Exhibit 2.3
CONFORMED COPY
RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT
AND PLAN OF REORGANIZATION
BY AND AMONG
INTERNET CAPITAL GROUP, INC.
RAIN ACQUISITION CORP.,
RIGHTWORKS CORPORATION,
AND WITH RESPECT TO ARTICLE VII, VIII AND IX ONLY
▇▇▇▇▇ ▇▇▇▇▇,
AS SHAREHOLDER REPRESENTATIVE,
AND
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION,
AS ESCROW AGENT
Dated as of March 7, 2000
TABLE OF CONTENTS
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ARTICLE 0 THE RECAPITALIZATION AND RECLASSIFICATION ..................... 1
0.1 The Reclassification ....................................... 1
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0.2 The Recapitalization ....................................... 2
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0.3 Options .................................................... 2
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0.4 Warrants ................................................... 2
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0.5 Bylaws ..................................................... 3
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ARTICLE 1 THE OFFER ..................................................... 3
1.1 The Offer .................................................. 3
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1.2 Company Actions ............................................ 6
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1.3 Shareholder Lists .......................................... 7
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1.4 Closing Date ............................................... 7
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1.5 Lost, Stolen or Destroyed Certificates ..................... 7
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1.6 Tax Consequences ........................................... 7
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1.7 Lock-up .................................................... 7
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1.8 Performance Warrants ....................................... 8
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1.9 Definitions ................................................ 8
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1.10 Taking of Necessary Action; Further Action ................. 10
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ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................. 10
2.1 Organization of the Company ................................ 11
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2.2 Company Capital Structure .................................. 11
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2.3 Authority .................................................. 12
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2.4 No Conflict ................................................ 12
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2.5 Consents ................................................... 13
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2.6 Company Financial Statements ............................... 13
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2.7 No Undisclosed Liabilities ................................. 13
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2.8 No Changes ................................................. 13
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2.9 Tax Matters ................................................ 15
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2.10 Restrictions on Business Activities ........................ 17
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2.11 Title of Properties; Absence of Liens and Encumbrances ..... 17
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2.12 Intellectual Property ...................................... 18
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2.13 Agreements, Contracts and Commitments ...................... 23
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2.14 Interested Party Transactions .............................. 24
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2.15 Governmental Authorization ................................. 24
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2.16 Litigation ................................................. 25
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2.17 Minute Books ............................................... 25
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2.18 Environmental Matters ...................................... 25
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2.19 Brokers' and Finders' Fees; Third Party Expenses ........... 25
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TABLE OF CONTENTS
(continued)
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2.20 Employee Benefit Plan and Compensation ..................... 25
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2.21 Insurance .................................................. 28
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2.22 Compliance with Laws ....................................... 29
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2.23 Representations Complete ................................... 29
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB .............. 29
3.1 Organization, Standing and Power ........................... 29
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3.2 Authority .................................................. 29
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3.3 Consents ................................................... 30
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3.4 Parent Common Stock ........................................ 30
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3.5 SEC Reports; Financial Statements .......................... 30
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ARTICLE 4 CONDUCT PRIOR TO THE EFFECTIVE TIME ........................... 31
4.1 Conduct of Business of the Company ......................... 31
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4.2 No Solicitation ............................................ 33
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ARTICLE 5 ADDITIONAL AGREEMENTS ......................................... 34
5.1 Information Statement; Other Filings ....................... 34
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5.2 Access to Information ...................................... 36
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5.3 Confidentiality ............................................ 37
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5.4 Expenses ................................................... 37
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5.5 Public Disclosure .......................................... 37
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5.6 FIRPTA Compliance .......................................... 37
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5.7 Reasonable Efforts ......................................... 37
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5.8 Notification of Certain Matters ............................ 38
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5.9 Additional Documents and Further Assurances ................ 38
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5.10 Nasdaq Listing ............................................. 38
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5.11 Indemnification and Insurance .............................. 38
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5.12 Additional Shareholder Agreements .......................... 39
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ARTICLE 6 CONDITIONS TO THE REORGANIZATION .............................. 39
6.1 Conditions to Obligations of Each Party to Effect the Offer 39
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6.2 Conditions to the Obligations of Parent and Sub ............ 40
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6.3 Conditions to Obligations of the Company ................... 41
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ARTICLE 7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW ............ 42
7.1 Survival of Representations, Warranties and Covenants ...... 42
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7.2 Indemnification ............................................ 42
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TABLE OF CONTENTS
(continued)
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7.3 Escrow Arrangements ........................................ 43
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7.4 Shareholder Representative ................................. 48
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7.5 Maximum Payments; Remedy ................................... 50
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ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER ............................. 50
8.1 Termination ................................................ 50
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8.2 Effect of Termination ...................................... 51
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8.3 Amendment .................................................. 51
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8.4 Extension; Waiver .......................................... 51
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ARTICLE 9 GENERAL PROVISIONS ............................................ 52
9.1 Notices .................................................... 52
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9.2 Interpretation ............................................. 53
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9.3 Counterparts ............................................... 53
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9.4 Entire Agreement; Assignment ............................... 54
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9.5 Severability ............................................... 54
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9.6 Other Remedies ............................................. 54
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9.7 Governing Law .............................................. 54
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9.8 Rules of Construction ...................................... 54
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9.9 Alternative Structure ...................................... 54
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INDEX OF EXHIBITS
Exhibit Description
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Exhibit A Form of Shareholder Agreement
Exhibit B Form of Amended and Restated Company Articles of Incorporation
Exhibit C Form of Legal Opinion of Counsel to the Company
Exhibit D Form of Legal Opinion of Counsel to Parent
THIS RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT AND AGREEMENT AND PLAN
OF REORGANIZATION (the "Agreement") is made and entered into as of March 7, 2000
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by and among Internet Capital Group, Inc., a Delaware corporation ("Parent"),
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Rain Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Sub"), RightWorks Corporation, a California corporation (the
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"Company"), and, with respect to Article VII, Article VIII and Article IX
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hereof, ▇▇▇▇▇ ▇▇▇▇▇ (the "Shareholder Representative") and Chase Manhattan Trust
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Company, National Association, as Escrow Agent (the "Escrow Agent").
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RECITALS
A. The Board of Directors of the Company believes that it is in the best
interests of the Company to consummate the Recapitalization (as hereinafter
defined).
B. The Board of Directors of Sub deems it advisable and in the best
interests of Sub and its shareholder, and the Board of Directors of the Company
deems it advisable and in the best interests of the Company and its
shareholders, for Sub to make the Offer (as defined herein).
C. A portion of the consideration otherwise payable by Parent in
connection with the Offer in respect of Series B Preferred Stock of the Company
shall be placed in escrow by Parent as security for the indemnification
obligations set forth in this Agreement.
D. Concurrent with the execution and delivery of this Agreement, as a
material inducement to Parent and Sub to enter into this Agreement, certain
shareholders of the Company are entering into shareholder agreements (the
"Shareholder Agreements"), with Parent.
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E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
other promises set forth herein, the mutual benefits to be gained by the
performance thereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereby agree as follows:
ARTICLE 0
THE RECAPITALIZATION AND
RECLASSIFICATION
0.1 The Reclassification. Prior to the Closing Date (as defined in Section
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1.2 hereof) and subject to and upon the terms and conditions of this Agreement
and the applicable processes of the
California Corporation Code ("California Law"), the Company shall amend its
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amended and restated articles of incorporation (as so amended, the "Articles"),
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in substantially the form attached hereto as Exhibit B, to provide for, among
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other things, two series of preferred stock, par value $.001 per share, and two
classes of common stock, par value $0.001 per share. Such classes shall be
designated "Series A Preferred Stock," "Series B Preferred Stock," "Class A
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Common Stock" and "Class B Common Stock." The rights, privileges, restrictions
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and preferences of the Series A Preferred Stock and the Series B Preferred Stock
shall be as set forth in the Amended and Restated Articles of Incorporation
attached hereto as Exhibit B. The relative rights, privileges, restrictions and
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preferences of the Class A Common Stock and the Class B Common Stock shall be
identical except that (i) each share of Class B Common Stock shall have a number
of votes per share such that the voting power of the shares of Series B
Preferred Stock to be exchanged pursuant to the Offer will represent more than
80% of the total voting power of all capital stock of the Company then
outstanding, and (ii) each share of Class B Common Stock shall be convertible
into one share of Class A Common Stock in certain circumstances, as specified in
the Articles. Prior to the Closing Date, the Company's existing shares of
outstanding common stock shall be reclassified and redesignated as shares of
Class A Common Stock.
0.2 The Recapitalization. Prior to the Closing Date and subject to and
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upon the terms and conditions of the Agreement and the applicable processes of
California Law, each outstanding share of Preferred shall be recapitalized and
converted into one share of Series B Preferred Stock (in the case of Series H,
H-1 and I) or into one-fifth of a share of Series B Preferred Stock (in the case
of Series A through G). Prior to the Closing Date, each of the Company's
existing shares of outstanding common stock shall be reclassified and
redesignated as one share of Class A Common Stock.
0.3 Options. Each of the then outstanding Company Options will by virtue of
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the Recapitalization, and without any further action on the part of any holder
thereof, be converted into an option to purchase the number of shares of the
class or series of Company capital stock that the holder of such Company Option
would have received in the Recapitalization in respect of the shares issuable
upon exercise of the Company Option had such holder exercised such Company
Option immediately prior to consummation of the Recapitalization. The aggregate
exercise price of the Company Option after consummation of the Recapitalization
will be the same as the aggregate exercise price that was applicable to such
Company Option prior to the Recapitalization. If the foregoing calculation
results in a post-Recapitalization Company Option being exercisable for a
fraction of a share of Company capital stock, then the number of shares of
Company capital stock subject to such option will be rounded down to the nearest
whole number of shares. The term, exercisability, vesting schedule, vesting
commencement date, status as an "incentive stock option" under Section 422 of
the Code, if applicable, and all other terms and conditions of the Company
Options will otherwise be unchanged.
0.4 Warrants. Each of the then outstanding Company Warrants will by virtue
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of the Recapitalization, and without any further action on the part of any
holder thereof, be converted into a
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warrant to purchase the number of shares of the class or series of Company
capital stock that the holder of such Company Warrant would have received in the
Recapitalization in respect of the shares issuable upon exercise of the Company
Warrant had such holder exercised such Company Warrant immediately prior to
consummation of the Recapitalization. The aggregate exercise price of the
Company Warrant after consummation of the Recapitalization will be the same as
the aggregate exercise price that was applicable to such Company Warrant prior
to the Recapitalization.
0.5 Bylaws. The Company By-laws shall be amended prior to the Closing Date
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to provide that (i) any equity financing transaction (other than a public
offering) involving the issuance of capital stock representing more than ten
percent of the Company's outstanding shares of capital stock or (ii) any
business combination transaction involving the Company and any affiliate of
Parent not controlled by the Company shall require, in addition to any other
required approval, the approval of at least one member of the Company's Board of
Directors who is not affiliated with Parent in any manner other than such
director's relationships with the Company.
ARTICLE 1
THE OFFER
1.1 The Offer. (a) Upon the terms and subject to the conditions contained
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in this Agreement, as soon as practicable after the date the Registration
Statement referred to in paragraph (d) below is declared effective by the
Securities and Exchange Commission (the "SEC"), or, as soon as practicable after
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Section 5.1(d) has become applicable, Sub shall, and Parent shall cause Sub to,
commence an offer (as amended or supplemented in accordance with this Agreement,
the "Offer") to exchange any and all shares of Common Stock, par value $.001 per
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share (the "Parent Common Stock"), of Parent for a number of shares of Series B
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Preferred Stock of the Company; provided, however, that Sub shall be under no
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obligation (and Parent shall be under no obligation to cause Sub to) commence
the Offer in any jurisdiction where the making of such Offer would violate
applicable law. The initial expiration date of the Offer shall be the 20th
business day following the commencement of the Offer. The obligation of Sub to
consummate the Offer, to accept for exchange and to exchange any shares of
Series B Preferred Stock tendered pursuant to the Offer shall be subject to the
Minimum Condition (as defined below) and the other conditions set forth in this
Agreement.
As used herein, the "Minimum Condition" means the condition that not
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less than a number of shares of Series B Preferred Stock shall have been validly
tendered and not withdrawn prior to the expiration of the Offer that (i)
constitutes not less than 80% of the total voting power of the Company and (ii)
when added to any number of shares of capital stock of the Company that may then
be owned by Sub constitutes not less than 50% of the shares of Common Stock that
are issued and outstanding on the date of expiration of the Offer, calculated on
a fully-diluted basis (as defined below).
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The number of shares of Common Stock that are issued and outstanding
on any date "calculated on a fully-diluted basis" means (i) the number of shares
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of Common Stock that are issued and outstanding on such date, whether vested or
unvested, plus (ii) the number of shares of Common Stock issuable pursuant to
any outstanding securities that are convertible into or exchangeable for shares
of Common Stock or any options, warrants or rights to purchase shares of Common
Stock or such securities, whether vested or unvested, that are issued and
outstanding on such date, plus (iii) the aggregate number of additional shares
of Common Stock that are authorized or reserved for issuance for grants of
options or restricted shares pursuant to any benefit or incentive plans
sponsored by the Company.
(b) The terms of the Offer will provide that all outstanding shares of
Series B Preferred Stock may be tendered by the holder thereof and, subject to
the terms and conditions of the Offer, will entitle the tendering shareholder to
receive for each share of Series B Preferred Stock validly tendered and not
withdrawn a number of shares of Parent Common Stock equal to the Exchange Ratio
(as defined in Section 1.9). No fraction of a share of Parent Common Stock will
be issued, but in lieu thereof, each holders of shares of Series B Preferred
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction multiplied by (ii) $111.48 (the "Trading Price").
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(c) Sub expressly reserves the right, in its sole discretion, to
modify and make changes to the terms and conditions of the Offer, provided that
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without the prior consent of the Company, no modification or change may be made
which (i) decreases the consideration payable in the Offer (except as permitted
by this Agreement), (ii) changes the form of consideration payable in the Offer
(other than by adding consideration), (iii) changes the Minimum Condition, (iv)
imposes additional material conditions to the Offer or (iv) is otherwise
inconsistent with the terms of this Agreement. Notwithstanding the foregoing,
Sub may (but shall not be required under this Agreement or otherwise to),
without the consent of the Company, (i) extend the Offer on one or more
occasions for such period as may be determined by Sub in its sole discretion
(each such extension period not to exceed 10 business days at a time), if at the
then scheduled expiration date of the Offer any of the conditions to Sub's
obligations to accept for exchange and exchange shares of Series B Preferred
Stock shall not be satisfied or waived, and (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the SEC or the
staff thereof applicable to the Offer (including any extension necessary to
permit the Registration Statement to become effective). It is agreed that the
conditions to the Offer are for the benefit of Sub and may be asserted by Sub
regardless of the circumstances giving rise to any such condition (including any
action or inaction by Sub) or may be waived by Sub, in whole or in part at any
time and from time to time, in its sole discretion. On the terms and subject to
the conditions of the Offer and this Agreement, promptly after expiration of the
Offer, Sub shall accept for exchange and exchange, and Parent shall cause Sub to
accept for exchange and exchange, all shares of Series B Preferred Stock that
have been validly tendered and not withdrawn pursuant to the Offer that Sub
becomes obligated to exchange
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pursuant to the Offer. Neither Sub nor Parent will have any obligation to pay
interest on the purchase price for any shares of Series B Preferred Stock that
are tendered pursuant to the Offer.
(d) This paragraph shall be applicable unless Section 5.1(d) has
become applicable pursuant to the term hereof. As promptly as practicable
following the filing of Parent's Annual Report on Form 10-K for the year ended
December 31, 1999 with the SEC, but subject to the terms and conditions hereof,
Parent shall file with the SEC with respect to the Offer a Registration
Statement on Form S-4 (or, if Parent so elects, a post-effective amendment to a
previously filed Registration Statement on Form S-4) (together with all
amendments and supplements thereto and including the exhibits thereto, the
"Registration Statement" (it being understood that if Parent elects to file a
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post-effective amendment to an existing Registration Statement with respect to
the Offer, the term "Registration Statement" as used herein shall include only
such post-effective amendment and any amendments or supplements and exhibits
thereto)) with respect to the Offer, which shall include a Prospectus (or
Prospectus Supplement)/Offer to Exchange (together with the related letters of
transmittal and exhibits thereto, the "Offer Documents"). Parent will provide
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the Company and the Company's counsel with a copy of the Registration Statement
for comment by the Company and its counsel not less than five days prior to the
initial filing thereof with the SEC and will provide the Company and the
Company's counsel with a copy of any amendment thereto a reasonable time prior
to the filing thereof with the SEC (taking into account the specific
circumstances of the filing of any such amendment and the need to complete such
filing on an expedited basis). Parent will use reasonable efforts to cause the
Registration Statement to become effective as soon as practicable following the
filing thereof with the SEC. Parent shall promptly provide the Company with a
true and complete copy of the Registration Statement filed with the SEC and all
supplements and amendments thereto. Subject to compliance by the Company and
any Shareholders with their obligations under this Agreement, Parent will cause
the Registration Statement to comply in all material respects with all
requirements of law and the rules and regulations of the SEC. Each of the
Company and each Shareholder agrees to provide Parent promptly upon request by
Parent with any information relating to the Company or such Shareholder that is
necessary or appropriate for inclusion in the Registration Statement under
applicable law or the rules and regulations of the SEC. The Company will cause
its independent auditors to provide Parent with a manually signed consent to
inclusion of the audit report of such auditors in the Registration Statement,
and will cause its independent auditors otherwise to reasonably cooperate in
providing information for inclusion in the Registration Statement. Parent
agrees to provide the Company and its counsel in writing any comments that
Parent or its counsel may receive from the SEC or its staff with respect to the
Registration Statement promptly after the receipt thereof. Each of the Company,
Parent and each Shareholder shall promptly correct any information provided by
it (or its legal counsel or other authorized representatives) for use in the
Registration Statement that shall have become false or misleading in any
material respect, and Parent further agrees to take all steps necessary to cause
such Registration Statement as so corrected to be filed with the SEC as and to
the extent required by applicable federal securities laws.
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(e) Sufficient Reserved Shares. Parent will reserve sufficient
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shares of Parent Common Stock for issuance under this Section 1.1.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
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adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock or Preferred),
reorganization, recapitalization, reclassification or other like change with
respect to Parent Common Stock or Company Common Stock or Preferred occurring on
or after the date hereof and prior to the Closing Date, other than the
Recapitalization.
1.2 Company Actions.
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(a) The Company hereby consents to the Offer and represents and
warrants that its Board of Directors, at a meeting duly called and held, has
duly adopted resolutions approving the Offer, this Agreement and the other
transactions contemplated hereby, determining that the terms of the Offer are
fair to, and in the best interests of, the Company's shareholders and
recommending acceptance of the Offer by the shareholders of the Company (as well
as, to the extent legally permissible, the Position Statement referred to in
paragraph (b) below). The Company hereby consents to the inclusion in the
Registration Statement and the Offer Documents of the recommendations of the
Company's Board of Directors described in this Section 1.2.
(b) No later than the date the Offer is commenced, the Company shall
publish, send or give, within the meaning of Rule 14e-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a statement which shall
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comply in all material respects with the provisions of applicable federal
securities laws and will contain the above recommendations of the Board in favor
of the Offer, together with the reasons therefor (the "Position Statement"). The
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Company will use its reasonable efforts to provide Parent with a copy of the
Position Statement prior to the filing of the Registration Statement with the
SEC (if applicable) so that Parent can include the Position Statement as part of
the Offer Documents. The Company shall deliver the proposed form of the Position
Statement to Parent within a reasonable time prior to the filing of the
Registration Statement (if applicable) for review and comment by Parent and its
counsel. Parent and its counsel shall be given a reasonable opportunity to
review any amendments and supplements to the Position Statement prior to
dissemination to shareholders of the Company. The Company agrees to provide
Parent and its counsel in writing any comments that the Company or its counsel
may receive from the SEC or its staff with respect to the Position Statement
promptly after receipt thereof. Each of the Company, Parent and each Shareholder
shall promptly correct any information provided by it for use in the Position
Statement that shall have become false or misleading in any material respect and
the Company further agrees to take all steps necessary to cause such Position
Statement as so corrected to be disseminated to the shareholders of the Company,
as and to the extent required by applicable federal securities laws.
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1.3 Shareholder Lists. In connection with the Offer, the Company shall
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promptly furnish to, or cause to be furnished to, Parent and Sub any available
listing or computer file containing the names and addresses of the record
holders of shares of Series B Preferred Stock (and any other capital stock of
the Company and any securities convertible into or exchangeable for capital
stock of the Company and any options, warrants or rights to purchase such stock
or securities) as of a recent date and of those persons becoming record holders
subsequent to such date (to the extent available), together with all other
information in the Company's possession or control regarding the number of
shares owned by the shareholders of the Company and shall furnish Parent and Sub
with such information and assistance as Parent, Sub or their respective agents
may reasonably request in communicating the Offer to the record and beneficial
holders of shares of Series B Preferred Stock. Subject to the requirements of
law, and except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Offer, Parent and
Sub shall, and shall cause each of their affiliates to, hold the information
contained in any of such labels and lists in confidence, use such information
only in connection with the Offer, and, if this Agreement is terminated, deliver
to the Company all copies of such information or extracts therefrom then in
their possession or under their control.
1.4 Closing Date. Unless this Agreement is earlier terminated pursuant to
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Section 8.1 hereof, the closing for the transactions contemplated hereby (the
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"Closing") shall take place on not less than two business days prior written
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notice to the Company on the day after the date that the Offer expires and the
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
are accepted for exchange by Sub at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, Professional Corporation, Spear ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, unless another time and/or place is mutually agreed upon in
writing by Parent and the Company. The date upon which the Closing actually
occurs shall be referred to herein as the "Closing Date."
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1.5 Lost, Stolen or Destroyed Certificates. The Offer Documents will
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provide that holders of shares of Series B Preferred Stock that are represented
by certificates that have been lost, stolen or destroyed will be permitted to
tender their shares pursuant to the Offer upon the making of an affidavit of
that fact by the holder thereof and the delivery of a customary indemnification
agreement executed by such holder indemnifying Sub, Parent and the Company
against any claim that may be made against any of such parties with respect to
the certificates alleged to have been lost, stolen or destroyed.
1.6 Tax Consequences. It is intended by the parties hereto that the Offer
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shall constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
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1.7 Lock-up. Notwithstanding Parent's agreement to register the shares of
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Parent Common Stock pursuant to Section 5.1 hereof, each share of Parent Common
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Stock issued to the Series B Shareholders hereunder may not be sold,
transferred, hypothecated, pledged, be the subject of an equity swap or similar
agreement or otherwise transferred (collectively, a "Disposition") without the
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prior written consent of Parent, prior to the expiration of 180 days after the
Closing Date; provided, however, that a Series B Shareholder may dispose of
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one-half (50%) of the shares of Parent Common Stock received in the Offer after
the expiration of ninety days after the Closing Date. Parent may, in its sole
discretion, legend the certificates representing such shares of Parent Common
Stock to give effect to this Section 1.7 and place stop transfer instructions
with Parent's stock transfer agent to enforce this Section 1.7.
1.8 Performance Warrants. Upon each Lapse Event:
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(a) The Company will issue to Parent a number of shares of Series B
Preferred Stock equal to the FD Amount in exchange for an amount of cash equal
to the per share par value of the Series B Preferred Stock multiplied by the
number of shares to be so issued; and
(b) Parent will issue to each shareholder of record of the Company
immediately prior to the Closing Date such Shareholder's Pro Rata Portion of a
number of shares of Parent Common Stock equal to the RV Amount. No fraction of a
share of Parent Common Stock will be issued, but in lieu thereof, each Person
who would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all fractional shares of Parent Common Stock to be received
by such holder) shall be entitled to receive from Parent an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the Trading Price.
1.9 Definitions. For all purposes of this Agreement, the following terms
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shall have the following respective meanings:
"Company Common Stock" shall mean shares of common stock, $.01
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par value, of the Company, outstanding prior to the Recapitalization.
"Company Material Adverse Effect" shall mean, for purposes of
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this Agreement, any change, event or effect that is materially adverse to the
business, assets (including intangible assets), financial condition or results
of operations of the Company and its subsidiaries, taken as a whole; provided,
however, that no change, event or effect relating to (i) the economy or
securities markets of the United States or the Company's industry in general (so
long as it does not affect the Company in a disproportionate manner), (ii) an
adverse effect on the Company directly attributable to the announcement or
pendency of the transactions contemplated hereby or (iii) the failure to obtain
applicable regulatory or other third party consents that are required under the
Agreement shall in and of itself constitute a Company Material Adverse Effect.
"Company Options" shall mean all issued and outstanding
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options to purchase or otherwise acquire Preferred or Company Common Stock
(whether or not vested) held by any person or entity.
"Company Warrants" shall mean all issued and outstanding
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warrants to purchase Preferred or Company Common Stock (whether or not vested)
held by any person or entity.
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"Escrow Amount" shall mean an amount of Parent Common Stock
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equal to 10% of the shares of Parent Common Stock issued pursuant to Section
1.1.
"Exchange Ratio" shall mean the quotient of (a) the Per Share
--------------
Value divided by (b) the Trading Price.
"FD Amount" means, with respect to each Lapse Event, the
---------
number of shares of the Series B Preferred stock of the Company that have become
unexercisable (or that can no longer become exercisable) under the Performance
Warrants as a result of such Lapse Event.
"GAAP" shall mean United States generally accepted accounting
----
principles consistently applied.
"Lapse Event" shall mean the lapse, cancellation or
-----------
termination after the Closing Date of all or a portion of a Performance Warrant
without exercise thereof or any event or circumstance that renders all or any
portion of a Performance Warrant unexercisable (or no longer able to become
exercisable).
"Parent Common Stock" shall mean shares of common stock, par
-------------------
value $0.001 per share, of Parent.
"Parent Material Adverse Effect" shall mean, for purposes of
------------------------------
this Agreement, any change, event or effect that is materially adverse to the
business, assets (including intangible assets), financial condition or results
of operations of the Parent and its subsidiaries, taken as a whole, provided,
however, that neither (A) a change, event or effect relating to (i) the economy
or securities markets of the United States or Parent's industry in general (so
long as it does not affect Parent in a disproportionate manner), (ii) an adverse
effect on Parent directly attributable to the announcement or pendency of the
transactions contemplated hereby or (iii) the failure to obtain applicable
regulatory or other third party consents that are required under the Agreement
or (B) a decline in Parent's common stock price or Parent's failure to meet Wall
Street research analyst expectations shall in and of itself constitute a Parent
Material Adverse Effect.
"Performance Warrants" shall mean the warrants to purchase
--------------------
Preferred presently held by: Aspect Development Corporation (800,000 shares of
Series I Preferred Stock); Computer Sciences Corporation (200,000 shares of
Series I Preferred Stock); i2 Technologies, Inc. (1,350,536 shares of Series H
Preferred Stock); and ▇▇▇▇▇ Fargo & Company (50,000 shares of Series I
Preferred Stock).
"Per Share Value" shall mean the quotient of (A) $1.25 billion
---------------
divided by (B) the sum of (x) the number of shares of Company Common Stock that
are issued and outstanding immediately prior to the Closing Date plus (y) the
number of shares of Company Common Stock issuable upon conversion or exercise
in full of all convertible securities or options (vested and
-9-
unvested), warrants or other rights to acquire Company Common Stock that are
outstanding immediately prior to the Closing Date.
"Preferred" shall mean the Company's Series A Preferred
---------
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock, Series H Preferred Stock, Series H-1 Preferred Stock and Series I
Preferred Stock.
"Pro Rata Portion" shall mean with respect to each Company
----------------
shareholder an amount equal to the quotient obtained by dividing (x) the sum of
the number of shares of Company Common Stock owned by such shareholder as of
the Closing Date, whether or not vested, and the number of shares of Company
Common Stock issuable pursuant to any securities owned by such shareholder that
are convertible into or exercisable for shares of Company Common Stock (but not
the Company Options or Company Warrants) by (y) the sum of the aggregate number
of shares of Company Common Stock owned by all Company shareholders as of the
Closing Date, whether or not vested, and the number of shares of Company Common
Stock issuable pursuant to any securities owned by all Company shareholders that
are convertible into or exercisable for shares of Company Common Stock (but not
the Company Options or Company Warrants).
"Recapitalization" as used herein, the term "Recapitalization"
---------------- ----------------
means the reclassification, recapitalization and other actions specified in
this Article 0.
---------
"RV Amount" means, with respect to each Lapse Event, the
---------
related FD Amount multiplied by the Exchange Ratio.
"Series B Shareholder" shall mean each holder of any Company
--------------------
Series B Preferred Stock immediately prior to the Closing Date who exchanges
any of such Series B Preferred Stock pursuant to the Offer.
1.10 Taking of Necessary Action; Further Action. If at any time after the
------------------------------------------
Closing Date, any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Company with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Company, Parent, Sub, and the officers and directors of the Company, Parent
and Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company hereby represents and warrants to Parent and Sub, subject to
such exceptions as are specifically disclosed in the disclosure letter
(referencing the appropriate section and
-10-
paragraph numbers or the relevance of which exceptions to other sections of this
Agreement is otherwise reasonably apparent on the face of such exceptions)
supplied by the Company to Parent (the "Company Disclosure Schedule") and dated
---------------------------
as of the date hereof, that on the date hereof as follows.
2.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as currently conducted and as currently contemplated to be
conducted. The Company is duly qualified or licensed to do business and in good
standing as a foreign corporation in each jurisdiction in which it conducts
business except where the failure to so qualify would not have a Company
Material Adverse Effect. The Company has delivered a true and correct copy of
its articles of incorporation and bylaws, each as amended to date and in full
force and effect on the date hereof, to Parent. The operations now being
conducted by the Company are not now and have never been conducted by the
Company under any other name.
2.2 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, of which 7,249,020 shares are issued and
outstanding as of the date hereof, and 87,276,219 shares of Preferred, of which
3,000,000 shares have been designated Series A Preferred Stock, 4,946,000 shares
have been designated Series B Preferred Stock, 9,139,485 shares have been
designated Series C Preferred Stock, 7,838,085 shares have been designated
Series D Preferred Stock, 14,417,093 shares have been designated Series E
Preferred Stock, 35,000,000 shares have been designated Series F Preferred
Stock, 1,000,000 shares have been designated Series G Preferred Stock, 8,428,935
shares have been designated Series H Preferred Stock, 6,621 shares have been
designated Series H-1 Preferred Stock, and 3,500,000 shares have been designated
Series I Preferred Stock, of which 3,000,000, 4,946,000, 9,139,485, 7,838,085,
12,700,370, 34,681,280, 935,616, 5,845,938, no and 2,449,407 shares are issued
and outstanding as of the date hereof, respectively. The Company Common Stock
and Preferred is held by the persons and in the amounts set forth in Section
-------
2.2(a) of the Company Disclosure Schedule. All outstanding shares of Company
------
Common Stock and Preferred are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
articles of incorporation or bylaws of the Company, and were issued free of any
similar rights under any agreement to which the Company is a party or by which
it is bound, and have been issued in compliance with federal and state
securities laws. There are no declared or accrued but unpaid dividends with
respect to any shares of Company Common Stock or Preferred. The Company has no
other capital stock authorized, issued or outstanding.
(b) Except for the Plan, the Company has never adopted or maintained
any stock option plan or other plan providing for equity compensation of any
person. The Company currently has reserved 2,943,787 shares of Company Common
Stock for future issuance to employees, contract workers and directors of, and
consultants to, the Company upon the exercise of options,
-11-
including 2,432,146 shares subject to options outstanding as of the date hereof.
Section 2.2(b) of the Company Disclosure Schedule sets forth for each
--------------
outstanding Company Option and each outstanding Warrant, the name of the holder
of such Company Option or Warrant and the number of shares and class of Company
Common Stock issuable upon the exercise of such Company Option or Warrant.
Except for the Company Options and Warrants, there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to the Company. Except as contemplated hereby, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting stock of the Company.
2.3 Authority. The Company has all requisite corporate power and authority
---------
to enter into this Agreement and any Related Agreements (as hereinafter defined
in this Section 2.3) to which it is a party and to consummate the transactions
-----------
contemplated hereby and thereby, subject to approval of this Agreement, the
Recapitalization and the Offer by its shareholders. The execution and delivery
of this Agreement and any Related Agreements to which the Company is a party and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of the Company,
and no further action is required on the part of the Company to authorize this
Agreement and any Related Agreements to which it is a party and the transactions
contemplated hereby and thereby, subject only to the approval of this Agreement
and the Offer by its shareholders. This Agreement, the Recapitalization and the
Offer have been unanimously approved by the Board of Directors of the Company.
This Agreement and each of the Related Agreements to which the Company is a
party has been duly executed and delivered by the Company and assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as such
enforceability may be subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. For all
purposes of this Agreement, the term "Related Agreements" shall mean the
------------------
Shareholder Agreements, agreements necessary effectuate the Recapitalization.
2.4 No Conflict. The execution and delivery by the Company of this
-----------
Agreement and any Related Agreement to which the Company is, or will be, a
party, and the consummation of the transactions contemplated hereby and thereby,
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, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
--------
the articles of organization or bylaws of the Company, (ii) any mortgage,
indenture, lease, contract, covenant or other agreement, instrument or
commitment, permit, concession, franchise or license to which the Company or any
of its properties
-12-
or assets (including intangible assets), is subject, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its properties (tangible and intangible) or assets except with
respect to such conflicts, violations or defaults, in the case of clause (ii),
that would not in the aggregate have a Company Material Adverse Effect.
2.5 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission (each, a "Governmental Entity")
-------------------
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement and any Related Agreement to which the Company
is, or will be, a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws,
(ii) the filing of the Amended and Restated Articles with the Secretary of State
of the State of California, (iii) the expiration or early termination of the
waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act (the "HSR
---
Act") and (iv) such other consents, waivers, approvals, orders, authorizations,
---
registrations, declarations or filings which if not obtained or made would not
have a Company Material Adverse Effect or otherwise have a material adverse
effect on the ability of the parties to consummate the Offer.
2.6 Company Financial Statements. The Company has provided to Parent its
----------------------------
unaudited balance sheet as of December 31, 1999 (the "Current Balance Sheet"),
---------------------
and the related unaudited statements of income, cash flow and stockholders'
equity for the twelve-month period ended December 31, 1999 (collectively,
including the Current Balance Sheet, the "Financials"). The Financials have been
----------
prepared in accordance with GAAP consistently applied. The Financials present
fairly the financial condition, operating results and cash flows of the Company
as of the date and during the periods indicated therein.
2.7 No Undisclosed Liabilities. The Company has no liability, indebtedness,
--------------------------
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other, that are
required to be reflected in financial statements in accordance with GAAP, except
for liabilities (i) reflected and specifically quantified on the Current Balance
Sheet or (ii) liabilities that have arisen in the ordinary course of business
consistent with past practices since December 31, 1999, none of which involves
indebtedness for borrowed money.
2.8 No Changes. Between December 31, 1999 and the date of this Agreement,
----------
there has not been, occurred or arisen any:
(a) amendments or changes to the articles of organization or bylaws
of the Company (except as required hereby);
(b) capital expenditure or commitment by the Company exceeding
$100,000 individually or $500,000 in the aggregate;
-13-
(c) payment, discharge or satisfaction, in any amount in excess of
$100,000 in any one case, or $300,000 in the aggregate, of any claim, liability
or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than payment, discharge or satisfaction in the ordinary course
of business of liabilities reflected or reserved against in the Current Balance
Sheet;
(d) destruction of or loss of any material assets of the Company
(whether or not covered by insurance);
(e) claim of wrongful discharge or other unlawful labor practice or
action or any attempt to unionize employees;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company other than as
required by GAAP;
(g) change in any material election in respect of Taxes (as defined
below), adoption or change in any material accounting method in respect of
Taxes, agreement or settlement of any material claim or assessment in respect of
Taxes, or extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes;
(h) material revaluation by the Company of any of its assets;
(i) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
Common Stock or Preferred, or any split, combination or reclassification in
respect of any shares of Company Common Stock or Preferred, or any issuance or
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of Company Common Stock or Preferred, or any
direct or indirect repurchase, redemption, or other acquisition by the Company
of any shares of Company Common Stock or Preferred (or options, warrants or
other rights convertible into, exercisable or exchangeable therefor), except for
the issuance of Company Options or other securities of the Company set forth in
Section 2.2 of the Company Disclosure Schedule or issuance of shares of Company
-----------
Common Stock in accordance with the agreements evidencing Company Options;
(j) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees,
contract workers or advisors, or the declaration, payment or commitment or
obligation of any kind for the payment by the Company of a severance payment,
termination payment, bonus or other additional salary or compensation to any
such person;
(k) sale, lease, license (outside of the ordinary course of
business) or other disposition of any of the material assets or material
properties of the Company or any creation of any security interest in such
material assets or material properties;
(l) loan by the Company to any person or entity (other than pursuant
to the terms of the Plan in connection with the exercise of any Company
Options), incurring by the Company of any
-14-
indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale
of any debt securities of the Company or guaranteeing of any debt securities of
others, except for advances to employees or contract workers for travel and
business expenses in the ordinary course of business consistent with past
practices;
(m) waiver or release of any material right or claim of the Company,
including any write-off of any account receivable of the Company in excess of
$50,000;
(n) commencement, settlement, receipt of written notice of, or to
the knowledge of the Company overt threat of, any lawsuit or proceeding or other
investigation against the Company or its affairs;
(o) agreement or modification to any agreement pursuant to which any
other party was granted marketing, distribution or similar rights of any type or
scope with respect to any products or technology of the Company outside of the
ordinary course of business;
(p) any Company Material Adverse Effect; or
(q) agreement by the Company or any officer or employee on behalf of
the Company to do any of the things described in the preceding clauses (a)
through (o) of this Section 2.8 (other as required by this Agreement).
-----------
2.9 Tax Matters.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, the
-------------------
term "Tax" or, collectively, "Taxes" shall mean (i) any and all federal, state,
--- -----
local and foreign taxes and other assessments, governmental charges, duties,
impositions and liabilities in the nature of a tax, including taxes based upon
or measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts, (ii) any liability for the
payment of any amounts of the type described in clause (i) of this Section
-------
2.9(a) as a result of being a member of an affiliated, consolidated, combined or
------
unitary group for any period, and (iii) any liability for the payment of any
amounts of the type described in clauses (i) or (ii) of this Section 2.9(a) as a
--------------
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) As of the Closing Date, the Company will have timely
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
-------
concerning or attributable to the Company or its operations
-15-
and such Returns are true and correct in all material respects and have been
completed in all material respects in accordance with applicable law.
(ii) As of the Closing Date, the Company (A) will have timely
paid or accrued on its books all Taxes it is required to pay and will have
withheld with respect to its employees and contract workers all federal and
state income taxes, Federal Insurance Contribution Act ("FICA"), Federal
----
Unemployment Tax Act ("FUTA") and other Taxes required to be withheld and will
----
have, within the time and manner prescribed by law, withheld and paid over to
the proper governmental authorities all amounts required to be withheld and paid
over under all applicable laws, and (B) will have accrued on the Current Balance
Sheet all unpaid Taxes attributable to the periods preceding the date of the
Current Balance Sheet and will not have incurred any liability for Taxes for the
period commencing on the date of the Current Balance Sheet and ending
immediately prior to the Closing Date, other than in the ordinary course of
business.
(iii) There is no Tax deficiency outstanding, assessed or
proposed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax, which waiver remains in effect.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal, state and local income and all state
and local sales and use Returns for the Company filed for all periods since the
taxable year ended December 31, 1996.
(vi) There are (and immediately following the Closing Date there
will be) no material liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes other
-----
than Liens for Taxes not yet due and payable.
(vii) Neither the Company nor any Principal Stockholder has
knowledge of any assertion of any claim relating or attributable to Taxes which,
if adversely determined, would result in any material Lien on the assets of the
Company.
(viii) None of the Company's assets is treated as "tax-exempt use
property," within the meaning of Section 168(h) of the Code.
(ix) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
-16-
(x) The Company (i) has never been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a consolidated
group the common parent of which is the Company), (ii) is not a party to any Tax
sharing or Tax allocation agreement, arrangement, or understanding, (iii) is not
liable for the Taxes of any other person under Treasury Regulation 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise, and (iv) is not a party to any joint
venture, partnership or other arrangement that could be treated as a partnership
for income Tax purposes.
(xi) The Company is not, and has not been at any time during the
period specified in Section 897(c)(1)(A)(ii), a "United States Real Property
Holding Corporation" within the meaning of Section 897(c)(2) of the Code.
(xii) No adjustment relating to any Return filed by the Company
has been proposed formally or, to the knowledge of the Company, informally by
any Tax authority to the Company or any representative thereof.
(xiii) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (i) in the two years prior to the date of this Agreement or (ii) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Offer.
(c) Executive Compensation Tax. There is no contract, agreement, plan
--------------------------
or arrangement to which the Company is a party, including, without limitation,
the provisions of this Agreement, covering any employee, former employee or
contract worker of the Company, which, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
2.10 Restrictions on Business Activities. There is no agreement
-----------------------------------
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
may reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Company or the conduct of business by the
Company. Without limiting the generality of the foregoing, the Company has not
entered into any agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its technology or products to or
providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.11 Title of Properties; Absence of Liens and Encumbrances. The Company
------------------------------------------------------
owns no real property, nor has it ever owned any real property. The Company has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, real,
personal and mixed, used or held for use in its business, free and clear of any
Liens, except (i) as reflected in the Current Balance Sheet, (ii) Liens for
Taxes not yet due and payable, (iii)
-17-
security interests incurred in connection with the purchase of property or
assets after the date of the Current Balance Sheet in compliance with this
Agreement, with respect to which no default exists, and (iv) such imperfections
of title and encumbrances, if any, which do not materially detract from the
value or interfere with the present use of the property subject thereto or
affected thereby.
2.12 Intellectual Property.
---------------------
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
(i) "Technology" shall mean any or all of the following: (A)
----------
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (B)
inventions (whether or not patentable), improvements, and technology; (C)
proprietary and confidential information, including technical data and customer
and supplier lists, trade secret and know how; (D) databases, data compilations
and collections and technical data; (E) logos, trade names, trade dress,
trademarks, service marks; (F) World Wide Web addresses, domain names and sites;
(G) tools, methods and processes; and (H) all instantiations of the foregoing in
any form and embodied in any media.
(ii) "Intellectual Property Rights" shall mean any or all of the
----------------------------
following and all rights in, arising out of, or associated therewith: (A) all
United States and foreign patents and utility models and applications therefor
and all reissues, divisions, re-examination, renewals, extensions, provisionals,
continuations and continuations-in-part thereof, and equivalent or similar
rights anywhere in the world in inventions and discoveries including without
limitation invention disclosures ("Patents"); (B) all trade secrets and other
-------
rights in know-how and confidential or proprietary information; (C) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world ("Copyrights"); (D) all mask
----------
works, mask work registrations and applications therefor, and any equivalent or
similar rights in semiconductor masks, layouts, architectures or topology
("Maskworks"), (E) all industrial designs and any registrations and applications
---------
therefor throughout the world; (F) all rights in World Wide Web addresses and
domain names and applications and registrations thereof; and (G) all trade
names, logos, common law trademarks and service marks, trademark and service
▇▇▇▇ registrations and applications therefor and all goodwill associated
therewith throughout the world ("Trademarks").
----------
(iii) "Company Intellectual Property" shall mean any Technology
-----------------------------
and Intellectual Property Rights including the Company Registered Intellectual
Property Rights (as defined below) that are owned (in whole or in part) by or
exclusively licensed to the Company.
(iv) "Registered Intellectual Property Rights" shall mean all
---------------------------------------
United States, international and foreign: (A) Patents, including filed
applications therefor; (B) registered Trademarks, filed applications to register
Trademarks, including intent-to-use applications, or other registrations or
applications related to Trademarks; (C) Copyrights registrations and filed
-18-
applications to register Copyrights; (D) Maskwork registrations and filed
applications to register Maskworks; and (E) any other Technology that is the
subject of a filed application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public or private legal authority at any time in order to obtain, maintain or
otherwise protect the Intellectual Property Rights therein.
(v) For all purposes in this Section 2.12, the term "Company"
-------
shall be deemed to refer to both Company and its subsidiaries.
(b) Section 2.12 (b) of the Disclosure Schedule lists all Registered
----------------
Intellectual Property Rights owned by, filed in the name of, or applied for, by
the Company (the "Company Registered Intellectual Property Rights") and lists
-----------------------------------------------
any proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the "PTO") or equivalent authority anywhere
---
in the world) of which the Company has knowledge that are related to any of the
Company Registered Intellectual Property Rights or Company Intellectual
Property.
(c) Each item of Company Registered Intellectual Property Rights is
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property Rights
have been paid and all necessary documents and certificates in connection with
such Company Registered Intellectual Property Rights have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property Rights. Except as set forth on Section
-------
2.12(c) of the Disclosure Schedule, there are no actions that must be taken by
-------
the Company within one hundred twenty (120) days of the Closing Date, including
the payment of any registration, maintenance or renewal fees or the filing of
any responses to PTO office actions, documents, applications or certificates for
the purposes of obtaining, maintaining, perfecting or preserving or renewing any
Registered Intellectual Property Rights. In each case in which the Company has
purchased (as opposed to licensed) any Technology or Intellectual Property Right
from any person, the Company or such Subsidiary has obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights in such
Technology and the associated Intellectual Property Rights (including the right
to seek future damages with respect thereto) to the Company. To the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company has recorded each such assignment of a Registered Intellectual
Property Right assigned to the Company with the relevant Governmental Entity,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be. Except as set forth on
Section 2.12(c) of the Disclosure Schedule, the Company has not claimed a
---------------
particular status, including "Small Business Status," in the application for any
Intellectual Property Rights, which claim of status was not at the time made, or
which has since become, inaccurate or false or that will no longer be true and
accurate as a result of the Closing.
-19-
(d) The Company has no knowledge of any facts or circumstances that
would render any Company Intellectual Property invalid or unenforceable. Without
limiting the foregoing, Company knows of no information, materials, facts, or
circumstances, including any information or fact that would constitute prior
art, that would render any of the Company Registered Intellectual Property
Rights invalid or unenforceable, or would have a material adverse effect on any
pending application for any Company Registered Intellectual Property Right and
the Company has not misrepresented, or failed to disclose, and has no knowledge
of any misrepresentation or failure to disclose, any fact or circumstances in
any application for any Company Registered Intellectual Property Right that
would constitute fraud or a misrepresentation with respect to such application
or that would otherwise affect the validity or enforceability of any Company
Registered Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and clear of
any Liens except for non-exclusive licenses granted to end-user customers in the
ordinary course of business. The Company is the exclusive owner or exclusive
licensee of all Company Intellectual Property. Without limiting the foregoing:
(i) the Company is the exclusive owner of all Trademarks used in connection with
the operation or conduct of the business of the Company, including the sale,
licensing, distribution or provision of any products or services by the Company;
and (ii) the Company either owns exclusively, and has good title to, or has
valid and subsisting license rights to, all Copyrights that are products of the
Company or which the Company otherwise purports to own.
(f) At the Closing Date, all Company Intellectual Property will be
fully transferable, alienable or licensable by Company without restriction and
without payment of any kind to any third party.
(g) To the extent that any Company Technology has been developed or
created by a third party for the Company, the Company has a written agreement
with such third party with respect thereto and the Company thereby either (i)
has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
license (sufficient for the conduct of its business as currently conducted) to
all such third party's Intellectual Property Rights in such Technology by
operation of law or by valid assignment, to the fullest extent it is legally
possible to do so.
(h) Except as set forth on Section 2.12(h) of the Disclosure Schedule
---------------
and with exception of "shrink-wrap" or similar widely-available commercial
end-user licenses, all Technology used in or necessary to the conduct of
Company's business as presently conducted by the Company has been licensed or
purchased by the Company or was written and created solely by either (i)
employees of the Company acting within the scope of their employment or (ii) by
third parties who have validly and irrevocably assigned all of their rights,
including Intellectual Property Rights therein, to the Company, and no third
party owns or has any rights to any of the Company Intellectual Property (other
than licenses of Company Intellectual Property exclusively licensed to the
Company), except for those rights, such as "moral" rights that under the laws of
any applicable jurisdiction may not be assigned.
-20-
(i) All employees of the Company have entered into a valid and binding
written agreement with the Company sufficient to vest title in the Company of
all Technology, including all accompanying Intellectual Property Rights, created
by such employee in the scope of his or her employment with the Company.
(j) The Company has taken reasonable precautions to protect the
Company's rights in confidential information and trade secrets of the Company or
provided by any other person to the Company. Without limiting the foregoing, the
Company has, and enforces, a policy requiring each employee, consultant and
contractor of the Company to execute a proprietary information, confidentiality
and assignment agreement, substantially in the form attached hereto as Section
-------
2.12(j) of the Disclosure Schedule, and all current and former employees,
-------
consultants and contractors of the Company have executed such an agreement.
(k) Except as set forth on Section 2.12(k) of the Disclosure Schedule,
---------------
no person who has licensed Technology or Intellectual Property Rights to the
Company has ownership rights or license rights to improvements made by the
Company in such Technology or Intellectual Property Rights.
(l) The Company has not transferred ownership of, or granted any
exclusive license to or exclusive right to use, or authorized the retention of
any exclusive rights to use or joint ownership of, any Technology or
Intellectual Property Right that is Company Intellectual Property, to any other
person.
(m) Other than inbound "shrink-wrap" and similar publicly available
commercial end-user licenses and outbound licenses granted in the ordinary
course of business, Section 2.12(m) of the Disclosure Schedule lists all current
---------------
contracts, licenses and agreements to which the Company is a party with respect
to any Technology or Intellectual Property Rights sufficient for the conduct of
its business as currently conducted or proposed to be conducted. The Company is
not in material breach of nor has the Company failed to perform in any material
respect under, any of the foregoing contracts, licenses or agreements and, to
the Company's knowledge, no other party to any such contract, license or
agreement is in breach thereof or has failed to perform thereunder.
(n) Section 2.12(n) of the Disclosure Schedule lists all material
---------------
contracts, licenses and agreements between the Company and any other person
wherein or whereby the Company has agreed to, or assumed, any obligation or duty
to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property Rights of any person other than the Company.
(o) To the knowledge of the Company, there are no contracts, licenses
or agreements between the Company and any other person with respect to Company
Intellectual Property under which there is any dispute regarding the scope of
such agreement, or performance under such
-21-
agreement, including with respect to any payments to be made or received by the
Company thereunder.
(p) The operation of the business of the Company as it currently is
conducted or is contemplated to be conducted by the Company, including but not
limited to the design, development, use, import, branding, advertising,
promotion, marketing, manufacture and sale of the products, technology or
services (including products, technology or services currently under
development) of the Company does not and will not and will not when conducted by
the Company in substantially the same manner following the Closing, infringe or
misappropriate any presently existing Intellectual Property Right of any person,
violate any presently existing right of any person (including any right to
privacy or publicity) or constitute unfair competition or trade practices under
the presently existing laws of any jurisdiction, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates any
Intellectual Property Right of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company have
knowledge of any basis therefor).
(q) To the Company's knowledge, no person is infringing or
misappropriating any Company Intellectual Property Right.
(r) No Company Intellectual Property or service of the Company is
subject to any proceeding or outstanding decree, order, judgment or settlement
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(s) No (i) product, technology, service or publication of the Company,
(ii) material published or distributed by the Company, or (iii) conduct or
statement of the Company constitutes obscene material, a defamatory statement or
material, false advertising or otherwise violates in any material respect any
law or regulation.
(t) Neither this Agreement nor the transactions contemplated by this
Agreement, will result in (i) either Parent's or the Company's granting to any
third party any right to or with respect to any Technology or Intellectual
Property Right owned by, or licensed to, either of them, (ii) either the
Parent's or the Company's being bound by, or subject to, any non-compete or
other restriction on the operation or scope of their respective businesses, or
(iii) either the Parent's or the Company's being obligated to pay any royalties
or other amounts to any third party in excess of those payable by Parent or
Company, respectively, prior to the Closing.
(u) All of the Company's products (including products currently under
development): (i) record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000, and calculate any information dependent on or relating to such dates in
the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31,
-22-
1999, or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"); (ii) lost no functionality with respect
-------------------
to the introduction of records containing dates falling on or after January 1,
2000; and (iii) are interoperable with other products used and distributed by
Parent that may reasonably deliver records to the Company's products or receive
records from the Company's products, or interact with the Company's products,
including but not limited to back-up and archived data. All of the Company's
Information Technology (as defined below) is Year 2000 Compliant, and did not
cause an interruption in the ongoing operations of the Company's business on or
after January 1, 2000. For purposes of the foregoing, the term "Information
-----------
Technology" shall mean and include all software, hardware, firmware,
----------
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Company in the
conduct of its business, or purchased by the Company from third party suppliers.
2.13 Agreements, Contracts and Commitments. Set forth on Section 2.13 of
-------------------------------------
the Company Disclosure Schedule is a list or description of each of the
following to which the Company is a party (each, a "Company Contract" and
----------------
collectively the "Company Contracts"):
-----------------
(i) any employment or consulting agreement, contract or binding
commitment with an employee, contract worker or individual consultant or
salesperson;
(ii) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan (other
than the Plan), any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property having a value in excess of
$100,000 individually or $300,000 in the aggregate;
(v) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000 individually or
$500,000 in the aggregate;
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(vii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or
-23-
extension of credit (other than in connection with the exercise of
Company Options pursuant to a promissory note as specifically contemplated by
the Plan);
(viii) any purchase order or contract for the purchase of
materials involving in excess of $75,000 individually or $300,000 in the
aggregate;
(ix) any dealer, distribution, joint marketing or development
agreement;
(x) any sales representative, original equipment manufacturer,
value added, remarketer, reseller or independent software vendor or other
agreement for use or distribution of the Company's products, technology or
services; or
(xi) any other agreement, contract or commitment that involves
$100,000 individually or $1,000,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days.
Each Company Contract is in full force and effect. Neither the Company nor
to the Company's knowledge, any other party to a Company Contract, is in breach,
violation or default under, and the Company has not received notice that it has
breached, violated or defaulted under, any of the material terms or conditions
of any Company Contract in such a manner as would permit any other party to
cancel or terminate any such Company Contract, or would permit any other party
to seek damages, which would be reasonably likely to exceed $50,000 (for any or
all of such breaches, violations or defaults, in the aggregate).
2.14 Interested Party Transactions. No officer, director or, to the
-----------------------------
knowledge of the Company, 5% shareholder of the Company (nor, to the knowledge
of the Company, any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services,
products or technology that the Company furnishes or sells, or proposes to
furnish or sell, or (ii) any interest in any entity that purchases from or sells
or furnishes to the Company, any goods or services, or (iii) a beneficial
interest in any Contract to which the Company is a party; provided, however,
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed to be an "interest in any
entity" for purposes of this Section 2.14.
------------
2.15 Governmental Authorization. Each consent, license, permit, grant or
--------------------------
other authorization from any Governmental Authority (i) pursuant to which the
Company currently operates or holds any interest in any of its properties, or
(ii) which is required for the operation of the Company's business as currently
conducted or the holding of any such interest (collectively, "Company
-------
Authorizations") has been issued or granted to the Company. The Company
--------------
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets, except for those the failure
of which to hold would not have a Company Material Adverse Effect.
-24-
2.16 Litigation. There is no action, suit, claim or proceeding of any
----------
nature pending, or to the knowledge of the Company threatened, against the
Company, its properties (tangible or intangible) or any of its officers or
directors. There is no investigation or other proceeding pending or to the
knowledge of the Company threatened, against the Company, any of its properties
(tangible or intangible) or any of their officers or directors by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to develop or distribute any of its
products.
2.17 Minute Books. The minutes of the Company made available to counsel for
------------
Parent are the only minutes of the Company and contain materially complete
summaries of all meetings of the Board of Directors (or committees thereof) of
the Company and its shareholders or actions by written consent since the time of
incorporation of the Company.
2.18 Environmental Matters. Except as would not reasonably be expected to
---------------------
have, individually or in the aggregate, a Company Material Adverse Effect, (i)
the Company is in compliance with all applicable Environmental Laws and all
Company Permits required by Environmental Laws; (ii) all past noncompliance of
the Company with Environmental Laws or Environmental Permits has been resolved
without any pending, ongoing or future obligation, cost or liability; and (iii)
the Company has not released a Hazardous Material at, or transported a Hazardous
Material to or from, any real property currently or formerly owned, leased or
occupied by the Company, in violation of any Environmental Law. For purposes of
this Agreement, "Environmental Law" shall mean any Law and any enforceable
-----------------
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof. "Environmental Permit" shall mean any permit, approval,
--------------------
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law. "Hazardous Material" shall mean
------------------
(i) any petroleum, petroleum products, byproducts or breakdown products,
radioactive materials, asbestos-containing materials or polychlorinated
biphenyls or (ii) any chemical, material or substance defined or regulated as
toxic or hazardous or as a pollutant or contaminant or waste under any
applicable Environmental Law.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except for fees
------------------------------------------------
payable to Broadview Associates LLC, the Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with the Agreement or
any transaction contemplated hereby. Section 2.19 of the Company Disclosure
------------
Schedule sets forth the Company's current estimate of all third party expenses
("Third Party Expenses") expected to be incurred by the Company in connection
--------------------
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.20 Employee Benefit Plan and Compensation.
--------------------------------------
-25-
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
"Affiliate" shall mean any other person or entity under common control with
---------
the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code,
and the regulations issued thereunder.
"Company Employee Plan" shall mean any material plan, program, policy,
---------------------
practice, contract, agreement or other material arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation each "employee benefit plan"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation but shall exclude
any Employee Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
-----
1985, as amended.
"DOL" shall mean the United States Department of Labor.
---
"Employee" shall mean any current or former employee, contract worker,
--------
consultant or director of the Company or any Affiliate.
"Employee Agreement" shall mean each management, employment, severance,
------------------
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, or contract between the Company or any Affiliate and any Employee
other than a Company Employee Plan.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
"FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
----
"IRS" shall mean the United States Internal Revenue Service.
---
"PBGC" shall mean the United States Pension Benefit Guaranty Corporation.
----
"Pension Plan" shall mean each Company Employee Plan which is an "employee
------------
pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Section 2.20(b) of the Company Disclosure Schedule
-------- ---------------
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement. The Company has no plan or commitment to establish any new
Company Employee Plan or Employee Agreement, to modify any Company Employee Plan
or Employee Agreement (except to the extent
26
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement.
(c) Documents. The Company has made available to Parent (i) correct
---------
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related trust documents, (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan, (iii) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets, (iv) the most
recent summary plan description together with any summary of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan, (v) all material written agreements and contracts relating to
each Company Employee Plan, including, without limitation, administrative
service agreements and group insurance contracts, (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plan, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company, (vii) all correspondence to or from any
governmental agency relating to any Company Employee Plan, (viii) all COBRA
forms and related notices, (ix) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan, (x) all
discrimination tests for each Company Employee Plan for the most recently
completed plan year, and (xi) all registration statements, annual reports (Form
11-K and all attachments thereto) and prospectuses prepared in connection with
each Company Employee Plan.
(d) Employee Plan Compliance. The Company has performed in all
------------------------
material respects all obligations required to be performed by it under, is not
in material default or violation of, and has no knowledge of any default or
violation by any other party to each Company Employee Plan, and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code.
No "prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Company Employee Plan which would result
in material liability to the Company. There are no actions, suits or claims
pending, or to the knowledge of the Company threatened or reasonably anticipated
(other than routine claims for benefits) against any Company Employee Plan or
against the assets of any Company Employee Plan that could reasonably be
expected to result in material liability. Each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Closing Date in
accordance with its terms, without liability to Parent, the Company or any
Affiliate (other than ordinary administration expenses and already accrued
benefits). There are no audits, inquiries or proceedings pending or, to the
knowledge of the Company or any Affiliates, threatened by the IRS or DOL with
respect to any Company Employee Plan. Neither the Company nor any Affiliate is
subject to any material penalty
27
or tax with respect to any Company Employee Plan under Section 502(i) of ERISA
or Sections 4975 through 4980 of the Code.
(e) No Pension Plan. Neither the Company nor any other Affiliate has
---------------
ever maintained, established, sponsored, participated in, or contributed to, any
(i) Pension Plan subject to Title IV of ERISA, or (ii) "multiemployer plan"
within the meaning of Section (3)(37) of ERISA.
(f) No Post-Employment Obligations. No Company Employee Plan provides,
------------------------------
or reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided with
retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
(g) COBRA. The Company and each Affiliate has, prior to the Closing
-----
Date, complied in all material respects with the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Employees.
(h) Effect of Transaction. The execution of this Agreement and the
---------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan or Employee Agreement that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee, except as expressly required by this
Agreement.
(i) Employment Matters. The Company: (i) with respect to Employees, is
------------------
in compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, including all
applicable laws of foreign jurisdictions where the Company has Employees; (ii)
has withheld and reported all amounts required by law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Employees, (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing, and (iv) is not liable
for any payment to any trust or other fund governed by or maintained by or on
behalf of any governmental 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, or to the knowledge of the Company
threatened, claims or actions against the Company under any worker's
compensation policy or long-term disability policy.
2.21 Insurance. The Company maintains insurance policies covering the
---------
assets, business, equipment, properties, operations, employees, contract
workers, officers and directors of the Company or any Affiliate. There is no
claim by the Company or any Affiliate pending under any of
28
such policies as to which coverage has been questioned, denied or disputed by
the underwriters of such policies. All premiums due and payable under all such
policies have been paid, and the Company and its Affiliates are otherwise in
material compliance with the terms of such policies and bonds (or other policies
providing substantially similar insurance coverage). The Company has no
Knowledge of threatened termination of, or premium increase with respect to, any
of such policies.
2.22 Compliance with Laws. The Company has complied with and is not in
--------------------
violation of any foreign, federal, state or local statute, law or regulation
except when the failure to comply would not have a Company Material Adverse
Effect. The Company has not received any notices of violation with respect to
any such statute, law or regulation.
2.23 Representations Complete. The representations and warranties made by
------------------------
the Company (as modified by the Company Disclosure Schedule) in this Agreement,
in the aggregate, do not contain and will not contain at the Closing Date any
untrue statement of a material fact, and do not omit and will not omit at the
Closing Date to state any material fact necessary in order to make the
statements contained herein, in the light of the circumstances under which made,
not misleading. The information furnished by the Company for inclusion in any
documents mailed, delivered or otherwise furnished to shareholders of the
Company in connection with the solicitation of their consent to this Agreement
and the Offer, will not contain, at or prior to the Closing Date, any untrue
statement of a material fact and will not omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
Parent and Sub hereby represent and warrant to the Company, subject to such
exceptions as are specifically disclosed in the disclosure letter (referencing
the appropriate section and paragraph numbers or the relevance of which
exceptions to other sections of this Agreement is otherwise reasonably apparent
on the fact of such exceptions) supplied by the Parent and Sub to the Company
(the "Parent Disclosure Schedule") and dated as of the date hereof, that on the
--------------------------
date hereof:
3.1 Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware Each of Parent and Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Parent Material Adverse Effect.
3.2 Authority. Each of Parent and Sub has all requisite corporate power and
---------
authority to enter into this Agreement and any Related Agreements to which it is
a party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and
-29-
any Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub. No vote of Parent's
stockholders is needed to approve the issuance of Parent Common Stock pursuant
to the Offer. This Agreement and any Related Agreements to which Parent and Sub
are parties have been duly executed and delivered by Parent and Sub and
constitute the valid and binding obligations of Parent and Sub, enforceable in
accordance with their terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
3.3 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement and any Related Agreements to which
Parent or Sub is a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities laws, (ii) the expiration or early termination of the
waiting period under the HSR Act and (iii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Parent Material Adverse Effect.
3.4 Parent Common Stock. The Parent Common Stock to be issued pursuant
-------------------
hereto has been duly authorized, and upon consummation of the transactions
contemplated by this Agreement, will be validly issued, fully paid and
nonassessable.
3.5 SEC Reports; Financial Statements. Parent has made available to Company
---------------------------------
a correct and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Parent with the SEC on or after December 31,
1999 (the "SEC Reports"). The Parent SEC Reports (A) were prepared in accordance
-----------
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and (B) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(a) Each set of consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents the consolidated financial
position of Parent and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal adjustments which are not material in the aggregate.
-30-
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, the Company agrees, except as otherwise
specifically allowed or required by this Agreement or to the extent that Parent
shall otherwise consent in writing, to carry on the Company's business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of the Company when due, to pay
or perform other obligations when due, and, to the extent consistent with such
business, use its reasonable efforts consistent with past practice and policies
to preserve intact the Company's present business organizations, keep available
the services of the Company's present officers and key employees and preserve
the Company's relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired the Company's goodwill and ongoing businesses at the
Closing Date. The Company shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of business of the Company
and any material event involving the Company. Except as expressly required by
this Agreement or as set forth in Section 4.1 of the Company Disclosure
Schedule, the Company shall not, without the prior written consent of Parent:
(a) make any expenditures or enter into any commitment or transaction
exceeding $100,000 individually;
(b) (i) except for licenses granted in the ordinary course of
business, sell, license or transfer to any person or entity any rights to any
Company Intellectual Property except for non-exclusive license agreements
entered into in the ordinary course of business or enter into any agreement with
respect to any intellectual property of any person or entity, except for
licenses or commercially available software, (ii) enter into any agreement with
respect to the development of any intellectual property with a third party
except for consulting agreements entered into in the ordinary course of
business which provide for exclusive ownership by the Company of any
Intellectual Property developed thereunder or (iii) change pricing or
royalties charged by the Company to its customers or licensees, or the pricing
or royalties set or charged by persons who have licensed intellectual property
to the Company except as required by the terms of agreements currently in
effect;
(c) enter into or amend any Contract pursuant to which any other party
is granted marketing, distribution, development or similar rights of any type or
scope with respect to any products or technology of the Company;
(d) amend or otherwise modify (or agree to do so), or violate the
terms of, any Company Contracts;
(e) commence or settle any litigation;
31
(f) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Common Stock or Preferred, or split, combine or reclassify any Company Common
Stock or Preferred or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of Company Common Stock or
Preferred, or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of Company Common Stock or Preferred (or options, warrants or other
rights exercisable therefor) except in accordance with the agreements evidencing
Company Options or restricted stock awards except as otherwise specifically
contemplated by this Agreement;
(g) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of capital stock of the Company or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities, except for (i) shares of Company Common Stock
issued upon exercise of Company Options outstanding on the date hereof or
Warrants outstanding on the date hereof and (ii) granting under the Plan options
to purchase up to 2,840,000 shares of Company Common Stock (which number will
increase by 62,000 shares for each week beyond April 30, 2000);
(h) cause or permit any amendments to its articles of organization,
bylaws or other organizational documents of the Company or as otherwise
specifically contemplated by this Agreement;
(i) acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities 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 the Company's
business;
(j) except as allowed pursuant to Section 4.1(b) hereof, sell, lease,
--------------
license or otherwise dispose of any of its properties or assets, except
properties or assets which are not Company Intellectual Property and only in the
ordinary course of business and consistent with past practices;
(k) incur any indebtedness or guarantee any indebtedness or issue or
sell any debt securities or guarantee any debt securities of others;
(l) grant any loans to others (except pursuant to the terms of the
Plan in connection with the exercise of any Company Options) or purchase debt
securities of others or amend the terms of any outstanding loan agreement;
(m) grant any severance or termination pay (i) to any director or
officer, or (ii) to any other employee or contract worker except payments made
pursuant to standard written agreements outstanding on the date hereof and
disclosed in the Company Disclosure Schedule;
32
(n) adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director, employee or contract worker, or increase the
salaries or wage rates of its employees or contract workers except payments made
pursuant to standard written agreements in place on the date hereof and
disclosed in the Company Disclosure Schedule or as otherwise specifically
contemplated hereby;
(o) revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) pay, discharge or satisfy, in an amount in excess of $100,000 in
any one case, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than such payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in the Current Balance Sheet or arising in the ordinary course
of business after the date of the Current Balance Sheet;
(q) make or change any material election in respect of Taxes, adopt or
change any material accounting method in respect of Taxes, enter into any
material closing agreement, settle any material claim or assessment in respect
of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(r) enter into any strategic alliance or joint marketing arrangement
or agreement;
(s) take any action to accelerate the vesting schedule of any of the
outstanding Company Options or Company Common Stock (other than as disclosed in
the Company Disclosure Schedule); or
(t) engage in any action that could reasonably be expected to cause
the Offer to fail to qualify as a "reorganization" under Section 368(a) of the
Code whether or not otherwise permitted by the provisions of this Article 4;
(u) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(t) hereof, or any other action that
--------------- ------
would (x) prevent the Company from performing covenants hereunder or (y) cause
or result in any representations and warranties contained in Article II herein
being materially untrue or incorrect.
4.2 No Solicitation. Until the earlier of (i) the Closing Date, or (ii) the
---------------
date of termination of this Agreement pursuant to the provisions of Section 8.1
-----------
hereof, the Company shall not (nor shall the Company permit, authorize or
encourage, as applicable, any of the Company's officers, directors, employees,
contract workers, shareholders, agents, representatives or affiliates to),
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, encourage, initiate or participate
in any inquiry, negotiations or discussions, or enter into any agreement, with
respect to any offer or proposal to acquire all or any material part of the
Company's business, properties or technologies, or any amount of the Company
Common Stock or Preferred
33
(whether or not outstanding), whether by merger, purchase of assets, tender
offer, license or otherwise, or effect any such transaction, (b) disclose any
information not customarily disclosed to any person concerning the Company's
business, technologies or properties, or afford to any person or entity access
to its properties, technologies, books or records, not customarily afforded such
access, (c) assist or cooperate with any person to make any proposal to purchase
all or any material part of the Company Common Stock or Preferred or assets of
the Company, other than inventory in the ordinary course of business, or (d)
enter into any agreement with any person providing for the acquisition of the
Company, whether by merger, purchase of assets, license, tender offer or
otherwise. In the event that the Company, any of the Company's controlled
affiliates or, to the Company's knowledge, any of the Company's non- controlled
affiliates, shall receive, prior to the Closing Date or the termination of this
Agreement, any offer, proposal, or request, directly or indirectly, of the type
referenced in clause (a) or (c) above, or any request for disclosure or access
pursuant to clause (b) above, the Company shall promptly, and in no event later
than within 24 hours, notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Parent may reasonably request. The parties hereto
agree that irreparable damage would occur in the event that the provisions of
this Section 4.2 were not performed in accordance with their specific terms or
-----------
were otherwise breached. It is accordingly agreed by the parties hereto that
Parent shall be entitled to seek an injunction or injunctions to prevent
breaches of the provisions of this Section 4.2 and to enforce specifically the
-----------
terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which Parent
may be entitled at law or in equity.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Information Statement; Other Filings.
------------------------------------
(a) As promptly as practicable, Company will prepare an information
statement relating to the approval of the Recapitalization by the Company's
shareholders (the "Information Statement"). In the event the S-4 is not declared
---------------------
effective by the SEC by July 15, 2000, then the provisions of this Section 5.1
regarding the S-4 will not be applicable and instead the provisions of Section
5.1(d) will be applicable. Each of Parent and Company shall 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. Company will cause the Information Statement to be mailed
to its shareholders at the earliest practicable time. As promptly as practicable
after the date of this Agreement, each of Company and Parent will prepare and
file any other filings required to be filed by it under the Exchange Act, the
Securities Act or any other Federal, foreign or Blue Sky or related laws
relating to
34
the Offer and the transactions contemplated by this Agreement (the "Other
-----
Filings"). Each of Company and Parent will notify the other promptly upon
-------
the receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the S-4, or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the other
hand, with respect to the S-4, the Offer, the Recapitalization or any Other
Filing. Each of Company and Parent will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 5.1(a) to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Information Statement, the S-4 or any Other Filing, Company or
Parent, as the case may be, will promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to shareholders of Company, such amendment or
supplement.
(b) The Information Statement will include the unanimous
recommendation of the Board of Directors of Company in favor of approval of the
Recapitalization.
(c) Promptly after the date hereof, Company will take all action
necessary in accordance with California Law to convene a Company shareholders'
meeting ("Company Shareholders' Meeting") to be held as promptly as practicable
------- ---------------------
for the purpose of voting upon the Recapitalization. The Company will use its
commercially reasonable efforts to solicit from its shareholders proxies in
favor of adoption and approval of the Recapitalization and will take all other
action necessary or advisable to secure the vote or consent of its shareholders
required California Law to obtain such approvals. The Company shall ensure that
the Company Shareholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by the Company in connection with the
Company Shareholders' Meeting are solicited, in compliance with California Law
and all other applicable legal requirements.
(d) In the event this Section 5.1(d) is applicable pursuant to Section
1.1(d), then the following provisions shall be applicable:
(i) The Parent Common Stock to be issued pursuant to this
Agreement initially will not be registered under the Securities Act in reliance
on the exemptions from the registration requirements of Section 5 of the
Securities Act set forth in Section 4(2) thereof.
(ii) In addition to any legend imposed by applicable state
securities laws or by any contract which continues in effect after the Closing
Date, the certificates representing the shares of Parent Common Stock issued
pursuant to this Agreement shall bear a restrictive legend (and stop transfer
orders shall be placed against the transfer thereof with Parent's transfer
agent), stating substantially as follows:
35
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR
HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
(iii) Each holder of Series B Preferred Stock, by virtue of the
Offer and the exchange of Parent Common Stock for the Series B Preferred Stock
held by such shareholder, shall be bound by the following provisions:
(A) Such shareholder will not offer, sell, or otherwise
dispose of any shares of Parent Common Stock except in compliance with the
Securities Act and the rules and regulations thereunder.
(B) Such shareholder will not sell, transfer or otherwise
dispose of any shares of Parent Common Stock unless (x) such sale, transfer or
other disposition is within the limitations of and in compliance with Rule 144
promulgated by the SEC under the Securities Act and the shareholder furnishes
Parent with reasonable proof of compliance with such Rule, (y) in the opinion of
counsel, reasonably satisfactory to Parent and its counsel, some other exemption
from registration under the Securities Act is available with respect to any such
proposed sale, transfer, or other disposition of Parent Common Stock or (z) the
offer and sale of Parent Common Stock is registered under the Securities Act.
(iv) Parent agrees that the shareholders of the Company receiving
Parent Common Stock in the Offer shall be entitled to reasonable and customary
mutually acceptable registration rights set forth in a declaration of
registration rights to be delivered by Parent at Closing (the "Declaration of
--------------
Registration Rights").
-------------------
(e) Prior to the Closing Date, each of the Company's shareholders to
receive Parent Common Stock in the Offer shall have provided Parent such
representations, warranties, certifications and additional information as Parent
may reasonably request to ensure the ability to issue shares pursuant to the
Registration Statement without updating the Registration Statement prior to
effecting the Offer or the availability of the exemptions from the registration
requirements of the Securities Act described in Section 5.1(d), as applicable.
5.2 Access to Information. The Company shall afford to Parent and its
---------------------
accountants, counsel and other representatives, reasonable access during the
period prior to the Closing Date to (i) all of
-36-
its properties, books, contracts, commitments and records, (ii) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as Parent may reasonably request, and
(iii) all employees and contract workers of the Company. 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 Offer in
accordance with the terms and provisions hereof.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
---------------
information obtained in any investigation pursuant to Section 5.3 hereof, or
-----------
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidential Disclosure Agreement effective as of February 1, 2000 (the
"Confidential Disclosure Agreement") among the Company and Parent.
----------------------------------
5.4 Expenses. Whether or not the Offer is consummated, all fees and
--------
expenses incurred in connection with the Offer including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
--------------------
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
5.5 Public Disclosure. Neither party shall issue any statement or
-----------------
communication to any third party (other than their respective agents) regarding
the subject matter of this Agreement or the transactions contemplated hereby,
including, if applicable, the termination of this Agreement and the reasons
therefor, without the consent of the other party, which consent shall not be
unreasonably withheld, except that this restriction shall be subject to Parent's
obligation to comply with applicable securities laws in which event, to the
extent practicable, the Company shall be provided with the opportunity to review
and comment upon such disclosure prior to such disclosure being made.
5.6 FIRPTA Compliance. At the Closing Date, the Company shall deliver to
-----------------
Parent a properly executed statement (a "FIRPTA Compliance Certificate") in a
-----------------------------
form reasonably acceptable to Parent for purposes of satisfying Parent's
obligations under Treasury Regulation Section 1.1445-2(c)(3).
5.7 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement.
-37-
5.8 Notification of Certain Matters. Each of the Company and Parent shall
-------------------------------
give prompt notice to the other of: (i) the occurrence or non-occurrence of any
event, the occurrence or non- occurrence of which is likely to cause any
representation or warranty made by it in this Agreement to be materially untrue
or inaccurate at or prior to the Closing Date, and (ii) any failure by it to
materially comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.8 shall not (a) limit or otherwise
-----------
affect any remedies available to the party receiving such notice or (b)
constitute an acknowledgment or admission of a breach of this Agreement. No
disclosure by either party pursuant to this Section 5.8, however, shall be
-----------
deemed to amend or supplement the Company Disclosure Schedule or prevent or cure
any misrepresentations, breach of warranty or breach of covenant.
5.9 Additional Documents and Further Assurances. Each party hereto, at the
-------------------------------------------
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 the Offer and the
transactions contemplated hereby.
5.10 Nasdaq Listing. Parent agrees (i) to have the shares of Parent Common
--------------
Stock issuable, and those required to be reserved for issuance, in connection
with the Offer, approved for quotation on the Nasdaq National Market System
subject only to official notice of issuance and (ii) to continue the inclusion
of the Parent Common Stock on the Nasdaq National Market until the Closing Date.
5.11 Indemnification and Insurance
-----------------------------
(a) From and after the Closing Date, Parent will use reasonable
efforts to cause the Company to fulfill and honor in all respects the
obligations of the Company pursuant to its articles of incorporation and bylaws
and any indemnification agreements between the Company and each of its
respective directors and officers existing prior to the Closing Date. The
articles of incorporation and bylaws of the Company will contain the provisions
with respect to indemnification set forth in the articles of organization and
bylaws of the Company prior to the Closing Date, which provisions will not be
amended, repealed or otherwise modified for a period of four years from the
Closing Date in any manner that would adversely affect the rights thereunder of
individuals who, immediately prior to the Closing Date, were directors or
officers of the Company, unless such modification is required by law.
(b) From and after the Closing Date, Parent will use reasonable
efforts to cause the Company, to the fullest extent permitted under applicable
law or under the Company's organizational documents and bylaws, to indemnify and
hold harmless, each director or officer of the Company (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
-------------------
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal,
-38-
administrative or investigative, to the extent arising out of or pertaining to
any action or omission in his or her capacity as a director or officer of the
Company in connection with the negotiation, approval or consummation of this
Agreement or the Offer for a period of six years after the date hereof. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Closing Date), (i) any counsel retained by the
Indemnified Parties for any period after the Closing Date must be reasonably
satisfactory to the Company, (ii) after the Closing Date, the Company will pay
the reasonable fees and expenses of such counsel, promptly after statements
therefor are received and (iii) the Company will cooperate in the defense of any
such matter; provided, however, that the Company will not be liable for any
settlement effected without its written consent (which consent will not be
unreasonably withheld); and provided, further, that, in the event that any claim
or claims for indemnification are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or claims will
continue until the disposition of any and all such claims; provided, further,
that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under
California Law, the Company's organizational documents or bylaws or such
agreements, as the case may be, shall be made by independent legal counsel
selected by the Indemnified Party and reasonably acceptable to the Company; and
provided, further, that nothing in this Section 5.13 shall impair any rights or
obligations of any present or former employees, agents, directors or officers of
the Company. The Indemnified Parties as a group may retain only one law firm (in
addition to local counsel) to represent them with respect to any single action
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
5.12 Additional Shareholder Agreements. The Company shall use commercially
---------------------------------
reasonable efforts to cause i2 Technologies, Inc., Aspect Development
Corporation, Computer Sciences Corporation, Vertical Net and ▇▇▇▇▇ Fargo &
Company to sign Shareholder Agreements in the form attached hereto as Exhibit A.
---------
ARTICLE 6
CONDITIONS TO THE REORGANIZATION
6.1 Conditions to Obligations of Each Party to Effect the Offer. The
-----------------------------------------------------------
respective obligations of the Company and Parent to effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
--------
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Offer illegal or
otherwise prohibiting consummation of the Offer.
(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
-39-
other legal restraint or prohibition preventing the consummation of the Offer
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.
(c) Registration Statement Effective; Registration Rights. If Section
-----------------------------------------------------
1.1(d) is applicable, the SEC shall have declared the S-4 effective, no stop
order suspending the effectiveness of the S-4 or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened in writing by the SEC.
(d) Tax Opinions. Parent and Company shall each have received written
------------
opinions from their respective tax counsel (▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
Professional Corporation, and ▇▇▇▇▇▇ Godward LLP respectively), in form and
substance reasonably satisfactory to them, to the effect that the Offer should
constitute a reorganization within the meaning of Section 368(a) of the Code and
such opinions shall not have been withdrawn; provided, however, that if the
-----------------
counsel to either Parent or Company does not render such opinion, this condition
shall nonetheless be deemed to be satisfied with respect to such party if
counsel to the other party renders such opinion to such party. The parties to
this Agreement agree to make such reasonable representations as requested by
such counsel for the purpose of rendering such opinions.
(e) Governmental Approval. All applicable waiting periods under the
---------------------
HSR Act relating to the transactions contemplated hereby will have expired or
terminated early. Approvals from any court, administrative agency or commission
or other federal, state, county, local or other foreign governmental authority,
instrumentality, agency or commission that are required shall have been timely
obtained.
(f) Listing. The shares of Parent Common Stock to be issued hereunder
-------
shall have been approved for listing (subject to notice of issuance) on the
Nasdaq National Market.
6.2 Conditions to the Obligations of Parent and Sub. The obligation of
-----------------------------------------------
Parent and Sub to effect the transactions contemplated hereby, including Sub's
obligation to accept for exchange and exchange shares of Common Stock pursuant
to the Offer, shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent and Sub:
(a) Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in this Agreement shall have been true and correct as
of the date of this Agreement and as of the Closing Date except for those
representations and warranties which address matters only as of the date of this
Agreement or any other particular date (which shall have been true and correct
as of such particular date) except for such inaccuracies that do not constitute
(ignoring for the purposes of this analysis all "materiality", "Material Adverse
Effect" and like concepts in such representations and warranties) in the
aggregate, a Company Material Adverse Effect. Parent shall have received a
certificate with respect to the foregoing signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company.
-40-
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company.
(c) Legal Opinion. Parent shall have received a legal opinion from
-------------
legal counsel to the Company, in substantially the form attached hereto as
Exhibit C.
---------
(d) Recapitalization. The Company shall have effected the
----------------
Recapitalization.
(e) Third Party Consents. All third party consents required as a
--------------------
result of the transactions contemplated hereby, the absence of which are
reasonably likely to have a Company Material Adverse Effect, shall have been
obtained.
(f) Minimum Condition and Other Offer Conditions. The Offer shall have
--------------------------------------------
expired and the Minimum Condition shall have been satisfied. In addition, this
Agreement shall not have been terminated in accordance with its terms.
(g) Board of Directors. The directors and/or shareholders of the
------------------
Company shall have taken action such that the Company's Board of Directors shall
consist of only the following five persons, effective as of the Closing Date:
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ and three other persons designated by Parent.
(h) Employee Matters. The Company shall have obtained and delivered to
----------------
Parent a confirmation letter from each employee reasonably requested by Parent,
acknowledging and agreeing that the change in control resulting from the
transactions contemplated hereby, whether or not followed by a change in or
termination of such employee's employment relationship with the Company, will
not cause an acceleration of vesting of any Company Options or Company Common
Stock held by such employee.
6.3 Conditions to Obligations of the Company. The obligations of the Company
----------------------------------------
to consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
the Company:
(a) Representations and Warranties. The representations and warranties
------------------------------
of Parent and Sub contained in this Agreement shall have been true and correct
as of the date of this Agreement and as of the Closing Date except for those
representations and warranties which address matters only as of the date of this
Agreement or any other particular date (which shall have been true and correct
as of such particular date) except for such inaccuracies that do not constitute
(ignoring for the purpose of this analysis all "materiality," "Material Adverse
Effect" and like concepts in such representations and warranties), in the
aggregate, a Parent Material Adverse Effect. The Company
-41-
shall have received a certificate with respect to the foregoing signed on behalf
of Parent by the Chief Executive Officer and the Chief Financial Officer of
Parent.
(b) Agreements and Covenants. Parent and Sub shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed on behalf of Parent by an authorized officer of Parent.
(c) Registration Rights. If Section 5.1(d) is applicable, Parent shall have
-------------------
delivered to each of the Series B Shareholders receiving Parent Common
Stock an executed copy of the Declaration of Registration Rights.
(d) Legal Opinion. The Company shall have received a legal opinion from legal
-------------
counsel to Parent, in substantially the form attached hereto as Exhibit D.
---------
ARTICLE 7
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; ESCROW
7.1 Survival of Representations, Warranties and Covenants The representations
-----------------------------------------------------
and warranties of the Company contained in this Agreement, or in any certificate
or other instrument delivered pursuant to this Agreement, shall terminate one
year following the Closing Date.
7.2 Indemnification. The Series B Shareholders shall, by virtue of their
---------------
acceptance of shares of Parent Common Stock pursuant to the Offer, severally and
not jointly agree to indemnify and hold Parent and its officers, directors and
affiliates, including the Company after the Closing (the "Indemnified Parties"),
-------------------
harmless against all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of investigation
and defense relating to such claim, loss, liability, damage, deficiency, cost or
expense (hereinafter individually a "Loss" and collectively "Losses") incurred
---- ------
or suffered by the Indemnified Parties, or any of them (including the Company
after the Closing), directly or indirectly, as a result of (i) any breach or
inaccuracy of a representation or warranty of the Company contained in this
Agreement (or in any certificate, schedule or other instrument delivered
pursuant to this Agreement), (ii) any failure by the Company to perform or
comply with any covenant applicable to it contained in this Agreement or (iii)
actual Third Party Expenses exceeding the amount specified on Section 2.19 of
------------
the Company Disclosure Schedule. For the avoidance of doubt and for purposes of
clarification only, any claim, loss, liability, damage, deficiency cost or
expense incurred or suffered by the Company shall only constitute a Loss to the
Company or to Parent (as applicable) to the extent of Parent's pro rata interest
(calculated on an as converted to Class A Common basis) in the Company. The
Series B Shareholders shall not have any right of contribution from the Company
with respect to any Loss claimed by an Indemnified Party after the Closing Date.
-42-
7.3 Escrow Arrangements
-------------------
(a) Escrow Fund. As partial security for the indemnity provided for in
-----------
Section 7.2 hereof and by virtue of this Agreement, the Series B
-----------
Shareholders will be deemed to have received and deposited with the Escrow
Agent the Escrow Amount without any act of any Series B Shareholder. The
Escrow Fund shall be available to compensate the Indemnified Parties, or
any of them, for any claims by such Indemnified Parties for any Losses
suffered or incurred by them; provided, however, that if the Escrow Period
(as defined below) has terminated, and a claim for Losses is made with
respect to fraud, the claim shall be made directly against the Series B
Shareholders. Within three days after the Closing, the Escrow Amount,
without any act of the Series B Shareholders, will be deposited with Chase
Manhattan Trust Company, National Association, as Escrow Agent hereunder,
or another institution acceptable to Parent and the Shareholder
Representative (as defined in Section 7.4 hereof), such deposit of the
-----------
Escrow Amount to constitute an escrow fund (the "Escrow Fund") to be
-----------
governed by the terms set forth herein. The Escrow Agent may execute this
Agreement following the date hereof and prior to the Closing, and such
later execution, if so executed after the date hereof, shall not affect the
binding nature of this Agreement as of the date hereof between the other
signatories hereto. Parent may not receive any proceeds from the Escrow
Fund unless and until one or more Officer's Certificates (as defined in
Section 7.3(d) hereof) identifying Losses in excess of $4,000,000 in the
--------------
aggregate (the "Basket Amount") has or have been delivered to the Escrow
-------------
Agent as provided in Section 7.3(d) hereof and are no longer being
--------------
contested pursuant to the provisions of this Article 7, in which case
Parent shall be entitled to recover all Losses so identified in excess of
the Basket Amount.
(b) Escrow Period; Distribution upon Termination of Escrow Periods. Subject to
--------------------------------------------------------------
the following requirements, the Escrow Fund shall be in existence
immediately following the Closing Date and shall terminate at the earlier
of (a) the closing of the first sale by the Company of shares of Company
Common Stock in a firm commitment underwritten offering pursuant to a
registration statement under the Securities Act or (b) 5:00 p.m., Pacific
Time, on the one year anniversary of the Closing Date (the "Escrow
------
Period"); provided, however, that the Escrow Period shall not terminate
------
with respect to any amount which, in the reasonable good faith judgment of
Parent, subject to the objection of the Shareholder Representative and the
subsequent arbitration of the matter in the manner provided in Section
-------
7.3(f) hereof, is necessary to satisfy any then pending and unsatisfied
------
claims specified in any Officer's Certificate delivered to the Escrow Agent
prior to the termination of the Escrow Period with respect to facts and
circumstances existing prior to the termination of such Escrow Period.
Promptly after the expiration of the Escrow Period, Parent and the
Shareholder Representative shall jointly notify the Escrow Agent in writing
that the Escrow Period has expired, and the Escrow Agent shall deliver to
the Series B Shareholders the portion of the Escrow Fund, if any, not
required to satisfy such claims (the "Remaining Portion"). Thereafter,
-----------------
promptly after the resolution of any pending claim, the Escrow Agent shall
deliver to the Series B Shareholders the additional portion of the Escrow
Fund, if any, not required to satisfy any then remaining claims. Deliveries
of the Escrow Amount out of the Escrow Fund to the Series B Shareholders
pursuant to this Section 7.3(b) shall be made in proportion to their
--------------
respective Pro Rata Portions of the Escrow
-43-
Fund. At or prior to the Closing Date, the Company shall provide a
certified list of the Series B Shareholders and their respective Pro Rata
Portions of the Escrow Fund.
(c) Protection of Escrow Fund; Distribution of Interest from Escrow Fund;
---------------------------------------------------------------------
Substitution of Cash.
--------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with
the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock
split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund
--- ------
which have not been released from the Escrow Fund shall be added to the
Escrow Fund and become a part thereof. New Shares issued in respect of
shares of Parent Common Stock which have been released from the Escrow Fund
shall not be added to the Escrow Fund but shall be distributed to the
record holders thereof. Cash dividends on Parent Common Stock shall not be
added to the Escrow Fund but shall be distributed to the record holders
thereof.
(iii) Each Series B Shareholder shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by such
Series B Shareholder (and on any voting securities added to the Escrow Fund
in respect of such shares of Parent Common Stock).
(d) Claims for Indemnification.
--------------------------
(i) Upon receipt by the Escrow Agent at any time on or before the last
day of the Escrow Period of an Officer's Certificate (as defined below)
and, subject to the provisions of Section 7.3(e) and Section 7.5 hereof,
-------------- -----------
the Escrow Agent shall deliver to Parent out of the Escrow Fund, as
promptly as practicable, Parent Common Stock (or cash in lieu thereof) held
in the Escrow Fund equal to Losses specified in the Officer's Certificate.
For purposes hereof, "Officer's Certificate" shall mean a certificate
---------------------
signed by any officer of Parent: (a) stating that Parent has paid or
incurred or properly accrued Losses, and (b) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the
date each such item was paid, incurred or properly accrued, and the nature
of the misrepresentation, breach of warranty or covenant to which such item
is related.
(ii) For the purposes of determining the number of shares of Parent
Common Stock or cash in lieu of such shares to be delivered to Parent out
of the Escrow Fund as indemnity pursuant to Section 7.2 hereof, the shares
-----------
of Parent Common Stock shall be valued at the Trading Price and any cash
paid in lieu of such shares shall be calculated accordingly.
-44-
(e) 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 by Parent to the Shareholder Representative, and for a period
of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any Escrow Amounts pursuant to Section 7.3(d) hereof
--------------
unless and until the Escrow Agent shall have received written authorization
from the Shareholder Representative to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the Parent Common Stock (or cash in lieu thereof) from the
Escrow Fund in accordance with Section 7.3(d) hereof; provided, however,
--------------
that no such payment or delivery may be made if the Shareholder
Representative 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.
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Shareholder Representative shall object in writing to any
claim or claims made in any Officer's Certificate to recover Losses from
the Escrow Fund within thirty (30) days after delivery of such Officer's
Certificate, the Shareholder Representative and Parent shall attempt in
good faith to agree upon the rights of the respective parties with respect
to each of such claims. If the Shareholder Representative and Parent should
so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties and, in the case of a claim against the Escrow Fund,
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled
to rely on any such memorandum and distribute amounts from the Escrow Fund
in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholder Representative may demand arbitration of
the matter unless the amount of the Loss is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until
such amount is ascertained or both parties agree to arbitration, and in
either such event the matter shall be settled by arbitration conducted by
one arbitrator mutually agreeable to Parent and the Shareholder
Representative. In the event that within forty-five (45) days after
submission of any dispute to arbitration, Parent and the Shareholder
Representative cannot mutually agree on one arbitrator, Parent and the
Shareholder Representative shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment of
the arbitrator or majority of the three arbitrators, as the case may be, to
discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the extent as a competent court of law or
equity, should the arbitrators or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without
substantial justification. The decision of the arbitrator or a
-45-
majority of the three arbitrators, as the case may be, 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. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be held in
San Francisco County, California, under the rules then in effect of the American
Arbitration Association (subject to paragraph (ii) above). The arbitrator(s)
shall determine how all expenses relating to the arbitration shall be paid,
including without limitation, the respective expenses of each party, the fees of
each arbitrator and the administrative fee of the American Arbitration
Association.
(g) Third-Party Claims. In the event Parent becomes aware of a third-party
------------------
claim which Parent reasonably believes may result in a demand against the Escrow
Fund, Parent shall notify the Shareholder Representative of such claim, and the
Shareholder Representative shall be entitled on behalf of the Series B
Shareholders, at its expense, to participate in, but not to determine or
conduct, the defense of such claim. Parent shall have the right in its sole
discretion to conduct the defense of and settle any such claim; provided,
however, that except with the consent of the Shareholder Representative, no
settlement of any such claim with third-party claimants shall be determinative
of the amount of Losses relating to such matter. In the event that the
Shareholder Representative has consented in writing to any such settlement, the
Series B Shareholders shall have no power or authority to object under any
provision of this Article 7 to the amount of any claim by Parent against
---------
the Escrow Fund with respect to such settlement.
(h) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Shareholder Representative, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any action taken or omitted by it in good faith
unless a court of competent jurisdiction determines that the Escrow Agent's
gross negligence or willful misconduct was the primary cause of any loss to the
Parent or any Series B Shareholder. In the administration of the escrow account
hereunder, the Escrow Agent may execute any of its powers and perform its duties
hereunder directly or through agents or attorneys and may consult with counsel,
accountants and other skilled persons to be selected and retained by it. The
Escrow Agent shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the advice or opinion of any such counsel,
accountants or other skilled persons.
-46-
(ii) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties hereto
or to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) The Escrow Agent is not responsible for determining and verifying
the authority of any person acting or purporting to act on behalf of any party
to this Agreement.
(vi) If any controversy arises between the parties to this Agreement,
or with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and the Escrow Amount and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, may be required, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for damages. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and the Escrow Amounts held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action and which the parties jointly and severally agree to
pay. Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) Parent hereby agrees to (i) pay the Escrow Agent upon execution
of this Agreement reasonable compensation for the services to be rendered
hereunder, as described in Schedule I attached hereto, and (ii) pay or reimburse
the Escrow Agent upon request for all expenses, disbursement and advances,
including reasonable attorney's fees, incurred or made by it in connection with
the preparation, execution, performance, delivery, modification and termination
of this Agreement.
-47-
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the Parent and the Shareholder
Representative; provided, however, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Parent and the Shareholder Representative shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent. The successor escrow agent shall execute
and deliver an instrument accepting such appointment and it shall, without
further acts, be vested with all the estates, properties, rights, powers, and
duties of the predecessor escrow agent as if originally named as escrow agent.
Upon appointment of a successor escrow agent, the Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
(i) Indemnity. The parties and their successors and assigns jointly and
---------
severally agree to indemnify and hold the Escrow Agent and its directors,
officers, agents and employees (collectively, the "Indemnitees") harmless
-----------
from and against any and all claims, liabilities, losses, damages, fines,
penalties, and expenses, including out-of-pocket and incidental expenses and
legal fees and expenses ("Losses") that may be imposed on, incurred by,
------
or asserted against, the Indemnitees or any of them for following any
instructions or other directions upon which Escrow Agent is authorized to rely
pursuant to the terms of this Agreement.
In addition to and not in limitation of the immediately preceding
sentence, the parties and their successors and assigns, jointly and severally,
also agree to indemnify and hold the Indemnitees and each of them harmless from
and against any and all Losses that may be imposed on, incurred by, or asserted
against, the Indemnitees or any of them in connection with or arising out of the
Escrow Agent's performance under this Agreement, provided the Indemnitees have
not acted with gross negligence or engaged in willful misconduct.
(j) Consequential Damages. In no event shall the Escrow Agent be liable for
---------------------
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
(k) Successor Escrow Agents. Any corporation into which the Escrow Agent in
-----------------------
its individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
7.4 Shareholder Representative.
--------------------------
(a) Each of the Series B Shareholders shall, by virtue of their acceptance
of Parent Common Stock pursuant to the Offer, appoint ▇▇▇▇▇ ▇▇▇▇▇ its agent and
attorney-in-fact, as the
-48-
Shareholder Representative for and on behalf of the Series B Shareholders, to
give and receive notices and communications, to authorize payment to Parent of
shares of Parent Common Stock or cash from the Escrow Fund in satisfaction of
claims by Parent, to object to such payments, 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
other actions that are either (i) necessary or appropriate in the judgment of
the Shareholder Representative for the accomplishment of the foregoing or (ii)
specifically mandated by the terms of this Agreement. Such agency may be changed
by the Series B Shareholders from time to time upon not less than thirty (30)
days prior written notice to Parent; provided, however, that the Shareholder
Representative may not be removed unless holders of a two-thirds interest of the
Escrow Fund agree to such removal and to the identity of the substituted agent.
Any vacancy in the position of Shareholder Representative may be filled by the
holders of a majority in interest of the Escrow Fund. No bond shall be required
of the Shareholder Representative, and the Shareholder Representative shall not
receive compensation for its services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from the Series B
Shareholders.
(b) The Shareholder Representative shall not be liable for any act done or
omitted hereunder as the Shareholder Representative while acting in good faith
and in the exercise of reasonable judgment. The Series B Shareholders on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall, by virtue of
their acceptance of Parent Common Stock pursuant to the Offer, agree to
indemnify the Shareholder Representative and hold the Shareholder Representative
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Shareholder Representative and arising out of or in
connection with the acceptance or administration of the Shareholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Shareholder Representative. The Shareholder
Representative, with the consent of the record holders of a majority of the
Parent Common Stock in the Escrow Fund, and after written notice to Parent may
recover from the Escrow Fund payments for any reasonable expenses incurred in
connection with the Shareholder Representative's representation hereby. The
Shareholder Representative may direct the Escrow Agent (which shall follow such
directions) to deliver to the Shareholder Representative shares of Parent Common
Stock in the Escrow Fund in order to permit the payment of such expenses).
(c) A decision, act, consent or instruction of the Shareholder
Representative, including but not limited to an amendment, extension or waiver
of this Agreement pursuant to Section 8.3 and Section 8.4 hereof, shall
----------- -----------
constitute a decision of the Series B Shareholders and shall be final, binding
and conclusive upon the Series B Shareholders; and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the Shareholder
Representative as being the decision, act, consent or instruction of the Series
B Shareholders. The Escrow Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Series B Shareholder
Representative.
-49-
(d) Subject to Parent's prior claims for indemnification against the
Escrow Fund, the Shareholder Representative shall be entitled to receive payment
for its reasonable and documented expenses therefrom, prior to any payments to
the Series B Shareholders. The Shareholder Representative may direct the Escrow
Agent (which shall follow such directions) to deliver to the Shareholder
Representative shares of Parent Common Stock in the Escrow Fund in order to
permit the payment of such expenses.
7.5 Maximum Payments; Remedy. Notwithstanding anything to the contrary set
------------------------
forth in this Article 7 or elsewhere in this Agreement, the maximum
---------
amount the Indemnified Parties may recover from any Series B Shareholder
pursuant to the indemnity obligations set forth in Section 7.2 hereof or
-----------
otherwise under this Agreement shall be limited to an amount (the "Cap
---
Amount") equal to each such Series B Shareholder's Pro Rata Portion
------
(assuming for the purpose of such calculation that the shares of Series B
Preferred Stock exchanged in the Offer are the only securities of the Company)
of twice the value of the initial Escrow Fund based on the Trading Price;
provided however, that neither the Cap Amount nor, in the case of clauses (i)
and (ii) below, the Basket Amount shall apply with respect to (i) fraud, willful
misconduct or knowing misrepresentations made with scienter, (ii) failures by
the Company to perform or comply with any covenant applicable to it contained in
this Agreement or (iii) any breach or inaccuracy of the representation set forth
in Sections 2.1 (first two sentences), 2.2, 2.3, 2.4 (clause (i) only), 2.5 and
2.8 (clause (i) only) of this Agreement.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 hereof, this Agreement may
----------- -----------
be terminated and the Offer abandoned at any time prior to the Closing:
(a) by mutual agreement of the Company and Parent;
(b) by Parent or the Company if the Closing Date shall not have occurred by
August 31, 2000; provided, however, that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose action or
--------------
failure to act has been a principal cause of or resulted in the failure of the
Offer to occur on or before such date and such action or failure to act
constitutes breach of this Agreement;
(c) by Parent or the Company if: (i) there shall be a final non-appealable
order of a federal or state court in effect preventing consummation of the
Offer, or (ii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Closing by any Governmental
Entity that would make consummation of the Closing illegal;
(d) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Offer by any Governmental Entity, which would: (i) prohibit Parent's ownership
or operation of any portion of the business of the
-50-
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or any portion of the business or assets of the Company or Parent as a result of
the Offer;
(e) by Parent if there has been a breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement such that the
conditions set forth in Section 6.2(a) would not be satisfied and such breach
has not been cured within thirty (30) calendar days after written notice thereof
to the Company; provided, however, that no cure period shall be required for a
breach which by its nature cannot be cured; or
(f) by the Company if there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement such that the
conditions set forth in Section 6.3(a) would not be satisfied and such breach
has not been cured within thirty (30) calendar days after written notice thereof
to Parent; provided, however, that no cure period shall be required for a breach
which by its nature cannot be cured.
8.2 Effect of Termination. In the event of termination of this Agreement as
---------------------
provided in Section 8.1 hereof, this Agreement shall forthwith become void and
-----------
there shall be no liability or obligation on the part of Parent or the Company,
or their respective officers, directors or shareholders, if applicable;
provided, however, that each party hereto shall remain liable for actual damages
resulting from any breaches of this Agreement prior to its termination; and
provided further, however, that, the provisions of Sections 5.3, 5.4, 5.5 and
------------ --- ---
7.3(h) hereof, Article 9 hereof and this Section 8.2 shall remain in full force
------ ---------
and effect and survive any termination of this Agreement pursuant to the terms
of this Article 8.
---------
8.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of the Company,
Parent and Sub; provided, however that an amendment altering the rights or
responsibilities of the Shareholder Representative shall also be signed by the
Shareholder Representative and provided further however that an amendment
altering the rights or responsibilities of the Escrow Agent shall also be signed
by the Escrow Agent. For purposes of this Section 8.3, by virtue of their
-----------
approval of the Offer or their acceptance of Parent Common Stock hereunder, the
shareholders of the Company (including without limitation the Series B
Shareholders) agree that any amendment of this Agreement signed as provided
above shall be binding upon and effective against the shareholders of the
Company whether or not they have signed such amendment.
8.4 Extension; Waiver. At any time prior to the Closing, Parent, on the one
-----------------
hand, and the Company, on the other hand, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations of the other
party 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. For
-51-
purposes of this Section 8.4, the shareholders of the Company (including the
-----------
Series B Shareholders) agree that any extension or waiver signed by the Company
shall be binding upon and effective against all shareholders whether or not they
have signed such extension or waiver.
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Parent or Sub, to:
Internet Capital Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. Nassau
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company to:
RightWorks Corporation
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
-52-
with a copy to:
▇▇▇▇▇▇ Godward LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) If to the Shareholder Representative to:
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ Godward LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(d) If to the Escrow Agent, to:
Chase Manhattan Trust Company, National Association
One Liberty Place
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Escrow Administration
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." 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.
9.3 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
-53-
counterparts have been signed by each of the parties and delivered to the other
party, it being understood that all parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the exhibits hereto, the
----------------------------
Company Disclosure Schedule, the Confidential Disclosure Agreement, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) 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, (ii) are not intended to confer upon any other person any
rights or remedies hereunder, and (iii) shall not be assigned by operation of
law or otherwise, except that Parent may assign its rights and delegate its
obligations hereunder to its affiliates as long as Parent remains ultimately
liable for all of Parent's obligations hereunder.
9.5 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 Other Remedies. 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.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto (other than the Escrow Agent) irrevocably consents to
the exclusive jurisdiction and venue of any court within the State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction, venue and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefor, 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.
9.9 Alternative Structure. In the event that Parent or the Company
---------------------
reasonably determines that one ore more of the conditions to closing specified
Article 6 hereof would not be capable of satisfaction, but would be capable of
satisfaction is this Agreement or the transactions contemplated
-54-
hereby, were restructured to involve a merger or other alternative transaction,
and, such restructuring would not adversely impact the anticipated tax treatment
of the transactions contemplated hereby or the anticipated economic interests of
the Company or its shareholders (an "Alternative Structure"), then, without
---------------------
affecting either party's right to terminate under Article 8, the parties agree
to use their best efforts to implement such Alternative Structure, and this
Agreement shall be appropriately modified or supplemented to reflect the
adoption of such Alternative Structure.
[Remainder of Page Intentionally Left Blank]
-55-
IN WITNESS WHEREOF, Parent, Sub, the Company, the Escrow Agent and the
Shareholder Representative have caused this Agreement to be signed, all as of
the date first written above.
INTERNET CAPITAL GROUP, INC. RAIN ACQUISITION CORP.
By: /s/ ▇▇▇▇▇ ▇. Nassau By: /s/ ▇▇▇▇▇ ▇. Nassau
---------------------- -------------------
Name: ▇▇▇▇▇ ▇. Nassau Name: ▇▇▇▇▇ ▇. Nassau
--------------- -------------------
Title: Managing Director and General Title: Managing Director
----------------------------- -------------------
Counsel
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RIGHTWORKS CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇
-------------
Name: ▇▇▇▇ ▇▇▇▇
---------
Title: Chief Executive
---------------
Officer
-------
SHAREHOLDERS' REPRESENTATIVE:
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------
▇▇▇▇▇ ▇▇▇▇▇
[SIGNATURE PAGE TO RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT AND PLAN OF
REORGANIZATION]
ESCROW AGENT:
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
By: /s/ ▇▇▇▇▇ ▇▇▇▇
--------------
Name: ▇▇▇▇▇ ▇▇▇▇
-------------
Title: Assistant Vice President
-------------------------
[SIGNATURE PAGE TO RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT AND PLAN OF
REORGANIZATION]
EXHIBIT A
---------
SHAREHOLDER AGREEMENT
(Strategic Partner)
THIS SHAREHOLDER AGREEMENT (this "Agreement") is made and entered into as
---------
of March __, 2000 between Internet Capital Group, Inc., a Delaware corporation
("ICG"), and the undersigned shareholder and/or option or warrant holder (the
---
"Shareholder") of RightWorks Corporation, a California corporation (the
------------
"Company").
-------
RECITALS
--------
A. The Company and ICG have entered into a Recapitalization and Exchange
Offer Agreement and Plan of Reorganization (the "Reorganization Agreement").
------------------------
Capitalized terms not otherwise defined herein are used herein with the meanings
ascribed thereto in the Reorganization Agreement.
B. Pursuant to the Reorganization Agreement, the Company has agreed to
consummate the Recapitalization and, thereafter, the Offer.
C. Shareholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
------------
number of shares of the outstanding capital stock of the Company and shares
subject to outstanding options and warrants as is indicated on the signature
page of this Agreement.
D. In consideration of the execution of the Reorganization Agreement by
ICG, Shareholder (in Shareholder's capacity as such) agrees to (i) vote the
Shares (as defined below) and other such shares of capital stock of the Company
over which Shareholder has voting power so as to facilitate consummation of the
Recapitalization, the Offer and other transactions contemplated by the
Reorganization Agreement, (ii) either convert into shares of Series A Preferred
Stock or tender to ICG or any party designated by ICG pursuant to the Offer any
shares of Series B Preferred Stock owned by the Shareholder after the
Recapitalization, (iii) exchange for a warrant exercisable for shares of Series
A Preferred Stock any warrant exercisable for shares of Series B Preferred Stock
that may be owned by Shareholder after consummation of the Reorganization, and
(iv) take or refrain from taking certain other actions set forth herein.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
-------------------
meanings ascribed to them in the Reorganization Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date
---------------
and time as the Reorganization Agreement shall have been terminated pursuant to
Article 8 thereof, or (ii) such date and time as the Offer shall be effected in
accordance with the terms and provisions of the Reorganization Agreement.
1
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
------
liability company, partnership or other entity, or (iii) governmental authority.
(c) "Shares" shall mean: (i) all securities of the Company (including
------
all shares of Company Common Stock, Preferred and all options, warrants and
other rights to acquire shares of Company Common Stock or Preferred) owned by
Shareholder as of the date of this Agreement; and (ii) all additional securities
of the Company (including all additional shares of Company Common Stock or
Preferred and all additional options, warrants and other rights to acquire
shares of Company Common Stock or Preferred and shares of Class A Common Stock,
Class B Common Stock, Series A Preferred Stock and Series B Preferred Stock) of
which Shareholder acquires ownership during the period from the date of this
Agreement through the Expiration Date, and for the purposes of Section 6(d),
after the Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer"
--------
of a security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement or
commitment providing for the sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
2. Transfer of Shares.
------------------
(a) Transferee of Shares to be Bound by this Agreement. Shareholder
--------------------------------------------------
agrees that, during the period from the date of this Agreement through the
Expiration Date, Shareholder shall not cause or permit any Transfer of any of
the Shares to be effected without ICG's written consent unless each Person to
which any of such Shares or any interest in any of such Shares is or may be
transferred shall have (i) executed a counterpart of this Shareholder Agreement
and a proxy in the form attached hereto as Exhibit A and (ii) agreed to hold
such Shares or interest in such Shares subject to all of the terms and
provisions of this Agreement.
(b) Transfer of Voting Rights. Shareholder agrees that, during the
-------------------------
period from the date of this Agreement through the Expiration Date, Shareholder
shall not deposit (or permit the deposit of) any Shares in a voting trust or
grant any proxy or enter into any voting agreement or similar agreement in
contravention of the obligations of Shareholder under this Agreement with
respect to any of the Shares.
(c) Company Action. The Company will, and Shareholder acknowledges and
--------------
agrees that the Company will, take all actions reasonably under its control,
including by notifying its transfer agent of a stop transfer order, to prevent
the Transfer of Shares by Shareholder in violation of this Section 2.
3. Agreement to Vote and to Tender or Convert Shares.
-------------------------------------------------
(a) Agreement to Vote. At every meeting of the shareholders of the
-----------------
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the shareholders of the Company, Shareholder (in
Shareholder's capacity as such) shall cause the Shares to be voted in favor of
the Recapitalization any matter or action contemplated by the Reorganization
Agreement, and against any matter the approval of which might reasonably be
expected to delay or hinder the Recapitalization or the Offer. Shareholder
hereby agrees not to
2
demand dissenters' rights under California Law for any Shares for any Shares in
the event ICG and the Company agree to modify the structure of the transactions
contemplated hereby to involve a transaction or transactions pursuant to which
Shareholder is entitled to dissenters' rights under applicable law.
(b) Agreement to Tender. Shareholder hereby agrees to validly tender
-------------------
and not withdraw pursuant to the Offer, no later than expiration date of the
Offer, all of the shares of Series B Preferred Stock then owned by Shareholder.
Shareholder shall not be required to tender any shares of Series A Preferred
Stock received upon conversion of Series B Preferred Stock pursuant to Section
6(b)(iii).
4. Irrevocable Proxy. Shareholder agrees to deliver to ICG a proxy in the
-----------------
form attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to
-----
the fullest extent permissible by law, with respect to the Shares.
5. Representations and Warranties of the Shareholder. Shareholder (a) is
-------------------------------------------------
the beneficial owner of the shares of Company Common Stock and/or Preferred and
the options and/or warrants to purchase shares of Company Common Stock or
Preferred indicated on the final page of this Agreement, free and clear of any
liens, claims, options, rights of first refusal, co-sale rights, charges or
other encumbrances; (b) does not beneficially own any securities of the Company
other than the shares of Company Common Stock, Preferred and options and
warrants indicated on the final page of this Agreement; and (c) has full power
and authority to make, enter into and carry out the terms of this Agreement and
the Proxy.
6. Additional Documents/Actions
----------------------------
(a) Further Assurances. Shareholder (in Shareholder's capacity as
------------------
such) hereby covenants and agrees to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of ICG, to carry out
the intent of this Agreement.
(b) Agreement Regarding Conversion/Exchange. In connection with the
---------------------------------------
Recapitalization and the Offer, Shareholder agrees that:
(i) immediately after the consummation of the Recapitalization,
any option or warrant held by Shareholder that would otherwise be exercisable
for shares of Series B Preferred Stock of the Company will automatically be
deemed exchanged for an option or warrant, as the case may be, exercisable for
an equal number of shares of Series A Preferred Stock and otherwise having the
same terms as the option or warrant for which it was exchanged;
(ii) notwithstanding the provisions of any warrant held by
Shareholder, the consummation of the Offer will not change or otherwise affect
the class or series of securities that are issuable upon exercise of such
warrant immediately prior to such consummation; and
(iii) with respect to any shares of Series B Preferred Stock
received by Shareholder in the Recapitalization that Shareholder does not desire
to tender pursuant to the Offer, after consummation of the Recapitalization and
prior to the expiration of the Offer, Shareholder will surrender such shares to
the Company in exchange for an equal number of
3
shares of Series A Preferred Stock (the "Retained Shares"). Shareholder has
indicated on the signature page to this Agreement the presently anticipated
number of Retained Shares.
(c) First Refusal. During the period from the Closing Date until
-------------
such time as the Company has conducted its initial underwritten public offering
of its equity securities (the "Offer Period"), Shareholder will not sell or
otherwise dispose of any Shares held by it unless Shareholder has given ICG at
least 15 business days prior notice of its intention to so dispose of such
shares together with a summary of the price and other material terms (the "Sale
Terms") upon which Shareholder wishes to dispose of such Shares. During such 15
business days, ICG shall have the exclusive right to purchase such Shares, under
the Sale Terms, and if ICG agrees to such Sale Terms, Shareholder will sell the
Shares to ICG. If ICG declines to purchase Shares pursuant to the Sale Terms,
Shareholder may sell and dispose the Shares during the 60-day period following
the expiration of the 15 business day period, but only pursuant an agreement
whereby Shareholder receives the Sale Terms or more favorable terms. After
expiration of such 60-day period, the Shares shall again be subject to the
procedures specific in this Section 6(c).
(d) Lock-Up. Shareholder agrees that each share of ICG Common
-------
Stock issued to Shareholder pursuant to the Offer may not be Transferred without
the prior written consent of ICG prior to the expiration of 180 days after the
Closing Date; provided, however, that Shareholder may, subject to the other
terms and conditions of this Agreement, Transfer one-half (50%) of the shares of
ICG Common Stock received pursuant to the Offer after the expiration of ninety
days after the Closing Date. ICG may, in its sole discretion, legend the
certificates representing such shares of ICG Common Stock to give effect to this
Section 6(d) and place stop transfer instructions with ICG's stock transfer
agent to enforce this Section 6(d).
7. Consent and Waiver. Shareholder (not in Shareholder's capacity, if any,
------------------
as a director or officer of the Company) hereby gives any consents or waivers
that are reasonably required for the consummation of the Recapitalization, the
Offer and the other transactions contemplated by the Reorganization Agreement
under the terms of any agreements to which Shareholder is a party or pursuant to
any rights Shareholder may have.
8. Legending of Shares. If so requested by ICG, Shareholder agrees that the
-------------------
Shares shall bear a legend stating that they are subject to this Agreement and
to an irrevocable proxy. Subject to the terms of Sections 2 and 6(d) hereof,
Shareholder agrees that Shareholder shall not Transfer the Shares without first
having the aforementioned legend affixed to the certificates representing the
Shares.
9. Termination. This Agreement shall terminate and shall have no further
-----------
force or effect as of the Expiration Date, except for Sections 6(c) and 6(d)
which shall remain in effect after the Expiration Date.
10. Miscellaneous.
-------------
(a) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
4
(b) Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
---------------------------
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that ICG shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to ICG upon any such violation, ICG shall
have the right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to ICG at law or in equity.
(e) Notices. All notices and other communications pursuant to this
-------
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to ICG: Internet Capital Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. Nassau
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇/▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Shareholder: To the address for notice set forth on the
signature page hereof.
With a copy to: ▇▇▇▇▇▇ Godward LLP
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
5
(f) Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
----------------
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience only
------------------
and shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
[The remainder of this page has been intentionally left blank]
6
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
INTERNET CAPITAL GROUP, INC. SHAREHOLDER
__________________________________
By: __________________________________ By: __________________________________
Signature of Authorized Signatory Signature
Name: ________________________________ Name: ________________________________
Title: _______________________________ Title: _______________________________
Print Address:
______________________________________
______________________________________
______________________________________
Telephone
______________________________________
Facsimile No.
Shares beneficially owned:
______________ shares of Company
Common Stock
______________ shares of Company Common
Stock issuable upon exercise of
outstanding options
______________ shares of Preferred
______________ shares of Preferred
issuable upon exercise of outstanding
warrants, of which __________ shares are
presently anticipated to be Retained
Shares (as defined in Section 6(b))
[Signature Page to Shareholder Agreement]
7
Exhibit A
IRREVOCABLE PROXY
The undersigned shareholder of RightWorks Corporation, a California
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
-------
by law) appoints the directors on the Board of Directors of Internet Capital
Group, Inc., a Delaware corporation ("ICG"), and each of them, as the sole and
---
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
------
of this Proxy. The Shares beneficially owned by the undersigned shareholder of
the Company as of the date of this Proxy are listed on the final page of this
Proxy. Upon the undersigned's execution of this Proxy, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Shareholder
Agreement of even date herewith by and between ICG and the undersigned
shareholder (the "Shareholder Agreement"), and is granted in consideration of
---------------------
ICG entering into that certain Recapitalization and Exchange Offer Agreement and
Agreement and Plan of Reorganization (the "Reorganization Agreement"), between
------------------------
ICG and the Company. The Reorganization Agreement provides for the
Recapitalization and an exchange offer by ICG to holders of shares of Series B
Preferred Stock of the Company (the "Offer"). As used herein, the term
-----
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
----------------
the Reorganization Agreement shall have been validly terminated pursuant to
Article 8 thereof or (ii) such date and time as the Offer shall be effected in
accordance with the terms and provisions of the Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of shareholders
of the Company and in every written consent in lieu of such meeting in favor of
approval of the Recapitalization and in favor of each of the other actions
contemplated by the Reorganization Agreement, and against any matter the
approval of which might reasonably be expected to delay or hinder the
Recapitalization or the Offer.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
1
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: March __, 2000
SHAREHOLDER
____________________________________
By: __________________________________
Signature
Name: ________________________________
Shares beneficially owned:
______________ shares of Company
Common Stock
______________ shares of Company Common
Stock issuable upon exercise of
outstanding options
______________ shares of Preferred
______________ shares of Preferred
issuable upon exercise of outstanding
warrants
[Signature Page to Irrevocable Proxy]
2
EXHIBIT B
---------
FORM OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
RIGHTWORKS CORPORATION
ARTICLE I
The name of this corporation is RightWorks Corporation.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) Classes of Stock; Conversion of Stock
-------------------------------------
1. Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock,"
each of which shall have $.001 par value. The total number of shares which this
corporation is authorized to issue is ____________, of which ____________ shares
shall be Common Stock, of which ______ shares of Common Stock will be designated
"Class A Common Stock" and ________ shares of Common Stock will be designated
"Class B Common Stock," and ____________ shares shall be Preferred Stock, of
which _______ shares of Preferred Stock will be designated "Series A Preferred
Stock" and _____ shares of Preferred Stock will be designated "Series B
Preferred Stock."
2. Conversion of Stock. Upon the effectiveness of these amended and
-------------------
restated Articles of Incorporation, each outstanding share of Common Stock of
the corporation will automatically be converted, without any further action on
the part of the holder thereof, into one share of Class A Common Stock. Upon the
effectiveness of these amended and restated Articles of Incorporation, each
outstanding share of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, and Series G Preferred Stock of the corporation will
automatically be converted, without any further action on the part of the holder
thereof, into one-fifth (1/5) of one share of Series B Preferred Stock. Upon
effectiveness of these Amended and Restated Articles of Incorporation, each
outstanding share of Series H Preferred Stock, Series H-1 Preferred Stock and
Series I Preferred Stock of the corporation will automatically be converted,
without any further action on the part of the holder thereof, into one (1) share
of Series B Preferred Stock.
(B) Common Stock. The Board of Directors of the corporation may authorize
------------
the issuance of shares of Class A Common Stock and shares of Class B Common
Stock from time to time. Shares of Common Stock that are redeemed, purchased or
otherwise acquired by the corporation may be reissued except as otherwise
provided by law. The Board of Directors shall have no power to alter the rights
with respect to Class A Common Stock or Class B Common Stock.
1. Dividend Rights. Subject to the preferences applicable to Preferred
---------------
Stock outstanding at any time, the holders of shares of Class A Common Stock and
the holders of shares of Class B Common Stock shall be entitled to receive such
dividends, payable in cash or otherwise, as may be declared thereon by the Board
of Directors from time to time out of assets or funds of the corporation legally
available therefor, provided that the holders of shares of Class A Common Stock
and shares of Class B Common Stock shall be entitled to share equally, on a per
share basis, in such dividends, subject to the limitations described below. If
dividends or other distributions are declared that are payable in shares of
Class A Common Stock or shares of Class B Common Stock, including distributions
pursuant to stock subdivisions or combinations of Class A Common Stock or Class
B Common Stock which occur after the first date upon which the corporation has
issued shares of both Class A Common Stock and Class B Common Stock, only shares
of Class A Common Stock shall be distributed with respect to Class A Common
Stock and only shares of Class B Common Stock shall be distributed with respect
to Class B Common Stock. If the corporation shall in any manner subdivide or
combine the outstanding shares of Class A Common Stock or Class B Common Stock,
the outstanding shares of the other such series of Common Stock shall be
proportionately subdivided or combined in the same manner and on the same basis
as the outstanding shares of Class A Common Stock or Class B Common Stock,
whichever have been subdivided or combined.
2. Voting Rights. The holders of shares of Class A Common Stock and of
-------------
Class B Common Stock shall have the following voting rights:
(a) Each share of Class A Common Stock shall entitle the holder
thereof to one (1) vote on all matters submitted to a vote of the shareholders
of the corporation.
(b) Each share of Class B Common Stock shall entitle the holder
thereof to _____ (__) votes on all matters submitted to a vote of the
shareholders of the corporation.
(c) The holders of shares of Class A Common Stock and the holders of
shares of Class B Common Stock shall vote together as one class on all matters
submitted to a vote of shareholders of the corporation, except as otherwise
required by applicable law.
3. Conversion of Class B Common Stock.
----------------------------------
(a) At any time after the fifth (5th) anniversary of the
effectiveness of these amended and restated Articles of Incorporation (the
"Class B Convertibility Date"), each share of Class B Common Stock, at the
option of its holder, may at any time be converted into one (1) fully paid and
nonassessable share of Class A Common Stock. Such right shall be exercised by
the surrender of the certificate representing such share of Class B Common Stock
to be converted to the corporation at any time during normal business hours at
the principal executive offices of the corporation or at the office of the
Transfer Agent, accompanied by a written notice of the election by
-2-
the holder thereof to convert and (if so required by the corporation or the
Transfer Agent) by instruments of transfer, in form satisfactory to the
corporation and to the Transfer Agent, duly executed by such holder or such
holder's duly authorized attorney, and transfer tax stamps or funds therefor, if
required pursuant to Section 3(d).
(b) If the beneficial ownership (as determined under Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) of any share of Class B Common Stock is
initially or changes, voluntarily or involuntarily, such that at any time after
the Class B Convertibility Date, Rain, or an affiliate of Rain, is not the
beneficial owner of such share, then such share of Class B Common Stock shall
thereupon be converted automatically into one (1) fully paid and nonassessable
share of Class A Common Stock. A determination by the Secretary of the
corporation that a share's beneficial ownership requires conversion under this
paragraph shall be conclusive. Upon making such determination, the Secretary of
the corporation shall promptly request of the holder of record of such share
that such holder promptly deliver, and such holder shall promptly deliver, the
certificate representing such share to the corporation for documentation of such
conversion, together with instruments of transfer, in form satisfactory to the
corporation and Transfer Agent, duly executed by such holder or such holder's
duly authorized attorney, and together with transfer tax stamps or funds
therefor, if required pursuant to Section 3(d) of this Article.
(c) As promptly as practicable following the surrender for conversion
of a certificate representing shares of Class B Common Stock in the manner
provided in paragraph (a) of this Section 3 and the payment in cash of any
amount required by the provisions of Section 3(d) of this Article III(B), the
corporation will deliver or cause to be delivered at the office of the Transfer
Agent to or upon the written order of the holder of such certificate, a
certificate or certificates representing the number of full shares of Class A
Common Stock issuable upon such conversion, issued in such name or names as such
holder may direct. In the case of a conversion under Section 3(a) of this
Article III(B), such conversion shall be deemed to have been made immediately
prior to the close of business on the date of the surrender of the certificate
representing shares of Class B Common Stock. Upon the date any conversion under
Section 3(a) is made, all rights of the holder of such shares as such holder
shall cease, and the person or persons in whose name or names the certificate or
certificates representing the shares of Class A Common Stock are to be issued
shall be treated for all purposes as having become the record holder or holders
of such shares of Class A Common Stock; provided, however, that any such
surrender and payment on any date when the stock transfer books of the
corporation shall be closed shall constitute the person or persons in whose name
or names the certificate or certificates representing shares of Class A Common
Stock are to be issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day on which
stock transfer books are open.
(d) The corporation covenants that it will at all times reserve and
keep available, solely for the purpose of issue upon conversion of the
outstanding shares of Class B Common Stock, such number of shares of Class A
Common Stock as shall be issuable upon the conversion of all such outstanding
shares of Class B Common Stock, provided that nothing contained herein shall be
construed to preclude the corporation from satisfying its obligations in respect
of the conversion of the outstanding shares of Class B Common Stock by delivery
of purchased shares of Class A Common Stock that are held in the treasury of the
corporation. The corporation covenants that if
-3-
any shares of Class A Common Stock required to be reserved for purposes of
conversion hereunder require registration with or approval of any governmental
authority under any federal or state law before such shares of Class A Common
Stock may be issued upon conversion, the corporation will cause such shares to
be duly registered or approved, as the case may be. The corporation will
endeavor to list the shares of Class A Common Stock required to be delivered
upon conversion prior to such delivery upon each national securities exchange or
automated quotation system upon which the outstanding Class A Common Stock is
listed at the time of such delivery. The corporation covenants that all shares
of Class A Common Stock that shall be issued upon conversion of the shares of
fully paid and nonassessable Class B Common Stock will, upon issue, be fully
paid and nonassessable.
(e) The issuance of certificates for shares of Class A Common Stock
upon conversion of shares of Class B Common Stock shall be made without charge
for any stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder of the
share or shares of Class B Common Stock converted, then the person or persons
requesting the issuance thereof shall pay to the corporation the amount of any
tax that may be payable in respect of any transfer involved in such issuance or
shall establish to the satisfaction of the corporation that such tax has been
paid.
4. Liquidation Rights. Upon the liquidation, dissolution or winding up of
------------------
the corporation, the assets of the corporation shall be distributed as provided
in Section 3 of Article III(C).
5. Redemption. The Common Stock is not redeemable.
----------
6. Residual Rights. All rights accruing to the outstanding shares of the
---------------
corporation not expressly provided for to the contrary herein or by law shall be
vested in the Common Stock.
(C) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by these Articles of Incorporation may be issued from time to
time in one or more series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock and Series B
Preferred Stock are as set forth below in this Article III(C). The Board of
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights which have been or may be granted to the Preferred
Stock or series thereof in Certificates of Determination or the corporation's
Articles of Incorporation ("Protective Provisions"), but notwithstanding any
other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences and restrictions of any such additional series may be
subordinated to, pari passu with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences, redemption
or approval of matters by vote or written consent), or senior to any of those of
any present or future class or series of Preferred or Common Stock (other than
the Series B Preferred Stock). Subject to compliance with applicable Protective
Provisions, the Board of Directors is also authorized to increase or decrease
the number of shares of any series (other than the Series B Preferred Stock),
prior or subsequent to the issue of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of
-4-
any series shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
1. Definitions. As used herein, the following terms shall have the
-----------
following definitions:
(a) "Series A Stock" means the Series A Preferred Stock of this
--------------
corporation.
(b) "Series B Stock" means the Series B Preferred Stock of this
--------------
corporation.
(c) "Liquidation Preference" means $______ per share for each share
----------------------
of Series A Stock, plus all declared and unpaid dividends thereon and $______
per share for each share of Series B Stock, plus all declared and unpaid
dividends thereon.
(d) "Original Issue Price" means $______ per share for the Series A
--------------------
Stock and $_____ per share for the Series B Stock.
2. Dividend Provisions.
-------------------
(a) Series A Stock and Series B Stock. In each calendar year the
---------------------------------
holders of Series A Stock and the holders of Series B Stock shall be entitled to
receive dividends at the rate of $_____ per share of Series A Stock and
$________ per share of Series B Stock, payable when, as and if declared by the
Board of Directors, out of any assets of this corporation legally available
therefore, pari passu with one another and prior and in preference to any
declaration or payment of any dividend (other than a dividend payable in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
this corporation) on the Common Stock of this corporation in such calendar year.
Such dividends shall not be cumulative. If the funds thus distributed by
dividend among the holders of the Series A Stock and Series B Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
dividend amounts, then the entire dividend amount thus distributed shall be
distributed ratably among the holders of the Series A Stock and Series B Stock
in proportion to the full aforesaid dividend amounts to which each such holder
is entitled.
(b) Series A Stock, Series B Stock and Common Stock. After payment in
-----------------------------------------------
any calendar year of a dividend to the holders of Series A Stock in an amount
equal to $______ per share and to holders of Series B Stock in an amount equal
to $_____ per share, the holders of shares of Series A Stock, Series B Stock and
Common Stock shall participate on a pro rata basis, based on the number of
shares of Common Stock held by each (assuming conversion of all such Series A
Stock and Series B Stock into Common Stock on the terms set forth herein), in
the receipt of any additional dividends declared or paid in such calendar year
(other than a dividend payable in Common Stock or other securities or rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation).
3. Liquidation Preference.
----------------------
(a) Series A Stock and Series B Stock. In the event of any
---------------------------------
liquidation, dissolution or winding up of this corporation, either voluntary or
involuntary, the holders of the Series A Stock and the holders of Series B Stock
shall be entitled to receive, pari passu with one another and prior
-5-
and in preference to any distribution in such liquidation, dissolution or
winding up of any of the assets of this corporation to the holders of the Common
Stock by reason of their ownership thereof, an amount per share equal to the
Liquidation Preference of the Series A Stock for each outstanding share of
Series A Stock and an amount per share equal to the Liquidation Preference of
the Series B Stock for each outstanding share of Series B Stock. If upon the
occurrence of any such distribution, the assets and funds of this corporation
thus distributed among the holders of the Series A Stock and Series B Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of this
corporation legally available for distribution shall be distributed among the
holders of the Series A Stock and Series B Stock in proportion to the full
aforesaid preferential amounts to which each such holder of Series A Stock and
each such holder of Series B Stock is entitled.
(b) Common Stock. After the distribution described in Article
------------
III(C)3(a) hereof has been paid, then the remaining assets of this corporation
available for distribution to shareholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
(c) Consolidation, Merger, Etc. A consolidation or merger of this
--------------------------
corporation with or into any other corporation or corporations, or a sale,
conveyance or disposition of all or substantially all of the assets of this
corporation, or the effectuation by this corporation of a transaction or series
of related transactions in which more than 50% of the voting power of this
corporation is disposed of, shall each be deemed to be a liquidation,
dissolution or winding up within the meaning of this Article III(C)3.
(i) The corporation shall give each holder of record of Series A
Stock and each holder of record of Series B Stock written notice of any such
impending transaction not later than ten (10) days prior to the shareholder
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction whichever notice date is earlier, and shall also
notify such holders in writing of the final approval of such transaction.
4. Conversion. The holders of the Series A Stock and Series B Stock
----------
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert; Automatic Conversion.
--------------------------------------
(i) Series A Stock. Subject to Article III(C)4(c) hereof,
--------------
each share of Series A Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this corporation or any transfer agent for the Series A Stock, into such number
of fully paid and nonassessable shares of Class A Common Stock as is determined
by dividing the Original Issue Price for the Series A Stock by the then-
effective Conversion Price for the Series A Stock (the "Series A Conversion
Rate"). The Conversion Price per share for shares of Series A Stock shall be
$_____.
Each share of Series A Stock shall automatically be
converted into shares of Class A Common Stock at the then effective Series A
Conversion Rate (a) immediately prior to the closing of the first sale by this
corporation of shares of its Common Stock in a firm commitment
-6-
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, at a public offering price (before deduction of underwriters'
discounts and commissions) of at least $_____ per share (as adjusted to reflect
subsequent stock dividends, stock splits or recapitalization) and at least
$____________ in the aggregate or (b) upon the written consent of holders of
66.67% of the then outstanding Series A Stock voting together as a separate
class.
(ii) Series B Stock. Subject to Article III(C)4(c) hereof, each
--------------
share of Series B Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this corporation or any transfer agent for the Series B Stock, into such number
of fully paid and nonassessable shares of Class B Common Stock as is determined
by dividing the Original Issue Price for the Series B Stock by the
then-effective Conversion Price for the Series B Stock (the "Series B Conversion
Rate") or, at the option of the holder thereof, on a one-to-one basis into fully
paid and nonassessable shares of Series A Stock. The Conversion Price per share
for shares of Series B Stock shall be $_____.
Each share of Series B Stock shall automatically be converted
into shares of Class B Common Stock at the then effective Series B Conversion
Rate (a) immediately prior to the closing of the first sale by this corporation
of shares of its Common Stock in a firm commitment underwriting pursuant to a
registration statement under the Securities Act of 1933, as amended, at a public
offering price (before deduction of underwriters' discounts and commissions) of
at least $_____ per share (as adjusted to reflect subsequent stock dividends,
stock splits or recapitalization) and at least $____________ in the aggregate or
(b) upon the written consent of holders of 66.67% of the then outstanding Series
B Stock voting together as a separate class.
(b) Automatic Conversion Based Upon Beneficial Ownership. If the
----------------------------------------------------
beneficial ownership (as determined under Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended) of any share of Series B Stock is initially or changes, voluntarily or
involuntarily, such that, at any time after the Class B Convertibility Date,
Rain, or an affiliate of Rain, is not the beneficial owner of such share, then
such share of Series B Stock shall thereupon be converted automatically into one
(1) fully paid and nonassessable share of Series A Stock. A determination by the
Secretary of the corporation that a share's beneficial ownership requires
conversion under this paragraph shall be conclusive. Upon making such
determination, the Secretary of the corporation shall promptly request of the
holder of record of such share that such holder promptly deliver, and such
holder shall promptly deliver, the certificate representing such share to the
corporation for documentation of such conversion, together with instruments of
transfer, in form satisfactory to the corporation and Transfer Agent, duly
executed by such holder or such holder's duly authorized attorney, and together
with transfer tax stamps or funds therefor, if required pursuant to Section 3(d)
of this Article.
(c) Mechanics of Conversion. Before any holder of Series A Stock
-----------------------
shall be entitled to convert the same into shares of Class A Common Stock and
before any holder of Series B Stock shall be entitled to convert the same into
shares of Class B Common Stock or Series A Stock, such holder shall surrender
the certificate or certificates therefore, duly endorsed, at the office of this
corporation or of any transfer agent for the Series A Stock or Series B Stock,
as applicable, and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
-7-
certificates for shares of Class A Common Stock or Class B Common Stock or
Series A Stock issuable upon such conversion are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder, or to the nominee or nominees of such holder, the new certificate
or certificates. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares to be
converted, and the person or persons entitled to receive the shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares as of such date. If the conversion is in connection with
an underwritten offering of securities registered pursuant to the Securities Act
of 1933, as amended, the conversion may, at the option of any holder tendering
Series A Stock or Series B Stock for conversion, be conditioned upon the closing
with the underwriter of the sale of securities pursuant to such offering, in
which event the person(s) entitled to receive the Class A Common Stock or Class
B Common Stock issuable upon such conversion of the Series A Stock or Series B
Stock shall not be deemed to have converted such Series A Stock or Series B
Stock until immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Series A Stock and Series B
-----------------------------------------------------------
Stock. The Conversion Price of the Series A Stock and Series B Stock shall be
-----
subject to adjustment from time to time as follows:
(i) In the event this corporation at any time or from time to
time fixes a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
------------------------
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend, distribution, split or subdivision if
no record date is fixed), the then-effective Conversion Price of the Series A
Stock shall be appropriately decreased so that the number of shares of Class A
Common Stock issuable on conversion of each share of Series A Stock shall be
increased in proportion to such increase in the aggregate numbers of shares of
Class A Common Stock outstanding and those issuable with respect to such Common
Stock Equivalents, with the number of shares issuable with respect to Common
Stock Equivalents determined from time to time in the manner provided for deemed
issuances in Article III(C)4(c)(i)(D) hereof, unless concurrently with the
foregoing split or subdivision of the outstanding shares of Common Stock, the
outstanding Series A Stock is also similarly split or subdivided.
(ii) In the event this corporation at any time or from time to
time fixes a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
------------------------
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend, distribution, split or subdivision if
no record date is
-8-
fixed), the then-effective Conversion Price of the Series B Stock shall be
appropriately decreased so that the number of shares of Class B Common Stock
issuable on conversion of each share of Series B Stock shall be increased in
proportion to such increase in the aggregate numbers of shares of Class B Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents, with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Article III(C)4(c)(i)(D) hereof, unless concurrently with the
foregoing split or subdivision of the outstanding shares of Common Stock, the
outstanding Series B Stock is also similarly split or subdivided.
(iii) If the number of shares of Class A Common Stock outstanding
at any time is decreased by a combination of the outstanding shares of Class A
Common Stock, then, following the record date of such combination, the
then-effective Conversion Price for the Series A Stock shall be appropriately
increased so that the number of shares of Class A Common Stock issuable on
conversion of each share of Series A Stock shall be decreased in proportion to
such decrease in the outstanding shares of Class A Common Stock, unless
concurrently with the foregoing combination of the outstanding shares of Class A
Common Stock, the outstanding Series A Stock is also similarly combined.
(iv) If the number of shares of Class B Common Stock outstanding
at any time is decreased by a combination of the outstanding shares of Class B
Common Stock, then, following the record date of such combination, the then-
effective Conversion Price for the Series B Stock shall be appropriately
increased so that the number of shares of Class B Common Stock issuable on
conversion of each share of Series B Stock shall be decreased in proportion to
such decrease in the outstanding shares of Class B Common Stock, unless
concurrently with the foregoing combination of the outstanding shares of Class B
Common Stock, the outstanding Series B Stock is also similarly combined.
(v) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Article III(C)4(c)(iii)
hereof, then, in each such case for the purpose of Article III(C)4(d) hereof,
the holders of Series A Stock or Series B Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of this corporation into which their shares
of Series A Stock or Series B Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of this corporation
entitled to receive such distribution.
(e) Recapitalization. If at any time or from time to time there shall
----------------
be a recapitalization of the Common Stock (other than a subdivision, combination
or consolidation, merger or sale of assets transaction provided for in Article
III(C)3 hereof), provision shall be made so that each holder of Series A Stock
and each holder of Series B stock shall thereafter be entitled to receive, upon
conversion of Series A Stock or Series B Stock, the number of shares of stock or
other securities or property of this corporation or otherwise, receivable upon
such recapitalization by a holder of the number of shares of Common Stock into
which such shares of Series A Stock or Series B Stock could have been converted
immediately prior to such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Article
III(C)4
-9-
with respect to the rights of the holders of the Series A Stock and Series B
Stock after the recapitalization to the end that the provisions of this Article
III(C)4 (including adjustment of the Conversion Price then in effect and the
number of shares purchasable upon conversion of the Series A Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Article III(C)4 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series A Stock and Series B Stock against impairment.
(g) No Fractional Shares. No fractional shares shall be issued upon
--------------------
conversion of the Series A Stock or Series B Stock, and the number of shares of
Class A Common Stock, Class B Common Stock or Series A Stock to be issued shall
be rounded down to the nearest whole share, and there shall be no payment, for
any such rounded fractional share. Whether or not fractional shares result from
such conversion shall be determined on the basis of the total number of shares
of Series A Stock and the total number of shares of Series B Stock the holder is
at the time converting and the number of shares issuable upon such aggregate
conversion and the total number of shares of Series B Stock the holder is at the
time converting.
(h) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price of Series A Stock or Series B
Stock pursuant to this Article III(C)4, this corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series A Stock and to each
holder of Series B Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and (C) the number of shares of
Class A Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series A Stock. This
corporation shall, upon the written request at any time of any holder of Series
B Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion Price at
the time in effect, and (C) the number of shares of Class B Common Stock or
Series A Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series B Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Stock and to each holder of
Series B Stock, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose
-10-
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion.
---------------------------------------------
(i) Series A Stock. This corporation shall at all times reserve
--------------
and keep available out of its authorized but unissued shares of Class A Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Stock, such number of its shares of Class A Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
the Series A Stock; and if at any time the number of authorized but unissued
shares of Class A Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Stock, then in addition to such
other remedies as shall be available to the holders of such Series A Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Class A
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
approval of any necessary amendment to these articles.
(ii) Series B Stock. This corporation shall at all times reserve
--------------
and keep available out of its authorized but unissued shares of Class B Common
Stock and Series A Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Stock, such number of its shares of each of Class B
Common Stock and Series A Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Stock; and if at
any time the number of authorized but unissued shares of each of Class B Common
Stock and Series A Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series B Stock, then in addition to such other
remedies as shall be available to the holders of such Series B Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Class B
Common Stock and Series A Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite approval of any necessary amendment to these articles.
(k) Notices. Any notice required by the provisions of this Article
-------
III(C)4 to be given to the holders of shares of Series A Stock or Series B Stock
shall be deemed given if sent by facsimile, by telex, or if deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his, her or its address appearing on the books of this corporation.
5. Voting Rights.
-------------
(i) Series A Stock. The holder of each share of Series A Stock
--------------
shall have the right to one vote for each share of Class A Common Stock into
which such Series A Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded down to the nearest
whole share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Class
A Common Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any shareholders' meeting in accordance with the Bylaws of this
corporation and applicable law, and shall be entitled
-11-
to vote, together with holders of Class A Common Stock, with respect to any
question upon which holders of Class A Common Stock have the right to vote.
(ii) Series B Stock. The holder of each share of Series B Stock
--------------
shall have the right to the same number of votes as could be cast by the
share(s) of Class B Common Stock into which such Series B Stock could then be
converted (with any fractional share determined on an aggregate conversion basis
being rounded down to the nearest whole share), and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Class B Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the Bylaws of this corporation and applicable law, and shall be
entitled to vote, together with holders of Class B Common Stock, with respect to
any question upon which holders of Class B Common Stock have the right to vote.
6. Protective Provisions. So long as any shares of Series A Stock or
---------------------
Series B Stock are outstanding, and in addition to any other approval required
by law, this corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the Series A Stock and Series B Stock voting together as a single
class, instigate or consummate the following actions:
(a) Rights, Etc. of Series A Stock. Alter or change the rights,
------------------------------
preferences or privileges of the shares of Series A Stock or Series B Stock,
whether by amendment of this corporation's Articles of Incorporation or
otherwise;
(b) Increase in Authorized Series A Stock or Series B Stock. Increase
-------------------------------------------------------
the authorized number of shares of Series A Stock or Series B Stock;
(c) Creation of New Stock. Create any new class or series of stock or
---------------------
any other debt or equity securities convertible into equity securities of this
corporation or reclassify outstanding shares into shares (i) having a preference
over, or being on a parity with, Series A Stock or Series B Stock with respect
to voting, dividends, conversion or upon liquidation or dissolution of this
corporation, or (ii) having rights similar to any of the rights of Series A
Stock or Series B Stock under this Article III(C);
(d) Dividends, Distribution. Declare or pay any dividends on, or make
-----------------------
any distributions with respect to, any shares of any equity security of any kind
of this corporation, other than (A) dividends on Common Stock payable solely in
Common Stock, and (B) dividends or distributions made in accordance with Article
III(C)2 hereof;
(e) Repurchases. Repurchase or redeem any shares of Common Stock,
-----------
Series A Stock, Series B Stock or Common Stock Equivalents of this corporation,
other than for the original price per share paid for such shares pursuant to
repurchase agreements entered into at the time of issuance of such shares to
employees, directors or consultants; or
(f) Recapitalization. Recapitalize in any manner the capital stock of
----------------
this corporation.
-12-
7. Status of Converted Stock. In the event any shares of Series A Stock
-------------------------
or Series B Stock are converted pursuant to Article III(C)4 hereof, the shares
so converted shall be canceled, retired and eliminated and shall not be reissued
by this corporation. The Articles of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in this
corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by this
--------------------
corporation of shares of its Common Stock pursuant to agreements with certain of
the holders thereof, each holder of Series A Stock and each holder of Series B
Stock shall, by virtue of such holder's acceptance of a certificate evidencing
Preferred Stock, be deemed to have consented to all such repurchases for
purposes of Sections 502, 503 and 506 of the California General Corporation Law.
ARTICLE IV
(A) Liability Limitation. The liability of the directors of this
--------------------
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
(B) Indemnification. This corporation is authorized to provide
---------------
indemnification of agents (as defined in Section 317 of the California
Corporations Code) for breach of duty to the corporation and its shareholders
through bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
the applicable limits set forth in Section 204 of the California Corporations
Code.
ARTICLE V
The foregoing Amended and Restated Articles of Incorporation set forth
herein have been duly approved by the Board of Directors of the corporation.
The foregoing Amended and Restated Articles of Incorporation set forth
herein have been duly approved by the required vote of the shareholders of the
corporation in accordance with Section 902 and 903 of the California
Corporations Code. The corporation has two classes of stock, and the number of
outstanding shares is 4,521,330 shares of Common Stock and 79,086,774 shares of
Preferred Stock, consisting of 3,000,000 shares of Series A Preferred Stock,
4,946,000 shares of Series B Preferred Stock, 9,139,485 shares of Series C
Preferred Stock, 7,838,085 shares of Series D Preferred Stock, 12,700,370 shares
of Series E Preferred Stock, 34,681,280 shares of Series F Preferred Stock,
935,616 shares of Series G Preferred Stock, 5,845,938 shares of Series H
Preferred Stock and _______ shares of Series I Preferred Stock. The number of
shares voting in favor of the amendment set forth herein equaled or exceeded the
vote required. The percentage vote required was more than 50% of the outstanding
shares of Common Stock, more than 50% of the outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock, Series H Preferred Stock and Series I Preferred Stock voting
together as a single class, and more than 66 2/3% of the outstanding shares of
Series F Preferred Stock and Series H Preferred Stock voting together as a
separate class. There are no shares of Series H-1 Preferred Stock outstanding.
-13-
The undersigned further declares under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of her knowledge.
Date: ____________, 2000
___________________________________________
President, Chief Executive Officer and
Secretary
-14-
EXHIBIT C
---------
FORM OF OPINION OF COUNSEL TO THE COMPANY
We have acted as counsel for RightWorks Corporation, a California corporation
(the "Company"), in connection with (i) that certain Recapitalization and
Exchange Offer Agreement and Plan of Reorganization dated as of March __, 2000
(the "Reorganization Agreement") among Internet Capital Group, Inc., a Delaware
corporation ("Parent"), Rain Acquisition Corp., a Delaware corporation ("Sub"),
and the Company and (ii) that certain Stock Purchase Agreement dated as of March
__, 2000 (the "Purchase Agreement") between Sub and the Company. We are
rendering this opinion pursuant to Section 6.2(d) of the Reorganization
Agreement. Capitalized terms used but not defined herein have the respective
meanings given to them in the Reorganization Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Reorganization Agreement by the various parties and originals or
copies, certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to our knowledge" or concerning an item "known to us" or "of which
we are aware" or our opinion otherwise refers to our knowledge, it is based
solely upon (i) an inquiry of attorneys within this firm who have performed
legal services for the Company with respect to the Reorganization Agreement and
the transactions contemplated thereby, (ii) receipt of a certificate executed by
an officer of the Company covering such matters and (iii) such other
investigation, if any, that we specifically set forth herein; we advise you that
(a) that dockets of courts and administrative agencies have not been examined
and (b) that constructive knowledge should not be implied.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Reorganization Agreement and Purchase Agreement), where
authorization, execution and delivery are prerequisites to the effectiveness of
such documents. We have also assumed: that all individuals executing and
delivering documents had the legal capacity to so execute and deliver; that
Parent and Sub have received all documents they were to receive under the
Reorganization Agreement and Purchase Agreement; that each of the Reorganization
Agreement and Purchase Agreement is an obligation binding upon Parent and/or
Sub, as the case may be; that each of Parent and Sub has filed any required
California franchise or income tax returns and paid any required California
franchise or income taxes; and that there are no extrinsic agreements or
understandings among the parties to the Reorganization Agreement or the Purchase
Agreement that would modify or interpret the terms of the Reorganization
Agreement or the Purchase Agreement or the respective rights or obligations of
the parties thereunder.
1
Our opinion is expressed only with respect to the federal laws of the United
States of America, the laws of the State of California and the securities laws
of the State of Pennsylvania. We express no opinion as to whether the laws of
any particular jurisdiction apply, and no opinion to the extent that the laws of
any jurisdiction other than those identified above are applicable to the subject
matter hereof. With respect to the securities laws of the State of Pennsylvania,
we have based our opinion solely upon our examination of such laws and the rules
and regulations of the authorities administering such laws, all as reported in
unofficial compilations. Neither special rulings of such authorities nor
opinions of counsel in said jurisdiction have been obtained. We are not
rendering any opinion as to compliance with any antifraud law, rule or
regulation relating to securities or to the sale or issuance thereof, or as to
compliance with any antitrust law.
With regard to our opinion in paragraph 2 below, we have examined and relied
upon a certificate executed by an officer of the Company to the effect that the
consideration for all outstanding shares of capital stock of the Company was
received by the Company in accordance with the provisions of the applicable
Board of Directors resolutions and any plan or agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto. Additionally, with regard to our opinion in paragraph 2 below,
with respect to shares of the Company's capital stock issued prior to October
12, 1999, we have relied upon an opinion issued on October 12, 1999 by ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, to the purchasers of the
Series H Preferred Stock of the Company.
With regard to our opinion in paragraph 5 below with respect to material
defaults under any material agreement known to us, we have relied solely upon
(i) inquiries of officers of the Company, (ii) a list supplied to us by the
Company, a copy of which is attached hereto as Exhibit A, of material agreements
to which the Company is a party or by which it is bound, and (iii) an
examination of the items on the aforementioned list; we have made no further
investigation.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and, to our knowledge,
except as set forth in the Company Disclosure Schedule, is duly qualified or
licensed as a foreign corporation to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Company Material Adverse Effect. The Company has all requisite corporate power
and authority to own and operate its properties, to lease the properties it
currently operates under lease, and to carry on its business as now being
conducted.
2. Immediately prior to the filing of the Amended and Restated Articles,
the authorized capital stock of the Company consisted of 100,000,000 shares of
Common Stock, of which _________ shares were issued and outstanding, and
87,276,219 shares of Preferred, of which 3,000,000 shares have been designated
Series A Preferred Stock, 4,946,000 shares have been designated Series B
Preferred Stock, 9,139,485 shares have been designated Series C Preferred Stock,
7,838,085 shares have been designated Series D Preferred Stock, 14,417,093
shares have been designated Series E Preferred Stock, 35,000,000 shares have
been designated Series F Preferred Stock, 1,000,000 shares have been designated
Series G Preferred Stock, 8,428,935 shares have been designated Series H
Preferred Stock, 6,621 shares have been designated Series H-1 Preferred Stock,
2
and 3,500,000 shares have been designated Series I Preferred Stock, of which
3,000,000; 4,946,000; 9,139,485; 7,838,085; 12,700,370; 34,681,280; 935,616;
5,845,938; 0; and 2,449,407 shares were issued and outstanding, respectively. To
our knowledge, (i) there currently are options outstanding for the purchase of
an aggregate of _________ shares of Company Common Stock under the Plan and
options to purchase an additional _________ shares of Company Common Stock
outstanding outside of the Plan and (ii), except as disclosed in Part 2.2 of the
Company Disclosure Schedule, there currently are no other outstanding
commitments to issue any shares of capital stock or voting securities of the
Company. Except as disclosed in Part 2.2 of the Company Disclosure Schedule, all
outstanding shares of the Company capital stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
or rights of first refusal created by statute, the Articles of Incorporation or
Bylaws of the Company or, to our knowledge, any agreement to which the Company
is a party or by which it is bound, other than rights which have been waived. To
our knowledge, except as disclosed in Part 2.2 of the Company Disclosure
Schedule and except for the rights created pursuant to the Reorganization
Agreement and the Purchase Agreement, there are no other options, calls, rights,
commitments or agreements of any character to which the Company is a party or by
which it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of the Company.
3. The Company has all requisite corporate power and authority to enter
into the Reorganization Agreement and the Purchase Agreement and to consummate
the transactions contemplated thereby. The execution and delivery of the
Reorganization Agreement and the Purchase Agreement and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
corporate actions and proceedings on the part of the Company and the
Shareholders. The Reorganization Agreement and the Purchase Agreement have been
duly executed and delivered by the Company and constitute legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
4. To our knowledge, no consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by the Company in connection with the execution and delivery of the
Reorganization Agreement or the Purchase Agreement or the consummation of the
transactions contemplated thereby other than (i) the filing of the Amended and
Restated Articles with the Secretary of State of the State of California, (ii)
the filing of a Notice of Transaction pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968 and any filing which may be required
in the State of Pennsylvania, (iii) the filing of a Form D pursuant to
Regulation D promulgated under the Securities Act of 1933, as amended, and (iv)
as set forth in the Company Disclosure Schedule.
5. To our knowledge, there is no action, suit, proceeding, claim or
investigation pending or overtly threatened against the Company, its properties
or any of its officers or directors (in their capacities as such) which is not
disclosed in the Company Disclosure Schedule, nor to our knowledge is there any
action, suit, proceeding, claim or investigation pending or overtly threatened
against the Company, its properties or any of its officers or directors (in
their capacities as such) which challenges or seeks to enjoin, alter or
materially delay any of the transactions contemplated by the Reorganization
Agreement and the Purchase Agreement.
3
6. Except for such filings, notices, permits, consents and approvals as
have been made, given or obtained, the execution, delivery and performance of
the Reorganization Agreement and Purchase Agreement by the Company will not: (i)
violate any provision of the Articles of Incorporation or Bylaws of the Company;
(ii) violate any law, ordinance or regulation or, to our knowledge, any order,
judgment, injunction, decree or other requirement of any court, arbitrator or of
any governmental or regulatory body applicable to the Company; (iii) except as
set forth in paragraph 4 above, require any filing with, notice to or permit,
consent or approval of any governmental or regulatory body; (iv) to our
knowledge, result in the creation of any lien or other encumbrance on the assets
or properties of the Company; or (v) except as disclosed in the Company
Disclosure Schedule, constitute a material default under the provisions of any
material agreement known to us to which the Company is a party or by which it is
bound, excluding from the foregoing clauses (ii), (iii), (iv) and (v) any
exceptions to the foregoing that, in the aggregate, would not have a Company
Material Adverse Effect or a material adverse effect on the ability of the
Company to consummate the transactions contemplated by the Reorganization
Agreement and the Purchase Agreement.
This opinion is intended solely for your benefit and is not to be made available
to anyone (other than an employee or representative of Internet Capital Group,
Inc.) or be relied upon by any other person, firm, or entity without our prior
written consent.
4
Exhibit A
1. Subordinated Loan Security Agreement June 25, 1999 between Comdisco, Inc.
and the Company.
2. Software Development Agreement dated February 22, 1999 and a Patent
Assignment and Software License Agreement dated February 22, 1999 between
Silicon Graphics, Inc. and the Company.
3. Hosted Portal Use License Agreement between Silicon Valley Bank and the
Company, dated December 31, 1999.
4. Hosted Portal License Agreement between ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ and the Company,
dated December 30, 1999.
5. Hosted Portal License Agreement between Hotelworks and the Company, dated
January 21, 2000.
6. Hosted Portal Software License Agreement between Bank One, NA e-Solutions
and the Company, dated March 1, 2000.
7. Portal Software License Agreement between ▇▇▇▇▇▇▇.▇▇▇ and the Company,
dated January 21, 2000.
8. Portal Software License Agreement between Embion, Inc. and the Company,
dated February 23, 2000.
9. Software License Agreement between Computer Sciences Corporation and the
Company, dated December 28, 1999.
10. Software License and Distribution Agreement between Commerce One and the
Company, dated December 16, 1999.
11. Software License Agreement between Fujitsu Computer Products of America and
the Company, dated June 8, 1998.
12. Software License and Maintenance Agreement between Dynegy Inc. and the
Company, dated March 31, 1999.
13. Enterprise License Agreement between Applied Materials and the Company,
dated April 27, 1998.
14. Subscription and Distribution Agreement between Commerce One, Inc. and the
Company, dated December 16, 1999.
15. Joint Marketing, Licensing and Content Provider Agreement between
▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. and the Company, dated December 20, 1999.
A-1
16. Software Agreement between Norwest Services, Inc. and the Company, dated
July 28, 1999.
17. Restricted Use License Agreement between RoweCom Inc. and the Company,
dated March 26, 1999.
18. Software Agreement between Norwest Services, Inc. and the Company, dated
July 28, 1999.
19. Software Evaluation Agreement between E-TEK Dynamics and the Company, dated
April 23, 1998.
20. Employment Agreement dated March __, 2000 between the Company and ▇▇▇▇
▇▇▇▇.
21. Consulting Agreement between ▇▇▇▇ ▇▇▇▇▇▇ and the Company, dated October 1,
1999.
22. Engineering Services Agreement between INFOSYSTEMS America Inc. and the
Company, dated July 13, 1999.
23. Consulting Partnership Agreement between Cybercom Partners, Inc. and the
Company, dated February 8, 1996.
24. Strategic Alliance Memorandum of Understanding between FASTXchange Inc. and
the Company, dated August 6, 1999.
25. Alliance Partner Memorandum of Understanding between Harbinger Corporation
and the Company, dated March 1999.
26. Joint Referral Agreement between Harbinger Corporation and the Company,
dated May 12, 1999.
27. Joint Catalog Access Agreement between Online Office Supplies and the
Company, dated February 28, 2000.
28. Joint Catalog Access Agreement between Office Depot and the Company, dated
February 25, 2000.
29. Joint Catalog Access Agreement between Adecco and the Company, dated
February 10, 2000.
30. Joint Catalog Access Agreement between Boise Cascade Office Products
Corporation and the Company, dated March 2, 2000.
31. Joint Catalog Access Agreement between Wiznet, Inc. and the Company, dated
March 2, 2000.
32. Joint Catalog Access Agreement between Polyphasic, Inc. and the Company,
dated March 1, 2000.
33. Software Evaluation Agreement between webMethods, Inc. and the Company,
dated February 15, 2000.
34. Master Services Agreement between Exodus and the Company, dated August 26,
1999.
A-2
35. Value Added Reseller Agreement between i2 Technologies, Inc. and the
Company, dated October 8, 1999.
36. Value Added Reseller Agreement between Aspect Development, Inc. and the
Company, dated December 29, 1999.
37. Value Added Reseller Agreement between VerticalNet, Inc. and the Company,
dated January 24, 1999.
38. Agreement with Broadview International LLC dated February 7, 2000.
A-3