EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FLYCAST COMMUNICATIONS CORPORATION,
FREMONT ACQUISITION CORP.,
INTERSTEP, INC.
AND
CERTAIN SHAREHOLDERS
OF INTERSTEP, INC.
TABLE OF CONTENTS
Page
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ARTICLE I THE MERGER.................................................... 1
1.1 The Merger................................................... 1
1.2 Effective Time............................................... 2
1.3 Effect of the Merger......................................... 2
1.4 Articles of Organization; Bylaws............................. 2
1.5 Directors and Officers....................................... 2
1.6 Effect on Capital Stock...................................... 2
1.7 Dissenting Shares............................................ 4
1.8 Surrender of Certificates.................................... 4
1.9 No Further Ownership Rights in Company Common Stock.......... 6
1.10 Lost, Stolen or Destroyed Certificates....................... 6
1.11 Tax and Accounting Consequences.............................. 6
1.12 Taking of Necessary Action; Further Action................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 7
2.1 Organization of the Company.................................. 7
2.2 Company Capital Structure.................................... 7
2.3 Subsidiaries................................................. 7
2.4 Authority.................................................... 8
2.5 Company Financial Statements................................. 8
2.6 No Undisclosed Liabilities................................... 9
2.7 No Changes................................................... 9
2.8 Tax and Other Returns and Reports............................ 10
2.9 Restrictions on Business Activities.......................... 12
2.10 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment....................................... 12
2.11 Intellectual Property........................................ 13
2.12 Agreements, Contracts and Commitments........................ 16
2.13 Interested Party Transactions................................ 17
2.14 Governmental Authorization................................... 18
2.15 Litigation................................................... 18
2.16 Minute Books................................................. 18
2.17 Brokers' and Finders' Fees................................... 18
2.18 Insurance.................................................... 18
2.19 Compliance With Laws......................................... 18
2.20 Complete Copies of Materials................................. 19
2.21 Binding Agreements; No Default............................... 19
2.22 Representations Complete..................................... 19
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TABLE OF CONTENTS
(continued)
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2.23 Third Party Consents......................................... 19
2.24 Accounts Receivable Inventory................................ 19
2.25 Environmental Matters........................................ 20
2.26 Employee Benefit Plans and Compensation...................... 20
2.27 Warranties; Indemnities...................................... 24
2.28 Adequacy and Functionality of Company Products............... 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... 24
3.1 Organization, Standing and Power............................. 24
3.2 Capital Structure............................................ 25
3.3 Authority.................................................... 25
3.4 SEC Documents; Parent Financial Statements................... 26
3.5 No Material Adverse Change................................... 26
3.6 Representations Complete..................................... 26
3.7 Litigation................................................... 26
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................... 27
4.1 Conduct of Business of the Company........................... 27
4.2 No Solicitation.............................................. 29
ARTICLE V ADDITIONAL AGREEMENTS......................................... 30
5.1 Meeting of Company Shareholders.............................. 30
5.2 Access to Information........................................ 30
5.3 Confidentiality.............................................. 30
5.4 Expenses..................................................... 30
5.5 Public Disclosure............................................ 30
5.6 Pooling Accounting........................................... 31
5.7 Consents..................................................... 31
5.8 Affiliate Agreements......................................... 31
5.9 Legal Requirements........................................... 31
5.10 Blue Sky Laws................................................ 32
5.11 Best Efforts; Additional Documents and Further Assurances.... 32
5.12 Stock Options................................................ 32
5.13 Parent Registrations......................................... 32
5.14 Indemnification.............................................. 33
5.15 Option Agreements............................................ 33
5.16 Registration Rights Agreement................................ 33
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TABLE OF CONTENTS
(continued)
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5.17 Non-Competition Agreements................................... 33
5.18 Escrow Agreement............................................. 33
5.19 Support Agreement............................................ 33
ARTICLE VI CONDITIONS TO THE MERGER..................................... 33
6.1 Conditions to Obligations of Each Party to Effect the
Merger....................................................... 33
6.2 Additional Conditions to Obligations of Company.............. 34
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub................................................... 35
ARTICLE VII TAX MATTERS................................................. 36
7.1 Tax Periods Ending On Or Before the Closing Date............. 36
7.2 Cooperation on Tax Matters................................... 36
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.................................................... 37
8.1 Survival of Representations, Warranties and Covenants........ 37
8.2 Indemnification.............................................. 37
8.3 Method of Asserting Claims................................... 38
8.4 Indemnification Liability Limitations........................ 38
8.5 Shareholder Agent of the Shareholders........................ 39
8.6 Third-Party Claims........................................... 39
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................ 39
9.1 Termination.................................................. 39
9.2 Effect of Termination........................................ 40
9.3 Amendment.................................................... 40
9.4 Extension; Waiver............................................ 40
ARTICLE X GENERAL PROVISIONS............................................ 40
10.1 Notices...................................................... 40
10.2 Interpretation............................................... 41
10.3 Counterparts................................................. 42
10.4 Miscellaneous................................................ 42
10.5 Governing Law................................................ 42
10.6 Attorneys' Fees.............................................. 42
10.7 Resolution of Disputes; Stipulation Regarding
Confidentiality.............................................. 42
10.8 Rules of Construction........................................ 42
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INDEX OF EXHIBITS
Exhibit Description
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Exhibit A Schedule of Company Shareholders
Exhibit B Form of Non-Competition Agreement
Exhibit C Form of Support Agreement
Exhibit D Form of Escrow Agreement
Exhibit E Merger Agreement
Exhibit F Disclosure Schedule
Exhibit G List of shareholders and optionholders of the Company
Exhibit H Form of Affiliate Agreement
Exhibit I Form of Registration Rights Agreement
Exhibit J Form of Legal Opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
Professional Corporation
Exhibit K Form of Legal Opinion of ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP
Schedules
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of August 30, 1999 among Flycast Communications Corporation, a
Delaware corporation ("Parent"), Fremont Acquisition Corp., a Massachusetts
corporation ("Merger Sub") and a direct, wholly owned subsidiary of Parent,
InterStep, Inc., a Massachusetts corporation (the "Company") and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ (collectively, the "Shareholders").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
shareholders that the Company and Merger Sub combine into a single company
through the statutory merger of Merger Sub with and into the Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Common Stock of the Company ("Company Common Stock") shall be converted into
shares of Common Stock of Parent ("Parent Common Stock") at the rate determined
herein such that the holders of the Company's outstanding securities shall be
entitled to receive Parent Common Stock as set forth herein.
C. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. Concurrent with the execution of this Agreement, as a material
inducement to Parent to enter into this Agreement, (i) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇▇ each are entering into the agreements not to compete with Parent
(the "Non-Compete Agreements") substantially in the form attached hereto as
Exhibit B (ii) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇.▇. ▇▇▇▇▇▇▇▇▇▇ each are
entering into support agreements with Parent (the "Support Agreements")
substantially in the form attached hereto as Exhibit C; and (iii) the Parent,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, as the Shareholders' Agent, and U.S. Bank Trust of California,
as the Escrow Agent, are entering into an Escrow Agreement (the "Escrow
Agreement") substantially in the form attached hereto as Exhibit D.
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
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subject to and upon the terms and conditions of this Agreement, the Merger
Agreement attached hereto as
Exhibit E (the "Merger Agreement") and the applicable provisions of the
Massachusetts Business Corporation Law ("Massachusetts Law"), Merger Sub shall
be merged with and into the Company, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation. The
Company as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 Effective Time. As promptly as practicable after the satisfaction or
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waiver of the conditions set forth in Article VI, the parties hereto shall cause
the Merger to be consummated by filing the Merger Agreement with the Secretary
of the Commonwealth of the Commonwealth of Massachusetts, in accordance with the
relevant provisions of Massachusetts Law (the time of such filing being the
"Effective Time"). The Closing of the transaction contemplated hereby (the
"Closing") shall take place at 1:00 p.m. at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. on August 30, 1999, or at such other time, date and
location as the parties hereto agree (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in this Agreement, the Merger Agreement and the applicable
provisions of Massachusetts Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Articles of Organization; Bylaws.
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(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time the Articles of Organization of the Company, as in
effect at the Effective Time, shall be the Articles of Organization of the
Surviving Corporation until thereafter amended as provided by law and such
Articles of Organization.
(b) The Bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. The initial director of the Surviving
----------------------
Corporation shall be ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, to hold office in accordance with the
Articles of Organization and Bylaws of the Surviving Corporation. The initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified, shall be: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, as President, Treasurer and Clerk.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the following securities:
(a) Conversion of Company Common Stock. Each share of common stock,
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$0.01 par value, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(b) and any
Dissenting Shares (as defined and to the extent provided
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in Section 1.7(a)) will be canceled and extinguished and be converted
automatically into the right to receive that number of shares determined as set
forth below of common stock, par value $0.0001, of the Parent (the "Parent
Common Stock").
The Exchange Ratio (the "Exchange Ratio") shall equal (i) (A) $11.7
million minus all expenses including, without limitation, all legal and
accounting fees and expenses, of the Company and of the Shareholders relating to
the transactions contemplated hereby (other than the payment of up to $100,000
for legal and/or accounting expenses) divided by (B) the average closing price
of a share of Parent Common Stock for the thirty most recent days that Parent
Common Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on the NASDAQ National Reporting System (the
"Average Closing Price") divided by (ii) the number of shares of Company Common
Stock outstanding on a fully diluted basis (including any options, warrants and
other rights to acquire capital stock of the Company, whether or not exercised,
outstanding as of the Effective Time).
(b) Stock Options. At the Effective Time of the Merger, each
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outstanding option to purchase shares of InterStep Common Stock (each a
"InterStep Incentive Option") under the InterStep 1998 Stock Option Plan (the
"InterStep Stock Option Plan"), whether vested or unvested, will be assumed by
Flycast. Each InterStep Incentive Option so assumed by Flycast under this Merger
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the InterStep Stock Option Plan immediately prior to the
Effective Time of the Merger, except that (i) such InterStep Incentive Option
will be exercisable for that number of whole shares of Flycast Common Stock
equal to the product of the number of shares of InterStep Common Stock that were
issuable upon exercise of such InterStep Incentive Option immediately prior to
the Effective Time of the Merger multiplied by the Exchange Ratio, rounded down
to the nearest whole number of shares of Flycast Common Stock, and (ii) the per
share exercise price for the shares of Flycast Common Stock issuable upon
exercise of such assumed InterStep Incentive Option will be equal to the
quotient determined by dividing the exercise price per share of InterStep Common
Stock at which such InterStep Incentive Option was exercisable immediately prior
to the Effective Time of the Merger by the Exchange Ratio, rounded up to the
nearest whole cent.
(c) Capital Stock of Merger Sub. Each share of common stock, no
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par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, no par value, of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership
of any such shares shall continue to evidence ownership of such shares of
capital stock of the Surviving Corporation.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock or Company Common Stock), reorganization, recapitalization
or other like change with respect to Parent Common Stock or Company Common Stock
occurring after the date hereof and prior to the Effective Time.
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(e) Fractional Shares. No fraction of a share of Parent Common
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Stock will be issued, but in lieu thereof each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall receive from Parent an amount of cash (rounded
to the nearest whole cent) equal to the product of (i) such fraction, multiplied
by (ii) the Average Closing Price.
1.7 Dissenting Shares.
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(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of capital stock of the Company held by a holder who has exercised
dissenters' rights for such shares in accordance with Massachusetts Law and who,
as of the Effective Time, has not effectively withdrawn or lost such dissenters
rights ("Dissenting Shares"), shall not be converted into or represent a right
to receive Parent Common Stock pursuant to Section 1.6, but the holder thereof
shall only be entitled to such rights as are granted by Massachusetts Law.
(b) Notwithstanding the provisions of subsection (a), if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) his or her dissenters' rights, then, as of the later of
the Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Common Stock and payment for fractional shares as provided in Section 1.6,
without interest thereon, upon surrender of the certificate representing such
shares.
(c) The Company shall give Parent (i) prompt notice of any written
demand received by the Company to require the Company to purchase shares of the
Company's Common Stock pursuant to the applicable provisions of California law
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to any such demands
or offer to settle or settle any such demands.
1.8 Surrender of Certificates.
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(a) Exchange Agent. U.S. Stock Transfer Corporation shall act as
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exchange agent (the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
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Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such reasonable procedures as Parent may
adopt, the shares of Parent Common Stock issuable pursuant to Section 1.6 in
exchange for outstanding shares of Company Common Stock.
(c) Exchange Procedures. At or before the Effective Time, each
-------------------
holder of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock shall surrender to the Exchange Agent for cancellation the Certificates,
duly endorsed to Parent or accompanied by duly executed stock powers and
assignments separate from certificate transferring title to such shares to
Parent.
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Promptly after the Effective Time, and against receipt of such Certificates, the
Exchange Agent shall issue to each tendering holder of a Certificate a
certificate for the number of shares of Parent Common Stock to which such holder
is entitled and payment in lieu of fractional shares pursuant to Section 1.6
hereof and the Certificate so surrendered shall forthwith be cancelled,
provided, however, the Exchange Agent shall deliver the Escrow Shares pursuant
to Section 8.2 hereof and the Escrow Agreement. To the extent that any holder of
a Certificate does not so surrender such Certificate at or before the Effective
Time, then promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each holder of record of a Certificate or Certificates
(the "Certificates"), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent after the
Effective Time, or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate shall
be entitled to receive in exchange therefor a certificate representing the
number of whole shares of Parent Common Stock and payment in lieu of fractional
shares which such holder has the right to receive pursuant to Section 1.6 which
aggregate number of shares is set forth on Exhibit A and subject to the escrow
provisions set forth in Article VII, and the Certificate so surrendered shall
forthwith be canceled. Until so surrendered, each outstanding certificate that,
prior to the Effective Time, represented shares of Company Common Stock will be
deemed from and after the Effective Time, for all corporate purposes, other than
the payment of dividends, to evidence the ownership of the number of full shares
of Parent Common Stock into which such shares of Company Common Stock shall have
been so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends
------------------------------------------------
or other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of record of
such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent
----------------------
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than
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that of the registered holder of the certificate surrendered, or established to
the satisfaction of Parent or any agent designated by it that such tax has been
paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
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Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of Parent Common Stock for any
amount properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
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Parent Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
certificates evidencing shares of Company Common Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Common Stock and cash for
fractional shares, if any, as may be required pursuant to Section 1.6; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties hereto
-------------------------------
that the Merger shall (a) constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended and (b) qualify for
accounting treatment as a pooling of interests. The parties shall not take a
position on any tax returns inconsistent with this Section 1.11.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ represent and warrant to
Parent and Merger Sub, subject to the exceptions set forth in the Disclosure
Schedule attached hereto as Exhibit F (the "Disclosure Schedule") as follows:
2.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Company has the corporate power to own its
property and to carry on its business as now being conducted and as proposed to
be conducted by the Company. The Company is duly qualified to do business and in
good standing as a foreign corporation in each jurisdiction in which the failure
to be so qualified would have a material adverse effect on the business, assets
(including intangible assets), financial condition, results of operations or
prospects ("Material Adverse Effect") of the Company. The Company has delivered
a true and correct copy of its Articles of Organization and Bylaws, each as
amended to date, to counsel for Parent.
2.2 Company Capital Structure. Immediately prior to the Effective Time,
-------------------------
the authorized capital stock of the Company consists of 1,250,000 shares of
Common Stock, $0.01 par value. There are 959,500 shares of the Company Common
Stock issued and outstanding held by the persons, and in the amounts, set forth
on Exhibit G. At the time of the Closing, such list shall have been
appropriately adjusted to reflect option exercises and stock repurchases since
the date hereof. No shares of any holder were subject to repurchase upon
termination of employment as of the Effective Time. All outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and non-
assessable and not subject to preemptive rights created by statute, the Articles
of Organization or Bylaws of the Company or any agreement to which the Company
is a party or by which it is bound. The Company has reserved 50,000 shares of
Common Stock for issuance to employees and consultants pursuant to the Company
Stock Option Plan, of which zero (0) shares have been exercised, and 20,000
shares are subject to outstanding, unexercised options (the "Options"). The
holders of the Options are listed on Exhibit G hereto. Except as set forth in
the Disclosure Schedule, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which the Company is a party or by
which it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, or otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement.
2.3 Subsidiaries. The Company does not have and has never had any
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subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of stock or any interest in, or control, directly or
indirectly, any other corporation, partnership, association, joint venture or
business entity.
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2.4 Authority.
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(a) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger by the Company's shareholders as contemplated by Section 6.1(a). This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company. The execution and delivery of
this Agreement by the Company does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of Organization, as
amended, or Bylaws of the Company or (ii) any other material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, Rule or
regulation applicable to the Company or its properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity"), is required by or with
respect to the Company in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Articles of Merger with the Massachusetts Secretary of
the Commonwealth, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country and (iii)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on the
Company.
(b) Each of the Shareholders has all requisite power and authority to
enter into this Agreement and any Related Agreements (as defined in Section 8.1)
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and any Related
Agreements to which each Shareholder is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of such Shareholder, and no further action is
required on the part of such Shareholder to authorize the Agreement, any Related
Agreement to which it is a party and the transactions contemplated hereby and
thereby. This Agreement and any Related Agreements to which such Shareholder is
a party have been duly executed and delivered by such Shareholder, and, assuming
the due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligation of such Shareholder,
enforceable in accordance with their respective terms, subject to the laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and to rules of law governing specific performance, injunctive relief or other
equitable remedies.
2.5 Company Financial Statements. Section 2.5 of the Disclosure Schedule
----------------------------
sets forth the Company's unaudited financial statement for the fiscal years
ending December 31, 1997 and 1998 and the Company's unaudited financial
statements for the 8.5 months ended August 16, 1999
-8-
(collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with the books and records of the Company using accounting principles
applied on a basis consistent throughout the periods indicated and consistent
with each other. The Financial Statements present fairly the financial condition
and operating results of the Company as of the dates and during the periods
indicated therein. The unaudited balance sheet of the Company as of August 16,
1999 is hereinafter referred to as the "Company Balance Sheet".
2.6 No Undisclosed Liabilities. The Company does not have any liabilities,
--------------------------
either accrued or contingent (whether or not required to be reflected in
financial statements), and whether due or to become due, which individually or
in the aggregate, (i) have not been reflected in the Company Balance Sheet, (ii)
have not been specifically described in this Agreement or in the Company
Schedules or (iii) are not normal or recurring liabilities incurred since August
16, 1999 in the ordinary course of business consistent with past practices.
2.7 No Changes. Since the date of the Company Balance Sheet there has not
----------
occurred or arisen any:
(a) material adverse change in the financial condition, liabilities,
assets, business, or prospects of the Company;
(b) amendments or changes in the Articles of Organization or Bylaws
of the Company;
(c) capital expenditure by the Company, either individually or in the
aggregate, exceeding $50,000.
(d) destruction, damage to, or loss of any assets of the Company
(whether or not covered by insurance) that constitutes a Material Adverse Effect
on the Company;
(e) labor trouble or claim of wrongful discharge of which the Company
has received written notice or of which the Company is aware, or other unlawful
labor practice or action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
shares;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors or employees, or the
declaration, payment, or
-9-
commitment or obligation of any kind for the payment, by the Company, of a bonus
or other additional salary or compensation to any such person;
(j) acquisition, sale or transfer of any material asset of the
Company other than in the ordinary course of business;
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party;
(l) loan by the Company to any person or entity, or guaranty by the
Company of any loan;
(m) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company;
(n) the commencement or notice or threat of commencement of any
governmental proceeding against or investigation of the Company or its affairs;
(o) other event or condition of any character that has or might
reasonably be expected to have a Material Adverse Effect on the Company;
(p) issuance or sale by the Company of any of its shares or of any
other of its securities except for issuances or sales as a result of exercises
of stock options granted under the Company Stock Option Plan or rights
previously granted to purchase shares of the Company's capital stock;
(q) change in pricing or royalties set or charged by the Company; or
(r) negotiation or agreement by the Company to do any of the things
described in the preceding clauses (a) through (q) (other than negotiations with
Parent and its representatives regarding the transactions contemplated by this
Agreement).
2.8 Tax and Other Returns and Reports.
---------------------------------
(a) For the purposes of this Agreement, "Tax" or "Taxes" refers to
any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) The Company and each of its subsidiaries have timely filed
(taking into account applicable extensions) all federal, state, local and
foreign returns, estimates, information statements and reports ("Returns")
relating to Taxes required to have been filed by the Company
-10-
and each of its subsidiaries with any Tax authority, except such Returns which
are not material to the Company, and have paid all Taxes shown to be due on such
Returns.
(c) The Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to the Federal Insurance Contribution Act ("FICA"), Taxes
pursuant to the Federal Unemployment Tax Act ("FUTA") and any other Taxes
required to have been withheld, in all cases to the extent such amounts are
materially individually or in the aggregate.
(d) Neither the Company nor any of its subsidiaries has been
delinquent in the payment of any material Tax nor is there any material Tax
deficiency outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
(e) To the Company's knowledge, no audit or other examination of any
Return of the Company or any of its subsidiaries by any Tax authority is
presently in progress, nor has the Company or any of its subsidiaries been
notified of any request for such an audit or other examination.
(f) No adjustment relating to any Returns filed by the Company or any
of its subsidiaries has been proposed in writing formally or informally by any
Tax authority to the Company or any of its subsidiaries or any representative
thereof.
(g) Neither the Company nor any of its subsidiaries has any material
liability for unpaid Taxes which has not been accrued for or reserved on the
Company Balance Sheet, whether asserted or unasserted, contingent or otherwise,
which is material to the Company, other than any liability for unpaid Taxes that
may have accrued since the date of the Company Balance Sheet in connection with
the operation of the business of the Company and its subsidiaries in the
ordinary course.
(h) There is no contract, agreement, plan or arrangement to which the
Company is a party to this Agreement, including, but not limited to, the
provisions of this Agreement, covering any employee or former employee of the
Company or any of its subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
(i) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company.
(j) Neither the Company nor any of its subsidiaries is party to or
has any obligation under any tax-sharing, tax indemnity or tax allocation
agreement or arrangement.
-11-
(k) Except as may be required as a result of the Merger, the Company
and its subsidiaries have not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Closing.
(l) None of the Company's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
(m) The Disclosure Schedule lists (i) any foreign Tax holidays, (ii)
any intercompany transfer pricing agreements, or other arrangements that have
been established by the Company or any of its subsidiaries with any Tax
authority, and (iii) any expatriate programs or policies affecting the Company
or any of its subsidiaries.
(n) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(o) The Company has been a qualifying S corporation within the
meaning of Section 1361 of the Code (and any similar relevant state or local
statute) at all times since its inception.
(p) The Company has reviewed with the Company's own tax advisors the
federal, state and local tax consequences of the Merger and the transactions
contemplated by this Agreement. The Company is relying solely on such advisors
and not on any statements or representations of the Parent or any of its agents,
and understands that the Company (and not the Parent) shall be responsible for
the Company's own tax liability that may arise as a result of the transactions
contemplated by this Agreement.
2.9 Restrictions on Business Activities. There is no material agreement,
-----------------------------------
judgment, injunction, order or decree binding upon the Company which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Company, any acquisition of property by
the Company or the conduct of business by the Company as currently conducted or
as currently proposed to be conducted.
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition of
--------------------------------------------------------------------
Equipment.
---------
(a) The Company owns no real property. Section 2.10(a) of the Company
Disclosure Schedule sets forth a true and complete list of all real property
leased by the Company, the name of the lessor, the date of the lease and each
amendment thereto and the aggregate annual rental or other fee payable under any
such lease. All such leases are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default and in
respect of which the Company has not taken adequate steps to prevent such
default from occurring), except where the lack of such good standing, validity
-12-
and effectiveness or the existence of such default or event of default would not
have a Material Adverse Effect on the Company.
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any liens, charges, pledges, security interests or other
encumbrances, except as reflected in Section 2.10(b) of the Disclosure Schedule
and except for such imperfections of title and encumbrances, if any, which are
not substantial in character, amount or extent, and which do not materially
detract from the value, or interfere with the present use, of the property
subject thereto or affected thereby.
(c) Section 2.10(c) of the Disclosure Schedule sets forth all
equipment (the "Equipment") owned or leased by the Company except equipment with
an aggregate value of less than $50,000. The Equipment is, taken as a whole, (i)
adequate for the conduct of the business of the Company consistent with its past
practice, (ii) suitable for the uses to which it is currently employed, (iii) in
good operating condition, normal wear and tear excepted, (iv) regularly and
properly maintained and (v) not obsolete, dangerous or in need of renewal or
replacement, except for renewal or replacement in the ordinary course of
business.
2.11 Intellectual Property. For the purposes of this Agreement, the
---------------------
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following, in
---------------------
any form and embodied in any media, (i) works of authorship including, without
limitation, computer programs, source code and executable code, whether embodied
in software, firmware or otherwise, documentation, designs, files, records, data
and mask works, (ii) inventions (whether or not patentable), improvements, and
technology, (iii) proprietary and confidential information, trade secrets and
know how, (iv) databases, data compilations and collections and technical data,
(v) logos, trade names, trade dress, trademarks and service marks, (vi) domain
names, web addresses and sites, and (vii) tools, methods and processes.
"Intellectual Property Rights" shall mean worldwide common law and
----------------------------
statutory rights associated with (i) patents and patent applications, (ii)
copyrights, copyrights registrations and copyrights applications and "moral"
rights, (iii) the protection of trade and industrial secrets and confidential
information, (iv) other proprietary rights relating to intangible intellectual
property, (v) trademarks, trade names and service marks, (vi) analogous rights
to those set forth above, and (vii) divisions, continuations, renewals,
reissuances and extensions of the foregoing (as applicable) now existing or
hereafter filed, issued or acquired.
"Company Intellectual Property" shall mean any Intellectual Property
-----------------------------
and Intellectual Property Rights that are owned by or exclusively licensed to
the Company.
"Registered Intellectual Property Rights" shall mean Intellectual
---------------------------------------
Property Rights that have been registered, filed, certified or otherwise
perfected by recordation with any state, government or other public legal
authority.
-13-
(a) Section 2.11(a) of the Disclosure Schedule lists all Registered
Intellectual property owned by, or filed in the name of, the Company (the
"Company Registered Intellectual Property") and lists any proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office (the "PTO") or equivalent authority anywhere in the world) related to any
of the Company Registered Intellectual Property. Section 2.11(a) of the
Disclosure Schedule also lists and identifies all computer software that is
owned by the Company (collectively, "Owned Software") and all computer software
(other than Owned Software) that is used by the Company for any purpose
whatsoever in its business as presently conducted (collectively, the "Licensed
Software"). The Owned Software and the Licensed Software are collectively
referred to as the "Software").
(b) Each item of the Company Intellectual Property and all
Intellectual Property licensed to the Company, is free and clear of any liens,
pledges, charges, claims, restrictions on transfer, mortgages, security
interests or other encumbrances of any sort (collectively, "Liens") except, in
the case of licensed Intellectual Property, the restrictions set forth in
Section 2.11(b) of the Disclosure Schedule. The Company is the exclusive owner
of all Company Intellectual Property.
(c) To the extent that any Intellectual Property has been developed
or created independently or jointly by any person other than the Company for
which the Company has, directly or indirectly, paid, the Company has a written
agreement with such person with respect thereto, and the Company thereby has
obtained ownership of, and is the exclusive owner of, all such Intellectual
Property and associated Intellectual Property Rights by operation of law or by
valid assignment.
(d) The Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use any
Intellectual Property or Intellectual Property Rights that is or was Company
Intellectual Property, to any other person, except as provided in Section
2.11(f) below.
(e) The Company Intellectual Property and the Licensed Software
constitutes all the Intellectual Property and Intellectual Property Rights used
in and/or necessary to the conduct of the business of the Company as it
currently is conducted, or is reasonably contemplated by the Company on the date
hereof to be conducted by the Company in the foreseeable future, including,
without limitation, the design, development, manufacture, use, import and sale
of products, technology and services (including products, technology or services
currently under development). The Company has valid licenses to all software
owned by third parties that is used in and/or necessary to the operation of the
Company's products as they are currently used, and the Company is not in default
with respect to any such license.
(f) Other than "shrink-wrap" and similar widely available third-party
commercial end-user licenses, the contracts, licensees and agreements listed in
Section 2.11(f) of the Disclosure Schedule include all contracts, licenses and
agreements to which the Company is a party with respect to any Intellectual
Property and Intellectual Property Rights. No person who has licensed
Intellectual Property or Intellectual Property Rights to the Company has
ownership rights or license rights to improvements made by the Company in such
Intellectual Property which has been licensed to the Company.
-14-
(g) Section 2.11(g) of the Disclosure Schedule lists all contracts,
licenses and agreements between the Company and any other person wherein or
whereby the Company has agreed to, or assumed, any obligation or duty to
warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property Rights of any person other than the Company.
(h) The operation of the business of the Company as it currently is
conducted or is reasonably contemplated to be conducted by the Company in the
foreseeable future, including, but not limited to, the design, development, use,
import, manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of the Company
does not, to the knowledge of the Company and the Shareholders, infringe or
misappropriate the Intellectual Property Rights of any person, violate the
rights of any person (including rights to privacy or publicity), or constitute
unfair competition or trade practices under the laws of any jurisdiction, and
the Company has not received notice from any person claiming that such operation
or any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property Rights of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction nor, to
the knowledge of the Company and the Shareholders, is there any reasonable basis
therefor.
(i) The Company has no Registered Intellectual Property. In each case
in which the Company has acquired any Intellectual Property rights from any
person, the Company has obtained a valid and enforceable assignment sufficient
to irrevocably transfer all rights in such Intellectual Property and the
associated Intellectual Property Rights (including the right to seek past and
future damages with respect thereto) to the Company.
(j) There are no contracts, licenses or agreements between the
Company and any other person with respect to Company Intellectual Property under
which there is any dispute known to the Company or the Stockholders regarding
the scope of such agreement, or performance under such agreement including with
respect to any payments to be made or received by the Company thereunder.
(k) To the knowledge of the Company and the Shareholders, no person
is infringing or misappropriating any Company Intellectual Property.
(l) The Company has taken all commercially reasonable steps in order
to protect the Company's rights in confidential information and trade secrets of
the Company or provided by any other person to the Company. Except as set forth
in Section 2.11(l) of the Disclosure Schedule, all current and former employees,
consultants and contractors of the Company who have or have had access to
confidential, proprietary or trade secret information of the Company
("Recipients") have entered proprietary information, confidentiality and
assignment of inventions agreements with the Company. Section 2.11(l) of the
Disclosure Schedule contains a list of all Recipients indicating those who have
signed the agreements and those who have not entered into such agreements and
the form of each such agreement.
-15-
(m) No Company Intellectual Property, Intellectual Property Rights
or service of the Company is subject to any proceeding or outstanding decree,
order, judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(n) No (i) product, technology, service or publication of the
Company, (ii) material published or distributed by the Company or (iii) conduct
or statement of Company constitutes obscene material, a defamatory statement or
material, false advertising or, to the knowledge of the Company and the
Shareholders, otherwise violates any law or regulation.
(o) All of the Company's products (including products currently
under development) will record, store, process, calculate and present calendar
dates falling on and after (and, if applicable, spans of time including) January
1, 2000, and will calculate any information dependent on or relating to such
dates in the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31, 1999, or calculate any information
dependent on or relating to such dates (collectively, "Year 2000 Compliant").
All of the Company's products (i) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000 and
(ii) will be interoperable with other products used and distributed by the
Company that may deliver records to the Company's products or receive records
from the Company's products, or interact with the Company's products, including,
but not limited to, backup and archived data. The Company has described its Year
2000 testing and compliance programs in Section 2.11(o) of the Disclosure
Schedule. All of the Company's internal computer and technology products and
systems are Year 2000 Compliant.
2.12 Agreements, Contracts and Commitments. Except as disclosed in
-------------------------------------
Section 2.12 of the Disclosure Schedule, the Company does not have and is not a
party to:
(a) any collective bargaining agreements,
(b) any agreements that contain any unpaid severance liabilities or
obligations,
(c) any bonus, deferred compensation, incentive compensation,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements,
(d) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization, not
terminable by the Company on thirty days notice without liability, except to the
extent general principles of wrongful termination law may limit the Company's
ability to terminate employees at will,
(e) agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions
-16-
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $50,000,
(h) any agreement of indemnification or guaranty not entered into in
the ordinary course of business,
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or compete
with any person,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $50,000,
(k) any agreement, contract or commitment relating to the
disposition or acquisition of assets not in the ordinary course of business or
any ownership interest in any corporation, partnership, joint venture or other
business enterprise,
(l) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (h) hereof,
(m) any purchase order or contract for the purchase of raw materials
or acquisition of assets involving $50,000 or more,
(n) any construction contracts,
(o) any distribution, joint marketing or development agreement,
(p) any other agreement, contract or commitment which involves
$50,000 or more and is not cancelable without penalty within thirty (30) days,
or
(q) any agreement which is otherwise material to the Company's
business.
The Company has not breached, or received in writing any claim or threat
that it has breached, any of the terms or conditions of any agreement, contract
or commitment to which it is bound (including those set forth in any of the
lists separately certified by the Company) in such manner as would permit any
other party to cancel or terminate the same.
2.13 Interested Party Transactions. Except as disclosed in Section 2.13
-----------------------------
of the Company Disclosure Schedule, no officer or director of the Company or
person who owns at least ten percent (10%) of the outstanding stock of the
Company (nor any parent, child or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has or has had an
-17-
interest), has or has had, directly or indirectly, (i) an interest in any entity
which furnished or sold, or furnishes or sells, services or products which the
Company furnishes or sells, or proposes to furnish or sell, or (ii) any interest
in any entity which purchases from or sells or furnishes to, the Company, any
goods or services, or (iii) a beneficial interest in any contract or agreement
described in Section 2.12; provided, that ownership of no more than one percent
(1%) of the outstanding voting stock of a publicly traded corporation shall not
be deemed an "interest in any entity" for purposes of this Section 2.13.
2.14 Governmental Authorization. Section 2.14 of the Disclosure Schedule
--------------------------
accurately lists each material federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization issued to
the Company (i) pursuant to which the Company currently operates or holds any
interest in any of its properties or (ii) which is required for the operation of
its business or the holding of any such interest (herein collectively called
"Company Authorizations"), which Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the Company
to operate or conduct its business or hold any interest in its properties.
2.15 Litigation. There is no action, suit, claim or proceeding of any
----------
nature pending, or to the Company's knowledge, threatened against the Company,
its properties or any of its officers or directors, in their capacities as
agents of the Company. There is no investigation pending or, to the Company's
knowledge, threatened against the Company, its properties or any of its officers
or directors, in their capacities as agents of the Company by or before any
governmental entity. No governmental entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof.
2.16 Minute Books. The minute books of the Company made available to
------------
counsel for Parent contain complete and accurate minutes of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of the Company.
2.17 Brokers' and Finders' Fees. The Company has not incurred, nor will
--------------------------
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.18 Insurance. Section 2.18 of the Disclosure Schedule lists all
---------
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company. There
is no claim by the Company pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and the Company is otherwise in material compliance with
the terms of such policies and bonds. The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
2.19 Compliance With Laws. Except as to matters of which the Company is
--------------------
not aware and which do not either individually or in the aggregate result in a
Material Adverse Effect with respect to the Company, the Company has complied
with, is not in violation of, and has not received any
-18-
notices of violation with respect to, any federal, state or local statute, law
or regulation with respect to the conduct of its business, or the ownership or
operation of its business.
2.20 Complete Copies of Materials. The Company has delivered or made
----------------------------
available true and complete copies of each document (or summaries of same) which
has been requested by Parent or its counsel.
2.21 Binding Agreements; No Default. Each of the contracts, agreements
------------------------------
and other instruments shown on the Exhibits or on any lists or statements set
forth in the Disclosure Schedule to which the Company is a party is a legal,
binding, and enforceable obligation by or against the Company (assuming such
contract, agreement or instrument has been duly authorized, executed and
delivered by the other party(ies) thereto), and no party with whom the Company
has an agreement or contract is, to the Company's knowledge, in material default
thereunder or has breached any material terms or provisions thereof (subject to
all applicable bankruptcy, insolvency, reorganization and other laws applicable
to creditors' rights and remedies and to the exercise of judicial discretion in
accordance with general principles of equity).
2.22 Representations Complete. None of the representations or warranties
------------------------
made by the Company, nor any statement made in any list or other statement
separately certified by the Company, Exhibits or certificates furnished by the
Company pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain any untrue statement of a material fact
at the Effective Time, or omits or will omit to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
2.23 Third Party Consents. Except as set forth on Section 2.23 of the
--------------------
Disclosure Schedule, no consent or approval is needed from any third party in
order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.
2.24 Accounts Receivable Inventory.
-----------------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of August 16, 1999, along with a range of days
elapsed since invoice.
(b) All of the accounts receivable of the Company arose in the
ordinary course or business, are carried at values determined consistent with
the Company's past accounting practices, were consistently applied and are
collectible except to the extent of reserves therefor set forth in the Company
Balance Sheet. No person has any Lien, on any of such accounts receivable and no
request or agreement for deduction or discount has been made with respect to any
of such accounts receivable.
(c) The Company has no inventory to be reflected on the Company
Balance Sheet or on the Company's books and records (in either case, net of the
reserve therefor).
-19-
2.25 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not: (i) operated any
------------------
underground storage tanks at any property that the Company has at any time
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Company or, to the Company's or the Shareholders'
knowledge, as a result of any actions of any other person or otherwise, in, on
or under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing, nor has it disposed of, transported, sold or manufactured any product
containing a Hazardous Material (any or all of the foregoing being collectively
referred to as "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
-------
approvals, permit, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning any Environmental permit, hazardous Material or any
Hazardous Materials Activity of the Company. To the knowledge of the Company and
the Shareholders, there is no fact or circumstance which is reasonably likely to
involve the Company in any environmental litigation or impose upon the Company
any environmental liability.
2.26 Employee Benefit Plans and Compensation.
---------------------------------------
(a) The following terms shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under
---------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
-20-
(ii) "Employee Plan" shall mean any plan, program, policy,
-------------
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether written, unwritten or otherwise, funded or unfunded,
including, without limitation, each "employee benefit plan," within the meaning
of Section 3(3) of ERISA which is or has been maintained, contributed to, or
required to be contributed to, by the Company or any Affiliate for the benefit
of any Employee, or with respect to which the Company or any Affiliate has or
may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
---
(v) "Employee" shall mean any current or former employee,
--------
consultant or director of the Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management,
------------------
employment, severance, consulting, relocation or similar agreement, contract or
understanding between the Company or any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
----
amended;
(ix) "IRS" shall mean the Internal Revenue Service;
---
(x) "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation; and
(xi) "Pension Plan" shall mean each Employee Plan which is an
------------
"employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.26(b) contains an accurate and complete list
--------
of each Employee Plan and each Employee Agreement under each Employee Plan or
Employee Agreement. The Company has no plan or commitment to establish any new
Employee Plan or Employee Agreement, to modify any Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Employee
Plan or Employee Agreement to the requirements of any applicable law, in each
case as previously disclosed to Parent in writing, or as required by this
Agreement), or to enter into any Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent: (i) correct and
---------
complete copies of all documents embodying each Employee Plan and each Employee
Agreement, including (without limitation) all amendments thereto and all related
trust documents; (ii) the three (3) most
-21-
recent annual reports (form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Employee Plan; (iii) if the Employee Plan is funded, the
most recent annual and periodic accounting of Employee Plan assets; (iv) the
most recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each
Employee Plan; (v) all material written agreements and contracts relating to
each Employee Plan, including, but not limited to, administrative service
agreements and group insurance contracts; (vi) all communications material to
any Employee or Employees relating to any Employee Plan and any proposed
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company; (vii) all correspondence to or from any governmental agency relating to
any Employee Plan; (vii) all COBRA forms and related notices; (ix) all policies
pertaining to fiduciary liability insurance covering the fiduciaries for each
Employee Plan; and (x) all discrimination tests for each Employee Plan for the
most recent plan year.
(d) Employee Plan Compliance. (i) The Company has performed in all
------------------------
material respects all obligations required to be performed by it under, is not
in default or violation of, and the Company and Shareholders have no knowledge
of any default or violation by any other party to each Employee Plan, and each
Employee Plan has been established and maintained in accordance with its terms
and in substantial compliance with all applicable laws, statutes, orders, rules
and regulations, including, but not limited to, ERISA or the Code; (ii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Employee Plan; (iii) there are no
actions, suits or claims pending or threatened nor is there any basis therefor
(other than routine claims for benefits) against any Employee Plan or against
the assets of any Employee Plan; (iv) each Employee Plan can be amended,
terminated or otherwise discontinued after the Closing in accordance with its
terms, without liability to Parent, the Company or any Affiliate (other than
ordinary administration expenses); (v) there are no audits, inquiries or
proceedings pending or threatened by the IRS or DOL with respect to any Employee
Plan; and (vi) neither the Company nor any Affiliate is subject to any penalty
or tax with respect to any Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) No Pension Plans. Neither the Company nor any Affiliate has ever
----------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan subject to Title IV of ERISA.
(f) No Post-Employment Obligations. No Employee Plan provides, or
------------------------------
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
-22-
(g) COBRA. Neither the Company nor any Affiliate has, prior to the
-----
Closing, violated any of the health care continuation requirements of COBRA, the
requirements of FMLA or any similar provisions of state law applicable to its
Employees.
(h) Effect of Transaction. The execution of this Agreement and the
---------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Employee Plan, Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
(i) Employment Matters. The Company: (i) is in compliance in all
------------------
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld and reported all amounts required by law or by
agreement to be withheld and reported with respect to wages, salaries and other
payments to Employees; (iii) is not liable for any arrears of wages or any taxes
or any penalty for failure to comply with any of the foregoing; and (iv) is not
liable for any payment to any trust or other fund governed by or maintained by
or on behalf of any governmental authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice). To the knowledge of the Company and
the Shareholders, there are no pending, threatened or reasonably anticipated
claims or actions against the Company under any worker's compensation policy or
long-term disability policy, nor is there any reasonable basis therefor.
(j) Labor. No work stoppage or labor strike against the Company is
-----
pending or threatened, nor is there any reasonable basis therefor. The Company
does not know of any activities or proceedings of any labor union to organize
any Employees. There are no actions, suits, claims, labor disputes or grievances
pending or reasonably anticipated relating to any labor, safety or
discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints. Since inception,
the Company has not engaged in any unfair labor practices within the meaning of
the National Labor Relations Act. The Company is not presently, nor has it been
in the past, a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by the Company.
(k) No Interference or Conflict. No shareholder, officer, employee or
---------------------------
consultant of the Company is obligated under any contract or agreement or is
subject to any judgment, decree or order of any court or administrative agency
that would interfere with such person's efforts to promote the interests of the
Company or that would interfere with the Company's business. Neither the
execution nor delivery of this Agreement, nor the carrying on of the Company's
business as presently conducted or presently proposed to be conducted, nor any
activity of such officers, directors, employees or consultants in connection
with the carrying on of the Company's business as presently conducted or
currently proposed to be conducted, will conflict with or result in a breach of
-23-
the terms, conditions or provisions of, or constitute a default under, any
contract or agreement under which any of such officers, directors, employees or,
to the knowledge of the Company and the Shareholders, consultants is now bound.
2.27 Warranties; Indemnities. Except for the warranties and indemnities
-----------------------
contained in (i) those contracts and agreements set forth in Section 2.11(f) of
the Disclosure Schedule and (ii) the Company's standard product warranty
agreements substantially in the form set forth in Section 2.11(f) of the
Disclosure Schedule, the Company has not given any warranties or indemnities
relating to products or technology sold or licensed or services rendered by the
Company. Section 2.27 of the Disclosure Schedule contains a complete and
accurate summary of all warranty claims on the Company's products occurring
since the Company's inception. The Company Balance Sheet reflects a reasonable
warranty reserve determined in accordance with the Company's past accounting
practices.
2.28 Adequacy and Functionality of Company Products. The assets of the
----------------------------------------------
Company, including, without limitation, the source code and products of the
Company, are now and following the Closing will be sufficient for the conduct of
the business of the Company in the same manner as the business is now conducted.
The Owned Software now performs, and following the Closing will perform,
substantially in accordance with applicable user documentation provided by the
Company to the customers using such Owned Software, and does not contain and is
not subject to any operational defect or limitation which is reasonably likely
to substantially impair the capability or effectiveness of the Owned Software to
achieve its functions described in such user documentation. The Owned Software
contains all current revisions of such software in the Company's possession, and
includes all source code, object code, forms of such software and all computer
programs, materials processes, tapes, and know-how related to such Owned
Software. The Company has delivered to the Parent complete and correct copies of
the current version of all user documentation in the Company's possession
related to the Owned Software.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to the
exceptions previously certified in writing by Parent or Merger Sub, as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of Parent and Merger Sub has the corporate power to own its properties and
to carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified would have a Material Adverse Effect on Parent and Merger Sub taken
as a whole. Parent has delivered a true and correct copy of the Certificate or
Articles of Organization and Bylaws of each of Parent and Merger Sub, as amended
to date, to counsel for the Company.
-24-
3.2 Capital Structure.
-----------------
(a) The authorized stock of Parent consists of 50,000,000 shares of
Common Stock, $0.0001 par value of which 14,523,197 shares were issued and
outstanding as of July 31, 1999, and 2,000,000 shares of Preferred Stock, none
of which are issued or outstanding. The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, no par value, 1,000 shares of which,
as of the date hereof, are issued and outstanding and are held by Parent. All
such shares have been duly authorized, and all such issued and outstanding
shares have been validly issued, are fully paid and nonassessable and are free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, non-assessable.
3.3 Authority. Parent and Merger Sub have all requisite corporate power
---------
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. The
shareholders of Parent are not required to approve the Merger, the Agreement or
the transactions contemplated hereby under applicable law or NASD rules or
regulations. This Agreement has been duly executed and delivered by Parent and
Merger Sub and constitutes the valid and binding obligations of Parent and
Merger Sub. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a benefit under (i) any provision of the
Certificates of Incorporation or Bylaws of Parent or the Articles of
Organization or Bylaws of Merger Sub or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, Rule or regulation
applicable to Parent or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Parent and Merger Sub in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for (i) the filing of the Articles of Merger with the
Massachusetts Secretary of the Commonwealth, (ii) the filing of a Form 8-K with
the Securities and Exchange Commission (the "SEC") within 15 days after the
Closing Date, and any filings as may be required under applicable state and
federal securities laws and the laws of any foreign country, and (iii) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect on Parent.
-25-
3.4 SEC Documents; Parent Financial Statements. Parent has furnished the
------------------------------------------
Company with a true and complete copy of the following documents (collectively,
the "SEC Documents"): (i) Form S-1/A, filed with the SEC on May 4, 1999; (ii)
Form 424B4, filed with the SEC on May 5, 1999; and (iii) Form S-8, filed with
the SEC on May 14, 1999. As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act of
1934, as amended or the Securities Act of 1933, as amended (the "Act") when
filed, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
subsequently filed SEC Document. The financial statements of Parent, including
the notes thereto, included in the SEC Documents (the "Parent Financial
Statements") are complete and correct in all material respects, comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, and have
been prepared in accordance with U.S. generally accepted accounting principles
applied on a basis consistent throughout the periods indicated and consistent
with each other (except as may be indicated in the notes thereto or, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC). The Parent
Financial Statements fairly present the consolidated financial condition and
operating results of Parent at the dates and during the periods indicated
therein (subject, in the case of unaudited statements, to normal, year-end
adjustments, which will not be material in the aggregate). There has been no
change in Parent accounting policies except as described in the notes to the
Parent Financial Statements.
3.5 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in the Parent's most recently filed report on Form 10-Q furnished to
the Company as set forth in Section 3.4, there has not occurred: (a) any
amendments or changes in the Certificate of Incorporation or Bylaws of Parent;
(b) any sale of a material amount of property of Parent, except in the ordinary
course of business or (c) any other event or condition of any character that has
or might reasonably be expected to have a Material Adverse Effect on the Parent
that would require the Parent to file a report on Form 8-K.
3.6 Representations Complete. None of the representations or warranties
------------------------
made by Parent herein, nor any statement made in any list or other statement
separately certified by Parent, Exhibit or certificate furnished by Parent
pursuant to this Agreement, when all such documents are read together in their
entirety, contains or will contain any untrue statement of a material fact at
the Effective Time, or omits or will omit to state any material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
3.7 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending, or as to which Parent has received any notice of
assertion or as to which Parent has a reasonable basis to expect such notice of
assertion, against Parent which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay any of the transactions contemplated by this
Agreement or which could reasonably be anticipated to have a Material Adverse
Effect on Parent.
-26-
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
----------------------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and taxes when due subject (i) to good
faith disputes over such debts or taxes and (ii) in the case of taxes, to
Parent's consent to the filing of material Returns if applicable, to pay or
perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practice and policies
to preserve intact the Company's present business organizations, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, to the end that the Company's goodwill
and ongoing businesses shall be unimpaired at the Effective Time. The Company
shall promptly notify Parent of any event or occurrence not in the ordinary
course of business of the Company which could have a Material Adverse Effect on
the Company. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent:
(a) Except pursuant to existing contractual provisions of options
outstanding on the date hereof and which are disclosed in writing pursuant to
Section 2.2, accelerate, amend or change the period of exercisability of options
or restricted stock granted under the employee stock plans of the Company or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Enter into any commitment or transaction (i) which requires
performance over a period longer than six months in duration except transactions
in the ordinary course of business, or (ii) to purchase fixed assets for a
purchase price in excess of $5,000; except as mutually agreed by Parent and the
Company and set forth on a separate certificate;
(c) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except (x) payments made pursuant to
standard written agreements outstanding on the date hereof and as disclosed on
Schedule 2.12 or (y) in the case of employees who do not have standard written
agreements, payments of up to two months salary;
(d) Transfer to any person or entity any rights to the Company's
Intellectual Property other than nonexclusive object code licenses except as
mutually agreed by Parent and the Company and set forth on a separate
certificate;
(e) Enter into or amend any agreements pursuant to which any other
party is granted marketing or other rights of any type or scope with respect to
any products or technology of the Company, except as mutually agreed by Parent
and the Company and set forth on a separate certificate;
-27-
(f) Violate, amend or otherwise modify the terms of any of the
contracts set forth in the Disclosure Schedule;
(g) Commence any litigation;
(h) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of the Company, or repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service to the
Company;
(i) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than the repurchase of shares of the Company's Common Stock from terminated
employees pursuant to the terms of restricted stock purchase agreements and the
issuance of shares of the Company's Common Stock pursuant to the exercise of
Company Incentive Options (as defined below) outstanding as of the date of this
Agreement;
(j) Cause or permit any amendments to its Articles of Organization or
Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(l) Sell, lease, license or otherwise dispose of any of its
properties or assets which are material, individually or in the aggregate, to
the business of the Company, except in the ordinary course of business, except
as mutually agreed by Parent and the Company and set forth on a separate
certificate;
(m) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others except with respect to an existing lease line in
an amount not more than $50,000;
(n) Adopt or amend any employee benefit plan, or enter into any
employment contract except for offer letters in the Company's standard form for
newly hired employees, pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
-28-
(o) Revalue any of its assets, including, without limitation, writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) Pay, discharge or satisfy in an amount in excess of $5,000 in any
one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in the Company Financial Statements (or the notes thereto);
(q) Make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, file any material Return or
any amendment to a material Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes; or
(r) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (q) above, or any action which
would make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants hereunder.
4.2 No Solicitation. After the date of this Agreement and prior to the
---------------
Effective Time, the Company will not (nor will the Company permit any of the
Company's officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees:
(a) solicit, encourage, initiate or participate in any negotiations
or discussions with respect to, any offer or proposal to acquire all or
substantially all of the Company's business and properties or to purchase or
acquire capital stock of the Company whether by merger, purchase of assets,
tender offer or otherwise (an "Acquisition"),
(b) disclose any information not customarily disclosed to any person
other than its attorneys or financial advisors concerning the Company's business
and properties or afford to any person or entity access to its properties, books
or records, or
(c) assist or cooperate with any person to make any proposal to
purchase all or any part of the Company's capital stock or assets, other than
licensing of software in the ordinary course of business (a "Purchase"),
provided, however, that the Company may participate in negotiations with, or
furnish information to, a party other than Parent or its designees who has made
a written Acquisition or Purchase offer or proposal if the Company's Board of
Directors, upon receipt of a written opinion from its outside counsel,
determines that failure to do so would constitute a breach of the Board's
fiduciary duty under applicable law.
-29-
In the event the Company shall receive any such written offer or proposal,
directly or indirectly, of the type referred to in clause (a) or (c) above, or
any request for disclosure or access pursuant to clause (b) above, the Company
party shall immediately inform Parent as to all material facts relating to any
such offer or proposal (including the identity of the party making such offer or
proposal and the specific terms thereof) and will cooperate with Parent by
furnishing any information it may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Meeting of Company Shareholders. The Company shall promptly take all
-------------------------------
action necessary in accordance with Massachusetts law, and the Company's
Articles of Organization and Bylaws to prepare and solicit an Action By Written
Consent of the Company Shareholders. The Company shall use its best efforts to
obtain the approval of the shareholders of the Company for the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
its shareholders required by Massachusetts Law to effect the Merger.
5.2 Access to Information. The Company shall afford Parent and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel of the
Company as Parent may reasonably request. The Company agrees to provide to
Parent and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request. Parent shall provide the Company
with copies of such publicly available information about Parent as the Company
may request and shall provide the Company with reasonable access to its
executive officers in this connection. No information or knowledge obtained in
any investigation pursuant to this Section 5.2 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.3 Confidentiality. The parties acknowledge that Parent and the Company
---------------
have previously executed a Nondisclosure Agreement dated June 15, 1999, which
agreement shall continue in effect in accordance with its terms.
5.4 Expenses. All expenses incurred in connection with the Merger and
--------
this Agreement shall be the obligation of the party incurring such expenses;
provided, that, the shareholders may cause the Company to pay legal and
accounting fees in connection with the Merger and this Agreement not to exceed
$100,000.
5.5 Public Disclosure. Unless otherwise required by law, prior to the
-----------------
Effective Time no disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby
shall be made by any party hereto unless approved by Parent and the Company
prior to release, provided that such approval shall not be unreasonably
withheld, subject, in the case of Parent, to Parent's obligation to comply with
applicable securities laws.
-30-
5.6 Pooling Accounting. Parent and the Company shall each use its best
------------------
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Each of Parent and the Company shall
use its best efforts to cause its Affiliates (as defined in Section 5.8) not to
take any action that would adversely affect the ability of Parent to account for
the business combination to be effected by the Merger as a pooling of interests.
5.7 Consents. Each of Parent and the Company shall promptly apply for or
--------
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, and the
Company shall use its best efforts to obtain all necessary consents, waivers and
approvals under any of the Company's material agreements, contracts, licenses or
leases in connection with the Merger. All such necessary consents are set forth
in Section 5.7 of the Disclosure Schedule.
5.8 Affiliate Agreements.
--------------------
(a) The Company has separately certified in writing a list setting
forth those persons who are, in the Company's reasonable judgment, "affiliates"
of the Company within the meaning of Rule 145 (each such person who is an
"affiliate" of Parent or Company within the meaning of Rule 145 is referred to
as an "Affiliate") promulgated under the Securities Act ("Rule 145"). The
Company shall provide Parent such information and documents as Parent shall
reasonably request for purposes of reviewing such list. The Company shall use
its best efforts to deliver or cause to be delivered to Parent, concurrently
with the execution of this Agreement from each of the Affiliates of the Company,
an executed Affiliate Agreement in the form attached hereto as Exhibit L. Parent
and Merger Sub shall be entitled to place appropriate legends on the
certificates evidencing any Parent Common Stock to be received by such
Affiliates of the Company pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for Parent Common
Stock, consistent with the terms of such Affiliates Agreements.
(b) Set forth on Parent Schedule 5.8(b) is a list of those persons
who are, in the Parent's reasonable judgment, Affiliates of Parent. Parent shall
provide the Company such information and documents as the Company shall
reasonably request for purposes of reviewing this list. Parent shall use its
best efforts to deliver or cause to be delivered to the Company, concurrently
with the execution of this Agreement from each of the Affiliates of the Parent,
an executed Affiliate Agreement in the form attached hereto as Exhibit L.
5.9 Legal Requirements. Each of Parent, Merger Sub and the Company will
------------------
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to any party hereto necessary in connection with any
such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will take
all reasonable actions necessary to obtain (and will cooperate with the other
parties hereto in obtaining) any consent, approval, order or authorization of,
or any registration, declaration or filing with, any Governmental Entity or
other person, required to be obtained or made in connection with the taking of
any action contemplated by this Agreement.
-31-
5.10 Blue Sky Laws. Parent shall take such steps as may be necessary to
-------------
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock pursuant
hereto.
5.11 Best Efforts; Additional Documents and Further Assurances. Each of
---------------------------------------------------------
the parties to this Agreement shall each use its best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.12 Stock Options.
-------------
(a) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each a "Company Incentive Option") under the
Company Stock Option Plan, whether vested or unvested, will be assumed by
Parent. Each Company Incentive Option so assumed by Parent under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the Company Stock Option Plan immediately prior to the Effective Time,
except that (i) such Company Incentive Option will be exercisable for that
number of whole shares of Parent Common Stock equal to the product of the number
of shares of Company Common Stock that were issuable upon exercise of such
Company Incentive Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of Parent
Common Stock, and (ii) the per share exercise price for the shares of Parent
Common Stock issuable upon exercise of such assumed Company Incentive Option
will be equal to the quotient determined by dividing the exercise price per
share of Company Common Stock at which such Company Incentive Option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent.
(b) After the Effective Time, Parent will issue to each holder of an
outstanding Company Incentive Option a document evidencing the foregoing
assumption of such Company Incentive Option by Parent.
(c) It is the intention of the parties that the Company Incentive
Options assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent the Company
Incentive Options qualified as incentive stock options prior to the Effective
Time.
5.13 Parent Registrations. Parent will not file a registration statement
--------------------
with the SEC covering the issuance of any new shares of the capital stock of
Parent until Parent has publicly announced financial results covering a period
of combined operations of Parent and the Company of at least thirty (30) days,
provided, however, that the foregoing restriction shall not apply to (i)
registrations covering any employee benefit plans, and (ii) any registrations
which the Company is required to file pursuant to any demand registration rights
or other contractual rights, and provided
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further that with respect to such required registrations, Parent shall be
permitted to include in any such registration statement enough primary issue
shares to cover the expenses of the required registration and to allow the
registration expenses to be capitalized on its balance sheet rather than
expensed on its profit and loss statement.
5.14 Indemnification. Parent shall either (i) cause the Company to
---------------
continue to indemnify or (ii) directly indemnify the persons who are currently
officers and directors of the Company substantially in accordance with the
Bylaws of the Company as they are currently in effect for action or inaction by
such person prior to the Merger. For so long as the insurer under the Company's
officer and director indemnification insurance policy is willing to continue
such insurance policy after the Merger at approximately the same premium as
currently in effect, the Parent shall continue such policy in effect until the
third anniversary of the Closing.
5.15 Option Agreements. The Company will use its best efforts to obtain,
-----------------
prior to Closing, option agreements signed by the grantees of all options
granted under the Company Incentive Option Plan.
5.16 Registration Rights Agreement. Concurrently herewith, Parent, the
-----------------------------
Shareholders and ▇.▇. ▇▇▇▇▇▇▇▇▇▇ are entering into the Registration Rights
Agreement substantially in the form attached hereto as Exhibit I.
5.17 Non-Competition Agreements. Concurrently herewith, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------
and ▇▇▇▇▇ ▇▇▇▇▇▇▇ each are entering into Non-Competition Agreements with Parent.
5.18 Escrow Agreement. Concurrently herewith, Parent, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
----------------
as the Shareholder's Agent, and U.S. Bank Trust National Association, as the
Escrow Agent, are entering into Escrow Agreement.
5.19 Support Agreement. Concurrently herewith, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
-----------------
▇▇▇▇▇▇▇ and ▇.▇. ▇▇▇▇▇▇▇▇▇▇ each are entering in Support Agreements with Parent.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have
--------------------
been approved and adopted by the requisite vote of the shareholders of the
Company.
(b) Board Approval. This Agreement and the Merger shall have been
--------------
approved and adopted by the requisite vote of the Board of Directors of the
Company, Parent and Merger Sub.
-33-
(c) No Injunctions or Restraints; Illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger or limiting or restricting the
operation of the business of the Company following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal.
(d) Non-Competition Agreements. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
each shall have entered into Non-Competition Agreements with Parent.
(e) Approval. Parent, Company and Merger Sub shall have timely
--------
obtained all necessary approvals from Governmental Entities.
(f) Affiliate Agreements. Each party shall have received from each of
--------------------
the Affiliates of the Company and each of the Affiliates of the Parent an
executed Affiliate Agreement.
(g) Support Agreement. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and B. T.
-----------------
▇▇▇▇▇▇▇▇▇▇ each shall have entered into Support Agreements with Parent.
6.2 Additional Conditions to Obligations of Company. The obligations of
-----------------------------------------------
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Merger Sub in this Agreement shall be true and
correct in all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and each of
Parent and Merger Sub shall have performed and complied in all material respects
with all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificate of Parent. The Company shall have been provided with
---------------------
a certificate executed on behalf of Parent by its President and its Chief
Financial Officer or Treasurer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and Merger
Sub under this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement
to be performed by Parent and Merger Sub on or before such date have been so
performed in all material respects.
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(c) Legal Opinion. The Company shall have received a legal opinion
-------------
from Wilson, Sonsini, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, counsel to
Parent, substantially in the form of Exhibit J hereto.
(d) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, properties, results of operations or
financial condition of Parent since the date hereof.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
-----------------------------------------------------------------
obligations of Parent and Merger Sub to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of such time and the Company shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it as of the Effective Time.
(b) Certificate of the Company. Parent shall have been provided with
--------------------------
a certificate executed on behalf of the Company by its Chief Executive Officer
to the effect that, as of the Effective Time:
(i) all representations and warranties made by the Company
under this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by the Company on or before such date have been so
performed in all material respects.
(iii) attached to such certificate are true and correct copies
of the Company's Articles of Organization, as certified by the Massachusetts
Secretary of the Commonwealth, Bylaws and resolutions of the Company's Board of
Directors and Shareholders approving the transactions contemplated by this
Agreement.
(c) Third Party Consents. Parent shall have been furnished with
--------------------
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in order to assign the agreements listed
pursuant to Section 5.7.
(d) Legal Opinion. Parent shall have received a legal opinion from
-------------
▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP, legal counsel to the Company, in substantially the form
of Exhibit K.
(e) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, properties, results of operations or
financial condition of the Company;
-35-
(f) Opinion of Accountants. Parent shall have received an opinion of
----------------------
Deloitte & Touche, independent auditors, acceptable to Parent, to the effect
that the Merger qualifies for pooling of interests accounting treatment if
consummated in accordance with this Agreement.
(g) Dissenters. No holders of the outstanding Company Common Stock
----------
shall have exercised, or shall continue to have the right to exercise,
dissenters' rights with respect to the transactions contemplated by this
Agreement.
(h) Resignation of Current Directors and Officers of the Company.
------------------------------------------------------------
Parent shall have received letters of resignation of all of the directors and
officers of the Company effective as of the Effective Time.
ARTICLE VII
TAX MATTERS
7.1 Tax Periods Ending On Or Before the Closing Date. The Shareholders
------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed all Returns
for the Company for all periods ending on or prior to the Closing Date that are
filed after the Closing Date. The Shareholders shall permit Parent to review and
comment on each such Return described in the preceding sentence prior to filing.
7.2 Cooperation on Tax Matters.
--------------------------
(a) Parent and the Company shall cooperate fully, as and to the
extent reasonably requested by the other party, in connection with the filing of
Returns pursuant to this Article VII and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
that are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
Parent agrees to cause the Company (i) to retain all books and records with
respect to Tax matters pertinent to the Company relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by the Shareholders, any extensions
thereof) of the respective taxable periods, and to abide by all record retention
agreements entered into with any taxing authority, and (ii) prior to the
expiration of the statue of limitations to give the Shareholders reasonable
written notice prior to transferring, destroying or discarding any such books
and records and, if the Shareholders so request, to allow the Shareholders to
take possession of such books and records.
(b) Parent and the Shareholders agree, upon request, to use their
best efforts to obtain any certificate or other document from any governmental
authority or any other person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including without limitation in respect
of the transactions contemplated by this Agreement).
-36-
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.1 Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties in this Agreement or in any other agreement or
instrument delivered pursuant to this Agreement shall survive as follows:
(a) The representations and warranties contained in Section 2.8 with
regard to unaudited tax returns shall survive until the first anniversary of the
Effective Time, and shall continue to survive as to Damages (or a potential
claim by an appropriate party) asserted in good faith prior to such date.
(b) All other representations and warranties shall survive until the
date Parent releases its annual independent audit of the consolidated financial
statements applicable to Parent for the period ending December 31, 1999, and
shall continue to survive as to Damages (or a potential claim by an appropriate
party) asserted in good faith prior to such date.
8.2 Indemnification.
---------------
(a) Subject to the terms and conditions of this Article VIII, the
Shareholders agree jointly and severally to indemnify and hold harmless Parent
and its officers, directors, agents, affiliates and representatives
(collectively, the "Indemnitees"), from and in respect of, and hold the
Indemnitees against, any and all damages, fines, penalties, losses, liabilities,
judgments, deficiencies, and expenses (including, without limitation, amounts
paid in settlement, interest, court costs, costs of investigators, reasonable
fees and expense of attorneys and accountants and other expenses of litigation),
offset or reduced by the amount of any insurance proceeds or tax benefits
actually received by Parent in respect of any of the foregoing, incurred or
suffered by any of the Indemnitees ("Damages") resulting from, relating to or in
connection with any misrepresentation, breach of representation or warranty or
failure to perform any covenant or agreement of the Company or the Shareholders
contained in this Agreement or any other agreement or instrument or any
inaccuracy in any schedule or certificate delivered by the Company or the
Shareholders pursuant to this Agreement. Notwithstanding the first sentence of
this Section 8.2(a), each Shareholder shall be severally and not jointly liable
for claims based on such party's representations and warranties contained in
Section 2.4(b).
(b) As security for the indemnity provided for in this Section 8.2
and by virtue of this Agreement and the Merger Agreement the Shareholders will
be deemed to have received and deposited with the Escrow Agent (as defined
below) ten percent (10%) of the shares of Parent Common Stock issued in the
Merger (plus any additional shares as may be issued upon any stock split
effected after the Closing) ("Escrow Shares"), without any act of any
Shareholder. Such shares will be registered in the name of U.S. Bank Trust
National Association, and will be deposited with U.S. Bank Trust National
Association (or other mutually acceptable institution) as Escrow Agent (the
"Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund")
to be governed by the terms set forth herein and the Escrow Agreement and at
Parent's sole cost and
-37-
expense. The number of shares of Parent Common Stock in the Escrow Fund
contributed by each Shareholder is listed opposite such Shareholder's name on
Exhibit A.
(c) Upon compliance with and subject to the terms hereof and of the
Escrow Agreement, Parent shall be entitled to payment for all Damages incurred
by Parent first from the Escrow Fund. Such payment from the Escrow Fund shall
result in a forfeiture of Escrow Shares as set forth in this Article VIII and
the Escrow Agreement.
(d) Each Shareholder acknowledges that its indemnification
obligations hereunder are solely in his capacity as a former shareholder or
beneficial owner of shares of the Company, and, accordingly, the indemnification
obligations in this Article VIII shall not entitle any current or former
officer, director or employee of the Company to any indemnification from the
Company pursuant to the Articles of Organization, or any agreement with the
Company (notwithstanding any insurance policy).
8.3 Method of Asserting Claims. Claims for any breach of the
--------------------------
representations and warranties pursuant to this Article VIII shall be made and
resolved in the manner provided in Section 2 of the Escrow Agreement.
8.4 Indemnification Liability Limitations.
-------------------------------------
(a) The liability of the Shareholders under this Article VIII shall
be limited as follows:
(i) The aggregate indemnification liability of the Shareholders
related to breach of the representations and warranties contained in Section 2.8
with regard to unaudited tax returns shall be limited to $1,134,753.
(ii) The aggregate indemnification liability of the Shareholders
related to breach of all other representations and warranties shall be limited
to $1,134,753.
(b) The Shareholders shall not be liable under this Article VIII
unless Indemnity Amounts (as determined pursuant to the Escrow Agreement)
totaling in excess of $100,000 (the "Basket Amount") have been determined in
which case Parent shall be entitled to recover all Indemnity Amounts; provided,
however, Indemnity Amounts with respect to (i) claims based on fraud and (ii)
breaches of the representations and warranties contained in Sections 2.1, 2.2,
2.3, 2.4, 2.8, 2.11 and 2.28 shall be paid without regard to the Basket Amount.
(c) Nothing in this Article VIII shall limit, in any manner (whether
by time, amount, procedure or otherwise), any remedy at law or in equity to
which Parent may be entitled as a result of actual fraud or willful
misrepresentation or misconduct by the Company or Shareholders.
(d) The indemnification obligations of the Shareholders under this
Article VIII shall be the sole and exclusive obligations of the Shareholders (as
beneficial owners of the Company) with respect to any Damages under this
Agreement and no former shareholder,
-38-
optionholder, warrantholder, officer, director or employee of the Company other
than the Shareholders shall have any other personal liability to Parent or
Merger Sub in connection with this Agreement following the Closing.
8.5 Shareholder Agent of the Shareholders. In the event that the
-------------------------------------
Acquisition is closed, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall be appointed as the Shareholder
Agent for each Shareholder.
8.6 Third-Party Claims. In the event Parent becomes aware of a third-
------------------
party claim which Parent believes may result in a demand against the Escrow
Fund, Parent shall notify the Shareholder Agent of such claim, and the
Shareholder Agent and the Shareholders of the Company shall be entitled, at
their expense, to participate in any defense of such claim. Parent shall have
the right in its sole discretion to settle any such claim; provided, however,
that except with the consent of the Shareholder Agent, no settlement of any such
claim with third-party claimants shall be determinative of the amount or
validity of any claim against the Escrow Fund. In the event that the Shareholder
Agent has consented to any such settlement, the Shareholder Agent shall have no
power or authority to object under any provision of this Article VIII to the
amount of any claim by Parent against the Escrow Fund with respect to such
settlement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated and the Merger
-----------
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent if (i) it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or any of the Shareholders and such breach has not been cured within
five business days after written notice to the Company or (ii) there shall be
any final action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Entity, which would prohibit Parent's or the Company's ownership or operation of
all or a material portion of the business of the Company, or compel Parent or
the Company to dispose of or hold separate all or a material portion of the
business or assets of the Company or Parent as a result of the Merger.
(c) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Parent or Merger Sub and such breach has not been cured within five days after
written notice to Parent;
(d) by any party hereto if: (i) the Closing has not occurred by
October 1, 1999; (ii) there shall be a final, non-appealable order of a federal
or state court in effect preventing consummation of the Merger; (iii) there
shall be any final action taken, or any statute, rule,
-39-
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity which would make consummation of the Merger
illegal; or (iv) if the Company's Shareholders do not approve the Merger.
Where action is taken to terminate this Agreement pursuant to this Section
9.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
9.2 Effect of Termination.
---------------------
(a) In the event of termination of this Agreement as provided in
Section 9.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Parent, Merger Sub, the Company or the
Shareholders or their respective officers, directors or Shareholders, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
9.3 Amendment. This Agreement may be amended by the parties hereto at any
---------
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
9.4 Extension; Waiver. At any time prior to the Effective Time any party
-----------------
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Flycast Communications Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
with a copy at the same address to the attention of the General
Counsel and
-40-
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇., Esq.
(b) if to the Company, to:
InterStep, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
with a copy to:
▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
(c) if to a Shareholder, to the address of such Shareholder listed on
Exhibit A
with a copy to:
▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
(d) if to the Shareholder Agent:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇. ▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(e) if to the Escrow Agent, to:
U.S. Bank Trust National Association
▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇
10.2 Interpretation. When a reference is made in this Agreement to
--------------
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the
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words "without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
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counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.4 Miscellaneous. This Agreement and the documents and instruments and
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other agreements among the parties hereto including all lists and statements
separately certified in writing by the Company or Parent (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, except for the
Confidential Nondisclosure Agreement dated June 15, 1999 which shall continue in
full force and effect until the Closing and shall survive any termination of
this Agreement; (b) are not intended to confer upon any other person any rights
or remedies hereunder; and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
10.5 Governing Law. This Agreement shall be governed in all respects,
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including validity, interpretation and effect, by the laws of the State of
California. All parties hereto agree to submit to the jurisdiction of the
federal and state courts of the State of California, and further agree that
service of documents commencing any suit therein may be made as provided in
Section 10.1.
10.6 Attorneys' Fees. Except as otherwise provided in Article VIII, if
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any party to this Agreement brings an action against another party to this
Agreement to enforce its rights under this Agreement, the prevailing party shall
be entitled to recover its reasonable costs and expenses, including attorneys'
fees and costs, incurred in connection with such action, including any appeal of
such action.
10.7 Resolution of Disputes; Stipulation Regarding Confidentiality. Except
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as otherwise provided in Article VIII, the parties hereto each agree to work
together in good faith to resolve any disputes which may arise under this
Agreement. Such attempts at resolution will be made at the level of a person to
person meeting between the presidents of Parent and the Company, the
Shareholders and the Shareholder Agent. Each party agrees that it will not
initiate any litigation against any other party hereto regarding the subject
matter of this Agreement for at least sixty (60) days following such person to
person meeting between the presidents of Parent and the Company, the
Shareholders and the Shareholder Agent except for (i) motions for a temporary
restraining order or other preliminary equitable relief and (ii) circumstances
in which a delay for such period would result in such action being barred as a
result of the relevant statute of limitations expiring. In the event any
litigation is initiated in compliance with this Section, the parties agree
jointly to stipulate to the court that all proceedings in such action be kept
confidential.
10.8 Rules of Construction. The parties hereto agree that they have been
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represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application
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of any law, regulation, holding or Rule of construction providing that
ambiguities in an agreement or other document will be construed against the
party drafting such agreement or document.
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Shareholders
(as to Article VIII only) and the Escrow Agent (as to matters set forth in
Article VII only) have caused this Agreement to be signed by themselves or their
duly authorized respective officers, all as of the date first written above.
FLYCAST COMMUNICATIONS CORPORATION
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By:_____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
INTERSTEP, INC.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By:_____________________________________
Chief Executive Officer
FREMONT ACQUISITION CORP.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By:_____________________________________
SHAREHOLDERS:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
________________________________________
(Print Name)
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
________________________________________
(Signature)
Address:________________________________
________________________________________
________________________________________
SHAREHOLDERS:
▇▇▇▇▇ ▇▇▇▇▇▇▇
___________________________________
(Print Name)
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
___________________________________
(Signature)
Address:___________________________
___________________________________
___________________________________