EXECUTION COPY
Exhibit 2.4
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
RAVISENT TECHNOLOGIES INC.,
RVST ACQUISITION CORP.,
TEKNEMA, INC.
AND
CERTAIN SECURITYHOLDERS OF TARGET
October 8, 1999
TABLE OF CONTENTS
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ARTICLE I THE MERGER.................................................................. 2
1.1 The Merger................................................................. 2
1.2 Closing; Effective Time.................................................... 2
1.3 Effect of the Merger....................................................... 2
1.4 Certificate of Incorporation; Bylaws....................................... 2
1.5 Directors and Officers..................................................... 3
1.6 Merger Consideration....................................................... 3
1.7 Surrender of Certificates.................................................. 6
1.8 No Further Ownership Rights in Target Capital Stock........................ 7
1.9 Lost, Stolen or Destroyed Certificates..................................... 7
1.10 Tax Consequences........................................................... 7
1.11 Exemption from Registration................................................ 8
1.12 Taking of Necessary Action; Further Action................................. 8
1.13 Calculation of Cash Adjustments............................................ 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET AND CERTAIN
SHAREHOLDERS OF TARGET................................................. 9
2.1 Organization, Standing and Power........................................... 9
2.2 Capital Structure.......................................................... 9
2.3 Authority.................................................................. 10
2.4 Financial Statements....................................................... 11
2.5 Absence of Certain Changes................................................. 11
2.6 Absence of Undisclosed Liabilities......................................... 11
2.7 Litigation................................................................. 11
2.8 Restrictions on Business Activities........................................ 12
2.9 Governmental Authorization................................................. 12
2.10 Title to Property.......................................................... 12
2.11 Intellectual Property...................................................... 12
2.12 Environmental Matters...................................................... 14
2.13 Taxes...................................................................... 16
2.14 Employee Benefit Plans..................................................... 18
2.15 Certain Agreements Affected by the Merger.................................. 21
2.16 Employee Matters........................................................... 21
2.17 Interested Party Transactions.............................................. 21
2.18 Insurance.................................................................. 22
2.19 Compliance With Laws....................................................... 22
2.20 Minute Books............................................................... 22
2.21 Complete Copies of Materials............................................... 22
2.22 Voting Agreement; Irrevocable Proxies...................................... 22
2.23 Vote Required.............................................................. 22
2.24 Board Approval............................................................. 22
2.25 Affiliates................................................................. 22
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2.26 Accounts Receivable........................................................ 23
2.27 Customers and Suppliers.................................................... 23
2.28 Material Contracts......................................................... 23
2.29 No Breach of Material Contracts............................................ 24
2.30 Export Control Laws........................................................ 24
2.31 Projections and Product Releases........................................... 24
2.32 Brokers; Expenses.......................................................... 25
2.33 Representations Complete................................................... 25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND
MERGER SUB............................................................. 25
3.1 Organization, Standing and Power........................................... 25
3.2 Capital Structure of Acquiror.............................................. 25
3.3 Authority.................................................................. 26
3.4 SEC Filings; Financial Statements of Acquiror.............................. 26
3.5 Litigation................................................................. 27
3.6 Brokers.................................................................... 27
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME........................................ 27
4.1 Conduct of Business of Target and Acquiror................................. 27
4.2 Conduct of Business of Target.............................................. 28
4.3 No Solicitation............................................................ 30
ARTICLE V ADDITIONAL AGREEMENTS....................................................... 31
5.1 Preparation of Information Statement....................................... 31
5.2 Meeting of Shareholders; Written Consent................................... 31
5.3 Access to Information...................................................... 32
5.4 Confidentiality............................................................ 32
5.5 Public Disclosure.......................................................... 32
5.6 Consents; Cooperation...................................................... 32
5.7 Shareholder Representation Agreement....................................... 32
5.8 Voting Agreement/Irrevocable Proxies....................................... 33
5.9 Blue Sky Laws.............................................................. 33
5.10 Employee Benefit Plans..................................................... 33
5.11 Escrow Agreement........................................................... 33
5.12 Registration Rights........................................................ 33
5.13 Employees.................................................................. 34
5.14 Expenses................................................................... 36
5.15 Reasonable Efforts and Further Assurances.................................. 36
5.16 Tax Treatment.............................................................. 36
5.17 Certain Tax Matters........................................................ 36
5.18 Lock-Up Agreements......................................................... 37
ARTICLE VI CONDITIONS TO THE MERGER................................................... 37
6.1 Conditions to Obligations of Each Party to Consummate the Merger........... 37
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6.2 Additional Conditions to Obligations of Target............................. 38
6.3 Additional Conditions to Obligations of Acquiror and Merger Sub............ 39
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER......................................... 41
7.1 Termination................................................................ 41
7.2 Effect of Termination...................................................... 42
7.3 Expenses and Termination Fees.............................................. 42
ARTICLE VIII ESCROW AND INDEMNIFICATION............................................... 42
8.1 Escrow Fund................................................................ 42
8.2 Indemnification............................................................ 42
8.3 Escrow Period.............................................................. 44
8.4 Claims upon Escrow Fund.................................................... 45
8.5 Shareholders' Agent........................................................ 46
8.6 Actions of the Shareholders' Agent......................................... 47
8.7 Third-Party Claims......................................................... 47
ARTICLE IX GENERAL PROVISIONS......................................................... 48
9.1 Non-Survival at Effective Time............................................. 48
9.2 Notices.................................................................... 48
9.3 Certain Definitions; Interpretation........................................ 50
9.4 Counterparts............................................................... 50
9.5 Entire Agreement; Parties in Interest; Nonassignability.................... 50
9.6 Severability............................................................... 51
9.7 Remedies Cumulative........................................................ 51
9.8 Governing Law; Forum....................................................... 51
9.9 Rules of Construction...................................................... 51
9.10 Extension; Waiver.......................................................... 51
9.11 No Third-Party Beneficiary................................................. 51
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EXHIBITS
Exhibit A-1 - Delaware Certificate of Merger
Exhibit A-2 - California Agreement of Merger
Exhibit B - Calculation of Exchange Ratios and Cash Consideration
Exhibit C - Target Shareholder List
Exhibit D - Voting Agreement, including form of Irrevocable Proxy
Exhibit E - Shareholder Representation Agreement and Release
Exhibit F - Lock Up Agreement
Exhibit G - Escrow Agreement
Exhibit H - Continuation and Noncompetition Agreements
Exhibit I - Form of Acquiror's Legal Opinion
Exhibit J - Form of Target's Legal Opinion
Exhibit K - FIRPTA Notice
Exhibit L - Form of Option Holder Assumption Agreement, Waiver and
Release
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
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and entered into as of October 8, 1999, by and among RAVISENT Technologies Inc.,
a Delaware corporation ("Acquiror"), RVST Acquisition Corp., a Delaware
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corporation and wholly-owned subsidiary of Acquiror ("Merger Sub"), Teknema,
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Inc., a California corporation ("Target"), ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
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Kassimidis, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ (each a "Principal" and collectively,
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the "Principals").
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RECITALS
A. The Boards of Directors of Target, Merger Sub and Acquiror believe
it is in the best interests of their respective corporations and the
shareholders of their respective corporations that Target and Acquiror combine
into a single corporation through the statutory merger of Target with and into
Merger Sub (the "Merger") and, in furtherance thereof, have approved the Merger.
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B. Pursuant to the Merger, among other things, the outstanding shares
of capital stock of Target ("Target Capital Stock") shall be converted into the
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right to receive shares of common stock of Acquiror, $.001 par value per share
("Acquiror Common Stock"), on the terms and subject to the conditions set forth
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herein.
C. Target, the Principals, Merger Sub and Acquiror desire to make
certain representations and warranties and other agreements in connection with
the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), and to cause the Merger
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to qualify as a reorganization under the provisions of Sections 368(a) of the
Internal Revenue Code.
E. Concurrent with the execution of this Agreement and as an
inducement to Acquiror to enter into this Agreement, each of the directors,
officers and affiliates of Target have on the date hereof entered into (i) a
voting agreement and irrevocable proxy in the form of Exhibit D hereto to vote
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the shares of Target Capital Stock owned by such persons to approve the Merger
and against any competing proposals (the "Voting Agreement") and (ii) an
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indemnification and escrow agreement in the form of Exhibit G hereto (the
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"Escrow Agreement").
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NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions set forth in this Agreement and the
applicable provisions of the California Corporations Code ("California Law") and
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the Delaware General Corporation Law ("Delaware Law"), Target shall be merged
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with and into Merger Sub, the separate corporate existence of Target shall cease
and Merger Sub shall continue as the surviving corporation and as a wholly-owned
subsidiary of Acquiror. Merger Sub as the surviving corporation after the Merger
is hereinafter sometimes referred to as the "Surviving Corporation."
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1.2 Closing; Effective Time. The closing of the Merger (the "Closing")
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shall take place as soon as practicable after the satisfaction or waiver of each
of the conditions set forth in Article VI or at such other time as the parties
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hereto agree (the "Closing Date"). The Closing shall take place at the offices
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of ▇▇▇▇▇▇▇, Phleger & ▇▇▇▇▇▇▇▇ LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, California, or at such other location as the parties hereto agree. At the
Closing: (i) Acquiror shall deliver to State Street Bank and Trust Co. of
California, N.A. (or another financial institution designated by Acquiror and
reasonably acceptable to Target), acting as exchange agent in connection with
the Merger (the "Exchange Agent"), the shares of Acquiror Common Stock issuable
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and the cash payable pursuant to Section 1.6 in exchange for shares of Target
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Capital Stock outstanding immediately prior to the Effective Time less the
number of shares of Acquiror Common Stock and cash to be deposited into an
escrow fund pursuant to the requirements of Article VIII and the Escrow
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Agreement annexed as Exhibit G; and (ii) simultaneously therewith, the parties
hereto shall cause the Merger to be consummated by filing a Certificate of
Merger in the form annexed hereto as Exhibit A-1 (the "Delaware Certificate of
Merger") with the Secretary of State of the State of Delaware in accordance with
the relevant provisions of Delaware Law, and an Agreement of Merger in the form
annexed hereto as Exhibit A-2 (the "California Agreement of Merger"), together
with the required officers' certificates, with the Secretary of State of the
State of California, in accordance with the relevant provisions of California
Law (the time of filing of the Delaware Certificate of Merger being the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in this Agreement, the Delaware Certificate of Merger, the
California Agreement of Merger and the applicable provisions of Delaware Law and
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 Target and Merger Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Target and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation, and the Surviving
Corporation shall be a wholly-owned subsidiary of Acquiror.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the
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Surviving Corporation until thereafter amended as provided by Delaware Law and
such Certificate of Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by Delaware Law, the Certificate of Incorporation
and such Bylaws.
1.5 Directors and Officers. From and after the Effective Time, the
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation and the officers of Merger Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
1.6 Merger Consideration.
(a) Conversion of Target Capital Stock; Payment of Cash. The
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consideration to be paid by Acquiror in connection with the Merger and the
assumption of Target stock options pursuant to this Agreement shall consist of
(and shall not exceed): (i) eight hundred three thousand seven hundred fifty-one
(803,751) shares of Acquiror Common Stock (the "Total Stock Consideration"), and
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(ii) cash in the amount of two million five hundred thousand dollars
($2,500,000) less the net amount of adjustments (the "Cash Adjustments")
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calculated in accordance with Exhibit B (the "Total Cash Consideration"). The
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Total Stock Consideration and the Total Cash Consideration are collectively
referred to as the "Total Merger Consideration". The maximum number of shares of
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Acquiror Common Stock to be issued (or reserved for issuance) in connection with
the Merger to holders of Target Capital Stock and to holders of options and
other securities exercisable for or convertible into Target Capital Stock
("Target Options") assumed by Acquiror shall be equal to eight hundred three
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thousand seven hundred fifty-one (803,751) and shall be reduced by the number of
shares of Acquiror Common Stock otherwise issuable in respect of Dissenting
Shares, as defined below (as so reduced, the "Maximum Share Number"). No
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adjustment shall be made in the Total Cash Consideration, the Total Stock
Consideration or the Maximum Share Number as a result of any cash proceeds
received by Target from the date hereof to the Closing Date pursuant to the
exercise of currently outstanding Target Options.
(b) Exchange Ratios. At the Effective Time, on the terms and subject
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to the conditions of this Agreement (including the limitation set forth in
Section 1.6(a)), by virtue of the Merger and without any action on the part of
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the holder of any shares of Target Capital Stock or Target Options, each share
of Target Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares to be cancelled pursuant to Section 1.6(c) and shares,
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if any, held by persons who have not voted such shares for approval of the
Merger and with respect to which such persons shall become entitled to exercise
dissenters' rights in accordance with California Law or Delaware Law
("Dissenting Shares")) shall be converted into the right to receive a fraction
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of a share of Acquiror Common Stock equal to the Common Exchange Ratio and a
cash payment equal to the Common Cash Amount, determined in each case in
accordance with Exhibit B hereto.
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(c) Cancellation of Target Capital Stock Owned by Target. At the
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Effective Time, all shares of Target Capital Stock that are owned by Target
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof and without payment of any consideration
therefor.
(d) Target Stock Option Plans. At the Effective Time, the Target 1997
-------------------------
Stock Option Plan (the "Target Stock Option Plan") and all Target Options which
------------------------
are held by holders who have delivered the Waivers contemplated by Section 5.10
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and are outstanding as of the Effective Time (including such Target Options then
outstanding under the Target Stock Option Plan) shall be assumed by Acquiror
(each such Target Option an "Assumed Option" and collectively the "Assumed
--------------
Options"). Each Assumed Option shall continue to have, and be subject to, the
same terms and conditions set forth in the Target Stock Option Plan (if
applicable) and the applicable stock option agreement (on the applicable notice
of grant or granting resolutions, as the case may be) as in effect immediately
prior to the Effective Time, except that (i) each Assumed Option will be
exercisable for that number of whole shares of Acquiror Common Stock equal to
the product of the number of shares of Target Common Stock that were issuable
upon exercise of such Assumed Option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio (determined in accordance with Exhibit B
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hereto) and rounded down to the nearest whole number of shares of Acquiror
Common Stock; (ii) the per share exercise price for the shares of Acquiror
Common Stock issuable upon exercise of each Assumed Option will be equal to the
quotient obtained by dividing the exercise price per share of Target Common
Stock at which such Assumed Option was exercisable immediately prior to the
Effective Time by the Option Exchange Ratio (determined in accordance with
Exhibit B hereto), rounded up to the nearest whole cent; and (iii) ten percent
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(10%) of such Assumed Options shall be delivered to the Escrow Agent and shall
be held as part of the Escrow Fund in accordance with Article VIII and the
Escrow Agreement. Immediately prior to the Effective Time (x) each Assumed
Option (other than Assumed Options held by the Principals) shall be credited for
an additional nine months of vesting, effective as of the Effective Time; and
(y) the vesting schedule applicable to the Principal's Assumed Options which are
unvested immediately prior to the Effective Time shall be modified so that (A)
seventy-five percent (75%) of such unvested Assumed Options held by the
Principals shall become vested, and the right of repurchase with respect to
seventy-five percent (75%) of such unvested Assumed Options held by the
Principals shall lapse, and (B) twenty five percent (25%) of such Assumed
Options held by the Principals shall not be exercisable or vest, and the right
of repurchase applicable to twenty-five percent (25%) of such Assumed Options
held by the Principals shall not lapse, either in whole or in part, until the
third anniversary of the Effective Time. It is the intention of the parties that
the Assumed Options qualify, to the maximum extent applicable, following the
Effective Time, as incentive stock options as defined in Section 422 of the
Internal Revenue Code to the extent such options qualified as incentive stock
options prior to the Effective Time, it being understood and acknowledged that
some or all Target Options may not qualify as incentive stock options and may
instead be treated as nonqualifying options. To evidence the assumption of the
Assumed Options by Acquiror, Acquiror will issue to each holder of an Assumed
Option a document in substantially the form of Exhibit L hereto.
(e) Assignment of Repurchase. All outstanding rights of Target
------------------------
which it may hold immediately prior to the Effective Time to repurchase unvested
shares of Target Common Stock (and the shares of Acquiror Common Stock into
which such shares are converted pursuant
4
to this Section 1.6) (the "Repurchase Options") shall be and hereby are,
----------- ------------------
effective as of the Effective Time, assigned to Acquiror in the Merger and shall
thereafter be exercisable by Acquiror upon the same terms and conditions in
effect immediately prior to the Effective Time, except that the number of shares
purchasable pursuant to the Repurchase Options and the purchase price per share
shall be adjusted to reflect the Option Exchange Ratio.
(f) Adjustments to Exchange Ratios. The Common Exchange Ratio
------------------------------
and the Option Exchange Ratio shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Acquiror Common Stock or Target
Capital Stock), reorganization, recapitalization or other like change with
respect to Acquiror Common Stock or Target Capital Stock occurring after the
date hereof and prior to the Effective Time.
(g) Conversion of Merger Sub Capital Stock. Each share of common
--------------------------------------
stock of Merger Sub issued and outstanding immediately prior to the Effective
Time shall remain outstanding and shall represent one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation.
(h) Dissenters' Rights. Any Dissenting Shares shall not be
------------------
converted into Acquiror Common Stock but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to applicable law. Target agrees that, except
with the prior written consent of Acquiror, or as required under applicable law,
it will not voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares ("Dissenting
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Shareholder") who, pursuant to the
-----------
provisions of applicable law, becomes entitled to payment of the "fair market
value" for their shares of Target Capital Stock shall receive payment therefor
(but only after the value therefor shall have been agreed upon or finally
determined pursuant to such provisions). If, after the Effective Time, any
Dissenting Shares shall lose their status as Dissenting Shares, Acquiror shall
issue and deliver, upon surrender by such shareholder of certificate or
certificates representing shares of Target Capital Stock, the number of shares
of Acquiror Common Stock to which such shareholder would otherwise be entitled
under this Section 1.6 less the number of shares allocable to such shareholder
-----------
that have been deposited in the Escrow Fund (as defined below) in respect of
such shares of Acquiror Common Stock pursuant to Section 1.7(b) and Article
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VIII.
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(i) Postponement and Adjustment to Preserve Reorganization Status.
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Notwithstanding any other provision of Section 1.2 and this Section 1.6 to
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the contrary, if as a result of market changes after the date hereof the
value of the Total Stock Consideration, determined in accordance with
Section 368(a) of the Internal Revenue Code, would be less than sixty
percent (60%) of the Total Merger Consideration, the parties shall, subject
to the termination rights of the parties pursuant to Section 7.1(b),
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postpone the Closing to a date when the applicable value of the Total Stock
Consideration would exceed sixty percent (60%) of the applicable value of
the Total Merger Consideration, and if further postponement would not be
effective, the parties shall discuss in good faith the possibility of
effecting a mutually acceptable adjustment of the Total Stock Consideration
and the Total Cash Consideration so that the applicable value of the Total
Stock Consideration would exceed sixty percent (60%) of the applicable
value of the Total Merger Consideration.
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1.7 Surrender of Certificates.
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(a) Exchange Procedures. Upon surrender to the Exchange Agent of a
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certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Target Capital Stock (a "Target Certificate")
------------------
for cancellation, the holder of such Target Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Acquiror Common Stock and the amount of cash payable to such holder,
less the number of shares of Acquiror Common Stock and cash to be deposited in
the Escrow Fund on such holder's behalf pursuant to Article VIII, and the Target
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Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Target Certificate that, prior to the Effective Time,
represented shares of Target Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence only the right to receive that number of full shares of Acquiror
Common Stock issuable in exchange for such shares of Target Capital Stock and
that portion of the Total Cash Consideration payable in respect of such shares
of Target Capital Stock. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Article VIII, Acquiror
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shall cause to be distributed to the Escrow Agent (as defined in Article VIII)
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(i) ten percent (10%) of the Total Cash Consideration (the "Escrow Cash"), (ii)
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a certificate or certificates representing ten percent (10%) of the portion of
the Total Stock Consideration issuable to Target shareholders pursuant to
Section 1.6(b) (the "Escrow Shares"), and (iii) and instruments evidencing ten
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percent (10%) of each Target option holder's Assumed Options (the "Escrow
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Options"), all of which shall be registered in the name of the Escrow Agent as
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nominee for the Target shareholders and option holders otherwise entitled to
such shares and options. The shares distributed to the Escrow Agent shall, to
the extent practicable, be shares that are not subject to any repurchase rights
by Target or Acquiror and the Assumed Options delivered to the Escrow Agent
shall, to the extent practicable, be options which are vested and are not
incentive stock options. The shares, options and cash distributed to the Escrow
Agent shall be beneficially owned by such holders and shall be held in escrow
and shall be available to compensate Acquiror for certain losses as provided in
Article VIII. To the extent not used to compensate Acquiror for such
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losses, such shares, options and cash shall be released to the holders, all as
provided in Article VIII. Where applicable, Acquiror and the Exchange
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Agent shall have the right to inscribe upon any certificate for shares of
Acquiror Common Stock issued in the Merger or upon exercise of any Assumed
Option (or upon transfer thereof) a legend in substantially the following form:
"THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
NUMBER OF MATERIAL RESTRICTIONS, INCLUDING RESTRICTIONS ON SALE, TRANSFER,
DISTRIBUTION, PLEDGE OR OTHER DISPOSAL AND RESTRICTIONS ON REGISTRATION,
PURSUANT TO AN AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF OCTOBER 8, 1999
AND CERTAIN RELATED AGREEMENTS REFERRED TO THEREIN. COPIES OF SUCH AGREEMENTS
MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF ACQUIROR."
(b) Distributions With Respect to Unexchanged Shares. No dividends
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or other distributions with respect to Acquiror Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered Target
Certificate with respect to the shares of Acquiror Common Stock represented
thereby until the holder of record of such Target Certificate shall surrender
such Target Certificate. Subject to applicable law, following
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surrender of any such Target Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Acquiror Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of any such dividends or other distributions with a record date after
the Effective Time theretofore payable (but for the first sentence of this
Section 1.7(b)) with respect to such shares of Acquiror Common Stock.
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(c) Transfers of Ownership. If any certificate for shares of Acquiror
----------------------
Common Stock is to be issued, or any cash is to be paid, in a name other than
that in which the Target Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the Target
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid to
Acquiror or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Acquiror Common Stock (or
the payment of cash) in any name other than that of the registered holder of the
Target Certificate surrendered, or established to the satisfaction of Acquiror
or any agent designated by it that such tax has been paid or is not payable.
(d) Dissenting Shares. The provisions of this Section 1.7 shall also
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apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquiror under this Section 1.7 shall commence on the date
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of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Acquiror Common
Stock and the portion of the Total Cash Consideration to which such holder
is entitled pursuant to Section 1.6.
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1.8 No Further Ownership Rights in Target Capital Stock. All shares of
Acquiror Common Stock issues upon the surrender for exchange of shares of Target
Capital Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Capital Stock which were outstanding
immediately prior to the Effective Time.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Target
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Target Certificates, upon
the making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock and cash as may be required pursuant to Section 1.6;
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provided, however, that Acquiror may, in its discretion and as a condition
precedent to the issuance and payment thereof, require the owner of such lost,
stolen or destroyed Target Certificates to deliver to Acquiror an affidavit of
loss, theft or destruction in form reasonably satisfactory to Acquiror and to
indemnify and hold harmless Acquiror from and against any claim that may be made
against Acquiror, the Surviving Corporation, Target or any of their directors,
officers, employees, affiliates or agents with respect to the Target
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code.
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1.11 Exemption from Registration. The shares of Acquiror Common Stock to be
issued in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
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Act").
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1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Acquiror with control over, and to vest
the Surviving Corporation with full right, title and possession to, all assets,
property, rights, privileges, powers and franchises of Target, the officers and
directors of Target, Acquiror and Merger Sub shall, in the name of their
respective corporations or otherwise, take all such lawful and necessary action
as may be requested by Acquiror.
1.13 Calculation of Cash Adjustments.
(a) Adjustments at the Closing. To facilitate the calculation of
--------------------------
the Cash Adjustments (if any) in accordance with Exhibit B hereto, Target shall
---------
prepare and deliver to Acquiror, not less than five (5) business days prior to
the Closing, an unaudited estimated balance sheet of Target immediately prior to
the Closing (the "Estimated Closing Balance Sheet"). The Estimated Closing
-------------------------------
Balance Sheet shall be prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") in a manner consistent with Target's accounting
----
policies used in the preparation of the Target Balance Sheet (as defined in
Section 2.6). At the Closing, the Cash Adjustments and the Total Cash
-----------
Consideration shall be estimated on the basis of the Estimated Closing Balance
Sheet.
(b) Post-Closing Adjustments. The Estimated Closing Balance Sheet
------------------------
shall become final and binding unless Acquiror gives written notice of its
disagreement (a "Notice of Disagreement") to the Shareholders' Agent designated
----------------------
pursuant to Article VIII within one hundred twenty (120) days following the
------------
Closing Date. The Notice of Disagreement shall specify in reasonable detail the
nature of any disagreement so asserted. The Shareholders Agent shall have twenty
(20) days following its receipt of the Notice of Disagreement to review the
Notice of Disagreement and to give notice of any disagreement therewith (the
"Counter-Notice of Disagreement") to Acquiror. If the Shareholders' Agent does
------------------------------
not give a Counter-Notice of Disagreement within such period, the Estimated
Closing Balance Sheet shall be adjusted as set forth in the Notice of
Disagreement and, as so adjusted, shall be final and binding upon all parties.
If the Shareholders' Agent gives timely Counter-Notice of Disagreement, Acquiror
and the Shareholders' Agent shall attempt in good faith to resolve their
disagreements. If Acquiror and the Shareholders' Agent are unable to resolve all
of their disagreements with respect to the Estimated Closing Balance Sheet
within twenty (20) days following delivery of a Counter-Notice of Disagreement,
Acquiror shall prepare an audited balance sheet of Target immediately prior to
the Closing (the "Audited Closing Balance Sheet"). The Audited Closing Balance
-----------------------------
Sheet shall be audited by KPMG (or another firm of independent public
accountants mutually acceptable to Acquiror and Target) and shall be prepared in
accordance with GAAP in a manner consistent with Target's accounting policies
used in the preparation of the Target Balance Sheet. Promptly following the
determination of the Audited Closing Balance Sheet, the Cash Adjustments shall
be adjusted to reflect any relevant differences between the Estimated Closing
Balance Sheet and the Audited Closing Balance Sheet, and any required payment
shall be made to Acquiror, by wire transfer of immediately available funds, not
later than five (5) Business Days following
8
such determination, together with interest from the Closing Date to the date of
such payment at a rate of ten percent (10%) per annum. At the election of
Acquiror in its sole discretion, any required payment by Target shareholders may
be recovered by Acquiror as a claim against the Escrow Fund. The fees and
disbursements of the audit shall be paid fifty percent (50%) by Acquiror and
fifty percent (50%) by Target shareholders out of the Escrow Fund.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF TARGET AND CERTAIN
SHAREHOLDERS OF TARGET
Except as disclosed in a document of even date herewith and delivered
by Target to Acquiror prior to the execution and delivery of this Agreement and
referring by numbered section (and, where applicable, by lettered subsection) of
the representations and warranties in this Agreement (the "Target Disclosure
-----------------
Schedule"), Target, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Kassimidis and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
--------
jointly and severally, represent and warrant to Acquiror as follows:
2.1 Organization, Standing and Power. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as proposed
to be conducted and is duly qualified to do business and is in good standing in
each jurisdiction where it is required by law to be so qualified. Target has
delivered a true, correct and complete copy of the Articles of Incorporation and
Bylaws or other charter documents, as applicable, of Target as amended to date,
to Acquiror. Target is not in violation of any of the provisions of its Articles
of Incorporation or Bylaws. Target does not own and never has owned directly or
indirectly any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity.
2.2 Capital Structure. The authorized capital stock of Target consists of
10,000,000 shares of Common Stock of which 4,045,875 shares were issued and
outstanding as of the close of business on September 30, 1999. The Shareholders
of Target are as set forth on Exhibit C. There are no other outstanding shares
---------
of capital stock or voting securities and no outstanding commitments to issue
any shares of capital stock or voting securities after September 30, 1999 other
than pursuant to the exercise of options outstanding as of such date under the
Target Stock Option Plan. All outstanding shares of Target Capital Stock are
duly authorized, validly issued, fully paid and non-assessable and are free of
any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Articles of Incorporation or
Bylaws of Target or any agreement to which Target is a party or by which it is
bound. Target has reserved 6,428,000 shares of Common Stock for issuance to
directors, employees and consultants, of which 5,053,000 shares are subject to
outstanding, unexercised options, and no shares are subject to outstanding stock
purchase rights. Except for (i) the rights created pursuant to this Agreement
and (ii) Target's right to repurchase any unvested shares under the Target Stock
Option Plan, there are no other options, warrants, calls, rights, commitments or
agreements of any character to
9
which Target is a party or by which it is bound obligating Target to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of capital stock of Target or obligating
Target to grant, extend, accelerate the vesting of, change the price of, or
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. Except for the agreements contemplated by this Agreement, there
are no contracts, commitments or agreements relating to voting, purchase or sale
of Target's capital stock (i) between or among Target and any of its
shareholders or option holders and (ii) to the Target's knowledge, between or
among any of Target's shareholders or option holders. The terms of the Target
Stock Option Plan and the applicable stock option agreements permit the
assumption or substitution of options or warrants, as applicable, to purchase
Acquiror Common Stock as provided in this Agreement, without the consent or
approval of the holders of such securities, the Target shareholders, or
otherwise. True and complete copies of all agreements and instruments relating
to or issued under the Target Stock Option Plan have been provided to Acquiror
and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form provided to Acquiror. All
outstanding shares of Common Stock were issued in compliance with all applicable
federal and state securities laws.
2.3 Authority. Target has all requisite corporate power and authority to
---------
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's shareholders as contemplated by Section 6.1(a). This
-------------
Agreement has been duly executed and delivered by Target and constitutes the
valid and binding obligation of Target enforceable against Target in accordance
with its terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, and is subject to general principles of equity. The execution
and delivery of this Agreement by Target do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the Articles of
Incorporation or Bylaws of Target as amended, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Target or any of its properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity") is required by or with
-------------------
respect to Target in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the California Agreement of Merger, together with the
required officers' certificates, as provided in Section 1.2; (ii) such consents,
-----------
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the securities laws
of any foreign country; (iii) such filings as may be required under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended ("HSR"); and
---
(iv) such other consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not have a Material Adverse Effect on
Target or materially impair the benefits expected by Acquiror from the Merger
and would not prevent, alter or delay any of the transactions contemplated by
this Agreement.
10
2.4 Financial Statements. Target has delivered to Acquiror its unaudited
financial statements for the year ended December 31, 1998, and its unaudited
financial statements (balance sheet, statement of operations and statement of
cash flows) as at, and for the six-month period ended June 30, 1999
(collectively, the "Financial Statements"). The Financial Statements have been
--------------------
prepared in accordance with U.S. generally accepted accounting principles
("GAAP") (except that the unaudited financial statements do not have notes
----
thereto) applied on a consistent basis throughout the periods indicated and with
each other. The Financial Statements were prepared from and in accordance with
the books and records maintained by Target and fairly present the financial
condition and operating results of Target as of the dates, and for the periods,
indicated therein, subject to normal year-end audit adjustments which will not
be material in nature or in amount. Target maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP.
2.5 Absence of Certain Changes. Since June 30, 1999 (the "Target Balance
--------------
Sheet Date"), Target has conducted its business in the ordinary course
----------
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect (as defined
in Section 9.3) on Target; (ii) any acquisition, sale or transfer of any
-----------
material asset of Target; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Target or any revaluation by Target of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Target, or any direct or indirect redemption, purchase or other
acquisition by Target of any of its shares of capital stock, except repurchases
of its capital stock pursuant to agreements with Target's employees and
consultants in effect prior to the commencement of discussions between Target
and Acquiror relating to the transactions contemplated by this Agreement; (v)
any material contract entered into by Target, or any material amendment or
termination of, or default under, any material contract to which Target is a
party or by which it is bound; (vi) any amendment or change to the Articles of
Incorporation or Bylaws of Target; (vii) any increase in or modification of the
compensation or benefits payable or to become payable by Target to any of its
directors, employees or consultants or (viii) any commitment, agreement or Board
of Directors or shareholder resolution by Target to do any of the things
described in the preceding clauses (i) through (vii) (other than with Acquiror
and its representatives regarding the transactions contemplated by this
Agreement).
2.6 Absence of Undisclosed Liabilities. Target has no obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for in the balance sheet included in
the Financial Statements as of June 30, 1999 (the "Target Balance Sheet"), (ii)
--------------------
those incurred in the ordinary course of business and not required to be set
forth in the Target Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the Target Balance Sheet Date and consistent
with past practice and (iv) those set forth in this Agreement.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or, to the knowledge of Target, investigation
pending before any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Target, threatened against Target or any of its assets or
properties or any of its officers or directors (in their capacities as such).
There is no judgment, decree or order against Target, or, to the knowledge of
Target, any of its directors or
11
officers (in their capacities as such), limiting the conduct of business by
Target or that could prevent, enjoin, or alter or delay any of the transactions
contemplated by this Agreement or have an adverse effect on Target. The Target
Disclosure Schedule also lists all litigation (including arbitrations) by Target
which is pending against any other person or entity.
2.8 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Target or any of its assets or
properties which has had or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of Target, any
acquisition of property by Target or the conduct of business by Target as
currently conducted or as currently proposed to be conducted by Target.
2.9 Governmental Authorization. Target has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental Entity (i) pursuant to which Target currently
operates or holds any interest in any of its properties or (ii) that is required
for the operation of Target's business or the holding of any such interest ((i)
and (ii) herein collectively called "Target Authorizations"), and all of such
---------------------
Target are in full force and effect.
2.10 Title to Property. Target has good and marketable title to all of its
respective assets and properties (real and personal) and interests in assets and
properties (real and personal), reflected in the Target Balance Sheet or
acquired after the Target Balance Sheet Date (except assets, properties,
interests in properties and assets sold or otherwise disposed of since the
Target Balance Sheet Date in the ordinary course of business), or with respect
to leased properties and assets, valid leasehold interests in, free and clear of
all mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on the Target
Balance Sheet. The plants, property and equipment of Target that are used in the
operations of its business are in good operating condition and repair. All
properties used in the operations of Target are reflected in the Target Balance
Sheet to the extent GAAP require the same to be reflected. Section 2.10 of the
-------------------
Target Disclosure identifies each parcel of real property owned or leased by
-----------------
Target.
2.11 Intellectual Property.
(a) Target owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks
and copyrights; all applications for any of the foregoing; and all maskworks,
net lists, schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in source
code and/or object code form), and tangible or intangible proprietary
information or material ("Intellectual Property") that are used or currently
---------------------
proposed to be used in the business of Target as currently conducted or as
currently proposed to be conducted by Target ("Target Intellectual Property").
----------------------------
Target has not (i) licensed any Target Intellectual Property in source code form
to any third party or (ii) entered into any exclusive agreements relating to any
Target Intellectual Property with any third party.
12
(b) Section 2.11 of the Target Disclosure Schedule lists (i) all
----------------------------------------------
patents and patent applications and all registered trademarks, trade names and
service marks, registered copyrights, and maskworks, included in the Target
Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which Target is a party and
pursuant to which any other person or entity is authorized to use any Target
Intellectual Property, and (iii) all licenses, sublicenses and other agreements
as to which Target is a party and pursuant to which Target is authorized to use
any third-party Intellectual Property ("Third Party Intellectual Property
----------------------------------
Rights") which are incorporated in, are, or form a part of any Target product
-------
or which are otherwise used (or currently proposed to be used) by Target in the
business of Target as currently conducted or as currently proposed to be
conducted by Target, other than off-the-shelf software programs licensed under
standard "shrink wrap" license agreements.
(c) To Target's knowledge, no person or entity (including employees
and former employees of Target) is infringing, misappropriating or otherwise
making any unauthorized use or disclosure of any Intellectual Property rights of
Target or any Intellectual Property right of any third party to the extent
licensed by or through Target. Target has not entered into any agreement to
indemnify any other person or entity against any charge of infringement of any
Target Intellectual Property.
(d) Target is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Target Intellectual Property or Third Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and copyrights
held by Target are valid and subsisting, and the manufacturing, marketing,
licensing and sale of its products do not infringe any patent, trademark,
service ▇▇▇▇, copyright, trade secret or other proprietary right of any third
party. Target (i) has not been sued in any suit, action or proceeding which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party; and (ii) has not brought any action, suit or proceeding for
infringement of Target Intellectual Property or breach of any license or
agreement involving Target Intellectual Property against any third party.
(f) Target has secured valid written assignments from all consultants
and employees who contributed to the creation or development of Target
Intellectual Property of the rights to such contributions that Target does not
already own by operation of law.
(g) Target has taken all reasonably necessary and appropriate steps
to protect and preserve the confidentiality of all Target Intellectual Property
not otherwise protected by patents, patent applications or copyright
("Confidential Information"). All use, disclosure or appropriation of
--------------------------
Confidential Information by Target by or to a third party has been pursuant
to the terms of a written agreement between Target and such third party.
(h) All products and software programs distributed or licensed to
third parties by Target and, to Target's knowledge, all products and software
programs of third parties which
13
are used in Target's business (i) will operate in accordance with their
specifications prior to, during and after the calendar year 2000 and are capable
of processing, providing, receiving and manipulating date data within and
between the 20th and 21st centuries; (ii) will, without interruption or manual
intervention, continue to consistently, predictably and accurately record,
store, process, calculate and present calendar dates falling on and after (and
if applicable, spans of time including) January 1, 2000, and will consistently,
predictably and accurately calculate any information dependent on or relating to
such dates in substantially the same manner, and with the same functionality,
data integrity and performance, as such products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates; and (iii) will
not end abnormally or provide invalid or incorrect results as a result of date
data, specifically including date data which represents or references different
centuries or more than one century. Target has taken all actions necessary to
assure that there shall be no material adverse change to its business or
electronic systems or material interruptions in the delivery of Target's
products and services by reason of the advent of the year 2000.
(i) It is Target's practice to scan all software and data residing
on Target's computer network with a commercially available and up-to-date virus
scan software. To Target's knowledge, its software programs and other
Intellectual Property contain no "viruses." For the purposes of this Agreement,
"virus" means any computer code designed to disrupt, disable or harm in any
manner the operation of any software or hardware including worms, bombs,
backdoors, clocks, timers, or other disabling device code, designs or routines
which causes the software to be erased, inoperable, or otherwise incapable of
being used, either automatically or with passage of time or upon command by any
person.
2.12 Environmental Matters.
---------------------
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" means any federal,
-----------------------------
state or local laws, ordinances, codes, regulations, rules, policies and
orders that are intended to assure the protection of the environment, or
that classify, regulate, call for the remediation of, require reporting
with respect to, or list or define air, water, groundwater, solid waste,
hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public.
(ii) "Environmental Permit" means any permit, license,
--------------------
approval, consent or authorization required under or in connection with any
Environmental and Safety Law and includes any and all orders, consent
orders or binding agreements issued or entered into by a Governmental or
Regulatory Authority.
(iii) "Facilities" means all buildings and improvements
----------
on any Site.
(iv) "Hazardous Material" means any toxic or hazardous
------------------
substance, material or waste or any pollutant or contaminant, or infectious
or radioactive substance
14
or material, including without limitation, those
substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(v) "Release" means any spilling, leaking, pumping,
-------
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing of a Hazardous Material into the Environment.
(vi) "Site" means any of the real properties currently or
----
previously owned, leased, occupied, used or operated by Target, any
predecessors of Target, or any entities previously owned by Target,
including all soil, subsoil, surface waters and groundwater.
(b) Target has disposed of all Hazardous Material and
wastes in accordance with all Environmental and Safety Laws; (ii) Target has
received no notice (verbal, written or electronic) of any noncompliance with any
Environmental and Safety Law; (iii) no notice, administrative action or suit is
pending or, to the knowledge of Target, threatened against Target relating to
any actual or alleged violation of any Environmental and Safety Laws; (iv) no
Site is a current or, to Target's knowledge, proposed environmental clean-up
site, and Target has not been notified that it is a potentially responsible
party under the federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or any analogous state statute------arising out of
events occurring prior to the Closing Date; (v) to Target's knowledge, no
Release of Hazardous Material has occurred at, from, in, to, on, or under any
Site while Target has occupied the Site and no Hazardous Material is present in,
on, about or migrating to or from any Site; (vi) there are not now and, to the
knowledge of Target, there have not been in the past any underground tanks or
underground improvements at, on or under any Site including treatment or storage
tanks, sumps, or water, gas or oil ▇▇▇▇▇; (vii) there are no polychlorinated
biphenyls (PCBs), asbestos-containing material, lead-based paint or radon
deposited, stored, disposed of or located (or in any equipment located) at any
Site or in any Facilities; (viii) there is no formaldehyde at any Site or in any
Facilities, nor any insulating material containing urea formaldehyde in the
Facilities; (ix) Target possesses all Environmental Permits necessary to or
required for the operation of its business and has at all times complied with
all Environmental Permits and all Environmental and Safety Laws; and (x) Target
has all the permits and licenses required to be issued to it under federal,
state or local laws regarding Environmental and Safety Laws and is in compliance
in all material respects with the terms and conditions of those permits.
(c) Neither Target nor, to the knowledge of Target, any predecessor
of Target nor any entity previously owned by Target has any obligation or
liability with respect to any Hazardous Material, including any Release or
threatened or suspected Release of any Hazardous Material, and there have been
no events, facts or circumstances since the date of incorporation of Target or,
to the knowledge of Target, prior to such time, which could reasonably be
expected to form the basis of any such obligation or liability.
(d) Target is not a party, whether as a direct signatory, assignor or
assignee, guarantor, successor, or third party beneficiary, to, and is not
otherwise bound by, any lease or other contract under which Target is obligated
or may be obligated by any representation, warranty, covenant, restriction,
indemnification or other undertaking respecting any Hazardous
15
Material or under which any other person is or has been released respecting any
Hazardous Material.
(e) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or for Target or, to the knowledge
of Target, by or for any other person or entity with respect to any Site while
Target has occupied the Site, which have not been delivered to Acquiror prior to
execution of this Agreement.
2.13 Taxes. For purposes of this Agreement, the following terms have the
-----
following meanings:
(i) "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
--- ----- -------
means (A) any net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental Entity (a
"Tax Authority") responsible for the imposition of any such tax
-------------
(domestic or foreign), (B) any liability for the payment of any amounts of
the type described in clause (A) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period
and (C) any liability for the payment of any amounts of the type described
in (A) or (B) as a result of any express or implied obligation to indemnify
any other person.
(ii) "Tax Return" means any return, statement, report or form,
----------
including estimated Tax Returns and reports, withholding Tax Returns and
reports and information reports and returns required to be filed with
respect to Taxes.
(a) All Tax Returns required to have been filed by or with
respect to Target or any affiliated, consolidated, combined, unitary or
similar group of which Target is or was a member (a "Relevant Group") have
--------------
been duly and timely filed (including any extensions), and each such Tax
Return correctly and completely reflects Tax liability and all other
information required to be reported thereon. All Taxes due and payable by
Target or any member of a Relevant Group, whether or not shown on any Tax
Return, or claimed to be due by any Tax Authority, have been paid or
accrued on the Target Balance Sheet, except for unpaid accruable Taxes
incurred by Target in the ordinary course of its business since the Target
Balance Sheet Date. All such Tax Returns are true, complete and correct in
all material respects.
(b) Except for Taxes incurred in the ordinary course of its
business following the date of the Target Balance Sheet, Target has not
incurred any material liability for Taxes other than as reflected on the
Target Balance Sheet. The unpaid Taxes of Target (i) did not, as of Target
Balance Sheet Date, exceed by any material amount the reserve for liability
for income Tax (other than the reserve for deferred taxes established to
reflect timing differences between book and tax income) set forth on the
face of the Target Balance Sheet and (ii) will not exceed by any material
amount that reserve as adjusted for operations and transactions through the
Closing Date.
16
(c) Target is not a party to any agreement extending the time
within which to file any Tax Return.
(d) Target has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor or independent contractor.
(e) No Tax Authority in any jurisdiction where Target does not
file Tax Returns, domestic or foreign, has made any claim that Target may be
subject to Tax in that jurisdiction. No claim or action has been made or taken
by any Tax Authority for the assessment of additional Taxes against Target for
any past period. There is no dispute or claim concerning any Tax liability of
Target either (i) threatened, claimed or raised by any Tax Authority or (ii) of
which Target is otherwise aware. There are no liens or encumbrances for Taxes
upon any assets or properties of Target other than liens for Taxes not yet due.
No Tax Return of Target has been or is being audited or examined by any Tax
Authority. Section 2.13(e) of the Target Disclosure Schedule indicates those Tax
-------------------------------------------------
Returns, if any, of Target that have been audited or examined by Taxing
Authorities, and indicates those Tax Returns of Target that currently are the
subject of audit or examination. Target has delivered to Acquiror complete and
correct copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies assessed
against or agreed to by, Target.
(f) There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns required to be
filed by, or which include or are treated as including, Target or with respect
to any Tax assessment or deficiency affecting Target or any Relevant Group.
(g) Target has not received any written ruling related to Taxes
or entered into any agreement with a Tax Authority relating to Taxes.
(h) Target has no liability for the Taxes of any person or
entity (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign Law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(i) Target (i) has not been and will not be required to include
any material adjustment in Taxable income for any Tax period (or portion
thereof) pursuant to Section 481 or 263A of the Internal Revenue Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger and (ii)
is not a "consenting corporation" within the meaning of Section 341(f)(1) of
the Internal Revenue Code.
(j) Target is not a party to or bound by any obligations under
any Tax sharing, Tax allocation, Tax indemnity or similar agreement or
arrangement.
(k) Target was not included and is not includible in the Tax
Return of any Relevant Group with any corporation other than such a return of
which Target is the common parent corporation.
17
(l) Target has not made any payments, is not obligated to make
any payments, nor is a party to any contract that under certain circumstances
could require it to make any payments that are not deductible as a result of the
provisions set forth in Section 280G of the Internal Revenue Code or the
treasury regulations thereunder or would result in an excise tax to the
recipient of any such payment under Section 4999 of the Internal Revenue Code.
(m) All material elections with respect to income Taxes
affecting Target are set forth in Section 2.13(m) of the Disclosure Schedule.
------------------------------------------
(n) Target is not and has never been a United States real
property holding corporation within the meaning of Section 897(c)(2) and Section
897(c)(1)(A)(ii) of the Internal Revenue Code.
(o) Target has disclosed in its federal income Tax Return all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662 of the Internal Revenue
Code.
(p) Target is not a personal holding company.
(q) Target is in full compliance with all terms and conditions
of any Tax exemptions or other Tax-sparing agreement or order of a foreign
government and the consummation of the Merger shall not have any adverse effect
on the continued validity and effectiveness of any such Tax exemptions or other
Tax-sparing agreement or order.
(r) No shareholder of Target has disposed of any shares of
Target Capital Stock, or received any distribution from Target, in a manner that
would prevent the continuity of interest requirement necessary to effect a tax-
free reorganization under the Internal Revenue Code from being satisfied or
otherwise cause the Merger not to qualify for treatment as a tax-free
reorganization pursuant to Section 368(a) of the Internal Revenue Code.
(s) Section 2.13(s) of the Target Disclosure Schedule sets
-------------------------------------------------
forth the following information with respect to Target as of the most recent
practicable date: (i) the basis of Target in its assets; (ii) the amount of any
net operating loss, net capital loss, unused investment or other credit, unused
foreign Tax, or excess charitable contribution allocable to Target, and (iii)
the amount of any deferred gain or loss allocable to Target arising out of any
deferred intercompany transaction.
2.14 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Schedule 2.14 lists, with respect to Target and any trade
-------------
or business (whether or not incorporated) which is treated as a single employer
with Target (an "ERISA Affiliate") within the meaning of Section 414(b), (c),
---------------
(m) or (o) of the Internal Revenue Code, (i) all material employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), (ii) each loan to a non-officer employee in excess
-----
of ten thousand dollars ($10,000), loans to officers and directors and any stock
option, stock purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Internal Revenue Code Section 125) or
dependent care (Internal Revenue Code Section 129), life
18
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit plans,
programs or arrangements that apply to senior management of Target and that do
not generally apply to all employees, and (v) any current or former employment
or executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of Target of greater than ten thousand dollars
($10,000) remain for the benefit of, or relating to, any present or former
employee, consultant or director of Target (together, the "Target Employee
Plans").
(b) Target has furnished to Acquiror a copy of each of the Target
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and any material employee communications relating
thereto) and has, with respect to each Target Employee Plan which is subject to
ERISA reporting requirements, provided copies of the Form 5500 reports filed for
the last three plan years. Any Target Employee Plan intended to be qualified
under Section 401(a) of the Internal Revenue Code has either obtained from the
Internal Revenue Service a favorable determination letter, opinion, advisory or
notification as to its qualified status under the Internal Revenue Code,
including all amendments to the Internal Revenue Code effected by the Tax Reform
Act of 1986 and subsequent legislation, or has applied to the Internal Revenue
Service for such a determination letter, opinion, advisory or notification prior
to the expiration of the requisite period under applicable Treasury Regulations
or Internal Revenue Service pronouncements in which to apply for such
determination letter, opinion, advisory or notification and to make any
amendments necessary to obtain a favorable determination. Target has also
furnished Acquiror with the most recent Internal Revenue Service determination
letter, opinion, advisory or notification issued with respect to each such
Target Employee Plan, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the tax-qualified
status of any Target Employee Plan subject to Internal Revenue Code Section
401(a). Target has also furnished Acquiror with all registration statements and
prospectuses prepared in connection with each Target Employee Plan.
(c) (i) None of the Target Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Internal Revenue Code, with respect to any Target Employee
Plan, which could reasonably be expected to have, in the aggregate, a Material
Adverse Effect; (iii) each Target Employee Plan has been administered in
accordance with its terms and in compliance with the requirements prescribed by
any and all statutes, rules and regulations (including ERISA and the Internal
Revenue Code), except as would not have, in the aggregate, a Material Adverse
Effect on Target, and Target and each ERISA Affiliate have performed all
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the Target Employee Plans;
(iv) neither Target nor any ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Internal Revenue Code or Title I
of ERISA with respect to any of the Target Employee Plans; (v) all material
contributions required to be made by Target or ERISA Affiliate to any Target
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Target Employee Plan for the
current plan
19
years; (vi) with respect to each Target Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) and no event described in Section 4062, 4063 or 4041 or
ERISA has occurred; (vii) no Target Employee Plan is covered by, and neither
Target nor any ERISA Affiliate has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Internal Revenue Code; and (viii)
each Target Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to
Acquiror (other than ordinary administrative expenses typically incurred in a
termination event). With respect to each Target Employee Plan subject to ERISA
as either an employee pension plan within the meaning of Section 3(2) of ERISA
or an employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
Target has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such Target
Employee Plan except as would not have in the aggregate a Material Adverse
Effect on Target. No suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of Target is threatened, against or with
respect to any such Target Employee Plan, including any audit or inquiry by the
Internal Revenue Service or United States Department of Labor (other than
routine benefits claims). No payment or benefit which will or may be made by
Target to any Employee will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Internal Revenue Code.
(d) With respect to each Target Employee Plan, Target has complied with
(i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
-----
regulations (including proposed regulations) thereunder, (ii) the applicable
requirements of the Family Medical and Leave Act of 1993 and the regulations
thereunder, except to the extent that such failure to comply would not, in the
aggregate, have a Material Adverse Effect on Target, and (iii) the applicable
requirements of the Health Insurance Portability and Accountability Act of 1996
and the regulations (including proposed regulations) thereunder, except to the
extent that such failure to comply would not, in the aggregate, have a Material
Adverse Effect on Target.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target or any ERISA Affiliate to severance benefits or any other
payment, except as expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target, or other ERISA Affiliate
relating to, or change in participation or coverage under, any Target Employee
Plan which would materially increase the per capita expense of maintaining such
Plan above the level of per capita expense incurred with respect to that Plan
for the most recent fiscal year included in Target's financial statements.
(g) Pension Plans. Target does not currently maintain, sponsor,
-------------
participate in or contribute to, nor has it ever maintained, established,
sponsored, participated in, or contributed
20
to, any pension plan (within the meaning of Section 3(2) of ERISA) which is
subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or
Section 412 of the Internal Revenue Code.
(h) Multiemployer Plans. Neither Target nor any ERISA Affiliate is a
-------------------
party to, or has made any contribution to or otherwise incurred any obligation
under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
2.15 Certain Agreements Affected by the Merger. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will, either alone or upon the occurrence of further events, (i) result
in any payment (including severance, unemployment compensation, golden
parachute, bonus or otherwise) becoming due to any director, employee or
consultant of Target, (ii) increase any benefits otherwise payable by Target or
(iii) result in the acceleration of the time of payment or vesting of any such
benefits (except as otherwise expressly provided herein).
2.16 Employee Matters. Target is in compliance in all material respects
with all currently applicable laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any material respect in any unfair labor practice. Target has withheld all
amounts required by law or by agreement to be withheld from the wages, salaries,
and other payments to employees; and is not liable for any arrears of wages or
any Taxes or any penalty for failure to comply with any of the foregoing. Target
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). There are no pending claims against Target under any workers
compensation plan or policy or for long term disability. There are no
controversies pending or, to the knowledge of Target, threatened, between Target
and any of their respective employees, which controversies have or could
reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal, foreign or
domestic. Target is not a party to any collective bargaining agreement or other
labor union contract nor does Target know of any activities or proceedings of
any labor union to organize any such employees. To Target's knowledge, no
employees or consultants of Target are in violation of any term of any
employment contract, patent disclosure agreement, noncompetition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee or consultant to be employed or engaged by Target because of the nature
of the business conducted or presently proposed to be conducted by Target or to
the use of trade secrets or proprietary information of others. No employees or
consultants of Target have given notice to Target, nor is Target otherwise
aware, that any such employee or consultant intends to terminate his or her
employment or engagement with Target.
2.17 Interested Party Transactions. Target is not indebted to any director,
officer, employee, consultant or agent of Target (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary business expenses),
and no such person is indebted to Target (except for cash advances for ordinary
business expenses).
21
2.18 Insurance. Target has policies of insurance and bonds of the type and
in amounts which Target reasonably believes are adequate given the business or
assets of Target. There is no material claim pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Target is otherwise in compliance
with the terms of such policies and bonds. Target has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
2.19 Compliance with Laws. Target has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, local or foreign statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business.
2.20 Minute Books. The minute books of Target made available to Acquiror
contain a complete and accurate summary of all meetings of and actions by
written consent by directors and shareholders since the time of incorporation of
Target through the date of this Agreement, and reflect all transactions referred
to in such minutes accurately in all material respects.
2.21 Complete Copies of Materials. Target has delivered or made available
true, correct and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target.
2.22 Voting Agreement; Irrevocable Proxies. Holders of more than eighty
percent (80%) of the Target Common Stock issued and outstanding have signed and
delivered to Acquiror Voting Agreements (together with executed Irrevocable
Proxies in the form annexed thereto).
2.23 Vote Required. The affirmative vote of the holders of a majority of
the shares of Target Capital Stock outstanding on the record date set for the
Target Stockholders Meeting (as defined below) is the only vote of the holders
of any of Target's Capital Stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.24 Board Approval. The Board of Directors of Target has unanimously
(i) approved this Agreement and the Merger, (ii) determined that the Merger is
in the best interests of the shareholders of Target and is on terms that are
fair to such shareholders and (iii) recommended that the shareholders of Target
approve this Agreement and the Merger.
2.25 Affiliates. The Target Disclosure Schedule sets forth the names and
addresses of each person who, in Target's reasonable judgment, may be deemed to
be an affiliate (as such term is used in Rule 145 under the Securities Act or
under applicable SEC accounting releases with respect to pooling of interests
accounting treatment) of Target. Target is not indebted to, nor does it owe any
contractual commitment or arrangement to, with or for the benefit of, any
director, officer, employee, affiliate or agent of Target (except for amounts
due as normal salaries and bonuses and in reimbursement of ordinary expenses).
Except for normal salaries and bonuses and reimbursement of, and advances for,
ordinary business expenses, since June 30, 1999, Target has not made any
payments, loans or advances of any kind, or paid any dividends
22
or distributions of any kind, to or for the benefit of the shareholders or
option holders of Target or any of their respective affiliates, associates or
family members.
2.26 Accounts Receivable. Subject to any reserves set forth in the
Financial Statements, the accounts receivable shown on the Financial Statements
represent and will represent bona fide claims against debtors for sales and
other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Financial Statements is sufficient to provide for
any losses which may be sustained on realization of the receivables.
2.27 Customers and Suppliers. No customer which individually accounted for
more than ten percent (10%) of Target's gross revenues during the twelve (12)
month period preceding the date hereof, and none of Target's ten (10) largest
suppliers has canceled or otherwise terminated its relationship with Target, or
has decreased materially its services or supplies to Target (in the case of any
such supplier) or its usage of the services or products of Target (in the case
of such customer), and to Target's knowledge, no such supplier or customer
intends to cancel or otherwise terminate its relationship with Target or to
decrease materially its services or supplies to Target or its usage of the
services or products of Target, as the case may be.
2.28 Material Contracts. Except for the contracts described in Section
-------
2.28 of the Target Disclosure Schedule (collectively, the "Material Contracts"),
-------------------------------------- ------------------
Target is not a party to or bound by any material contract, including:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract that is not terminable within thirty (30) days by
Target;
(b) any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contact more than fifty
thousand dollars ($50,000) over the life of the contract;
(c) any contract that expires or may be renewed at the option of any
person or entity other than the Target so as to expire more than one year after
the date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan agreement
or other contract for the borrowing of money, any currency exchange, commodities
or other hedging arrangement or any leasing transaction of the type required to
be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of twenty five
thousand dollars ($25,000) in the aggregate;
(f) any contract limiting the freedom of Target to engage in any line
of business or to compete or which requires Target to maintain the
confidentiality of any proprietary information of any third party or any other
material confidentiality, secrecy or non-disclosure contract;
23
(g) any contract pursuant to which the Target is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property involving in the case of any such contract more than fifty
thousand dollars ($50,000) over the life of the contract;
(h) any contract with any person or entity with whom the Target does
not deal at arm's length within the meaning of the Internal Revenue Code; or
(i) any agreement of guarantee, support, indemnification, assumption
or endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or indebtedness
of any other Person.
2.29 No Breach of Material Contracts. Target has performed in all material
respects all of the obligations required to be performed by it and is entitled
to all material benefits under each, and is not alleged to be in default in any
material respect in respect of any, Material Contract. Each of the Material
Contracts is in full force and effect and has not been amended, and there exists
no default or event of default or event, occurrence, condition or act, with
respect to Target or to Target's knowledge with respect to the other contracting
party, which, with the giving of notice, the lapse of time or the happening of
any other event or conditions, would become a default or event of default under
any Material Contract. True, correct and complete copies of all Material
Contracts have been delivered to Acquiror.
2.30 Export Control Laws. Target has conducted its export transactions in
accordance with applicable provisions of United States export control laws and
regulations, including the Export Administration Act and implementing Export
Administration Regulations. Without limiting the foregoing:
(a) Target has obtained all export licenses and other approvals
required for its exports of products, software and technologies from the United
States;
(b) Target is in compliance with the terms of all applicable export
licenses and other approvals;
(c) there are no pending or, to Target's knowledge, threatened claims
against Target with respect to such export licenses or other approvals;
(d) there are no actions, conditions or circumstances pertaining to
Target's export transactions that may give rise to any future claims; and
(e) no consents or approvals for the transfer of export licenses to
Acquiror are required, or such consents and approvals can be obtained
expeditiously without material cost.
2.31 Projections and Product Releases. Target has made available to
Acquiror certain financial projections with respect to Target's business which
projections were prepared for internal use only. Such projections were prepared
in good faith and are based on assumptions believed by Target to be reasonable.
Set forth in Section 2.31 of the Target Disclosure Schedule is a Schedule of
----------------------------------------------
Product Releases planned by Target. Target believes there is a reasonable basis
for achieving the release of such products on the schedule indicated therein and
is not aware of any change in its circumstances or other fact that has occurred
that would cause it to believe that
24
it will be unable to meet such release schedule, it being understood that Target
makes no representation or warranty that the financial projections will in fact
be achieved or that such products will in fact be released in accordance with
the Schedule of Product Releases.
2.32 Brokers; Expenses. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Merger based upon arrangements made by or on behalf of Target. Section 2.32 of
---------------
the Target Disclosure Schedule sets forth Target's best estimate of all expenses
------------------------------
expected to be incurred by Target in connection with the negotiation of the
Agreement and effectuation of the Merger.
2.33 Representations Complete. None of the representations or warranties
made by Target or the Principals herein or in any schedule hereto, including the
Target Disclosure Schedule, or certificate or other document furnished by Target
or the Principals pursuant to this Agreement, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Except as disclosed in a document of even date herewith and delivered
by Acquiror to Target prior to the execution and delivery of this Agreement and
referring to the representations and warranties of Acquiror in this Agreement
(the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub, jointly and
----------------------------
severally, represent and warrant to Target and the Principals as follows:
3.1 Organization, Standing and Power. Each of Acquiror and its subsidiaries
(including Merger Sub) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of
Acquiror and its subsidiaries (including Merger Sub) has the corporate power to
own its properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect on Acquiror. Neither Acquiror
nor any of its subsidiaries (including Merger Sub) is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws.
3.2 Capital Structure of Acquiror. The authorized capital stock of Acquiror
consists of 50,000,000 shares of Acquiror Common Stock and 5,000,000 shares of
Preferred Stock, $.001 par value per share, of which 14,639,294 shares of
Acquiror Common Stock and no shares of Preferred Stock were outstanding as of
the close of business on September 30, 1999. All outstanding shares of Acquiror
Common Stock have been duly authorized, validly issued, fully paid and are
nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. The shares of
Acquiror Common
25
Stock to be issued pursuant to the Merger, including shares issuable on exercise
of the options assumed by Acquiror, will be duly authorized, validly issued,
fully paid, and non-assessable.
3.3 Authority. Acquiror and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acquiror and Merger Sub. This
Agreement has been duly executed and delivered by Acquiror and Merger Sub and
constitutes the valid and binding obligation of Acquiror and Merger Sub
enforceable against Acquiror and Merger Sub in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally and by general
principles of equity. The execution and delivery of this Agreement by Acquiror
and Merger Sub do not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Certificate of Incorporation or Bylaws of
Acquiror or Merger Sub, or (ii) any material mortgage, indenture or lease, or
(assuming receipt of the consent contemplated by Section 6.2(d) of this
--------------
Agreement and agreement of the applicable parties for the amendment contemplated
by Section 5.12) any contract or other agreement, or any instrument, permit,
-------------
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or Merger Sub or any of
their properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or Merger Sub in connection with the execution
and delivery of this Agreement by Acquiror or Merger Sub or the consummation by
Acquiror or Merger Sub of the transactions contemplated hereby, except for (i)
the filing of the Delaware Certificate of Merger, together with the required
officers' certificates, as provided in Section 1.2, (ii) any filings as may be
-----------
required under applicable state securities laws and the securities laws of any
foreign country, (iii) such filings as may be required under HSR and (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, could not reasonably be expected to impair in any material
respect the ability of Acquiror or Merger Sub to perform its obligations under
this Agreement or to prevent or materially delay the completion of the Merger or
the payment of the consideration therefor.
3.4 SEC Filings; Financial Statements of Acquiror.
(a) Acquiror has timely filed all forms, reports, statements and
documents required to be filed by it with the Securities and Exchange Commission
(the "SEC") and the Nasdaq National Market (the "NNM") since July 15, 1999
--- ---
(collectively together with any such forms, reports, statements and documents
Acquiror may file subsequent to the date hereof until the Closing and including
the final prospectus of Acquiror filed by Acquiror pursuant to Rule 424(b) in
July 1999, the "Acquiror Reports"). Each Acquiror Report was prepared in
----------------
accordance with the requirements of the Securities Act, the Exchange Act or the
NNM, as the case may be, and did not at the time it was filed 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
subsidiary of Acquiror is subject to the periodic reporting requirements of the
26
Exchange Act or required to file any form, report or other document with the
SEC, the NNM, any other stock exchange or any other comparable Governmental
Entity.
(b) Except as is provided in the Acquiror Reports, each of the
consolidated financial statements (including, in each case, any notes thereto)
contained in the Acquiror Reports was prepared in accordance with GAAP applied
on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of Acquiror and the consolidated
subsidiaries of Acquiror 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 recurring immaterial
year-end adjustments and the absence of notes).
(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of Acquiror and the subsidiaries of Acquiror as
reported in the Acquiror Reports, including the notes thereto, none of Acquiror
or any subsidiary of Acquiror has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) that would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
GAAP, except for liabilities or obligations incurred in the ordinary course of
business consistent with past practice since June 30, 1999 that have not had and
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Acquiror.
3.5 Litigation. There is (a) no private or governmental action, suit,
proceeding, claim, arbitration or, to the knowledge of Acquiror, investigation
pending before any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Acquiror, threatened against Acquiror or any of its assets or
properties or any of its officers or directors (in their capacities as such),
and (b) no judgment, decree or order against Acquiror, or, to the knowledge of
Acquiror, any of its directors or officers (in their capacities as such), in
each case limiting the conduct of business by Acquiror or that could prevent,
enjoin, or alter or delay any of the transactions contemplated by this Agreement
or have an adverse effect on Acquiror.
3.6 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Acquiror.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target and Acquiror. During the period from (and
including) the date of this Agreement and continuing until the earlier of the
termination of this Agreement in accordance with its terms or the Effective
Time, Target agrees (except to the extent expressly contemplated by this
Agreement or as consented to in writing by Acquiror), to carry on its business
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted. Target further agrees to pay its debts and Taxes when due
(subject to good faith disputes over such debts or Taxes), to pay or perform its
other obligations when due,
27
and to use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organizations, keep available the services
of its present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it to the end that its goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Target agrees to promptly notify
Acquiror of any event or occurrence not in the ordinary course of business or
which could have a Material Adverse Effect.
4.2 Conduct of Business of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as set forth in the Target Disclosure Schedule or
as expressly contemplated by this Agreement, Target shall not do, cause or
permit any of the following, without the prior written consent of Acquiror:
(a) Charter Documents: cause or permit any amendments to its Article
------------------
of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock: declare or pay any dividends
------------------------------------
on or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in connection
with any termination of service to it;
(c) Stock Option Plans: accelerate, amend or change the period of
-------------------
exercisability or vesting of options or other rights granted under its stock
plans or authorize cash payments in exchange for any options or other rights
granted under any of such plans, except as expressly provided for hereunder;
(d) Material Contracts: enter into any material contract or
-------------------
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(e) Issuance of Securities: issue, deliver or sell or authorize or
-----------------------
propose the issuance, delivery or sale of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than the issuance
of shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of the date of this Agreement;
(f) Intellectual Property: transfer to any person or entity any rights
----------------------
to any Target Intellectual Property other than in the ordinary course of
business consistent with past practice;
(g) Exclusive Rights: enter into or amend any agreement pursuant to
-----------------
which any other party is granted exclusive marketing or other exclusive rights
of any type or scope with respect to any of Target's products or technology;
28
(h) Dispositions: sell, lease, license or otherwise dispose of or
-------------
encumber any of Target's properties or assets which are material, individually
or in the aggregate, to Target's business, except for sales of products in the
ordinary course;
(i) Indebtedness: incur any indebtedness for borrowed money or
-------------
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) Leases: enter into any operating lease pursuant to which payments
-------
in excess of ten thousand dollars ($10,000) may be required;
(k) Payment of Obligations: pay, discharge or satisfy in an amount in
-----------------------
excess of ten thousand dollars ($10,000) in any one case or twenty five thousand
dollars ($25,000) in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in the Target
Financial Statements and reasonable expenses incurred in connection with the
transactions contemplated by this Agreement;
(l) Capital Expenditures: make any capital expenditures, capital
---------------------
additions or capital improvements except in the ordinary course of business and
consistent with past practice;
(m) Insurance: materially reduce the amount of any material insurance
----------
coverage provided by existing insurance policies;
(n) Termination or Waiver: terminate or waive any right of substantial
----------------------
value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases: adopt or amend
-------------------------------------------------
any employee benefit or stock purchase or option plan, or hire any new director
level or officer level, consultant, employee, pay any special bonus or special
remuneration to any employee, consultant or director or, other than in the
ordinary course consistent with past practice, increase the salaries, wage rates
or compensation of any employee or consultant;
(p) Severance Arrangements: grant any severance or termination pay (i)
-----------------------
to any director or officer or consultant or (ii) to any other employee or
consultant except payments made pursuant to standard written agreements
outstanding on the date hereof;
(q) Lawsuits: commence a lawsuit other than (i) for the routine
---------
collection of bills, (ii) in such cases where it in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of its business, provided that it consults with Acquiror prior to the
filing of such a suit, or (iii) for a breach of this Agreement;
(r) Acquisitions: acquire or agree to acquire by merging or
-------------
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business, taken as a whole;
29
(s) Taxes: other than in the ordinary course of business, make or
------
change any material election in respect of Taxes, adopt or change any accounting
method in respect of Taxes, file any material Tax Return or any amendment to a
material Tax Return other than Target's corporate Tax Return for the year ended
December 31, 1998, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(t) Notices: target shall give all notices and other information
--------
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the WARN Act, the National Labor Relations Act, the Internal
Revenue Code, the Consolidated Omnibus Budget Reconciliation Act, and other
applicable law in connection with the transactions provided for in this
Agreement;
(u) Revaluation: revalue any of its assets, including writing down the
------------
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business; or
(v) Other: take or agree in writing or otherwise to take, any of the
------
actions described in Sections 4.2(a) through (u) above, or any action which
would make any of its representations or warranties contained in this Agreement
untrue or incorrect in any material respect or prevent it from performing or
cause it not to perform its covenants hereunder in any material respect.
4.3 No Solicitation. Until the earlier of the Effective Time and the date
of termination of this Agreement in accordance with its terms, Target will not
take (and since July 28, 1999, inclusive, Target has not taken), nor will Target
authorize or encourage any of its directors, officers, agents, employees,
consultants, affiliates, attorneys, accountants, financial advisers or other
representatives (collectively, "Representatives") to (directly or indirectly):
---------------
(i) solicit, encourage, initiate, entertain, review or participate in any
negotiations or discussions with respect to an offer or proposal (whether formal
or informal, oral, written, or otherwise) to acquire all or any part of Target's
stock or assets, whether by purchase of stock or assets, exclusive license,
joint venture, merger, consolidation, reorganization or other form of business
combination, or otherwise (a "Competing Proposal"), (ii) disclose any heretofore
------------------
nonpublic information, or afford access to the properties, books or records of
Target, to any person or entity concerning Target for the purposes of
considering or formulating a Competing Proposal, (iii) assist, cooperate with,
facilitate or encourage any person or entity to make a Competing Proposal, (iv)
agree to, enter into a contract regarding, approve, recommend or endorse any
transaction involving a Competing Proposal, or (v) authorize or permit any of
Target's Representatives to take any action within the scope of the immediately
preceding clauses (i) through (iv). Upon execution and delivery of this
Agreement Target shall notify Acquiror of any Competing Proposal outstanding as
of the date hereof. If a Competing Proposal is hereafter made or if any request
for nonpublic information relating to Target or for access to the properties,
books or records of Target is made by any person or entity that has made a
Competing Proposal or has advised Target that it may be considering making a
Competing Proposal, Target shall as promptly as practicable notify Acquiror of
the material details of such Competing Proposal or request (including the
identity of the person or entity making such
30
Competing Proposal, the terms thereof and the information requested thereby),
and shall as promptly as practicable provide Acquiror with a copy of any
Competing Proposal or request that is made in writing and copies of all
correspondence relating thereto. Thereafter Target shall keep Acquiror fully
apprised, on a current basis of the status of any such Competing Proposal and of
any modifications to the terms thereof. Target immediately shall cease and cause
to be terminated all existing discussions or negotiations with any parties other
than Acquiror conducted heretofore with respect to any Competing Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Information Statement. As soon as practicable after the
execution of this Agreement, Acquiror and Target shall prepare an Information
Statement for Target shareholders to approve this Agreement, the California
Agreement of Merger and the transactions contemplated hereby and thereby. The
Information Statement shall constitute a disclosure document for the offer and
issuance of the shares of Acquiror Common Stock to be received by the holders of
Target Capital Stock in the Merger. Target shall use commercially reasonable
efforts to cause the Information Statement to comply with all applicable federal
and state law requirements. Each of Acquiror and Target agrees to provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Information
Statement, or in any amendments or supplements thereto, and to cause its counsel
and auditors to cooperate with the other's counsel and auditors in the
preparation of the Information Statement. Target will promptly advise Acquiror,
and Acquiror will promptly advise Target, in writing if at any time prior to the
Effective Time either Target or Acquiror shall obtain knowledge of any facts
that might make it necessary or appropriate to amend or supplement the
Information Statement in order to make the statements contained or incorporated
by reference therein not misleading or to comply with applicable law. The
Information Statement shall contain the recommendation of the Board of Directors
of Target that the Target shareholders approve the Merger and this Agreement and
the conclusion of the Board of Directors that the terms and conditions of the
Merger are fair and reasonable to the shareholders of Target. Anything to the
contrary contained herein notwithstanding, Target shall not include in the
Information Statement any information with respect to Acquiror or its affiliates
or associates, the form and content of which information shall not have been
approved by Acquiror prior to such inclusion.
5.2 Meeting of Shareholders; Written Consent. Target shall promptly after
the date hereof take all action necessary in accordance with California Law and
its Articles of Incorporation and Bylaws to convene a meeting of its
shareholders (the "Target Shareholders Meeting") or to secure the written
consent of its shareholders as promptly as possible and in any event within
twenty-five (25) days after the date of this Agreement. Target shall consult
with Acquiror regarding the date of the Target Shareholders Meeting and use all
reasonable efforts and shall not postpone or adjourn (other than for the absence
of a quorum) the Target Shareholders Meeting or the Target consent solicitation
without the consent of Acquiror. Target shall use its best efforts to solicit
from shareholders of Target proxies or written consents in favor
31
of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of shareholders required to effect the Merger.
5.3 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel and
other representatives reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Target's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Target as Acquiror may reasonably
request. Target agrees to provide to Acquiror and its accountants, counsel and
other representatives copies of internal financial statements promptly upon
request.
(b) Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Acquiror and Target shall confer on a regular
basis with one or more representatives of the other party to report operational
matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant
to this Section 5.3 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
5.4 Confidentiality. The parties acknowledge that Acquiror and Target have
previously executed a non-disclosure agreement (the "Confidentiality
Agreement"), which Confidentiality Agreement shall continue in full force and
effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld).
5.6 Consents; Cooperation. Each of Acquiror and Target shall at its own
expense promptly apply for or otherwise seek, and use its reasonable best
efforts to obtain, all consents and approvals required to be obtained by it for
the consummation of the Merger, including those required under HSR, if any, and
shall use commercially reasonable efforts to obtain all necessary consents,
waivers and approvals under any of its material contracts in connection with the
Merger for the assignment thereof or otherwise. The parties hereto will consult
and cooperate with one another, and consider in good faith the views of one
another, in connection with any analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by or on behalf of
any party hereto in connection with all proceedings under or relating to HSR or
any other federal or state antitrust or fair trade law.
5.7 Shareholder Representation Agreement. Target shall use commercially
reasonable efforts to deliver or cause to be delivered to Acquiror, prior to the
Closing, from each of the shareholders of Target an executed Shareholder
Representation Agreement and Release in the form attached hereto as
Exhibit E (the "Shareholder Representation Agreement").
--------- ------------------------------------
32
5.8 Voting Agreement/Irrevocable Proxies. Target shall cause ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Kassimidis, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇
to execute and deliver to Acquiror a Voting Agreement (including Irrevocable
Proxy) in the form of Exhibit D hereto concurrently with the execution of this
Agreement. Target hereby represents and warrants to Acquiror that such persons
collectively hold a majority of all shares of Target Capital Stock issued and
outstanding.
5.9 Blue Sky Laws. Acquiror shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its best efforts to assist Acquiror as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.10 Employee Benefit Plans.
(a) Waivers and Releases. Prior to the Effective Time, Target shall
---------------------
use reasonable efforts to obtain from all holders of Target Options, a written
waiver and release acknowledging and agreeing to the treatment of Target Options
provided by this Agreement and waiving and releasing any and all claims in
connection with the Target Options, in substantially the of Exhibit L (or other
form reasonably acceptable to Acquiror and Target) (the "Waiver").
------
(b) Assumption of Options. Schedule 5.10 hereto sets forth a true and
---------------------- -------------
complete list as of the date hereof of all holders of outstanding Target Options
including the number of shares of Target Capital Stock subject to each such
option, the exercise or vesting schedule, the exercise price per share and the
term of each such option. On the Closing Date, Target shall deliver to Acquiror
an updated Schedule 5.10 hereto which shall be true, complete and current as of
-------------
such date.
(c) Grant of Additional Options. Promptly following the Effective
----------------------------
Time, Acquiror shall grant incentive stock options to acquire a total of one
hundred thousand (100,000) shares of Acquiror Common Stock to employees of
Target as of the date hereof who accept offers of continuing employment with
Acquiror following the Effective Time. The number of options granted to each
qualifying employee shall be determined by Acquiror in its sole discretion. All
such options shall be subject to standard vesting terms and other standard
provisions applicable to employee stock options granted by Acquiror to its
employees.
5.11 Escrow Agreement. At or before the Effective Time, the Escrow Agent,
the Shareholders' Agent (as defined in Article VIII) and each of the Principals
------------
will execute the Escrow Agreement.
5.12 Registration Rights. Acquiror agrees to use commercially reasonable
efforts to amend its existing Amended and Restated Investor Rights Agreement
(the "Investor Rights Agreement") to add the Acquiror Common Stock issued in the
-------------------------
Merger as "Registrable Securities" thereunder so that the holders of such shares
----------------------
of Acquiror Common Stock (other than the Principals) shall have "piggyback"
registration rights as provided therein, and the holders of such shares shall be
entitled to the registration rights set forth in clauses (i) and (ii) below.
33
Subject to the provisions of the Investor Rights Agreement and any prior rights
of the parties thereto, Acquiror shall use commercially reasonable efforts to
file and cause to become effective:
(i) not later than January 15, 2000, a registration statement on
Form S-8 with respect to (i) the shares of Acquiror Common Stock issuable
upon exercise of the Assumed Options (other than Assumed Options held by
the Principals) which are unvested immediately following the Effective Time
and (ii) the shares of Acquiror Common Stock which may be sold by the
Principals pursuant to clause (ii) of the last sentence of Section 5.13(b);
and ---------------
(ii) promptly after the first anniversary of the Effective Time,
a registration statement on Form S-8 with respect to the shares of Acquiror
Common Stock, issuable upon exercise of vested Assumed Options of holders
other than the Principals, which are not registered pursuant to clause (i)
of this Section 5.12.
-----
provided, that Acquiror shall have no obligation to effect more than one such
registration on Form S-8 pursuant to clause (i) and one such registration on
Form S-8 pursuant to clause (ii), plus any registration statements required for
the re-sale of shares permitted to be sold pursuant to Section 5.13(c); and
---------------
provided further, that Acquiror's obligation to effect and maintain the
effectiveness of such registrations shall be subject to (x) receipt of all
information required from the holders whose shares or options are included in
such registration statement, together with customary representations,
indemnifications and undertakings by such shareholders and option holders; (y)
postponement and suspension by Acquiror if, in the good faith judgment of
Acquiror, the filing or effectiveness of such registration statement may require
Acquiror to disclose material nonpublic information that it would not otherwise
then be obligated to disclose and Acquiror believes in good faith that such
disclosure would be detrimental to Acquiror and its stockholders; and (z)
standard underwriter cutbacks and other reasonable and customary conditions and
limitations.
5.13 Employees. Each of the Principals will enter, and Target will use
commercially reasonable efforts to cause ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ to enter, into an
employment and noncompetition agreement or consulting and noncompetition
agreement (as the case may be) in the applicable form set forth in Exhibit H
---------
hereto (the "Continuation and Non-Competition Agreement"). Acquiror will
------------------------------------------
negotiate in good faith to hire the employees and contractors listed on
Schedule 5.13 with compensation and benefits for employees in accordance with
-------------
Acquiror's current employee benefit plans and which are not materially inferior
to such employee's current salary and benefits. Target shall cooperate with
Acquiror to assist Acquiror in hiring such employees and contractors. Acquiror
shall have no obligation to make an offer of employment to any employee or an
offer of engagement to any consultant of Target except those listed on
Schedule 5.13. As a further inducement to certain key employees and consultants
-------------
of Target to become and remain employees of Acquiror following the Closing,
Acquiror shall award an aggregate of one million two hundred eighty thousand
dollars ($1,280,000) in bonuses to the persons so designated in Schedule 5.13,
-------------
in the amounts set forth opposite such person's name and on the further terms
set forth therein.
(b) As a condition to the effectiveness of their respective
Continuation and Non-Competition Agreement, each Principal will be required to
agree, that during the period
34
commencing on the date of this Agreement and ending on the second anniversary of
the Effective Time, he shall not:
(i) sell, transfer, exchange, distribute, pledge (including
by means of "negative pledge"), or otherwise dispose of,
(ii) purchase, sell, grant or issue any option or forward delivery
or futures contract with respect to,
(iii) enter into or establish any "short" or put-equivalent
position or similar transaction, through derivative securities or otherwise
(whether settlement is by delivery of securities, in cash or otherwise), or
any swap, exchange fund or any other similar transaction which is intended
to have, or has, the effect of reducing, in whole or in part, directly or
indirectly, the risk of ownership, with respect to,
(iv) exercise any stock appreciation rights or other similar
rights with respect to, or
(v) offer or agree to do any of the foregoing with respect to
any shares of Acquiror Common Stock or Target Common Stock or any securities
convertible into or exchangeable or exercisable for Acquiror Common Stock or
Target Common Stock ("Convertible Securities") held or hereafter acquired by him
----------------------
or by any member of his immediate family or any trust or other entity in which
he or any such immediate family member has an interest or is a beneficiary (each
a "Restricted Affiliate" and collectively the "Restricted Affiliates"),
-------------------- ---------------------
including shares of Acquiror Common Stock received in the Merger or upon
exercise of any Assumed Option, but excluding shares acquired in open-market
purchases or pursuant to Acquiror's employee stock purchase plan following the
Effective. Notwithstanding the restrictions set forth in the preceding sentence,
(x) the Principals may transfer shares of Acquiror Common Stock and Assumed
Options to their respective Restricted Affiliates, but such shares and options
shall remain subject to the restrictions contained herein, and (y) each
Principal and such Principal's Restricted Affiliates collectively may (subject
to the provisions of Section 5.12 and compliance with applicable law) sell a
------------
number of shares of Acquiror Common Stock not to exceed an aggregate of ten
percent (10%) of the sum of (A) the total number of shares of Acquiror Common
Stock issued to such Principal in the Merger plus (B) the total number of shares
of Acquiror Common Stock issuable upon exercise of such Principal's Assumed
Options.
(c) From and after the first anniversary of the Effective Time, each
Principal shall have the right to submit, and Acquiror shall consider, one or
more reasonable requests for permission to sell a reasonable number of shares of
Acquiror Common Stock in excess of the limitations set forth in clause (y) of
Section 5.13(b) and for the registration of such shares in accordance with the
---------------
applicable provisions of Section 5.12. Any such request shall be considered in
------------
good faith in light of existing market and business conditions affecting
Acquiror and the Surviving Corporation; provided, that no Principal shall make
more than two such requests in any twelve (12) month period.
35
(d) If required by Acquiror in writing delivered to Target not less
than five (5) days before the Closing Date, Target shall, immediately prior to
the Closing Date, terminate any 401(k) Plan maintained by Target (the "401(k)
-----------
Plan") and no further contributions shall be made to the 401(k) Plan. Target
shall provide to Acquiror (i) executed resolutions by the Board of Directors of
Target authorizing the termination and (ii) an executed amendment to the 401(k)
Plan sufficient to assure compliance with all applicable requirements of the
Internal Revenue Code and regulations thereunder so that the tax-qualified
status of the 401(k) Plan will be maintained at the time of termination.
5.14 Expenses. Whether or not the Merger is consummated, but subject (if
the Merger is consummated) to the provisions of Section 1.6 and Exhibit B
----------- ---------
relating to the Cash Adjustments, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby and thereby shall
be paid by the party incurring such expense.
5.15 Reasonable Efforts and Further Assurances. Each of the parties to this
Agreement shall use its commercially reasonable efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement; provided, however, that Acquiror
shall not be obligated to consent to or accept any divestiture or operational
limitation in connection with the Merger or to make any payment or commercial
concession to any third party as a condition to obtaining any required consent
or approval of any third party. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.16 Tax Treatment. Acquiror and Target shall each use reasonable
commercial efforts to cause the Merger to qualify, and shall not knowingly take
any actions or cause any actions to be taken which could reasonably be expected
to prevent the Merger from qualifying, as a "reorganization" under Section
368(a) of the Internal Revenue Code.
5.17 Certain Tax Matters.
(a) Post-Closing Tax Returns. Acquiror and the Surviving Corporation
-------------------------
shall prepare (or cause to be prepared), and the Surviving Corporation shall
timely file, all Tax Returns for Target that are required to be filed after the
Closing Date and that relate to any Taxable period (or portion thereof) ending
on or before the Closing Date ("Pre-Closing Tax Returns"). The Shareholders'
-----------------------
Agent shall have the right to review and comment on each Pre-Closing Tax Return
and shall be furnished with a preliminary copy of each Pre-Closing Tax Return,
in draft form, at least ten (10) business days prior to the filing thereof.
(b) Cooperation. Acquiror, the Surviving Corporation, Target, the
------------
Shareholders' Agent and the Principals shall cooperate fully, as and to the
extent reasonably requested by the other parties, in connection with the filing
of Pre-Closing Tax Returns pursuant to Section 5.17(a) and any audit, litigation
---------------
or other proceeding with respect to Taxes relating to Target, the Surviving
Corporation or the transactions contemplated by this Agreement. Neither the
Shareholders' Agent nor any of the principals shall take any position at any
time, in any litigation, arbitration or claim, any Tax Return, any filing with
or submission to or statement
36
before any Governmental Entity, any financial statement or any other writing,
that is inconsistent with the Pre-Closing Tax Returns filed by Acquiror and the
Surviving Corporation for Target pursuant to Section 5.17(a) or any valuation
---------------
established by this Agreement or the Escrow Agreement.
5.18 Lock-Up Agreements. Acquiror shall use its commercially
reasonable efforts to obtain the consent of Bear, ▇▇▇▇▇▇▇ & Co. to permit the
Acquiror Common Stock to be issued in the Merger, as required under the
underwriting agreement between Acquiror and Bear, ▇▇▇▇▇▇▇ & Co., as
representatives of the underwriters, for Acquiror's initial public offering.
Target shall use commercially reasonable efforts to obtain and deliver to
Acquiror executed lock-up agreements from each Target Shareholder in the form of
Exhibit F hereto (the "Lock Up Agreement").
--------- -----------------
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Consummate the Merger. The
respective obligations of each party to this Agreement to consummate the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by
agreement of all the parties hereto:
(a) Shareholder Approval. This Agreement and the Merger shall have
---------------------
been approved and adopted by the holders of a majority of the shares of Target
Capital Stock outstanding as of the record date set for the Target Stockholders
Meeting, and any agreements or arrangements that may result in the payment of
any amount that would not be deductible by reason of Section 280G of the
Internal Revenue Code shall have been approved by such number of shareholders of
Target as is required by the terms of Section 280G(b)(5)(B) and shall be
obtained in a manner which satisfies all applicable requirements of such
Internal Revenue Code Section 280(G)(b)(5)(B) and the proposed Treasury
Regulations thereunder, including Q-7 of Section 1.280G-1 of such proposed
regulations.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
-----------------------------------------
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use
commercially reasonable efforts to have such injunction or other order lifted.
(c) Governmental Approval. All waiting periods (if any) applicable to
----------------------
the consummation of the Merger under the HSR Act shall have expired or been
terminated, and Acquiror, Merger Sub and Target shall have obtained from each
Governmental Entity all approvals, waivers and consents, if any, necessary for
the consummation of the Merger and the
37
transactions contemplated hereby, including such approvals, waivers and consents
as may be required under the Securities Act and state Blue Sky laws.
(d) Tax Opinion. Acquiror and Target shall have received written
------------
opinions of Acquiror's tax advisor and Target's legal counsel, respectively, in
form and substance reasonably satisfactory to them, and dated on or about the
Closing Date to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, and such
opinions shall not have been withdrawn. In rendering such opinions, counsel
shall be entitled to rely upon, among other things, reasonable assumptions as
well as representations of Acquiror and Target.
(e) Escrow Agreement. Acquiror, Target, Escrow Agent and the
-----------------
Shareholders' Agent (as defined in Article VIII) shall have entered into an
------------
Escrow Agreement substantially in the form attached hereto as Exhibit G.
----------
6.2 Additional Conditions to Obligations of Target. The obligation of
Target to consummate the Merger shall be subject to the satisfaction at or prior
to the Effective Time of each of the following conditions, any of which may be
waived, in writing, by Target:
(a) Representations, Warranties and Covenants. Except as disclosed in
------------------------------------------
the Acquiror Disclosure Schedule dated the date of this Agreement, (i) the
representations and warranties of Acquiror and Merger Sub in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality, which representations and warranties as so qualified shall be
true and correct in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them prior to the Effective Time.
(b) Certificate of Acquiror and Merger Sub. Target shall have received
---------------------------------------
a certificate executed on behalf of Acquiror and Merger Sub by its President and
its Chief Financial Officer to the effect that, as of the Effective Time:
(i) except as disclosed in the Acquiror Disclosure Schedule dated
the date of this Agreement, all representations and warranties made by
Acquiror and Merger Sub under this Agreement are true and complete in all
material respects (except for such representations and warranties that are
qualified by their terms by reference to materiality, which representations
and warranties as so qualified shall be true and correct in all respects);
and
(ii) all covenants, obligations and conditions of this Agreement
to be performed by Acquiror and Merger Sub on or before such date have been
so performed in all material respects.
(c) Legal Opinion. Target shall have received a legal opinion from
--------------
Acquiror's legal counsel substantially in the form of Exhibit I hereto.
---------
38
(d) Third Party Consents. Target shall have received evidence
---------------------
reasonably satisfactory to it of the consent or approval of Bear, ▇▇▇▇▇▇▇ & Co.
to permit the Acquiror Common Stock to be issued in the Merger, as required
under the underwriting agreement between Acquiror and Bear, ▇▇▇▇▇▇▇ & Co., as
representatives of the underwriters, for Acquiror's initial public offering.
(e) No Material Adverse Changes. There shall not have occurred any
----------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of Acquiror, it being understood and agreed that a change
in the market price of Acquiror Common Stock, in and of itself, shall not be
deemed to constitute such a material adverse change.
6.3 Additional Conditions to Obligations of Acquiror and Merger Sub. The
obligation of Acquiror to consummate the Merger and the other transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Effective Time of each of the following conditions, any of which may be
waived, in writing, by Acquiror and Merger Sub:
(a) Representations, Warranties and Covenants. Except as disclosed in
------------------------------------------
the Target Disclosure Schedule dated the date of this Agreement (i) the
representations and warranties of Target and the Principals in this Agreement
shall be true and correct in all material respects (except for such
representations and warranties that are qualified by their terms by a reference
to materiality, which representations and warranties as so qualified shall be
true in all respects) on and as of the Effective Time as though such
representations and warranties were made on and as of such time, without giving
effect to any supplement or amendment to the Target Disclosure Schedule, and
(ii) Target and the Principals shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them prior to the Effective Time.
(b) Certificate of Target and the Principals. Acquiror shall have
-----------------------------------------
received a certificate executed on behalf of Target by its President and Chief
Financial Officer and by the Principals to the effect that, as of the Effective
Time:
(i) except as set forth in the Target Disclosure Schedule dated
the date of this Agreement, without giving effect to any supplement or
amendment to the Target Disclosure Schedule, all representations and
warranties made by Target and the Principals under this Agreement are true
and complete in all material respects (except for such representations and
warranties that are qualified by their terms by reference to materiality,
which representations and warranties as so qualified shall be true and
correct in all respects); and
(ii) all covenants, obligations and conditions of this Agreement
to be performed by Target and the Principals on or before such date have
been so performed.
(c) Third Party Consents. Acquiror shall have received evidence
---------------------
reasonably satisfactory to it of the consent or approval of those persons and
entities whose consent or approval shall be required in connection with the
Merger under the Material Contracts of Target set forth or required to be set
forth on Section 2.3 or 2.28 of the Target Disclosure Schedule.
------------------------------------------------------
39
(d) Injunctions or Restraints on Merger and Conduct of Business. No
------------------------------------------------------------
proceeding by any administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, seeking to prevent the
consummation of the Merger or to limit or restrict Acquiror's conduct or
operation of the business of Target following the Merger shall be pending, and
no temporary restraining order, preliminary or permanent injunction or other
order by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target following the Merger shall be in effect.
(e) Legal Opinion. Acquiror shall have received a legal opinion from
--------------
Target's legal counsel, in substantially the form of Exhibit J.
----------
(f) No Material Adverse Changes. There shall not have occurred any
----------------------------
material adverse change in the condition (financial or otherwise), properties,
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of Target, it being understood and agreed that the
effects of the earthquakes in Taiwan in September 1999 shall not be deemed to
constitute such a material adverse change.
(g) Voting Agreements; Shareholder Representation Agreements. Acquiror
---------------------------------------------------------
shall have received from holders of a majority of all shares of Target Capital
Stock issued and outstanding an executed Voting Agreement in substantially the
form attached hereto as Exhibit D. Acquiror shall have received from each Target
----------
shareholder an executed Shareholder Representation Agreement in substantially
the form attached hereto as Exhibit E.
----------
(h) FIRPTA Certificate. Target shall, prior to the Closing Date,
-------------------
provide Acquiror with a properly executed FIRPTA Notification Letter,
substantially in the form of Exhibit K attached hereto, which states that shares
---------
of capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Internal Revenue Code, for purposes of
satisfying Acquiror's obligations under Treasury Regulation Section
1.1445-2(c)(3). In addition, simultaneously with delivery of such Notification
Letter, Target shall have provided to Acquiror, as agent for Target, a form of
notice to the Internal Revenue Service in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2) and substantially in the form of
Exhibit K attached hereto along with written authorization for Acquiror to
---------
deliver such notice form to the Internal Revenue Service on behalf of Target
upon the Closing of the Merger.
(i) Resignation of Directors and Officers. The directors and officers
--------------------------------------
of Target in office immediately prior to the Effective Time shall have resigned
as directors and officers, as applicable, of Target effective as of the
Effective Time.
(j) Continuation and Non-Competition Agreements; Waivers. Each of
-----------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Kassimidis, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇ shall
have entered into a Continuation and Non-Competition Agreement in substantially
the form attached hereto in Exhibit G, and each holder of outstanding Target
----------
Options shall have executed a Waiver, in substantially the form attached hereto
as Exhibit L (or other form reasonably satisfactory to Acquiror and Target),
---------
with respect to his or her outstanding Target Options.
40
(k) Certificates of Good Standing. Target shall, prior to the Closing
------------------------------
Date, provide Acquiror a certificate from the Secretary of State of California
and the Franchise Tax Board of California as to Target's good standing and
payment of all applicable taxes.
(l) Lock-up Agreements. Each of the Target shareholders shall have
-------------------
entered into a Lock-Up Agreement with Bear, ▇▇▇▇▇▇▇ & Co. in the form of
Exhibit F hereto.
---------
(m) Note and Security Agreement. Target shall be in full compliance
----------------------------
with the Promissory Note and Security Agreement dated June 30, 1999 between
Acquiror and Target.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether before or
after approval of the matters presented in connection with the Merger by the
shareholders of Target, this Agreement may be terminated:
(a) by mutual agreement in writing, duly authorized by the Board of
Directors of Acquiror and Target;
(b) by either Acquiror or Target, by written notice to the other
party, if the Closing shall not have occurred on or before November 30, 1999,
(provided that a later date may be agreed upon in writing by the parties hereto,
and provided further that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure to
--------------
act has been the cause or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a breach of this
Agreement);
(c) by Acquiror, by written notice to Target, if Target shall breach
in any material respect any representation, warranty, obligation or agreement
hereunder (except for such representations and warranties that are qualified by
their terms by reference to materiality, which representations and warranties as
so qualified shall have been breached in any respect) and such breach shall not
have been cured within ten (10) business days of receipt by Target of written
notice of such breach, provided that the right to terminate this Agreement by
Acquiror under this Section 7.1(c) shall not be available to Acquiror where
--------------
Acquiror is at that time in breach of this Agreement;
(d) by Target, by written notice to Acquiror, if Acquiror shall breach
in any material respect any representation, warranty, obligation or agreement
hereunder (except for such representations and warranties that are qualified by
their terms by reference to materiality, which representations and warranties as
so qualified shall have been breached in any respect) and such breach shall not
have been cured within five (5) days following receipt by Acquiror of written
notice of such breach, provided that the right to terminate this Agreement by
Target under this Section 7.1(d) shall not be available to Target where Target
--------------
is at that time in breach of this Agreement;
41
(e) by Acquiror, by written notice to Target, if (i) any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or (ii) if
any required approval of the shareholders of Target shall not have been obtained
by reason of the failure to obtain the required vote upon a vote held at a duly
held meeting of shareholders or at any adjournment thereof; or
(f) by Target, by written notice to Acquiror, if any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable.
7.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 7.1, this Agreement shall forthwith become void and there
------------
shall be no liability or obligation on the part of Acquiror or Target or their
respective officers, directors, shareholders or affiliates, except to the extent
that such termination results from the bad faith or willful breach by a party
hereto of any of its representations, warranties or covenants set forth in this
Agreement; provided that the provisions of Section 5.4 (Confidentiality),
-----------
Section 7.3 (Expenses and Termination Fees) and this Section 7.2 shall remain in
----------- -----------
full force and effect and survive any termination of this Agreement.
7.3 Expenses and Termination Fees. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such expense
if the Merger is not consummated; and, if the Merger is consummated, by Acquiror
(in the case of expenses incurred by Acquiror or Merger Sub), by Target (in the
case of expenses incurred by Target not exceeding five hundred thousand dollars
($500,000)) and by the shareholders of Target (in the case of expenses incurred
by Target in excess of five hundred thousand dollars ($500,000)).
ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 Escrow Fund. As soon as practicable after the Effective Time the Escrow
Shares and the Escrow Options shall be registered (as nominee for the Target
shareholders and option holders otherwise entitled to such shares and options)
in the name of, and be deposited with, State Street Bank and Trust Company of
California, N.A. (or another institution selected by Acquiror with the
reasonable consent of Target) as escrow agent (the "Escrow Agent"), and the
------------
Escrow Cash shall be deposited with the Escrow Agent, such deposits (together
with interest and other income thereon) to constitute an escrow fund (the
"Escrow Fund") and to be governed by the terms set forth herein and in the
Escrow Agreement attached hereto as Exhibit G. The Escrow Fund shall be
---------
available to satisfy, and to compensate Acquiror for amounts recoverable by
Acquiror pursuant to, the indemnification obligations of the shareholders of
Target.
8.2 Indemnification.
(a) Subject to the limitations set forth in this Article VIII, the
-------------
shareholders and option holders of Target will indemnify and hold harmless
Acquiror and its officers,
42
directors, agents and employees, and each person, if any, who controls or
may control Acquiror within the meaning of the Securities Act
(hereinafter referred to individually as an "Indemnified Person" and
------------------
collectively as "Indemnified Persons") from and against any and all losses
-------------------
(including lost profits or diminution in value), costs, damages, fines, fees,
liabilities, penalties, deficiencies and expenses arising from claims, demands,
actions, causes of action, including reasonable fees of attorneys, accountants,
investigators and experts, and court costs, less the amount of any tax benefit
actually received by Acquiror as a result of such losses, costs, damages etc.,
amounts actually recovered by Acquiror under existing insurance policies of
Acquiror or Target (net of any related increase in premiums paid by Acquiror or
Target) or indemnities from third parties or, in the case of third party claims,
any amount actually recovered by Acquiror pursuant to counterclaims made by
Acquiror directly relating to the facts giving rise to such third party claims
(collectively, "Losses") arising out of (i) any misrepresentation or breach of
------
or default in connection with any of the representations, warranties, covenants
and agreements given or made by Target or any Principal or other shareholder of
Target in this Agreement, the Target Disclosure Schedule, or any certificate,
instrument or document delivered by Target or any Principal or other shareholder
of Target pursuant to this Agreement, or (ii) the issuance of Target Options in
excess of applicable limitations and without required approvals. The Escrow Fund
shall be security for this indemnity obligation, subject to the limitations in
this Agreement; provided, however, that no claim for indemnification shall be
made (1) until aggregate Losses exceed fifty-thousand dollars ($50,000) (at
which point the Indemnified Persons shall be entitled to recover indemnification
for all such Losses including Losses relating back to the first dollar), and (2)
in excess of an amount that is equal to the aggregate of the Escrow Amount; and
provided further, that the limitations set forth in the immediately preceding
clauses (1) and (2) shall not apply to limit the liability of Target
shareholders or the rights of Acquiror or any other Indemnified Person with
respect to (w) Losses resulting from or attributable to fraud or willful
misconduct by Target or any Target shareholder, (x) Losses resulting from or
attributable to the issuance of Target Options in excess of the number of
options then authorized for issuance by the Target Stock Option Plan as then in
effect and without required approval of Target shareholders, (y) Taxes pursuant
to Section 8.2(b), or (z) payments pursuant to Section 1.13 of this Agreement.
--------------- ------------
(b) In addition to the indemnification provided by Section 8.2(a), the
---------------
shareholders of Target and the Principals will indemnify and hold harmless, from
and after the Effective Time, each Indemnified Person from and against (A) all
liability for Taxes of Target for the periods ending on or prior to the Closing
Date (each such period a "Pre-Closing Tax Period"); (B) all liability for Taxes
----------------------
(as a result of Treasury Regulation Section 1.1502-6 or any comparable provision
of state, local or foreign Tax law) of any person which at any time prior to the
Closing is or has ever been affiliated with Target or with which at any time
prior to the Closing Target joins or has ever joined or is or has ever been
required to join in filing any affiliated, consolidated, combined, unitary or
aggregate Tax Return; (C) all liability for Taxes that result from Target's
failure to withhold from amounts paid by Target prior to the Closing Date; (D)
all liability for Taxes of Target for any tax period beginning and ending after
the Closing Date (each such period, a "Post-Closing Tax Period") that result by
-----------------------
reason of the application in a Pre-Closing Tax Period of Section 481 of the Code
or any comparable provisions of state, local, domestic or foreign Tax law; (E)
all liability for Taxes of Target as a result of a breach of a representation or
warranty set forth in Section 2.13; (F) all liability for Taxes required to be
-------------
paid after the Closing Date by Target under any Tax sharing, Tax indemnity, Tax
allocation or similar contract (whether or not written) to which Target is or
was a party prior to
43
the Closing; and (G) all liability for reasonable legal and accounting
fees and expenses for or with respect to any item in clause (A), (B), (C), (D),
(E) or (F) above ; provided, however, that the aggregate indemnification
obligation in respect of Taxes described in each of clauses (A) through (F)
above shall be reduced to the extent that, in accordance with GAAP, amounts in
respect of such Taxes have otherwise been adequately reserved for on
the Target Balance Sheet. In the case of any taxable period that includes (but
does not end on) the Closing Date (a "Straddle Period"): (A) real, personal and
---------------
intangible property Taxes ("Property Taxes") of Target with respect to which the
--------------
Indemnified Persons shall be indemnified shall be equal to the amount of such
Property Taxes for the entire Straddle Period multiplied by a fraction, the
numerator of which is the number of days during the Straddle Period that are in
the Pre-Closing Tax Period and the denominator of which is the number of days in
the Straddle Period; and (B) the Taxes of Target (other than Property Taxes) for
the Pre-Closing Tax Period shall be computed as if such Taxable period ended as
of the close of business on the Closing Date, and, in the case of any Taxes of
Target attributable to the ownership by Target of any equity interest in any
partnership or other "flowthrough" entity, as if a Taxable period of such
partnership or other "flowthrough" entity ended as of the close of business on
the Closing Date. All indemnification payments hereunder shall be due on the
later of (i) the date on which the relevant Taxes are required to be paid to the
relevant Taxing Authority (including with respect to estimated Taxes) and (ii)
five business days after Parent notifies the Representative that such Taxes are
due (and the amount thereof).
(c) Acquiror and Target each acknowledge that the Losses and Taxes
indemnifiable pursuant to this Article VIII, if any, would relate to unresolved
-------------
contingencies existing at the Effective Time, which if resolved at the Effective
Time would have led to a reduction in the cash and the total number of shares
Acquiror would have agreed to issue in connection with the Merger and the
assumption of the Assumed Options. Nothing in this Agreement shall limit the
liability (i) of Target for any breach of any representation, warranty or
covenant, or (ii) of any Target shareholder in connection with any breach by
such shareholder of the Shareholder Representation Agreement or the Voting
Agreement (including the Irrevocable Proxy annexed thereto). Notwithstanding the
foregoing, the maximum amount of Losses recoverable by Acquiror for breaches of
Target's representations and warranties under this Agreement shall be limited to
the consideration actually paid by Target under this Agreement, unless such
breach resulted from Target's fraudulent, intentional or reckless conduct or
misrepresentations, for which no such limitation shall apply.
(d) Notwithstanding any other provision of this Agreement, no
shareholder or option holder of Target shall be liable, under any circumstances
other than direct personal participation in fraud or willful misconduct, to pay
any amount under this Article VIII in excess of such shareholder's or option
------------
holder's portion of the Total Merger Consideration.
8.3 Escrow Period. The Escrow Period shall terminate at the one year
anniversary of the Effective Time; provided, however, that a portion of the
Escrow Fund, which in the reasonable judgment of Acquiror, is necessary to
satisfy any unsatisfied claims specified in any Officer's Certificate
theretofore delivered to the Escrow Agent prior to termination of the Escrow
Period with respect to facts and circumstances existing prior to expiration of
the Escrow Period, shall remain in the Escrow Fund until such claims have been
resolved. Acquiror shall deliver to the Escrow Agent a certificate specifying
the Effective Time.
44
8.4 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the last day of the
Escrow Period of a certificate signed by any officer of Acquiror (an
"Officer's Certificate") specifying in reasonable detail the individual items of
---------------------
indemnifiable Losses or Taxes included in the amount so stated, the date each
such item was paid, or properly accrued or arose, and the basis for
indemnification, the Escrow Agent shall deliver to Acquiror out of the Escrow
Fund, as promptly as practicable, cash in satisfaction of such Losses, and if
there is then no cash available, Acquiror Common Stock and Target Options or
other assets held in the Escrow Fund having a value equal to such Losses.
(b) For the purpose of compensating Acquiror for its Losses pursuant
to this Agreement, the Acquiror Common Stock in the Escrow Fund shall be valued
at the Average Closing Price (as defined in Exhibit B).
---------
(c) Objections to Claims. At the time of delivery of any Officer's
---------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Shareholders' Agent and for a period of thirty (30) days after
such delivery, the Escrow Agent shall make no delivery to Acquiror of any Escrow
Amounts unless the Escrow Agent shall have received written authorization from
the Shareholders' Agent to make such delivery. After the expiration of such
thirty (30) day period, the Escrow Agent shall make delivery of shares of
Acquiror Common Stock from the Escrow Fund, provided that no such payment or
delivery may be made if the Shareholders' Agent shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such
thirty (30) day period.
(d) Resolution of Conflicts; Arbitration. In case the Shareholders'
Agent shall object in writing to any claim or claims made in any Officer's
Certificate, the Shareholders' Agent and Acquiror shall attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholders' Agent and Acquiror should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and distribute shares of Acquiror Common Stock from
the Escrow Fund in accordance with the terms thereof. If no such agreement can
be reached after good faith negotiation, either Acquiror or the Shareholders'
Agent may demand arbitration of the dispute unless the amount of the damage or
loss is at issue in a pending Action or Proceeding involving a Third Party
Claim, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either event the matter
shall be settled by arbitration conducted by three (3) arbitrators, one (1)
selected by Acquiror and one (1) selected by the Shareholders' Agent, and one
(1) selected by the two (2) arbitrators selected by Acquiror and the
Shareholders' Agent shall select a third arbitrator. The arbitrators shall set a
limited time period and establish procedures designed to reduce the cost and
time for discovery of information relating to any dispute while allowing the
parties an opportunity, adequate as determined in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel, limit or allow discovery as they shall deem appropriate given the nature
and extent of the disputed claim. The arbitrators shall also have the authority
to impose sanctions, including
45
attorneys' fees and other costs incurred by the parties, to the same extent
as a court of law or equity, should the arbitrators determine that discovery
was sought without substantial justification or that discovery was refused or
objected to by a party without substantial justification. The decision
of a majority of the three (3) arbitrators as to the validity and amount of
any claim in such Officer's Certificate shall be binding and conclusive
upon the parties to this Agreement, and notwithstanding anything
in this Article VIII, the Escrow Agent shall be entitled to act in accordance
-------------
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions regarding the dispute which shall set
forth the award, judgment, decree or order awarded by the arbitrators. Judgment
upon any award rendered by the arbitrators may be entered in any court having
competent jurisdiction. Any such arbitration shall be held in the city and
county of Santa Clara, California under the commercial rules of arbitration then
in effect of the American Arbitration Association. In any arbitration pursuant
to this Section 8.4 to resolve a claim for indemnification, each party shall pay
-----------
its own expenses. Target shareholders (out of the Escrow Fund) shall pay a
fraction of the fees of the (i) arbitrators and the administrative costs of the
arbitration equal to the quotient obtained by dividing the amount awarded by the
arbitrators with respect to such claim (or agreed in settlement of such claim)
by (ii) the portion of the indemnification claim disputed by the Shareholders'
Agent; and the balance of such fees and administrative costs shall be paid by
Acquiror.
8.5 Shareholders' Agent.
(a) Prior to the Closing, the shareholders and option holders of
Target shall constitute and appoint an agent ("Shareholders' Agent") for and on
-------------------
behalf of the Target shareholders and option holders to give and receive notices
and communications, to authorize delivery to Acquiror of the Acquiror Common
Stock or other property from the Escrow Fund in satisfaction of claims by
Acquiror, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Shareholders' Agent for
the accomplishment of the foregoing. Such agency may be changed by the holders
of a majority in interest of the Escrow Fund from time to time upon not less
than ten (10) days' prior written notice to Acquiror. No bond shall be required
of the Shareholders' Agent. Notices or communications to or from the
Shareholders' Agent shall constitute notice to or from each of the Target
shareholders and option holders.
(b) The Shareholders' Agent shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Target
shareholders and option holders shall severally indemnify the Shareholders'
Agent and hold him harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Shareholders' Agent and
arising out of or in connection with the acceptance or administration of his
duties hereunder.
(c) The Shareholders' Agent shall have reasonable access to
information about the Surviving Corporation and the reasonable assistance of
officers and employees of the Surviving Corporation for purposes of performing
its duties and exercising its rights hereunder, provided that the Shareholders'
Agent shall treat confidentially and not disclose any nonpublic
46
information from or about Target to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
8.6 Actions of the Shareholders' Agent. A decision, act, consent or
instruction of the Shareholders' Agent shall constitute a decision of all Target
shareholders and option holders for whom shares of Acquiror Common Stock and
Target Options otherwise issuable to them are deposited in the Escrow Fund and
shall be final, binding and conclusive upon each such Target shareholder and
option holder, and the Escrow Agent and Acquiror may rely upon any decision,
act, consent or instruction of the Shareholders' Agent as being the decision,
act, consent or instruction of each and every such Target shareholder and option
holder. The Escrow Agent and Acquiror are hereby relieved from any liability to
any person or entity for any acts done by them in accordance with such decision,
act, consent or instruction of the Shareholders' Agent.
8.7 Third-Party Claims.
(a) In the event Acquiror becomes aware of a third-party claim which
Acquiror believes may result in a demand against the Escrow Fund, Acquiror shall
promptly notify the Shareholders' Agent of such claim; provided, however, that
no delay in notifying the Shareholders' Agent shall affect the rights of any
Indemnified Person to indemnification hereunder unless (and then solely to the
extent that) the interests of Target shareholders and option holders in the
Escrow Fund are prejudiced or damaged thereby. By written notice to Acquiror
within twenty (20) days after delivery of notice of such a claim, the
Shareholders' Agent and the Target shareholders for whom shares of Acquiror
Common Stock otherwise issuable to them are deposited in the Escrow Fund shall
be entitled, at their expense, to participate in any defense of such claim by
Acquiror, which (subject to the provisions of Section 8.7(b) with respect to
--------------
certain third-party claims) shall direct the defense and settlement of such
claims. Acquiror shall have the right in its sole discretion to settle any such
claim; provided, however, that Acquiror may not effect the settlement of any
such claim without the consent of the Shareholders' Agent, which consent shall
not be unreasonably withheld. In the event that the Shareholders' Agent has
consented to any such settlement, the Shareholders' Agent shall have no power or
authority to object under Section 8.5 or any other provision of this Article
----------- -------
VIII to the amount of any claim by Acquiror against the Escrow Fund for
----
indemnity with respect to such settlement.
(b) Except in the case of claims for equitable relief and claims for
money damages which may exceed the amounts then remaining and available in the
Escrow Fund for indemnification under this Article VIII, the Shareholders' Agent
-------------
shall be entitled to assume the defense of such claim, by written notice to
Acquiror within twenty (20) days after delivery of notice of a third-party claim
pursuant to Section 8.7(a). If the Shareholders' Agent Assumes the defense of
---------------
such a claim, (i) the Shareholders' Agent shall defend the Indemnified person
against the matter with counsel reasonably satisfactory to the Indemnified
Person; (ii) the Indemnified Person may retain separate co-counsel at its sole
cost and expense (except that the Shareholders' Agent shall be responsible for
the fees and expenses of the separate co-counsel to the extent that the counsel
the Shareholders' Agent has selected has a conflict of interest); (iii) the
Indemnified Person will not consent to the entry of any judgment or enter into
any settlement with respect to the matter without the written consent of the
Shareholders' Agent (not to be withheld unreasonably); and (iv) the
Shareholders' Agent will not consent to the entry of any judgment
47
with respect to the matter, or enter into any settlement which does not include
a provision whereby the plaintiff or claimant in the matter releases Acquiror
and the Indemnified Person from all liability with respect thereto, without the
written consent of Acquiror and the Indemnified Person. In the event the
Shareholders' Agent does not timely assume the defense of such third-party claim
as provided herein, then Acquiror and the Indemnified Person may defend against,
or enter into any settlement with respect to, the matter in any manner they
reasonably may deem appropriate. At any time after commencement of any such
action, the Shareholders' Agent may request an Indemnified Person to accept a
bona fide offer from the other parties to the action for a monetary settlement
payable solely by Target shareholders and option holders (which does not burden
or restrict the Acquiror or Indemnified Person nor otherwise prejudice the
Acquiror or Indemnified Person) whereupon such settlement shall be accepted
unless the Acquiror or Indemnified Person determines that the dispute should be
continued. In the event such settlement is rejected by the Acquiror or
Indemnified Person, Target shareholders and option holders shall be liable for
indemnity hereunder only to the extent of the lesser of (i) the amount of the
settlement offer or (ii) the amount for which the Acquiror or Indemnified Person
is liable with respect to such action and, if the settlement offer represents
the lesser amount of liability for the Acquiror or Indemnified Person (but does
not burden or restrict the Acquiror or Indemnified Person nor otherwise
prejudice the Acquiror or Indemnified Person), the Shareholders' Agent shall be
entitled to reimbursement of all costs and legal fees incurred in connection
with the applicable matter after the date of rejection of such settlement by the
Acquiror or Indemnified Person. The party controlling the defense of any third
party claim shall deliver, or cause to be delivered, to the other party copies
of all correspondence, pleadings, motions, briefs, appeals or other written
statements relating to or submitted in connection with the defense of the third
party claim, and timely notices of, and the right to participate in (as an
observer) any hearing or other court proceeding relating to the third party
claim.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival at Effective Time. The representations and warranties set
forth in Articles II and III will survive until the expiration of the Escrow
-------------------
Period, other than the representations and warranties in Sections 2.10, 2.11,
--------------------
2.12 and 2.13 and the representations and warranties in the Shareholder
-------------
Representation Agreement, which shall survive until the expiration of the
statute of limitations applicable to claims with respect to the matters covered
thereby. The agreements set forth in this Agreement shall terminate at the
Effective Time, except that the agreements set forth in Article I, Section 5.4
----------------------
(Confidentiality), Section 5.7 (Shareholder Representation Agreements),
-----------
Section 5.8 (Voting Agreement/Irrevocable Proxies), Section 5.10 (Employee
----------- ------------
Benefit Plans), Section 5.15 (Reasonable Efforts and Further Assurances),
-------------
Section 7.3 (Expenses and Termination Fees), Article VIII and this Article IX,
----------- ------------ -----------
and any other agreement which by its terms is to be performed after the
Effective Time, shall survive the Effective Time and the Closing.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of
48
receipt) to the parties at the following address (or at such other address
for a party as shall be specified by like notice):
(a) if to Acquiror or Merger Sub, to:
RAVISENT Technologies Inc.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
with a copy to: ▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to Target, to:
Teknema, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Bay Venture Counsel LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to the Principals:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ Kassimidis
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.3 Certain Definitions; Interpretation. In this Agreement, any reference
to a "Material Adverse Effect" with respect to any entity or group of entities
means any event, change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, prospects, operations or results of operations of such
entity and its subsidiaries, taking such entity together with such subsidiaries
as a whole. In this Agreement, any reference to a party's "knowledge" means
actual knowledge of such party's officers and directors after reasonable inquiry
consistent with such person's duties. When a reference is made in this Agreement
to a Section, an Article or an Exhibit, such reference shall be to a Section or
Article of this Agreement or an Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "but are not limited
to," "but is not limited to" and "but not limited to," respectively. The phrase
"made available" in this Agreement shall mean that the information referred to
has been made available if requested by the party to whom such information is to
be made available. The phrases "the date of this Agreement", "the date hereof",
and terms of similar import, unless the context otherwise requires, shall be
deemed to refer to October 8, 1999. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Parties in Interest; Nonassignability. This Agreement
and the documents and instruments and other agreements specifically referred to
herein or delivered pursuant hereto, including the Exhibits and Schedules, the
Target Disclosure Schedule and the Acquiror Disclosure Schedule constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, except for the
Confidentiality Agreement, which shall continue in full force and effect, and
shall survive any termination of this Agreement or the Closing, in accordance
with its terms. Neither this Agreement nor any right, interest or obligation
hereunder may be assigned (by operation of law or otherwise) by any party
without the prior written consent of the other party and any attempt to do so
will be void. Subject to the preceding sentence, this Agreement is binding upon,
inures to the benefit of and is enforceable by the parties hereto and their
respective successors and assigns.
9.6 Severability. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future Law, and if the rights or
obligations of any party hereto under this Agreement will not be materially and
adversely affected thereby, (a) such provision will be fully severable, (b) this
Agreement will be construed and enforced as if such
50
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
9.7 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.8 Governing Law; Forum. This Agreement shall be governed by and construed
in accordance with the laws of California without reference to such state's
principles of conflicts of law. Each of the parties hereto irrevocably (i)
consents to the exclusive jurisdiction of any court of the United States or the
State of California located within the County of Santa ▇▇▇▇▇ in the State of
California in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, (ii) agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons, and (iii) waives and covenants not to assert or plead any
objection which they might otherwise have (including any objection on the basis
of inconvenient forum) to such jurisdiction, venue and such process.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and therefore waive the application of any law, regulation, holding or
rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
9.10 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
9.11 No Third-Party Beneficiary. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors and permitted assigns, and it is not the intention of the parties to
confer upon any other person or entity any rights or remedies, except the right
of Target shareholders to receive the applicable consideration set forth in
Section 1.6, the right of Target Option holders to have their Target Options
------------
assumed by Acquiror pursuant to Section 1.6(d), and the registration rights of
---------------
certain Target shareholders and Target Option holders set forth in Section 5.12.
-------------
51
IN WITNESS WHEREOF, RAVISENT Technologies Inc., RVST Acquisition Corp.
and Teknema, Inc. have caused this Agreement to be executed and delivered by
their respective officers thereunto duly authorized, and each Principal has
executed and delivered this Agreement, all as of the date first written above.
RAVISENT TECHNOLOGIES INC.
By
-----------------------------
Name
---------------------------
Title
--------------------------
RVST ACQUISITION CORP.
By
-----------------------------
Name
---------------------------
Title
--------------------------
TEKNEMA, INC.
By
-----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
PRINCIPALS
Name
---------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name
---------------------------
▇▇▇▇▇▇▇ Kassimidis
Name
---------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Name
---------------------------
▇▇▇▇▇ ▇▇▇▇▇
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
EXHIBIT B
CALCULATION OF EXCHANGE RATIOS
AND CASH CONSIDERATION
The: (a) Common Cash Amount shall be equal to the quotient obtained
by dividing the Total Cash Consideration by the Total Common Number; (b) Common
Exchange Ratio shall be equal to the quotient obtained by dividing the Total
Common Amount by the Total Common Number; and (c) Option Exchange Ratio shall be
equal to the quotient obtained by dividing the Total Option Amount by the Total
Option Number, in each case as such terms are defined below.
"Average Closing Price" means the average of the last sale prices of
Acquiror Common Stock through the Nasdaq National Market (as reported in The
Wall Street Journal or, in the event of dispute, another authoritative source)
for the twenty (20) trading days ending on the trading day immediately preceding
the Closing of the Merger.
"Cash Adjustments" means the sum of (i) the amount by which total
liabilities as shown on the Closing Balance Sheet minus total assets as shown on
Target's balance sheet as of June 30, 1999 exceeds one million four hundred
seventy-five thousand dollars; and (ii) investment banking and legal fees
payable by Target in connection with the Merger Agreement, the Merger and the
other transactions contemplated by the Merger Agreement in excess of five
hundred thousand dollars ($500,000).
"Fully Diluted Amount" means the quotient obtained by dividing (a) the
Total Dollar Value by (b) the Fully Diluted Number.
"Fully Diluted Number" means the sum of (a) the number of shares of
Target Common Stock issued and outstanding immediately prior to the Effective
Time and (b) the number of shares of Target Common Stock issuable upon exercise
in full, pursuant to a cash exercise (and not by net exercise or cashless
exercise), of all Target Options and Target Warrants outstanding immediately
prior to the Effective Time.
"Total Cash Consideration" means two million five hundred thousand
dollars ($2,500,000) minus the Cash Adjustments.
"Total Common Amount" means the number obtained by subtracting (a) the
Total Option Amount from (b) the Total Stock Consideration.
"Total Common Number" means the number of shares of Target Common
Stock issued and outstanding immediately prior to the Effective Time.
"Total Dollar Value" means the sum of (a) the Total Cash Consideration
and (b) the product of (i) the Total Stock Consideration and (ii) the Average
Closing Price.
"Total Option Amount" means the quotient obtained by dividing (a) the
product of the Fully Diluted Amount and the Total Option Number by (b) the
Average Closing Price.
B-1
"Total Option Number" means the number of shares of Target Common
Stock issuable upon exercise in full, pursuant to a cash exercise (and not by
net exercise or cashless exercise), of all Target Options and all Target
Warrants outstanding immediately prior to the Effective Time.
"Total Stock Consideration" means eight hundred three thousand seven
hundred fifty-one thousand (803,751) shares of Acquiror Common Stock, subject to
adjustment as provided in Section 1.6(e) and subject further to reduction as
--------------
provided in Section 1.6(a) by the number of shares of Acquiror Common Stock
otherwise issuable in respect of Dissenting Shares.
B-2
EXHIBIT F
LOCK-UP AGREEMENT
November ___, 1999
Bear, ▇▇▇▇▇▇▇ & Co. Inc.
as Representative of the several
Underwriters named in the
within-mentioned Underwriting Agreement
c/o Bear, ▇▇▇▇▇▇▇ & Co. Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Acquisition of Teknema, Inc. by RAVISENT Technolgies Inc.
---------------------------------------------------------
Dear Sir or Madam:
The undersigned understands that Bear, ▇▇▇▇▇▇▇ & Co. Inc. ("Bear,
▇▇▇▇▇▇▇") entered into an Underwriting Agreement dated July 15, 1999 (the
"Underwriting Agreement") with RAVISENT Technologies Inc., a Delaware
corporation (the "Company"), which provided for the public offering (the
"Offering") of shares of the Company's common stock (the "Common Stock"). In
addition to other covenants contained in the Underwriting Agreement, the Company
is required to obtain the consent of Bear, ▇▇▇▇▇▇▇ in order to issue, within 180
days of the Underwriting Agreement, shares of Common Stock and options to
purchase shares of Common Stock.
The Company has entered into an Agreement and Plan of Arrangement (the
"Merger Agreement"), dated as of October 8, 1999, among the Company, Teknema,
Inc., a California corporation ("Teknema"), RVST Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of the Company ("RVST") and certain
principals of Teknema. Pursuant to the Merger Agreement, Teknema will be merged
with and into RVST such that the separate corporate existence of Teknema will
cease and RVST will continue as the surviving corporation (the "Merger"). The
Company will also assume the outstanding options to purchase shares of Teknema
common stock (the "Teknema Options"). The consideration to be paid by the
Company in connection with the Merger and the assumption of the Teknema Options
will consist of, among other things, up to 803,751 shares of Common Stock to be
issued by the Company (the "Stock Consideration"). The Company has requested
the consent of Bear, ▇▇▇▇▇▇▇ to issue the Stock Consideration and assume the
Teknema Options. In recognition of the benefit that will be conferred upon the
undersigned from the consent of Bear, ▇▇▇▇▇▇▇ to the issuance of the Stock
Consideration and the assumption of the Teknema Options by the Company, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agrees with each underwriter named in the
Underwriting Agreement that, from the date hereof until 180 days from the date
of the Underwriting Agreement, the undersigned will not, without the prior
written consent of Bear, ▇▇▇▇▇▇▇ (which consent may be granted or withheld at
the sole discretion of Bear, ▇▇▇▇▇▇▇), directly
F-1
or indirectly (i) issue, offer to sell, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock or any
securities convertible into or exchangeable for the Common Stock, whether any
such swap transaction is to be settled by delivery of Common Stock or other
securities, in cash or otherwise.
The undersigned further agrees, from the date hereof until 180 days from the
date of the Underwriting Agreement, that the undersigned will not exercise and
will waive his, her or its rights, if any, to require the Company to register
its Common Stock and to receive notice thereof.
The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares of
Common Stock held by the undersigned unless such transfer is made in compliance
with this Agreement.
Notwithstanding the foregoing, the undersigned may transfer the undersigned's
shares (i) as a bona fide gift or gifts, (ii) to any trust for the direct or the
indirect benefit of the undersigned or the immediate family of the undersigned,
or (iii) if the undersigned is a corporation, to any wholly-owned subsidiary of
such corporation; provided, however, that it shall be a condition to any such
transfer that the transferee execute an agreement stating that the transferee is
receiving and holding such shares subject to the provisions of this Agreement
and that there shall be no further transfer of such shares except in accordance
with this Agreement, and provided further that any such transfer shall not
involve a disposition for value. In addition, the undersigned may transfer the
undersigned's shares with the prior written consent of Bear, ▇▇▇▇▇▇▇ & Co., Inc.
on behalf of the underwriters. For purposes of this Agreement, "immediate
family" shall mean any relationship by blood, marriage or adoption, not more
remote than first cousin.
This Agreement is irrevocable and may only be amended in writing if agreed to
by Bear, ▇▇▇▇▇▇▇.
The undersigned agrees that the provisions of this Agreement shall be binding
also upon the successors, assigns, heirs and personal representatives of the
undersigned.
Very truly yours,
____________________________ ___________________________________
Date: Name:
Title:
F-2