EXHIBIT 2.1
AGREEMENT AND
PLAN OF REORGANIZATION
DATED DECEMBER 3, 1996,
BY AND AMONG
VISIGENIC SOFTWARE, INC.,
CUSTOMWARE, INC.
AND
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & FREIDENRICH
TABLE OF CONTENTS
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Page
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1. Certain Definitions.................................................... 1
1.1 "Affiliate"...................................................... 1
1.2 "Commission"..................................................... 1
1.3 "CustomWare Products"............................................ 1
1.4 "CustomWare Shares".............................................. 1
1.5 "Dissenting Shares".............................................. 1
1.6 "Securities"..................................................... 1
1.7 "Securities Act"................................................. 1
1.8 "Shareholder".................................................... 2
1.9 "Transaction Documents".......................................... 2
2. Plan of Reorganization................................................. 2
2.1 The Merger....................................................... 2
2.2 Conversion of Shares............................................. 2
2.3 Fractional Shares................................................ 2
2.4 Escrow Fund...................................................... 2
2.5 Appraisal Rights................................................. 3
2.6 The Closing...................................................... 3
2.7 Effective Time................................................... 3
2.8 Tax Free Reorganization.......................................... 3
2.9 Issuance of Visigenic Common Stock; Registration on Form S-3..... 3
2.10 Restricted Securities........................................... 4
2.11 Surrender of Certificates....................................... 4
3. Representations and Warranties of CustomWare........................... 5
3.1 Organization..................................................... 5
3.2 Capitalization................................................... 5
3.3 Power, Authority and Validity.................................... 6
3.4 Financial Statements............................................. 6
3.5 Tax Matters...................................................... 7
3.6 Tax Free Reorganization.......................................... 8
3.7 Absence of Certain Changes or Events............................. 8
3.8 Title and Related Matters........................................ 9
3.9 Proprietary Rights............................................... 10
3.10 Employee Benefit Plans .......................................... 11
3.11 Bank Accounts.................................................... 11
3.12 Contracts........................................................ 11
3.13 Orders, Commitments and Returns.................................. 13
3.14 Compliance With Law.............................................. 13
3.15 Labor Difficulties; No Discrimination............................ 14
3.16 Trade Regulation................................................. 14
3.17 Insider Transactions............................................. 14
3.18 Employees, Independent Contractors and Consultants............... 15
3.19 Insurance........................................................ 15
3.20 Litigation....................................................... 15
3.21 Governmental Authorizations and Regulations...................... 15
3.22 Subsidiaries..................................................... 15
3.23 Compliance with Environmental Requirements....................... 15
3.24 Corporate Documents.............................................. 16
3.25 No Brokers....................................................... 16
3.26 Disclosure....................................................... 16
4. Representations and Warranties of Visigenic............................. 16
4.1 Organization...................................................... 16
4.2 Capitalization.................................................... 17
4.3 Power, Authority and Validity..................................... 17
4.4 Commission Filings; Financial Statements.......................... 18
4.5 Tax Free Reorganization........................................... 19
4.6 No Undisclosed Liabilities........................................ 19
5. Preclosing Covenants.................................................... 19
5.1 Material Consents................................................. 19
5.2 Employment Agreements, Other Commitments Terminated............... 19
5.3 Advice of Changes................................................. 19
5.4 Conduct of Business............................................... 19
6. Additional Covenants.................................................... 21
6.1 No Public Announcement............................................ 21
6.2 Other Negotiations................................................ 21
6.3 Due Diligence, Investigation, and Audits.......................... 21
6.4 Regulatory Filings; Consents; Reasonable Efforts.................. 21
6.5 Nasdaq Quotation.................................................. 22
6.6 Further Assurances................................................ 22
6.7 Brokers or Finders................................................ 22
6.8 Registration on Form S-3.......................................... 22
7. Closing Matters......................................................... 23
7.1 Filing of Certificate of Merger................................... 24
7.2 Approvals......................................................... 24
7.3 Security Law Compliance........................................... 24
7.4 No Injunctions or Restraints; Illegality.......................... 24
7.5 Blue Sky Laws..................................................... 24
7.6 Delivery of Documents............................................. 24
8. Conditions to CustomWare's Obligations.................................. 24
8.1 Accuracy of Representations and Warranties........................ 24
8.2 Covenants......................................................... 24
8.3 No Litigation..................................................... 24
8.4 Authorizations.................................................... 25
8.5 Government Consents............................................... 25
8.6 Bonus Agreement................................................... 25
8.7 No Adverse Development............................................ 25
8.8 Date of Closing................................................... 25
8.9 Opinion of Visigenic's Counsel.................................... 25
8.10 Filing of Certificate of Merger................................... 25
9. Conditions to Visigenic's Obligations................................... 25
9.1 Accuracy of Representations and Warranties........................ 25
9.2 Covenants......................................................... 25
9.3 No Litigation..................................................... 25
9.4 Authorizations.................................................... 25
9.5 Required Consents................................................. 26
9.6 Government Consents............................................... 26
9.7 Due Diligence..................................................... 26
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Table of Contents, continued
9.8 Bonus Agreement.................................................. 26
9.9 Lockup Agreement................................................. 26
9.10 Non-Compete and Non-Solicitation Agreement....................... 26
9.11 Offers of Employment Accepted.................................... 26
9.12 Transfer of Automobile........................................... 26
9.13 No Adverse Development........................................... 26
9.14 Date of Closing.................................................. 26
9.15 Opinion of CustomWare's Counsel.................................. 26
9.16 Litigation; Violation of Law..................................... 26
9.17 Filing of Certificate of Merger.................................. 26
10. Termination of Agreement................................................ 27
10.1 Termination...................................................... 27
10.2 Liability for Termination........................................ 27
10.3 Certain Effects of Termination................................... 27
10.4 Remedies......................................................... 27
10.5 Right to Damages................................................. 28
11. Indemnification......................................................... 28
11.1 Survival of Representations, Warranties, Covenants and Agreements 28
11.2 Indemnification by CustomWare.................................... 29
11.3 Arbitration...................................................... 30
11.4 Limitation on Indemnification.................................... 31
11.5 The Shareholder's Authority...................................... 31
11.6 Escrow........................................................... 31
12. Miscellaneous........................................................... 32
12.1 Governing Laws................................................... 32
12.2 Binding upon Successors and Assigns.............................. 33
12.3 Severability..................................................... 33
12.4 Entire Agreement................................................. 33
12.5 Counterparts..................................................... 33
12.6 Expenses......................................................... 33
12.7 Amendment and Waivers............................................ 33
12.8 Survival of Agreements........................................... 33
12.9 No Waiver........................................................ 33
12.10 Attorneys' Fees.................................................. 33
12.11 Notices.......................................................... 34
12.12 Time............................................................. 34
12.13 Construction of Agreement........................................ 34
12.14 No Joint Venture................................................. 34
12.15 Pronouns......................................................... 35
12.16 Further Assurances............................................... 35
12.17 Absence of Third Party Beneficiary Rights........................ 35
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Table of Contents, continued
Exhibits and Schedules
Exhibit A Certificate of Merger
Exhibit B Form of Lockup Agreement
iv
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into
this 3rd day of December, 1996, by and among Visigenic Software, Inc., a
Delaware corporation ("Visigenic"), CustomWare, Inc., a California corporation
("CustomWare"), and with respect to Section 11 only, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ &
Freidenrich, a Professional Corporation ("Escrow Agent").
RECITAL
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WHEREAS, subject to and in accordance with the terms and conditions of this
Agreement and pursuant to the Certificate of Merger attached hereto as Exhibit A
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("Certificate of Merger"), the Boards of Directors of Visigenic and CustomWare
deem it advisable and in the best interests of each corporation and its
respective stockholders that CustomWare merge with and into Visigenic (the
"Merger"), pursuant to which all of the outstanding shares of common stock of
CustomWare ("CustomWare Stock") will be converted into shares of common stock of
Visigenic ("Visigenic Common Stock").
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a tax free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger.
AGREEMENT
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NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. Certain Definitions.
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1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Commission" shall mean the United States Securities and Exchange
Commission.
1.3 "CustomWare Products" shall mean all versions and implementations
of any product which has been or is being marketed by CustomWare or currently is
under development, and all patents, patent applications, trade secrets,
copyrights, trademarks, trade names and other proprietary rights related
thereto.
1.4 "CustomWare Shares" shall mean the shares of CustomWare capital
stock issued and outstanding at the effective time of the Merger, other than the
Dissenting Shares.
1.5 "Dissenting Shares" shall mean those shares held by holders who
perfect their appraisal rights under the laws of California with respect
thereto.
1.6 "Securities" shall mean the CustomWare Shares and the Dissenting
Shares.
1.7 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
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1.8 "Shareholder" shall mean ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the sole shareholder of
all of the CustomWare Stock.
1.9 "Transaction Documents" shall mean all documents or agreements
required to be delivered by any party hereunder, including the Certificate of
Merger.
2. Plan of Reorganization.
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2.1 The Merger. Subject to the terms and conditions of this
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Agreement and the Certificate of Merger, CustomWare shall be merged with and
into Visigenic in accordance with the applicable provisions of the laws of the
State of California and the State of Delaware, and with the terms and conditions
of this Agreement and the Certificate of Merger, so that:
(a) At the Effective Time (as defined in Section 2.7 below),
CustomWare shall be merged with and into Visigenic. As a result of the Merger,
the separate corporate existence of CustomWare shall cease and Visigenic shall
continue as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation") and shall succeed to and assume all of the rights and
obligations of CustomWare in accordance with the laws of California and
Delaware.
(b) The Certificate of Incorporation and Bylaws of Visigenic in
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws, respectively, of the Surviving Corporation after the
Effective Time, unless and until further amended as provided by law.
(c) The directors and officers of Visigenic immediately prior to
the Effective Time shall be the directors and officers of the Surviving
Corporation after the Effective Time. Such directors and officers shall hold
their position until the election and qualification of their respective
successors or until their tenure is otherwise terminated in accordance with the
Bylaws of Visigenic.
2.2 Conversion of Shares. Each share of CustomWare Stock, issued and
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outstanding immediately prior to the Effective Time, will, by virtue of the
Merger and at the Effective Time, and without further action on the part of the
Shareholder, be converted into that number of share(s) of fully paid and
nonassessable of Visigenic Common Stock determined by dividing 125,000 by the
sum of (i) all outstanding shares of common stock of CustomWare and (ii) all
outstanding securities of CustomWare that are, directly or indirectly,
convertible into or exchangeable or exercisable for, shares of CustomWare's
common stock, expressed as if converted, exchanged and exercised in full.
2.3 Fractional Shares. No fractional shares of Visigenic Common
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Stock will be issued in connection with the Merger, but in lieu thereof, in the
event the Shareholder is entitled to receive a fraction of a share of Visigenic
Common Stock, he will receive from Visigenic, promptly after the Effective Time,
an amount of cash equal to the closing price of one share of Visigenic Common
Stock (as quoted on the NNM) as reported in The Wall Street Journal) on the date
of this Agreement multiplied by the fraction of a share of Visigenic Common
Stock to which the Shareholder would otherwise be entitled.
2.4 Escrow Fund. At the Effective Time, certificates representing
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ten percent (10%) of the shares of the Visigenic Common Stock issued to the
Shareholder in the Merger shall be deposited in escrow (the "CustomWare Escrow
Shares") with the Escrow Agent. The CustomWare Escrow Shares shall be held as
collateral for CustomWare's indemnification obligations under Section 11
herein.
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2.5 Appraisal Rights. If holders of CustomWare Stock are entitled to
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appraisal rights in connection with the Merger, any Dissenting Shares shall not
be converted into a right to receive Visigenic Common Stock but shall be
converted into the right to receive such consideration as may be determined to
be due with respect to such Dissenting Shares pursuant to the laws of the State
of California. CustomWare shall give Visigenic prompt notice of any demand
received by CustomWare for appraisal of CustomWare capital stock, and the
Shareholder shall have the right to control all negotiations and proceedings
with respect to such demand, provided that Visigenic shall have the right to
participate in all such negotiations and proceedings. CustomWare agrees that,
except with the prior written consent of Visigenic or as required under the
General Corporation Law of the State of California (the "CGCL"), it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. Each holder of Dissenting Shares ("Dissenting
Shareholder") who, pursuant to the provisions of the CGCL, becomes entitled to
payment of the value of shares of CustomWare Stock shall receive payment
therefor (but only after the value therefor shall have been agreed upon or
finally determined pursuant to such provisions). In the event of legal
obligation, after the Effective Time of the Merger, to deliver a right to
receive Visigenic Common Stock to a holder of shares of CustomWare capital stock
who shall have failed to make an effective demand for appraisal or shall have
lost his status as a Dissenting Shareholder, Visigenic shall deliver, upon
surrender by such Dissenting Shareholder of his certificate or certificates
representing shares of CustomWare Stock, as applicable, the Visigenic Common
Stock to which such Dissenting Shareholder is then entitled under this Section
2.5 and the Certificate of Merger.
2.6 The Closing. Subject to termination of this Agreement as
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provided in Section 10 below, the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
& Freidenrich, A Professional Corporation, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, as soon as possible upon the satisfaction or waiver of all
conditions set forth in Section 8 and Section 9 hereof (the "Closing Date"),
or such other time and place as is mutually agreeable to the parties.
2.7 Effective Time. Simultaneously with the Closing, the Certificate
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of Merger shall be filed in the office of the Secretary of State of the State of
Delaware. The Merger shall become effective immediately upon the filing of the
Certificate of Merger with such office. The date and time of the effectiveness
of the Merger under the laws of Delaware is the "Effective Time."
2.8 Tax Free Reorganization. The parties intend to adopt this
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Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a)(1)(A) of the Code. Each party
agrees that it will not take or assert any position on any tax return, report or
otherwise which is inconsistent with the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code. The Visigenic
Common Stock issued in the Merger will be issued solely in exchange for the
CustomWare Stock pursuant to this Agreement, and no other transaction other than
the Merger represents, provides for or is intended to be an adjustment to the
consideration paid for the CustomWare Stock. Except for cash paid in lieu of
fractional shares, no consideration that could constitute "other property"
within the meaning of Section 356 of the Code is being paid by Visigenic for the
CustomWare Stock. In addition, Visigenic represents now, and as of the Closing
Date, that it presently intends to continue CustomWare's historic business or
use a significant portion of CustomWare's business assets in a business.
2.9 Issuance of Visigenic Common Stock; Registration on Form S-3.
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Visigenic will use its best efforts to file a registration statement on Form S-3
(or any successor form to Form S-3) to register the Visigenic Common Stock
issued to the Shareholder in connection with the Merger as soon as Visigenic is
entitled to use Form S-3.
2.10 Restricted Securities. The Visigenic Common Stock will be
---------------------
subject to restrictions imposed by (a) applicable federal and state securities
laws and (b) the terms of a lockup agreement to be entered into between
Visigenic and the Shareholder regarding any sale or transfer of
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the Visigenic Common Stock. In addition, certificates representing the
CustomWare Escrow Shares will bear a legend describing that such shares are
subject to the terms of Section 11 herein.
2.11 Surrender of Certificates.
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(a) Exchange Agent. The First National Bank of Boston shall act
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as exchange agent (the "Exchange Agent") in the Merger.
(b) Visigenic to Provide Common Stock and Cash. Promptly after
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the Effective Time, Visigenic shall make available to the Exchange Agent for
exchange in accordance with this Section 2, through such reasonable procedures
as Visigenic may adopt, (i) the shares of Visigenic Common Stock issuable
pursuant to Section 2.2 in exchange for shares of CustomWare Stock outstanding
immediately prior to the Effective Time less the number of shares of Visigenic
Common Stock to be deposited into an escrow fund (the "Escrow Fund") pursuant to
the requirements of Section 11.6 and (ii) cash in an amount sufficient to permit
payment of cash in lieu of fractional shares pursuant to Section 2.3.
(c) Exchange Procedures. Promptly after the Effective Time,
Visigenic shall cause to be mailed to the Shareholder, whose shares were
converted into the right to receive shares of Visigenic Common Stock (and cash
in lieu of fractional shares) pursuant to Section 2.3, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the certificates representing Shareholder's shares of
CustomWare Stock (the "Certificates") shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Visigenic may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Visigenic Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Visigenic, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the Shareholder shall be entitled to receive in
exchange therefor a certificate representing the number of whole shares of
Visigenic Common Stock less the CustomWare Escrow Shares to be deposited in the
escrow fund on such holder's behalf pursuant to Section 11.6 hereof and payment
in lieu of fractional shares which such holder has the right to receive pursuant
to Section 2.3, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of CustomWare Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Visigenic Common Stock
into which such shares of CustomWare Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 2.3. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of Section
11.6 hereof, Visigenic shall cause to be distributed to the Escrow Agent (as
defined in Section 11.6 hereof) a certificate or certificates representing ten
percent (10%) of the shares of Visigenic Common Stock to be issued in connection
with the Merger which shall be registered in the name of the Escrow Agent as
nominee for the Shareholder pursuant to this Section 2.11. Such shares shall be
beneficially owned by such Shareholder and shall be held in escrow and shall be
available to compensate Visigenic for certain damages as provided in Section
11.6. To the extent not used for such purposes, such shares shall be released,
all as provided in Section 11.6 hereof.
(d) Distributions With Respect to Unexchanged Shares. No
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dividends or other distributions with respect to Visigenic Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Visigenic Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Visigenic Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends
4
or other distributions with a record date after the Effective Time theretofore
payable (but for the provisions of this Section 2.11)) with respect to such
shares of Visigenic Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
----------------------
Visigenic Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Visigenic or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Visigenic Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Visigenic or any agent designated by it that such tax has been
paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
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this Section 2.11, none of the Exchange Agent, Visigenic or any party hereto
shall be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) Dissenting Shares. The provisions of this Section 2.11 shall
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also apply to shares held or owned by Dissenting Shareholders that lose their
status as such, except that the obligations of Visigenic under this Section 2.11
shall commence on the date of loss of such status and the holder of such shares
shall be entitled to receive in exchange for such shares the number of shares of
Visigenic Common Stock to which such holder is entitled pursuant to Section 2.2
hereof.
3. Representations and Warranties of CustomWare. Except as
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otherwise set forth in the "CustomWare Disclosure Schedule" provided to
Visigenic on the date hereof, CustomWare represents and warrants to Visigenic as
set forth below. No fact or circumstance disclosed to Visigenic shall constitute
an exception to these representations and warranties unless such fact or
circumstance is set forth in the CustomWare Disclosure Schedule or such
supplements thereto as may mutually be agreed upon in writing by CustomWare and
Visigenic.
3.1 Organization. CustomWare is a corporation duly organized,
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validly existing and in good standing under the laws of the State of California
and has corporate power and authority to carry on its business as it is now
being conducted. CustomWare is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the nature of its business or
properties makes such qualification or licensing necessary except where the
failure to be so qualified would not have a material adverse effect on the
operations, assets or financial condition (a "Material Adverse Effect") of
CustomWare. The CustomWare Disclosure Schedule contains a true and complete
listing of the locations of all sales offices, manufacturing facilities,
training facilities, and any other offices or facilities of CustomWare and a
true and complete list of all states in which CustomWare maintains any
employees. The CustomWare Disclosure Schedule contains a true and complete list
of all states in which CustomWare is duly qualified to transact business as a
foreign corporation. True and complete copies of CustomWare's Articles of
Incorporation and Bylaws, as in effect on the date hereof and as to be in effect
as of the Closing, have been provided to Visigenic or its representatives.
3.2 Capitalization.
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(a) The authorized capital of CustomWare consists, or will
consist prior to the Closing, of 10,000 shares of common stock, of which 1,000
shares are issued and outstanding.
(b) The CustomWare Disclosure Schedule accurately describes
the vesting schedules associated with such CustomWare Common Stock.
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(c) CustomWare does not have outstanding any preemptive or
subscription rights, options, warrants, rights to convert or exchange, capital
stock equivalents, or other rights to purchase or otherwise acquire any of
CustomWare's capital stock or other securities.
(d) All of the issued and outstanding shares of CustomWare's capital
stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, and all warrants and options to purchase
capital stock of CustomWare, have been issued in full compliance with all
applicable federal and state securities laws. None of CustomWare's issued and
outstanding shares of capital stock, or options or rights to purchase capital
stock of CustomWare, is subject to repurchase or redemption rights. There have
not been and are not outstanding any adjustments made or required to be made to
the conversion prices set forth in CustomWare's current Articles of
Incorporation. All of CustomWare's options have been issued in accordance with
its current stock option plan and in accordance with all state securities laws.
(e) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of CustomWare's capital stock.
(f) CustomWare is not under any obligation to register under the
Securities Act any shares of its capital stock or any other of its securities
that might be issued in the future if the Merger were not consummated.
(g) CustomWare is not a party or subject to any agreement or
understanding (and, to CustomWare's best knowledge, there is no agreement or
understanding between or among any persons) that affects or relates to the
voting or giving of written consent with respect to any security.
3.3 Power, Authority and Validity. CustomWare has the corporate
-----------------------------
power to enter into this Agreement and the other Transaction Documents to which
it is a party and to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of CustomWare and on the Closing Date, by
the Shareholder and no other corporate proceedings on the part of CustomWare are
necessary to authorize this Agreement, the other Transaction Documents and the
transactions contemplated herein and therein. CustomWare is not subject to or
obligated under any charter, bylaw or contract provision or any license,
franchise or permit, or subject to any order or decree, which would be breached
or violated by or in conflict with its executing and carrying out this Agreement
and the transactions contemplated hereunder and under the Transaction Documents.
Except for (a) the filing of a certificate of merger with the Secretary of State
of the State of Delaware and appropriate documents with the relevant authorities
of other states in which CustomWare is qualified to do business, and (b) filings
under applicable securities laws, no consent of any person who is a party to a
contract which is material to CustomWare's business, nor consent of any
governmental authority, is required to be obtained on the part of CustomWare to
permit the transactions contemplated herein and continue the business activities
of CustomWare as previously conducted by CustomWare without material adverse
change. This Agreement is, and the other Transaction Documents when executed
and delivered by CustomWare shall be, the valid and binding obligations of
CustomWare enforceable in accordance with their respective terms.
3.4 Financial Statements.
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(a) CustomWare has delivered to Visigenic copies of CustomWare's
unaudited balance sheet as of October 31, 1996, and statements of operations,
shareholders' equity and cash flow for the period then-ended (the "CustomWare
Unaudited Financials").
6
(b) The CustomWare Unaudited Financials are complete and in accordance
with the books and records of CustomWare and present fairly the financial
position of CustomWare as of their historical dates. The CustomWare Unaudited
Financials have not been prepared in accordance with generally accepted
accounting principles ("GAAP"). Except and to the extent reflected or reserved
against in such balance sheets (including the notes thereto), CustomWare does
not have, as of the dates of such balance sheets, any liabilities or obligations
(absolute or contingent) of a nature required or customarily reflected in a
balance sheet (or the notes thereto) prepared in accordance with GAAP. The
reserves, if any, reflected on the CustomWare Unaudited Financials are adequate
in light of the contingencies with respect to which they are made.
(c) CustomWare has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against in the CustomWare
Unaudited Financials, except for those (i) that may have been incurred after the
date of the CustomWare Unaudited Financials or (ii) that are not required by
GAAP to be included in a balance sheet or the notes thereto, except that
CustomWare has not established any reserves with respect to the costs and fees
associated with this Agreement, the other Transaction Documents, and the
transactions contemplated hereby and thereby. All material debts, liabilities,
and obligations incurred after the date of the CustomWare Unaudited Financials
were incurred in the ordinary course of business, and are usual and normal in
amount both individually and in the aggregate.
3.5 Tax Matters.
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(a) CustomWare has fully and timely, properly and accurately filed all
tax returns and reports required to be filed by it, including all federal,
foreign, state and local tax returns and estimates for all years and periods
(and portions thereof) for which any such returns, reports or estimates were
due. All such returns, reports and estimates were prepared in the manner
required by applicable law. All income, sales, use, occupation, property or
other taxes or assessments due from CustomWare have been paid. There are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid. The reserves for taxes, if any, reflected on the CustomWare
Unaudited Financials are adequate and there are no tax liens on any property or
assets of CustomWare. There have been no audits or examinations of any tax
returns or reports by any applicable governmental agency. No state of facts
exists or has existed which would constitute grounds for the assessment of any
penalty or of any further tax liability beyond that shown on the respective tax
reports, returns or estimates. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state or
local income tax return or report for any period.
(b) All taxes which CustomWare has been required to collect or
withhold have been duly withheld or collected and, to the extent required, have
been paid to the proper taxing authority.
(c) CustomWare is not a party to any tax-sharing agreement or similar
arrangement with any other party.
(d) At no time has CustomWare been included in the federal
consolidated income tax return of any affiliated group of corporations.
(e) No payment which CustomWare is obliged to pay to any director,
officer, employee or independent contractor pursuant to the terms of an
employment agreement, severance agreement or otherwise will constitute an excess
parachute payment as defined in Section 280G of the Code.
7
(f) CustomWare is not currently under any contractual obligation to
pay any tax obligations of, or with respect to any transaction relating to, any
other person or to indemnify any other person with respect to any tax.
3.6 Tax Free Reorganization.
-----------------------
(a) Neither CustomWare nor, to the best of its knowledge, the
Shareholder has taken or agreed to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of Section
368(a) of the Code.
(b) To the best of CustomWare's knowledge, there is no plan or
intention by the Shareholder to sell, exchange or otherwise dispose of more than
fifty percent (50%) of the shares of Visigenic Common Stock to be received in
the Merger prior to the second anniversary of this Agreement. For purposes of
this representation, transfers of Visigenic Common Stock by the Shareholder to
CustomWare employees shall be included as dispositions.
(c) Immediately following the Merger, Visigenic will hold at least
ninety percent (90%) of the fair market value of CustomWare's net assets and at
least seventy percent (70%) of the fair market value of CustomWare's gross
assets held immediately prior to the Merger. For purposes of this
representation, amounts used by CustomWare to pay merger expenses and all
redemptions and distributions (except for regular, normal dividends) made by
CustomWare will be included as assets of CustomWare immediately prior to the
Merger.
(d) CustomWare is not an investment company as defined in Sections
368(a)(2)(F)(iii) and (iv) of the Code.
3.7 Absence of Certain Changes or Events. Since October 31, 1996,
------------------------------------
CustomWare has not:
(a) suffered any material adverse change in its financial condition or
in the operations of its business, nor any material adverse changes in its
balance sheet (with any balance sheet subsequent to the CustomWare Unaudited
Financials prepared in accordance with GAAP), and including, but not limited to,
cash distributions or material decreases in the net assets of CustomWare;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting its properties or business;
(c) granted or agreed to make any increase in the compensation payable
or to become payable by CustomWare to its officers or employees, except those
occurring in the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of CustomWare
or declared any direct or indirect redemption, retirement, purchase or other
acquisition by CustomWare of such shares;
(e) issued any shares of capital stock of CustomWare or any warrants,
rights, options or entered into any commitment relating to the shares of
CustomWare;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property other than in the
ordinary course of business;
8
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset except in the ordinary course of its business;
(i) suffered any labor dispute;
(j) engaged in any activity or entered into any material commitment or
transaction (including without limitation any borrowing or capital expenditure)
other than in the ordinary course of business;
(k) incurred any liabilities except in the ordinary course of business
and consistent with past practice which would be required to be disclosed in
financial statements prepared in accordance with GAAP;
(l) permitted or allowed any of its property or assets to be subjected
to any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind, except those permitted under Section 3.8 hereof, other
than any purchase money security interests incurred in the ordinary course of
business;
(m) made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of Ten Thousand Dollars
($10,000), or in the aggregate, in excess of Twenty Five Thousand Dollars
($25,000);
(n) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with any of its Affiliates, officers, directors or shareholder or any Affiliate
or associate of any of the foregoing;
(o) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the CustomWare
Disclosure Schedule; or
(p) agreed to take any action described in Sections 2.8, 3.6, 3.7, or
4.5 or outside of its ordinary course of business or which would constitute a
breach of any of the representations contained in this Agreement.
3.8 Title and Related Matters. CustomWare has good and marketable
-------------------------
title to all the properties, interests in properties and assets, real and
personal, reflected in the CustomWare Unaudited Financials or acquired after the
date of the CustomWare Unaudited Financials (except properties, interests in
properties and assets sold or otherwise disposed of since the date of the
CustomWare Unaudited Financials in the ordinary course of business), free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except the lien of current taxes not yet due and payable and except
for liens which in the aggregate do not secure more than Ten Thousand Dollars
($10,000) in liabilities. The equipment of CustomWare used in the operation of
its business is in good operating condition and repair. To CustomWare's best
knowledge, all real or personal property leases to which CustomWare is a party
are valid, binding, enforceable obligations of CustomWare effective in
accordance with their respective terms. There is not under any of such leases
any existing material default or event of default or event which, with notice or
lapse of time or both, would constitute a material default. The CustomWare
Disclosure Schedule contains a description of all real and personal property
leased or owned by CustomWare, identifying such property and, in the case of
real property, stating the monthly rental due, term of lease and square feet
leased. True and correct copies of CustomWare's leases have been provided to
Visigenic or its representatives.
9
3.9 Proprietary Rights.
------------------
(a) CustomWare owns all right, title and interest in and to, or valid
licenses for use of, all patents, copyrights, technology, software, software
tools, know-how, processes, trade secrets, trademarks, service marks, trade
names and other proprietary rights used in or necessary for the conduct of
CustomWare's business as conducted to the date hereof or contemplated,
including, without limitation, the technology and all proprietary rights
developed or discovered or used in connection with or contained in the
CustomWare Products, free and clear of all liens, claims and encumbrances
(including without limitation distribution rights) (all of which are referred to
as "CustomWare Proprietary Rights") and CustomWare has the right to transfer all
such rights to Visigenic. The foregoing representation as it relates to
CustomWare Third Party Technology (as hereinafter defined) is limited to
CustomWare's interest pursuant to the CustomWare Third Party Licenses (as
hereinafter defined), all of which are valid and enforceable and in full force
and effect and which grant CustomWare such rights to CustomWare Third Party
Technology as are employed in or necessary to the business of CustomWare as
conducted or proposed to be conducted. The CustomWare Disclosure Schedule
contains an accurate and complete description of (i) all patents, trademarks
(with separate listings of registered and unregistered trademarks), trade names,
and registered copyrights in or related to the CustomWare Products, all
applications and registration statements therefor, and a list of all licenses
and other agreements relating thereto, and (ii) a list of all licenses and other
agreements with third parties (the "CustomWare Third Party Licenses") relating
to any software, inventions, technology, know-how, or processes that CustomWare
is licensed or otherwise authorized by such third parties to use, market,
distribute or incorporate into products distributed by CustomWare (such
software, inventions, technology, know-how and processes are collectively
referred to as the "CustomWare Third Party Technology"). All of CustomWare's
trademark or trade name registrations related to the CustomWare Products and all
of CustomWare's copyrights in any of the CustomWare Products are valid and in
full force and effect; and consummation of the transactions contemplated hereby
will not alter or impair any such rights. No claims have been asserted against
CustomWare (and CustomWare is not aware of any claims which are likely to be
asserted against CustomWare or which have been asserted against others) by any
person challenging CustomWare's use, possession, manufacture, sale or
distribution of CustomWare Products under any patents, trademarks, trade names,
copyrights, trade secrets, software, technology, know-how or processes utilized
by CustomWare (including, without limitation, the CustomWare Third Party
Technology) or challenging or questioning the validity or effectiveness of any
license or agreement relating thereto (including, without limitation, the
CustomWare Third Party Licenses). There is no valid basis for any claim of the
type specified in the immediately preceding sentence which could in any material
way relate to or interfere with the continued enhancement and exploitation by
CustomWare of any of the CustomWare Products. To the best of CustomWare's
knowledge and without any specific investigation thereof, none of the CustomWare
Products nor the use or exploitation of any patents, trademarks, trade names,
copyrights, software, technology, know-how or processes by CustomWare in its
current business infringes on the rights of, constitutes misappropriation of, or
in any way involves unfair competition with respect to any proprietary
information or intangible property right of any third person or entity,
including without limitation any patent, trade secret, copyright, trademark or
trade name.
(b) CustomWare has not granted any third party any right to
manufacture, reproduce, distribute, market or exploit any of the CustomWare
Products or any adaptations, translations, or derivative works based on the
CustomWare Products or any portion thereof. Except with respect to the rights
of third parties to the Third Party Technology, no third party has any right to
manufacture, reproduce, distribute, market or exploit any works or materials of
which any of the CustomWare Products are a "derivative work" as that term is
defined in the United States Copyright Act, Title 17, U.S.C. Section 101.
(c) All designs, drawings, specifications, source code, object code,
documentation, flow charts and diagrams incorporating, embodying or reflecting
any of the
10
CustomWare Products at any stage of their development (the "CustomWare
Components") were written, developed and created solely and exclusively by
employees of CustomWare without the assistance of any third party or entity or
were created by third parties who assigned ownership of their rights to
CustomWare by means of valid and enforceable consultant confidentiality and
invention assignment agreements, copies of which have been delivered to
Visigenic. CustomWare has at all times used commercially reasonable efforts to
treat the CustomWare Products and CustomWare Components as containing trade
secrets and has not disclosed or otherwise dealt with such items in such a
manner as to cause the loss of such trade secrets by release into the public
domain.
(d) To the best of CustomWare's knowledge, no employee of CustomWare
is in violation of any term of any employment contract, patent disclosure
agreement or any other contract or agreement relating to the relationship of any
such employee with CustomWare or, to the best of CustomWare's knowledge, any
other party because of the nature of the business conducted by CustomWare or
proposed to be conducted by CustomWare.
(e) Each person presently or previously employed by CustomWare
(including independent contractors, if any) with access to confidential
information has executed a confidentiality and non-disclosure agreement pursuant
to the form of agreement previously provided to Visigenic or its
representatives. Such confidentiality and non-disclosure agreements constitute
valid and binding obligations of CustomWare and such person, enforceable in
accordance with their respective terms. To the best of CustomWare's knowledge,
neither the execution or delivery of such agreements, nor the carrying on of
CustomWare's business as employees by such persons, nor the conduct of
CustomWare's business as currently anticipated, will conflict with or result in
a breach of the terms, conditions or provisions of or constitute a default under
any contract, covenant or instrument under which any of such persons is
obligated.
(f) No product liability or warranty claims which individually or in
the aggregate could exceed Ten Thousand Dollars ($10,000) have been communicated
to or threatened against CustomWare nor, to the best of CustomWare's knowledge,
is there any specific situation, set of facts or occurrence that provides a
basis for such claim. To the best knowledge of CustomWare, the CustomWare
Disclosure Schedule sets forth all material defects known to CustomWare in the
CustomWare Products.
3.10 Employee Benefit Plans. There is no unfunded prior service cost
----------------------
with respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by CustomWare. Each
bonus, deferred compensation, pension, profit-sharing, retirement, stock
purchase, stock option, and other employee benefit or fringe benefit plans,
whether formal or informal, maintained by CustomWare conforms to all applicable
requirements of the Employees Retirement Income Security Act of 1974. The
CustomWare Disclosure Schedule lists and describes all profit-sharing, bonus,
incentive, deferred compensation, vacation, severance pay retirement, stock
option, group insurance or other plans (whether written or not) providing
employee benefits.
3.11 Bank Accounts. The CustomWare Disclosure Schedule sets forth the
-------------
names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which CustomWare maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
3.12 Contracts.
---------
(a) CustomWare has no agreements, contracts or commitments that
provide for the sale, licensing or distribution by CustomWare of any of its
products, inventions, technology, know-how, trademarks or trade names except in
the ordinary course of its business. True
11
and correct copies of each document or instrument described in the CustomWare
Disclosure Schedule pursuant to this Section 31.2 have been made available to
Visigenic or its representatives.
(b) CustomWare has no agreements, contracts or commitments that call
for fixed and/or contingent payments or expenditures by or to CustomWare of more
than Twenty Five Thousand Dollars ($25,000). True and correct copies of each
document or instrument set forth in the CustomWare Disclosure Schedule pursuant
to this Section 31.2 have been made available to Visigenic or its
representatives.
(c) Without limiting the provisions of Section 3.9 and except for any
agreements with Visigenic, CustomWare has not granted to any third party
(including, without limitation, OEMs and site license customers) any rights to
reproduce or manufacture any of the CustomWare Products, nor has CustomWare
granted to any third party any exclusive rights of any kind with respect to any
of the CustomWare Products, including, without limitation, territorial
exclusivity or exclusivity with respect to particular versions, implementations
or translations of any of the CustomWare Products, nor has CustomWare granted
any third party any right to market any of the CustomWare Products under any
"private label" or "OEM" arrangements pursuant to which CustomWare is not
identified as the source of such goods. True and correct copies of each
document or instrument listed on the CustomWare Disclosure Schedule pursuant to
this Section 3.12(c) have been made available to Visigenic or its
representatives.
(d) CustomWare has no purchase agreement, contract or commitment that
calls for fixed and/or contingent payments by CustomWare that are in excess of
the normal, ordinary and usual requirements of business.
(e) There is no outstanding sales contract, commitment or proposal
(including, without limitation, porting and development projects) of CustomWare
that is currently expected to result in any loss to CustomWare (before
allocation of overhead and administrative costs) upon completion or performance
thereof.
(f) CustomWare has no outstanding agreements, contracts or commitments
with officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable by it on notice
of not longer than thirty (30) days and without liability, penalty or premium.
(g) CustomWare has no employment, independent contractor or similar
agreement, contract or commitment that is not terminable on no more than thirty
(30) days' notice without penalty or liability of any type, including without
limitation severance or termination pay.
(h) CustomWare has no currently effective collective bargaining or
union agreements, contracts or commitments.
(i) CustomWare is not restricted by agreement from competing with any
person or from carrying on its business anywhere in the world.
(j) CustomWare is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return to CustomWare of
inventory or merchandise in the possession of wholesalers, distributors,
retailers, or other customers, except such liabilities, obligations and claims
as, in the aggregate, do not exceed Twenty Five Thousand Dollars ($25,000).
(k) CustomWare has not guaranteed any obligations of other persons or
made any agreements to acquire or guarantee any obligations of other persons.
12
(l) CustomWare has no outstanding loan or advance to any person; nor
is it party to any line of credit, standby financing, revolving credit or other
similar financing arrangement of any sort which would permit the borrowing by
CustomWare of any sum not reflected in the CustomWare Unaudited Financials.
(m) All material contracts, agreements and instruments to which
CustomWare is a party are valid, binding, in full force and effect, and
enforceable by CustomWare in accordance with their respective terms. No such
material contract, agreement or instrument contains any material liquidated-
damages, penalty or similar provision. CustomWare has not received any notice
from any party to any such material contract, agreement or instrument that such
party intends to cancel, withdraw, modify or amend such contract, agreement or
arrangement.
(n) The CustomWare Disclosure Schedule lists all material agreements
pursuant to which CustomWare has agreed to manufacture for or supply to any
third party any CustomWare Products or components thereto. True and correct
copies of each document or instrument listed on the CustomWare Disclosure
Schedule pursuant to this Section 3.12(n) have been provided to Visigenic or its
representatives. The CustomWare Disclosure Schedule also lists each vendor who
manufactures for or supplies to CustomWare any material product or component
included in the CustomWare Products or is the sole source for any product or
component included in the CustomWare Products.
(o) CustomWare is not in default under or in breach or violation of,
nor, to the best of CustomWare's knowledge, is there any valid basis for any
claim of default by CustomWare under, or breach or violation by CustomWare of,
any contract, commitment or restriction to which CustomWare is a party or to
which it or any of its properties is bound, where such defaults, breaches, or
violations would, in the aggregate, have a Material Adverse Effect. To the best
of CustomWare's knowledge, no other party is in default under or in breach or
violation of, nor is there any valid basis for any claim of default by any other
party under or any breach or violation by any other party of, any material
contract, commitment, or restriction to which CustomWare is bound or by which
any of its properties is bound, where such defaults, breaches, or violations
would, in the aggregate, have a Material Adverse Effect on the operations,
assets, financial condition or prospects of CustomWare.
(p) All agreements, contracts and commitments (the "Material
Contracts") listed or described in the CustomWare Disclosure Schedule pursuant
to this Section 3.12 are assumable, or will otherwise be the property of, the
Surviving Corporation following the Merger without further action by the
Surviving Corporation or Visigenic. If any of the Material Contracts are not
assumable by or will not be the property of, the Surviving Corporation following
the Merger, then CustomWare has described in the CustomWare Disclosure Schedule
such actions as is necessary for assumption of the Material Contract by the
Surviving Corporation.
3.13 Orders, Commitments and Returns. All accepted and unfilled
-------------------------------
orders entered into by CustomWare for the sale, license, or lease or other
disposition by CustomWare of its products, and all agreements, contracts, or
commitments for the purchase of supplies by CustomWare, were made in the
ordinary course of business. No outstanding purchase or outstanding lease
commitment of CustomWare is in excess of the normal, ordinary and usual
requirements of its business or was made at any price (on both a per unit and
aggregate basis) materially in excess of the current market price at the time
made, or contains terms and conditions materially more onerous to CustomWare
than those usual and customary in the industry.
3.14 Compliance With Law. CustomWare is in compliance with all
-------------------
applicable laws and regulations except where such failure would not have a
Material Adverse Effect. Neither CustomWare nor, to the best of CustomWare's
knowledge, any of its employees has directly or indirectly paid or delivered any
fee, commission or other sum of money or item of property, however
13
characterized, to any finder, agent, government official or other party in the
United States or any other country, that was or is in violation of any federal,
state, or local statute or law or of any statute or law of any other country
having jurisdiction. CustomWare has not participated directly or indirectly in
any boycotts or other similar practices affecting any of its customers.
CustomWare has complied at all times with any and all applicable federal, state
and foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products.
3.15 Labor Difficulties; No Discrimination.
-------------------------------------
(a) CustomWare is not engaged in any unfair labor practice and is not
in material violation of any applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint against CustomWare
actually pending or to CustomWare's best knowledge threatened before the
National Labor Relations Board.
(c) There is no strike, labor dispute, slowdown, or stoppage actually
pending or to CustomWare's best knowledge, threatened against CustomWare.
(d) No union representation question exists respecting the employees
of CustomWare and, to CustomWare's best knowledge, no union organizing
activities are taking place.
(e) No grievance that might have an adverse effect on CustomWare or
the conduct of its business, nor any arbitration proceeding arising out of or
under any collective bargaining agreement is pending and, to CustomWare's best
knowledge, no claims therefor exist.
(f) No collective bargaining agreement that is binding on CustomWare
restricts it from relocating or closing any of its operations.
(g) CustomWare has not experienced any material work stoppage or
other material labor difficulty.
(h) There is and has been no claim against CustomWare based on actual
or alleged race, age, sex, disability or other harassment or discrimination, or
similar tortious conduct, nor, to CustomWare's best knowledge, is there any
basis for any such claim.
3.16 Trade Regulation. CustomWare has not terminated its relationship
----------------
with or refused to ship CustomWare Products to any dealer, distributor, OEM,
third party marketing entity or customer which had theretofore paid or been
obligated to pay CustomWare in excess of Ten Thousand Dollars ($10,000) over any
consecutive twelve (12) month period. All of the prices charged by CustomWare
in connection with the marketing or sale of any products or services have been
in compliance with all applicable laws and regulations. No claims have been
communicated or, to the best of CustomWare's knowledge, threatened against
CustomWare with respect to wrongful termination of any dealer, distributor or
any other marketing entity, discriminatory pricing, price fixing, unfair
competition, false advertising, or any other violation of any laws or
regulations relating to anti-competitive practices or unfair trade practices of
any kind, and no specific situation, set of facts, or occurrence provides any
basis for any such claim.
3.17 Insider Transactions. No Affiliate of CustomWare has any
--------------------
interest in (i) any material equipment or other property, real or personal,
tangible or intangible, including, without limitation, any item of intellectual
property, used in connection with or pertaining to the business of CustomWare,
or (ii) any creditor, supplier, customer, manufacturer, agent, representative,
or distributor of products of CustomWare; provided, however, that no such
Affiliate or other person shall
14
be deemed to have such an interest solely by virtue of the ownership of less
than one percent (1%) of the outstanding stock or debt securities of any
publicly-held company, the stock or debt securities of which are traded on a
recognized stock exchange or quoted on the NNM.
3.18 Employees, Independent Contractors and Consultants. The
--------------------------------------------------
CustomWare Disclosure Schedule lists and describes all currently effective
consulting, independent contractor and/or employment agreements and other
material agreements concluded with individual employees, independent contractors
or consultants to which CustomWare is a party. True and correct copies of all
such written agreements have been provided to Visigenic or its representatives.
All salaries and wages paid by CustomWare are in compliance with applicable
federal, state and local laws. CustomWare shall disclose in writing to
Visigenic the annual rate of compensation, including bonuses and other payments
of any kind of all employees. CustomWare's aggregate accrued vacation and
severance pay as of October 31, 1996, was approximately Eighteen Thousand One
Hundred Seventy Three Dollars ($18,173).
3.19 Insurance. The CustomWare Disclosure Schedule contains a list of
---------
the principal policies of fire, liability and other forms of insurance held by
CustomWare.
3.20 Litigation. There are no suits, actions or proceedings pending
----------
or, to CustomWare's best knowledge, threatened against or affecting CustomWare
or which questions or challenges the validity of this Agreement. There is no
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against CustomWare.
3.21 Governmental Authorizations and Regulations. All licenses,
-------------------------------------------
franchises, permits and other governmental authorizations held by CustomWare and
material to its business are valid and sufficient for the business presently
carried on by CustomWare. The business of CustomWare is not being conducted in
violation of any law, ordinance or regulation of any governmental entity, except
for violations which either singly or in the aggregate do not and will not have
a Material Adverse Effect on the operations, assets or financial condition of
CustomWare.
3.22 Subsidiaries. CustomWare has no subsidiaries. CustomWare does
------------
not own or control (directly or indirectly) any capital stock, bonds or other
securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or business
organization, entity or enterprise, and CustomWare does not control (directly or
indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
3.23 Compliance with Environmental Requirements.
------------------------------------------
(a) As of the date hereof, to the best knowledge of CustomWare,
no underground storage tanks are present under any property that CustomWare has
at any time owned, operated, occupied or leased. As of the date hereof, except
as set forth in the CustomWare Disclosure Schedule, no Material amount of any
substance that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous
substances pursuant to the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant
to the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws (a "Hazardous Material"),
are present as a result of the actions of CustomWare, or any actions of any
third party or otherwise, in, on or under any property, including the land and
the improvements, ground water and surface water, that CustomWare has at any
time owned, operated, occupied or leased.
15
(b) At no time has CustomWare transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, nor has CustomWare disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (collectively, "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity to prohibit, regulate or control Hazardous Materials
or any Hazardous Material Activity.
(c) CustomWare currently holds all environmental approvals,
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of its Hazardous Material Activities and other
businesses of CustomWare as such activities and businesses are currently being
conducted, the absence of which would be reasonably likely to result in fines to
CustomWare in excess of Five Thousand Dollars ($5,000).
(d) No action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending or, to the best knowledge of
CustomWare, threatened concerning any Environmental Permit or any Hazardous
Material Activity of CustomWare. CustomWare is not aware of any fact or
circumstance which could involve CustomWare in any environmental litigation or
impose upon CustomWare any environmental liability which would be reasonably
likely to exceed Five Thousand Dollars ($5,000).
3.24 Corporate Documents. CustomWare has furnished to Visigenic for
-------------------
its examination: (i) copies of its Articles of Incorporation and Bylaws; (ii)
its Minute Book containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the shareholders, the board of
directors and any committees thereof; (iii) all permits, orders, and consents
issued by any regulatory agency with respect to CustomWare, or any securities of
CustomWare, and all applications for such permits, orders, and consents; and
(iv) the stock transfer books of CustomWare setting forth all transfers of any
capital stock. The corporate minute books, stock certificate books, stock
registers and other corporate records of CustomWare are complete and accurate in
all material respects, and the signatures appearing on all documents contained
therein are the true signatures of the persons purporting to have signed the
same. All actions reflected in such books and records were duly and validly
taken in compliance with the laws of the applicable jurisdiction.
3.25 No Brokers. Neither CustomWare nor, to the best of CustomWare's
----------
knowledge, any CustomWare shareholder is obligated for the payment of fees or
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Certificate of Merger or in connection with
any transaction contemplated hereby or thereby.
3.26 Disclosure. No statements by CustomWare contained in this
----------
Agreement and the Exhibits attached hereto, any other Transaction Document or
any written statement or certificate furnished or to be furnished pursuant
hereto or in connection with the transactions contemplated hereby and thereby
(when read together) contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
4. Representations and Warranties of Visigenic. Except as otherwise set
-------------------------------------------
forth in the "Visigenic Disclosure Schedule" provided to CustomWare on the date
hereof, Visigenic represents and warrants to CustomWare as set forth below. No
fact or circumstance disclosed to CustomWare shall constitute an exception to
these representations and warranties unless such fact or circumstance is set
forth in the Visigenic Disclosure Schedule or such supplements thereto as may
mutually be agreed upon in writing by Visigenic and CustomWare.
4.1 Organization. Visigenic is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware, and has
corporate power and authority to carry on its businesses as it is now being
conducted. Visigenic is duly qualified or licensed to do
16
business and in good standing in each jurisdiction in which the nature of its
business or properties makes such qualification or licensing necessary except
where the failure to be so qualified would not have a Material Adverse Effect on
Visigenic. The Visigenic Disclosure Schedule contains a true and complete
listing of the locations of all sales offices, manufacturing facilities, and any
other offices or facilities of Visigenic and a true and complete list of all
states in which Visigenic maintains any employees. The Visigenic Disclosure
Schedule contains a true and complete list of all states in which Visigenic is
duly qualified to transact business as a foreign corporation. True and complete
copies of Visigenic's Certificate of Incorporation, and its Bylaws, as in effect
on the date hereof and as to be in effect as of the Closing, have been provided
to CustomWare or its representatives.
4.2 Capitalization.
--------------
(a) The authorized capital of Visigenic consists of 2,000,000
shares of preferred stock, $.001 par value (the "Preferred Stock"), and
50,000,000 shares of common stock, $.001 par value ("Common Stock"). As of
November 29, 1996, (i) 12,574,589 shares of Visigenic Common Stock were issued
and outstanding, all of which are duly authorized, validly issued, fully paid
and nonassessable; and (ii) an aggregate of 3,350,000 shares of Visigenic Common
Stock were reserved for issuance pursuant to stock options granted and
outstanding under the Visigenic 1995 Stock Option Plan, the Visigenic 1996
Outside Director Stock Option Plan, the Visigenic 1996 Employee Stock Purchase
Plan and the Visigenic Executive Performance Incentive Plan.
(b) Visigenic does not have outstanding any preemptive or
subscription rights, options, warrants, rights to convert or exchange, capital
stock equivalents, or other rights to purchase or otherwise acquire any of
Visigenic's capital stock or other securities. Except for stock options granted
or exercised since November 29, 1996, Visigenic does not have any other shares
of its capital stock issued or outstanding and does not have any outstanding
subscriptions, options, warrants, rights or other agreements or commitments
obligating Visigenic to issue shares of its capital stock or other securities.
(c) All of the issued and outstanding shares of Visigenic's
capital stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, and all warrants and options to purchase
capital stock of Visigenic have been issued in full compliance with all
applicable federal and state securities laws. None of Visigenic's issued and
outstanding shares of capital stock, or options or rights to purchase capital
stock of Visigenic, is subject to repurchase or redemption rights. There have
not been and are not outstanding any adjustments made or required to be made to
the conversion prices set forth in Visigenic's current Certificate of
Incorporation. All of Visigenic's options have been issued in accordance with
its current stock option plan and in accordance with all state securities laws.
(d) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of Visigenic's capital stock.
(e) Visigenic is not under any obligation to register under the
Securities Act any shares of its capital stock or any other of its securities
that might be issued in the future if the Merger were not consummated.
(f) Visigenic is not a party or subject to any agreement or
understanding (and, to the best of Visigenic's knowledge, there is no agreement
or understanding between or among any persons) that affects or relates to the
voting or giving of written consent with respect to any security.
4.3 Power, Authority and Validity. Visigenic has the corporate power
-----------------------------
to enter into this Agreement and the other Transaction Documents to which it is
a party and to carry out its
17
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of Visigenic, and, on the Closing Date, by the stockholders of
Visigenic, and no other corporate proceedings on the part of Visigenic are
necessary to authorize this Agreement, the other Transaction Documents and the
transactions contemplated herein and therein. Visigenic is not subject to or
obligated under any charter, bylaw or contract provision or any license,
franchise or permit, or subject to any order or decree, which would be breached
or violated by or in conflict with their executing and carrying out this
Agreement and the transactions contemplated hereunder and under the Transaction
Documents. Except for (i) the filing of a certificate of merger with the
Secretary of State of the State of Delaware, and (ii) filings under applicable
securities laws, no consent of any person who is a party to a contract which is
material to Visigenic's business, nor consent of any governmental authority, is
required to be obtained on the part of Visigenic to permit the transactions
contemplated herein and continue the business activities of Visigenic as
previously conducted by Visigenic without material adverse change. This
Agreement is, and the other Transaction Documents when executed and delivered by
Visigenic shall be, the valid and binding obligations of Visigenic enforceable
in accordance with their respective terms.
4.4 Commission Filings; Financial Statements.
----------------------------------------
(a) Visigenic has filed all forms, reports and documents required
to be filed by Visigenic with the Commission since August 8, 1996 (collectively,
the "Visigenic Commission Reports") and has made such Visigenic Commission
Reports available to CustomWare. The Visigenic Commission Reports (i) at the
time filed, complied in all material respects with the applicable requirements
of the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and (ii) 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 in such
Visigenic Commission Reports or necessary in order to make the statements in
such Visigenic Commission Reports, in the light of the circumstances under which
they were made, not misleading.
(b) Each of the financial statements (including, in each case,
any related notes) contained in the Visigenic Commission Reports, including any
Visigenic Commission Reports filed after the date of this Agreement until the
Effective Time, complied or will comply as to form in all material respects with
the applicable published rules and regulations of the Commission with respect
thereto, was or will be prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by the Commission) and fairly presented or will present the financial
position of Visigenic as at the respective dates and the results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring year-
end adjustments which were not or are not expected to be material in amount. The
audited year-end financial statement of Visigenic as of March 31, 1996 and the
unaudited interim financial statements for the quarter ended September 30, 1996
are referred to herein as the "Visigenic Financial Statements." The date of the
Visigenic Financial Statements shall be the date of the latest interim balance
sheet contained therein, unless otherwise specified.
(c) Visigenic has heretofore furnished or made available to
CustomWare a complete and correct copy of any amendments or modifications which
have not yet been filed with the Commission but which are required to be filed,
to agreements, documents or other instruments which previously had been filed by
Visigenic with the Commission pursuant to the Securities Act or the Exchange
Act.
18
4.5 Tax Free Reorganization.
-----------------------
(a) Neither Visigenic nor, to the best of its knowledge, any
Visigenic stockholder has taken or agreed to take any action that would prevent
the Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
(b) Visigenic is not an investment company as defined in Sections
368(a)(2)(F)(iii) and (iv) of the Code.
4.6 No Undisclosed Liabilities. Visigenic does not have any
--------------------------
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with GAAP), and whether due or
to become due, which individually or in the aggregate, would be reasonably
likely to have a Material Adverse Effect on Visigenic other than (i) liabilities
reflected in the Visigenic's financial statements, (ii) liabilities specifically
described in this Agreement or the Visigenic Disclosure Schedule, and (iii)
normal or recurring liabilities incurred since the date of Visigenic's financial
statements in the ordinary course of business consistent with past practices.
5. Preclosing Covenants.
--------------------
5.1 Material Consents. CustomWare shall exert reasonable, good faith
-----------------
commercial efforts to obtain any and all consents necessary for the assumption
of the Material Contracts by Visigenic concurrent with the Merger as described
in the Disclosure Schedule pursuant to Section 31.2 (the "Material Consents").
5.2 Employment Agreements, Other Commitments Terminated. Prior to
---------------------------------------------------
the Closing, all employment agreements to which CustomWare is a party shall be
reviewed by CustomWare and Visigenic and, as agreed between them, either
terminated prior to the Closing, or assumed by Visigenic at the Closing, with
such modifications as may be acceptable to CustomWare, Visigenic and the
employee party to such agreement. As of the Closing, any obligation of
CustomWare to issue options, stock or warrants to any employee or consultant of
CustomWare to whom such options, stock or warrants have been offered or promised
shall have been fulfilled to the mutual satisfaction of Visigenic and
CustomWare.
5.3 Advice of Changes.
-----------------
(a) CustomWare will promptly advise Visigenic in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation or warranty of CustomWare contained in this Agreement, if
made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect and (ii) of any material adverse change in
CustomWare's business, taken as a whole.
(b) Visigenic will promptly advise CustomWare in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation or warranty of Visigenic contained in this Agreement, if made
on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect and (ii) of any material adverse change in Visigenic's
business, taken as a whole.
5.4 Conduct of Business. Until the Closing, CustomWare will continue
-------------------
to conduct its business and maintain its business relationships in the ordinary
and usual course and will not, without the prior written consent of Visigenic:
(a) borrow any money which borrowings exceed in the aggregate Ten
Thousand Dollars ($10,000);
19
(b) incur or commit to incur any capital expenditures in excess
of Ten Thousand Dollars ($10,000) in the aggregate;
(c) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, intellectual property right or other property associated
with the business of CustomWare (including sales or transfers to Affiliates of
CustomWare), except for sales of inventory in the usual and ordinary course of
business;
(d) dispose of any of its assets, except inventory in the regular
and ordinary course of business;
(e) enter into any lease or contract for the purchase or sale of
any property, real or personal except in the ordinary course of business;
(f) pay any bonus, increased salary, or special remuneration to
any officer or employee, including any amounts for accrued but unpaid salary or
bonuses (other than amounts not in excess of normal payments made on a regular
basis);
(g) change accounting methods;
(h) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock;
(i) amend or terminate any contract, agreement or license to
which it is a party except in the ordinary course of business;
(j) loan any amount to any person or entity, or guaranty or act
as a surety for any obligation;
(k) issue or sell any shares of its capital stock of any class or
any other of its securities, or issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments to issue
shares of capital stock, other than stock options granted as part of existing
stock option program or pursuant to any recapitalization plan disclosed to and
approved by Visigenic in its discretion (a "Recapitalization Plan");
(l) split or combine the outstanding shares of its capital stock
of any class or enter into any recapitalization affecting the number of
outstanding shares of its capital stock of any class or affecting any other of
its securities;
(m) amend its Articles of Incorporation or Bylaws except as
necessary to carry out a Recapitalization Plan;
(n) make or change any election, change any annual accounting
period, adopt or change any accounting method, file any amended tax return,
enter into any closing agreement, settle any tax claim or assessment, surrender
any right to claim refund of taxes, consent to any extension or waiver of the
limitation period applicable to any tax claim or assessment, or take any other
action or omit to take any action, if any such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other action or omission
would have the effect of increasing the tax liability of CustomWare or
Visigenic;
(o) do anything that would cause there to be material adverse
changes in its Financial Statements (with such Financial Statements analyzed as
if it had been prepared according to GAAP, and including but not limited to cash
distributions or material decreases in the net assets of CustomWare or
Visigenic), except as would occur in the ordinary course of CustomWare's or
20
Visigenic's business, between the date of the CustomWare Unaudited Financials or
the Visigenic Financial Statements, respectively, and the Closing Date; or
(p) agree to do any of the things described in the preceding
clauses Section 5.4(a) through (p).
6. Additional Covenants.
--------------------
6.1 No Public Announcement. Visigenic and CustomWare shall consult
----------------------
with each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or the requirements of the NNM.
6.2 Other Negotiations. Between the date hereof and the Closing, or
------------------
such earlier date as Visigenic and CustomWare mutually agree to discontinue
discussions of the Merger (the "Expiration Date"), neither Visigenic nor
CustomWare will take any action to solicit, initiate, seek, encourage or support
any inquiry, proposal or offer from, furnish any information to, or participate
in any negotiations with, any corporation, partnership, person or other entity
or group (other than discussions pursuant to this Agreement) regarding any
acquisition, any merger or consolidation with or involving CustomWare, or any
acquisition of any material portion of the stock or assets. CustomWare and
Visigenic agree that any such negotiations in progress as of the date hereof
will be terminated or suspended during such period.
6.3 Due Diligence, Investigation, and Audits. At such time prior to
----------------------------------------
the Closing as may be reasonably requested, each party shall make available to
the other party and the other party's employees, agents and representatives all
information concerning the operation, business and prospects of such party as
may be reasonably requested by the other party, including, without limitation,
making the working papers of such party's independent certified public
accountants available for inspection by the other party's independent certified
public accountants. Each party will cooperate with the other party for the
purpose of permitting the other party to discuss such party's business and
prospects with such party's customers, creditors, suppliers and other persons
having business dealings with such party. Unless otherwise required by law, the
parties will hold any such information which is nonpublic in confidence and will
not disclose such information to third parties. No information or knowledge
obtained in any investigation pursuant to this Section 6.3 shall affect or be
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
6.4 Regulatory Filings; Consents; Reasonable Efforts. Subject to the
------------------------------------------------
terms and conditions of this Agreement, CustomWare and Visigenic shall use their
respective best efforts to (i) make all necessary filings with respect to the
Merger and this Agreement under the Securities Act, and applicable blue sky or
similar securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto and shall supply all additional
information requested in connection therewith; (ii) make merger notification or
other appropriate filings with federal, state or local governmental bodies or
applicable foreign governmental agencies and shall use all reasonable efforts to
obtain required approvals and clearances with respect thereto and shall supply
all additional information requested in connection therewith; (iii) obtain all
consents, waivers, approvals, authorizations and orders required in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Merger; and (iv) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
21
6.5 Nasdaq Quotation. Visigenic shall cause the shares of Visigenic
----------------
Common Stock to be issued in the Merger to be approved for quotation on the NNM,
subject to official notice of issuance, prior to the Closing Date.
6.6 Further Assurances. Prior to and following the Closing, each
------------------
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
6.7 Brokers or Finders. Each of Visigenic and CustomWare represents,
------------------
as to itself and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, and each of Visigenic and
CustomWare agrees to indemnify and hold the other harmless from and against any
and all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its Affiliate.
6.8 Registration on Form S-3.
------------------------
(a) As soon as practicable after Visigenic becomes eligible to
file a registration statement on Form S-3 (or any successor form to Form S-3),
and not more than thirty (30) days thereafter, Visigenic shall file a
registration statement on Form S-3 (or any successor form to Form S-3) with
respect to shares of Visigenic Common Stock issued in the Merger, including the
CustomWare Escrow Shares, and any shares of Visigenic Common Stock issued as a
dividend, stock split or distribution on such shares (collectively, the
"Shares") (such registration statement and any successor or substitute
registration statement herein the "Registration Statement"). Visigenic shall use
its best efforts to cause such Registration Statement to become effective as
promptly as practicable and to maintain the effectiveness of the Registration
Statement (and to maintain the current status of the prospectus contained
therein) for a period of ninety (90) days; provided, however, that the right of
-------- -------
the Shareholder to resell the Shares pursuant to the Registration Statement
shall be suspended, unless otherwise agreed by Visigenic, whenever Visigenic's
"insiders," as this term is defined in Visigenic's ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Policy, are
restricted from trading capital stock of Visigenic (a "Restricted Period"),
provided that Visigenic has notified the Shareholder in writing of the
--------
commencement of the applicable Restricted Period, provided further that, unless
-------- -------
the Shareholder receives prior written notice from Visigenic to the contrary,
the Shareholder shall be deemed to have received notice of the commencement of a
Restricted Period as of the first day of the third month of each fiscal quarter
of Visigenic and expiration of such Restricted Period at the commencement of the
third full trading day following release of Visigenic's financial results for
such fiscal quarter (or results for the fiscal year in the case of the fourth
fiscal quarter of each year). Visigenic shall have the affirmative right to
suspend the effectiveness of the Registration Statement during any and all
Restricted Periods in accordance with this subsection 6.8. Visigenic will
provide written notice to the Shareholder promptly after the applicable
Restricted Period expires. It shall be a condition precedent to the right of the
Shareholder to sell Shares under the Registration Statement that the Shareholder
shall have furnished to Visigenic such information regarding himself, the
Visigenic Common Stock held by him and the intended method of distribution of
such securities as shall be required to be included in the Registration
Statement with respect to such Shares. Visigenic shall provide the Shareholder
with copies of each Registration Statement, each amendment or supplement
thereto, and the prospectus contained therein (as amended and or supplemented)
in such numbers as the Shareholder may reasonably request.
(b) Visigenic shall indemnify and hold harmless the Shareholder
against any losses, claims, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in the settlement of any
litigation, commenced or threatened, to which he may be subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims,
22
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (A) any untrue statement (or alleged untrue statement) of any material fact
contained in the Registration Statement or the prospectus contained therein, or
(B) any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or (C) any violation by Visigenic of the Securities Act or any blue sky law or
any other statute or common law, or any rule or regulation promulgated under the
Securities Act or any blue sky law or any other law, applicable to Visigenic in
connection with the filing of the Registration Statement and the prospectus
contained therein, and shall reimburse each such person entitled to
indemnification under this Section 6.8 for any legal or other expenses
reasonably incurred by such person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that
Visigenic shall not be liable to any such person in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any untrue statement (or alleged untrue statement unless it is ultimately
determined that such alleged untrue statement is not actionable) or omission (or
alleged omission unless it is ultimately determined that such alleged omission
is not actionable) made in the Registration Statement or the prospectus
contained therein in reliance upon and in conformity with written information
furnished to Visigenic by such person, specifically for use therein. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of the person seeking indemnification
and shall survive transfer of the underlying securities by the Shareholder.
(c) The Shareholder agrees to indemnify Visigenic against any losses,
claims, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in the settlement of any litigation, commenced or
threatened, joint or several, to which any of them may become subject under the
Securities Act or under any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement (or alleged untrue statement) of any
material fact contained in the Registration Statement, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) was made in the Registration Statement or the prospectus in
reliance upon and in conformity with written information furnished to Visigenic
by the Shareholder specifically for use therein, and to reimburse such persons
for any legal or other expense reasonably incurred in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided that the Shareholder's total liability under any indemnity given
pursuant to this Section 6.8 shall not exceed the gross proceeds received by the
Shareholder from the sale of stock pursuant to the registration. The
indemnification provided for herein shall remain in full force and effect
regardless of any investigation made by or on behalf of the person seeking
indemnification and shall survive transfer of the underlying securities by the
Shareholder.
(d) Notice of Claim. Each party entitled to indemnification under
---------------
this Section 6.8 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has written notification of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefor, provided that
the Indemnified Party may participate in such defense at the Indemnified party's
expense. The failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
6.8, except to the extent the Indemnifying Party can show it was damaged by a
failure or unreasonable delay in giving such notice. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation.
23
7. Closing Matters.
---------------
7.1 Filing of Certificate of Merger. On the date of the Closing, but
-------------------------------
not prior to the Closing, the Certificate of Merger shall be filed with the
offices of the Secretary of State of the State of Delaware and the merger of
CustomWare with and into Visigenic shall be consummated.
7.2 Approvals. All authorizations, consents, orders or approvals of,
---------
or declarations or filings with, or expirations of waiting periods imposed by,
any governmental entity the failure of which to obtain would be reasonably
likely to have a Material Adverse Effect on CustomWare or Visigenic shall have
been filed, occurred or been obtained.
7.3 Security Law Compliance. Visigenic and CustomWare shall have
-----------------------
agreed to register the Visigenic Common Stock issued in connection with the
Merger as provided for in Section 6.8.
7.4 No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or restricting
Visigenic's conduct or operation of the business of Visigenic after the Merger
shall have been issued, nor shall any proceeding brought by a domestic
administrative agency or commission or other domestic governmental entity,
seeking any of the foregoing be pending; nor shall there be any action taken, or
any statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal.
7.5 Blue Sky Laws. Visigenic shall have received all state
-------------
securities or "blue sky" permits and other authorizations necessary to issue
shares of Visigenic Common Stock pursuant to the Merger.
7.6 Delivery of Documents. At the Closing, the parties shall deliver
---------------------
the documents, and shall perform the acts, which are set forth in Section 8 and
Section 9, as specified in such Sections, including delivery of the counterpart
signature pages of the Transaction Documents executed by CustomWare and/or
Visigenic, as the case may be. All documents which CustomWare shall deliver or
cause to be delivered shall be in form and substance reasonably satisfactory to
Visigenic. All documents which Visigenic shall deliver or cause to be delivered
shall be in form and substance reasonably satisfactory to CustomWare.
8. Conditions to CustomWare's Obligations. CustomWare's obligations to
--------------------------------------
close the transactions contemplated under this Agreement are subject to the
fulfillment or satisfaction on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by CustomWare, but only in a
writing signed by CustomWare):
8.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Visigenic set forth in Section 4 shall be true on and as of
the Closing with the same force and effect as if they had been made at the
Closing, and CustomWare shall receive a certificate to such effect from an
officer of Visigenic.
8.2 Covenants. Visigenic shall have performed and complied with all
---------
of its covenants contained in Sections 5 and 6 on or before the Closing, and
CustomWare shall receive a certificate from Visigenic to such effect signed by
an officer of Visigenic.
8.3 No Litigation. No litigation or proceeding shall be threatened
-------------
or pending against Visigenic with the purpose or with the probable effect of
enjoining or preventing the consummation of any of the transactions contemplated
by this Agreement, and CustomWare shall receive a certificate to such effect
signed by an officer of Visigenic.
24
8.4 Authorizations. CustomWare shall have received from Visigenic
--------------
written evidence that the execution, delivery and performance of Visigenic's
obligations under this Agreement and the Certificate of Merger have been duly
and validly approved and authorized by the Board of Directors of Visigenic.
8.5 Government Consents. There shall have been obtained at or prior
-------------------
to the date of Closing such permits or authorizations, and there shall have been
taken such other action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken.
8.6 Bonus Agreement. Shareholder and Visigenic shall have entered
---------------
into a Bonus Agreement.
8.7 No Adverse Development. There shall not have been any material
----------------------
adverse changes in the financial condition, results of operations, assets,
liabilities, business or prospects of Visigenic since the date of this
Agreement.
8.8 Date of Closing. The Closing shall have occurred not later than
---------------
December 3, 1996, or such later date as the parties may mutually agree.
8.9 Opinion of Visigenic's Counsel. At the Closing, CustomWare shall
------------------------------
have received from counsel to Visigenic, an opinion dated the Closing Date in
form and substance satisfactory to CustomWare.
8.10 Filing of Certificate of Merger. As of the Closing, the
-------------------------------
Certificate of Merger shall have been filed with the Secretary of State of the
State of Delaware.
9. Conditions to Visigenic's Obligations. The obligations of Visigenic
-------------------------------------
are subject to the fulfillment or satisfaction on and as of the Closing, of each
of the following conditions (any one or more of which may be waived by
Visigenic, but only in a writing signed by Visigenic):
9.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of CustomWare contained in Section 3 shall be true on and as of
the Closing with the same force and effect as if they had been made at the
Closing, and Visigenic shall receive a certificate from CustomWare to such
effect with respect to the representations and warranties of CustomWare executed
by the President of CustomWare.
9.2 Covenants. CustomWare shall have performed and complied with all
---------
of its covenants contained in Sections 5 and 6 on or before the Closing, and
Visigenic shall receive a certificate from CustomWare to such effect signed by
the President of CustomWare.
9.3 No Litigation. No litigation or proceeding shall be threatened
-------------
or pending against CustomWare for the purpose or with the probable effect of
enjoining or preventing the consummation of any of the transactions contemplated
by this Agreement, or which would have a Material Adverse Effect on the
business, liabilities, income, property, operations or prospects of CustomWare
subsequent to the Closing (and no judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
arbitrator shall be outstanding against CustomWare) and Visigenic shall receive
a certificate from CustomWare to such effect signed by the President of
CustomWare.
9.4 Authorizations. Visigenic shall have received from CustomWare
--------------
written evidence that the execution, delivery and performance of this Agreement
and the Certificate of Merger have been duly and validly approved and authorized
by its Board of Directors and by the Shareholder.
25
Visigenic shall have received a certificate from CustomWare to such effect
signed by the President of CustomWare.
9.5 Required Consents. Visigenic shall have received all written
-----------------
consents, assignments, waivers, authorizations or other certificates (including
Material Consents) reasonably deemed necessary by Visigenic's legal counsel to
provide for the continuation in full force and effect or assignment or
termination of any and all contracts and leases of CustomWare.
9.6 Government Consents. There shall have been obtained at or prior
-------------------
to the date of the Closing such permits or authorizations and there shall have
been taken such other action, as may be required by any regulatory authority
having jurisdiction over the parties and the subject matter and the actions
herein proposed to be taken.
9.7 Due Diligence. The results of Visigenic's business, technology,
-------------
legal and accounting due diligence with respect to CustomWare shall have been
satisfactory to Visigenic, in the reasonable exercise of Visigenic's discretion.
9.8 Bonus Agreement. Shareholder and Visigenic shall have entered
---------------
into a Bonus Agreement.
9.9 Lockup Agreement. The Shareholder shall have entered into a
----------------
lockup agreement with the Company, a form of which is attached hereto as Exhibit
-------
B.
-
9.10 Non-Compete and Non-Solicitation Agreement. The Shareholder
------------------------------------------
shall have entered into a Non-Compete and Non-Solicitation Agreement with the
Company.
9.11 Offers of Employment Accepted. Current employees of CustomWare,
-----------------------------
designated by Visigenic to be the Shareholder and ▇▇. ▇▇▇▇▇ and ▇▇. ▇▇▇▇▇▇▇,
shall have accepted offers to be employed by Visigenic after the Merger.
9.12 Transfer of Automobile. CustomWare shall have transferred the
----------------------
Lexus automobile used by the Shareholder to the Shareholder.
9.13 No Adverse Development. There shall not have been any material
----------------------
adverse changes in the financial condition, results of operations, assets,
liabilities, business or prospects of CustomWare since the date of this
Agreement.
9.14 Date of Closing. The Closing shall have occurred not later than
---------------
December 3, 1996, or such later date as the parties may mutually agree.
9.15 Opinion of CustomWare's Counsel. At the Closing, Visigenic shall
-------------------------------
have received from counsel to CustomWare, an opinion dated the Closing Date in
form and substance satisfactory to Visigenic.
9.16 Litigation; Violation of Law. As of the Closing, (i) no
----------------------------
litigation or proceeding shall be threatened or pending against Visigenic for
the purpose or with the probable effect of enjoining or preventing the
consummation of any of the transactions contemplated by this Agreement and (ii)
the consummation of the transactions contemplated by this Agreement shall not
result in a material violation of any applicable federal or state law or
regulation.
9.17 Filing of Certificate of Merger. As of the Closing, the
-------------------------------
Certificate of Merger shall have been filed with the Secretary of State of the
State of Delaware.
26
10. Termination of Agreement.
------------------------
10.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing by the mutual written consent of each of the parties hereto.
This Agreement may also be terminated and abandoned:
(a) By Visigenic if any of the conditions precedent to
Visigenic's obligations to effect the Merger specified in Section 9 hereof,
shall not have been fulfilled at and as of the Closing.
(b) By CustomWare if any of the conditions precedent to
CustomWare's obligations to effect the Merger, specified in Section 8 hereof,
shall not have been fulfilled at and as of the Closing.
(c) By either CustomWare or Visigenic, if the Merger is not
effected by December 3, 1996.
(d) By mutual written consent of Visigenic or CustomWare; or
(e) By either Visigenic or CustomWare, if a court of competent
jurisdiction or other governmental entity shall have issued a nonappealable
final order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger.
Any termination of this Agreement under this Section 10.1 shall be effected
by the delivery of written notice of the terminating party to the other parties
hereto.
10.2 Liability for Termination. Any termination of this Agreement
-------------------------
pursuant to this Section 10 shall be without further obligation or liability
upon any party in favor of any other party hereto; provided, that if such
termination shall result from the willful failure of a party to carry out its
obligations under this Agreement, then such party shall be liable for losses
incurred by the other parties. The provisions of this Section 10.2 shall
survive termination.
10.3 Certain Effects of Termination. In the event of the termination
------------------------------
of this Agreement by either CustomWare or Visigenic as provided in Section 10.1
hereof:
(a) each party, if so requested by the other party, will (i)
return promptly every document (other than documents publicly available)
furnished to it by the other party (or any subsidiary, division, associate or
affiliate of such other party) in connection with the transactions contemplated
hereby, whether so obtained before or after the execution of this Agreement, and
any copies thereof which may have been made, and will cause its representatives
and any representatives of financial institutions and investors and others to
whom such documents were furnished promptly to return such documents and any
copies thereof any of them may have made, or (ii) destroy such documents and
cause its representatives and such other representatives to destroy such
documents, and such party shall deliver a certificate executed by its president
or vice president stating to such effect.
10.4 Remedies. No party shall be limited to the termination right
--------
granted in Section 10.1 hereto by reason of the nonfulfillment of any condition
to such party's closing obligations but may, in the alternative, elect to do one
of the following:
(a) proceed to close despite the nonfulfillment of any closing
condition, it being understood that consummation of the transactions
contemplated hereby shall be deemed a waiver of any misrepresentation or breach
of warranty or covenant and of any party's rights and
27
remedies with respect thereto to the extent that the other party shall have
actual knowledge of such misrepresentation or breach and the Closing shall
nonetheless take place; or
(b) decline to close, terminate this Agreement as provided in
Section 10.1 hereof, and thereafter seek damages to the extent permitted in
Section 10.5 hereof.
10.5 Right to Damages. If this Agreement is terminated pursuant to
----------------
Section 10.1 hereof, neither party hereto shall have any claim against the other
except if the circumstances giving rise to such termination were caused by the
other party's willful failure to comply with a material covenant set forth
herein, in which event the following applies:
(a) If CustomWare terminates this Agreement as a result of a
wilful breach by Visigenic of one or more of the covenants contained in Sections
5 or 6 hereof, CustomWare and Visigenic each agrees that it would be
impracticable and/or extremely difficult to fix or establish the actual damages
sustained by CustomWare, and that One Hundred Thousand Dollars ($100,000.00)
(the "Damages") is a reasonable approximation of such damages considering all of
the circumstances existing as of the date hereof. Accordingly, in the event
CustomWare terminates this Agreement by reason of Visigenic's wilful breach of
the covenants contained in Sections 5 or 6 hereof, the Damages shall
constitute and be deemed to be the agreed and liquidated damages of CustomWare
and shall be paid by Visigenic to CustomWare as CustomWare's sole and exclusive
remedy.
(b) If Visigenic terminates this Agreement as a result of a
wilful breach by CustomWare of one or more of the covenants contained in
Sections 5 or 6 hereof, CustomWare and Visigenic each agrees that it would be
impracticable and/or extremely difficult to fix or establish the actual damages
sustained by Visigenic, and that the Damages is a reasonable approximation of
such damages considering all of the circumstances existing as of the date
hereof. Accordingly, in the event Visigenic terminates this Agreement by reason
of CustomWare's wilful breach of the covenants contained in Sections 5 or 6
hereof, the Damages shall constitute and be deemed to be the agreed and
liquidated damages of Visigenic and shall be paid by CustomWare to Visigenic as
Visigenic's sole and exclusive remedy.
11. Indemnification.
---------------
11.1 Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Agreements.
(a) The representations, warranties, covenants and agreements of
the parties contained in Sections 3, 4, and 6.6 of this Agreement or in any
writing delivered pursuant to such sections, to the extent that a breach or
default in any such representations, warranties, covenants or agreements is not
as a result of fraud, shall not terminate at, but rather shall survive, the
Closing Date and shall terminate on the first anniversary of the Closing Date or
such other date as specified in such provisions; provided, however, that such
-------- -------
representations, warranties, covenants and agreements shall survive as to any
claim or demand made prior to their termination date until such claim or demand
is fully paid or otherwise resolved by the parties hereto in writing or by a
court of competent jurisdiction.
(b) The covenants and agreements of the parties contained in
Sections 5, 6 (other than 6.6), 7, 8 and 9 of this Agreement shall
terminate at and shall not survive the Closing Date.
28
11.2 Indemnification by CustomWare.
-----------------------------
(a) General.
-------
(i) CustomWare shall indemnify and hold harmless Visigenic,
its directors and officers, and each other person, if any, who controls
Visigenic within the meaning of the Securities Act ("Controlling Persons") in
respect of any and all claims, losses, damages, liabilities, demands,
assessments, judgments, costs and expenses (including, without limitation,
settlement costs and any legal or other expenses for investigating, bringing or
defending any actions or threatened actions) reasonably incurred by Visigenic,
any of its directors, officers or Controlling Persons in connection with each
and all of the following:
(A) any misrepresentation or breach of any warranty made
by CustomWare in this Agreement or in any schedule, exhibit, certificate or
other instrument contemplated by this Agreement;
(B) the breach of any covenant, agreement or obligation
of the Shareholders contained in this Agreement or any other instrument
contemplated by this Agreement;
(C) the payment to dissenting shareholders in excess of
the value of CustomWare Stock based upon a value of CustomWare equal to the
value of the average closing price of Visigenic Common Stock as quoted on the
NNM as reported in The Wall Street Journal for the ten (10) trading days prior
to the Closing, and the payment of legal fees and costs in excess of $10,000.00
incurred in connection with any legal action instituted by a legal shareholder
of CustomWare in connection with the Merger, including any action by a
dissenting shareholder;
(D) the departure of the Shareholder from the employ of
Visigenic prior to the one-year anniversary of the Closing, in which event the
parties agree that upon such departure, the entire Escrow Fund will be forfeited
to Visigenic; and
(E) the departure, prior to the one year anniversary
date of the Agreement, of any of the CustomWare employees who become employees
of Visigenic, as provided for in Section 9.11, in which event the parties agree
that upon each such departure, thirty-three percent (33%) of the initial
CustomWare Escrow Shares (4,166 CustomWare Escrow Shares) will be forfeited to
Visigenic.
(ii) In no event shall the liability under this Section
11.2(a) of CustomWare exceed the value of CustomWare Escrow Shares as such value
is calculated in Section 11.2(c).
(b) Claims for Indemnification.
--------------------------
(i) Whenever any claim shall arise for indemnification under
this Section 1.1, Visigenic shall describe such claim in a written notice
("Notice of Claim") to the Shareholder and, when known, specify the facts
constituting the basis for such claim and the amount or an estimate of the
amount of such claim. Each Notice of Claim shall (A) be signed by a proper
representative of Visigenic, (B) contain a description of the claim, (C) specify
the amount of such claim, and (D) state that, in the opinion of the signer
thereof, such Notice of Claim is valid under the terms of Section 1.1 hereof and
is being given by Visigenic in good faith.
(ii) Visigenic shall give the Shareholder prompt notice of
any claim for indemnification hereunder resulting from, or in connection with,
any claim or legal proceeding by a person who is not a party to this Agreement
("Third Party Claim") and, with respect
29
to any Third Party Claim, Visigenic shall undertake the defense thereof by
representatives reasonably satisfactory to Visigenic and the Shareholder.
Visigenic shall not have the right to settle or compromise or enter into any
binding agreement to settle or compromise, or consent to entry of any judgment
arising from, any such claim or proceeding in its sole discretion without the
prior written consent of the Shareholder. The Shareholder shall have the right
to participate in any such defense of a Third Party Claim with advisory counsel
of its own choosing at its own expense. In the event Visigenic, within a
reasonable time after notice of any Third Party Claim, fails to defend, the
Shareholder shall have the right to undertake the defense, compromise or
settlement of such Third Party Claim on behalf of, and for the account of, the
Shareholder, at the expense and risk of the Shareholder to the extent of his
liability set forth in Section 11. The Shareholder, without Visigenic's
written consent, shall not settle or compromise any such Third Party Claim or
consent to entry of any judgment that does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to Visigenic and/or
Visigenic's subsidiary or subsidiaries, or affiliate or affiliates, as the case
may be, an unconditional release from all liability in respect of such Third
Party Claim. Notwithstanding any provision herein to the contrary, failure of
Visigenic to give any notice of any Third Party Claim required by this Section
11 shall not constitute a waiver of Visigenic's right to indemnification or a
defense to any claim by Visigenic hereunder.
(c) Manner of Indemnification. All indemnification by CustomWare
-------------------------
hereunder, except for that provided for under Section 11.2(a)(i)(E) above, shall
be effected by the transferring and assigning to CustomWare Escrow Shares having
a value equal to the amount of the indemnification liability, such value to be
determined by averaging the closing price of Visigenic Common Stock as quoted on
the NNM as reported in the Wall Street Journal for the ten (10) trading days
prior to the date that the Notice of Claim is delivered to the Shareholder,
until the escrow is exhausted.
11.3 Arbitration. If a party makes a good faith determination that a
-----------
breach (or potential breach) of any of the confidentiality, non-competition, or
intellectual property rights provisions of this Agreement by the other party (or
the Shareholder) may result in damages or consequences that will be immediate,
severe, and incapable of adequate redress after the fact, so that a temporary
restraining order or other immediate injunctive relief is necessary for a
realistic and adequate remedy, that party may seek immediate injunctive relief
without first seeking relief through arbitration. After the court has ruled on
the request for injunctive relief, the parties will thereafter proceed with
arbitration of the dispute and stay the litigation pending arbitration. Subject
to the foregoing, any dispute arising out of this Agreement, or its performance
or breach, shall be resolved by binding arbitration under the Commercial
Arbitration Rules (the "AAA Rules") of the American Arbitration Association (the
"AAA"). This arbitration provision is expressly made pursuant to and shall be
governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-14. The parties
hereto agree that pursuant to Section 9 of the Federal Arbitration Act, a
judgment of the United States District Courts for the Northern District of
California shall be entered upon the award made pursuant to the arbitration. A
single arbitrator, who shall have the authority to allocate the costs of any
arbitration initiated under this paragraph, shall be selected according to the
AAA Rules within ten (10) days of the submission to the AAA of the response to
the statement of claim or the date on which any such response is due, whichever
is earlier. The arbitrator shall conduct the arbitration in accordance with the
Federal Rules of Evidence. The arbitrator shall decide the amount and extent of
pre-hearing discovery which is appropriate. The arbitrator shall have the power
to enter any award of monetary and/or injunctive relief (including the power to
issue permanent injunctive relief and also the power to reconsider any prior
request for immediate injunctive relief by either of the parties and any order
as to immediate injunctive relief previously granted or denied by a court in
response to a request therefor by either of the parties), including the power to
render an award as provided in Rule 43 of the AAA Rules; provided, however, that
-------- -------
the arbitrator shall not have the power to award punitive damages under any
circumstances (whether styled as punitive, exemplary, or treble damages, or any
penalty or punitive type of damages) regardless of whether such damages may be
available under applicable law, the parties hereby waiving their rights to
recover any such damages. The arbitrator shall award the
30
prevailing party its costs and reasonable attorneys' fees, and the losing party
shall bear the entire cost of the arbitration, including the arbitrator's fees.
All arbitration shall be held in San Mateo, California. In addition to the
above court, the arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration.
Notwithstanding the foregoing, the parties irrevocably submit to the
nonexclusive jurisdiction of the state and federal courts situated where the
respondent is domiciled or resides as of the Effective Date in any action to
enforce an arbitration award. With respect to any request for immediate
injunctive relief, that state and federal courts in San Francisco, California,
shall have nonexclusive jurisdiction and venue over any such disputes.
11.4 Limitation on Indemnification. No indemnified party hereunder
-----------------------------
will be entitled to make a claim against any indemnifying party under Section
11.2 unless and until the aggregate amount of indemnifiable losses incurred
exceeds Twenty Five Thousand Dollars ($25,000), and then only to the extent of
the excess.
11.5 The Shareholder's Authority. The Shareholder shall negotiate and
---------------------------
sign all amendments to this Agreement, and all other documents in connection
with the transactions contemplated by this Agreement. Should the Shareholder be
unable or unwilling to serve or to appoint his successor to serve in his stead,
and unless the Shareholder appoints a successor to serve in his stead, such
Shareholder shall be deemed to be represented by the Board of Directors of
CustomWare should the Shareholder be unable or unwilling to serve in his
capacity.
11.6 Escrow.
------
(a) CustomWare Escrow Shares shall be placed with the Escrow
Agent for a period beginning on the Closing Date and ending on the 12-month
anniversary of the Closing Date, to be disbursed solely upon the joint
signatures of Visigenic and the Shareholder, all as set forth below. In the
event Visigenic issues any Additional Escrow Shares (as defined below), such
shares will be issued in the name of the Escrow Agent in the same manner as the
CustomWare Escrow Shares delivered at Closing. Disbursements from the escrow
shall be made for the payment of amounts, if any, to satisfy the indemnification
rights of Visigenic and CustomWare pursuant to Section 11 hereof.
(b) Except for tax-free dividends paid in stock declared with
respect to the CustomWare Escrow Shares pursuant to Section 305(a) of the Code
("Additional Escrow Shares"), which shall be treated pursuant to Section 11.6
hereof, any cash dividends, dividends payable in securities or other
distributions of any kind made in respect of the CustomWare Escrow Shares will
be delivered to the Shareholder. The Shareholder will have voting rights with
respect to the CustomWare Escrow Shares deposited in the Escrow Fund so long as
such CustomWare Escrow Shares are held in escrow, and Visigenic will take all
reasonable steps necessary to allow the exercise of such rights. While the
CustomWare Escrow Shares remain in the Escrow Agent's possession pursuant to
this Agreement, the Shareholder will retain and will be able to exercise all
other incidents of ownership of said CustomWare Escrow Shares which are not
inconsistent with the terms and conditions of this Agreement.
(c) The CustomWare Escrow Shares shall be disbursed during the
term hereof, at any time or from time to time, Visigenic may give the
Shareholder a Notice of Claim. Such Notice of Claim must be for a specified
amount.
(i) The Shareholder may give Visigenic a written notice
("Notice of Objection") (A) attaching a copy of such Notice of Claim, (B)
stating that, in the good faith opinion of the Shareholder, the claim described
in such Notice of Claim is invalid (either in whole or in specified party) under
the terms of Section 11 hereof, (C) giving the reasons for the alleged
invalidity, and (D) stating that, based on such alleged invalidity, the
Shareholder objects to the payment of any portion of the CustomWare Escrow
Shares to the requesting party on account thereof. In the event
31
that a Notice of Objection alleges that a Notice of Claim is only partially
invalid, the Shareholder, within thirty (30) days of the receipt of such Notice
of Claim, agrees to pay over to Visigenic that portion of the amounts specified
in such Notice of Claim as to which no objection is made. The Shareholder is
not required to agree to make any payments to Visigenic in respect of a Notice
of Claim that has been objected to in a Notice of Objection given to the
Shareholder as aforesaid except (X) as provided in the immediately preceding
sentence, or (Y) in accordance with an order of any arbitration panel initiated
by any of the parties hereto pursuant to paragraph (ii) below.
(ii) Visigenic and the Shareholder agree to submit to final and
binding arbitration any and all disputes the Shareholder has specified in a
Notice of Objection or Visigenic has specified in a Notice of Claim to which the
Shareholder has not responded within thirty (30) days of receipt of such Notice
of Claim. Any such dispute subject to arbitration in accordance with the AAA
Rules as provided in Section 11 hereof.
(d) The escrow shall be terminated on the 12-month anniversary of the
Closing Date (the "Termination Date"); provided, however, that the escrow may
-------- -------
continue beyond such 12-month anniversary, if either of the parties has asserted
indemnification claims, and any such claims remain unsatisfied.
(e) Within five (5) business days after the Termination Date (the
"Release Date"), the Escrow Agent shall release from escrow to the Shareholder,
the CustomWare Escrow Shares plus all Additional Escrow Shares less the number
of CustomWare Escrow Shares with a value (as determined pursuant to Section
11.2) equal to the amount of any unsatisfied indemnification claims. Any
CustomWare Escrow Shares held as a result of the foregoing shall be released to
the Shareholder promptly upon resolution of each indemnification claim.
(f) On the Release Date, the Escrow Agent will deliver to the
Shareholder the requisite number of CustomWare Escrow Shares to be released on
such date as identified by Visigenic and the Shareholder to the Escrow Agent in
writing, in the form of stock certificate(s) issued in the name of the
Shareholder. Certificates representing CustomWare Escrow Shares so issued that
are subject to resale restrictions under applicable securities laws will bear a
legend to that effect. Cash will be paid in lieu of fractions of CustomWare
Escrow Shares in an amount equal to the product determined by multiplying such
fraction by the closing average sale price of Visigenic Common Stock as quoted
on the NNM as reported in The Wall Street Journal for the ten (10) trading days
prior to the date immediately prior to the Termination Date (such average price
being hereafter referred to as the "Release Price"). Within five (5) business
days after written request from the Shareholder or the Escrow Agent, Visigenic
will deposit with the Escrow Agent sufficient funds to pay such cash amounts for
fractional shares.
(g) No CustomWare Escrow Shares or any beneficial interest therein may
be pledged, sold, assigned or transferred, including by operation of law, by the
Shareholder or be taken or reached by any legal or equitable process in
satisfaction of any debt or other liability of the Shareholder, prior to the
delivery to the Shareholder of the CustomWare Escrow Shares by the Escrow Agent.
(h) The Escrow Agent is hereby granted the power to effect any
transfer of CustomWare Escrow Shares contemplated by this Agreement. Visigenic
will cooperate with the Escrow Agent in promptly issuing stock certificates to
effect such transfers.
12. Miscellaneous.
-------------
12.1 Governing Laws. It is the intention of the parties hereto that
--------------
the internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this
32
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto.
12.2 Binding upon Successors and Assigns. Subject to, and unless
-----------------------------------
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
12.3 Severability. If any provision of this Agreement, or the
------------
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
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 which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
12.4 Entire Agreement. This Agreement, the exhibits hereto, the
----------------
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto. The express terms
hereof control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
12.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
12.6 Expenses. Except as provided to the contrary herein, each party
--------
shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement, the exhibits hereto, and
the other Transaction Documents. If the Merger is consummated, all investment
banking, broker's and finder's fees incurred by CustomWare and/or its
shareholders in connection with the Merger will be deemed to be expenses of the
shareholders, will be borne by the shareholders of CustomWare and will not
become obligations of CustomWare.
12.7 Amendment and Waivers. Any term or provision of this Agreement
---------------------
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default.
12.8 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby notwithstanding any investigation of the parties hereto and shall
terminate on the date one year after the Closing Date.
12.9 No Waiver. The failure of any party to enforce any of the
---------
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
12.10 Attorneys' Fees. Should suit be brought to enforce or
---------------
interpret any part of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not
33
as damages, reasonable attorneys' fees to be fixed by the court (including
without limitation, costs, expenses and fees on any appeal). The prevailing
party shall be the party entitled to recover its costs of suit, regardless of
whether such suit proceeds to final judgment. A party not entitled to recover
its costs shall not be entitled to recover attorneys' fees. No sum for
attorneys' fees shall be counted in calculating the amount of a judgment for
purposes of determining if a party is entitled to recover costs or attorneys'
fees.
12.11 Notices. Any notice provided for or permitted under this
-------
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telex or telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this Section
12.11.
CustomWare: CustomWare, Inc.
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
With copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Visigenic: Visigenic Software, Inc.
▇▇▇ ▇▇▇▇▇▇▇'▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
With copy to: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Such notice will be treated as having been received upon actual receipt.
12.12 Time. Time is of the essence of this Agreement.
----
12.13 Construction of Agreement. This Agreement has been negotiated
-------------------------
by the respective parties hereto and their attorneys and the language hereof
shall not be construed for or against any party. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
12.14 No Joint Venture. Nothing contained in this Agreement shall be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 12.14.
34
12.15 Pronouns. All pronouns and any variations thereof shall be
--------
deemed to refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
12.16 Further Assurances. Each party agrees to cooperate fully with
------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
12.17 Absence of Third Party Beneficiary Rights. No provisions of
-----------------------------------------
this Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be personal solely between the parties
to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
VISIGENIC SOFTWARE, INC. CUSTOMWARE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------- ----------------------
Title: Vice-President & CFO Title: President
-------------------- ---------
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & FREIDENRICH,
A Professional Corporation
/s/ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich
--------------------------------
Escrow Agent
35
EXHIBIT A
---------
CERTIFICATE OF MERGER
36
EXHIBIT B
---------
FORM OF LOCKUP AGREEMENT
37
CERTIFICATE OF MERGER
OF
CUSTOMWARE, INC.
(a California corporation)
INTO
VISIGENIC SOFTWARE, INC.
(a Delaware corporation)
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
Name State of Incorporation
---- ----------------------
CustomWare, Inc. California
Visigenic Software, Inc. Delaware
SECOND: That an Agreement and Plan of Reorganization dated as of December
3, 1996, by and among Visigenic Software, Inc., CustomWare, Inc. and ▇▇▇▇ ▇▇▇▇
▇▇▇▇ & Freidenrich, a Professional Corporation, has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the requirements of Section 251 of the General Corporation Law
of the State of Delaware and Section 1201 of the California General Corporate
Law.
THIRD: That the name of the surviving corporation of the merger is
Visigenic Software, Inc. (the "Surviving Corporation").
FOURTH: That the Certificate of Incorporation of Visigenic Software, Inc.
shall, as of the effective time of the merger, be the Certificate of
Incorporation of the Surviving Corporation.
FIFTH: That the executed Agreement and Plan of Reorganization is on file
at the principal place of business of the Surviving Corporation. The address of
said principal place of business is ▇▇▇ ▇▇▇▇▇▇▇'▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
SIXTH: That a copy of the Agreement and Plan of Reorganization will be
furnished by the Surviving Corporation upon request and without charge to any
1
stockholder of any constituent corporation.
SEVENTH: The aggregate number of shares of stock which CustomWare, Inc.
has authority to issue is 10,000 shares, of which 10,000 shares, all of which
are without par value, are designated Common Stock.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
executed by its duly authorized officer this 3rd day of December, 1996.
VISIGENIC SOFTWARE, INC.
(a Delaware corporation)
By:
---------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
2
December 3, 1996
Visigenic Software, Inc.
▇▇▇ ▇▇▇▇▇▇▇'▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned is the owner of record or beneficially of certain shares of
common stock ("Common Stock"), and certain options that are exercisable for
shares of Common Stock, of Visigenic Software, Inc. (the "Company") and wishes
to facilitate the merger of CustomWare, Inc., a California corporation, with and
into the Company (the "Merger").
In consideration of the foregoing, the undersigned hereby irrevocably agrees
that he will not, directly or indirectly, sell, offer, contact to sell, transfer
the economic risk of ownership in, make any short sale, pledge or otherwise
dispose of any shares of Common Stock or any securities exercisable for Common
Stock, without the prior written consent of the Company, until February 5, 1997.
Notwithstanding the foregoing, the undersigned may transfer any shares of Common
Stock or securities exercisable for Common Stock either during his lifetime or
on death by will or intestacy to his immediate family or to a trust, the
beneficiaries of which are exclusively the undersigned and/or a member or
members of his immediate family, provided, however, that prior to any such
transfer, each transferee shall execute an agreement, satisfactory to the
Company, pursuant to which each transferee shall agree to receive and hold such
shares of Common Stock, or securities exercisable for Common Stock, subject to
the provisions hereof, and there shall be no further transfer except in
accordance with the provisions hereof. For the purposes of this paragraph,
"immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the transferor.
The undersigned hereby acknowledges and agrees that the undersigned has no right
to require the Company to register under the Securities Act of 1933, as amended,
such Common Stock or other securities issued by the Company and owned of record
or beneficially by the undersigned.
The undersigned understands that this agreement is irrevocable and shall be
binding upon the undersigned's heirs, legal representatives, successors and
assigns. The undersigned acknowledges that the Company is relying on this
agreement in carrying out the Merger. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of
December 3, 1996
Page 2
Common Stock or securities exercisable for Common Stock held by the undersigned
except in compliance with this agreement.
Very truly yours,
Date: December 3, 1996
--------------------------------------
Signature
--------------------------------------
Printed Name and Title (if applicable)
