EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
eBay Inc.,
a Delaware corporation;
Brazil Acquisition Corp.,
a Delaware corporation;
and
Billpoint, Inc.,
a California corporation
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Dated as of May 18, 1999
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Table of Contents
Page
SECTION 1.Description of Transaction 1
1.1 Merger of Merger Sub into the Company......................... 1
1.2 Effect of the Merger.......................................... 1
1.3 Closing; Effective Time....................................... 1
1.4 Articles of Incorporation and Bylaws; Directors and
Officers...................................................... 2
1.5 Conversion of Shares.......................................... 2
1.6 Stock Options and Warrant..................................... 3
1.7 Closing of the Company's Transfer Books....................... 4
1.8 Exchange of Certificates; Escrow Shares....................... 5
1.9 Dissenting Shares............................................. 6
1.10 Tax Consequences.............................................. 7
1.11 Accounting Treatment.......................................... 7
1.12 Further Action................................................ 7
SECTION 2.Representations and Warranties of the Company.................. 7
2.1 Due Organization; No Subsidiaries; Etc........................ 7
2.2 Articles of Incorporation and Bylaws; Records................. 8
2.3 Capitalization, Etc........................................... 8
2.4 Financial Statements.......................................... 9
2.5 Absence of Changes............................................ 9
2.6 Title to Assets............................................... 10
2.7 Equipment; Leasehold.......................................... 11
2.8 Title to Real Property........................................ 11
2.9 Intellectual Property......................................... 11
2.10 Contracts..................................................... 13
2.11 Liabilities................................................... 15
2.12 Compliance with Legal Requirements............................ 15
2.13 Governmental Authorizations................................... 15
2.14 Tax Matters................................................... 15
2.15 Employee and Labor Matters; Benefit Plans..................... 16
2.16 Environmental Matters......................................... 17
2.17 Insurance..................................................... 17
i.
Table of Contents
(Continued)
Page
2.18 Related Party Transactions..................................... 17
2.19 Legal Proceedings; Orders...................................... 18
2.20 Authority; Binding Nature of Agreement......................... 18
2.21 Non-Contravention; Consents.................................... 19
2.22 Full Disclosure................................................ 20
2.23 Vote Required.................................................. 20
2.24 No Brokers..................................................... 20
2.25 No Existing Discussions........................................ 20
SECTION 3.Representations and Warranties of Parent and Merger Sub......... 20
3.1 Corporate Existence and Power.................................. 20
3.2 Authority; Binding Nature of Agreement......................... 21
3.3 No Conflict; Consents.......................................... 21
3.4 SEC Filings; Financial Statements.............................. 21
3.5 Valid Issuance................................................. 22
3.6 No Material Adverse Change..................................... 22
3.7 Legal Proceedings.............................................. 22
3.8 Merger Sub..................................................... 22
SECTION 4.Certain Covenants of the Company................................ 22
4.1 Access and Investigation....................................... 22
4.2 Operation of the Business of the Company....................... 22
4.3 Notification; Updates to Disclosure Schedule................... 24
4.4 No Negotiation................................................. 24
SECTION 5.Additional Covenants of the Parties............................. 25
5.1 Filings and Consents........................................... 25
5.2 Company Shareholders' Meeting.................................. 25
5.3 Conversion and Exercise........................................ 25
5.4 Public Announcements........................................... 26
5.5 Pooling of Interests........................................... 26
5.6 Affiliate Agreements........................................... 26
5.7 Commercially Reasonable Efforts................................ 26
5.8 Access to Information.......................................... 26
ii.
Table of Contents
(Continued)
Page
5.9 Termination of Agreements...................................... 26
5.10 Employee and Related Matters................................... 27
5.11 Protection of Proprietary Assets............................... 27
5.12 FIRPTA Matters................................................. 27
5.13 Notification................................................... 27
5.14 Tax-Free Reorganization........................................ 28
5.15 Nasdaq National Market Listing................................. 28
SECTION 6.Conditions Precedent to Obligations of Parent and Merger Sub.... 28
6.1 Accuracy of Representations.................................... 28
6.2 Performance of Covenants....................................... 29
6.3 Shareholder Approval........................................... 29
6.4 Assumption/Exercise of Company Warrant......................... 29
6.5 Consents....................................................... 29
6.7 Agreements and Documents....................................... 29
6.8 Absence of Material Adverse Effect............................. 31
6.9 Stock Certificates............................................. 31
6.10 FIRPTA Compliance.............................................. 31
6.11 Listing........................................................ 31
6.12 No Restraints.................................................. 31
6.13 No Legal Proceedings........................................... 31
SECTION 7.Conditions Precedent to Obligations of the Company.............. 31
7.1 Accuracy of Representations.................................... 32
7.2 Performance of Covenants....................................... 32
7.3 Shareholder Approval........................................... 32
7.4 Agreements and Documents....................................... 32
7.5 Listing........................................................ 32
7.6 No Restraints.................................................. 32
7.7 No Legal Proceedings........................................... 33
7.8 Tax Opinion.................................................... 33
SECTION 8.Termination..................................................... 33
8.1 Termination Events............................................. 33
iii.
Table of Contents
(Continued)
Page
8.2 Termination Procedures.......................................... 34
8.3 Effect of Termination........................................... 34
SECTION 9.Indemnification, Etc............................................. 34
9.1 Survival of Representations, Etc................................ 34
9.2 Indemnification................................................. 35
9.3 Exclusive Remedy................................................ 36
9.4 No Contribution................................................. 36
9.5 Defense of Third Party Claims................................... 36
SECTION 10.Miscellaneous Provisions........................................ 37
10.1 Shareholders' Agent............................................. 37
10.2 Further Assurances.............................................. 38
10.3 Fees and Expenses............................................... 38
10.4 Attorneys' Fees................................................. 38
10.5 Notices......................................................... 38
10.6 Time of the Essence............................................. 39
10.7 Headings........................................................ 39
10.8 Counterparts.................................................... 39
10.9 Governing Law................................................... 39
10.10 Successors and Assigns.......................................... 39
10.11 Remedies Cumulative; Specific Performance....................... 39
10.12 Waiver.......................................................... 39
10.13 Amendments...................................................... 40
10.14 Severability.................................................... 40
10.15 Parties in Interest............................................. 40
10.16 Entire Agreement................................................ 40
10.17 Waiver of Jury Trial............................................ 40
10.18 Construction.................................................... 40
iv.
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is made
and entered into as of May 18, 1999, by and among EBAY INC., a Delaware
corporation ("Parent"); BRAZIL ACQUISITION CORP., a Delaware corporation and a
wholly owned subsidiary of Parent ("Merger Sub"); and BILLPOINT, INC., a
California corporation (the "Company"). Certain capitalized terms used in this
Agreement are defined in Exhibit A.
Recitals
A. Parent, Merger Sub and the Company intend to effect a merger of Merger
Sub with and into the Company in accordance with this Agreement, the California
General Corporation Law and the Delaware General Corporation Law (the "Merger").
Upon consummation of the Merger, Merger Sub will cease to exist, and the Company
will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). For accounting purposes, it is intended that the Merger be
treated as a "pooling of interests."
C. This Agreement has been approved by the respective boards of directors
of Parent, Merger Sub and the Company.
D. Contemporaneously with the execution and delivery of this Agreement,
certain holders of voting capital stock of the Company are executing and
delivering to Parent a voting agreement (a "Voting Agreement") of even date
herewith substantially in the form of Exhibit B.
Agreement
The parties to this Agreement intending to be legally bound hereby agree as
follows:
SECTION 1. Description of Transaction
1.1 Merger of Merger Sub into the Company. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), Merger Sub shall be merged with and into the Company, and the
separate existence of Merger Sub shall cease. The Company will continue as the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the California General
Corporation Law and the Delaware General Corporation Law.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of ▇▇▇▇▇▇ Godward LLP, Five ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at
10:00 a.m. on a date to be designated by Parent as
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soon as practicable, but no later than three business days, after the
satisfaction (or, to the extent permitted, waiver) of the conditions set forth
in Sections 6 and 7. (The date on which the Closing actually takes place is
referred to in this Agreement as the "Closing Date.") Contemporaneously with or
as promptly as practicable after the Closing, a properly executed agreement of
merger conforming to the requirements of the California General Corporation Law
shall be filed with the Secretary of State of the State of California and a
properly executed certificate of merger conforming to the requirements of the
Delaware General Corporation Law shall be filed with the Secretary of State of
the State of Delaware. The Merger shall become effective at the time such
agreement of merger is filed with the Secretary of State of the State of
California (the "Effective Time").
1.4 Articles of Incorporation and Bylaws; Directors and Officers. Unless
otherwise determined by Parent and the Company prior to the Effective Time:
(a) the articles of incorporation of the Surviving Corporation shall
be amended and restated as of the Effective Time in a form acceptable to
Parent;
(b) the bylaws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to the bylaws of Merger Sub as
in effect immediately prior to the Effective Time; and
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals selected by
Parent prior to the Closing.
1.5 Conversion of Shares.
(a) Subject to Sections 1.8(c) and 1.9, at the Effective Time, by
virtue of the Merger and without any further action on the part of Parent,
Merger Sub, the Company or any shareholder of the Company:
(i) each share of Company Common Stock (including all shares of
Company Common Stock issued upon conversion of all preferred stock (no
par value per share) of the Company ("Company Preferred Stock") and
upon exercise of the Company Warrant prior to the Closing) outstanding
immediately prior to the Effective Time shall be converted into the
right to receive the Applicable Fraction (as defined below) of a share
of the common stock (par value $0.001 per share) of Parent ("Parent
Common Stock"). The "Applicable Fraction" shall be the fraction (A)
having a numerator equal to $125,000,000 and (B) having a denominator
equal to the amount determined by multiplying (1) the Parent Average
Stock Price by (2) the Fully Diluted Number of Company Shares; and
(ii) each share of the common stock (par value $0.001 per share)
of Merger Sub outstanding immediately prior to the Effective Time
shall be converted into one share of common stock of the Surviving
Corporation.
(b) If any shares of Company Common Stock outstanding immediately
prior to the Effective Time are unvested or are subject to a repurchase option,
risk of forfeiture or
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other condition under any applicable restricted stock purchase agreement or
other agreement with the Company, then the shares of Parent Common Stock issued
in exchange for such shares of Company Common Stock will also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition,
and the certificates representing such shares of Parent Common Stock may
accordingly be marked with appropriate legends.
(c) A portion of the shares of Parent Common Stock issued in the
Merger shall be delivered into escrow and held as specified in Section 1.8
hereof.
(d) In the event Parent at any time or from time to time between the
date of this Agreement and the Effective Time declares or pays any dividend on
Parent Common Stock payable in Parent Common Stock or in any right to acquire
Parent Common Stock, or effects a subdivision of the outstanding shares of
Parent Common Stock into a greater number of shares of Parent Common Stock (by
stock dividends, combinations, splits, recapitalizations and the like), or in
the event the outstanding shares of Parent Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Parent Common Stock, then the Applicable Fraction shall be appropriately
adjusted.
1.6 Stock Options and Warrant.
(a) At the Effective Time, each option to purchase shares of capital
stock of Company that is then outstanding, whether vested or unvested (a
"Company Option"), shall be assumed by Parent in accordance with the terms (as
in effect as of the date of this Agreement) of the Company's 1999 Stock Plan
(the "Stock Plan") and the stock option agreement by which such Company Option
is evidenced. All rights with respect to Company Common Stock under outstanding
Company Options shall thereupon be converted into rights with respect to Parent
Common Stock. Accordingly, from and after the Effective Time, (i) each Company
Option assumed by Parent may be exercised solely for shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock subject to each such
assumed Company Option shall be equal to the number of shares of Company Common
Stock that were subject to such Company Option immediately prior to the
Effective Time multiplied by the Applicable Fraction, rounded down to the
nearest whole number of shares of Parent Common Stock, (iii) the per share
exercise price for the Parent Common Stock issuable upon exercise of each such
assumed Company Option shall be determined by dividing the exercise price per
share of Company Common Stock subject to such Company Option, as in effect
immediately prior to the Effective Time, by the Applicable Fraction, and
rounding the resulting exercise price up to the nearest whole cent and (iv) all
restrictions on the exercise of each such assumed Company Option shall continue
in full force and effect, and the term, exercisability, vesting schedule and
other provisions of such Company Option shall otherwise remain unchanged and
shall continue to have, and be subject to, the same terms and conditions as set
forth in the Company's Stock Plan and/or stock option agreement by which such
Company Option is evidenced immediately prior to the Effective Time; provided,
however, that each such assumed Company Option shall, in accordance with its
terms, be subject to further adjustment as appropriate to reflect any stock
split, reverse stock split, stock dividend, recapitalization or other similar
transaction effected by Parent after the Effective Time. The Company and Parent
shall take all action that may be necessary to effectuate the provisions of this
Section 1.6. Following the Closing, Parent will send to each holder of an
assumed Company
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Option a written notice setting forth (i) the number of shares of Parent Common
Stock subject to such assumed Company Option and (ii) the exercise price per
share of Parent Common Stock issuable upon exercise of such assumed Company
Option. It is the intention of the parties that the Company Options assumed by
Parent qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent that such Company Options
qualified as incentive stock options immediately prior to the Effective Time.
Parent shall file with the SEC, no later than coincident with the effectiveness
of the Registration Statement contemplated by the Registration Rights Agreement
attached as Exhibit K hereto, a registration statement on Form S-8 registering
the exercise of any Company Options assumed by Parent pursuant to this Section
1.6. Parent shall use its commercially reasonable efforts to maintain the
effectiveness of such Registration Statement for so long as such Company Options
remain outstanding. Parent shall take all necessary corporate action to reserve
for issuance a sufficient number of shares of Parent Common Stock for delivery
upon exercise of Company Options assumed in accordance with this Section 1.6(a).
(b) At the Effective Time, each Company Warrant (if any) that is then
outstanding shall be assumed by Parent in accordance with the terms (as in
effect as of the date of this Agreement) of the instrument by which such Company
Warrant is evidenced. All rights with respect to Company capital stock under
outstanding Company Warrants shall thereupon be converted into rights with
respect to Parent Common Stock. Accordingly, from and after the Effective Time,
(i) each Company Warrant assumed by Parent may be exercised solely for shares of
Parent Common Stock, (ii) the number of shares of Parent Common Stock subject to
each such assumed Company Warrant shall be equal to the number of shares of
Company Common Stock that were subject to such Company Warrant immediately prior
to the Effective Time multiplied by the Applicable Fraction, rounded down to the
nearest whole number of shares of Parent Common Stock, (iii) the per share
exercise price for the Parent Common Stock issuable upon exercise of each such
assumed Company Warrant shall be determined by dividing the exercise price per
share of Company Common Stock subject to such Company Warrant, as in effect
immediately prior to the Effective Time, by the Applicable Fraction, and
rounding the resulting exercise price up to the nearest whole cent and (iv) all
restrictions on the exercise of each such assumed Company Warrant shall continue
in full force and effect, and the term, exercisability and other provisions of
such Company Warrant shall otherwise remain unchanged; provided, however, that
each such assumed Company Warrant shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, reverse
stock split, stock dividend, recapitalization or other similar transaction
effected by Parent after the Effective Time. Parent shall take all necessary
corporate action to reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of Company Warrants assumed in
accordance with this Section 1.6(b). If, in order to cause the condition set
forth in Section 6.4 to be satisfied, it is necessary to change the form of the
Merger to a merger of the Company with and into Merger Sub (with Merger Sub
being the surviving corporation), Parent, Merger Sub and the Company shall amend
this Agreement (and take such other actions as are reasonably necessary) to
effect such change in the form of the Merger. In connection with such change,
the parties hereto will execute and deliver representations and certificates in
connection with the tax opinions referenced in Section 7.8 as shall be
reasonably requested by the counsel referred to in Section 7.8, including tax
representation letters that may vary from those set forth in Exhibit N.
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1.7 Closing of the Company's Transfer Books'. At the Effective Time,
holders of certificates representing shares of the Company's capital stock that
were outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of the Company, and the stock transfer books of the
Company shall be closed with respect to all shares of such capital stock
outstanding immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such stock transfer
books after the Effective Time. If, after the Effective Time, a valid
certificate previously representing any of such shares of the Company's capital
stock (a "Company Stock Certificate") is presented to the Surviving Corporation
or Parent, such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 Exchange of Certificates; Escrow Shares.
(a) At or prior to the Effective Time, Parent shall reserve for
exchange in accordance with this Section 1, (i) the aggregate number of shares
of Parent Common Stock issuable pursuant to Section 1.5 in exchange for
outstanding shares of Company Common Stock and (ii) cash for fractional shares
in the amount described in Section 1.8(c). At the Closing, each Company
shareholder that does not perfect its dissenters' rights and is otherwise
entitled to receive shares of Parent Common Stock pursuant to Section 1.5 (a
"Merger Shareholder") shall surrender to Parent all certificates representing
shares of Company Common Stock (properly endorsed for transfer). At or as soon
as practicable after the Effective Time, Parent shall caused to be (i) delivered
to each Merger Shareholder a certificate representing 90 percent of the number
of whole shares of Parent Common Stock that such Merger Shareholder has the
right to receive pursuant to the provisions of Section 1.5 and (ii) delivered to
the escrow agent under the Escrow Agreement in the form of Exhibit C hereto (the
"Escrow Agreement"), on behalf and in the name of each Merger Shareholder, a
certificate representing 10 percent of the number of whole shares of Parent
Common Stock that such Merger Shareholder has the right to receive pursuant to
the provisions of Section 1.5 (the "Escrow Shares"). With respect to those
Merger Shareholders whose shares of Company Common Stock are subject to a
Restricted Stock Purchase Agreement, the number of Escrow Shares deposited on
behalf of each such Merger Shareholder shall be prorated between such Merger
Shareholder's Unreleased Shares and shares that have been released from the
Company's Repurchase Option (as such terms are defined in the respective
Restricted Stock Purchase Agreements) based on the number of shares that
constitute Unreleased Shares and the number of shares that have been so released
as of the Effective Time. If any Company Stock Certificate shall have been lost,
stolen or destroyed, Parent may, in its discretion and as a condition precedent
to the issuance of any certificate representing Parent Common Stock, require the
owner of such lost, stolen or destroyed Company Stock Certificate to provide an
appropriate affidavit and indemnity agreement against any claim that may be made
against Parent or the Surviving Corporation with respect to such Company Stock
Certificate.
(b) No dividends or other distributions declared or made with respect
to Parent Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Company Stock Certificate with respect to the
shares of Parent Common Stock represented thereby, and no cash payment in lieu
of any fractional share shall be paid to any such holder, until such holder
surrenders such Company Stock Certificate in accordance with
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this Section 1.8 (at which time such holder shall be entitled receive all such
dividends and distributions and such cash payment).
(c) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any holder of capital stock
of the Company who would otherwise be entitled to receive a fraction of a share
of Parent Common Stock (after aggregating all fractional shares of Parent Common
Stock issuable to such holder) shall, upon surrender of such holder's Company
Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest
whole cent), without interest, determined by multiplying such fraction by the
average of the closing sale prices of a share of Parent Common Stock as reported
on the Nasdaq National Market for each of the five consecutive trading days
ending on the trading day immediately preceding the Closing.
(d) The shares of Parent Common Stock to be issued in the Merger
shall be characterized as "restricted securities" for purposes of Rule 144 under
the Securities Act, and each certificate representing any such shares shall,
until such time that the shares are not so restricted under the Securities Act,
bear a legend identical or similar in effect to the following legend (together
with any other legend or legends required by applicable state securities laws or
otherwise, if any):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE ACT OR UNLESS AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE ACT IS AVAILABLE."
(e) Parent and the Surviving Corporation shall be entitled to deduct
and withhold from any consideration payable or otherwise deliverable to any
holder or former holder of capital stock of the Company pursuant to this
Agreement such amounts as Parent or the Surviving Corporation may be required to
deduct or withhold therefrom under the Code or under any provision of state,
local or foreign tax law. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise have been
paid.
(f) Neither Parent nor the Surviving Corporation shall be liable to
any holder or former holder of capital stock of the Company for any shares of
Parent Common Stock (or dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) The Escrow Shares shall be maintained in an Escrow Fund (the
"Escrow Fund") for purposes of satisfying claims brought pursuant to Section 9
and for the period of time set forth in such Section.
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1.9 Dissenting Shares. Notwithstanding anything to the contrary contained
in this Agreement, any shares of capital stock of the Company that, as of the
Effective Time, are or may become "dissenting shares" within the meaning of
Section 1300(b) of the California General Corporation Law shall not be converted
into or represent the right to receive Parent Common Stock in accordance with
Section 1.5 (or cash in lieu of fractional shares in accordance with Section
1.8(c)), and the holder or holders of such shares shall be entitled only to such
rights as may be granted to such holder or holders in the California General
Corporation Law; provided, however, that if the status of any such shares as
"dissenting shares" shall not be perfected, or if any such shares shall lose
their status as "dissenting shares," then, as of the later of the Effective Time
or the time of the failure to perfect such status or the loss of such status,
such shares shall automatically be converted into and shall represent only the
right to receive (upon the surrender of the certificate or certificates
representing such shares) Parent Common Stock in accordance with Section 1.5
(and cash in lieu of fractional shares in accordance with Section 1.8(c)).
1.10 Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.11 Accounting Treatment. For accounting purposes, the Merger is intended
to be treated as a "pooling of interests."
1.12 Further Action. If, at any time after the Effective Time, any further
action is determined by Parent to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation or Parent with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, in the name of the
Company and otherwise) to take such action.
SECTION 2. Representations and Warranties of the Company
The Company represents and warrants, to and for the benefit of the
Indemnitees, subject to such exceptions as are disclosed in the Disclosure
Schedule, as follows:
2.1 Due Organization; No Subsidiaries; Etc.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of California and has all
necessary corporate power and authority: (i) to conduct its business in the
manner in which its business is currently being conducted and is currently
proposed to be conducted; (ii) to own and use its assets in the manner in which
its assets are currently owned and used and (iii) to perform its obligations
under all Company Contracts.
(b) The Company is not and has never been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction.
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(c) Part 2.1(c) of the Disclosure Schedule accurately sets forth (i)
the names of the members of the Company's board of directors, (ii) the names of
the members of each committee of the Company's board of directors and (iii) the
names and titles of the Company's officers.
(d) The Company does not own any controlling interest in any Entity,
and the Company has never owned, beneficially or otherwise, any shares or other
securities of, or any direct or indirect equity interest in, any Entity. The
Company has not agreed and is not obligated to make any future investment in or
capital contribution to any Entity.
2.2 Articles of Incorporation and Bylaws; Records. The Company has
delivered to Parent accurate and complete copies of: (a) the Company's articles
of incorporation and bylaws, including all amendments thereto; (b) the stock
records of the Company and (c) except as set forth in Part 2.2 of the Disclosure
Schedule, the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or otherwise without a meeting)
of the shareholders of the Company, the board of directors of the Company and
all committees of the board of directors of the Company. There has not been any
violation of any of the provisions of the Company's articles of incorporation or
bylaws, and the Company has not taken any action that is inconsistent in any
material respect with any resolution adopted by the Company's shareholders, the
Company's board of directors or any committee of the Company's board of
directors. The books of account, stock records, minute books and other records
of the Company are accurate, up-to-date and complete in all material respects.
2.3 Capitalization, Etc.
(a) As of the date hereof, the authorized capital stock of the
Company consists of (i) 20,000,000 shares of Company Common Stock, of which
5,700,000 shares are issued and outstanding and (ii) 3,723,793 shares of
Preferred Stock, 320,000 of which are designated as Series A Preferred, all of
which are issued and outstanding, and 2,853,793 of which are designated as
Series B Preferred Stock, 2,845,975 of which are issued and outstanding, and
550,000 of which are designated as Series C Preferred Stock, none of which are
issued and outstanding. The Company has reserved an additional 2,189,091 shares
of Company Common Stock for issuance under the Stock Plan to employees, advisory
board members, officers or directors of, or consultants to, the Company, of
which options to acquire 1,683,181 shares of Common Stock have been granted. The
Company has reserved an additional 550,000 shares of Series C Preferred Stock
for issuance upon exercise of the Company Warrant.
(b) All of the outstanding shares of Company Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable, have
been issued in compliance with all applicable federal and state securities laws
and were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities of the Company. There are no
preemptive rights applicable to any shares of capital stock of the Company.
(c) Except as set forth in Section 2.3(a) or Part 2.3(c) of the
Disclosure Schedule, there is no: (i) outstanding subscription, option, call,
warrant or right (whether or not
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currently exercisable) to acquire any shares of the capital stock or other
securities of the Company; (ii) outstanding security, instrument or obligation
that is or may become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company; (iii) Contract under which the
Company is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities or (iv) to the knowledge of the Company,
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of the
Company.
(d) Except as set forth in Part 2.3(d) of the Disclosure Schedule,
the Company has not repurchased, redeemed or otherwise reacquired any of its
shares of capital stock or other securities. All securities so reacquired by the
Company were reacquired in compliance with (i) all applicable Legal Requirements
and (ii) all requirements set forth in applicable Contracts.
2.4 Financial Statements.
(a) The Company has not prepared any audited balance sheet, income
statement, statement of operations, statement of changes in financial position
and shareholders' equity or other financial statement and has kept its financial
records on a cash basis since inception.
(b) The systems of internal accounting controls maintained by the
Company are sufficient to provide reasonable assurances that: (i) transactions
are executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2.5 Absence of Changes. Except as set forth in Part 2.5 of the
Disclosure Schedule, since formation of the Company:
(a) there has not been any material adverse change in the business,
condition, operations or financial performance of the Company, and, to the
knowledge of the Company, no event has occurred that will, or could
reasonably be expected to, have a Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction to,
or any material interruption in the use of, any of the material assets of
the Company;
(c) the Company has not declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any shares of capital
stock, nor has the Company repurchased, redeemed or otherwise reacquired
any shares of its capital stock or other securities;
9
(d) except as described in Section 2.3 or Part 2.3 of the Disclosure
Schedule, the Company has not sold, issued or authorized the issuance of
(i) any capital stock or other security, (ii) any option or right to
acquire any capital stock or any other security or (iii) any instrument
convertible into or exchangeable for any capital stock or other security of
the Company;
(e) except as described in Section 2.3 or Part 2.3 of the Disclosure
Schedule, there has been no amendment to the articles of incorporation or
bylaws of the Company, and the Company has not effected or been a party to
any Acquisition Transaction, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(f) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other Entity;
(g) the Company has not made any capital expenditure that, when
added to all other capital expenditures made on behalf of the Company since
the formation of the Company, exceeds $100,000;
(h) the Company has not (i) entered into or permitted any of the
assets owned or used by it to become bound by any Contract that is or would
constitute a Material Contract (as defined below) or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any
such Contract;
(i) the Company has not (i) acquired, leased or licensed any right
or other asset from any other Person except in the ordinary course of
business, (ii) sold or otherwise disposed of, or leased or licensed, any
right or other asset to any other Person except in the ordinary course of
business, or (iii) waived or relinquished any right, except in each case
for rights or other assets acquired, leased, licensed or disposed of in the
ordinary course of business and on a consistent basis;
(j) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of
business and on a consistent basis;
(l) the Company has not (i) lent money to any Person (other than
pursuant to routine advances made to employees for travel and business
expenses in the ordinary course of business) or (ii) incurred or guaranteed
any indebtedness for borrowed money;
(m) the Company has not changed any of its methods of accounting or
accounting practices in any respect;
(n) the Company has not made any Tax election;
10
(o) the Company has not commenced or settled any Legal Proceeding;
(p) the Company has not entered into any material transaction or
taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(q) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(p)" above.
2.6 Title to Assets.
(a) The Company owns, and has good, valid and marketable title to,
all assets purported to be owned by it, except for such imperfections of title
which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present use,
of the assets subject thereto or affected thereby. Except as set forth in Part
2.6(a) of the Disclosure Schedule, all of such assets are owned by the Company
free and clear of any liens or other Encumbrances, except for (x) any lien for
current taxes not yet due and payable and (y) minor liens that have arisen in
the ordinary course of business and that do not (in any individual case or in
the aggregate) materially detract from the value of the assets subject thereto
or materially impair the operations of the Company.
(b) Part 2.6(b) of the Disclosure Schedule identifies all assets
that are material to the business of the Company and that are being leased or
licensed to the Company.
2.7 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned
by or leased to the Company are adequate for the uses to which they are being
put, are in good operating condition and repair (ordinary wear and tear
excepted) and are adequate for the conduct of the business of the Company in the
manner in which such business is currently being conducted.
(b) The Company does not own any leasehold interest in real
property, except for the leasehold created under the real property lease
identified in Part 2.8 of the Disclosure Schedule.
2.8 Title to Real Property. The Company does not own any real property or
interests in real property other than leasehold interests in real property. Part
2.8 of the Disclosure Schedule sets forth a complete list of all real property
and interest in real property leased by the Company ("Leased Real Property").
The Company has good and valid title to the leasehold interests in all Leased
Real Property, in each case free and clear of all Encumbrances, except (i) such
as are set forth in Part 2.8 of the Disclosure Schedule, (ii) leases, subleases
and similar agreements set forth in Part 2.8 of the Disclosure Schedule, (iii)
easements, covenants, rights-of-way and other similar restrictions of record
that do not (in any case or in the aggregate) materially detract from the value
of the assets subject thereto or materially impair the operations of the Company
(iv) any conditions that may be shown by a current, accurate survey or physical
inspection of any Leased Real Property made prior to Closing other than
conditions, if any, that
11
do not, individually or in the aggregate, materially detract from the value of
the assets subject thereto or materially impair the operations of the Company,
(v) minor liens that have arisen in the ordinary course of business and have
been or will be paid promptly and that do not (in any case or in the aggregate)
materially detract from the value of the assets subject thereto or materially
impair the operations of the Company, and (vi) any Encumbrance on the landlord's
interest in any Leased Real Property, including any deeds of trust, mortgages or
other monetary liens.
2.9 Intellectual Property.
(a) Part 2.9(a)(i) of the Disclosure Schedule sets forth each
trademark, trade name, service ▇▇▇▇, service name, patent, patent application
and registered copyright owned by the Company. Part 2.9(a)(ii) of the Disclosure
Schedule identifies and provides a brief description of each trademark, trade
name, service ▇▇▇▇, service name, patent and patent application licensed to the
Company by any Person (except for any trademark, trade name, service ▇▇▇▇,
service name, patent and patent application that is licensed to the Company
under any third party software license generally available to the public at a
cost of less than $10,000), and identifies the license agreement under which
such trademark, trade name, service ▇▇▇▇, service name, patent and patent
application is being licensed to the Company. Except as set forth in Part
2.9(a)(iii) of the Disclosure Schedule, the Company has good, valid and
marketable title to all of the Company Proprietary Assets identified in Part
2.9(a)(i) of the Disclosure Schedule, free and clear of all liens and other
Encumbrances, and has a valid right to use all Proprietary Assets identified in
Part 2.9(a)(ii) of the Disclosure Schedule. Except as set forth in Part
2.9(a)(iv) of the Disclosure Schedule, the Company has not developed jointly
with any other Person any Company Proprietary Asset with respect to which such
other Person has any rights.
(b) The Company has taken reasonable measures and precautions to
protect and maintain the confidentiality and secrecy of all Company Proprietary
Assets (except Company Proprietary Assets whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect the value of all
Company Proprietary Assets. Except as set forth in Part 2.9(b)(i) of the
Disclosure Schedule, the Company has not (other than pursuant to license
agreements identified in Part 2.10 of the Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any Person
of, (i) the source code, or any portion or aspect of the source code, of any
Company Proprietary Asset or (ii) the object code, or any portion or aspect of
the object code, of any Company Proprietary Asset. Except as set forth in Part
2.9(b)(ii) of the Disclosure Schedule, all current and former employees,
consultants and independent contractors that are or were involved in the
creation, invention, research or development of the Company Proprietary Assets
have executed and delivered to the Company an agreement that is substantially
identical to the form of the Confidential Information and Invention Assignment
Agreement, Consultant Confidential Information and Invention Assignment
Agreement or Advisory Board Agreement previously delivered to Parent.
(c) None of the Company Proprietary Assets infringes any patent,
copyright, trade secret, trademark or other intellectual property right of any
other Person. The Company is not misappropriating or making any unlawful use of,
and the Company has not at any time misappropriated or made any unlawful use of,
any Proprietary Asset owned or used by any other Person. The Company has not
received any notice or other communication of any actual or alleged
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other
12
Person. To the knowledge of the Company, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset owned
or used by any other Person infringes any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Disclosure Schedule,
(i) the Company has not licensed any of the Company Proprietary Assets to any
Person on an exclusive basis and (ii) the Company has not entered into any
covenant not to compete or Contract limiting its ability to exploit fully any of
its Proprietary Assets or to transact business in any market or geographical
area or with any Person.
(e) Except as set forth in Part 2.9(e) of the Disclosure Schedule,
the Company's products and products under development and the internally
developed computer systems and software, are Year 2000 Compliant. Except as set
forth in Part 2.9(e) of the Disclosure Schedule, to the knowledge of the
Company, the third party computer systems and software used by the Company in
its internal operations are Year 2000 Compliant. The Company has not developed a
Year 2000 Compliance and Readiness Plan. The Company has delivered to Parent
accurate and complete copies of all memoranda, analyses, reports, correspondence
and other documents existing as of the date hereof and relating to the Year 2000
Compliance status of the Company's products, products under development and
internally used systems and software which have been received by the Company
from third parties or prepared internally by the Company (to the extent that
such documents are not subject to the attorney-client privilege).
(f) No internally developed product, system, program or software
module designed, developed, sold, licensed or otherwise made available by the
Company to any Person, and to the knowledge of the Company, no third party
product, system, program or software module sold, licensed or otherwise made
available by the Company to any Person, contains any "back door," "time bomb,"
"Trojan horse," "worm," "drop dead device," "virus" or other software routines
or hardware components designed to permit unauthorized access or to disable or
erase software, hardware or data without the consent of the user.
2.10 Contracts.
(a) Part 2.10(a) of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee, consultant or independent
contractor;
(ii) each Company Contract imposing any restriction on the
Company's right or ability (A) to compete with any other Person or (B) to
transact business or deal in any other manner with any other Person;
(iii) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
13
(iv) each Company Contract relating to the acquisition,
issuance or transfer of any securities;
(v) each Company Contract creating or relating to any
partnership or joint venture or any sharing of revenues, profits, losses,
costs or liabilities;
(vi) each Company Contract with any Related Party (as defined
in Section 2.18);
(vii) each Company Contract with a corporate or similar sponsor;
(viii) any other Company Contract that contemplates or involves
(A) the payment or delivery of cash or other consideration in an amount or
having a value in excess of $25,000 in the aggregate or (B) the performance
of services having a value in excess of $25,000 in the aggregate, in each
case other than Contracts that have a term of less than 60 days or that may
be terminated by the Company (without penalty) within 60 days after the
delivery of a termination notice by the Company;
(ix) each Company Contract relating to the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company other than any patent, copyright, trade secret or other proprietary
right that is licensed to the Company under any third party software
license generally available to the public at a cost of less than $10,000;
(x) each Company Contract relating to the grant of rights to
manufacture, produce, assemble, license, market, or sell the Company's
products to any other person or otherwise affecting the Company's exclusive
right to develop, manufacture, assemble, distribute, market or sell its
products;
(xi) each Company Contract relating to indemnification by the
Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale agreements
entered into in the ordinary course of business); and
(xii) any other Company Contract that is material to the
business of the Company.
(Contracts in the respective categories described in clauses "(i)" through
"(xii)" above are referred to in this Agreement as "Material Contracts.")
(b) The Company has delivered to Parent accurate and complete copies
of all written Material Contracts identified in Part 2.10 of the Disclosure
Schedule, including all amendments thereto. Part 2.10 of the Disclosure Schedule
provides an accurate description of the terms of each Material Contract that is
not in written form. Each Material Contract identified in Part 2.10 of the
Disclosure Schedule is in full force and effect, and, to the knowledge of the
Company, is enforceable by the Company in accordance with its terms, subject to
(i) laws of
14
general application relating to bankruptcy, insolvency and the relief of debtors
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies.
(c) Except as set forth in Part 2.10 of the Disclosure Schedule:
(i) the Company has not violated or breached, or committed any
default under, any Company Contract, and, to the knowledge of the Company,
no other Person has violated or breached, or committed any default under,
any Company Contract;
(ii) to the knowledge of the Company, no event has occurred, and
no circumstance or condition exists, that (with or without notice or lapse
of time) will, or could reasonably be expected to, (A) result in a
violation or breach of any of the provisions of any Company Contract, (B)
give any Person the right to declare a default under or exercise any remedy
for breach of any Company Contract, (C) give any Person the right to
accelerate the maturity or performance of any Company Contract or (D) give
any Person the right to cancel, terminate or modify any Company Contract;
(iii) the Company has not received any notice or other
communication regarding any actual or possible violation or breach of, or
default under, any Company Contract; and
(iv) the Company has not waived any of its material rights under
any Material Contract.
2.11 Liabilities. The Company does not have any accrued, contingent or
other liabilities of any nature, either matured or unmatured (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles, and whether due or to become due), except for:
(a) liabilities incurred by the Company in the ordinary course of business
consistent with the past practices of the Company and which do not exceed
$20,000 in the aggregate; (b) liabilities under the Company Contracts identified
in Part 2.10 of the Disclosure Schedule, to the extent the nature and magnitude
of such liabilities can be specifically ascertained by reference to the text of
such Company Contract and (c) the liabilities identified in Part 2.11 of the
Disclosure Schedule.
2.12 Compliance with Legal Requirements. The Company is, and has at all
times been, in compliance with all applicable Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and will not (and
will not reasonably be expected to) have a Material Adverse Effect on the
Company. Except as set forth in Part 2.12 of the Disclosure Schedule, the
Company has never received any notice or other communication from any
Governmental Body regarding any actual or possible violation of, or failure to
comply with, any Legal Requirement.
2.13 Governmental Authorizations. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by the Company, and the
Company has delivered to Parent accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute
15
all Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which its business is currently being conducted. The
Company is, and at all times has been, in substantial compliance with the terms
and requirements of the respective Governmental Authorizations identified in
Part 2.13 of the Disclosure Schedule. The Company has never received any notice
or other communication from any Governmental Body regarding (a) any actual or
possible violation of or failure to comply with any term or requirement of any
Governmental Authorization or (b) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any Governmental
Authorization.
2.14 Tax Matters. The Company has filed all federal, state, local and
foreign tax returns that are required to be filed or has requested extension
thereof and has paid all taxes, including sales and withholding taxes, penalties
and interest, assessments, fees and other charges to the extent that the same
have become due and payable. No tax assessment or deficiency has been made or
proposed against the Company nor has the Company received any notice of any
proposed tax audit, assessment or deficiency. No claim or Proceeding is pending
or to the Company's knowledge has been threatened against or with respect to the
Company in respect of any Tax. There is no agreement, plan, arrangement or other
Contract covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could reasonably
be expected to, give rise directly or indirectly to the payment of any amount
that would not be deductible pursuant to Section 280G or Section 162 of the
Code. The Company is not, and has never been, a party to or bound by any tax
indemnity agreement, tax sharing agreement, tax allocation agreement or similar
agreement.
2.15 Employee and Labor Matters; Benefit Plans.
(a) Part 2.15(a) of the Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any employee of the Company ("Employee").
(b) Except as set forth in Part 2.15(a) of the Disclosure Schedule,
the Company does not maintain, sponsor or contribute to, and, to the knowledge
of the Company, the Company has not at any time in the past maintained,
sponsored or contributed to, any employee pension benefit plan for the benefit
of Employees or former Employees (a "Pension Plan").
(c) The Company maintains, sponsors or contributes only to those
employee welfare benefit plans for the benefit of Employees or former Employees
that are described in Part 2.15(c) of the Disclosure Schedule (the "Welfare
Plans").
(d) With respect to each Plan, the Company has delivered or made
available to Parent: (i) an accurate and complete copy of such Plan (including
all amendments thereto) and (ii) an accurate and complete copy of all reports,
summary plan descriptions, material employee
16
communications, trust or other funding agreements, financial statements and
Contract relating to or with respect to such Plan;
(e) Except as set forth in Part 2.15(e) of the Disclosure Schedule,
no Welfare Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former Employee after any such
Employee's termination of service (other than (i) benefit coverage mandated by
applicable law and (ii) benefits the full cost of which are borne by current or
former Employees (or the Employees' beneficiaries)).
(f) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements.
(g) Except as set forth in Part 2.15(g) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any payment (including any bonus, golden parachute or
severance payment) to any current or former Employee or director of the Company
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(h) Part 2.15(h) of the Disclosure Schedule contains a list of all
salaried employees of the Company as of the date of this Agreement, and
correctly reflects, in all material respects, their salaries, any other
compensation payable to them (including compensation payable pursuant to bonus,
deferred compensation or commission arrangements), their dates of employment and
their positions. The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the employees of the Company are "at will" employees.
(i) Except as set forth in Part 2.15(i) of the Disclosure Schedule,
the Company has good labor relations, and the Company has not been informed any
of the Key Employees of the Company intends to terminate his or her employment
with the Company.
2.16 Environmental Matters. The Company is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by the Company of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. The Company has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that the Company is not in
compliance with any Environmental Law, and, to the knowledge of the Company,
there are no circumstances that may prevent or interfere with the compliance by
the Company with any Environmental Law in the future. To the knowledge of the
Company, no current or prior owner of any property leased or controlled by the
Company has received any notice or other communication (in writing or
otherwise), whether from a Government Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is not
in compliance with any Environmental Law. All Governmental Authorizations
currently held by the Company pursuant to Environmental Laws are identified in
Part 2.16 of the Disclosure
17
Schedule. There has been no release or discharge by the Company of any Materials
of Environmental Concern that would or would reasonably be expected to give rise
to an obligation by the Company to effect any environmental cleanup or
remediation.
2.17 Insurance. Part 2.17 of the Disclosure Schedule identifies all
insurance policies maintained by, at the expense of or for the benefit of the
Company, identifies any material claims made thereunder, and includes a summary
of the amounts and types of coverage and the deductibles under each such
insurance policy. Each of the insurance policies identified in Part 2.17 of the
Disclosure Schedule is in full force and effect. The Company has not received
any notice or other communication regarding any actual or possible (a)
cancellation or invalidation of any insurance policy, (b) refusal of any
coverage or rejection of any claim under any insurance policy or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy.
2.18 Related Party Transactions.
(a) Except as set forth in Part 2.18(a) of the Disclosure Schedule:
(a) no Related Party has, and no Related Party has at any time had, any direct
or indirect interest in any material asset used in or otherwise relating to the
business of the Company; (b) no Related Party is, or has at any time been,
indebted to the Company; (c) no Related Party has entered into, or has had any
direct or indirect financial interest in, any Material Contract, transaction or
business dealing involving the Company; (d) no Related Party is competing, or
has at any time competed, directly or indirectly, with the Company; and (e) no
Related Party has any claim or right against the Company (other than rights to
receive compensation for services performed as an employee of the Company or for
reimbursement of travel or business expenses incurred in the ordinary course of
business or pursuant to any option granted under the Company's 1999 Stock Plan).
(For purposes of this Section 2.18 each of the following shall be deemed to be a
"Related Party": (i) each of the shareholders of the Company; (ii) each
individual who is, or who has at any time been, an officer of the Company; (iii)
each member of the immediate family of each of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other than
the Company) in which any one of the individuals referred to in clauses "(i)",
"(ii)" and "(iii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a material voting, proprietary or
equity interest.)
(b) Part 2.18(b) of the Disclosure Schedule sets forth an accurate
description of any transfer of capital stock of the Company that has ever
occurred between or among any existing or former shareholders of the Company.
Exhibit E identifies each person who is (or who may be deemed to be) an
"affiliate" (as that term is used in Rule 145 under the Securities Act) of the
Company as of the date of this Agreement.
2.19 Legal Proceedings; Orders.
(a) Except as set forth in Part 2.19(a) of the Disclosure Schedule,
there is no pending Legal Proceeding, and, to the knowledge of the Company, no
Person has threatened to commence any Legal Proceeding: (i) that involves the
Company or any of the assets owned or used by the Company; or (ii) that
challenges, or that may have the effect of preventing, delaying,
18
making illegal or otherwise interfering with, the Merger or any of the other
transactions contemplated by this Agreement. To the knowledge of the Company,
except as set forth in Part 2.19 of the Disclosure Schedule, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that could reasonably be expected to, give rise to or serve as a basis
for the commencement of any such Legal Proceeding.
(b) Except as set forth in Part 2.19(b) of the Disclosure Schedule,
no Legal Proceeding has ever been commenced by or has ever been pending against
the Company.
(c) There is no order, writ, injunction, judgment or decree to which
the Company, or any of the assets owned or used by the Company, is subject. To
the knowledge of the Company, none of the shareholders of the Company is subject
to any order, writ, injunction, judgment or decree that relates to the business
of the Company or to any of the assets owned or used by the Company.
2.20 Authority; Binding Nature of Agreement. This Agreement has been duly
authorized, executed and delivered by, and constitutes the valid and binding
obligation of, the Company, enforceable against the Company in accordance with
its terms, except insofar as enforceability may be affected by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, and general principles of equity.
2.21 Non-Contravention; Consents. Except as set forth in Part 2.21 of the
Disclosure Schedule, neither (1) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, nor (2)
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the articles of incorporation or bylaws of the Company or
(ii) any resolution adopted by the shareholders of the Company, the board
of directors of the Company or any committee of the board of directors of
the Company;
(b) contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
transactions contemplated by this Agreement or to exercise any remedy or
obtain any relief under, any Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company, or any of the assets
owned or used by the Company, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any material
Governmental Authorization that is held by the Company or that otherwise
relates to the business of the Company or to any of the assets owned or
used by the Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract that is
or would constitute a Material Contract, or give any Person the right to
(i) declare a default or exercise any
19
remedy under any such Company Contract, (ii) accelerate the maturity or
performance of any such Company Contract or (iii) cancel, terminate or
modify any such Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by the Company
(except for minor liens that will not, in any case or in the aggregate,
materially detract from the value of the assets subject thereto or
materially impair the operations of the Company.
Except as set forth in Part 2.21 of the Disclosure Schedule, the Company is not
and will not be, required to make any filing with, or give any notice to, or to
obtain any Consent from, any Person in connection with (x) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement or (y) the consummation of the Merger or any of
the other transactions contemplated by this Agreement.
2.22 Full Disclosure. None of the representations or warranties made by
the Company in this Agreement (including, and as modified by, the Disclosure
Schedule) or in the Company Closing Certificate will, (i) contain any untrue
statement of a material fact or (ii) omit to state any material fact necessary
in order to make the statements contained herein (in the light of the
circumstances under which such statements were made or provided) not misleading.
2.23 Vote Required. The affirmative vote of the holders of (i) a majority
of the outstanding shares of Company Common Stock, voting separately as a class,
(ii) a majority of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and, if the Company Warrant is exercised, Series C Preferred
Stock, voting together as a single class, and (iii) a majority of the
outstanding shares of Company Common Stock and Company Preferred Stock, voting
together as a class (the "Required Vote") is the only vote of the holders of any
class or series of the Company's capital stock necessary to adopt and approve
this Agreement, the Merger and the other transactions contemplated by this
Agreement.
2.24 No Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made by or on
behalf of the Company.
2.25 No Existing Discussions. Except as set forth in Part 2.25 of the
Disclosure Schedule, neither the Company nor any Representative of the Company
is engaged, directly or indirectly, in any discussions or negotiations with any
other Person (other than Parent and Merger Sub) relating to any Acquisition
Transaction.
SECTION 3. Representations and Warranties of Parent and Merger Sub
Parent and Merger Sub jointly and severally represent and warrant to
the Company as follows:
3.1 Corporate Existence and Power. Each of Parent and Merger Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate power required to conduct
its business as now conducted, and
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is duly qualified to do business and is in good standing in each jurisdiction in
which the conduct of its business or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on Parent's business, financial condition or
results of operations.
3.2 Authority; Binding Nature of Agreement. Parent and Merger Sub have
the absolute and unrestricted right, power and authority to enter into and to
perform their obligations under this Agreement; and the execution, delivery and
performance by Parent and Merger Sub of this Agreement (including the
contemplated issuance of Parent Common Stock in the Merger in accordance with
this Agreement) have been duly authorized by all necessary action on the part of
Parent and Merger Sub and their respective boards of directors. No vote of
Parent's stockholders is needed to approve the Merger. This Agreement has been
duly executed and delivered by Parent and Merger Sub and constitutes the legal,
valid and binding obligation of Parent and Merger Sub, enforceable against them
in accordance with its terms, subject to (a) laws of general application
relating to bankruptcy, insolvency and the relief of debtors and (b) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
3.3 No Conflict; Consents. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby by Parent and
Merger Sub are not prohibited by, and will not violate or conflict with, any
provision of the certificate of incorporation or bylaws of Parent or Merger Sub,
or of any Legal Requirement or any provision of any Contract to which Parent or
Merger Sub is a party, except where any of the foregoing would not have,
individually or in the aggregate, a material adverse effect on the business,
financial condition or results of operation, of Parent. No Consent of any
Governmental Body is necessary on the part of Parent or Merger Sub for the
consummation by Parent and Merger Sub of the transactions contemplated by this
Agreement.
3.4 Sec Filings; Financial Statements. Parent has filed with the
Securities and Exchange Commission (the "SEC") and has heretofore made available
to the Company true and complete copies of, all forms, reports, schedules,
statements and other documents required to be filed by it and its subsidiaries
since October 1, 1998 under the Securities Act and the Exchange Act
(collectively, the "Parent SEC Documents"). As of their respective dates or, if
amended, as of the date of the last such amendment, the Parent SEC Documents and
any forms, reports, schedules, statements and other documents Parent may file
with the SEC subsequent to the date hereof until the Closing, including, without
limitation, any financial statements or schedules included therein, complied or
will comply in all material respects with the applicable requirements of the
Securities Act as the Exchange Act, and did and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were or will be made, not misleading. Each of
the consolidated balance sheets (including the related notes) included in the
Parent SEC Documents fairly presented in all material respects the financial
position of Parent and its consolidated subsidiaries as of the respective dates
thereof, and the other related statements (including the related
21
notes) included in the Parent SEC Documents has been prepared in all material
respects in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved, except as otherwise noted
therein and subject, in the case of unaudited interim financial statements, to
normal year-end adjustments.
3.5 Valid Issuance. The Parent Common Stock to be issued in the Merger and
upon exercise of Company Options assumed in accordance with the provisions of
this Agreement and, if applicable, upon exercise of the Company Warrant assumed
in accordance with the provisions of this Agreement will, when issued in
accordance with the provisions of this Agreement, be validly issued, fully paid
and nonassessable.
3.6 No Material Adverse Change. Between the date of the balance sheet
included in Parent's most recently filed report on Form 10-Q and the date of
this Agreement, except as disclosed in Parent's most recently filed report on
Form 10-Q, there has not occurred any material adverse change in the business,
financial condition or results of operations of Parent. For purposes of this
section, a change in the trading price of Parent's Common Stock, as reported by
the Nasdaq National Market or any other automated quotation system or exchange,
changes in economic conditions or changes in the industry and markets in which
Parent competes shall not constitute a material adverse change, whether
occurring at any time or from time to time.
3.7 Legal Proceedings. There is no pending Legal Proceeding, and to the
knowledge of Parent, no Person has threatened to commence any Legal Proceeding,
that challenges, or that may have the effect of preventing, delaying, making
illegal or otherwise interfering with, the Merger or any of the other
transactions contemplated by this Agreement.
3.8 Merger Sub. Merger Sub has been formed solely for the purpose of
executing and delivering this Agreement and consummating the transactions
contemplated hereby. Merger Sub has not engaged in any business or activity
other than activities related to its corporate organization and the execution
and delivery of this Agreement.
SECTION 4. Certain Covenants of the Company
4.1 Access and Investigation. During the period from the date of this
Agreement through the Closing Date or earlier termination of this Agreement
pursuant to the provisions of Section 8.1 (the "Pre-Closing Period"), the
Company shall, and shall cause its Representatives to: (a) provide Parent and
Parent's Representatives with reasonable access to the Company's
Representatives, personnel and assets and to all existing books, records, tax
returns, work papers and other documents and information relating to the
Company; and (b) provide Parent and Parent's Representatives with copies of such
existing books, records, tax returns, work papers and other documents and
information relating to the Company, and with such additional financial,
operating and other data and information regarding the Company, as Parent may
reasonably request.
4.2 Operation of the Business of the Company. Without the prior written
consent of Parent, during the Pre-Closing Period:
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(a) the Company shall conduct its business and operations in the
ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) the Company shall use commercially reasonable efforts to preserve
intact its current business organization, keep available the services of
its current officers and employees and maintain its relations and good will
with all suppliers, customers, landlords, creditors, employees and other
Persons having business relationships with the Company;
(c) the Company shall keep in full force all insurance policies
identified in Part 2.17 of the Disclosure Schedule;
(d) the Company shall not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and the Company shall not repurchase, redeem or otherwise reacquire
any shares of capital stock or other securities except from former
employees, directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any termination
of service to the Company;
(e) except for the issuance of shares of Company Common Stock upon
exercise or conversion of presently outstanding Company Preferred Stock,
Company Options or the Company Warrant, the Company shall not sell, issue
or authorize the issuance of (i) any capital stock or other security, (ii)
any option or right to acquire any capital stock or other security or (iii)
any instrument convertible into or exchangeable for any capital stock or
other security;
(f) except as contemplated by this Agreement, the Company shall not
amend or permit the adoption of any amendment to the articles of
incorporation or bylaws of the Company, or effect or permit the Company to
become a party to any Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction;
(g) the Company shall not form any subsidiary or acquire any equity
interest or other interest in any other Entity;
(h) the Company shall not make any capital expenditure, except for
capital expenditures that, when added to all other capital expenditures
made on behalf of the Company during the Pre-Closing Period, do not exceed
$50,000 per month;
(i) the Company shall not (i) enter into, or permit any of the assets
owned or used by it to become bound by, any Contract that is or would
constitute a Material Contract or (ii) amend or prematurely terminate, or
waive any material right or remedy under, any such Material Contract;
23
(j) the Company shall not (i) lend money to any Person (except that
the Company may make routine travel advances to employees in the ordinary
course of business) or (ii) incur or guarantee any indebtedness for
borrowed money;
(k) the Company shall not (i) establish, adopt or amend any Employee
Benefit Plan, (ii) other than in the ordinary course of business consistent
with past practice, pay any bonus or make any profit-sharing payment, cash
incentive payment or similar payment to, or increase the amount of the
wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees or
(iii) hire any new employee;
(l) the Company shall not change any of its methods of accounting or
accounting practices in any material respect;
(m) the Company shall not make any tax election;
(n) the Company shall not commence or settle any Legal Proceeding;
and
(o) the Company shall not agree or commit to take any of the actions
described in clauses "(e)" through "(n)" above.
4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify
Parent in writing of: (i) the discovery by the Company of any event, condition,
fact or circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes in any material respect an inaccuracy
in or breach of any representation or warranty made by the Company in this
Agreement; (ii) any event, condition, fact or circumstance that occurs, arises
or exists after the date of this Agreement and that would cause or constitute in
any material respect an inaccuracy in or breach of any representation or
warranty made by the Company in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or discovery
of such event, condition, fact or circumstance or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement; (iii) any breach of any covenant or obligation of the Company;
and (iv) any event, condition, fact or circumstance that would make the
satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely prior to July 31, 1999.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company shall promptly deliver to Parent an update to the
Disclosure Schedule specifying such change. Except as expressly set forth in
this Agreement, no such update shall be deemed to supplement or amend the
Disclosure Schedule for the purpose of (i) determining the accuracy of any of
the representations and warranties made by the Company in this Agreement or (ii)
determining whether any of the conditions set forth in Section 6 has been
satisfied.
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4.4 No Negotiation. During the Pre-Closing Period, the Company shall not,
directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than Parent) relating to a possible
Acquisition Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other
than Parent) relating to or in connection with a possible Acquisition
Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than Parent) relating to a possible Acquisition Transaction.
The Company shall promptly notify Parent in writing of any material inquiry,
proposal or offer relating to a possible Acquisition Transaction that is
received by the Company or any of its affiliates during the Pre-Closing Period.
SECTION 5. Additional Covenants of the Parties
5.1 Filings and Consents. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings, if
any, and give all notices, if any, required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement and (b) shall use all commercially reasonable efforts to obtain all
Consents, if any, required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger and the other transactions contemplated by this Agreement. The Company
shall (upon request) promptly deliver to Parent a copy of each such filing made,
each such notice given and each such Consent obtained by the Company during the
Pre-Closing Period.
5.2 Company Shareholders' Meeting. As promptly as practicable after the
execution of this Agreement, the Company and Parent shall jointly prepare an
Information Statement relating to the approval of the Merger by the Company's
shareholders and the exercise of dissenters' rights in connection therewith (the
"Information Statement"). The Company shall provide and include in the
Information Statement such information relating to the Company and its
shareholders as may be required pursuant to the provisions of applicable
securities and corporate laws. The Company shall, in accordance with its
articles of incorporation and bylaws and the applicable requirements of the
California General Corporation Law, call and hold a special meeting of its
shareholders as promptly as practicable for the purpose of permitting them to
consider and to vote upon and approve the Merger and this Agreement (the
"Company Shareholders' Meeting"). The Company shall cause a copy of the
Information Statement to be delivered to each shareholder of the Company who is
entitled to vote on the Merger. As promptly as practicable after the delivery of
copies of the Information Statement to all shareholders entitled to vote at the
Company Shareholders' Meeting, the Company shall use its best efforts (i) to
solicit from each of such shareholders a proxy in favor of the approval of the
Merger and this Agreement, and (ii) to cause each of such shareholders to
execute and deliver to Parent a Shareholder Representation Letter in the form of
Exhibit D hereto. In lieu of calling and
25
holding the Company Shareholders' Meeting, the Company may solicit written
consents in accordance with its articles of incorporation and bylaws and the
applicable requirements of the California General Corporation Law. Parent will
reasonably cooperate with the Company with respect to the matters set forth in
this Section 5.2. Parent will promptly provide all information relating to its
business or operations necessary for inclusion in the Information Statement to
satisfy all requirements of applicable state and federal securities and
corporate laws.
5.3 Conversion and Exercise. At or prior to the Closing, the Company shall
cause all outstanding shares of the Series A Preferred Stock and Series B
Preferred Stock of the Company to be converted into Company Common Stock in
accordance with the Company's articles of incorporation. At or prior to the
Closing, the Company shall use commercially reasonable efforts to cause the
holder of the Company Warrant to exercise the Company Warrant in accordance with
its terms, and to cause any shares of Series C Preferred Stock issued upon
exercise of the Company Warrant to be converted into Company Common Stock prior
to the Closing.
5.4 Public Announcements. During the Pre-Closing Period, (a) the Company
shall not (and the Company shall not permit any of its Representatives to) issue
any press release or make any public statement regarding this Agreement or the
Merger, or regarding any of the other transactions contemplated by this
Agreement, without Parent's prior written consent, and (b) Parent will consult
with the Company prior to issuing any press release or making any public
statement regarding the Merger.
5.5 Pooling of Interests. Parent and the Company shall use their
commercially reasonable efforts to cause the business combination to be effected
by the Merger to be accounted for as a pooling of interests. During the Pre-
Closing Period, no party to this Agreement shall take any action, and each party
shall use its commercially reasonable efforts to cause its Representatives not
to take any action, that could reasonably be expected to have an adverse effect
on the ability of Parent to account for the Merger as a "pooling of interests."
5.6 Affiliate Agreements. The Company shall use all commercially
reasonable efforts to cause each Person identified on Exhibit E hereto (and any
other Person that could reasonably be deemed to be an "affiliate" of the Company
for purposes of the Securities Act), to execute and deliver to Parent, as
promptly as practicable after the execution of this Agreement, an Affiliate
Agreement in the form of Exhibit F hereto.
5.7 Commercially Reasonable Efforts. During the Pre-Closing Period, (a)
the Company shall use all commercially reasonable efforts to cause the
conditions set forth in Section 6 to be satisfied on a timely basis and (b)
Parent and Merger Sub shall use all commercially reasonable efforts to cause the
conditions set forth in Section 7 to be satisfied on a timely basis. Without
limiting the foregoing, each of the parties hereto shall use all commercially
reasonable efforts to take promptly, or cause to be taken, all actions, to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and to remove
any injunctions and/or impediments or delays, legal or otherwise, in order
26
to consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement.
5.8 Access to Information. Parent shall provide the Company with copies
of such publicly available information about Parent as the Company may request.
5.9 Termination of Agreements. Prior to the Closing, the Company shall
use all commercially reasonable efforts to ensure that the Series B Preferred
Stock Purchase Agreement dated as of March 2, 1999, the Shareholder Rights
Agreement dated as of March 2, 1999, the Co-Sale and Rights of First Refusal
Agreement dated as of March 2, 1999 and the Voting Agreement dated as of March
2, 1999 and all provisions in Contracts that provide any Person with rights of
any nature with respect to the board of directors of the Company (except as
provided generally by the Company's articles of incorporation and bylaws or by
applicable law) are validly and effectively terminated as of the Effective Time.
5.10 Employee and Related Matters.
(a) Parent shall offer at-will employment with Parent or its
affiliates, including the Company, to all of the Company's employees at the
Closing at base compensation levels equal to or greater than each such
employee's base compensation level as an employee of the Company on the date
hereof. Prior to the Closing, Parent shall provide to such Company employees
offer letters setting forth the specific terms of their employment. Those
employees of the Company that continue to be employees of Parent or any of its
affiliates, including the Company, following the Closing would, subject to any
necessary transition period and the terms of such plans, be eligible to
participate in Parent's health, vacation, employee stock purchase, 401(k) and
other plans, to the same extent as comparably situated employees of Parent and
would receive credit under Parent's benefit plans for service as an employee of
the Company. For not less than one year following the Closing Date, Parent shall
maintain, or shall cause the Company, to maintain, compensation and employee
benefit plans and arrangements and perquisites for those persons who remain
employees of the Company after the Closing Date that, in the aggregate, are
substantially comparable to (or more favorable than) those provided pursuant to
the compensation and employee benefit plans and arrangements and perquisites in
effect on the date hereof.
(b) After the Closing, Parent may issue options, on Parent's standard
terms, to employees of the Company that continue to be employees of Parent or
any of its affiliates, including the Company, after the Closing.
(c) The Company shall use commercially reasonable efforts to cause
the individuals on Exhibit H hereto to execute and deliver to the Company and
Parent an Employment Agreement in the Form of Exhibit G hereto and a
Noncompetition Agreement in the form of Exhibit I hereto, as indicated on
Exhibit H hereto.
5.11 Protection of Proprietary Assets. The Company shall use commercially
reasonable efforts to cause all current and former employees, consultants and
independent contractors that are or were involved in the creation, invention,
research or development of the
27
Company Proprietary Assets, to execute and deliver to the Company an agreement
that is substantially identical to the form of the Confidential Information and
Invention Assignment Agreement, Consultant Confidential Information and
Invention Assignment Agreement or Advisory Board Agreement, as applicable.
5.12 FIRPTA Matters. At the Closing, (a) the Company shall deliver to
Parent a statement (in such form as may be reasonably requested by ▇▇▇▇▇▇
Godward LLP) conforming to the requirements of Section 1.897-2(h)(1)(I) of the
United States Treasury Regulation, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897-2(h)(2)
of the United States Treasury Regulations.
5.13 Notification. During the Pre-Closing Period, Parent shall promptly
notify the Company in writing of: (i) the discovery by Parent or Merger Sub of
any event, condition, fact or circumstance that occurred or existed on or prior
to the date of this Agreement and that caused or constitutes, in any material
respect, an inaccuracy in or breach of any representation or warranty made by
Parent or Merger Sub in this Agreement; (ii) any event, condition, fact or
circumstance that occurs, arises or exists after the date of this Agreement and
that would cause or constitute, in any material respect, an inaccuracy in or
breach of any representation or warranty made by Parent or Merger Sub in this
Agreement if (A) such representation or warranty had been made as of the time of
the occurrence, existence or discovery of such event, condition, fact or
circumstance or (B) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement; (iii) any breach of
any covenant or obligation of Parent or Merger Sub; and (iv) any event,
condition, fact or circumstances that Parent becomes aware of that would make
the satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely prior to July 31, 1999.
5.14 Tax-Free Reorganization. Parent and the Company shall each use its
commercially reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368(a) of the Code and to obtain an
opinion of its respective counsel to such effect as contemplated by Section 7.8.
Parent and the Company shall each execute and deliver the tax representation
letters in the form of Exhibit N. From and after the Effective Time, neither
Parent, Merger Sub nor the Company shall take any action that could reasonably
be expected to cause the Merger not to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
5.15 Nasdaq National Market Listing. Parent shall file an application to
list on the Nasdaq National Market the shares of Parent Common Stock issuable,
and those required to be reserved for issuance, in connection with the Merger,
as soon as practicable and will pay all necessary filing fees in connection
therewith.
SECTION 6. Conditions Precedent to Obligations of Parent and Merger Sub
The obligations of Parent and Merger Sub to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction (or waiver by Parent), at or prior to the Closing, of each
of the following conditions:
28
6.1 Accuracy of Representations. Each of the representations and
warranties made by the Company in this Agreement and in each of the other
agreements and instruments delivered to Parent in connection with the
transactions contemplated by this Agreement shall have been accurate in all
respects as of the date of this Agreement (without giving effect to any update
to the Disclosure Schedule, and without giving effect to any "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications), and
shall be accurate in all respects as of the Closing Date as if made at the
Closing (without giving effect to any update to the Disclosure Schedule, and
without giving effect to any "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications), except to the extent such
representations and warranties expressly relate to any earlier date (in which
case such representations and warranties shall be accurate on and as of such
date, without giving effect to any update to the Disclosure Schedule, and
without giving effect to any "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications), and except for inaccuracies in
any such representations or warranties that have not had, and are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
6.2 Performance of Covenants. All of the covenants and obligations that
the Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
6.3 Shareholder Approval. The Merger and this Agreement shall have been
duly approved by at least 94% of the outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock (if any) and Company
Common Stock, voting together as a single class.
6.4 Assumption/Exercise of Company Warrant. Parent shall have received
satisfactory evidence that either (a) the Company Warrant will be assumed in
accordance with Section 1.6(b) such that from and after the Closing all rights
with respect to Company capital stock under the Company Warrant shall upon the
Closing be converted into rights with respect to Parent Common Stock, or (b)
prior to the Closing the Company Warrant shall have been exercised in accordance
with its terms, and either (i) the shares of the Company's Series C Preferred
Stock issued upon exercise of the Company Warrant shall have been converted into
shares of Company Common Stock prior to the Closing, or (ii) as a result of the
Merger and without any action on the part of the holder of the Company Warrant
or any other Person, the shares of the Company's Series C Preferred Stock issued
upon exercise of the Company Warrant shall be converted in the Merger solely
into the right to receive the number of shares of Parent Common Stock that the
holder of the Company Warrant would have received had the Company Warrant been
exercised prior to the Closing and the shares of the Company's Series C
Preferred Stock been converted into shares of Company Common Stock prior to the
Closing.
6.5 Consents. All Consents (a) required to be obtained from any
Governmental Entity and (b) otherwise required to be obtained, in each case in
connection with the Merger and the other transactions contemplated by this
Agreement shall have been obtained and shall be in full force and effect, except
in the case of clause (b) to the extent that the failure to obtain any such
Consents has not had, and is not reasonably likely to have, a Material Adverse
Effect on the Company.
29
6.6 Employee Matters. Parent shall have received satisfactory evidence
that none of the Key Employees shall have indicated that he or she does not
intend to continue his or her employment with the Company after the Closing.
6.7 Agreements and Documents. Parent and the Company shall have received
the following agreements and documents, each of which shall be in full force and
effect:
(a) Affiliate Agreements in the form of Exhibit F hereto, executed by
the Persons identified on Exhibit E hereto and by any other Person who
could reasonably be deemed to be an "affiliate" of the Company for purposes
of the Securities Act;
(b) Employment Agreements in the form of Exhibit G hereto, executed
by the individuals identified on Exhibit H hereto;
(c) Noncompetition Agreements in the form of Exhibit I hereto,
executed by the individuals identified on Exhibit H hereto;
(d) a FIRPTA Statement in the form of Exhibit J hereto, executed by
the Company:
(e) Shareholder Representation Letters in the form of Exhibit D
hereto, executed by each of the Merger Shareholders (other than the current
holder of the Company Warrant);
(f) a Registration Rights Agreement in the form of Exhibit K hereto,
executed by Merger Shareholders holding at least 94% of the outstanding
shares of capital stock of the Company immediately prior to the Closing;
(g) an Escrow Agreement in the form of Exhibit C hereto, executed by
the Escrow Agent and Merger Shareholders holding at least 94% of the
outstanding shares of capital stock of the Company immediately prior to the
Closing;
(h) a legal opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, dated as of
the Closing Date, in the form of Exhibit L hereto;
(i) a letter from PricewaterhouseCoopers LLP, dated as of the Closing
Date, concurring with Parent's assertion that Parent may account for the
Merger as a "pooling of interests" in accordance with generally accepted
accounting principles, Accounting Principles Board Opinion No. 16 and all
published rules, regulations and policies of the SEC (provided, however,
that the condition referred to in this clause "(j)" shall not apply if the
reason that PricewaterhouseCoopers LLP is unable to deliver the letter
referred to in this clause "(j)" is due solely to actions taken by Parent
or its affiliates);
(j) a letter from the Company, dated as of the Closing Date,
confirming that no transaction entered into by the Company, and no other
fact or circumstance relating to the Company, will prevent Parent from
accounting for the Merger as a "pooling of
30
interests" in accordance with generally accepted principles, Accounting
Principles Board Opinion No. 16 and all published rules, regulations and
policies of the SEC;
(k) a certificate executed by the Company and containing the
representation and warranty of the Company that the conditions set forth in
Sections 6.1, 6.2, 6.3, 6.4, 6.5, 6.8, 6.10 and 6.13 have been duly
satisfied (the "Company's Closing Certificate");
(l) an agreement of merger executed by the Company to be filed with
the Secretary of State of the State of California in accordance with
Section 1.3 and a certificate of merger executed by the Company to be filed
with the Secretary of State of the State of Delaware in accordance with
Section 1.3;
(m) written resignations of all directors of the Company, effective
as of the Closing Date;
(n) the valid and effective termination as of the Effective Time of
provisions in Contracts that provide any Person with rights of any nature
with respect to the board of directors of the Company, except as provided
generally by the Company's articles of incorporation and bylaws or by
applicable law; and
(o) the valid and effective termination of the Series B Preferred
Stock Purchase Agreement dated as of March 2, 1999, the Shareholder Rights
Agreement dated as of March 2, 1999, the Co-Sale and Rights of First
Refusal Agreement dated as of March 2, 1999 and the Voting Agreement dated
as of March 2, 1999.
6.8 Absence of Material Adverse Effect. There shall have been no change
in the business, properties, condition (financial or otherwise), or results of
operations of the Company since the date of this Agreement which has had or
would reasonably be expected to have a Material Adverse Effect on the Company.
6.9 Stock Certificates. Parent shall have received certificates
representing all of the capital stock of the Company, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank in proper form for transfer,
with appropriate transfer stamps, if any, affixed and, immediately following the
Closing, Parent shall own 100 percent of the outstanding capital stock and
rights to acquire capital stock of the Company.
6.10 FIRPTA Compliance. The Company shall have filed with the Internal
Revenue Service the notification referred to in Section 6.6(d).
6.11 Listing. The shares of Parent Common Stock to be issued in the Merger
and such other shares of Parent Common Stock required to be reserved for
issuance in connection with the Merger shall have been approved for listing
(subject to notice of issuance) on the Nasdaq National Market.
6.12 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal
31
Requirement enacted or deemed applicable to the Merger that makes consummation
of the Merger illegal.
6.13 No Legal Proceedings. No Governmental Body or other Person shall
have commenced or threatened to commence any Legal Proceeding (a) challenging or
seeking the recovery of a material amount of damages in connection with the
Merger, (b) seeking to prohibit or limit the exercise by Parent of any material
right pertaining to its ownership of stock of Merger Sub or the Company or (c)
claiming to own any capital stock of the Company, or option or other right to
acquire capital stock of the Company, or right to receive consideration as a
result of the Merger.
SECTION 7. Conditions Precedent to Obligations of the Company
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction (or waiver), at or prior to the Closing, of the following
conditions:
7.1 Accuracy of Representations. Each of the representations and
warranties made by Parent and Merger Sub in this Agreement and in each of the
other agreements and instruments delivered to the Company in connection with the
transactions contemplated by this Agreement shall have been accurate in all
respects as of the date of this Agreement (without giving effect to any
"Material Adverse Effect" or other materiality qualifications or any similar
qualifications), and shall be accurate in all respects as of the Closing Date as
if made at the Closing (without giving effect to any "Material Adverse Effect"
or other materiality qualifications or any similar qualifications), except to
the extent such representations and warranties expressly relate to any earlier
date (in which case such representations and warranties shall be accurate on and
as of such date, without giving effect to any "Material Adverse Effect" or other
materiality qualifications, or any similar qualifications), and except for
inaccuracies in any such representations or warranties that have not had, and
are not reasonably likely to have, individually or in the aggregate, a material
adverse effect on Parent's business, financial condition or results of
operations.
7.2 Performance of Covenants. All of the covenants and obligations that
Parent and Merger Sub are required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
7.3 Shareholder Approval. The Merger and this Agreement shall have been
duly approved by the shareholders of the Company by the requisite vote under
applicable law and the Company's articles of incorporation.
7.4 Agreements and Documents. The Company shall have received the
following documents.
(a) a Registration Rights Agreement in the form of Exhibit K hereto,
executed by Parent;
32
(b) Employment Agreements in the form of Exhibit G hereto, with the
persons identified on Exhibit H hereto, executed by Parent;
(c) a legal opinion of ▇▇▇▇▇▇ Godward llp, dated as of the Closing
Date, in the form of Exhibit M hereto; and
(d) A certificate executed by Parent and Merger Sub containing the
representation and warranty of the Parent and Merger Sub that the
conditions set forth in Sections 7.1, 7.2, 7.5 and 7.7 have been duly
satisfied.
7.5 Listing. The shares of Parent Common Stock to be issued in the
Merger and such other shares of Parent Common Stock required to be reserved for
issuance in connection with the Merger shall have been approved for listing
(subject to notice of issuance) on the Nasdaq National Market.
7.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
7.7 No Legal Proceedings. There shall be no pending Legal Proceeding that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement.
7.8 Tax Opinion. Parent and the Company shall have received written
opinions from their respective tax counsel (▇▇▇▇▇▇ Godward LLP and ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, PC, respectively), in customary form, to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and such opinions shall not have been withdrawn, provided,
however, that if counsel to either Parent or the Company does not render such
opinion, this condition shall nonetheless be deemed to be satisfied if the other
party's counsel renders such opinion to such party. In rendering the opinion
contemplated by this Section, counsel may rely upon reasonable representations
and certificates of Parent, Merger Sub and the Company, including the tax
representation letters in the form of Exhibit N.
SECTION 8. Termination
8.1 Termination Events. This Agreement may be terminated prior to the
Closing:
(a) by Parent if any of the Company's representations and warranties
contained in this Agreement shall have been materially inaccurate as of the
date of this Agreement or shall have become materially inaccurate as of any
subsequent date (as if made on such subsequent date), or if any of the
Company's covenants contained in this Agreement shall have been breached in
any material respect, in either case such that the condition set forth in
either Section 6.1 or Section 6.2, as the case may be, would not be
satisfied as of the time of such breach or as of the time such
representation or warranty shall have become inaccurate; provided, however,
that Parent may not terminate this
33
Agreement under this Section 8.1(a) on account of an inaccuracy in the
Company's representations and warranties that is curable by the Company or
on account of a breach of a covenant by the Company that is curable by the
Company unless the Company fails to cure such inaccuracy or breach within
30 days after receiving written notice from Parent of such inaccuracy or
breach;
(b) by the Company if any of Parent's representations and warranties
contained in this Agreement shall have been materially inaccurate as of the
date of this Agreement or shall have become materially inaccurate as of any
subsequent date (as if made on such subsequent date), or if any of Parent's
covenants contained in this Agreement shall have been breached in any
material respect, in either case such that the condition set forth in
either Section 7.1 or Section 7.2, as the case may be, would not be
satisfied as of the time of such breach or as of the time such
representation or warranty shall have become inaccurate; provided, however,
that the Company may not terminate this Agreement under this Section 8.1(b)
on account of an inaccuracy in Parent's representations and warranties that
is curable by Parent or on account of a breach of a covenant by Parent that
is curable by Parent unless Parent fails to cure such inaccuracy or breach
within 30 days after receiving written notice from the Company of such
inaccuracy or breach;
(c) by Parent if the Closing has not taken place on or before July
31, 1999 (other than as a result of any failure on the part of Parent or
Merger Sub to comply with or perform any covenant or obligation of Parent
or Merger Sub set forth in this Agreement or in any other agreement or
instrument delivered to the Company);
(d) by the Company if the Closing has not taken place on or before
July 31, 1999 (other than as a result of the failure on the part of the
Company to comply with or perform any covenant or obligation of the Company
set forth in this Agreement or in any other agreement or instrument
delivered to Parent);
(e) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Body shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other
action, having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(f) by the mutual written consent of Parent and the Company.
8.2 Termination Procedures. If Parent wishes to terminate this Agreement
pursuant to Section 8.1(a) or Section 8.1(c), Parent shall deliver to the
Company a written notice stating that Parent is terminating this Agreement and
setting forth a brief description of the basis on which Parent is terminating
this Agreement. If the Company wishes to terminate this Agreement pursuant to
Section 8.1(b) or Section 8.1(d), the Company shall deliver to Parent a notice,
in writing, stating that the Company is terminating this Agreement and setting
forth a brief description of the basis on which it is terminating this
Agreement.
34
8.3 Effect of Termination. If this Agreement is terminated pursuant to
Section 8.1 and 8.2, all further obligations of the parties under this Agreement
shall terminate; provided, however, that: (a) none of the parties shall be
relieved of any obligation or liability arising from any prior willful breach by
such party of any provision of this Agreement and (b) the parties shall, in all
events, remain bound by and continue to be subject to the provisions set forth
in Section 10 and Section 5.4.
SECTION 9. Indemnification, Etc.
9.1 Survival of Representations, Etc.
(a) The representations and warranties made by the Company
(including the representations and warranties set forth in Section 2) shall
survive the Closing and shall expire on (i) the earlier of the first anniversary
of the Closing Date or the date of the audit report on the first financial
statements of Parent containing combined operations of the Company and Parent
for those representations related to matters expected to be encountered in the
audit process and (ii) the first anniversary of the Closing Date for other
matters (the "Termination Date"); provided, however, that if, at any time prior
to the Termination Date, any Indemnitee (acting in good faith) delivers to the
Shareholders' Agent a written notice alleging the existence of an inaccuracy in
or a breach of any of the representations and warranties made by the Company
(and setting forth in reasonable detail the basis for such Indemnitee's belief
that such an inaccuracy or breach may exist) and asserting a claim for recovery
under Section 9.2 based on such alleged inaccuracy or breach, then the claim
asserted in such notice shall survive the Termination Date until such time as
such claim is fully and finally resolved. All representations and warranties
made by Parent and Merger Sub shall terminate and expire as of the Closing Date,
and any liability of Parent or Merger Sub with respect to such representations
and warranties shall thereupon cease.
(b) The representations, warranties, covenants and obligations of
the Company, and the rights and remedies that may be exercised by the
Indemnitees, shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company in this Agreement.
9.2 Indemnification.
(a) From and after the Closing Date (but subject to Section 9.1(a),
9.2(b), 9.3 and the other limitations set forth in this Section 9), the
shareholders of the Company who shall have received, or shall be entitled to
receive, Parent Common Stock pursuant to Section 1.5 of this Agreement (the
"Indemnitors"), severally (and not jointly) and in proportion to their original
contributions to the Escrow Fund, shall hold harmless and indemnify each of the
Indemnitees from and against, and the Escrow Shares shall be available to
compensate and reimburse each of
35
the Indemnitees for, any Damages that are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and that arise from or as a result of, or are directly or
indirectly connected with: (i) any inaccuracy in or breach of any representation
or warranty set forth in Section 2 (as modified by the Disclosure Schedule)
(without giving effect to any "Material Adverse Effect" or other materiality
qualification or any similar qualification contained or incorporated directly or
indirectly in such representation or warranty, and without giving effect to any
update to the Disclosure Schedule delivered by the Company to Parent after the
date of this Agreement and prior to the Closing); (ii) any inaccuracy in or
breach of any representation or warranty set forth in Section 2 (as modified by
the Disclosure Schedule) as if such representation and warranty had been made on
and as of the Closing Date (without giving effect to any "Material Adverse
Effect" or other materiality qualification or any similar qualification
contained or incorporated directly or indirectly in such representation or
warranty, but giving effect to any update to the Disclosure Schedule delivered
by the Company to Parent prior to the Closing to the extent that Parent would be
entitled to terminate this Agreement as a result of such update); (iii) any
breach of any covenant or obligation of the Company contained in this Agreement
(including the covenants set forth in Sections 4 and 5); or (iv) any Legal
Proceeding relating to any inaccuracy or breach of the type referred to in
clause "(i)," "(ii)" or "(iii)" above (including any Legal Proceeding commenced
by any Indemnitee for the purpose of enforcing any of its rights under this
Section 9); provided, however, that, except as set forth in Section 9.3 with
respect to claims based upon fraud, the aggregate amount for which the
Indemnitors are required to indemnify the Indemnitees pursuant to this Section
9.2 will not exceed the amount of Escrow Shares held in the Escrow Fund.
(b) Deductible. The Indemnitors shall not be required to make any
indemnification payment pursuant to Section 9.2(a) until such time as the total
amount of all Damages (including the Damages arising from such inaccuracy or
breach and all other Damages arising from any other inaccuracies in or breaches
of any representations or warranties) that have been directly or indirectly
suffered or incurred by any one or more of the Indemnitees, or to which any one
or more of the Indemnitees has or have otherwise become subject, exceeds
$250,000 in the aggregate. If the total amount of such Damages exceeds $250,000,
then the Indemnitees shall be entitled to be indemnified against and compensated
and reimbursed only for the portion of such Damages exceeding $250,000.
9.3 Exclusive Remedy. With the exception of claims based upon fraud,
from and after the Closing, recourse of Parent to the Escrow Shares pursuant to
this Agreement and the Escrow Agreement shall be the sole and exclusive remedy
of Parent and the other Indemnitees for damages under the indemnification
provisions contained in, and for any breach of, this Agreement (it being
understood that nothing in this Section 9.3 or elsewhere in this Agreement shall
effect Parent's rights to specific performance or other similar equitable
remedies with respect to covenants referred to in this Agreement to be performed
after the Closing). Any Escrow Shares released from the Escrow Fund to an
Indemnitee (other than pursuant to Section 3(h) of the Escrow Agreement) shall
be deemed to reduce the Escrow Shares pro rata with respect to each Merger
Shareholder in accordance with each Merger Shareholder's percentage interest in
the Escrow Fund as set forth in Exhibit B to the Escrow Agreement.
36
9.4 No Contribution. No shareholder of the Company shall have any right
of contribution, right of indemnity or other right or remedy against Merger Sub
or the Company in connection with any indemnification obligation or any other
liability to which she, he or it may become subject under or in connection with
this Agreement.
9.5 Defense Of Third Party Claims. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Merger Sub or the Company, against Parent or against any other Person) with
respect to which any of the Indemnitors may, in Parent's reasonable judgment,
become obligated to hold harmless, indemnify, compensate or reimburse any
Indemnitee pursuant to this Section 9, Parent shall have the right, at its
election, to proceed with the defense of such claim or Legal Proceeding on its
own. The Merger Shareholders shall be entitled, at their expense, to
participate in any defense of such claim or Legal Proceeding. If Parent so
proceeds with the defense of any such claim or Legal Proceeding:
(a) each Indemnitor shall make available to Parent any documents
and materials in his or its possession or control that may be necessary to
the defense of such claim or Legal Proceeding; and
(b) Parent shall have the right to settle, adjust or compromise
such claim or Legal Proceeding only with the consent of the Shareholders'
Agent (as defined in Section 10.1); provided, however, that such consent
shall not be unreasonably withheld.
Parent shall give the Shareholders' Agent prompt notice of the commencement of
any such Legal Proceeding against Parent, Merger Sub or the Company; provided,
however, any failure on the part of Parent to so notify the Shareholders' Agent
shall not limit any of the obligations of the Indemnitors under this Section 9
(except to the extent such failure materially prejudices the defense of such
Legal Proceeding). If Parent does not elect to proceed with the defense of any
such claim or Legal Proceeding, the Shareholders' Agent may proceed with the
defense of such claim or Legal Proceeding with counsel reasonably satisfactory
to Parent; provided, however, that the Shareholders' Agent may not settle,
adjust or compromise any such claim or Legal Proceeding without the prior
written consent of Parent (which consent may not be unreasonably withheld).
SECTION 10. Miscellaneous Provisions
10.1 Shareholders' Agent. By virtue of their approval of the Merger and
this Agreement, the Merger Shareholders shall have approved, among other
matters, the indemnification and escrow terms set forth in Section 9 and shall
irrevocably appoint ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ as their agent for purposes of Section 9
(the "Shareholders' Agent") to give and receive notices and communications, to
authorize delivery to Parent of Parent Common Stock, cash or other property from
the Escrow Fund, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand dispute resolution pursuant to
Section 3 of the Escrow Agreement and comply with orders of courts and awards of
arbitrators with respect to indemnification claims, and to take all actions
necessary or appropriate in the judgment of the Shareholders' Agent for the
accomplishment of the foregoing. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ hereby accepts his appointment
as the Shareholders' Agent. Parent shall be entitled to deal
37
exclusively with the Shareholders' Agent on all matters relating to Section 9,
and shall be entitled to rely conclusively (without further evidence of any kind
whatsoever) on any document executed or purported to be executed on behalf of
any Indemnitor by the Shareholders' Agent, and on any other action taken or
purported to be taken on behalf of any Indemnitor by the Shareholders' Agent, as
fully binding upon such Indemnitor. If the Shareholders' Agent shall die, become
disabled or otherwise be unable to fulfill his responsibilities as agent of the
Indemnitors, then the Indemnitors shall, within ten days after such death or
disability, appoint a successor agent and, promptly thereafter, shall notify
Parent of the identity of such successor. Any such successor shall become the
"Shareholders' Agent" for purposes of Section 9 and this Section 10.1. If for
any reason there is no Shareholders' Agent at any time, all references herein to
the Shareholders' Agent shall be deemed to refer to the Indemnitors. The
Shareholders' Agent shall not be responsible for any act done or omitted
thereunder as Shareholders' Agent while acting in good faith and in the exercise
of reasonable judgment. The Merger Shareholders shall jointly and severally
indemnify the Shareholders' Agent and hold the Shareholders' Agent harmless
against any loss, liability or expense incurred without gross negligence, bad
faith or willful misconduct on the part of the Shareholders' Agent and arising
out of or in connection with the acceptance or administration of the
Shareholders' Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel or other professional retained by the
Shareholders' Agent. By virtue of their approval of the Merger and this
Agreement, the Merger Shareholders hereby agree to pay all costs and expenses,
including those of any legal counsel or other professional retained by the
Shareholders' Agent, in connection with the acceptance and administration of the
Shareholders' Agent's duties hereunder. Subject to the prior right of Parent to
make claims for Damages, the Shareholders' Agent shall have the right to recover
from the Escrow Fund prior to any distribution to the Merger Shareholders, any
costs and expenses, including those of any legal counsel or other professional
retained by the Shareholders' Agent, in connection with the acceptance and
administration of the Shareholders' Agent's duties hereunder.
10.2 Further Assurances. Each party hereto shall execute and cause to be
delivered to each other party hereto such instruments and other documents, and
shall take such other actions, as such other party may reasonably request (prior
to, at or after the Closing) for the purpose of carrying out or evidencing any
of the transactions contemplated by this Agreement.
10.3 Fees And Expenses. Each party to this Agreement shall bear and pay
all fees, costs and expenses (including legal fees and accounting fees) that
have been incurred or that are incurred by such party in connection with the
transactions contemplated by this Agreement.
10.4 Attorneys' Fees. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
10.5 Notices. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath
38
the name of such party below (or to such other address or facsimile telephone
number as such party shall have specified in a written notice given to the other
parties hereto):
if to Parent or Merger Sub:
E
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer, with a copy to General counsel
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Company:
Billpoint, Inc.
▇▇▇▇-▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇. ▇▇▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Shareholders' Agent or any of the Indemnitors:
Sequoia Capital
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇. ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
10.6 Time of the Essence. For the purposes of this Agreement and the
transactions contemplated by this Agreement, time is of the essence.
10.7 Headings. The underlined headings contained in this Agreement are
for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
10.9 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the internal laws of the State of California
(without giving effect to principles of conflicts of laws).
39
10.10 Successors and Assigns. This Agreement shall be binding upon each
of the parties hereto and each of their respective successors and assigns, if
any. This Agreement shall inure to the benefit of: the Company; Parent; Merger
Sub; the other Indemnitees; and the respective successors and assigns, if any,
of the foregoing. Merger Sub may freely assign any or all of its rights under
this Agreement (including its indemnification rights under Section 9), in whole
or in part, to any other Person without obtaining the consent or approval of any
other party hereto or of any other Person.
10.11 Remedies Cumulative; Specific Performance. The rights and remedies
of the parties hereto shall be cumulative (and not alternative). The parties to
this Agreement agree that, in the event of any breach or threatened breach by
any party to this Agreement of any covenant, obligation or other provision set
forth in this Agreement for the benefit of any other party to this Agreement,
such other party shall be entitled (in addition to any other remedy that may be
available to it) to (a) a decree or order of specific performance or mandamus to
enforce the observance and performance of such covenant, obligation or other
provision and (b) an injunction restraining such breach or threatened breach.
10.12 Waiver. No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Person in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have any
effect except in the specific instance in which it is given.
10.13 Amendments. This Agreement may not be amended, modified, altered
or supplemented other than by means of a written instrument duly executed and
delivered on behalf of all of the parties hereto.
10.14 Severability. In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
10.15 Parties in interest. Except for the provisions of Sections 1.5 and
10.1, none of the provisions of this Agreement is intended to provide any rights
or remedies to any Person other than the parties hereto and their respective
successors and assigns, if any.
10.16 Entire Agreement. This Agreement and the other agreements referred
to herein set forth the entire understanding of the parties hereto relating to
the subject matter hereof and thereof and supersede all prior agreements and
understandings among or between any of the
40
parties relating to the subject matter hereof and thereof; provided, however,
that the Mutual Non-Disclosure Agreement executed on behalf of Parent and the
Company on April 21, 1999 shall not be superseded by this Agreement and shall
remain in effect in accordance with its terms until the earlier of (a) the
Closing Date or (b) the date on which such Mutual Non-Disclosure Agreement is
terminated in accordance with its terms.
10.17 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
waives any and all right to trial by jury in any Legal Proceeding arising out of
or related to this Agreement or the transactions contemplated hereby.
10.18 Construction.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender
shall include the masculine and neuter genders; and the neuter gender shall
include the masculine and feminine genders .
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall
not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation. "
(d) Except as otherwise indicated, all references in this Agreement
to "Sections", "Schedules" and "Exhibits" are intended to refer to Sections
of this Agreement and Schedules and Exhibits to this Agreement.
41
The parties hereto have caused this Agreement to be executed and
delivered as of the date first written above.
eBay Inc.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive
Officer
Brazil Acquisition Corp.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Secretary
Billpoint, Inc.,
a California corporation
By: /s/ S. ▇▇▇▇▇ ▇▇▇
-------------------------
S. ▇▇▇▇▇ ▇▇▇, Co-President
42
EXHIBITS
Exhibit A - Certain definitions
Exhibit B - Form of Voting Agreement
Exhibit C - Form of Escrow Agreement
Exhibit D - Forms of Shareholder Representation Letters
Exhibit E - Persons to execute Affiliate Agreements
Exhibit F - Form of Affiliate Agreement
Exhibit G - Form of Employment Agreement
Exhibit H - Persons to sign Employment and Noncompetition Agreements
Exhibit I - Form of Noncompetition Agreement
Exhibit J - FIRPTA Statement
Exhibit K - Form of Registration Rights Agreement
Exhibit L - Form of legal opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Exhibit M - Form of legal opinion of Cooley Godward LLP
Exhibit N - Form of Tax Representation Letters
The Registrant shall furnish a copy of any of the exhibits referred to
above to the Commission upon request.