of each Parent Subsidiary
is duly authorized, validly issued, fully paid and non-assessable and each
such share owned by Parent or another Parent Subsidiary is free and clear of
all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on Parent's or such other Parent
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever, except where failure to own such shares free and clear would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
There are no material outstanding contractual obligations of Parent or any
Parent Subsidiary to provide funds to, or make any investment (in the form of
a loan, capital contribution or otherwise) in, any Parent Subsidiary or any
other person. The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, par value $0.01 per share, all of which are duly
authorized, validly issued, fully paid and non-assessable and free of any
preemptive rights in respect thereof and all of which are owned by Parent.
The shares of Parent Common Stock to be issued pursuant
28
to the Merger in accordance with Section 2.01 (i) will be duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Parent's Certificate of Incorporation or
By-Laws or any agreement to which the Parent is a party or is bound and (ii)
will, when issued, be exempt from registration under the Securities Act of
1933, as amended (together with the rules and regulations promulgated
thereunder, the "SECURITIES ACT"), and the Securities Exchange Act of 1934,
as amended (together with the rules and regulations promulgated thereunder,
the "EXCHANGE ACT") and exempt from registration under applicable Blue Sky
Laws.
SECTION 4.04. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of
Parent and Merger Sub has all necessary corporate power and authority to
execute and deliver this Agreement, and to perform its obligations hereunder
and to consummate the Merger and the other transactions contemplated by this
Agreement. The execution and delivery of this Agreement by each of Parent and
Merger Sub and the consummation by each of Parent and Merger Sub of the
Merger and the other transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent are necessary to authorize this
Agreement or to consummate the Merger and the other transactions contemplated
by this Agreement (other than, with respect to the Merger, the filing and
recordation of appropriate merger documents as required by California Law).
This Agreement has been duly and validly executed and delivered by each of
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
each of Parent and Merger Sub.
SECTION 4.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by each of Parent and Merger
Sub do not, and the performance of this Agreement by each of Parent and
Merger Sub will not, (i) conflict with or violate the Certificate of
Incorporation or By-laws of Parent or any equivalent organizational documents
of Merger Sub or any other Parent Subsidiary, (ii) assuming that all
consents, approvals, authorizations and other actions described in Section
4.05(b) have been obtained and all filings and obligations described in
Section 4.05(b) have been made, conflict with or violate any Law applicable
to Parent or any Parent Subsidiary or by which any property or asset of
Parent or any Parent Subsidiary is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent or
any Parent Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation, except, with respect to clause (iii), for any such conflicts,
violations, breaches, defaults, or other occurrences that have not had, and
would not reasonably be expected to have, individually or in the aggregate, a
Parent Material Adverse Effect, and that would not reasonably be expected to
prevent or materially delay the consummation of the transactions contemplated
by this Agreement.
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(b) The execution and delivery of this Agreement by
each of Parent and Merger Sub do not, and the performance of this Agreement
by each of Parent and Merger Sub will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements, if any, of the
Exchange Act, Blue Sky Laws, the Securities Act, the Nasdaq, the obtaining of
the California Permit (as defined in Section 6.01), state takeover laws, the
HSR Act and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, has not
had, and would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect, and would not reasonably be
expected to prevent or materially delay the consummation of the transactions
contemplated by this Agreement
SECTION 4.06. PERMITS; COMPLIANCE. Each of Parent and the
Parent Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any Governmental Entity
necessary for Parent or any Parent Subsidiary to own, lease and operate its
properties or to carry on its business as it is now being conducted (the
"PARENT PERMITS"), except where the failure to have, or the suspension or
cancellation of, any of Parent Permits has not had, and would not reasonably
be expected to have, individually or in the aggregate, a Parent Material
Adverse Effect, and no suspension or cancellation of any of Parent Permits is
pending or, to the knowledge of Parent, threatened, except where the failure
to have, or the suspension or cancellation of, any of Parent Permits has not
had, and would not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
SECTION 4.07. SEC FILINGS; FINANCIAL STATEMENTS. (a) Parent
has filed all forms, reports and documents required to be filed by it with
the Securities and Exchange Commission (the "SEC") since June 23, 1999
through the date of this Agreement (collectively, the "PARENT SEC REPORTS").
As of the respective dates they were filed, (i) the Parent SEC Reports were
prepared, and all forms, reports and documents filed with the SEC after the
date of this Agreement and prior to the Effective Time will be prepared, in
all material respects in accordance with the requirements of the Securities
Act, or the Exchange Act, as the case may be, and (ii) none of the Parent SEC
Reports contained, nor will any forms, reports and documents filed after the
date of this Agreement and prior to the Effective Time 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 made therein, in
the light of the circumstances under which they were made, not misleading. No
Parent Subsidiary is required to file any form, report or other document with
the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the Parent SEC
Reports and in any form, report or document filed after the date of this
Agreement and prior to the Effective Time was, or will be, as the case may
be, prepared in accordance with GAAP applied on a consistent basis throughout
the periods indicated (except as may be indicated in the notes thereto or, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) and
each presented or will present fairly, in all material respects, the
consolidated financial position of Parent and the consolidated
30
Parent Subsidiaries as at the respective dates thereof and for the respective
periods indicated therein, except as otherwise noted therein (subject, in the
case of unaudited statements, to normal and recurring year-end adjustments
which were not and are not expected, individually or in the aggregate, to
have a Parent Material Adverse Effect).
(c) Except as set forth in Section 4.07 of the Parent
Disclosure Schedule, there are no material debts, liabilities or obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable ("PARENT LIABILITIES") of Parent or the Parent
Subsidiaries, other than (i) Parent Liabilities reflected or reserved against
on the consolidated balance sheet of Parent and the Parent Subsidiaries as of
September 30, 1999 and (ii) Parent Liabilities incurred in the ordinary
course of business, consistent with the past practice of Parent and the
Parent Subsidiaries, in each case, except as would not have a Parent Material
Adverse Effect.
SECTION 4.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since
January 1, 1999, except as contemplated by or as disclosed in this Agreement,
or as disclosed in any Parent SEC Report filed since June 23, 1999, Parent
and Parent Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since such date,
there has not been any Parent Material Adverse Effect.
SECTION 4.09. OPERATIONS OF MERGER SUB. Merger Sub is a
wholly owned subsidiary of Parent, was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in
no other business activities and has conducted its operations only as
contemplated by this Agreement.
SECTION 4.10. ABSENCE OF LITIGATION. There is no
litigation, suit, claim, action, proceeding or investigation pending or, to
the knowledge of Parent or any Parent Subsidiary, threatened against Parent
or any Parent Subsidiary, or any property or asset of Parent or any Parent
Subsidiary, before any court, arbitrator or Governmental Entity, domestic or
foreign, which (i) has had, or would reasonably be expected to have, a Parent
Material Adverse Effect or (ii) seeks to delay or prevent the consummation of
the Merger or any other material transaction contemplated by this Agreement.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 5.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING
THE MERGER. The Company agrees that, between the date of this Agreement and
the Effective Time, except as set forth in Section 5.01 of the Company
Disclosure Schedule or as contemplated by any other provision of this
Agreement, unless Parent shall otherwise consent in writing:
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(i) the businesses of the Company and the Company
Subsidiaries shall be conducted only in, and the Company and the
Company Subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past
practice; and
(ii) the Company shall use its reasonable best efforts
to preserve substantially intact its business organization, to keep
available the services of the current officers, employees and
consultants of the Company and the Company Subsidiaries and to
preserve the current relationships of the Company and the Company
Subsidiaries with customers, suppliers and other persons with which
the Company or any Company Subsidiary has significant business
relations.
By way of amplification and not limitation, except as
contemplated by this Agreement or as set forth in Section 5.01 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary shall,
between the date of this Agreement and the Effective Time, directly or
indirectly, do, or propose to do, any of the following without the prior
written consent of Parent:
(a) amend or otherwise change its Articles of
Incorporation or By-Laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber,
or authorize the issuance, sale, pledge, disposition, grant or encumbrance
of, (i) any shares of its capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company or any Company
Subsidiary, except as contemplated by Section 5.01(f) or (ii) any material
assets of the Company or any Company Subsidiary, except, in the case of this
clause (ii) only, in the ordinary course of business and in a manner
consistent with past practice;
(c) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital
stock;
(e) (i) acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or assets) any
material interest in any corporation, partnership, other business
organization or any division thereof or any assets;
(ii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans or advances, except for
indebtedness incurred in the ordinary course of business and
consistent with past
32
practice and other indebtedness with a maturity of not more than one
year in a principal amount not, in the aggregate, in excess of
$2,000,000;
(iii) enter into any contract or agreement material to
the business, results of operations or financial condition of the
Company and the Company Subsidiaries taken as a whole other than in
the ordinary course of business, consistent with past practice;
(iv) authorize any capital expenditure, other than
capital expenditures reflected in the Company's 1999 Business Plan
delivered to Parent on November 8, 1999 and other capital
expenditures which are not, in the aggregate, in excess of $50,000
for the Company and the Company Subsidiaries taken as a whole; or
(v) enter into or amend any contract, agreement,
commitment or arrangement that, if fully performed, would not be
permitted under this Section 5.01(e);
(f) increase the compensation payable or to become
payable to its officers or employees, except for increases in accordance with
past practice in salaries or wages of employees of the Company or any Company
Subsidiary who are not officers of the Company, or grant any severance or
termination pay to, or enter into any employment or severance agreement with,
any director, officer or other employee of the Company or any Company
Subsidiary (except that Parent shall not unreasonably withhold its consent
with respect to the hiring of new employees and the Company entering into
employment agreements or arrangements with such new employees in the ordinary
course of business consistent with past practice), or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer
or employee other than in the ordinary course of business consistent with
past practice;
(g) enter into any licensing, distribution,
sponsorship, advertising, merchant program or other similar contracts,
agreements, or obligations involving payments by the Company in excess of
$100,000 which may not be cancelled without penalties by the Company upon
notice of 30 days or less other than in the ordinary course of business
consistent with past practice;
(h) take any action to cause, or fail to take any
material action to prevent, the accelerated vesting and exercisability of the
Company Stock Options except as provided by the terms of such Company Stock
Options or the employment agreement or arrangements of the employee and
except as contemplated by Section 2.05;
(i) take any action, other than reasonable and usual
actions in the ordinary course of business and consistent with past practice,
with respect to accounting policies or procedures except for any such action
required by a concurrent change in GAAP; or
33
(j) make, change or revoke any material Tax election
or make any material agreement regarding Taxes with any taxing authority.
SECTION 5.02. NOTIFICATION OF CERTAIN MATTERS. Parent shall
give prompt notice to the Company, and the Company shall give prompt notice
to Parent, of (i) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which would be likely to cause (x) any
representation or warranty contained in this Agreement to be untrue or
inaccurate or (y) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied and (ii) any failure of Parent
or the Company, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section
5.02 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. CALIFORNIA PERMIT; COMPANY SHAREHOLDER
APPROVAL. (a) As promptly as practicable (and in any event within 20 business
days) after the execution of this Agreement, Parent shall prepare the
necessary documents and Parent shall apply to obtain a permit (a "CALIFORNIA
PERMIT") from the California Commissioner of Corporations (after a hearing
before such Department) pursuant to Section 25121 of the California Corporate
Securities Law of 1968, so that the issuance of the Parent Common Stock in
the Merger shall be exempt from registration under the Securities Act, by
virtue of the exemption from registration contained in Section 3(a)(10)
thereof. The Company shall cooperate with, and provide information to, Parent
in connection with Parent's application for the California Permit. The
Company and Parent will respond to any comments from the California
Commissioner of Corporations and use their commercially reasonable efforts to
have the California Permit granted as soon as practicable after such filing.
None of the information supplied by the Company to Parent in connection with
the California Permit application or any other document prepared to comply
with federal or state securities laws shall contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements contained therein, in the light of the circumstances under
which they were made, not misleading.
(b) The Company and the Individual Shareholders shall
ensure that the shareholders of the Company, acting by written consent
pursuant to Section 603(a) of the California Corporations Code, take all
action necessary for the approval of the Merger and adoption of this
Agreement within five business days of the date of the issuance of the
California Permit. By way of amplification and not limitation, the Company,
acting through its Board of Directors, shall, in accordance with all
applicable legal requirements and its Articles of Incorporation and By-Laws,
(i) promptly solicit an action by written consent in lieu
34
of a meeting of shareholders of the Company (or if, required by law, duly
call, give notice of, convene and hold a meeting of shareholders of the
Company), (ii) recommend the approval of the Merger and adoption this
Agreement, (iii) take all lawful action to solicit such approval and (iv)
take all other action necessary or advisable to secure the vote or consent of
shareholders required by California Law.
(c) In the event that the California Permit cannot be issued
for any reason, then the parties hereto shall take all action necessary to
restructure the transactions contemplated by this Agreement to permit the
delivery of Parent Common Stock pursuant to the Merger to be accomplished by
means of a registered offering under the Securities Act or another transaction
to be mutually agreed upon.
SECTION 6.02. INFORMATION STATEMENT. (a) As promptly as
practicable after the date hereof, the Company shall prepare and disseminate to
its shareholders an information statement (together with any amendments thereof
or supplements thereto, the "INFORMATION STATEMENT") relating to the action of
the Company's shareholders, by written consent in lieu of a meeting, to adopt
this Agreement and approve the Merger. The Information Statement shall include
the recommendation of the Board of Directors of the Company to the shareholders
of the Company in favor of adoption of this Agreement and approval of the
Merger. The Company and Parent shall coordinate the preparation of the
Information Statement and the application for the California Permit.
(b) No amendment or supplement to the Information Statement
will be made by the Company without the approval of Parent (such approval not to
be unreasonably withheld or delayed).
SECTION 6.03. ACCESS TO INFORMATION; CONFIDENTIALITY. (a)
Except as required pursuant to any confidentiality agreement or similar
agreement or arrangement to which Parent or the Company or any of their
respective subsidiaries is a party or pursuant to applicable Law, from the date
of this Agreement to the Effective Time, Parent and the Company shall (and shall
cause their respective subsidiaries to): (i) provide to the other (and its
officers, directors, employees, accountants, consultants, legal counsel, agents
and other representatives, collectively, "REPRESENTATIVES") access at reasonable
times upon prior notice to the officers, employees, agents, properties, offices
and other facilities of the other and its subsidiaries and to the books and
records thereof and (ii) furnish promptly such information concerning the
business, properties, contracts, assets, liabilities, personnel and other
aspects of the other party and its subsidiaries as the other party or its
Representatives may reasonably request.
(b) The parties shall comply with, and shall cause their
respective Representatives to comply with, all of their respective obligations
under the Confidentiality Agreement dated as of November 9, 1999 (the
"CONFIDENTIALITY AGREEMENT") between the Company and Parent.
35
SECTION 6.04. NO SOLICITATION OF TRANSACTIONS. (a) The Company
will not, directly or indirectly, and will instruct its officers, directors,
employees, subsidiaries, agents or advisors or other representatives (including,
without limitation, any investment banker, attorney or accountant retained by
it), not to, directly or indirectly, solicit, initiate or knowingly encourage
(including by way of furnishing nonpublic information), or take any other action
knowingly to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its shareholders) that
constitutes, or may reasonably be expected to lead to, any Competing Transaction
(as defined below), or enter into or maintain or continue discussions or
negotiate with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or employees
of the Company or any Company Subsidiaries, or any investment banker, financial
advisor, attorney, accountant or other representative retained by the Company or
any of Company Subsidiaries, to take any such action. The Company shall notify
Parent promptly if any proposal or offer, or any inquiry or contact with any
person with respect thereto, regarding a Competing Transaction is made. The
Company immediately shall cease and cause to be terminated all existing
discussions or negotiations with any parties conducted heretofore with respect
to a Competing Transaction. The Company agrees not to release any third party
from, or waive any provision of, any confidentiality or standstill agreement to
which it is a party.
(b) A "COMPETING TRANSACTION" means any of the following
involving the Company (other than the Merger and the other transactions
contemplated by this Agreement): (i) a merger, consolidation, share exchange,
business combination or other similar transaction; (ii) any sale, lease,
exchange, transfer or other disposition of all or substantially all of the
assets of such party and its subsidiaries, taken as a whole; (iii) a tender
offer or exchange offer for 30% or more of the outstanding voting securities of
such party or (iv) any solicitation in opposition to approval by the Company's
shareholders of this Agreement and the Merger.
SECTION 6.05. EMPLOYEE BENEFITS MATTERS. (a) Parent will
provide the Company's employees with health, welfare and other employee benefits
that in the aggregate are substantially equivalent to, and no less favorable
than, those provided to Parent's comparably situated employees.
(b) To the extent that service is relevant for eligibility and
vesting (and, solely for purposes of calculating entitlement to vacation and
sick days, benefit accruals) under any retirement plan, employee benefit plan,
program or arrangement established or maintained by Parent or any of the Parent
Subsidiaries for the benefit of employees of Parent, such plan, program or
arrangement shall credit Company employees for service on or prior to the
Effective Time with the Company or any affiliate or predecessor thereof. In
addition, Parent shall waive limitations on benefits relating to any
pre-existing conditions to the same extent such limitations are waived under any
comparable Plan and recognize, for purposes of annual deductible and
out-of-pocket limits under its medical and dental plans, deductible and
out-of-pocket expenses paid by the Company's employees in the calendar year in
which the Effective Time occurs.
36
(c) Prior to the Effective Time, the Company shall take all
actions necessary under Section 280G(b)(5) of the Code such that (i) the
acceleration of any Company Stock Options occurring in connection with the
Merger or any event associated with the Merger (such as a termination of
employment or constructive termination of employment following the Merger) and
(ii) any grant of Company Stock Options designated as a "Contingent Retention
Grant" and set forth in Exhibit 6.05(c) shall not be considered an "excess
parachute payment" as defined in Section 280G(b)(1) of the Code.
SECTION 6.06. FURTHER ACTION; CONSENTS; FILINGS. (a) Upon the
terms and subject to the conditions hereof, each of the parties hereto shall use
its reasonable best efforts to (i) take, or cause to be taken, all appropriate
action and do, or cause to be done, all things necessary, proper or advisable
under applicable Law or otherwise to consummate and make effective the Merger
and the other transactions contemplated by this Agreement, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or the
Company or any of their subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement and (iii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement, the Merger and the other transactions contemplated by
this Agreement required under (A) the Exchange Act and the Securities Act and
the rules and regulations thereunder and any other applicable federal or state
securities laws, (B) the HSR Act (if necessary) and (C) any other applicable
Law. The parties hereto shall cooperate with each other in connection with the
making of all such filings, including by providing copies of all such documents
to the nonfiling party and its advisors prior to filing and, if requested, by
accepting all reasonable additions, deletions or changes suggested in connection
therewith.
(b) Parent and the Company shall file as soon as practicable
after the date of this Agreement notifications under the HSR Act (if necessary)
or any other filing required by antitrust authorities and shall respond as
promptly as practicable to all inquiries or requests received from the Federal
Trade Commission or the Antitrust Division of the Department of Justice for
additional information or documentation and shall respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other Governmental Entity in connection with antitrust matters. The
parties shall cooperate with each other in connection with the making of all
such filings or responses, including providing copies of all such documents to
the other party and its advisors prior to filing or responding and notifying the
other party of any communications or discussions with any government agency and
affording the other party the opportunity to participate in such communications
or discussions.
SECTION 6.07. PLAN OF REORGANIZATION. (a) This Agreement is
intended to constitute a "plan of reorganization" within the meaning of Section
1.368-2(g) of the income tax regulations promulgated under the Code. From and
after the date of this Agreement and until the Effective Time, each party hereto
shall use its reasonable best efforts to cause the Merger to qualify, and will
not knowingly take any action, cause any action to be taken, fail to
37
take any action or cause any action to fail to be taken which action or
failure to act could prevent the Merger from qualifying, as a reorganization
under the provisions of Section 368(a) of the Code. Following the Effective
Time, neither the Surviving Corporation, Parent nor any of their affiliates
shall knowingly take any action, cause any action to be taken, fail to take
any action or cause any action to fail to be taken, which action or failure
to act could cause the Merger to fail to qualify as a reorganization under
Section 368(a) of the Code.
(b) As of the date hereof, the Company does not know of any
reason (i) why it would not be able to deliver to ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ or
▇▇▇▇▇▇▇▇ & Sterling, at the date of the legal opinions referred to below,
certificates substantially in compliance with IRS published advance ruling
guidelines, with customary exceptions and modifications thereto, to enable such
firms to deliver the legal opinions contemplated by Sections 7.02(d) and
7.03(c), and the Company hereby agrees to deliver such certificates effective as
of the date of such opinions or (ii) why ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇▇ &
Sterling would not be able to deliver the opinions required by Sections 7.02(d)
and 7.03(c).
(c) As of the date hereof, Parent does not know of any reason
(i) why it would not be able to deliver to ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇▇ &
Sterling, at the date of the legal opinions referred to below, certificates
substantially in compliance with IRS published advance ruling guidelines, with
customary exceptions and modifications thereto, to enable such firms to deliver
the legal opinions contemplated by Sections 7.02(d) and 7.03(c), and Parent
hereby agrees to deliver such certificates effective as of the date of such
opinions or (ii) why ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇▇ & Sterling would not be
able to deliver the opinions required by Sections 7.02(d) and 7.03(c).
SECTION 6.08. AFFILIATES. No later than two days after the
date of this Agreement, the Company shall deliver to Parent a list of names and
addresses of those persons who were, in the Company's reasonable judgment, on
such date, affiliates (within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act (each such person being an
"AFFILIATE")) of the Company. The Company shall provide Parent with such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall use its reasonable best efforts to
deliver or cause to be delivered to Parent, prior to the Effective Time, an
affiliate letter in the form attached hereto as Exhibit 6.08, executed by each
of the Affiliates of the Company identified in the foregoing list and any person
who shall, to the knowledge of the Company, have become an Affiliate of the
Company subsequent to the delivery of such list.
SECTION 6.09. PUBLIC ANNOUNCEMENTS. The initial press release
relating to this Agreement shall be a joint press release the text of which has
been agreed to by each of Parent and the Company. Thereafter, unless otherwise
required by applicable Law or, in the case of Parent, any stock exchange listing
agreement, neither the Company nor any of its officers shall issue any press
release or otherwise make any public statements with respect to this Agreement,
the Merger or any of the other transactions contemplated by this Agreement
without the prior written consent of Parent.
38
SECTION 6.10. DIRECTOR AND OFFICER LIABILITY. Parent shall and
shall cause the Surviving Corporation, and the Surviving Corporation hereby
agrees, to do the following:
(i) For six years after the Effective Time, Parent and the
Surviving Corporation shall indemnify and hold harmless the present and former
officers and directors of the Company (each an "INDEMNIFIED PERSON") in respect
of acts or omissions occurring at or prior to the Effective Time to the fullest
extent permitted by California Law or any other applicable laws or provided
under the Company's Articles of Incorporation and By-Laws in effect on the date
of this Agreement (if permitted under applicable laws).
(ii) For six years after the Effective Time, Parent and the
Surviving Corporation shall provide officers' and directors' liability insurance
in respect of acts or omissions occurring prior to the Effective Time covering
each such Indemnified Person currently covered by the Company's officers' and
directors' liability insurance policy on terms with respect to coverage and
amount no less favorable than those of such policy in effect on the date of this
Agreement, PROVIDED that, in satisfying its obligation under this Section
6.10(ii), the Surviving Corporation shall not be obligated to pay premiums in
excess of 150% of the amount per annum the Company paid in its last full fiscal
year, which amount Company has disclosed to Parent prior to the date of this
Agreement.
(iii) If Parent, the Surviving Corporation or any of its
successors or assigns (A) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (B) transfers or conveys all or substantially all of
its properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Parent or the Surviving Corporation, as the case may be, shall assume
the obligations set forth in this Section 6.10.
(iv) The rights of each Indemnified Person under this Section
6.10 shall be in addition to any rights such Indemnified Person may have under
the Articles of Incorporation or By-laws of the Company or any of the Company
Subsidiaries, or under California Law or any other applicable laws. These rights
shall survive consummation of the Merger and are intended to benefit, and shall
be enforceable by, each Indemnified Person.
SECTION 6.11. INTELLECTUAL PROPERTY TRANSFERS. The Company
shall use its commercially reasonable efforts to obtain licenses for certain
technology (i) previously identified by the Company to Parent as desirable to
the Company's business and (ii) currently owned by third parties, and the
Company shall cooperate with Parent in negotiating the terms of such licenses.
Further, the Company shall not enter into such license agreements without the
prior written consent of Parent.
SECTION 6.12. EXPENSES. The Company and the Shareholder
Representative acknowledge that any transaction expenses and fees incurred by
the shareholders of the Company or the Company in connection with the
transactions contemplated by this Agreement
39
shall be solely the obligations of the Individual Shareholders, which
expenses and fees shall be paid by them or reimbursed to the Company prior to
the Effective Time.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite affirmative vote of the shareholders of the Company in accordance with
California Law and the Company's Articles of Incorporation;
(b) no Governmental Entity or court of competent jurisdiction
located or having jurisdiction in the United States shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, judgment, decree,
executive order or award (an "ORDER") which is then in effect and has the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger;
(c) any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act, if any, shall have expired
or been terminated.
SECTION 7.02. CONDITIONS TO THE OBLIGATIONS OF PARENT AND
MERGER SUB. The obligations of Parent and Merger Sub to consummate the Merger
are subject to the satisfaction or waiver (where permissible) of the following
additional conditions:
(a) each of the representations and warranties of the Company
contained in this Agreement shall be true and correct as of the Effective Time
as though made on and as of the Effective Time except that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date, in each case except to the extent that the
failure to be true and correct would not reasonably be expected to have a
Company Material Adverse Effect, and Parent shall have received a certificate of
the Chief Executive Officer of the Company to such effect;
(b) the Company shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective Time and
Parent shall have received a certificate signed by the Chief Executive Officer
of the Company to the foregoing effect;
40
(c) Parent shall have received, each in form and substance
reasonably satisfactory to Parent, all authorizations, consents, orders and
approvals of all Governmental Entities and officials;
(d) Parent shall have received the opinion of Shearman &
Sterling, counsel to Parent, based upon representations of Parent, Merger Sub
and the Company and normal assumptions, to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying under the
provisions of Section 368(a) of the Code and that each of Parent, Merger Sub and
the Company will be a party to the reorganization within the meaning of Section
368(b) of the Code, which opinion shall not have been withdrawn or modified in
any material respect. The issuance of such opinion shall be conditioned on
receipt by Shearman & Sterling of representation letters from each of Parent and
the Company as contemplated in Section 6.07 of this Agreement. Each such
representation letter shall be dated on or before the date of such opinion and
shall not have been withdrawn or modified in any material respect as of the
Effective Time;
(e) Dissenting Shares shall comprise not more than 5% of the
Shares outstanding immediately prior to the Effective Time;
(f) no event or events shall have occurred, or be reasonably
likely to occur, which, individually or in the aggregate, have, or would have, a
Company Material Adverse Effect;
(g) each of the individuals listed on Exhibit 7.02(g)(i) shall
have executed an employment agreement concurrently with the execution and
delivery of this Agreement, and each such employment agreement shall be in full
force and effect at the Effective Time, and the individual listed on Exhibit
7.02(g)(ii) shall have executed a consulting continuation and protective
covenant agreement concurrently with the execution and delivery of this
Agreement, and such protective covenant agreement shall be in full force and
effect at the Effective Time;
(h) there shall not be pending or threatened any suit, action,
investigation or proceeding by a Governmental Entity (i) seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement or seeking to obtain from Parent or the Company
any damages that are material or (ii) seeking to prohibit or limit the ownership
or operation by Parent or the Company of any material portion of their
respective businesses or assets;
(i) Parent shall have received the opinion of ▇▇▇▇▇ ▇▇▇▇ &
▇▇▇▇▇▇▇▇ or another counsel reasonably acceptable to Parent substantially in the
form attached hereto as Exhibit 7.02(i);
(j) all holders of Company Preferred Stock shall have
converted such stock into shares of Company Common Stock; and
41
(k) the Company shall have properly amended its Articles of
Incorporation to authorize a total of 5,002,000 shares of Company Preferred
Stock, and holders of Company Preferred Stock shall have waived all claims
relating to the Company's issuance of such stock in contravention of its
Articles of Incorporation.
SECTION 7.03. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) each of the representations and warranties of Parent and
Merger Sub contained in this Agreement shall be true and correct as of the
Effective Time, as though made on and as of the Effective Time except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, in each case except to the
extent that the failure to be true and correct would not reasonably be expected
to have a Parent Material Adverse Effect and the Company shall have received a
certificate of a duly authorized officer of Parent to such effect;
(b) Parent and Merger Sub shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Effective
Time, and the Company shall have received a certificate signed by a duly
authorized officer of Parent to the foregoing effect;
(c) the Company shall have received the opinion of ▇▇▇▇▇ ▇▇▇▇
& ▇▇▇▇▇▇▇▇, counsel to the Company, based upon representations of Parent, Merger
Sub and the Company, and normal assumptions, to the effect that the Merger will
be treated for federal income tax purposes as a reorganization qualifying under
the provisions of Section 368(a) of the Code and that each of Parent, Merger Sub
and the Company will be a party to the reorganization within the meaning of
Section 368(b) of the Code, which opinion shall not have been withdrawn or
modified in any material respect. The issuance of such opinion shall be
conditioned on receipt by ▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇ of representation letters from
each of Parent and the Company as contemplated in Section 6.07 of this
Agreement. Each such representation letter shall be dated on or before the date
of such opinion and shall not have been withdrawn or modified in any material
respect as of the Effective Time; and
(d) no event or events shall have occurred, or be reasonably
likely to occur, which, individually or in the aggregate, have, or would have a
Parent Material Adverse Effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated
and the Merger and the other transactions contemplated by this Agreement may be
abandoned at any
time prior to the Effective Time, notwithstanding any requisite approval and
adoption of this Agreement and the transactions contemplated by this
Agreement, as follows:
(a) by mutual written consent duly authorized by the Boards of
Directors of each of Parent and the Company;
(b) by either Parent or the Company if the Effective Time
shall not have occurred on or before March 31, 2000; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before March 31, 2000;
(c) there shall be any Order which is final and nonappealable
preventing the consummation of the Merger;
(d) by Parent upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 7.02(a) and
Section 7.02(b) would not be satisfied ("TERMINATING COMPANY BREACH"); PROVIDED,
HOWEVER, that, if such Terminating Company Breach is curable by the Company
through the exercise of its best efforts and for so long as the Company
continues to exercise such best efforts, Parent may not terminate this Agreement
under this Section 8.01(d); or
(e) by the Company upon a breach of any material
representation, warranty, covenant or agreement on the part of Parent and Merger
Sub set forth in this Agreement, or if any representation or warranty of Parent
and Merger Sub shall have become untrue, in either case such that the conditions
set forth in Section 7.03(a) and Section 7.03(b) would not be satisfied
("TERMINATING PARENT BREACH"); PROVIDED, HOWEVER, that, if such Terminating
Parent Breach is curable by Parent and Merger Sub through the exercise of their
respective best efforts and for so long as Parent and Merger Sub continue to
exercise such best efforts, the Company may not terminate this Agreement under
this Section 8.01(e).
SECTION 8.02. EFFECT OF TERMINATION. Except as provided in
Section 9.01, in the event of termination of this Agreement pursuant to Section
8.01, this Agreement shall forthwith become void, there shall be no liability
under this Agreement on the part of Parent, Merger Sub or the Company or any of
their respective officers or directors, and all rights and obligations of each
party hereto shall cease, PROVIDED, HOWEVER, that nothing herein shall relieve
any party from liability for the wilful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 8.03. AMENDMENT. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior
43
to the Effective Time. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.04. WAIVER. At any time prior to the Effective Time,
any party hereto may (a) extend the time for the performance of any obligation
or other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION. (a) The representations and warranties contained in this
Agreement, and all statements contained in this Agreement, the Exhibits to this
Agreement, the Disclosure Schedules and any certificate, financial statement or
report or other document delivered pursuant to this Agreement or in connection
with the transactions contemplated by this Agreement (collectively, the
"ACQUISITION DOCUMENTS"), shall survive the Effective Time until the first
anniversary of the Effective Time provided that the representations and
warranties contained in Sections 3.01, 3.03, 3.04, 3.14 and 3.21 shall survive
the applicable statute of limitations. Neither the period of survival nor the
liability of a party hereto with respect to such party's representations and
warranties shall be reduced by any investigation made at any time by or on
behalf of another party hereto. If written notice of a claim has been given
prior to the expiration of the applicable representations and warranties by a
party hereto to another party hereto (which notice shall indicate with
reasonable specificity the amount and nature of the claim and the representation
on which it is based), then the relevant representations and warranties shall
survive as to such claim until such claim has been finally resolved.
(b) After the Effective Time, Parent and its affiliates
(including, after the Effective Time, the Surviving Corporation), officers,
directors, employees, agents, successors and assigns (collectively, the "PARENT
INDEMNIFIED PARTIES") shall be indemnified and held harmless by the Individual
Shareholders for any and all Liabilities, losses, damages, claims, costs and
expenses, interest, awards, judgments and penalties (including, without
limitation, reasonable attorneys' and consultants' fees and expenses) actually
suffered or incurred by them (including, without limitation, in connection with
any action brought or otherwise initiated by any of them) (hereinafter, a
"LOSS"), arising out of or resulting from (i) the breach of any representation,
warranty or covenant (without giving effect to any qualification as to
materiality contained therein in determining the amount of any Loss) made by the
Company in the Acquisition Documents or (ii) Losses from breach of contract or
other claims made by any party alleging to have had contractual or other rights
relating to the Company's capital stock or
44
assets. The aggregate amount of Losses for which the Parent Indemnified
Parties may receive indemnification pursuant to this Agreement shall not
exceed the amount of the Escrow Fund.
(c) After the Effective Time, the Individual Shareholders and
their respective affiliates, officers, directors, employees, agents, successors
and assigns (collectively, the "SHAREHOLDER INDEMNIFIED Parties") shall be
indemnified and held harmless by Parent for any and all Losses, arising out of
or resulting from the breach of any representation, warranty or covenant
(without giving effect to any qualification as to materiality contained therein
in determining the amount of any Loss) made by Parent in the Acquisition
Documents. The aggregate amount of Losses for which the Shareholder Indemnified
Parties may receive indemnification pursuant to this Agreement shall not exceed
$40 million.
(d) Any Parent Indemnified Party or Shareholder Indemnified
Party (collectively, the "INDEMNIFIED PARTIES") seeking indemnification from
another party hereto (the "INDEMNIFYING PARTY") under this Section 9.01 shall
give (i) the Escrow Agent and the Shareholder Representative, in the case of an
indemnification claim against the Individual Shareholders or (ii) the
Indemnifying Party, in the case of an indemnification claim against Parent,
notice of any matter which such Indemnified Party has determined has given rise
to a right of indemnification under this Agreement, prior to the expiration of
the applicable representations and warranties as set forth in this Section 9.01,
stating the amount of the Loss, if known, and method of computation thereof, and
containing a reference to the specific provisions of this Agreement in respect
of which such right of indemnification is claimed or arises. The obligations and
liabilities of an Indemnifying Party under this Section 9.01 with respect to
Losses arising from claims of any third party which are subject to the
indemnification provided for in this Section 9.01 ("THIRD PARTY CLAIMS") shall
be governed by and contingent upon the following additional terms and
conditions: if an Indemnified Party shall receive notice of any Third Party
Claim, the Indemnified Party shall give the Escrow Agent and the Indemnifying
Party notice of such Third Party Claim within 60 days of the receipt by the
Indemnified Party of such notice; PROVIDED, HOWEVER, that the failure to provide
such notice shall not relieve any Indemnifying Party from any of its obligations
under this Section 9.01, except and to the extent such Indemnifying Party is
materially prejudiced by such failure. If the Indemnifying Party acknowledges in
writing the right of the Indemnified Party to be indemnified against any Losses
that may result from such Third Party Claim, then the Indemnifying Party shall
be entitled to assume and control the defense of such Third Party Claim through
counsel of its choice if it gives notice of its intention to do so to the
Indemnified Party within five business days of the receipt of such notice from
the Indemnified Party; PROVIDED, HOWEVER, that if there exists or is reasonably
likely to exist a conflict of interest that would make it inappropriate in the
judgment of the Indemnified Party for the same counsel to represent both the
Indemnified Party and the Indemnifying Party, then the Indemnified Party shall
be entitled to retain its own counsel. If in the event the Indemnifying Party
exercises the right to undertake any such defense against any such Third Party
Claim as provided above, the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the Indemnifying Party,
all witnesses, pertinent records, materials and information in the Indemnified
Party's possession or under the Indemnified Party's control relating thereto
45
as is reasonably required by the Indemnifying Party. No such Third Party
Claim may be settled by the Indemnifying Party or the Indemnified Party
without the prior written consent of the other party. All fees, expenses and
Losses of the Indemnified Party or the Indemnifying Party in connection with
any matter for which indemnity may be sought (including any matter arising
under Section 9.01(b)(ii)) shall be reimbursed from the Escrow Account, it
being understood that the Shareholder Representative shall be the only person
authorized to approve the incurrence of any reimbursable fees and expenses on
behalf of shareholders.
(e) If, in the event that (a) the Shareholder Representative
shall not have objected to the amount claimed by the Parent Indemnified Party
for indemnification from the Escrow Fund with respect to any Loss in accordance
with the procedures set forth herein and in the Escrow Agreement or (b) the
Shareholder Representative shall have delivered notice of its disagreement as to
the amount of any indemnification requested by the Parent Indemnified Party from
the Escrow Fund and either (i) the Shareholder Representative and the Parent
Indemnified Party shall have, subsequent to the giving of such notice, mutually
agreed that the Parent Indemnified Party is entitled to indemnification from the
Escrow Fund for a specified amount and shall have so jointly notified the Escrow
Agent or (ii) a final judgment shall have been rendered by the court having
jurisdiction over the matters relating to such claim by the Parent Indemnified
Party for indemnification from the Escrow Fund and the Escrow Agent shall have
received, in the case of clause (i) above, written instructions from the
Shareholder Representative and the Parent Indemnified Party or, in the case of
clause (ii) above, a copy of the final judgment of the court, the Escrow Agent
shall deliver to the Parent Indemnified Party from the Escrow Fund shares of
Parent Common Stock (valuing such shares based upon the average closing price
for shares of Parent Common Stock on the Nasdaq for the five consecutive trading
days immediately preceding the date of a determination (or an acknowledgment, as
the case may be) as to the amount of any claim for indemnification hereunder) in
respect of any amount determined to be owed to the Parent Indemnified Party
under this Section 9.01 in accordance with the Escrow Agreement.
(f) In all matters relating to this Section 9.01, the
Shareholder Representative shall be the only party entitled to assert the rights
of the Individual Shareholders, and the Shareholder Representative shall perform
all of the obligations of the Individual Shareholders hereunder. Parent shall be
entitled to rely on all statements, representations and decisions of the
Shareholder Representative.
(g) Notwithstanding anything else in this Agreement, the
Indemnified Parties shall not be entitled to recover under this Section 9.01
with respect to any breach of representations, warranties or covenants, unless
(i) the amount of Loss arising out of such individual breach of representations,
warranties and covenants exceeds $20,000 and (ii) the aggregate amount of Loss
arising out of all such breaches of representations, warranties and covenants
exceeds $2,000,000, and then the Indemnified Parties shall be entitled to
recover all such Losses (starting from the first dollar); PROVIDED, HOWEVER,
that the limitations set forth in clauses (i) and (ii) above shall not be
operative with respect to Losses arising from breaches of the representations
and warranties set forth in Sections 3.01, 3.03, 3.04, 3.14 and 3.21 or with
46
respect to Losses from breach of contract or other claims made by any party
alleging to have had contractual or other rights relating to the Company's
capital stock or assets.
(h) The indemnification provided by this Section 9.01 shall be
the sole and exclusive post-Closing remedy available to the parties hereto for
any breach of any representation or warranty contained herein, except with
respect to any such breaches arising out of fraud, or the wilful or reckless
breach of covenants by a party hereto and except with respect to the
representations and warranties set forth in Sections 3.01, 3.03, 3.04, 3.14 and
3.21 (it being understood that breach of those Sections shall remain subject to
the limitation on indemnification set forth in Section 9.01(b)).
SECTION 9.02. NOTICES. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person, by
cable, telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.02):
if to Parent or Merger Sub:
Ariba, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to:
Shearman & Sterling
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
if to the Company:
TradingDynamics, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
with a copy to:
▇▇
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
SECTION 9.03. CERTAIN DEFINITIONS. For purposes of this
Agreement, the term:
(a) "AFFILIATE" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such specified person;
(b) "BENEFICIAL OWNER" with respect to any shares means a
person who shall be deemed to be the beneficial owner of such shares (i) which
such person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates or person with whom such person or
any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
Shares;
(c) "BUSINESS DAY" means any day on which banks are not
required or authorized to close in Seattle, Washington or Chicago, Illinois;
(d) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;
(e) "KNOWLEDGE" of the Company means the actual knowledge of
the individuals listed in Section 9.03(e) of the Company Disclosure Schedule.
(f) "PERSON" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"PERSON" as defined in section 13(d)(3) of the Exchange Act), trust, association
or entity or government, political subdivision, agency or instrumentality of a
government; and
48
(g) "SUBSIDIARY" or "SUBSIDIARIES" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary) owns,
directly or indirectly, more than 50% of the stock or other equity interests,
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other legal
entity.
SECTION 9.04. SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
Law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated by this Agreement is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions
contemplated by this Agreement be consummated as originally contemplated to the
fullest extent possible.
SECTION 9.05. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 9.06. INCORPORATION OF EXHIBITS. The Company
Disclosure Schedule, the Parent Disclosure Schedule and all Exhibits attached
hereto and referred to herein are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
SECTION 9.07. SPECIFIC PERFORMANCE. The parties hereto agree
that irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 9.08. GOVERNING LAW; FORUM. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California applicable to contracts executed in and to be performed in that state
and without regard to any applicable conflicts of law. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in the federal court for the Northern District of California. Each of
the parties to this Agreement (a) consents to submit itself to the personal
jurisdiction of the federal court for the Northern District of California in the
event any dispute arises out of this Agreement or
49
any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (c) agrees that it will not
bring any action in relation to this Agreement, the Merger or any of the
other transactions contemplated by this Agreement in any court other than the
federal court of the Northern District of California.
SECTION 9.09. HEADINGS. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 9.10. COUNTERPARTS. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.11. ENTIRE AGREEMENT. This Agreement (including the
Exhibits, the Company Disclosure Schedule and the Parent Disclosure Schedule)
and the Confidentiality Agreement constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
ARIBA, INC.
By ___________________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
BLUE MERGER CORP.
By ___________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
TRADINGDYNAMICS, INC.
By ___________________________________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
SHAREHOLDER REPRESENTATIVE
The undersigned agrees to act as, to be bound
by the obligations of, and to perform the
duties of, the Shareholder Representative
By ___________________________________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇